Credit Suisse capital buffers take a blow

Katharina Bart (Reuters)
Filed on April 23, 2015

Tough new rules on risk and a surging Swiss franc weakened Credit Suisse’s cushion against future losses in the first quarter.

Zurich — Speculation that incoming Credit Suisse chief executive Tidjane Thiam could raise cash to boost the bank’s balance sheet overshadowed a forecast-beating increase in first quarter net profit on Tuesday.

Tough new rules on risk and a surging Swiss franc weakened Credit Suisse’s cushion against future losses in the first quarter. With regulators still working on capital requirements for banks’ trading operations, there are potential headwinds to come.

“The risk is that the debate around the incoming CEO shifts from the potential for strategic change to the risk of capital raising,” said Omar Fall, an analyst at Jefferies.

Credit Suisse’s shares witnessed the second-biggest fall in the European banking index, down three per cent against the index’s 0.75 per cent rise by mid-morning.

Thiam, chief executive of British insurer Prudential, takes over from Credit Suisse veteran Brady Dougan at the end of June.

Until now, the expectation has been that he will further cut Credit Suisse’s investment banking arm to try to balance it more evenly with its less costly private banking activities.

Like larger US rivals, Credit Suisse saw a jump in sales of bonds and shares due to market volatility in the first quarter and said the momentum had continued into the second quarter.

But Credit Suisse still has difficulty in reining in costs. It had to cut its cost savings target of 4.5 billion Swiss francs for this year to between 4 and 4.25 billion francs, citing issues in compliance and regulation.

The bank also warned that future legal bills not covered by provisions could cost it up to 1.8 billion francs.

New capital rules and more electronic trading have squeezed revenue from fixed income, currencies and commodities trading (FICC), putting banks like Credit Suisse under pressure to carefully scrutinise which activities can turn an adequate profit to justify their capital requirements.

The bank’s common equity tier one ratio (CET1), a key measure of its financial strength, dipped in the first quarter to 10 per cent from 10.1 per cent at the end of the fourth quarter.

Overall, Credit Suisse generated net profit of 1.054 billion Swiss francs ($1.10 billion) in the quarter from 859 million francs a year ago, beating the average 1.034 billion francs estimate in a Reuters poll of analysts.

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