Credit Suisse profit plagued by litigation

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In a discussion with reporters Thursday morning, David Mathers, CFO of Credit Suisse, praised the bank’s work last year. While presenting the results of the number two Swiss bank, he said he was proud of the support given to companies, employees and shareholders. Credit Suisse, like UBS, is one of the few banks in the world to have paid out a dividend in 2020, with many having been forced to give it up by their regulator.

Profitability far from the target

Yet Credit Suisse suffered a 22% drop in net profit last year to CHF 2.7 billion. Profit before tax fell 27% to 3.5 billion francs, “mainly due to an increase in provisions for credit losses, provisions for major litigation and a depreciation of York,” detailed the bank in its press release. In total, provisions amount to 1.1 billion, against 324 million. For the last quarter alone, the loss amounted to 353 million. As a result, profitability is far from the target: targeting 10 to 12% return on tangible equity (RoTE) in the medium term, it only reached 6.6%.

In a note, Vontobel analyst Andreas Venditti points out that the results exceed consensus expectations. Provisions in particular were expected at even higher levels. These results “include a large number of important negative elements. However, they were also boosted by very high brokerage and transaction income in wealth management and investment banking due to the “volatility boost” of the pandemic, as well as revaluations and gains in real estate, ”continues the expert. Credit Suisse in particular revised the value of its stake in SIX, the operator of the Swiss stock exchange, upwards.

For their part, analysts from the Cantonal Bank of Zurich (ZKB) underline the pleasant surprise in asset management, as well as the impact of the depreciation of the dollar, which is less important than expected.

Higher dividend

Credit Suisse took advantage of the same trend as its Swiss counterparts: net inflows of capital to the tune of 42 billion for the group, 19.4 billion for global wealth management. The good news for shareholders? Credit Suisse plans to pay a dividend of 0.2926 francs again. It is a little more than that of 2019 (0.2776 francs) and it is in line with its objective of offering a growth of 5% of the dividend, recalls Andreas Venditti.

The latter also underlines the strong start in 2021, in particular thanks to sustained client activity, which benefits both investment banking and wealth management. But if activity remains high this quarter, it is unlikely to be at the same level as 2020 for the whole of the coming year. ZKB analysts warn that negative effects linked to the pandemic could also intervene and influence the course of business in 2021.