Credit Suisse Group (CS) reported fourth quarter net income attributable to shareholders of CHF 816 million ($894.8 million) or CHF 0.17 per share, compared to the year-ago quarter’s loss of CHF 632 million ($693.1 million) or CHF 0.62 per share. For full-year 2012, net income attributable to shareholders came in at CHF 3.8 billion ($4.2 billion), surging 99% from the last year.
Amid an uncertain macroeconomic environment, higher net revenues, aided by higher net interest income boosted Credit Suisse’s results. Further, reduced operating expenses and a strong capital position were the other positives for the quarter.
However, after adjusting for certain one-time items, Credit Suisse’s net income came in at CHF 397 million ($435.4 million) in the reported quarter. This was substantially higher than the net loss of CHF 637 million ($698.5 million) in the prior-year quarter.
Quarter in Detail
Net revenues were CHF 5.8 billion ($6.4 billion), up 29% from the prior-year quarter. The rise reflected higher net interest income, increased commissions and fees income as well as elevated other revenues. Net interest income stood at CHF 1.9 billion ($2.1 billion), climbing 17% from the prior-year quarter.
Net revenues for full-year 2012 reached CHF 24.0 billion ($26.3 billion), down 9% year over year.
Private Banking & Wealth Management segment reported net revenues of CHF 3.3 billion ($3.6 billion), increasing 8% from the prior-year period. The Investment Banking unit reported net revenues of CHF 2.7 billion ($3.0 billion), substantially up from the prior-year quarter.
Notably, effective Nov 30, 2012, the company integrated its Private Banking and Asset Management divisions into a single, new Private Banking & Wealth Management division. Moreover, it transferred majority of the securities trading and sales business in Switzerland from Investment Banking into Private Banking & Wealth Management.
Total operating expenses were recorded at CHF 5.1 billion ($5.6 billion), down 6% from the prior-year quarter. The decline was primarily attributable to reduced compensation and benefits expenses as well as lower commission expenses, partly offset by a rise in general and administrative expenses. In the reported quarter, business realignment costs of CHF 285 million ($312.5 million) were incurred in the Corporate Center segment.
Expense-saving Initiatives
Credit Suisse continued with its expense run-rate reduction initiatives. After achieving CHF 2.0 billion ($2.2 billion) of expense reductions in 2012, the company increased its cost reduction target to CHF 3.2 billion ($3.5 billion) in 2013 and raised its total target by CHF 0.4 billion to CHF 4.4 billion ($ 4.8 billion) by the end of 2015.
Capital and Funding
As of Dec 31, 2012, Credit Suisse reported a Basel 2.5 core tier 1 ratio of 15.6% and a Basel 2.5 tier 1 ratio of 19.5%, up 90 and 100 basis points (bps), respectively, from the prior quarter. Additionally, these were compared with 10.7% and 15.2% from the prior-year quarter, respectively.
As of the end of the reported quarter, Credit Suisse recorded a Basel 2.5 total capital ratio of 22.3%, up 1.1% as of Sep 30, 2012.
Notably, in Oct 2012, the company announced measures to reduce total balance sheet assets by 13% to below CHF 900 billion by the end of 2013 on a foreign-exchange neutral basis. As of Dec 31, 2012, the total balance sheet assets were CHF 924 billion, down 10% from Sep 30, 2012 and 12% from Dec 31, 2011. As of Dec 31, 2012, the company’s Financial Market Supervisory Authority (FINMA) leverage ratio stood at 5.8%, up from 5.2% in the prior quarter and 4.6% in the prior-year quarter.
Peer Performance
UBS AG (UBS), another Swiss banking major, reported fourth-quarter net loss attributable to shareholders of CHF 1.9 billion ($2.0 billion) or CHF 0.50 per share, which substantially lagged the prior-year quarter’s profit of CHF 323 million ($354 million) or CHF 0.08 per share. This compared favorably with prior quarter’s loss of CHF 2.1 billion ($2.2 billion) or CHF 0.57 per share.
The quarterly results were primarily affected by net charges for provisions for litigation and regulatory matters as well as net restructuring charges and own credit loss.
However, after adjusting for own credit loss along with restructuring and regulatory charges, UBS AG’s adjusted pre-tax loss came in at CHF 1.2 billion ($1.3 billion) in the reported quarter. The company experienced lower net interest and trading revenues excluding own credit, while net fee and commission income and other income increased. Further, decreased operating expenses acted as a tailwind for the quarter.
Our Viewpoint
In our viewpoint, given the stressed operating environment, earnings of Credit Suisse will remain under pressure in the upcoming quarters. However, prudent business model changes can lead to improvement in efficiency and bolster its competitive edge.
Amid the uncertain regulatory environment and the Eurozone debt crisis, the company will focus on generating capital. Its restructuring initiatives are also encouraging. We believe that such efforts would improve the company’s operating efficiency in the future.
Credit Suisse retains a Zacks Rank #2 (Buy). Other, foreign bank stocks that are performing well include BNP Paribas SA (BNPQY) and ICICI Bank Ltd. (IBN). Both these stocks carry a Zacks Rank #2.
CREDIT SUISSE (CS): Free Stock Analysis Report
ICICI BANK LTD (IBN): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
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