ZURICH (Reuters) - Swiss bank Credit Suisse’s third-quarter net profit tumbled 74 percent to miss forecasts, as sluggish equities trading halved investment banking earnings from the previous quarter.
Switzerland’s No.2 bank by market value behind UBS said net profit fell to 609 million Swiss francs ($629 million), below a forecast for 980 million in a Reuters poll.
Investment banking pretax income halved to 395 million francs from an already subdued 784 million the previous quarter, as chief executive Brady Dougan’s bold strategy to hire investment bankers aggressively in the second quarter failed to pay off immediately with markets flattening.
“Investment banking is ... treading water, but they seem to be slipping under,” said Helvea analyst Peter Thorne, adding the consensus profit in the segment was 747 million francs.
Dougan, former head of investment banking, steered CS safely through the crisis without government aid and helped CS steal market share from weakened rival UBS.
Credit Suisse and UBS both beat forecasts in the second quarter, though UBS investment banking results stood out against a significant quarterly fall at CS.
Investors will be keen to see if erstwhile CS CEO Oswald Grubel, who was brought out of retirement to turn around UBS, can trump former CS charge Dougan when UBS reports its quartely figures on October 26.
As the first big European bank to report, CS rekindled concerns about a weak third quarter, after results from U.S. banks were not as bad as feared.
“The results are a real and strong miss,” said Kepler Capital Markets analysts Matthias Bueeler.
Shares in Credit Suisse traded 2.7 percent lower at 0730 GMT, against a 0.3 percent dip in the Stoxx 600 European banks index and a 0.2 percent fall in UBS stock.
They had already fallen around 15 percent this year, against a 3 percent dip in the Stoxx 600 European banks index and a 10 percent rise in the stock of UBS, playing catch-up to CS’s strong rally in 2009.
“In contrast to the better than expected results from Goldman Sachs, JPMorgan and Bank of America Merrill Lynch, Credit Suisse’s results are a 38 percent miss due to lower than expected revenues and costs remaining high,” says Andrew Lim at Matrix.
Turgid equity markets ate into investment banking earnings, though fixed income, underwriting and advisory operations performed well as the hiring drive started to bear some fruit, said Chief Financial Officer David Mathers.
The two big Swiss banks have cut back on proprietary trading as local regulators urge a stronger focus on traditional wealth management than riskier investment banking, making earnings less volatile but less spectacular than many U.S. counterparts.
Earnings at CS’s bedrock private bank outstripped the normally more lucrative investment banking segment for a second quarter running.
“We believe the prospects for growth remain very attractive and our private bank is poised to capitalize as markets improve,” Dougan said.
The private banking segment attracted 12.6 billion francs in net new client assets, against 13.1 billion a year earlier.
CS gained client money from emerging markets and from the super rich in its Swiss onshore business, making up for shrinking private banking in mature European markets, it said.
CS maintained a strong Tier 1 capital ratio of 16.7 percent — one of the highest in the industry — versus 16.3 percent at the end of the first half and was on track to meet new international and local capital requirements aimed at reducing bank risk-taking.
“We are well placed to meet these new requirements and at the same time compete and deliver attractive returns to our shareholders,” Dougan said.
Additional reporting by Martin de Sa'Pinto; Editing by Dan Lalor and David Cowell