Credit Suisse enjoys advisory and FICC boost
Credit Suisse’s investment bank was smaller but more lucrative during the third quarter, boosted by stronger performance from its advisory bankers and fixed income traders, giving hope that European firms enjoyed as profitable a summer as their US rivals.
The Swiss bank, which is the first large universal European bank to report its results, this morning reported that pre-tax profits at its investment bank reached Sfr508m ($544m), up 33% from Sfr383m in the second quarter. In the third quarter last year, it made a loss of Sfr720m before taxes.
The increase in pre-tax profits came despite ongoing efforts to reduce risk weighted assets, which were down 2% quarter-on-quarter. The bank also confirmed it is on track for Sfr3bn in cost cuts in 2012, though operating costs increased marginally quarter-on-quarter.
Revenues in the primary markets across equity, debt and M&A were up 35% from the second quarter, reaching Sfr868m, and the highest since the second quarter of 2011. M&A fees were the highest in seven quarters, since the last three months of 2010.
Credit Suisse has been on a number of large M&A deals in the third quarter, In September, the Swiss bank advised Goodrich, the US aerospace and defence company, on its $18.4bn sale to United Technologies, and it advised DuPont Performance Coatings on its $4.9bn acquisition by Carlyle Group.
Equity advisory revenues nearly doubled quarter-on-quarter, up from a lowly Sfr97m in the second quarter to Sfr170m in the following three months, the highest since the second quarter 2011. The bank helped lead the $5bn share offering from Russian bank Sberbank in September.
Revenues in debt advisory increased from Sfr312m to Sfr410m quarter-on-quarter. The bank helped lead a plethora of high-yield bonds in the third quarter, including issuance from consumer group Reynolds and US hospital operator Community Heath Systems
Like its American rivals, Credit Suisse benefited from a boost in fixed income, commodities and currencies trading, backed by the announcement of further quantitative easing in the US and the European Central Bank's new bond-buying programme during the third quarter. FICC revenues hit Sfr1.5bn, up 26% quarter-on-quarter. According to the quarterly statement, this increase was due to “favourable trading conditions, with particular strength in securitized products, credit and corporate lending”.
This was on a par with US banks. According to research from Citigroup, FICC revenues were up 14% quarter on quarter at the major US wholesale banks.
However, Citi said that equities trading was up 7% quarter-on-quarter at the major US wholesale banks, whereas Credit Suisse’s equities trading revenues fell 11% quarter-on-quarter to Sfr1bn. According to Credit Suisse, the decrease was “due to lower results in derivatives and prime services, offset by stronger revenues across equity arbitrage trading, fund-linked products and convertibles”.
Credit Suisse continued its reduction of risk weighted assets held in the investment bank. The bank has cut $204bn since the third quarter of 2011, and has announced a further reduction of $180bn by the end of 2013.
Credit Suisse also confirmed it is on track for its Sfr3bn cost cuts in 2013. In July, the Swiss bank boosted its balance sheet, announcing Sfr15.3bn of capital raising measures, including Sfr3.8bn of mandatory and contingent convertible securities, attracting investment from Singapore government fund Temasek and a group of Southeast Asian strategic investors.
Kian Abouhossein, banks analyst at JP Morgan, said in a note: “We would step in and buy Credit Suisse on weakness today considering we believe management is doing all the right things in terms of shrinking the investment bank (the smaller the better) and cutting cost (lots of potential remains).”
Credit Suisse has remained adamant that it will not see a material impact from the global regulatory probe into the fixing of Libor. According to a note from Nomura, Credit Suisse this morning “reiterated its message that “we do not currently believe that Credit Suisse is likely to have material issues in relation to Libor”.
Across the group, pre-tax profits were Sfr359m, taking into account a Sfr1bn charge due to changes in the value of the firm’s debt. Stripping out these esoteric accounting charges, pre-tax profits at the bank increased 5% to Sfr1.2bn in the third quarter, up from Sfr1.1bn in second quarter 2012.
Brady Dougan, chief executive officer, said: “We have significantly cut costs and improved efficiencies across the bank. Additionally, we have further strengthened our capital base and have improved our balance sheet structure to meet future regulatory requirements. Despite this, we have built a very strong platform to provide the best advice and service to our clients.”
