Credit Suisse posts first loss in three years on revamp

Credit Suisse Group AG, the second- biggest Swiss bank, said it had a loss in the fourth quarter for the first time since 2008, hurt by “adverse markets” and costs to reorganise the investment bank.

The net loss amounted to 637 million Swiss francs ($698m), compared with an 841m-franc profit in the year- earlier period, the Zurich-based bank said in a statement today. That missed the 446m-franc average profit estimate of nine analysts surveyed by Bloomberg.

Credit Suisse Chief Executive Officer Brady Dougan said measures taken to accelerate a revamp of the investment bank hurt earnings in the quarter. Dougan, who lowered the company’s profit target and announced two rounds of job cuts last year, is scaling down the securities division as the European sovereign debt crisis and stricter capital requirements hurt profitability.

“Whilst cost saves should come through in 2012, we continue to see pressure from the impact of de-leveraging on revenues and from macro uncertainties,” Morgan Stanley analysts Hubert Lam and Huw van Steenis said in a note before today’s earnings release. They have an “equal-weight” rating on Credit Suisse.

Credit Suisse gained 14 per cent in Zurich trading this year, compared with a 17 per cent increase at UBS AG, Switzerland’s largest bank, and a 19 per cent jump in the 43- company Bloomberg Europe Banks and Financial Services Index.

The company will propose a cash distribution to shareholders of 75 centimes a share for 2011, down from 1.30 francs a share for the previous year.

Credit Suisse said in November it will cut risk-weighted assets by 110 billion francs, including some 99bn francs at the investment bank’s fixed-income unit, by the end of 2014. About 80bn francs of risk-weighted asset reductions were planned for this year. The bank now aims to complete the plan for 2012 by the end of the first quarter.

The acceleration of the risk-reduction plan and charges for job cuts cost the bank 981m francs in the fourth quarter. The bank announced 3,500 job cuts last year to help it save about 2bn francs in annual costs by the end of 2013.

“Our performance for the fourth quarter 2011 was disappointing,” Dougan said in the statement. “It reflects both the adverse market conditions during the period and the impact of the measures we have taken to swiftly adapt our business to the evolving market and regulatory requirements.”

“We are taking these steps in order to reduce risk and deploy our balance sheet to our client-focused growth businesses, which offer attractive returns in the new environment,” he said.

Credit Suisse’s investment bank reported a pretax loss of 1.31bn francs, its second consecutive quarterly loss, as revenues slumped 64 per cent in the fourth quarter. Revenue from debt trading was hurt by 469m francs in losses related to businesses the bank is exiting and the reduction in risk- weighted assets, it said. The securities unit’s risk-weighted assets were cut by 35bn francs in the fourth quarter on a Basel 3 basis.

UBS reported two days ago a 76 per cent drop in fourth- quarter profit and a 256m-franc pretax loss at the investment bank as the debt crisis curbed trading. Deutsche Bank AG, Germany’s biggest bank, recorded a 76 per cent slump in quarterly earnings last week as its investment bank posted a €422m ($560m) pretax loss.

Dougan, 52, cut Credit Suisse’s profitability goal last February, blaming stricter capital requirements. The bank now aims for a return on equity of more than 15 per cent over the next three to five years, down from a previous goal of more than 18 per cent. Tougher rules from the Basel Committee on Banking Supervision and Swiss regulators will require the company to hoard more capital for its securities business.

The private bank saw pretax profit drop 43 per cent to 467m francs in the fourth quarter, hurt by “subdued” client activity. The division added 7.6bn francs in net new money from clients in the quarter. Earnings in asset management slumped 52 per cent to 87m francs, as clients removed a net 9.6bn francs in the quarter.

Credit Suisse is seeking to boost the private bank’s pretax profit by 800m francs by 2014 as sluggish client activity squeezes margins. The bank said in November it will integrate its Clariden Leu unit with the rest of the private-banking division to reduce costs.

The bank plans to expand the business with ultra-high-net- worth individuals and with clients who book assets in their countries of residence. Hans-Ulrich Meister, who has been heading the private bank since August, is also splitting the European wealth-management business into two units to focus on diverging trends in emerging and mature markets.

Credit Suisse agreed in September to pay €150m to settle proceedings in Germany against employees probed for allegedly helping German clients evade taxes. The bank also set aside 295m francs for US tax matters in the third quarter.

The bank is a target of a criminal investigation by the US Department of Justice over former cross-border private- banking services to American customers, the company said in July. Eight bankers, including Credit Suisse’s former head of North America offshore banking, were charged with conspiring to help American clients evade taxes through secret bank accounts.

Credit Suisse is cooperating with the authorities in the US and Switzerland “to resolve this matter in a responsible manner that complies with its legal obligations,” the bank said.