Credit Suisse Steps Up Cost Cuts as Revenue Eludes CEO Thiamby and
Profit goals cut for Asia investment bank, asset management
CEO Thiam confirms targets for wealth management operations
Credit Suisse Group AG rose in Zurich trading, leading European bank shares higher, as Chief Executive Officer Tidjane Thiam pledged to cut an additional 1 billion Swiss francs ($1 billion) in expenses and lowered profit targets that were seen as too ambitious.
Thiam, who was updating investors on Wednesday after cutting more than 6,000 jobs this year as part of his year-old turnaround plan, declined to give details on further job cuts. Lower fees from asset management and a slump in investment banking prompted the bank to reduce profit goals in Asia and international wealth management, which analysts had viewed as too optimistic.
Credit Suisse rose as much 8.7 percent, the biggest gainer in the Bloomberg Europe 500 Banks and Financial Services Index.
It’s the second time Thiam is adjusting his plan to reorganize the company along geographical lines, downsize the investment bank in favor of wealth management, and hold an initial public offering of the Swiss business. In March, he stepped up job cuts for this year after unexpected losses at the global markets unit. Thiam on Wednesday confirmed targets for the wealth management operations, including in Asia, and said the coming year will be about generating more revenue.
“We see significant self-help potential via a combination of wealth management expansion and investment bank restructuring, where most of the heavy lifting has already been completed,” Citigroup Inc. analysts Andrew Coombs and Nicholas Herman wrote in an e-mailed report. “These new financial targets will be well received, with greater focus on costs rather than revenues.”
Credit Suisse gained 7.8 percent at 11:28 a.m. in Zurich, paring losses this year to 29 percent. The Bloomberg Europe 500 Banks and Financial Services Index rose 1.5 percent and is down 8 percent for the year.
The Zurich-based bank lowered 2018 pretax income targets for its international wealth management business and its Asian division to 1.8 billion francs and 1.6 billion francs respectively. Both had previously targeted 2.1 billion francs in profit. The bank is aiming for an operating cost base of less than 17 billion Swiss francs by 2018, down from an earlier goal of below 18 billion francs.
“Given the unsupportive market conditions we are facing, the realization of our profit objectives plan is now more geared to the delivery of cost reductions, over which we have greater control than revenue growth,” the bank said in a statement. “This also leaves us with potential upside, should market conditions improve.”
The new targets in Asia and the international unit resulted from declines in the Asian investment bank and lower fees for asset management, Credit Suisse said. The bank kept its target for both units’ wealth management businesses.
In Asia Pacific, Credit Suisse plans to cut costs by 300 million francs to even out some of the market impact. The division, led by Helman Sitohang, aims to earn 700 million francs from private banking in the region in 2018.
“Credit Suisse’s strategy was too dependent on growth in Asia and this is a moderation of that,” said Neil Smith, an analyst at Bankhaus Lampe in Dusseldorf who has a hold recommendation on the shares. “They’re scaling back their ambitions and readjusting expectations.”
The lower profit outlook in international wealth management, led by Iqbal Khan, reflects lower performance fees in asset management, the bank said. Credit Suisse expects to grow in emerging markets while also increasing profit from its European operations.
Global markets, which has held back Credit Suisse’s turnaround, has “substantially completed” its restructuring, the bank said. The bank in September promoted Brian Chin to head the unit, replacing Timothy O’Hara. Global markets, which had blindsided Thiam with a buildup of illiquid trading positions that sparked a first-quarter loss, still targets a return on regulatory capital of 10 percent to 15 percent in 2018.
A slump in equities trading last quarter -- a business Thiam is seeking to build out while shrinking debt trading -- has added to the unit’s troubles. The bank said Wednesday that trading volumes in equities have improved and are expected to be up from the third quarter, but down from a year earlier. Fixed-income markets have been favorable so far this quarter, Credit Suisse said.
Credit Suisse estimated restructuring costs this year of about 600 million francs, with the same amount in 2017. The financial toll from turning around the bank will halve in 2018, to 300 million francs. Most of the restructuring costs are due to severance pay. Credit Suisse said it had cut 6,050 jobs this year, exceeding its target of 6,000 positions.
Credit Suisse’s bad bank, called the strategic resolution unit, will have a pretax loss of $1.4 billion in 2018 and $800 million in 2019, the firm said. By then it also strives to reduce the unit’s capital consumption by about 80 percent.
(An earlier version of this story corrected the currency in the last paragraph.)