Weak Investment Business Hits Credit Suisse’s Q4 Profits

The headquarters of Credit Suisse

The headquarters of Credit Suisse

Swiss bank Credit Suisse informed that it would further cut costs as it saw its fourth quarter profits be lower than initially expected. As it was highlighted, the fourth quarter profits slumped as the investing business of the bank proved to be frail.

Suisse to Cut Costs

Credit Suisse AG, the second largest Swiss bank, reported a fourth quarter fiscal profit which did not meet analysts’ expectations as weak performance from the investing banking business lingered. According to data, the net profit for the period ended December was about 397 million Swiss francs. Credit Suisse returned to a profit as compared to a net loss of nearly 635 million francs in the final quarter a year earlier. Moreover, revenue in the fourth quarter rose by 29 percent to 5.8 billion francs. Analysts estimated net profits of approximately 560 million francs while revenue for the period was expected to be around 6.2 billion francs. Revenue at the investment bank, which is the heart of Credit Suisse’s business strategy, jumped to as much as 2.5 billion francs in the last three months ended December. The revenue increased as a result of sales of fixed income investments and financial advisory. However, low productivity of the unit in the third quarter led to weaker-than-estimated profits for the final quarter of 2012.

Credit Suisse decided to cut costs after the bank had failed to meet analysts’ expectations for the third time in seven months. In a statement released by Credit Suisse on the 7th of February, the bank announced it would reduce costs by approximately 4.4 billion francs by the end of 2015, up from the previously planned reduction of roughly 4 billion francs. In addition, the top officials decided to control costs as business of the global investment bank slowed down. As a result, the pretax profit of the investment bank dropped by as much as 38 percent in the fourth quarter while Credit Suisse faced charges worth 305 million francs.

2012-Year of Transition

Despite lower-than-expected profits of the fourth quarter, Credit Suisse has taken necessary measures to survive in the market and stated that 2012 was a year of transition. “Going into 2013, revenues have so far been consistent with the good starts we have seen to prior years, with profitability further benefiting from the strategic measures we took in 2012,” highlighted Credit Suisse CEO Brady Dougan. The bank has made considerable efforts to cover up for the loss made last year by engaging in aggressive cost cutting and removing risky assets from its balance sheet. The bank claims to have developed a new model plan which is expected to yield benefits in 2013 and beyond. In order to support its very own global investment bank and satisfy regulators, Credit Suisse claimed last year to raise approximately 15 billion francs in the form of new capital.

Moreover, regulators also pushed Credit Suisse to reduce the debt-multiplying leverage provided by the bank. Credit Suisse is disposing debt trading to focus more on money management by reducing the size of its balance sheet. As it has been underlined by the bank, it is one step closer to reducing its balance sheet by as much as 900 billion francs by 2015. Credit Suisse decided to cut around 2500 jobs to reduce costs and to strengthen the capital position of the bank.

Jay Raol

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