Credit Suisse Plans $4 Billion Share-Capital Increase -- 5th Update

By Brian Blackstone Features Dow Jones Newswires

Credit Suisse Group AG said it planned to raise 4 billion Swiss francs ($4.02 billion) of fresh capital and abandon plans for a partial sale of its Swiss unit as the banking giant reported a first-quarter profit that topped analysts' expectations.

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The upbeat earnings come as a welcome reprieve for the Swiss banking giant, which has been beset by steep losses and uncertainties over its longer-term strategy as it scales back from volatile, but sometimes very profitable, investment banking and moves toward the more predictable business of managing money for wealthy clients.

Credit Suisse on Wednesday posted net income of 596 million Swiss francs ($598.93 million), compared with a year-earlier net loss of 302 million francs, on a strong performance in its wealth-management and global-markets divisions. Analysts had forecast net income of 332 million francs. Revenue rose 19% to 5.5 billion francs, in line with expectations.

"We view these as impressive results," analysts at Citi wrote in a research note.

The bank's shares were up 2.5% at midday.

Still, the bank faces challenges amid political uncertainties that it said "weighed somewhat on client volumes in the first few weeks of April."

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"We are confident in our medium-term growth prospects. However, due to these uncertainties, we remain cautious in the short term," it said.

In a move to bolster its finances, Credit Suisse said it would sell 4 billion francs of new shares, boosting its key core capital ratio to 13.4%. "I think this does take the capital issue off the table for Credit Suisse," Chief Financial Officer David Mathers told reporters. Shareholders will consider the proposal at a meeting on May 18. T he bank raised 6 billion francs in 2015, and Chief Executive Tidjane Thiam said a second capital increase was always in its plans.

"This is a time to raise capital," he said Wednesday, adding that the move will give the bank flexibility to pursue attractive investments.

Credit Suisse also said it was dropping a plan to spin off its Swiss banking unit. The bank will now retain full ownership of the subsidiary, which it had previously planned to partially float through an initial public offering in the second half of the year.

The Swiss unit posted adjusted pretax income of 483 million francs, the fifth consecutive quarter of pretax growth on an annual basis. The bank's international wealth-management unit reported 4% growth in net revenue compared with last year, while revenue in the credit and securitized-products division more than doubled on the year.

Credit Suisse endured a bumpy 2016 as it embarked on the shift from investment banking to wealth management. Last year ended with a $5.3 billion settlement to resolve a financial crisis-era mortgage backed securities case with the U.S.

The bank posted a 2.4 billion franc loss last year.

Credit Suisse had previously signaled that 2017 had gotten off to a strong start particularly in its investment banking and wealth-management units because of the rosier mood in financial markets following the U.S. presidential election.

Yet the bank faces some new uncertainties that have emerged since the start of the year. The bank's offices in Amsterdam, London and Paris were targeted last month by authorities in a tax investigation, though it remains unclear how serious an issue this is for Credit Suisse, which has repeatedly cited its "zero tolerance" approach to tax evasion.

Mr. Thiam said he was surprised by the investigation, noting the magnitude of the effort the bank has made to ensure that its clients are compliant with tax authorities.

He said there are "absolutely" a few situations where clients may have misled the bank or provided incorrect documentation and that Credit Suisse is cooperating with national authorities.

"This is not an area of tension," he said.

The bank stirred a separate controversy last month when it increased its bonus pool for 2016 by 6% and raised Mr. Thiam's pay despite last year's loss. Faced with shareholder criticism, it changed course earlier this month and said it would cut executive bonuses by 40%.

"We made the gesture without any pressure from anybody," Mr. Thiam said Wednesday, and the bank can now "focus on the task at hand."

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

April 26, 2017 06:21 ET (10:21 GMT)