(Corrects typographical error in first paragraph)
* Credit Suisse Q1 net profit 859 mln Sfr vs poll 1.155 bln
* Aims to pay dividend at least at 2013 level of 0.70 Sfr
* Focused on resolving U.S. probe into tax offences
* Set aside 107 mln Sfr more for legal fees in Q1
By Katharina Bart
ZURICH, April 16 Credit Suisse said on
Wednesday first-quarter net profit fell by more than a third due
to a big drop in bond trading revenues, increasing pressure on
CEO Brady Dougan to make deeper cuts to its investment banking
Switzerland's second-largest bank, unlike larger rival UBS
, has largely stuck with a full-range investment bank.
But this may change after first-quarter pretax profits from this
division fell by 36 percent on the year and bond trading
revenues were down 25 percent.
JPMorgan Chase & Co and Citigroup Inc. in the
United States have also reported sharp declines in revenues from
fixed income, a business that has been hit hard by tough new
rules imposed on banks since the financial crisis.
UBS is abandoning large parts of fixed income - which
traditionally includes debt and foreign exchange trading,
securitised products and commodities - in a three-year
restructuring to focus almost exclusively on private banking.
Under Dougan, Credit Suisse has decided to scale back on
riskier areas in the investment bank which soak up capital.
But this has not gone far enough for some. Bank analysts at
JPMorgan have downgraded Credit Suisse stock to "underweight"
from "neutral" and said the bank's fixed income arm was
unsustainable given its smaller size and narrower focus.
British bank Barclays is also facing calls to make
deeper cuts to its investment bank, which contributes about half
of group profits, as it embarks on a third review of the unit in
as many years.
Credit Suisse shares, which were down more than 2 percent on
Wednesday, have lagged UBS. Credit Suisse shares trade at 10.1
times forward earnings, while UBS commands a valuation of 13.4
"Over time, we feel Credit Suisse management will tend
towards a more UBS-style strategy to re-rate the stock," Alex
Potter, a London-based analyst with private bank Mirabaud, said.
Credit Suisse's investment bank contributed 59 percent of
the group's overall pretax profit in the quarter.
The bank's return on equity stood at 8 percent in the
quarter, against a 15 percent target. Stripping out the
activities Credit Suisse is offloading, the ROE stood at 14
percent in the quarter.
Credit Suisse's poor results don't bode well for the rest of
Europe's banks, said Rainer Skierka, an analyst at private bank
J.Safra-Sarasin, who rates Credit Suisse as "neutral."
Deutsche Bank and Barclays report results in two
weeks, while rival UBS reports on May 6.
Credit Suisse is also still grappling with the scandals of
the past. Last month, it said it would pay $885 million to
resolve claims by a U.S. regulator that it misled Fannie Mae
and Freddie Mac into buying mortgage-backed
securities that later went sour.
That leaves a U.S. tax probe as the largest remaining
litigation for CEO Dougan, who has apologised to U.S. senators
for the bank's misconduct.
The bank is being targeted by U.S. officials in a tax probe
over helping wealthy Americans hide cash from the tax man, and
it recently set aside more to settle and avoid prosecution.
CEO Dougan said the bank was eager to settle the probe, but
that the timing and outcome remained uncertain. It set aside an
additional 107 million francs for legal fees in the quarter.
One bright spot in Credit Suisse's earnings was its private
bank, which pulled in 13.7 billion francs in net new client
assets - a key indicator of future revenue. The private bank's
pretax profit rose 15 percent on the year.
Credit Suisse's group net profit of 859 million Swiss francs
($977.19 million) missed analyst views, which averaged 1.155
billion francs in a Reuters poll.
"Our intention remains to deliver cash returns to our
shareholders at or above 2013 levels," CEO Dougan said.
The bank proposed paying shareholders 0.70 francs per share
for last year. UBS has said it expects this year to hit a target
which triggers a payout of 50 percent of profits to
shareholders, a goal announced in late 2012.
($1 = 0.8791 Swiss Francs)
(Reporting By Katharina Bart; Editing by Jason Neely and Jane