Tidjane Thiam. Picture: REUTERS/ARND WIEGMANN
Tidjane Thiam. Picture: REUTERS/ARND WIEGMANN

Zurich — Credit Suisse defended its global markets trading arm on Thursday, even as losses at the division took the shine off a jump in quarterly profit as the bank wraps up a three-year revamp under CEO Tidjane Thiam.

The unit, the focus of Thiam’s cuts and a source of billions of dollars of losses over years, still has an important role to play after the restructuring to focus on managing billionaires’ wealth and scale back investment banking, Thiam said.

“GM (global markets) is the lowest returning division in the company. In every portfolio, you will have a lowest-returning division,” he said, as analysts probed him over plans for the unit.

“The question is really: does the whole work and does the whole generate good returns?”

Switzerland’s second-biggest bank has become more able to absorb trading volatility as it grows wealth management, he said, and further cuts in the global markets business could make it too small to be viable.

Third-quarter group net income jumped 74% to Sf424m ($422m), helped by the ongoing wind-down of its so-called Strategic Resolution Unit — a home for assets that have been a drag on the bank’s past performance.

But that missed analysts’ average estimate of Sf449m in a Reuters poll.

Challenging conditions

The bank will post a full-year profit this year, it said, the first since Thiam took over in 2015.

However, it ditched a 2018 net revenue target of $6bn for its trading division as challenging market conditions — particularly tighter spreads and muted client activity in its credit business —  and a restructuring charge pushed the unit to a Sf96m pretax loss in the quarter.

Revenues of Sf4.02bn through September lagged behind what the bank had hoped for, Thiam said.

“Look, I will just say, the Sf6bn — it’s not realistic and it’s not achievable,” he said. “I think it was a realistic number in a normal market environment. But, really, conditions have been such in our footprint, it is not achievable.”

Credit Suisse said a $250m  cut to funding costs coupled with investments into its equities business should help the division raise returns next year.

Its shares were down 1.8% at midday, as the results and assurances the bank expects to lift its return on tangible equity (ROTE) to 10%-11% in 2019 failed to convince investors. ROTE was 6.3% in the first nine months of 2018.

Citi analysts, however, thought the reaction was overdone.

“We understand the poor sentiment towards CS (Credit Suisse) today on the weakness in Global Markets, but this needs to be put into the perspective of the achievements at the wider group,” they said, keeping a “buy” rating on the stock.

Net new money inflows — a closely watched indicator of future earnings in wealth management — totaled Sf10.3bn across the group’s three wealth management businesses.

“We expect our Wealth Management-related businesses – across Swiss Universal Bank, International Wealth Management and Asia Pacific WM&C — to continue to benefit from broad-based, client-led growth in the final quarter of the year,” the bank said.

Credit Suisse said investor sentiment generally turned more negative during the third quarter. It expected this to continue in the fourth, though it saw a healthy pipeline of transactions set to be completed this year depending on market conditions.

Bigger Swiss rival UBS made a net profit of Sf1.246bn  in the quarter. It said it was targeting ultra-rich Americans for growth.