Last quarter, Swiss banking giant Credit Suisse (NYSE:CS) signaled to investors that its business model has completed the radical transformation it undertook in late 2011 by coming out with one of its best performances since the economic downturn of 2008 (see Credit Suisse Reports Strong Start Year Across The Board). And by churning out a strong result for the second quarter too, the bank reinforced that its new business model that largely focuses on the wealth management business while retaining a full-fledged albeit smaller investment banking arm is the right way to ensure profitability in the future. 
While Credit Suisse’s total revenue and net income figure dipped when compared to the previous quarter, this can be easily attributed to the cyclical nature of the trading business that generates maximum revenues in the first quarter of a year. That said, the strength of the Q2 2013 performance becomes evident from the fact that net income jumped 33% compared to the second quarter of 2012.
As Credit Suisse’s results as well as the outlook for the year remain in line with what we currently forecast, we stick to our $32 price estimate for its stock.
- Credit Suisse’s Mixed Q3 Results Followed By Plans To Overhaul Operations, Capital Structure
- Improving Prime Brokerage Market Share Should Lift Profits At Goldman, Morgan Stanley
- Credit Suisse Reports Strong Q2 Results, But Will Face Headwinds In The Future
- The “Evil” Force Behind Your Stock Orders
- Swiss Banks Likely To Continue Shoring Up Capital As SNB Proposes Higher Leverage Ratio Requirement
- Credit Suisse’s Capital Ratio Shrinks In Q1 Despite Strong Operating Performance
Wealth Management Business Anchors The Results…
Credit Suisse’s wealth management business roped in CHF 2.34 billion ($2.5 billion) in revenues in Q2 2013 – the highest since Q1 2011. And it can be concluded that the healthy growth in fee revenues can be sustained in the near future as the recurring components made up just under 35% of this figure at CHF 815 million ($880 million).
Although the size of the bank’s total assets under management dipped from CHF 836 billion last quarter to CHF 824 billion, this quarter saw a net inflow of CHF 7.5 billion compared to the lower figure of CHF 5.5 billion. The total value of assets fell due to a reduction in the valuation of securities stemming from market movements over the period.
… While The Trading Desks Boost The Numbers
Credit Suisse’s investment banking operations roped in CHF 3.4 billion ($3.7 billion) this quarter, with the equity trading desk making more money than their fixed-income counterparts. Put together, trading activities contributed to over 75% of the total investment banking revenues (CHF 2.6 billion). While this is well below the seasonally higher CHF 3.3 billion the bank generated from trading in Q1 2013, it is almost 20% higher than the figure for the same quarter last year. And as was seen in the previous quarter, these strong revenues did not come at the cost of higher risks as Credit Suisse’s average 98% value at risk (VaR) figure remained at CHF 40 million.
The strong demand for debt underwriting services over the quarter also impacted the top-line figure positively, as the bank reported CHF 535 million in debt underwriting fees this quarter – the second-highest figure since the economic downturn of 2008 with the CHF 585 million in Q4 2010 being the only time the bank did better.Notes: