Credit Suisse will cut an extra 1 billion Swiss francs ($1.1 billion) of costs, including axing more jobs, after its third-quarter net profit more than halved due to losses on the value of its own debt. Volatile financial markets, a dearth of deals and tighter capital rules in the wake of the 2007-9 financial crisis are forcing investment banks across the world to slash costs, and the euro zone debt crisis has pushed many to cut back even more.
Profits from Credit Suisse's investment bank rose, helped by a pick up in bond trading that has already been noted by US investment banks and is expected to boost European peers as they report quarterly results over the coming days. However, that was offset by weakness in Credit Suisse's private banking business, which caters for wealthy clients.
Credit Suisse said on Thursday it was targeting 4 billion francs in cost savings by 2015, up from a goal of 3 billion francs it set in July and an earlier figure of 2 billion. The bank, which is already cutting 3,500 staff or 7 percent of its workforce, said job losses would be inevitable to achieve the extra savings, but did not say how many more staff would go.
It has already combined the separate operating platforms of its two main units - private banking and investment banking - and will increasingly shift information technology jobs to Poland and India as part of its cost saving drive, finance chief David Mathers told journalists.
Crosstown rival UBS, which reports quarterly results on Tuesday, is also expected to announce job cuts to protect profits as it withdraws from riskier investment banking areas which soak up large sums of capital. Zurich-based Credit Suisse said net profit fell 63 percent to 254 million francs, missing analysts' average forecast of 370 million. The quarter was hit by 1.05 billion francs in charges, mainly linked to its own debt.
Banks can record gains if the value of their debt falls, since it becomes theoretically cheaper to repurchase it, but book losses if the value of the debt rises. Credit Suisse's investment bank lifted revenue 66 percent on the year while costs edged 5 percent higher in a large part due to provisions for mortgage lawsuits. The unit benefited from a surge in sales and trading of fixed-income products such as credit and securitised products.
Credit Suisse's Mathers said business trends in the first weeks of the fourth quarter were similar to the third. At 0715 GMT, the bank's shares were up 2.2 percent at 2.79 francs, o utpacing a 0.5 percent rise in the Stoxx 600 European bank index. Credit Suisse's private bank didn't fare as well as the investment bank, however. The unit's revenue fell on the quarter and on the year, partly due to the traditional lull in client activity during the summer holiday months.
"The only positive surprise is investment banking, where Credit Suisse achieved strong revenues in fixed income and advisory, in line with what we have seen at the US banks," Kepler Capital Markets analyst Dirk Becker said. "But in wealth management the malaise continues," he said. Credit Suisse said it could not provide a timeline on efforts to settle a US tax investigation, although it did not see any direct impact on its ability to generate asset inflows.
The Swiss government is negotiating with the US government to try to get investigations against 11 banks dropped in return for expected hefty fines and the transfer of names of clients suspected of evading taxes. Credit Suisse is selling prime Swiss real estate, issuing convertible bonds and slashing spending among a raft of measures announced in July aimed at raising capital by 15.6 billion francs after urgings by the Swiss central bank.
The bank said it is looking to sell its exchange-traded funds business as part of the restructuring, confirming a recent Reuters report, but said it did not plan further divestments within asset management. It also reiterated a return-on-equity target of more than 15 percent "over the cycle". Credit Suisse's ROE stood at 2.9 percent in the third quarter.
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