After having to pay a $2.6 billion settlement with US authorities for helping Americans dodge taxes, a Credit Suisse Q2 2014 loss of 700 million francs ($780 million) was better than most analysts had been expecting. It was the largest quarterly loss since 2008.
The company says it is exiting commodity trading.
In the same quarter in 2013, the Swiss banking giant posted a profit of 1.05 billion Swiss francs ($1.17 billion).
Apart from the cost of resolving the litigation issue with US authorities, CEO Brady W. Dougan said second quarter and first half results were also affected by subdued client trading activity in certain areas, which affected the company’s wealth management & investment banking divisions, as well as private banking.
Rumors and uncertainty leading up to the litigation settlement reduced the flow of client money into the bank’s wealth management unit. Bloomberg quotes Peter Stenz, a fund manager at Swisscanto Asset Management, who said “The insecurity before and after the guilty plea certainly didn’t make the business easier.”
Longstanding litigation issue resolved
Mr. Dougan said:
“With the final settlement of all outstanding US cross-border matters as announced in May, we brought to a close the most significant and longstanding litigation issue for Credit Suisse. I want to reiterate that we deeply regret the past misconduct that led to this settlement and that we take full responsibility for it.”
He added that Credit Suisse is on track to improve its Look-through CET 1 ratio to over 10% by the end of 2014. When ten percent is reached, the company plans to return about half its earnings to shareholders through its annual distributions. At the end of the second quarter, the bank’s capital ratio was 9.5%.
Strong growth in Private Banking & Wealth Management in Asia Pacific and Switzerland helped offset poor results in Western European cross border business, “where we are taking proactive steps to regularize our asset base,” Mr. Dougan informed.
Credit Suisse exiting commodities trading
Credit Suisse said its Investment Banking delivered “solid results” in Q2 2014. The restructuring of its macro business, including the exit from commodities trading, is expected to soon place the company in a stronger financial position.
Investors have been calling on Mr. Dougan to radically change the bank’s FICC (fixed income, currencies & commodities) operations. FICC used to represent a major source of the company’s net income, but have suffered considerably since regulations became tougher after the global financial crisis and market activity slowed right down.
The Zurich-based bank resisted calls for a total retreat, but said in the fourth quarter of 2013 that it would reduce its interest rates trading business significantly. It has now joined several other investment banks by exiting commodities trading.
David Mathers, Credit Suisse Chief Financial Officer, said in a briefing to reporters that Q2 performance excluding the impact of the US settlement “was solid”. He added that the bank is on track to reduce necessary costs and rebalance following the settlement. However, he made no forecasts regarding a dividend level for 2014, or how many commodity trading jobs will go.
This year, even some of the huge commodity traders such as Barclays have either considerably trimmed or shut down their commodity trading operations.
Video – Credit Suisse Q2 & H1 2014 Financial Results
In this video, Mr. Dougan shares his thoughts about the bank’s performance during the first six months of 2014, and offers his perspective on the priorities for H2 2014.