Credit Suisse Profit Falls 96% On Debt Losses

Credit Suisse Group AG (CSGN), the second- largest Swiss bank, reported a 96 percent decline in first- quarter profit after booking accounting charges related to its own debt and costs for 2011 bonuses.

Net income fell to 44 million Swiss francs ($48 million) from 1.14 billion francs in the year-earlier period, the Zurich- based bank said in a statement today.

Chief Executive Officer Brady Dougan said the bank benefitted from an “improved environment” in the quarter and cut risk-weighted assets at the investment bank by more than previously targeted. Credit Suisse decided to scale down its investment bank last year as the European sovereign-debt crisis and stricter capital requirements contributed to a 62 percent drop in the group’s annual earnings.

“I’m relatively impressed with what they’ve achieved in the first quarter,” Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets who rates the bank “reduce,” said in an interview. Still, “the challenges are really huge for Credit Suisse” going forward, in both investment banking and in wealth management, he said.

Credit Suisse was little changed at 23.56 francs by 9:42 a.m. in Zurich trading. The stock has gained 6.8 percent this year, compared with a 2.1 percent increase in the 43-company Bloomberg Europe Banks and Financial Services Index and a 1.6 percent advance in UBS AG, its larger Swiss competitor.

Pretax profit at the investment bank fell 33 percent to 993 million francs in the quarter, while earnings from private banking dropped 27 percent to 625 million francs. The asset management division had a 43 percent increase in pretax profit to 250 million francs, driven by a 178 million-franc gain from the sale of part of the bank’s stake in Aberdeen Asset Management Plc.

The firm benefited less from the rebound in fixed-income markets in the quarter than its U.S. competitors. Revenue from fixed-income sales and trading fell 21 percent to 2 billion francs from a year earlier, compared with the average 12 percent increase excluding valuation adjustments reported by Citigroup Inc. (C), JPMorgan Chase & Co,Goldman Sachs Group Inc. (GS), Bank of America Corp. and Morgan Stanley, according to data compiled by Bloomberg.
The bank’s deleveraging efforts contributed to the decline in revenue, Dougan said in an interview with Bloomberg Television today, adding that he’s “happy with the diversity” of revenue.

The bank cut risk-weighted assets in the quarter by 45 billion francs to 294 billion francs on a Basel III basis, exceeding the accelerated targets announced in February.

Equities sales and trading fell 12 percent to 1.4 billion francs, compared with the average 9 percent decline reported by the U.S. companies. Revenues from underwriting debt and equity sales and advising clients on mergers and acquisitions fell 18 percent to 761 million francs, compared with the average 15 percent drop reported by U.S. competitors, Bloomberg data show.
Market conditions in April “haven’t been as favorable” as in the first quarter, Dougan said in the interview. While the bank has a “pretty constructive” view for the rest of the year, it has to be prepared for renewed market volatility, he said.
Credit Suisse booked a 1.55 billion-franc charge related to an increase in the price of its own debt in the first quarter. The accounting charge stems from a rule tied to the theoretical cost of buying back the bank’s debt as market prices fluctuate. The bank also had 534 million francs in costs related to bonds linked to derivatives, which were awarded as part of 2011 bonuses to more than 5,500 bankers, Bloomberg reported.