Key Takeaways From Credit Suisse’s Q4 Earnings

by Trefis Team
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Credit Suisse (NYSE:CS) recently reported its fourth quarter and full year results.  The bank delivered its first net profit – of CHF 2.1 billion – since 2014 after completing its restructuring program in 2017. There was only a marginal increase in the bank’s annual revenue, while its Q4 revenue declined by 2% from Q3 2018. Credit Suisse’s profitability can be primarily attributed to a decline in its operating expenses, which fell by approximately 9% in 2018, and an increase in its wealth management revenue of approximately 4.7%, contributing 41% of its total revenues.

Credit Suisse reported a second consecutive quarterly loss in its struggling global markets trading operation, which was offset by increased profits and revenues in its wealth management and Swiss universal banking divisions. We currently have a price estimate of $15 per share for Credit Suisse, which is ahead of the current market price. We have summarized Credit Suisse’s Q4 2018 earnings in our interactive dashboard for the bank, the key parts of which are captured in the charts below. You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Trefis Financial Services company data.

Segment Performance 

After reporting a solid performance in the first half of 2018, Credit Suisse did not quite maintain that performance in the second half. Key takeaways of the bank’s performance are below:

  • While wealth management revenues increased annually, the revenues fell in the second half by approximately 8% from the first half of 2018. Credit Suisse’s assets under management fell sequentially to CHF 1.3 trillion for the fourth quarter.
  • The bank’s investment banking revenues fell by approximately 27.5% in the second half of the year. We expect the bank to scale down its IB operations, though it will likely return to profitability for 2019.
  • Credit Suisse’s operating expenses declined in each quarter of 2018, mainly relating to lower salaries and variable compensation expenses and a decrease in general and administrative expenses – driven by lower professional services fees and lower non-income taxes – leading to the bank’s first post-tax profit in four years.

Outlook For Fiscal 2019 

As evidenced by the decline in trading assets, Credit Suisse plans to scale back its investment banking business and intends to focus more on its growing wealth management business. The bank may have to reassess its income tax expense for 2018 once the U.S. finalizes its base erosion and anti-abuse tax (BEAT) regulations. For 2019 and 2020, CS plans to achieve a return on tangible equity of 11% and also plans to distribute at least 50% of net income to shareholders, primarily through share buybacks and the distribution of a sustainable ordinary dividend.

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