Credit Suisse lowers profit targets as investment bank heads into the red

A year after completing a major restructuring, Credit Suisse's Chief Executive Tidjane Thiam has cut the Swiss bank's profitability targets for this year and next, blaming a drop in deal making, negative interest rates and global trade tensions for the climbdown.

The bank, which replaced the head of its floundering Investment Banking and Capital Markets division last month, said on Wednesday it now expects the division to make a loss for the year ending Dec. 31 due to a decline in M&A activity.

In its first presentation to investors since completing its three-year revamp, Switzerland's second-biggest bank said it expects to hit a return on tangible equity (RoTE) above 8% this year, implying a profit above 3 billion francs ($3.01 billion) for 2019 but below its previous RoTE target of 10-11%.

European peers such as HSBC, Deutsche Bank and UniCredit have also scaled back on revenue and profit ambitions amid a gloomy business environment, geopolitical tensions and easing monetary policy. Sergio Ermotti, CEO of Swiss rival UBS , earlier this year hinted his bank faced a steep climb to reach its profitability goals as well.

Credit Suisse's restructuring programme was widely hailed for reducing the bank's reliance on volatile trading, whittling down costs and boosting cooperation between its investment banking and wealth management arms, although Thiam acknowledged on Wednesday that it had been tough.

"This company has put investors through a lot of dilution -we're very aware of that," Thiam told the bank's investor day in London. "That was unavoidable to repair the balance sheet and give us the opportunity to grow, and it's been painful."

Credit Suisse also announced a planned share buyback and tampered its RoTE forecast for 2020 to 10% from a previous 11-12%, saying it could make further cost cuts if challenging market conditions threatened its new targets.

The Zurich-based bank said it plans to "reinvigorate" its investment banking and capital markets business by advising more deals in growth industries including technology and healthcare, making significant hires in both areas.

"We went into 2019 with a relatively weak pipeline. We're going into 2020 with a relatively strong pipeline," Thiam said. The performance of the bank's Global Markets trading division - long the focus of scepticism over Credit Suisse's ability to deliver on turnaround goals and maintain steady profitable momentum - picked up in 2019.

The bank said it expected to buy back 1-1.5 billion Swiss francs in shares in 2020, as Thiam underscored its commitment to delivering value to shareholders, and announced a number of savings initiatives to help it boost earnings.