ZURICH (Reuters) – Credit Suisse (CSGN.S) trounced quarterly profit expectations and unveiled an overhaul of its investment bank on Thursday, as Chief Executive Thomas Gottstein puts his first major strategic stamp on the lender.
Global markets, where frenzied trading powered a 24% jump in group net profit, is to be merged with investment banking in a shift away from the structure introduced by previous CEO Tidjane Thiam, who repositioned the lender to focus on wealth management and split the investment bank into separate divisions.
Gottstein, who took over as CEO in February, wants to generate approximately 400 million francs in annual savings from 2022 onwards through the revamp, which is also to include Swiss branch closures and a combination of its compliance and risk functions.
The chief executive said jobs would be cut across all regions but new jobs would also be added, including in wealth management, where he is aiming to grow profits by 10% annually in the group’s standalone wealth division from next year, according to an internal memo.
Gottstein said overall headcount would stay roughly the same.
The investment banking integration also includes its Asia-Pacific markets business, which previously sat under a regional division.
Re-confirming a number of financial targets, and setting investment bank capital allocation at one-third of group total, the bank said it was planning to pay the second half of its 2019 dividend later this year and consider share buyback plans following a shareholder vote on the dividend in November.
Shares reversed early morning gains to trade down 0.5% by 1018GMT.
Rival UBS (UBSG.S) earlier this month signalled the possibility of resuming share buybacks later this year after a stronger-than-expected performance from its investment bank helped it beat expectations for the quarter.
As part of the overhaul, Credit Suisse also said it would carve out an executive-level sustainability group and earmark more than $300 billion for sustainable finance.
Credit Suisse has faced criticism over the drag of its capital-intensive investment banking operations, which typically generate far less income than wealth management versus their costs, but has insisted the activities are necessary to service its ultra-wealthy clients.
Both its trading and dealmaking units have hurt results over recent years, with trading marking an improvement in late 2018, just as its dealmaking began to slide.
However, the units performed well in the second quarter ahead of the integration, as a surge in trading activity and companies shoring up their balance sheet meant group earnings were nearly double the mean estimate for 700 million Swiss francs in the bank’s own poll of 17 analysts.
The bank posted a 71% rise in profit at its global markets division, fuelled by a 42% jump in fixed income revenue.
- Credit Suisse earmarks more than $300 billion for sustainable finance
- Credit Suisse's Asian business has highest level of credit provisions
The investment bank’s profit also jumped, with a strong rise in earnings across debt and equity underwriting as well as from advising on M&A deals – outperforming much of Wall Street which saw advisory revenue fall.
Wealth management, meanwhile, saw earnings flag slightly after bumper trading in the first quarter, with its international wealth management unit posting a 22% drop in profit as lower rates ate into margins and it set aside money for potential loan losses.
The bank’s Asia division posted a record quarterly profit of 298 million Swiss francs, driven by investment banking.
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