Credit Suisse (NYSE:CS) finally managed to break the long spell of poor quarterly performances that has been haunting it since Q3 2011 with great numbers for the first quarter of 2013. ((Q1 2013 Results, Credit Suisse Investor News, Apr 24 2013)) The second largest Swiss bank reported earnings of CHF 1.38 billion ($1.46 billion) for the quarter, and the turnaround becomes immediately evident from the fact that Credit Suisse’s net income figure for full year 2012 was CHF 1.69 billion ($1.8 billion). There was an improvement in performance across the board this time around with all operating division except for the asset management unit showing sequentially higher net income figures.
Given that the biggest factor behind Credit Suisse’s rather dismal performance in the recent past has been the bank’s almost singular focus on meeting stringent Swiss regulatory requirements (the strictest among all capital requirements imposed by regulators around the globe), it appears that the bank is back in business with a significantly stronger balance sheet to back it up. Most importantly, the exceptionally good performance by its investment banking division in Q1 lends support to Credit Suisse’s decision to retain a full-fledged investment bank even as larger Swiss competitor UBS (NYSE:UBS) works towards exiting the fixed-income trading business.
We reduced our $32 price estimate for Credit Suisse’s stock, which is about 15% ahead of its current market price.
Fixed-Income Desk Delivers Strong Performance At Reduced Risk Levels
Credit Suisse’s investment banking operations roped in a little under CHF 4 billion ($4.2 billion) this quarter, more than half of which came from fixed-income sales and trading operations. Equities trading also chipped in with a CHF 1.3 billion ($1.3 billion) addition to the top-line figure. The bank, no doubt, received a helping hand from the situation at large as global markets were conducive to trading activities over the quarter, with a growing demand for high-yield debt instruments and continuing rallies across equity markets.
But what really stands out in the investment banking results is that the revenue growth does not come at the cost of added risk. Credit Suisse continues to reduce its risk-portfolio, with the bank reporting a figure of CHF 40 million ($42 million) as the average 98% value at risk (VaR) figure for the quarter – well below the CHF 70 million figure for the same quarter last year and a sequential improvement from the CHF 43 million for the previous quarter.
Wealth Management Business Looks Ready To Play Its Part
Credit Suisse’s wealth management business took a toll over previous quarters with tax-agreements signed by Switzerland with countries such as Germany and the U.K., besides the tussle with the U.S. government over tax evasion charges resulting in slow growth in the size of assets managed by the Swiss bank. This in-turn led to a noticeable decline in revenues.
But things have improved considerably, going by the figures for Q1 2013. The quarter saw an increase of almost 5% in Credit Suisse’s wealth management assets compared to the previous quarter – from just under CHF 800 billion (~$845 billion) to CHF 836 billion ($884 billion). While the value of actual net inflows to the asset base was CHF 5.5 billion ($5.8 billion), the bank gained handsomely from improving market valuations as well as positive currency movements.
And the cost-cutting measures the division has undergone over recent months is also beginning to yield results.