Credit Suisse Profit Beats Forecasts -- 2nd Update

By John Letzing 

ZURICH-- Credit Suisse Group AG said its net profit rose 23% in the first quarter of the year, as the Swiss lender saw a pickup at its investment bank and continued to rein in costs.

Overall net revenue increased by just 3%, the bank said, as its Private Banking & Wealth Management business saw declines in the period.

And Zurich-based Credit Suisse also saw its capital cushion slightly depleted in the quarter, thanks to the recent, abrupt rise in value of the Swiss franc.

Net profit rose to 1.05 billion Swiss francs ($1.1 billion) in the quarter, compared with 859 million francs in the same period last year, Credit Suisse said. Analysts had expected the bank to report a net profit of 970 million francs.

Credit Suisse's results reflect a quarter in which the bank has had to grapple with an abruptly strengthened Swiss franc following the decision in January by the Swiss central bank to remove a cap on the currency. The currency swing has been expected to have a significant impact on Credit Suisse and other Swiss banks, which account for much of their costs in francs while deriving revenue in dollars and euros.

On Tuesday, Credit Suisse said that because much of its capital buffer is denominated in now relatively weaker currencies such as euros and other factors, its key capital ratio fell to 10% compared with 10.1% in the fourth quarter of last year. The metric is closely watched by regulators and Credit Suisse shareholders as a measure of the bank's financial health and stability.

Credit Suisse has sought recently to bolster the margins at its Private Banking & Wealth Management business, as European clients have continued to pull funds from the bank as they declare their Swiss accounts to tax authorities at home. On Tuesday, Credit Suisse said pretax income at its Private Banking & Wealth Management unit fell 18% from the same period last year, as net revenue declined 8%. However, the business saw 17 billion francs in net new assets in the period, compared with 13.7 billion francs in the first quarter of last year.

While private banking for well-heeled clients remains key for Credit Suisse, in keeping with its Swiss roots, it still maintains an investment bank roughly three times the size of that at Swiss rival UBS AG.

Credit Suisse said pretax income at its investment bank rose 14% from a year earlier, to 945 million francs. Net revenue at the unit rose 5%. While Credit Suisse has eliminated marginal parts of its investment bank lately, it has retained a significant presence in debt and equities trading. Credit Suisse said Tuesday that revenue from its debt--or fixed-income--sales and trading rose 9% compared with the period last year. Equity sales and trading revenue rose 11%.

The first quarter of the year is generally a relatively strong one for investment banks. Credit Suisse's results were preceded by strong investment banking performances reported recently by peers including Goldman Sachs Group Inc.

Credit Suisse Chief Executive Brady Dougan will be replaced by Prudential PLC CEO Tidjane Thiam at the end of June, as part of a transition announced last month. The move has generally been well-received, and analysts have suggested it could lead to a more significant reduction of Credit Suisse's relatively high-risk investment banking unit.

Credit Suisse has also been in the midst of a cost-cutting initiative began in 2011. That initiative is expected to see as much as 4.25 billion francs in cost savings by the end of this year, the bank said, even as compliance and regulatory costs continue to rise.

Write to John Letzing at [e-mail]

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