Credit Suisse Group AG (CS) reported impressive fourth-quarter 2014 earnings. Net income attributable to shareholders came in at CHF 921 million ($954.8 million) compared with loss of CHF 476 million ($526.8 million) in the year-ago quarter.
Higher net revenues aided by elevated net interest income were a positive for the quarter. Moreover, effective cost control measures helped lower operating expenses. Yet, higher provision for credit losses was on the downside.
For full-year 2014, net income attributable to shareholders came in at CHF 2.1 billion ($2.3 billion), down 10% year over year.
Performance in Detail
Net revenues came in at CHF 6.4 billion ($6.6 billion), up 8% from the prior-year quarter. The rise was primarily due to a 59% increase in other revenues.
Net interest income was CHF 2.1 billion ($2.2 billion), up 22% from the prior-year quarter. Commissions and fees came in at CHF 3.2 billion ($3.3 billion), down 6.0% year over year.
Total operating expenses were down 20% year over year to CHF 5.1 billion ($5.3 billion), primarily due to lower general and administrative expenses.
Provision for credit losses came in at CHF 75 million ($77.8 million), up 42% from the prior-year quarter.
Core Segment Performances
The Private Banking & Wealth Management segment reported net revenue of CHF 3.2 billion ($3.3 billion), down 6% from the prior-year period. The decline was primarily due to lower net interest income as well as recurring commissions and fees in the segment.
The Investment Banking unit reported net revenue of CHF 2.5 billion ($2.6 billion), down 8% from the prior-year quarter. Revenues were negatively impacted by the recognition of funding valuation adjustments.
Capital and Funding
As of Dec 31, 2014, Credit Suisse’s Look-Through Basel III Total Capital ratio came in at 16.5% compared with 15.8% in the prior quarter. Also, the Look-through Basel III common equity tier 1 (CET 1) ratio was 10.2%, compared with 9.8% in the prior quarter. Notably, the ratio exceeded the year-end target of 10%, though it was below the long-term target of 11.0%.
As of Dec 31, 2014, the Look-Through Swiss leverage ratio was 3.9%, compared with 3.8% as of Sep 30, 2014. Notably, the current requirement for 2019 is 4.0%. In 2015, the Swiss leverage ratio for 2019 should be 4.1%.
The Basel III CET1 ratio was 15.0%, up from 14.3% in the prior quarter primarily due to a modest decrease in risk-weighted assets and increase in CET1 capital. The total capital ratio increased to 20.9% compared with 20.1% in the prior quarter.
Basel III risk-weighted assets declined slightly on a sequential basis to CHF 291.4 billion ($302.1 billion) at the end of the quarter, owing to reduced credit risk, partially offset by the foreign exchange translation impact.
Management targets additional Group leverage exposure reductions of about CHF 230 billion, expecting a new target range of CHF 930–950 billion by end-2015 on a foreign-exchange adjusted basis. Further, expected Look-through leverage ratio, including high and low trigger instruments is about 4.5% by end-2015, of which the tier 1 component is anticipated to be about 4.0% and the CET1 component to be 3.0%.
Our Viewpoint
Prudent business model changes can improve the company’s efficiency and bolster its competitive edge. Credit Suisse’s focus on capital generation and restructuring initiatives are encouraging. Also, the company is making efforts to gradually resolve its legal issues. However, given the challenging macroeconomic environment, we expect Credit Suisse’s earnings to remain under pressure going forward.
Currently, Credit Suisse carries a Zacks Rank #4 (Sell).
Competitive Landscape
Deutsche Bank AG (DB) reported net income of €441 million ($551 million) in the fourth quarter of 2014, compared with loss of €1.37 billion ($1.86 billion) in the prior-year quarter. Notably, in the reported quarter, the bank recorded income tax benefit of €189 million ($236 million), primarily due to changes in the recognition and measurement of deferred taxes.
Mitsubishi UFJ Financial Group Inc. (MTU) reported net income of ¥926.9 billion ($8.71 billion) for nine months (ended Dec 31) of fiscal year ended Mar 31, 2015, up from net income of ¥785.4 billion ($7.93 billion) in the year-ago period. For the period under review, rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits along with strong loan and deposit growth were the positives. However, increase in G&A expenses negatively impacted the results.
Among other foreign banks – The Royal Bank of Scotland Group plc (RBS) is scheduled to report December quarter-end results on Feb 26.
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