Credit Suisse posted “better-than-expected” Q4 results aided by a resilient IB, while Societe Generale posted “a relatively weak set of numbers” thanks to higher expenses across the board, notes analysts at Jefferies. After analyzing the fourth quarter results of Credit Suisse and Societe Generale, Omar Fall of Jefferies assigned a Hold rating on both banks.
Expenses drag down Societe Generale
According to the Jefferies analyst, thanks to various one-offs, Societe Generale’s reported headline net profit of €511 million is worse than the consensus of €754 million. The one-offs include a €200 million litigation charge and €200 millionin Brazilian consumer finance exit costs. The analyst points out that when one looks at cleaner divisional post-provision profit, excluding the Corporate Centre and one-offs, there is a 5% miss against expectations.
Fall emphasizes that expenses remain the key issue at Societe Generale as its Opex came in at 7% higher than consensus, with French Retail coming in 6% higher than consensus and CIB/Asset Gathering 10% higher than consensus.
However, the analyst points out that Societe Generale’s loan losses were in line at 62 bps with slightly higher-than-anticipated French Retail (€303 million vs. consensus of €266 million) offsetting a decent outcome in International Retail despite Russia.
The Jefferies analyst, however, compliments Societe Generale on the revenue front. Its revenues were solid (+3% vs. consensus), with a better-than-anticipated performance in French Retail, Equities in CIB and Corporate Financing offsetting a softer performance in International Retail and FICC.
Fall did express concern about Societe Generale on the capital front, however. He notes that Societe Generale’s CET1 dropped 30 bps QoQ and stands at 10.1%, which is very much “worst in class” for large Eurobanks. The analyst also expressed disappointment on the dividend front, as Societe Generale’s DPS of €1.2 is also worse than the consensus expectation of €1.5.
The Jefferies analyst pegged Societe Generale’s target price at €41.60, against the current price of €36.31.
SNB’s FX move impact will offset by 2017: Credit Suisse
Fall also notes that Credit Suisse was able to post “better-than-expected” Q4 result, driven by a strong performance in the IB. Credit Suisse’s strategic PBT of CHF687 million was 27% ahead of consensus thanks to a surprisingly strong performance in Sales and Trading. Moreover, Credit Suisse’s Equities Underwriting and Sales and Trading were up 8% YoY thanks to Asia and Prime Brokerage. However, the analyst points out that FICC Underwriting and Sales and Trading revenues were only down 2% YoY, with better ABS offsetting weak high yield.
The Jefferies analyst points out that Credit Suisse generated PBT of CHF 1,449 million in the Strategic business and net revenues of CHF 6,000 million, with both coming in 3% ahead of consensus. Moreover, at the core level, Credit Suisse’s PBT of CHF 1,178 million is well ahead of consensus of CHF 876 million, aided by gains in the Corporate Centre.
The analyst points out that CS Group has guided for some CHF 300 million impact from the SNB’s FX move, but the group expects to fully offset this by 2017 through cost savings.
Turning attention toward asset gathering, Fall notes that Credit Suisse posted a bit more mixed performance with Wealth Management Client PBT of CHF 505 million, which is about 13% below consensus. The gross margin of 95 bps too was below the consensus of 97 bps. Similarly, Corporate and Institutional PBT of CHF 220 million was 8% below consensus, while new money of CHF 4.4 billion too was a touch below the consensus of CHF 5.0 billion. However, Credit Suisse posted Asset Management PBT of CHF 210 million, which was 11% ahead of consensus.
In contrast to Societe Generale, the Jefferies analyst compliments Credit Suisse for maintaining its dividend at CHF 0.7, which was ahead of the consensus of CHF 0.61. On the CET1 front too, at 10.2%, Credit Suisse was also just ahead of the consensus of 10.1%, as against their target of 10%.
Fall pegged Credit Suisse’ target price at CHF 19.60. Interestingly, after Credit Suisse unveiled its plans of battling the soaring Swiss franc, its shares moved up to CHF 23.42 at close on Thursday.