Fitch: Credit Suisse Reports Solid Q113 Results

Wed Apr 24, 2013 12:27pm EDT

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(The following statement was released by the rating agency) MILAN/LONDON, April 24 (Fitch) Fitch Ratings says that Credit Suisse AG ('A'/Stable/'a') reported solid profits in Q113, typically a seasonally strong quarter, on both a headline and underlying basis. Improvements in capital ratios were consistent with Fitch's expectation that Credit Suisse will continue to narrow the gap to leading peers and the bank maintained its strong liquidity and funding profile. The bank has also demonstrated its ability to deliver on cost reduction targets in the investment bank, and the realisation of planned cost savings in infrastructure and in the non-investment banking businesses would help to boost group efficiency further. Group net profit was CHF1,303m for Q113 on a headline basis or CHF1,370m when adjusted to exclude a CHF80m loss from movements in own-credit spreads, a 19% rise compared to similarly-adjusted profits of CHF1,154m in Q112 and equivalent to a solid 20% return on tangible common equity. Investment banking (IB) activities tend to show seasonal strength in Q1 and Fitch would not expect returns to recur at this level in the subsequent quarters of this year, particularly as Q113 revenue benefited from the good performance of the bank's wind-down portfolio, although management expects this to generate moderate losses of up to CHF400m for FY13. IB division pre-tax profits of CHF1.3bn showed a substantial YoY increase on a headline basis. However, this was largely due to the non-recurrence of a CHF411m one-off compensation expense in the prior year, with profits largely flat on an underlying basis. Nonetheless, the bank achieved the same level of net revenue in IB despite a 17% fall in average Basel III risk-weighted assets (RWA) in the division. Credit Suisse calculates a return on allocated Basel III capital (allocating 10% of Basel III RWA) of 23% for the division in Q113, an encouraging indicator of the viability of the bank's capital markets businesses under the future regulatory environment and current market conditions. Fixed income revenues rose 3% YoY on a headline basis (down 9% if prior-year wind-down losses are excluded), while equities revenues fell 5% YoY - broadly consistent with trends at US peers. The divisional cost/income ratio of 67% was down 10pp compared to the prior year on a headline basis (flat when the aforementioned PAF2 expense in the prior year is ignored) although Fitch expects this metric to seasonally deteriorate as the year progresses. Headcount fell 1% YTD (and down 8% from its Q311 peak), and the bank announced that the bulk of its planned IB cost reduction target of CHF1.8bn has been achieved. Wealth Management Clients (WMC) division pre-tax profit of CHF511m (including a CHF34m disposal gain on JO Hambro) was down 2% compared with Q412 on an underlying basis as the gross margin remained under pressure from low interest rates. Excluding the disposal gain, the gross margin fell to 108bps in Q113, from 110bps in Q412 (118bps in Q112) and management indicated that a further 2-3bps margin compression is expected during 2013. Costs were down 4% YoY, but up 2% vs. Q412, partly attributed to some lumpy costs (IT impairments, pension costs) in Q1. The bank targets a further CHF750m cost reduction in private banking and wealth management by 2015, indicating that most of the savings would be realised in 2014 and 2015. WMC net new asset inflows of CHF5.5bn (annualised 2.8% of AuM) remained solidly positive, despite ongoing headwinds from European cross-border outflows, and the bank has managed to increase the share of AuM related to more profitable ultra-high net-worth individuals, which accounted for 42% of average Q113 AuM of CHF820bn in the WMC division. Credit Suisse's fully-loaded Basel III Common Equity Tier 1 (CET1) ratio rose 0.5pp vs. Q412 to 8.6% as of end-March 2013 (8.8% pro forma for planned divestments), further narrowing the gap to leading peers, consistent with Fitch's expectations. Management has reiterated that it intends to reinstate a capital return policy once their Swiss core capital (SCC) ratio (which includes some preferred notes) exceeds 10% (9.6% as of Q113) and indicated that Q113 capital ratios include a dividend accrual consistent with this objective. The company further commented that a decision on whether to exercise the call option on preferred perpetual notes that are included in SCC would be taken at the end of the year. Total assets saw a modest 2% expansion YTD, seemingly FX-driven, to CHF947bn, although management reiterated their end-2013 target of <CHF900bn. Credit Suisse's Swiss Basel III leverage ratio rose modestly by 8bps to 2.50%. The bank's liquid asset buffer reached CHF135bn as of Q113 (14% of total assets) up from CHF127bn at end-2012. Liquidity and funding remain key ratings strengths for Credit Suisse. Contact: Christian Scarafia Senior Director +39 02 87 90 87 212 Fitch Italia S.p.A. V.lo S Maria alla Porta, 1 20123 Milan Matthew Clark Director +44 20 3530 1225 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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