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Credit Suisse May Post Fifth Straight Profit, New Asset Inflows

Brady Dougan, chief executive officer of Credit Suisse
Brady Dougan, chief executive officer of Credit Suisse, answers a reporter's question at the bank's news conference in Zurich, on Feb. 11, 2010. Photographer: Adrian Moser/Bloomberg

Credit Suisse Group AG will probably report a fifth straight quarterly profit as debt trading rebounded from the previous three months and its private bank took market share from UBS AG.

The Zurich-based bank may report net income of 1.99 billion Swiss francs ($1.9 billion) for the first quarter, according to the median estimate of 13 analysts surveyed by Bloomberg. That compares with 2.01 billion francs in the year-earlier period.

Chief Executive Officer Brady Dougan, 50, is expanding Credit Suisse’s debt unit to gain market share after fixed-income trading powered first-quarter earnings at Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp.’s Merrill Lynch business. The bank continues to attract funds from wealthy individuals, while rival UBS has seen eight consecutive quarters of withdrawals.

“We have seen from earnings reports of U.S. banks that the first quarter was good for fixed income,” said Teresa Nielsen, an analyst at Vontobel Holding AG with a “buy” rating on Credit Suisse. “The investment bank’s results may be very positive.”

Credit Suisse, the second-biggest Swiss bank, is scheduled to report earnings tomorrow before the market opens.

JPMorgan and Bank of America beat analysts’ estimates for first-quarter earnings last week, helped by debt trading revenue as client demand picked up. Goldman Sachs said revenue from fixed-income, currencies and commodities trading rose 13 percent in the first quarter to a record $7.39 billion. UBS posted pretax profit of at least 2.5 billion francs, the most in almost three years, due in part to a recovery at its fixed-income unit.

Fixed Income

Credit Suisse’s debt unit has made “considerable” gains in market share over the past three years and expects that to continue as it hires about 130 sales people for the business this year, David Mathers, chief operating officer of the investment bank, told investors at a conference on March 23.

Credit Suisse has climbed 6.8 percent this year in Zurich trading, beating a 4.1 percent gain in the 52-company Bloomberg Europe Banks and Financial Services Index. UBS rose 9.4 percent.

Credits Suisse may extend those gains if it closes the gap in debt trading to the top investment banks, JPMorgan analysts, led by London-based Kian Abouhossein, wrote in a note to clients on April 15. The bank earns $6 billion less in annual revenue from fixed-income, currencies and commodities compared with the average of its top three competitors, the analysts wrote.

The fixed-income unit may post revenue of 2.8 billion francs in the first quarter, according to the analysts surveyed by Bloomberg, more than triple the 820 million francs reported in the previous three months. That would be lower than the year-earlier figure of 4.02 billion francs as markets, dislocated by the credit crisis, normalize, they said.

New Hires

To counteract the expected slowdown this year, Credit Suisse plans a 34 percent expansion of the sales force of its rates business, the single biggest revenue contributor at the investment bank in 2009, Mathers said. Those 40 new hires will be matched in emerging markets, while it will also add 30 people in foreign exchange and 20 in leveraged finance, he said.

Pretax profit at the investment bank may fall 21 percent to 1.9 billion francs from 2.4 billion francs in the year-earlier quarter when Credit Suisse posted record trading revenue, according to analysts’ estimates.

Earnings at the private bank may increase to 1.01 billion francs from 992 million francs, according to the estimates, as Credit Suisse continues to attract new funds from wealthy clients. Credit Suisse has said that it aims to increase assets per adviser to 260 million francs from 200 million francs.

Net New Money

“Strategically, the group remains very well-positioned to grow its earnings and market share in private banking in the medium term,” the JPMorgan analysts said.

Credit Suisse may attract 10 billion francs in net new money at the private bank in the first quarter, according to the survey. UBS said last week that outflows continued in the first quarter with wealthy clients withdrawing 15 billion francs, after pulling a net 228.1 billion francs during the seven quarters through the end of 2009.

Following is a table of first-quarter median estimates of analysts surveyed by Bloomberg, as well as the year-earlier and fourth-quarter results. The last column shows how many analysts contributed figures. The numbers are in millions of francs, unless stated otherwise, and losses are in parentheses.

                           Q1 2010   Q1 2009   Q4 2009  Number
                           Expected  Reported  Reported Analysts

Net interest income
before loan-loss provisions  1,971    2,038     1,914        6
Loan-loss provisions           132      183       (40)*     11
Fee and commission income    3,475    2,953     3,942        4
Trading income               3,337    4,897       548        5
Total revenue before risk
provisions                   9,506    8,106     6,715       13
Personnel costs              4,050    4,340     2,467        7
Total operating costs        6,400    6,356     5,295        9
Pretax profit                2,975    1,567     1,460       10
Net income                   1,989    2,006       793       13

*Release of provisions
                           Q1 2010   Q1 2009   Q4 2009      No.
                           Expected  Reported  Reported
Investment Banking:
Equity trading               1,768    2,323     1,102        8
Fixed-income trading         2,800    4,020       820        9
Equity underwriting            363       74       464        8
Debt underwriting              350      183       401        8
Advisory                       260      191       329        9
Total revenue                5,627    6,442     5,046        9
Operating costs              3,967    3,892     3,282        5
Pretax profit                1,900    2,414     1,746       11

Private Banking:
Revenue                      3,115    2,878     3,000        6
Operating costs              2,060    1,839     2,117        4
Pretax profit                1,007      992       857       11
Net new assets (Bln)            10     11.4       6.4        5

                           Q1 2010   Q1 2009   Q4 2009     No.
                           Expected  Reported  Reported

Asset Management:
Revenue                        480        6       637        6
Operating costs                383      496       478        4
Pretax profit                   68     (490)      159       11
Net new assets (Bln)             4     (3.5)      4.1        6

-- With assistance by Thomas Mathews in London. Editors: Dylan Griffiths.

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