ZURICH Credit Suisse's CSGN.VX quarterly earnings beat expectations on Wednesday as a restructuring of its investment bank compensated for a surprising slide in private banking profits.
Zurich-based Credit Suisse relies on stable revenues from wealthy clients to balance risk from the investment bank. But wealth income has suffered as a global crackdown on tax evasion challenges Swiss bank secrecy, prompting wealthy Europeans to withdraw funds from the country for fear of prosecution.
Credit Suisse's private bank - the fifth-largest in the world by assets - has also suffered from low interest rates, investment uncertainty and a persistently strong Swiss franc.
Switzerland's second-largest bank heralded the success of its drive to cut costs and risky assets at the investment bank, but analysts said more must be done to slim down wealth management.
"Obviously, revenues are under pressure and the concern is that the pretax margin isn't improving despite all these cost cuts coming through," said Andrew Lim, an analyst at Espirito Santo Investment Bank. "There's a big question mark over whether they're going to be able to achieve them."
Pretax profits at Credit Suisse's private bank fell 7 percent to 881 million francs and revenues dropped 5 percent, lagging larger competitors such as Morgan Stanley.
The private bank, which targets clients with over $1 million in bankable assets, won 12 billion francs in fresh money as it sought new clients in Asia and elsewhere. But profits from such markets are lower than the sort of secrecy-shrouded offshore banking that has long been Switzerland's bread and butter.
Credit Suisse reported first-quarter net profit of 1.30 billion Swiss francs ($1.38 billion), up from 44 million francs a year earlier and topping the average estimate of 1.26 billion francs in a Reuters poll of analysts.
It was driven by investment banking, where spending fell 13 percent and charges on Credit Suisse's own debt slid to 68 million francs from 1.5 billion a year ago.
Investment banking net revenue was stable on the year, in line with results from British bank Barclays (BARC.L) but contrasting with weaker trading revenues at Wall Street's top five banks.
That result supported Credit Suisse's argument that a slimmed-down investment bank can prosper despite lacking the scale of its U.S. rivals.
"It's a better quarter than expected, particularly in the investment bank, but one swallow doesn't make a summer," said Rainer Skierka, Zurich-based analyst for private bank Sarasin.
"For me, Credit Suisse's strategy is going to lead to more volatile results than those of UBS or someone focused on private banking. It's up to investors to decide which they prefer."
Swiss rival UBS UBSN.VX is dropping many investment banking activities to focus mainly on private banking.
At 1142 GMT, Credit Suisse shares were down 0.1 percent at 26.42 Swiss francs, in line with the European banking index .SX7P, which was down 0.2 percent. Credit Suisse has risen nearly 19 percent this year, beating UBS's 7.2 percent gain and a 2.5 percent rise in the sector index.
The bank, which shed 1,800 staff in the past year, said its restructuring targeting 4.4 billion francs of spending cuts by the end of 2015 would help it pay investors a cash dividend after last year's largely stock pay-out.
CEO Brady Dougan said he had no information about a German investigation prompted by suspicions that two Credit Suisse subsidiaries helped some Germans avoid tax.
"Either rumours or what's in the news media is all we know," he said.
Credit Suisse said it could give investors no information on when talks might end with the Swiss government to close a U.S. investigation into the bank in return for expected fines and a transfer of client names.
It appeared last week that Swiss and U.S. diplomats were nearing a solution to resolve the dispute, part of the global crackdown on tax evasion.
Credit Suisse took a 295-million-franc provision towards a settlement with U.S. authorities in 2011.
($1 = 0.9418 Swiss francs)
(Writing by Carmel Crimmins; Editing by Chris Gallagher and Tom Pfeiffer)