What To Expect From Credit Suisse In Q1?

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CS
Credit Suisse

Credit Suisse (NYSE:CS) is expected to publish its Q1 2019 results on April 24. This note details Trefis’ forecasts for Credit Suisse, as well as some of the key trends we will be watching when the company reports earnings.

How have Credit Suisse’s revenues changed recently, and what’s the forecast for Q1?

  • Total Revenues for Credit Suisse have largely trended lower over recent quarters. Revenues fell from CHF 5.6 billion in Q1 2018 to CHF 4.8 billion in Q4 2018. The decline can primarily be attributed to sub-par performance of Investment Banking division towards the second half of FY 2018.
  • We estimate Credit Suisse’s revenues to grow at 8.3% sequentially (q-o-q) to reach CHF 5.2 billion in Q1 2019. However, this figure is 7.7% lower than what it reported a year ago.

How have Credit Suisse’s total expenses changed, and what’s the forecast for Q1?

  • One of Credit Suisse’s primary objectives over the recent years has been to reduce its non-interest expense.
  • CS has been successful in accomplishing this objective, with non-interest expense falling from CHF 26 billion in 2015 to CHF 17 billion in 2018 (CAGR: -12.6%). This has reduced the cost/income ratio from 98.2% in 2015 to 76.9% in 2018.
  • Non-interest expense fell from CHF 5.1 billion in Q4 2017 to CHF 4.1 billion in Q4 2018, representing a decline of 18% (y-o-y).
  • We expect total expenses to remain flat at current levels in Q1 2019.
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Which are the key revenue and expense drivers to watch out for in Credit Suisse’s Q1 results?

Key Driver #1: Net Interest Income:

This represents interest earned through loans and other assets net of interest paid to deposits.

  • Net Interest income has remained relatively stable over the past few quarters. However, net interest income surged by 54%(y-o-y) to CHF 2.4 billion in Q4 2018 primarily due to higher deposit margins on slightly lower average deposit volumes and stable loan margins on stable average loan volumes.
  • We expect net interest income to be CHF 1.8 billion in Q1 2019, 13% higher than what it reported a year ago.

Key Driver #2: Net Fee & Commission Income:

This income includes fees for general banking products, services and revenues from wealth structuring solutions and other asset management-related fees.

  • Net Fee & Commission income has been the largest contributor to Credit Suisse’s revenues over recent quarters, contributing approximately 55% of total revenues over 2018.
  • We forecast the net fees to decline by 5% (y-o-y) to approximately CHF 3 billion in Q1’19.

Key Driver #3 Compensation and Benefits:

This includes salaries and benefits paid out to employees.

  • Compensation Expense is the bank’s single biggest cost driver, and was roughly 46% of total revenues over 2018.
  • We expect CS to report CHF 2.2 billion of compensation expense in Q1 2019, 3% higher than what it reported in Q4 2018.

What is the impact of the uncertain macroeconomic environment on Credit Suisse’s revenues?

  • UK’s anticipated withdrawal from the EU and escalating U.S.-China trade tensions have an adverse impact on investor confidence and client activity levels.
  • These heightened global geopolitical and macroeconomic uncertainties are likely to weigh on CS’s revenues, primarily its Investment Division revenues.
  • Additionally, the low interest rate environment in many European countries is also adversely impacting Credit Suisse’s net interest income.

What will be the impact of the above on Credit Suisse’s EPS?

  • We expect the earnings to be CHF 0.29 per share on an adjusted basis in Q1.
  • This reflects 10% growth to the prior year quarter.
  • The growth in earnings will likely be led by improving margins and lower tax rate.

We currently have a price estimate of $15 per share for CS, which is slightly ahead of the current market price. We have summarized our quarterly and full year expectations for Credit Suisse based on the company’s guidance and our own estimates, on our interactive dashboard How Is Credit Suisse Likely To Have Fared In Q1? You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Trefis Financial Services Data here.

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