Shares of the Swiss banking giant Credit Suisse Group AG (CS) gained more than 1% following the release of its third-quarter 2014 results on Thursday. A year-over-year increase of 126% in profit was the reason behind this optimism.
Net income attributable to shareholders came in at CHF1.03 billion ($1.12 billion), increasing significantly from CHF454 million ($497million) in the year-ago quarter.
Results were aided by strong investment banking performance with increased income from underwriting and advisory as well as fixed income sales and trading. However, higher provision for credit losses and operating expenses were headwinds for the quarter.
Quarter in Detail
Net revenues came in at CHF 6.53 billion ($7.15 billion), up 20% from the prior-year quarter. The rise was primarily attributable to a significant improvement in trading revenues.
Trading revenues stood at CHF 894 million ($979 million) compared with CHF 273 million ($299 million) in the prior-year quarter. Net interest income was CHF 2.15 billion ($2.35 billion), up 12% from the prior-year quarter. Commissions and fees came in at CHF 3.26 billion ($3.57 billion), up 8%.
However, rising expenses and provision for credit losses were on the downside.
Total operating expenses were up 10% year over year to CHF 5.18 billion ($5.67 billion), primarily due to higher overheads costs including general and administrative expenses, compensation and benefits and other operating expenses.
Provision for credit losses came in at CHF 59 million ($65 million), up 44% from the prior-year quarter. Credit Suisse’ estimate for litigation provisions was CHF 1.2 billion ($1.3 billion) at the end of the quarter.
Core Segment Performances
The Private Banking & Wealth Management segment reported net revenue of CHF 2.94 billion ($3.22 billion), almost stable with the prior-year period. Lower net interest income was partially offset by higher transaction-and performance-based revenues.
The Investment Banking unit reported net revenue of CHF 3.41 billion ($3.73 billion), up 24% from the prior-year quarter. The rise was mainly due to higher revenues from underwriting and advisory as well as fixed income sales and trading.
Chief Executive Officer of Credit Suisse, Brady W. Dougan, stated that the company witnessed a “mixed start” in October, with the recent market volatility proving beneficial for certain businesses across both the segments, while adversely affecting others. He also mentioned that while the company has strength in its advisory and underwriting business, fourth-quarter results will be based on the overall market scenario.
Expense Management
Credit Suisse continued with its expense reduction initiatives. As of the end of the third- quarter 2014, Credit Suisse generated expense savings of CHF 3.6 billion ($3.9 billion) on an adjusted annualized basis. The company is on track to achieve its end-2015 total run-rate reduction target of over CHF 4.5 billion ($4.9 billion).
Capital and Funding
As of Sep 30, 2014, Credit Suisse’s Look-Through Swiss Total Capital ratio came in at 15.8%, up from 15.3% in the prior quarter. Also, the Look-through Basel III common equity tier 1 (CET 1) ratio was 9.8%, up from 9.5% in the prior quarter. Notably, the company is optimistic about its Look-through CET1 ratio as it remains “on track” to surpass10% by end of 2014.
The Basel III CET1 ratio was 14.3%, up from 13.8% in the prior quarter primarily due to increase in CET1capital, partially offset by increase in risk-weighted assets.
As of Sep 30, 2014, the Look-Through Swiss leverage ratio was 3.8% as against the regulatory requirement of 4.0% for 2019. The Swiss leverage ratio requirement in 2015 will be 4.1% for 2019.
Our Viewpoint
The company started 2014 on a disappointing note followed by a huge settlement over the U.S. tax evasion case that dragged second-quarter results. However, we remain encouraged by the third-quarter results that exhibited a decent performance.
Prudent business model changes can improve the company’s efficiency and bolster its competitive edge. Further, Credit Suisse’s focus on capital generation and restructuring initiatives are encouraging. Also, the company is making efforts to gradually resolve its legal issues. We expect such efforts to improve the company’s fundamentals and efficiency in the long run.
However, given the challenging macroeconomic environment, we expect Credit Suisse’s earnings to continue to remain under pressure going forward.
At present, Credit Suisse carries a Zacks Rank #5 (Strong Sell).
Other Foreign Banks
Among other foreign banks, India based HDFC Bank Ltd. (HDB) reported second-quarter fiscal 2015 results. The bank recorded net profit of INR23.81 billion ($0.39 billion), up 20.1% year over year.
U.K. based Barclays PLC (BCS) and HSBC Holdings plc (HSBC) are scheduled to report third-quarter results on Oct 30 and Nov 3, respectively.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment