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Credit Suisse expected to report biggest quarterly loss since 2008

ZURICH (Reuters) – Credit Suisse is expected to report its biggest quarterly loss since Lehman Brothers collapsed in 2008 when it publishes results on Tuesday, due to a 1.6 billion Swiss franc ($1.78 billion) charge from a May settlement with U.S. authorities over tax evasion charges.

The results will also show whether clients have pulled their money from Credit Suisse’s wealth management business in the wake of the bank’s guilty plea to a U.S. criminal charge as part of the settlement. The bank has said it expects little impact on the business.

Credit Suisse is expected to swing to a 581 million franc group loss for the second quarter, adding to pressure on the bank to make deeper cuts to its investment bank division, where tough regulation and low interest rates have squeezed earnings across the industry.

Credit Suisse, like larger rival UBS, is relying more heavily on its wealth management business because of the pressures on investment bank profits.

UBS now aims to earn 80 percent of profits from private banking once it completes a withdrawal of many riskier parts of investment banking.

Credit Suisse’s private bank is bigger than its investment bank but the investment bank is still a major profit driver: the division had 2.243 billion francs in pretax profit last year, compared to 3.686 billion from the private bank.

But the Swiss bank has been criticised by some investors for not going as far as UBS in making radical cuts to the trading division at its investment bank.

Last week in the United States, Goldman Sachs Group Inc, JPMorgan Chase & Co and Citigroup Inc recorded a 10-15 percent drop in second quarter revenue from fixed-income, currency and commodities (FICC) as a lack of volatility discouraged trading during the quarter.

There is some debate over whether the slide in revenues is structural or cyclical.

“Credit Suisse sees trends in investment banking as cyclical not structural,” analysts with German private bank Berenberg wrote in a note. “As a result, we believe Credit Suisse will continue to disappoint on earnings and capital return to shareholders.”

The bank has already cut parts of its investment bank, including areas such as its interest rate trading, which it says will eventually allow double-digit capital returns from its core investment bank, including its equities and advisory divisions, to shine through.

Peter Stenz, a fund manager at Zurich-based Swisscanto, is satisfied with the pace and manner of Credit Suisse’s cutbacks.

“More regulation does not automatically have to be unfavourable for investment banks: certain business volumes may become larger, and margins fatter, if other banks withdraw.”

Swisscanto owns shares in Credit Suisse worth roughly 150 million francs at current market prices.


Credit Suisse shares have struggled compared to the European bank index. The stock is down nearly 5 percent this year, compared with a roughly 1.5 percent fall in the sector and a 2.8 percent drop in UBS, its closest rival.

In terms of trading, Credit Suisse’s finance chief David Mathers told investors at the end of May that second-quarter trading was down a mid-teen percentage on the year before converting from U.S. dollars to Swiss francs, the bank’s reporting currency. In the first quarter, trading equities and debt were down 18 percent.

Chief Executive Brady Dougan, who has faced criticism from shareholders over the U.S. tax case and strategy for the investment bank, told investors in May: “Not all investment banking business is the same.”

Dougan highlighted that the bank had reduced the size of its balance sheet by cutting cut 11 billion francs in leverage in the first three months of this year, and 4 billion francs of risk-weighted assets, and wanted to achieve a return-on-equity – a measure of profitability – of more than 15 percent.

The measure stood at 8 percent in the first quarter. Stripping out the activities Credit Suisse has declared as no longer strategic and is offloading, the ROE stood at 14 percent in the first quarter.

The bank also cut spending by 3.4 billion francs, well into a target of 4.5 billion francs by the end of next year.

In the wake of the bank’s settlement with U.S. authorities over tax evasion, Credit Suisse chairman Urs Rohner told the Neue Zuercher Zeitung in May that the bank was thinking of stepping up the pace of cutbacks to risk-taking at the investment bank. The bank has not commented since.

(Additional reporting by Oliver Hirt and Joshua Franklin. Editing by Jane Merriman)

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