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Credit Suisse earned significantly less in the third quarter of 2020 than in the previous year.
Credit Suisse disappointed the market with its quarterly results. Despite a strong foundation from the previous year, analysts had expected better figures up front. Various additional costs and unfavorable exchange rates threw the bank through the bill.
Net profit collapsed in the summer quarter compared to the previous year by 38 percent to 546 million francs. The profit before tax was 803 million francs, 30 percent less than the previous year. However, in the third quarter of 2019, the sale of the InvestLab fund platform to Allfunds generated an additional profit of 327 million.
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There were also several costs in the reporting quarter. For example, there were new provisions for credit risks amounting to € 94 million, the bank announced on Thursday. In the first nine months of 2020, it was nearly one billion Swiss francs with a total of 958 million, compared to an average of 126 million over ten years.
Group restructuring costs
The ongoing restructuring of the group weighed on the last result with 107 million. The bank now wants to save between 400 million and 450 million gross starting in 2022. When the “strategic initiatives” were announced at the end of July, the expected savings were estimated at 400 million annually.
In addition, in the third quarter, additional provisions were recorded for “significant” litigation for a total of 152 million. The bank also suffered currency effects, particularly due to the weakness of the US dollar in the quarter. CS calculates the negative net effect on profit before tax at 103 million francs. There is no such effect at UBS, as the largest Swiss bank reports its figures in dollars.
With the figures released, analysts’ forecasts were lost at all levels.
Return on tangible equity (RoTE), by which the bank measures its profitability, fell to 5.4 percent in the third quarter. In the first nine months of 2020, CS reaches 9.8 percent. In the medium term, the target figure should be between 10 and 12 percent.
Most profitable investment banking
However, adjusted for the InvestLab sale and at constant exchange rates, the pre-tax profit of 1.2 billion is 41 percent higher, the bank calculated. Net income would also have increased by 11 percent to 5.5 billion.
In terms of divisions, the Investment Bank in particular – again a single unit from this quarter – was strong. Profit before taxes increased 31 percent to $ 405 million. The result from international asset management, however, fell 58 percent to 215 million. The reasons given included lower investment income and unfavorable changes in exchange rates and interest rates. In the Swiss business, profit before tax fell 24 percent to 430 million francs.
In total, revenue reached 5.2 billion Swiss francs, a decrease of 2 percent. With business expenses of 4.3 billion, the cost / income ratio was around 83 percent.
New money of 18 billion
In the July to September period, the bank received net new money of CHF 18 billion, of which CHF 11.1 billion came from asset management. Assets under management increased to 1.478 billion at the end of September, after 1.443 billion at the end of June.
Looking ahead, it was said that it was not yet clear how the pandemic would unfold. He is watching the current situation with the increasing number of infections, CEO Thomas Gottstein said in a conference call with analysts.
However, transaction volumes and business activity in the investment banking and wealth management businesses are expected to remain high in the prevailing environment. Clients would react to macroeconomic uncertainties.
Meanwhile, share buybacks suspended due to the crown crisis will resume in January 2021. Shares worth at least CHF 1 billion and up to CHF 1.5 billion will be purchased next year.
CS plans to buy back shares for at least CHF 1.0 billion next year
Credit Suisse plans to buy back shares starting next year. The board of directors approved a share buyback program of up to 1.5 billion francs by 2021, the bank announced Thursday along with quarterly figures.
A buyback of at least 1 billion Swiss francs is expected for the full year of 2021, provided, however, adequate economic and market conditions are limited. Share buybacks are expected to begin in January 2021, according to the large bank. The latest 1.5 billion share buyback program was suspended shortly after the start of the corona pandemic. At that time, 28.5 million shares had been bought back with a value of 325 million.
As is known, at Finma’s request, the bank divided the dividend payment for the fiscal year 2019. The first half of 0.1388 francs per share had already been approved or paid in spring, the second half will be voted on at a general meeting extraordinary on November 24. “We are well capitalized and well positioned for further balance sheet growth. In this context, we are pleased that we can propose the payment of the second half of our dividend for 2019 and that we are accumulating more reserves for a 5% higher dividend in 2020. for our shareholders, “said CEO Thomas Gottstein in the press release.
