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Investment Overview for Credit Suisse (NYSE:CS)
Below are key drivers of Credit Suisse's value that present opportunities for upside or downside to the current Trefis price estimate for Credit Suisse:
Bonds, Currencies & Commodities Trading
- Yield on Trading Assets for Bonds, Currencies & Commodities: Credit Suisse's trading yield has been around 3.5% in recent years, after recovering from lows of -2.6% in 2008 at the peak of the global economic crisis. While we estimate yield figures to increase slightly going forward, should the division see a better than expected performance in coming years, the yield could increase to 4.5% over the Trefis forecast period. If that were to occur there would an upside of nearly 6% to the Trefis price estimate.
- Investment Banking EBT Margin: Margins for Credit Suisse's investment banking operations have improved considerably since the downturn to their current levels of almost 30%. We estimate the EBT margin to reach 35% by the end of the Trefis forecast period. However, if margins remain around current levels then there would be a downside of about 8% to the current price estimate.
- Assets under Management - International Clients: Credit Suisse's cornerstone wealth management business aims to grow over coming years by focusing on developing nations. These international business wealth management business units have reported a steady increase in the size of their assets under management to reach $374 billion by the end of 2013. We expect these assets to continue to grow at roughly 4% annually over our forecast period. If these assets grow at an annual rate of 10% over this period, then this would result in a 5% upside to the Trefis forecast price.
Founded in 1856, Credit Suisse provides companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland with advisory services and financial products. It is the second largest Swiss bank, after UBS.
Trading equities & derivatives is more valuable for Credit Suisse than trading bonds, currencies and commodities
Credit Suisse's trading assets for bonds, currencies and commodities are comparable to its trading assets for equities & derivatives. However, the bank has chosen to focus on its equities trading business in the years to come. Also, we estimate better yields from equities trading compared to the bond trading business in subsequent periods. This makes the equities & derivatives trading division more valuable for Credit Suisse than bonds, currencies and commodities trading.
Private banking more valuable than asset management
Credit Suisse's total assets under management (AUM) for its private banking division (Wealth Management and Corporate & Institutional Clients) is more than double the AUM for the asset management division. Because of this massive discrepancy the bank's private banking division makes up a larger portion of our price estimate for Credit Suisse's stock.
International wealth management clients more valuable than Swiss clients
The bank's assets under management (AUM) for international clients is nearly 1.5 times that of Swiss clients. This coupled with the bank's focus on growing its international business makes international clients more valuable to its wealth management business.
Increasing demand for investment banking services in emerging markets
With GDP and per capita income of emerging markets growing rapidly, there is an increasing demand for capital from companies in these markets to support the growing purchasing power of the people. Also with the integration of these markets with the global economy, there is a shifting trend in these countries from family-run businesses to corporations. As a result of these factors, an increasing number of companies in these markets are going public, leading to a growing demand for equity underwriting services. Additionally consolidation across different sectors is driving demand for M&A advisory services.
Volcker Rule to affect proprietary trading
The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Credit Suisse's proprietary trading desks have accounted for a significant percentage of its earnings in the past. The Volcker Rule is likely to result in a decline in prop trading revenues.
Economic recovery will stimulate the asset management industry
As global economic conditions eventually recover we expect that investors' risk appetites will increase which should drive inflows to asset management firms. This increased risk appetite will likely stimulate investments in multi-asset, alternative and equity products, while signs of a recovery in the real estate market should improve prospects in alternative investments.
Other long-term trends, including the on-going shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies will also positively impact revenues and AUM.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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