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Credit Suisse sees more pain ahead
ZURICH, Switzerland (Reuters) -- Credit Suisse Group beat market forecasts with a surge in third-quarter net profits, helped by cost cuts and asset sales, but warned on Tuesday more pain was needed to cement its earnings turnaround. Shares fell nearly three percent to 47.35 Swiss francs in early trade even as Europe's eighth-largest bank by market value said net profit rose to 2.045 billion Swiss francs ($1.53 billion) in the quarter, above analysts' expectations of around 1.999 billion francs. CS made a record third-quarter loss of 2.148 billion francs in the same period last year as it suffered from a global market rout and problems at its Credit Suisse First Boston investment bank. CS returned to profit this year and made a net profit of 1.346 billion in the second quarter. The Swiss group declined to give a detailed outlook for earnings and signalled that further cost cuts would be unavoidable. "Cost control continues to be a very high priority across the group,'' Chief Financial Officer Phil Ryan told Reuters. "We're done with the announced big headcount programmes, but there is still more cost reduction in all units to be done.'' He cautioned that the fourth quarter was traditionally a tough one for the banking industry but declined to say how business had progressed for the group so far in the period. Analyst Christoph Ritschard at Zuercher Kantonalbank said CS's outlook statement signalled that the bank was struggling for new strategies to increase top line revenue, forcing it to focus on cost cuts to increase profits. "I had expected something more optimistic in the outlook. Other banks have given a more positive outlook,'' he said. Cost reductions are already the prime driver of CS's earnings, with operating expenses for the group tumbling by almost a billion francs over the past year to 4.387 billion. Since January alone, the number of full-time staff for the group fell 22 percent from 78,457 to 61,332 at end-September. Third-quarter results were also boosted by 1.6 billion francs in after-tax income from the sale of insurance units, which added a net 1.3 billion francs to the group's bottom line. "EASY MONEY IS OVER''But at investment bank CSFB, net profit fell to $224 million, down 21 percent from the second quarter, as the recent boom in fixed income markets subsided. Ryan said CSFB had made a "conscious decision'' reduce its risk profile in the face of high volatility of U.S. interest rates, which had hurt earnings. "The easy money in fixed income is probably over with at least for a while,'' he said. "But we do see investment banking continuing to do modestly better. We do see a mildly better environment.'' Net trading income for the group fell 95 percent versus the second quarter of 2003 to 72 million francs. CS saw net new money inflows of 4.0 billion francs in the quarter, with a solid 8.4 billion francs inflow in its private banking arm alone. Analysts have said CS needs to show continued gains in profitability over coming quarters to show that it has closed the books on the darkest chapter in its history. Still, CS's above-expectations net profit figure is set to increase the pressure on rival UBS to prove that it is still Switzerland's best performing bank when it reports third-quarter numbers next Tuesday. Attracted by CS's turnaround potential, investors have flocked to its shares this year, helping them to outperform UBS as well as other European banks. CS shares have risen by more than 62 percent so far this year. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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