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Credit Suisse unveils another change of course

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EUROPE’S most troubled big banks may at last be on the road to recovery. Not only is economic growth perking up; uncomfortable decisions, put off too long, are also being taken. In recent months UniCredit, Italy’s largest lender, has written down bad debt by €8.1bn ($8.7bn) and tapped shareholders for €13bn. Deutsche Bank, Germany’s biggest, has raised €8bn in equity and decided to keep a retail business it had hoped to sell. On April 27th it reported first-quarter net income of €575m, up from €236m a year earlier, although revenue fell.

Like Deutsche, Credit Suisse is freer to make plans after a recent settlement with American authorities over mis-selling mortgage-backed securities before the financial crisis. On April 26th Switzerland’s second-biggest bank reported first-quarter net income of SFr596m ($594m), far better than forecast, reversing a SFr302m loss a year before. Along with most of Wall Street, which published earnings earlier in the month, and Deutsche it benefited from a good quarter for fixed-income trading. It expects to wind up a unit in which it has dumped unwanted assets by the end of 2018, a year ahead of schedule.

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Credit Suisse’s chief executive, Tidjane Thiam, has also ditched a plan to float 20-30% of the group’s Swiss universal bank—part of a scheme, conceived in 2015, to raise SFr9bn-11bn of capital. He now intends to bring in SFr4bn through a rights issue. (Share sales in 2015 raised SFr6bn.)

Shareholders had never been keen on the flotation, which would have diluted their returns from the division that contributes most to Credit Suisse’s profits. A climb in the share price, by more than 50% since July, has made a rights issue more attractive. The issue will lift Credit Suisse’s ratio of common equity to risk-weighted assets (a key gauge of banks’ strength) from 11.7% to 13.4%. That boosts it from a middling position among its European peers, but still leaves it behind Deutsche and UBS, its bigger Swiss neighbour.

Mr Thiam claimed the quarterly figures endorsed a strategic shift towards Asia which he announced 18 months ago. He considers the region’s newly rich to be ideal clients for a bank which can meet the needs of both their businesses and their families. Credit Suisse’s Asian division, like the Swiss universal bank, provides wealth management and investment banking locally. Functional divisions serve the rest of the world. To many, this structure looks lopsided. Mr Thiam is sure that it is working. The Asian wealth-management business saw profits rise by two-thirds in the year to the first quarter. The region’s markets business tumbled into loss, but Mr Thiam insists that a change of management will help turn it around.

All this should placate shareholders, who have had plenty to grumble about—and whom Mr Thiam faces at the annual meeting on April 28th. This month he and other executives gave up 40% of their latest bonuses, which had been criticised by advisers to institutional investors. The bosses had hit their targets, but the bank lost money in 2015 and 2016. Better luck this year.

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