Credit Suisse Second-Quarter Smashes Forecasts, Outlook Sound
Credit Suisse unveiled a surprise 48% jump in second-quarter net profit, saying it was confident it could deliver good results despite credit-market turmoil, boosting its shares.
Net group profit was 3.189 billion Swiss francs ($2.7 billion), well ahead of analysts' expectations of 2.3 billion francs and boosted by record investment banking revenues.
The number was a 48% increase over the year-ago period and a 17% rise from a strong first quarter.
Chief Executive Brady Dougan told reporters and analysts at a news conference he was "very optimistic" for long-term growth as the bank seeks to raise revenues and trim costs.
Credit Suisse is attempting to rein in so-called non-compensation costs at its investment bank and hopes to become the most efficient player in the sector.
"We think it is very important (that) if markets become more difficult on the revenue side that we have a cost programme ... where we are positioned now is great," Dougan said.
The results were the latest in a string of glittering quarterly numbers that have persuaded many investors that Credit Suisse has finally put behind it a long period of painful restructuring and uneven performance.
"I think it's fair to say they knocked the cover off the ball. These are very strong numbers," said a London-based banking analyst.
"They are the only bank on the street that pushed up fixed income trading numbers from the first quarter."
Credit Suisse stock was trading 1.9% higher at 81.50 francs by 0946 GMT, after touching a high of 82.75 francs. It was outperforming the Dow Jones Stoxx banking index, which was up 0.9%.
After first-half net profit reached 5.9 billion francs, Credit Suisse is well on its way towards hitting a long-standing full-year 2007 net profit goal of 8.3 billion francs. Dougan declined to be drawn but said reporters could judge for themselves whether the bank would reach the goal.
The bank said it would accelerate its 8 billion Swiss franc share buyback and end it two years ahead of schedule in 2008. It plans to buy 5 billion francs worth of shares by the end of 2007, adding to the 2.5 billion francs it has already spent.
Cautious on Subprime
On Wednesday, market worries about U.S. housing loans hurt shares in BNP Paribas and Deutsche Bank despite strong results from both rivals of Credit Suisse.
Credit Suisse greatly scaled back its involvement in the subprime market, having anticipated the credit crisis that blew up earlier this year. Its approach had become "extremely cautious," Chief Finance Officer Renato Fassbind said.
Credit Suisse is seen by some analysts as vulnerable to a downturn in leveraged financing through its investment bank, and investors scanned results for signs of the credit upheaval.
Dougan said the underlying quality of the bank's credit portfolio was "very strong," while Paul Calello, the head of Credit Suisse's investment banking unit, stressed the difference between the subprime and the leveraged finance businesses.
Calello said, "In leveraged finance, corporate defaults are at historical lows, corporate earnings are strong and macro trends are positive ... We have seen the market in leveraged finance go through many cycles."
Credit Suisse had been in the leveraged finance business for 20 years, Calello said. It accounts for around 5% of the entire bank's revenue and 10% of the investment bank's.
The results were also a first glimpse of how Dougan, who has barely made any public pronouncements since taking the helm in May, may run the bank in the future.
Dougan previously ran the bank's investment banking division, which according to analysts generated nearly 60 percent of the group's pretax profit in the first half.
Net revenue in investment banking was up 70% at 7.538 billion francs, while total operating expenses rose 39%.
The investment bank division also cut non-compensation costs, and the compensation/revenue ratio in the division fell to 51.5% from 53.5% a year earlier.
The bank reported net inflows into wealth management of 13.3 billion francs, below an average analysts' forecast of 14.4 billion, and also said inflows into asset management were 20.4 billion in the second quarter.