Credit Suisse Group AG (CS) Misses Expectations, Revenues Fall YoY

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Credit Suisse Group AG (ADR) (NYSE:CS) missed on first quarter earnings, reporting an 8% year-on-year drop in revenues, from CHF 7.02 billion in 1Q13 to CHF 6.47 billion last quarter and a 34% year-on-year drop in income, from CHF 1.81 billion to CHF 1.40 billion over the same period. Diluted earnings per share fell from CHF 0.75 in 1Q13 to a disappointing CHF 0.47 last quarter.  Return on capital (ROC) fell from 18.2% to 14.4%, and the bank’s cost/income ratio increased from 74.0% to 77.8%.

Credit Suisse pulled out of 4Q13 losses

But the bank did pull out of a particularly bad 4Q13, when it lost CHF 529 million on CHF 5.92 billion in net revenues, and Credit Suisse Group AG (ADR) (NYSE:CS) indicated that it would return more cash in 2014 than it did in 2013. To achieve that it is allocating to its more profitable strategic divisions, Private Banking & Wealth Management and Investment Banking, while it winds down nonstrategic businesses that pull down margins.

Private Banking & Wealth Management brought in CHF 13.7 billion in net new assets, largely due to the 17% annualized growth in emerging Asian EM. Investment Banking reported a healthy pre-tax income of CHF 1.12 billion and an ROC of 21%, but this was still disappointing compared to previous years because of the seasonally weak performance of the EM and rates businesses.

On their own, these two divisions had a ROC of 21.8, and that’s even with the investment banking division struggling over the quarter. With its best divisions doing so well, the bank’s eagerness to get rid of the dead weight that is losing money is understandable.

“Given our progress in executing our strategy, combined with the strong performance of our strategic businesses in the first quarter of 2014, our intention remains to deliver cash returns to our shareholders at or above 2013 levels,” wrote Credit Suisse Group AG (ADR) (NYSE:CS) chairman Urs Rohner and CEO Brady Dougan in the shareholders letter.

Still resolving serious legal issues

Credit Suisse Group AG (ADR) (NYSE:CS) is also working to resolve the outstanding legal issues that have driven up litigation costs, resolving most of its mortgage-related legal disputes with a Federal Housing Finance Agency (FHFA) settlement announced last month and also reaching a settlement with the Securities and Exchange Commission in February. It is still trying to resolve allegations that it abetted tax evasion, and had no guidance on when that might reach a conclusion or what the conclusion is likely to be.

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