UPDATE 2-CSuisse to shrink rate trading after investment bank slumps

Thursday, 24 Oct 2013 | 4:59 AM ET

* Credit Suisse Q3 net 454 mln Sfr vs 705 mln Sfr poll avg

Investment bank revenue slides nearly 20 pct, pretax profit halves

* Restructures interest rate trading business

* Says stowed Q3 funds for return to cash dividend in '13

* Private bank, wealth mgmt posts 8.1 bln Sfr net new money

* Ups cost-cutting target by 100 mln Sfr to 4.5 bln Sfr

* Preparing more detailed data on American clients for U.S. probe

(Adds comment from CFO)

By Katharina Bart

ZURICH, Oct 24 (Reuters) - Credit Suisse will shrink interest rate trading after revenue and profit at its investment bank slid in the third quarter, it said on Thursday, further scaling back an area squeezed by strict new regulation and feeble activity.

The Swiss bank said overall net profit rose to 454 million Swiss francs ($509.1 million) from the year-ago period - when charges linked to its own debt ate into profits - well short of analyst estimates, which averaged 705 million francs.

Overall bank revenue dipped little more than 1 percent, but investment banking income slid nearly a fifth. The business, already suffering a general slump as clients avoid volatile post-crisis markets, was hit by a fall in fixed income trading in the third quarter when clients steered clear of those products until the U.S. Federal Reserve clarified its intentions regarding its bond buying programme.

Credit Suisse said it was "restructuring and simplifying its rates business in order to increase returns," in a bid to lower risky assets by $7 billion and leverage by $60 billion.

The bank hiked its goal to cut spending by at least another 100 million francs by the end of 2015, to more than 4.5 billion, and said it would eliminate further jobs while shrinking its rates activities, though it did not give specific numbers. It has cut 2,000 jobs in the last 12 months.

However Chief Executive Brady Dougan told analysts Credit Suisse still plans to pay a 2013 dividend and stowed funds in the most recent quarter to do so. He did not specify a payout ratio. The bank paid a largely stock dividend of 0.75 francs in 2012, and flagged a return to cash when it met key capital ratios, which it has now achieved.

In addition to the pressure from its struggling investment bank, new regulations have forced Credit Suisse to overhaul its business. In the wake of the financial crisis, Switzerland's banking watchdog moved faster and more forcefully than those in other countries to insist its big lenders limit their reliance on debt funding and increase equity, which can cushion them better against losses.

Both Credit Suisse and crosstown rival UBS have already cut risk and raised capital. Following Thursday's announcement, Credit Suisse will most likely slash its repo book and push derivatives trading onto exchanges as opposed to over-the-counter, said analysts, who were divided on the move.


While Nomura said the strategy exceeded expectations, analysts at Deutsche Bank called it "a small evolutionary step" and JPMorgan compared Credit Suisse unfavourably to UBS, which cut 10,000 investment bank staff by withdrawing from large parts of fixed income a year ago and is now aiming to focus almost exclusively on private banking.

Credit Suisse needs to make deeper cuts, said JPMorgan analyst Kian Abouhossein, noting that the bank will still be left with a 50-50 mix of investment banking capital and private banking business - and an investment bank almost double that of UBS in terms of risk-weighted assets.

"We would have liked and expect in the long-term further investment banking restructuring within the Tier II fixed income, currencies and commodities franchise," Abouhossein said.

Credit Suisse private bank's net new money stood at 8.1 billion francs amid inflows from lucrative asset management products as well as ultra-wealthy and emerging market clients. However the unit faces headwinds: Credit Suisse is among roughly a dozen Swiss banks under investigation by U.S. prosecutors for helping wealthy Americans evade tax and is negotiating to settle the allegations.

A July deal brokered by the Swiss government paved the way for Credit Suisse and others to hand over information on where clients closing their accounts moved their money.

Since then, Credit Suisse has delivered "substantial, high-level" data on clients leaving, and is preparing to provide more specific data, financial head David Mathers said on Thursday.

More banking results follow Credit Suisse this week: Deutsche Bank and UBS both report the quarter on Tuesday and British bank Barclays reports on Wednesday.

Several banks have sought to guide down analysts' results expectations after the recent trading slump.

Credit Suisse had said the seasonal slowdown was exacerbated by volatile markets. Powerhouse Goldman Sachs Group Inc slashed pay and other spending to counter the plunge in revenue and report quarterly profit only mildly lower

($1 = 0.8918 Swiss francs)

(Editing by Sophie Walker)

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