Credit Suisse's Focus On Wealthy Pays Off -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 3, 2017).

ZURICH -- Credit Suisse Group AG on Thursday reported a sharp rise in third-quarter profit on strong growth at its wealth-management division, indicating the Swiss banking giant's strategic shift toward managing wealthy clients' money is paying off.

The results -- which come after crosstown rival UBS Group AG reported strong profit growth last week -- provide relief for the Swiss banking sector, which has been beset for years by negative interest rates, hefty legal settlements and regulatory changes to bring its rules in line with global norms on the automatic exchange of client information.

"I think in Switzerland people can take comfort from the joint success of Credit Suisse and UBS," Credit Suisse Chief Executive Tidjane Thiam told a press conference.

Credit Suisse said net profit came in at 244 million francs ($244.2 million) for the quarter, compared with 41 million francs in the same period last year. Analysts expected the bank to report a profit of 211 million francs, according to a consensus forecast provided by the bank.

The rise was driven by improvement at its international wealth-management unit, where pretax income grew 59% to 382 million francs, boosted by strong growth in Asia.

Net new assets rose 8% to 10.4 billion francs, pushing the bank's assets under management to a record high of 751 billion francs.

Investors welcomed the upbeat numbers, with Credit Suisse shares jumping 4.5% to 16.34 Swiss francs, for their highest close since January 2016.

Credit Suisse is two years into an overhaul under Mr. Thiam, who took the reins in 2015. The bank is reorienting away from profitable, but volatile, investment banking toward the more stable business of managing money for well-heeled clients.

However, restructuring hasn't been without costs. Despite the rising stock price Thursday, the bank's shares are still down about 30% since the turnaround program began. That's partly because of two capital increases, in 2015 and this year, which increased the number of shares in issue, diluting their value.

Mr. Thiam noted that Credit Suisse's 40 billion franc market capitalization is back to where it was in early 2015.

Credit Suisse said it generated cost savings of about 400 million francs in the third quarter, taking nine-month cumulative cost savings to about 1 billion francs. The bank said it is confident that it will reduce annual costs to below its 18.5 billion francs target by the end of the year.

"Our bottom-up analysis made us comfortable with Credit Suisse cost targets, and we see potential for better delivery," said analysts at Morgan Stanley.

Mr. Thiam reaffirmed the bank's strategy weeks after a small, Swiss-based hedge fund, RBR Capital Advisors AG, said it wanted Credit Suisse to split itself into an investment bank, a wealth manager and an asset manager. Mr. Thiam said Credit Suisse considered a broad range of options in 2015 before it launched its shift toward wealth management. "We believe in our strategy, it's working," he said.

"We're very happy to listen and talk and explain," Mr. Thiam said, calling the bank's recent discussions with RBR "very friendly and constructive."

Credit Suisse's earnings come after rival UBS Group AG last week posted a 14% rise in net profit from one year earlier and also credited its wealth management unit.

UBS has also undergone a strategy shift -- initiated years before Credit Suisse -- by turning its focus to wealth management and while maintaining a scaled-back investment banking unit.

Despite competing in the same markets, recent data suggest there are enough billionaires to go around, particularly in Asia, for Swiss wealth managers. According to a UBS report last week, billionaire wealth jumped 17% last year to $6 trillion. Asia welcomed a new billionaire every other day, reflecting that region's growing economic might.

"There is enough growth [in wealth management] that UBS and us can both prosper," said Mr. Thiam.

--Pietro Lombardi contributed to this article.

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

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November 03, 2017 02:47 ET (06:47 GMT)