Credit Suisse Group
) reported third-quarter 2013 adjusted net income attributable to
shareholders of CHF 698 million ($749 million) compared with the
year-ago quarter income of CHF 1051 million ($1092.4 million).
Credit Suisse's results were primarily affected by fall in
revenues, primarily in the investment banking segment. However,
expenses declined owing to prudent cost control measures.
Including one-time items, Credit Suisse's reported net income
came in at CHF 454 million ($487 million). This was higher than
CHF 254 million ($264.0 million) in the prior-year quarter.
Quarter in Detail
Net revenue came in at CHF 5.7 billion ($6.1 billion), down 1%
from the prior-year quarter. The decline was due to lower
interest and a fall in dividend income and other revenues. These
were partially mitigated by rise in net interest income and
trading revenues, along with lower interest expenses.
Net interest income was CHF 1.9 billion ($2.0 billion), up 12%
from the prior-year quarter. Commissions and fees came in at CHF
3.0 billion ($3.2 billion), down 4.0% year over year.
Provision for credit losses came in at CHF 41.0 million ($43.9
million), stable from the prior-year quarter.
Core Segment Performances
The Private Banking & Wealth Management segment reported net
revenue of CHF 3.3 billion ($3.5 billion), up 1% from the
prior-year period. The rise was mainly due to increase in other
revenues as well as recurring commissions and fees, partly offset
by lower net interest income.
The Investment Banking unit reported net revenue of CHF 2.6
billion ($2.8 billion), down 20% from the prior-year quarter.
Rise in equity sales and trading were more than offset by fall in
fixed income sales and trading revenues as well as poor
underwriting and advisory results.
Adjusted total operating expenses were recorded at CHF 4.7
billion ($5.0 billion), down 11% from the prior-year quarter. The
decline was primarily attributable to fall in general and
administrative expenses, other expenses as well as compensation
and benefits expenses, partly offset by higher commission
expenses. The company recorded business realignment costs of CHF
38 million ($141 million) in the Corporate Center for the
Expense Reduction Initiatives
Credit Suisse continued with its expense reduction initiatives.
As of Sep 30, 2013, the company recorded cost savings of CHF 3.0
billion ($3.2 billion), excluding certain significant items.
Additionally, the company updated its end-2015 total run-rate
reduction target from the previous CHF 4.4 billion to over CHF
4.5 billion, reflecting impact of the non-strategic unit plan.
Capital and Funding
As of Jun 30, 2013, Credit Suisse's look-through Swiss Core
Capital ratio came in at 11.4%. Notably, a look-through ratio
considers the risk weightings of assets, which are not directly
held by the bank.
Effective from Jan 1, 2013, the Basel III framework has been
implemented in Switzerland. As of Sep 30, 2013, Credit Suisse
reported a Basel III common equity Tier 1 ratio of 16.3%, up from
15.3% in the prior quarter. The increase in ratio reflects
reduction in risk-weighted assets.
Credit Suisse's capital ratio under the Common Equity Tier 1 plus
high-trigger capital requirement stood at 13.2% on a
look-through, adjusted basis, meeting the Swiss requirement of
13%, applicable in 2019. Additionally, as of Sep 30, 2013, Credit
Suisse reported a Look-through Basel III common equity tier 1
ratio of 10.2%, up from 9.3% in 2Q13.
Based on establishment of the divisional non-strategic units,
Credit Suisse updated its year-end 2013 Swiss leverage exposure
reduction target to CHF 1,070 billion, from the previous target
of CHF 1,190 billion. As of the end of the third quarter, Credit
Suisse's Swiss leverage exposure amounted to CHF 1,184 billion,
down from the prior quarter. The Look-through Swiss Total Capital
leverage ratio improved to 3.5%, on an adjusted basis, compared
to 2.7% at the end of 2Q13.
Credit Suisse has also updated its long-term Look-through
risk-weighted asset target to approximately CHF 250 billion from
the previous target of CHF 285 billion for year-end 2015 on a
foreign-exchange neutral basis. The target was revised after the
creation of the divisional non-strategic units. At the reported
quarter-end, Group Look-through risk-weighted assets were CHF 261
Along with the earnings release, Credit Suisse announced that it
would create a non-strategic unit in each of its two divisions to
reduce costs related to non-strategic activities and to increase
focus on its businesses and growth initiatives. There will be
separate management for each division. The impact of this
development will likely be reflected in fourth-quarter earnings
In Investment Banking, Credit Suisse is allocating its
existing Fixed Income wind-down portfolio, parts of a
restructured rates business - primarily legacy capital
instruments that are not compliant with Basel III and
capital-intensive structured positions - as well as certain
legacy litigation costs and other small non-strategic positions
to the divisional non-strategic unit.
In Private Banking & Wealth Management, Credit Suisse is
undertaking similar measures to include positions related to
restructuring of the former Asset Management division. The
positions include operations relating to the small markets
initiative, selected legacy cross-border related run-off
operations and litigation costs, primarily US cross-border, as
well as the impact from the restructuring of the German onshore
Credit Suisse expects that the establishment of these
non-strategic units to drive further reduction in leverage and
risk-weighted assets. It is also expected to free up capital for
the Private Banking & Wealth Management unit as well as to
enhance returns to shareholders. Credit Suisse considers
this a significant step toward achieving a balanced allocation of
capital between the two divisions.
Given the challenged macroeconomic environment and the eurozone
debt crisis, we expect Credit Suisse's earnings to remain under
pressure, going forward. However, prudent business model changes
can improve the company's efficiency and bolster its competitive
Credit Suisse's focus on capital generation and restructuring
initiatives are encouraging. We expect such efforts to improve
the company's operating efficiency in the future.
Credit Suisse currently carries a Zacks Rank #1 (Strong Buy).
While we prefer Credit Suisse, other foreign banks having the
same Zacks Rank include
Banco Bilbao Vizcaya Argentaria, S.A.
Deutsche Bank AG
Banco Santander, S.A.
BANCO BILBAO VZ (BBVA): Free Stock Analysis
CREDIT SUISSE (CS): Free Stock Analysis
DEUTSCHE BK AG (DB): Free Stock Analysis
BANCO SANTAN SA (SAN): Free Stock Analysis
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