Credit Suisse swings the axe but chops mostly revenue

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The Swiss bank squeaked into profit in the third quarter when expectations were for a loss, but with a return on equity of just 0.4% for the quarter and a loss for the year so far, investors are still a long way away from getting a decent return.

By far the biggest problem remains the Swiss bank’s global markets division, which has had two restructuring and downsizing plans since Thiam took over as chief executive. Total expenses here are down 2% for the first nine months of 2016, compared with last year, and the bank expects to hit its cost-cutting target early.

However, the revenue fell this year from last year, hit hard by a collapse in European equities trading and much weaker performance in fixed-income compared with both US and European rivals – worse even than Deutsche Bank.

Despite hitting its cost target early, it seems likely that Thiam is going to have to swing the axe even more aggressively to make this division sustainably profitable, unless there is some startling industry-wide recovery in revenue.

There were disappointments elsewhere, too. In the Asia-Pacific unit, which includes wealth management and investment banking and is the bank’s big hope for growth, revenue for the year so far is down 9%, although the third quarter of 2016 was a little better than both the second quarter and last year’s third quarter.

The problem in Asia is that while private banking revenue is better and investment banking advisory income improved strongly for the first nine months, these gains were more than wiped out by a 35% drop in equities trading, which is by far the single biggest source of revenue in the region.

That may be just cyclical and could recover well once rich Asians rediscover their investing mojo, but the outlook for that remains highly uncertain.

Even on the most flattering view of Credit Suisse, using its adjusted profits and ignoring the losses in the bad bank, the lender still only produced a 7.6% annualised pre-ax return on equity in the third quarter on the back of a cost-to-income ratio that is still high at 83%.

There undoubtedly remains a huge amount of work for Thiam and his team to do.

Write to Paul J. Davies at paul.davies@wsj.com

This article was published by The Wall Street Journal

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