Head of Largest Credit Suisse Division Bullish on '18 Profit

Updated on
  • Domestic unit CEO addresses employees at town hall meeting
  • ‘We’ll be substantially over 2 billion francs’: Gottstein

The head of Credit Suisse Group AG’s Swiss operations -- the biggest contributor to the bank’s pretax profit -- told employees he remains bullish about 2018, even after the unit missed earnings estimates last quarter.

The Swiss Universal Bank is “clearly going in the right direction” Thomas Gottstein, chief executive officer of the unit, said at a town hall meeting in Zurich on Friday, according to people with knowledge of the matter. The executive said he was “convinced” that the unit’s profit will be substantially over 2 billion francs next year. Analyst estimates compiled by the company are for 2 billion Swiss francs ($2 billion) of earnings on that measure.

The bank had considered a partial listing of the Swiss unit -- deemed by some analysts and investors as the “crown jewels’ of the bank -- to plug a capital hole earlier this year. But Credit Suisse CEO Tidjane Thiam abandoned the strategy, opting instead to raise 4 billion francs from a share sale as he works to restructure the lender in a three-year turnaround plan.

Credit Suisse’s Swiss operations generate more profit before tax than any other division and combine retail and wealth-management businesses for domestic customers with local investment banking.

A spokesman for Credit Suisse declined to comment.

SUB’s third-quarter pretax income of 426 million francs missed analyst estimates because of lower transactional activity and the bank’s exit from some external asset managers. Credit Suisse overall beat estimates on gains in wealth management and the Asia-Pacific region. For this year, analysts expect a 1.8-billion franc pretax income for Gottstein’s unit.

Credit Suisse declined 0.1 percent to 16.15 francs as of 5.28 p.m. in Zurich

Town Hall

When asked at the town hall, Gottstein didn’t explicitly confirm that SUB would reach its target for next year’s pretax profit, which was set in 2015. He said the bank will give more information at its investor day on Nov. 30. While cost savings are on the right track, more work needs to be done in 2018, he said.

The bank has no intention of lowering the target, according to two people familiar with its plans, who asked not to be identified discussing private matters. The unit could even surprise on the upside, posting more than 2.3 billion francs of annual pretax profit, one of the people said.

“We are currently calibrating the financial plan for the next three years and the budget for next year is currently being worked out -- therefore I can’t, even if I would like to, right now verify or make clear what our budget will be for next year,” Gottstein told staff at the town hall.

SUB’s pretax profit target of 2.3 billion francs by 2018 is “ambitious" compared with the reported 1.3 billion francs in the nine months through September this year, Fitch Ratings said in a statement on Friday, after Credit Suisse reported third-quarter earnings.

There’s a realization within the banking group that it has to introduce additional measures to achieve the target, said another person, adding that the bank will clarify its plans at the investor day. Thiam said on a conference call for analysts last week that the bank is not currently reconsidering the Swiss unit’s profit target.

Gottstein said earlier this year that Credit Suisse had completed two thirds of its planned 1,600 job cuts in Switzerland, a target it seeks to reach next year. Remaining cuts -- some of which may see staff move to other divisions -- will be made in areas where the bank can automate procedures such as payments and back-office functions.

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