A Welcome Boost for Thiam as Credit Suisse Posts Shock Profit

ZURICH: Credit Suisse Group AG Chief Executive Officer Tidjane Thiam Earnings News Conference & Interview
Tidjane Thiam, chief executive officer of Credit Suisse Group AG, speaks during a news conference at the bank's headquarters in Zurich, Switzerland, on Wednesday, Oct. 21, 2015. Credit Suisse will raise about 6.05 billion Swiss francs ($6.3 billion) of capital as part of a broad reorganization that will increase the bank's focus on Switzerland and wealth management in Asia as it scales back the securities unit. Photographer: Alessandro Della Bella/Bloomberg via Getty Images
Photograph by Alessandro Della Bella — Bloomberg via Getty Images

Credit Suisse posted a surprise second-quarter net profit, confounding expectations for a third straight quarterly loss and giving a major boost to Chief Executive Tidjane Thiam’s efforts to restructure Switzerland’s second-biggest bank.

Thursday’s results are the first green shoots for Thiam’s strategy, set out in October and consisting of slimming down the investment bank, focusing on wealth management and cutting at least 4.3 billion Swiss francs ($4.4 billion) in costs by the end of 2018.

Tough financial markets and muddled communication of the blueprint, as well as concerns over Credit Suisse’s capital position, have so far hampered Thiam’s efforts to turn around the bank whose helm he took in July 2015.

The net profit of 170 million francs was well down on the 1.05 billion earned in the same period last year, but beat even the most optimistic forecast in a Reuters poll of six analysts, with the average estimate for a 192 million franc loss. A big drop in restructuring costs, a 6% drop in compensation and a 5% drop in general and administrative costs all spoke of the new CEO’s efforts to trim one of the banking sector’s most notoriously bloated giants.


“This has been a quarter of continued progress for Credit Suisse,” Thiam told analysts.

At the end of the quarter, Credit Suisse’s common equity Tier 1 capital ratio was 11.8 percent of risk-weighted assets, within its target of 11 to 12 percent for 2016.

This could help ease some concerns that the bank is undercapitalised relative to its peers. Credit Suisse also plans to raise some 2 billion to 4 billion francs by floating part of its Swiss business next year.

The bank said it was cautious in the outlook for the second half due to uncertainty from geopolitical and macroeconomic concerns, notably last month’s British referendum backing a departure from the European Union.

Its shares rose initially but subsequently turned down with most of the rest of European stocks, after a bunch of negative reports from other blue-chips in the region such as Royal Dutch Shell Plc (RDS-A), Lloyds Banking Group Plc (LYG) and Volkswagen AG (VLKAY).

CS’s result was boosted by unexpected pre-tax income of 154 million francs at its global markets division, one of two investment banking divisions and a source of steep losses in recent months.

Global markets benefited from transferring assets into the bank’s strategic resolution unit (SRU), which winds down activities it no longer wants.

With Thiam hoping that private banking will be Credit Suisse’s main money maker in the years ahead, strong net new money inflows of 11.3 billion francs at its three private banking divisions will be a source of cheer for investors.

Net new money is seen as a volatile but important indicator of future earnings in wealth management.

Credit Suisse is the world’s fourth-biggest private bank by assets after UBS, Bank of America Merrill Lynch and Morgan Stanley, according to wealth management consultant Scorpio Partnership.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.