Credit Suisse Group AG (CS) Q4 Profit Misses Forecast

Credit SuisseBy Credit Suisse Group AG (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Credit Suisse Group AG (ADR) (NYSE:CS) missed analysts’ estimates by reporting a marginal uptick in its fourth-quarter net profit on Thursday.

Credit Suisse Group AG (ADR) (NYSE:CS)’s net profit dropped after increased legal costs arising from U.S. probes into alleged tax evasion and the sale of mortgage-backed bonds.

Haunted by the past

Credit Suisse Group AG (ADR) (NYSE:CS)’s net income edged up marginally to 267 million francs ($295 million) against a 263 million francs profit a year ago and the 398 million-franc average estimate of 12 analysts surveyed by Bloomberg.

The bank set aside 514 million francs to cover potential costs related to a Securities and Exchange Commission investigation into whether the bank helped American clients evade taxes, as well as mortgage-related litigation.

Credit Suisse reported a pretax loss of 40 million francs in the quarter after provisions of 339 million francs related to mortgage litigation.

Credit Suisse’s private banking and wealth management division, which encompasses all other businesses, reported pretax earnings of 870 million francs. Profit fell 4.5% from 911 million francs a year earlier, after a 175 million-franc provision related to the SEC probe.

As reported earlier, the Swiss bank agreed to pay $120 million fine to the SEC relating to its mortgage sales practices in 2012. In December, the bank faced a new legal challenge relating to mortgage-backed securities issued in 2006 and 2007. The bank has been facing claims from the states of New Jersey and New York, as well as a number of private lawsuits.

Weak investment banking

Profits at Credit Suisse’s investment bank were weighed by a 525 million franc loss due to shifting its undesired investment banking activities into a bad bank. The investment bank reported a pre-tax loss of 40 million francs. Some analysts believe the bank is not catching up with competitors on the cost base.

On the private banking front too, Credit Suisse suffered. As tougher regulation and volatile markets dent investment banking returns, the bank is leaning more heavily on its private banking franchise, which is the fifth-largest in the world by assets. Overall the unit’s pretax profit slipped to 870 million francs, from 911 million francs a year earlier due to the provision for the tax probe, which the bank is trying to settle.

Credit Suisse’s crosstown rival UBS, however, overhauled its investment bank. Recently, Switzerland’s largest bank, UBS AG posted forecast-beating net profit of CHF 3.17 billion ($3.5 billion) for 2013. UBS responded to the turbulent past six years by offloading risky assets, slashing its investment banking business to a fraction of its former size, shedding thousands of staff and further reducing costs by outsourcing back-office functions.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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