Strong Credit Suisse earnings get lukewarm response
By Lisa Jucca of Reuters
ZURICH - Credit Suisse Group AG's forecast-beating third-quarter earnings were given a tepid reception by investors, wary that the bank's fat margins in investment banking could tempt back competitors.
The Swiss bank, which emerged as a winner from the credit crisis, managing without state aid, was upbeat on its prospects after exceeding net profit expectations by a wide margin thanks to strong client inflows and its investment banking business.
"They outperformed their peers in investment banking," analyst with Natixis Securities Sebastien Lemaire said.
"For the time being they are well positioned."
"But earnings sustainability in the future is a tough question to answer."
Shares in Credit Suisse were down 2.1 per cent at 58.80 francs at 2151 AEST, against a 1.8 per cent fall in the DJ Stoxx index of European banks and a 2.6 per cent dip in the stock of Swiss rival UBS.
"The stock has risen so much that investors are now taking profits," a trader said, noting a similar response to Deutsche Bank's better-than-expected results on Wednesday.
The shares have outperformed rivals UBS and Deutsche Bank in the year to date.
Despite fatter margins, analysts pointed to a 16 per cent fall in investment banking revenues from the previous quarter and lower pretax profits and margins at the private banking unit as other reasons behind Thursday's share fall.
Buoyant financial markets in the quarter and improved market share in some investment banking segments helped boost Credit Suisse's results, which came on the heels of strong earnings at US investment banking rivals JP Morgan and Goldman Sachs.
"Whilst the good investment banking results were no fluke, investors will continue to ask how sustainable the good margins are likely to be once the competitors re-enter the markets with force," Heleva analyst Peter Thorne said.
"Margins have held up longer than first expected, but are on their way down."
Credit Suisse, now with a higher market value than domestic rival UBS AG, said on Thursday it made a net profit of 2.4 billion Swiss francs in the three months to the end of September, its best quarter this year.
Analysts polled by Reuters had on average expected the bank to post a net profit of 1.6 billion Swiss francs
"We are confident about our business model and our competitive position. If markets remain constructive, we expect to be able to maintain our momentum," cheif executive officer Brady Dougan said in a statement.
"Even if markets become more difficult, we believe Credit Suisse is still positioned to perform well."
Strong wealth inflows
The private bank unit attracted 13.1 billion francs of net new money, the strongest of any quarter this year.
Analysts said this strength could ease any earnings volatility at the investment bank.
"A repeat of the profit of the investment bank is questionable, but the massive increase of inflows at the private bank makes the case for further profitability," analysts at Wegelin said in a research note.
Credit Suisse's ability to attract 3.9 billion francs of new assets at its asset management unit, which has been suffering outflows, was a positive surprise, traders said.
Credit Suisse, which posted results two days after unveiling a new pay structure, continued to shrink its balance sheet.
Its Tier 1 ratio, a closely-watched measure of capital strength, rose to 16.4 per cent, confirming it as one of the best-capitalised banks in the world.
Chief financial officer Renato Fassbind said the strong capital base would give the bank room for small or medium-sized acquisitions and was also enabling it to accrue a "more normalised" dividend.
Credit Suisse's investment bank reported third-quarter pretax profit of 1.7 billion francs.
"We continue to see potential on the investment banking side," Mr Fassbind said, adding market conditions in October were consistent with the positive trend seen at the end of September.
Credit Suisse, which has won market share in key segments, ranked number five in terms of investment banking revenue, making it the largest non-US investment bank ahead of UBS and Deutsche Bank AG, Vontobel and Dealogic data showed.
UBS, which reports on November 3, may not be able to benefit fully from the positive market trend as it shed some investment banking units as part of its restructuring.
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