Credit Suisse Profit Rises 33% on Investment Bank

Credit Suisse Group AG (CSGN), the second-biggest Swiss bank, posted a 33 percent jump in second-quarter profit as earnings at the investment bank more than doubled.

Net income was 1.05 billion Swiss francs ($1.12 billion), up from 788 million francs a year earlier, the Zurich-based bank said today. Earnings compare with the 1.03 billion-franc average estimate of 10 analysts surveyed by Bloomberg.

Credit Suisse carried out more than 60 percent of 4.4 billion francs in cost cuts planned by the end of 2015 by eliminating jobs and reorganizing businesses at the investment bank. Chief Executive Officer Brady Dougan said last month the bulk of future savings will come from private banking and wealth management as well as streamlining operations.

"Credit Suisse is mostly done with restructuring and cutting legacy assets," said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux, before today's release. "Higher client activity benefits both investment and private banking."

JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley reported a cumulative 24 percent gain in revenue at their investment banks from the year-earlier quarter, excluding own debt valuations, according to data compiled by Bloomberg Industries.

Higher Rates

Julius Baer Group Ltd. (BAER), Switzerland's third-biggest wealth manager, said this week that increased client trading boosted margins. UBS AG (UBSN), Switzerland's biggest bank, reported quarterly earnings that beat analysts' forecasts this week, and plans to provide further details on July 30.

Credit Suisse has gained 31 percent in Swiss trading this year, compared with an 8.8 percent increase in the Bloomberg Europe Banks and Financial Services Index, which tracks 40 companies.

"The transition to higher interest rates led, in the latter part of the second quarter, to increased market volatility and reduced client activity," Dougan said in the statement. "This market volatility continued into July, although more recently we have seen signs of stabilization in our major markets. In the longer term, the transition to higher rates will benefit our business."

The investment bank posted a pretax profit of 754 million francs, up from 314 million francs in the year-earlier period. The private banking and wealth management division, which includes all other businesses, saw profit fall to 917 million francs from 977 million francs. Wealth management attracted 7.5 billion francs in net new money from clients.

Wealth Management

Profit in wealth management was hurt by a 100 million-franc charge related to a Swiss-U.K. tax agreement, which requires banks to collect taxes on accounts of U.K. citizens and has been in force since January. The Swiss Bankers Association said earlier this month that the country's banks face losses of about 500 million francs on payments made to the U.K. government as part of the deal related to untaxed assets in Switzerland.

Dougan said last month the bank is working on boosting the profitability of its wealth management businesses in the U.S. and western Europe, while it expects "solid growth" in its Swiss and emerging-markets units. Credit Suisse is seeking to "enhance efficiency" in its onshore wealth-management units in western Europe and expand product offerings in the U.S., Dougan, 53, said at an investor conference in New York.

Credit Suisse is considering the sale of part of its wealth management business in Germany, three people with knowledge of the matter, who asked not to be identified because the matter is private, said last month. The bank may focus on ultra-rich clients and sell the remainder of accounts, said two of the people.

U.S. Probe

The company agreed in March to sell British wealth manager JO Hambro Investment Management Ltd. for 50 million pounds ($77 million). That same month Credit Suisse bought Morgan Stanley (MS)'s wealth-management operation in the U.K., Italy and Dubai to expand its business with ultra-high net worth clients -- typically those with at least $50 million to invest -- which it called "a key priority."

Credit Suisse said in 2011 it would seek to increase profit at its private bank by 800 million francs by 2014 as sluggish client activity squeezed margins. The company integrated its Clariden Leu wealth management unit with the rest of the division and merged consumer and private-banking units in Switzerland to cut expenses. Last year, the bank said it would also combine private banking with asset management to boost efficiency and improve cooperation.

The bank also needs to resolve a U.S. investigation into whether some of its private bankers may have helped American clients evade taxes. The bank has been a target of a criminal investigation by the Department of Justice over former cross-border private-banking services to American customers since at least July 2011. About a dozen other Swiss banks are also being investigated.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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