(The following statement was released by the rating agency)
MILAN/LONDON, April 24 (Fitch) Fitch Ratings says that Credit Suisse AG
('A'/Stable/'a') reported solid profits in Q113, typically a seasonally strong
quarter, on both a headline and underlying basis. Improvements in capital ratios
were consistent with Fitch's expectation that Credit Suisse will continue to
narrow the gap to leading peers and the bank maintained its strong liquidity and
funding profile. The bank has also demonstrated its ability to deliver on cost
reduction targets in the investment bank, and the realisation of planned cost
savings in infrastructure and in the non-investment banking businesses would
help to boost group efficiency further.
Group net profit was CHF1,303m for Q113 on a headline basis or CHF1,370m when
adjusted to exclude a CHF80m loss from movements in own-credit spreads, a 19%
rise compared to similarly-adjusted profits of CHF1,154m in Q112 and equivalent
to a solid 20% return on tangible common equity. Investment banking (IB)
activities tend to show seasonal strength in Q1 and Fitch would not expect
returns to recur at this level in the subsequent quarters of this year,
particularly as Q113 revenue benefited from the good performance of the bank's
wind-down portfolio, although management expects this to generate moderate
losses of up to CHF400m for FY13.
IB division pre-tax profits of CHF1.3bn showed a substantial YoY increase on a
headline basis. However, this was largely due to the non-recurrence of a CHF411m
one-off compensation expense in the prior year, with profits largely flat on an
underlying basis. Nonetheless, the bank achieved the same level of net revenue
in IB despite a 17% fall in average Basel III risk-weighted assets (RWA) in the
division. Credit Suisse calculates a return on allocated Basel III capital
(allocating 10% of Basel III RWA) of 23% for the division in Q113, an
encouraging indicator of the viability of the bank's capital markets businesses
under the future regulatory environment and current market conditions.
Fixed income revenues rose 3% YoY on a headline basis (down 9% if prior-year
wind-down losses are excluded), while equities revenues fell 5% YoY - broadly
consistent with trends at US peers. The divisional cost/income ratio of 67% was
down 10pp compared to the prior year on a headline basis (flat when the
aforementioned PAF2 expense in the prior year is ignored) although Fitch expects
this metric to seasonally deteriorate as the year progresses. Headcount fell 1%
YTD (and down 8% from its Q311 peak), and the bank announced that the bulk of
its planned IB cost reduction target of CHF1.8bn has been achieved.
Wealth Management Clients (WMC) division pre-tax profit of CHF511m (including a
CHF34m disposal gain on JO Hambro) was down 2% compared with Q412 on an
underlying basis as the gross margin remained under pressure from low interest
rates. Excluding the disposal gain, the gross margin fell to 108bps in Q113,
from 110bps in Q412 (118bps in Q112) and management indicated that a further
2-3bps margin compression is expected during 2013. Costs were down 4% YoY, but
up 2% vs. Q412, partly attributed to some lumpy costs (IT impairments, pension
costs) in Q1. The bank targets a further CHF750m cost reduction in private
banking and wealth management by 2015, indicating that most of the savings would
be realised in 2014 and 2015. WMC net new asset inflows of CHF5.5bn (annualised
2.8% of AuM) remained solidly positive, despite ongoing headwinds from European
cross-border outflows, and the bank has managed to increase the share of AuM
related to more profitable ultra-high net-worth individuals, which accounted for
42% of average Q113 AuM of CHF820bn in the WMC division.
Credit Suisse's fully-loaded Basel III Common Equity Tier 1 (CET1) ratio rose
0.5pp vs. Q412 to 8.6% as of end-March 2013 (8.8% pro forma for planned
divestments), further narrowing the gap to leading peers, consistent with
Fitch's expectations. Management has reiterated that it intends to reinstate a
capital return policy once their Swiss core capital (SCC) ratio (which includes
some preferred notes) exceeds 10% (9.6% as of Q113) and indicated that Q113
capital ratios include a dividend accrual consistent with this objective. The
company further commented that a decision on whether to exercise the call option
on preferred perpetual notes that are included in SCC would be taken at the end
of the year.
Total assets saw a modest 2% expansion YTD, seemingly FX-driven, to CHF947bn,
although management reiterated their end-2013 target of <CHF900bn. Credit
Suisse's Swiss Basel III leverage ratio rose modestly by 8bps to 2.50%. The
bank's liquid asset buffer reached CHF135bn as of Q113 (14% of total assets) up
from CHF127bn at end-2012. Liquidity and funding remain key ratings strengths
for Credit Suisse.
+39 02 87 90 87 212
Fitch Italia S.p.A.
V.lo S Maria alla Porta, 1
+44 20 3530 1225
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email:
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