Credit Suisse heralds calmer years ahead as overhaul ends

Tidjane Thiam, chief executive officer of Credit Suisse Group AG. (Bloomberg pic)

ZURICH: Tidjane Thiam is looking forward to things getting back to normal.

In an interview with Swiss newspaper NZZ am Sonntag, the chief executive officer of Credit Suisse Group AG said the bank is now targeting “business as usual” after years of restructuring.

“Over the past three years we worked day and night to deal with our legacy from the past,” he said, referring to positions in the trading unit that it downsized.

While Credit Suisse is still one of Europe’s largest investment banks, its main focus today is managing money for wealthy entrepreneurs around the globe and especially in emerging markets. Thiam’s pitch is that the bank would use its investment-banking expertise to serve the ultra rich and their companies.

In recent quarters profitability has been improving, mainly driven by Credit Suisse’s wealth-management businesses and the Swiss Universal Bank, led by Thomas Gottstein. Global Markets — a division that trades equities and credit, caters to hedge funds and distributes financial products into the Swiss lender’s wealth franchise — has stabilised after it posted heavy losses on distressed debt positions. These came shortly after Thiam announced his overhaul strategy that complicated the process.

Business as usual

Thiam also got rid of another burden of the past.

Credit Suisse is planning to redeem contingent convertible bonds — which automatically become equity when reserves fall below a preset threshold — to help ease funding costs. The bank issued the debt after the crisis, unlike its rival UBS Group AG which was bailed out by the Swiss government.

Thiam said “business as usual” will mean Credit Suisse can earn between 5 billion to 6 billion francs (US$5.2 billion to US$6.2 billion) in pretax profit in 2019 and in 2020 and that 2018 will be somewhat lower. These figures are in line with analyst expectations and company indications.

In its latest presentation to investors, Credit Suisse said it may generate net income of 9 billion to 10 billion francs in 2019 and 2020 based on the company’s capital return targets of 10 to 11% for 2019 and 11 to 12% for 2020.

“In my first year at Credit Suisse I did take 250 flights — that was a crazy time,” Thiam said. “Honestly, that’s not how I permanently want to live my life. But it was necessary.”

The lender’s next possible catalyst is a December investor day. While recent stock upgrades at Autonomous and Barclays suggest some analysts are more optimistic, its share price remains under pressure after the bank raised more than 10 billion francs in capital over three years. Thiam said the share-price weakness and the capital increases are linked.

“Credit Suisse has a strong franchise in wealth management, with a more narrow scope than UBS, given its absence from the US,” Autonomous analysts led by Stefan Stalmann wrote in a recent note. “Outside of wealth management, we continue to see poorly positioned Global Markets as a recurring source of return dilution and potentially more restructuring.”

While wealth management is seen as a less volatile business than investment banking, it’s also dependent on market swings as assets under management fall when equity markets suffer losses. Over the time this means that private banks typically earn less revenues.

Another factor is the cost of compliance which has been increasing over recent years for banks. Thiam said that Credit Suisse will continue to invest in compliance and that there are legal cases outstanding, which the lender is working to resolve.