In his first two years running Credit Suisse Group AG, Tidjane Thiam has been putting out fires. Today there’s still smoke.
The Swiss lender is expected to report a third straight annual loss, mainly due to a 2.3 billion-franc ($2.45 billion) writedown related to a change in U.S. tax policy in the U.S. at the end of last year. Even without that hit, the company’s earnings are likely to show that there’s still work to be done.
Analysts and investors will scrutinize Credit Suisse’s report tomorrow for evidence that Thiam’s restructuring plan is continuing to deliver rising revenues, lower costs and better risk-management at the bank’s trading units. They will also see whether he’s gathering fresh assets that will boost revenue at the wealth-management businesses.
At the bank’s investor day in November, the CEO promised to return more cash starting in 2019 and said it may beat its cost-savings target, which convinced most investors to stick with Credit Suisse. The stock has risen 16 percent over the last 12 months, beating the Bloomberg European 500 Banks index.
The Swiss lender’s bottom line since 2008
Source: company filings
Here are five things to watch out for:
The bank reminded analysts in recent weeks that it intends to beef up the assets it must hold against operational risks, according to people with knowledge of the discussions. Credit Suisse has said it would increase risk-weighted assets by 3.8 billion francs in the final quarter of 2017 to account for legal risks.
The investment bank, led by Jim Amine, may also see capital rise relative to assets because it has to fund a pipeline of securities issues that may come through in the first quarter, Thiam indicated in an interview at the World Economic Forum in Davos last month. Overall, the most-watched capital ratio may come in at 12.9 percent, according to a consensus compiled by the company, which would be lower than the 13.2 percent in the first nine months of 2017.
Thiam is trying to increase revenue even as he lowers costs. Credit Suisse may see a slight rise for the year despite a decline in the fourth-quarter, according to analyst estimates. While the market-dependent businesses may weigh on the top line due to a lack of volatility, quarterly revenue in the wealth businesses is expected to climb.
Investors will seek some guidance for the bank’s markets businesses and how recent hires in equities and a spike in volatility will help trading revenue going forward.
Credit Suisse ‘s topline since 2008
Source: Bloomberg Data, company filings
Many European lenders were forced to issue profit warnings after the U.S. overhauled its U.S. tax code, making it harder for them to deduct past losses from future tax bills.
Credit Suisse estimated in December that it could face a 2.3 billion-franc writedown related to tax deferred assets. While this won’t affect the bank’s regulatory capital, it will be enough to push the lender to another full-year loss.
Even without the tax issue, Credit Suisse’s full-year profit should be weak, said Dieter Hein, an analyst at Fairesearch. “They should focus even more on wealth management. I don’t even know why Swiss banks ever thought it would be a good idea to make investment banking a core business.”
Credit Suisse is expected to report net new money growth for both the fourth quarter and the full year. UBS Group AG and Julius Baer Group Ltd. set the bar high, with both beating their targets for new money in a year marked by hiring and rising equity markets.
The bank may see some outflows as wealthy clients repatriate money following personal tax amnesties and hidden asset-disclosure programs in the U.S., Europe and other regions. Some of that cash currently rests with Credit Suisse’s International Wealth Management business, led by Iqbal Khan, and at its APAC private bank.
Credit Suisse has reported more than 40 billion francs in outflows since 2011 as clients moved to become tax compliant, the bank has said.
Credit Suisse is seen to boost private banking assets in 2017
Sources: company filings
Credit Suisse’s Asia Pacific markets and Global Markets businesses are expected to post a combined adjusted pretax loss of roughly 100 million francs. Apac remains one of Thiam’s last headaches and it is set to post its third quarterly loss during 2017.
Global Markets was in focus last week when one of its products that bet on low volatility had to be liquidated after stock markets seesawed. The closure didn’t cause any losses, the bank said.
Investors will seek some evidence that the equity business is improving. Overall, Global Markets targets 10 percent to 15 percent adjusted return on regulatory capital for this year. That compares with 6.9 percent after the first nine months of 2017.