Credit Suisse Group AG lowered its profit targets for two of its units and pledged to cut another 1 billion Swiss francs (US$1 billion) in costs, as a slump in asset management and investment banking forced chief executive Tidjane Thiam to adjust his turnaround plan.
The Zurich-based bank lowered its 2018 pretax income targets for its international wealth management business and its Asian division to SF1.8 billion and SF1.6 billion respectively, according to a statement released yesterday.
Both had previously targeted SF2.1 billion in profit.
The bank is targeting an operating cost base of less than SF17 billion by 2018, down from an earlier goal of below SF18 billion.
“Given the unsupportive market conditions we are facing, the realization of our profit objectives plan is now more geared to the delivery of cost reductions, over which we have greater control than revenue growth,” the bank said in the statement. “This also leaves us with potential upside, should market conditions improve.”
It is the second time Thiam has adjusted his plan to reorganize the company along geographical lines, downsize the investment bank in favor of wealth management and hold an initial public offering of the Swiss business.
In March, he stepped up job cuts for this year after unexpected losses at the global markets unit.
Credit Suisse shares have fallen 41 percent since the plan was first announced in October last year, as investors questioned his ambitious profit goals for the new units.
“Credit Suisse’s strategy was too dependent on growth in Asia and this is a moderation of that,” Bankhaus Lampe analyst Neil Smith said in Duesseldorf, Germany.
He has a “hold” recommendation on the shares.
“They’re scaling back their ambitions and readjusting expectations,” Smith said.
The new targets in Asia and at the international unit resulted from declines in the Asian investment bank and lower fees for asset management, Credit Suisse said.
The bank kept its target for both units’ wealth management businesses.
In the Asia-Pacific region, Credit Suisse plans to cut costs by SF300 million to even out some of the market impact. The division, led by Helman Sitohang, aims to earn SF700 million from private banking in 2018.
The lower profit outlook in international wealth management, led by Iqbal Khan, reflects lower performance fees in asset management, the bank said.
Credit Suisse expects to grow in emerging markets, while also increasing profit from its European operations.
Global markets, a chief detractor in Credit Suisse’s turnaround, has “substantially completed” its restructuring, the bank said.
Credit Suisse in September promoted Brian Chin to head the unit, replacing Timothy O’Hara.
Credit Suisse estimated restructuring costs this year of about SF600 million, with the same amount next year.
The financial toll from turning around the bank would halve in 2018 to SF300 million, it said.
Most of the restructuring costs are due to severance pay. Credit Suisse said it had cut 6,050 jobs this year, exceeding its target of 6,000.
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