For the full year 2021, the bank expects a capital distribution to shareholders of around 1.8 to 2.3 billion francs as part of the planned share buyback program and an expected 2020 dividend of around 765 million francs.
Credit Suisse will distribute a smaller share of profit in 2020 due to Corona
The return of capital to Credit Suisse shareholders will be significantly lower this year due to the crown crisis. In view of the sharp drop in the share price, they shouldn’t like that at all. It is currently losing 6.1 percent at CHF 8.55. In the current year, the minus sign adds up to more than 34 percent.
In 2020, only about a third of the profits will be distributed, CEO Thomas Gottstein explained in an online press conference in the third quarter on Thursday. Following the distribution of the second tranche of dividends for fiscal year 2019, which shareholders will vote on at the end of November, the distribution will total 719 million francs.
In addition, there are 325 million francs that shareholders received through share buybacks. When the program was suspended by Corona, 28.5 million of its own titles had been acquired. In total, it comes to a sum of about 1 billion francs, Gottstein said.
Flexibility through share buybacks
Given 3 billion francs in the first nine months of 2020, even if nothing was earned in the fourth quarter, the profit share would be a third at most, as Gottstein pointed out. Credit Suisse’s goal is to distribute at least 50 percent of net earnings through dividends and share buybacks.
Even the target, which will not be reached this year, is much lower than many other comparable competitors, which would often be lowered by 80 to 90 percent, the CEO admitted.
The resumption of share buybacks in January has been announced for 2021. But even there it cannot be ruled out that these may be suspended again, depending on the market environment, he said with a view to worsening the situation with the corona virus. Due to this flexibility, the combination of dividends and share buybacks is favored.
In 2021, shares with a value of at least CHF 1 billion and up to CHF 1.5 billion will be acquired. With an expected dividend for fiscal 2020 of around 765 million, the bank expects a total capital distribution to shareholders of around 1.8 billion to 2.3 billion.
Credit Suisse shares are under heavy pressure after disappointing quarterly results
Credit Suisse (CS) shares had a very difficult time Thursday: The Swiss bank missed even the most pessimistic analyst estimates in the last third quarter. It is precisely the combination of diminishing revenues and higher costs that is a topic of conversation among experts.
CS’s stake temporarily lost 5.91 percent to 8.57 francs. The day before, the newspaper had lost 3.6 percent. The last time CS stock traded clearly below its current level was in May, before it plunged to the Corona low of 6.18 francs in March.
According to analysts, numerous one-off factors came into play again in the third quarter. It refers to provisions for credit risks, negative currency effects and restructuring costs. The fact that the big bank had to deal with declining revenue on the one hand, but also increasing costs on the other, cannot be overlooked, my market participants.
According to Vontobel, the adjusted profit before taxes was, like most of its competitors, above estimates, in CS, yet it was only 10 percent, while it was 53 percent in UBS. According to analysts at ZKB, the performance was the most negative surprise. The 5.7 percent adjusted return on equity is also not a factor driving a positive price reaction, according to one comment.
In individual business areas, both International Wealth Management and Swiss Universal Bank are quite disappointing. In addition, the Corporate Center again recorded a high loss. Investment banking, on the other hand, knows how to shine. The contribution of this division to profit before taxes is significantly better than expected. The same applies to the Asia Pacific earnings contribution.
Still, the numbers are weaker than those of the competition, is the initial assessment of Goldman Sachs analysts. He does not believe that the figures in the “investment case” (rating neutral) will change anything, according to UBS.
In trading, the disappointing performance of the CS stock compared to the values of the two rivals UBS and Julius Baer is a pervasive theme. In the run-up to the release of the quarterly results, CS shares returned to their late-May level. The garland of numbers at hand now shows that the CS did not take on the somewhat thankless role of this year’s backlight for no reason, one said.
Zurich (awp)
