Credit Suisse Plans More Cost Cuts After Lukewarm Quarter

Credit Suisse (NYSE:CS) reported its earnings figures for the third quarter of the year, and the numbers show that the bank kept the momentum it generated last quarter going this time around too. ^[1] The second largest Swiss bank reported a mixed performance from its various business divisions with investment banking and asset management operations showing healthy growth over the relatively calm period and its cornerstone wealth management business ending up with lower revenues. The $1 billion accounting charge in Q3 2012 from its debt revaluation is primarily responsible for lower revenues compared to Q2 2012. But, most notably, the bank gave investors a reason to cheer with the announcement that it will continue its focus on slashing expenses over the coming years to raise its cost-cutting target from the CHF 3 billion ($3.2 billion) currently by an additional CHF 1 billion ($1.1 billion).

We reduced our price estimate for Credit Suisse’s stock marginally from $26 to $25 to reflect the impact of increasing tax-agreements between some of the world’s biggest economies with Switzerland on Credit Suisse’s wealth management assets under management. The revised stock price is about 10% higher than its current market price.

See our complete analysis of Credit Suisse here

Fixed-Income Desk Delivers Strong Performance

Credit Suisse’s investment banking operations roped in a little under CHF 3.3 billion ($3.5 billion) this quarter, about half  of which came from fixed-income sales and trading operations. The result is largely justified given the fact that global markets improved this quarter with both debt and equity markets rallying over growing optimism on recovery plans for the Eurozone, the prospect of a sustained US economic recovery and additional measures taken by the Fed. There was a slight decline in equity trading revenues quarter-on-quarter, but the debt adjustment charges are most likely to blame for this.

There was a marked improvement in performance of the bank’s advisory and underwriting unit too this quarter with the improved economy rubbing off on the division’s revenues.

Wealth Management Continues To Have Its Share of Troubles

Since mid-2011, Credit Suisse has been under considerable criticism over the declining performance of its cornerstone wealth management business. The decline in Swiss assets under management is of particular concern as it shows the declining popularity of Swiss offshore accounts in view of the current series of tax-agreements signed by Switzerland with countries such as Germany and the U.K., besides the ongoing tussle with the U.S. government. And revenues have also dipped at a more noticeable pace, as can be seen above.

Hopefully, an improvement in the global economic scenario and Credit Suisse’s continuing efforts to cut costs will reflect in its wealth management performance over the coming quarters.

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1. Q3 2012 Earnings Release, Credit Suisse Press Releases, Oct 25 2012 [↩]