Credit Suisse Barely Out of Red in Q1, Continues Capital Build-Up

by Trefis Team
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Credit Suisse (NYSE:CS) reported its first quarter earnings last week, and the bank’s focus on meeting stringent capital requirement norms ahead of competitors, especially UBS (NYSE:UBS), remains a big factor driving its balance sheet and income statement. A marked improvement in its investment banking operations helped the Swiss bank avoid another quarterly loss, after reporting its first quarterly loss since 2008 in Q4 2011. It should be noted, though, that the bank’s reported income of CHF 214 million ($236 million) includes a pre-tax accounting charge of CHF 1.55 billion ($1.71 billion) from a revaluation of its debt. [1]

We have updated our price estimate for Credit Suisse’s stock from $30 to $26, to account for the lower than expected dividend payout from the bank in the near future as well as to factor in slower growth in its debt and equity trading assets in the short term given its focus on shoring up its balance sheet.

See our complete analysis of Credit Suisse here

Trading Operations Rebound From Tough Quarter

The improvement in Credit Suisse’s numbers from the previous period can be primarily attributed to its investment banking division – and more specifically its sales & trading business. The bank bounced back from the CHF 105 million ($116 million) loss from fixed-income trading it posted in Q4 2011 to record a little over CHF 2 billion ($2.2 billion) in revenues for the first quarter. This was still 20% below the CHF 2.6 billion ($2.9 billion) for Q1 2011 though.

Equity trading operations also roped in CHF 1.4 billion ($1.5 billion) for the period – 53% above revenue figure for Q4 2011 but 12% shy of Q1 2011.

Wealth Management Business Is Still On Its Path To Recovery

Credit Suisse’s wealth management operations are the cornerstone of its business, accounting for nearly a third of its total value according to our analysis. The business has seen a steady decline in revenues over the past few years, with the economic downturn and increased competition leading to a steep decline in fees.

Since November, Credit Suisse has made it clear that growing its wealth management business will remain the bank’s top priority. The business showed an improvement in its performance for the first quarter from the dismal show over the second half of 2011. However the fact that the division’s income for Q1 2012 was more than 30% lower than the figures reported in Q1 and Q2 2011 shows that there is still significant room for improvement.

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Notes:
  1. Credit Suisse Q1 2012 Earnings, Credit Suisse Press Releases, Apr 25 2012 []
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