Credit Suisse posts loss of $2.3 billion on litigation

Credit Suisse Group posted a fourth-quarter loss of 2.35 billion francs ($2.34 billion) after taking a charge to settle a US investigation into the role of its mortgage securities business in the 2008 financial crisis.

The shortfall, resulting in the second consecutive annual loss for the Swiss bank, was bigger than the 2.07 billion-franc loss predicted on average by seven analysts surveyed by Bloomberg. The bank put aside 2.17 billion francs to top up legal provisions, including for its $5.3 billion settlement with the US Justice Department, the Zurich-based lender said in a statement on Tuesday. 

The settlement was a “game-changer for us,” Chief Executive Officer Tidjane Thiam said in an interview with Bloomberg Television. “What it does is that it leaves us in a more comfortable position to look today at our capital planning.”

Thiam said cost-cutting is ahead of schedule and an improved market sentiment for banks that boosted trading in the fourth quarter has continued this year. While the bank is still working on an initial public offering of its Swiss unit in the second half of this year to bolster its capital, it is considering other options and has some time to make a decision.

“It’s a very good option, it’s on the table, we’re working on it,” he said in the interview. “But of course, as you would expect, it’s what we’re paid for, we look at other options as well, continuously.”

While the settlement resolved a major source of legal uncertainty for the bank, it put a dent in its capital buffers. Credit Suisse reported a look-through common equity Tier 1 ratio, a measure of financial strength, of 11.6 per cent at the end of December, down from 12 per cent at the end of September. Credit Suisse is targeting 13 per cent by the end of 2018.

Like other big European lenders, Credit Suisse is reining in spending under pressure from low interest rates and rules requiring banks to hold more reserves. Thiam stepped up cost cuts in December for the second time since he presented his strategy in late 2015. Investment bankers in New York and London bore the brunt of some 6,000 jobs eliminated last year.

The CEO said last month that the bulk of the job cuts in the global markets division are behind it but investors may have to wait until 2018 to see the full benefits. The firm expects this year to be better for equities- and fixed-income trading, Thiam said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland.

The stock is up one per cent this year, compared with a 2.6 per cent increase in the Bloomberg Europe 500 Banks and Financial Services Index. Credit Suisse is proposing an unchanged dividend of 70 centimes a share, with an option to receive stock instead.

Global markets

The global markets division led by Brian Chin, which houses securities trading outside the Asia-Pacific region and Switzerland, generated 5 million francs in pretax profit . Losses on trading positions contributed to a setback of 3.3 billion francs a year ago. Credit Suisse benefited from a pickup in bond trading during the quarter, with revenue up 66 percent to 612 million francs. Revenue from equities trading fell 16 per cent to 445 million francs.

Thiam has scaled back debt trading, the business implicated in the mortgage securities case. The probe arose from claims that Credit Suisse, like other big banks, bundled unsuitable mortgages into securities that contributed to the crisis when the US housing market collapsed. The settlement doesn’t include related claims by failed US credit unions, a case set for trial in March barring a settlement.

Bond trading surged in the three months through December after Donald Trump won the US presidential election and the Federal Reserve raised its key interest rate target.

Asia-Pacific

The Asia-Pacific unit led by Helman Sitohang swung to a pretax profit of 103 million francs from a year earlier.

The international wealth management led by Iqbal Khan also swung to a profit of 331 million francs boosted by a real-estate disposal, with net new assets of 400 million francs compared to outflows of 4.2 billion francs in the previous-year quarter.

The Swiss Universal Bank posted pretax profit of 382 million francs, up 5 per cent.

Investment Banking and Capital Markets swung to a profit of 149 million francs, driven by a rise in debt underwriting, from a 477 million-franc loss a year earlie

Source :Times Of Oman