Thu, Dec 12, 2019 - Page 10 News List

Credit Suisse cuts profit goals amid trade tensions

Bloomberg

Credit Suisse Group AG cut its main profitability target for this year and next, as trade tensions and negative interest rates cloud the outlook after a three-year restructuring.

Switzerland’s No. 2 lender now sees return on tangible equity — a key profitability metric — of higher than 8 percent this year, compared with previous guidance of between 10 and 11 percent.

The Zurich-based firm also cut its forecast for next year and signaled it might take longer than previously expected to reach its ambitions, while indicating that the investment bank is set to make a loss this year.

Credit Suisse is not alone as banks across Europe struggle to reach targets, with interest rates likely to stay negative for the foreseeable future.

Deutsche Bank AG on Tuesday warned that its mid-term profitability goal now appears to be “more ambitious,” and it would need to rely on more volatile investment banking revenue to reach its goals.

Chief executive officer Tidjane Thiam six weeks ago gave a more downbeat outlook even as trading income surged, saying the US-China trade dispute would lead to more cautious spending and investment decisions.

The bank is pinning its wealth management growth on a strategy of cross-selling investment banking services to ultra-high-net-worth clients while making better use of technology for more modestly rich customers.

Philipp Wehle, who took over after Iqbal Khan’s acrimonious split from the lender this year, is carving out a new entity to serve the lower tier of the wealthy.

Slumping revenue at the investment banking and capital markets unit has become a growing issue for Thiam in recent quarters, while global markets trading — a long-time straggler — has made surprise profit gains.

Credit Suisse said it seeing pressure from negative rates at the Swiss Universal Bank, the lender’s largest unit by profit.

With negative interest rates of 0.75 percent on deposits in Switzerland, the bank has begun to pass on the costs to its wealthy clients, while it is also selling real estate to mitigate the effects.

The bank said its dealmaking division would post a loss this year.

Credit Suisse lost out this year as a string of deals collapsed or did not get off the ground, including Chevron Corp’s abandoned bid for Anadarko Petroleum Corp. Still, it has retained its global top 10 spot for mergers and acquisitions.

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