Credit Suisse’s plans to buy back as much as SFr3bn of shares and modestly increase its dividend received a lukewarm reception from analysts and investors, who were pushing for more capital to be returned after a sharp fall in the stock.
The Swiss bank said it expected to repurchase SFr1bn ($1bn) in each of the next two years and would attempt to buy back a further SFr1bn if market conditions allow, while increasing the dividend by 5 per cent a year.
Executives also reiterated their aspiration to make at least a 10 per cent return on tangible equity in 2019, which was at the low end of its expected profitability range, at an investor event in London on Wednesday.
“We hoped for more. Overall we see the targets as unambitious,” said Citigroup analyst Andrew Coombs, who had forecast at least SFr5bn in buybacks through 2020 and a bigger rise to the “very low” dividend.
Chief executive Tidjane Thiam has transformed the 162-year-old lender since joining in July 2015, slashing the volatile and capital-intensive trading operations to expand the higher returning and more predictable wealth management and private banking units, particularly in Asia.
The CEO has received little credit from investors thus far with shares down about a quarter in the past six months — the fifth-worst performance among major European banks and a larger decline than struggling rivals Deutsche Bank and UniCredit. After the announcement on Wednesday morning, shares in Credit Suisse rose 1.8 per cent.
Mr Thiam, the 56-year-old former head of UK-listed insurer Prudential, had been counting on Wednesday’s event to draw a line under his turbulent first three years in charge and rally support from investors for the next phase of his strategy.
He and other executives moved to head off disappointment with their modest capital return plans, emphasising they were erring on the side of caution in the face of heightened geopolitical tensions and a gloomier outlook for the global economy, especially in Asia, the region where it is growing fastest.
“We have clearly chosen to have a low but growing dividend, rather than something spectacular,” Mr Thiam said at the event in London. He stressed the 10 per cent return target was achievable without any additional revenue growth, and would improve if the bank earned more.
His chief adviser Adam Gishen added the bank would not “hoard surplus capital” and that if an “Armageddon scenario” in global markets meant there was no way to profitably reinvest earnings, more would be returned to shareholders.
Mr Thiam also said funding costs were falling after the bank retired expensive debt raised from Saudi Arabia and Qatar at the peak of the financial crisis and completed the wind-down of its bad bank ahead of schedule.
Analysts were disappointed the struggling trading operations weren’t addressed in more detail, after they drove the investment bank to an unexpected pre-tax loss of SFr96m in the third quarter when fixed-income revenues plunged 20 per cent. That shock overshadowed an otherwise improving set of results in which overall pre-tax profit surged 70 per cent.
Executives said the fourth quarter had once again been “tricky” as client volume slowed and admitted the Asian trading unit may end up making a loss in 2018.
“It’s very tough out there — clearly, we have seen a very significant correction in markets, but especially in APAC,” Mr Gishen said on a call with reporters. “That is reflected in the revenue . . . [which is] roughly between 8 and 10 per cent down.”
Credit Suisse said it expected to report overall pre-tax income of between SFr3.2bn and SFr3.4bn this year — up from SFr1.8bn in 2017. The forecast demonstrates some green shoots for Mr Thiam’s restructuring, which has come at a steep cost.
The Zurich-based bank made SFr6.7bn of combined net losses from 2015 to 2017 as it unwound risky leveraged trading positions at the investment bank, cut more than 10,000 jobs and paid big misconduct fines around the world.
While the bank warned that “short-term headwinds” remained, Mr Thiam said his painful overhaul had left the bank better able to withstand tougher trading conditions.
“The actions taken during the restructuring mean that the bank is now more resilient in the face of market turbulence,” he said. “As we move into 2019, despite global geopolitical and macroeconomic uncertainties, we believe we remain well positioned.”
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