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Credit Suisse plans to lend after an unexpectedly small loss in the fourth quarter

© Reuters. FILE PHOTO: A Credit Suisse logo is depicted on a building in Geneva

By Brenna Hughes Neghaiwi

ZURICH (Reuters) – Swiss credit (SIX 🙂 said Thursday it plans to increase loan volume and capitalize on a boom in stock listings to support revenues after low interest rates and legal costs drove the bank into the red in the fourth quarter.

Switzerland’s second largest lender posted a net loss of CHF 353 million ($ 392.8 million) in the last quarter after posting CHF 757 million in legal fees. This exceeded the forecasts of the analysts for a loss of 566 million Swiss francs, but the annual profit fell by 22%.

The bank is now looking to strengthen its wealth management business by expanding its onshore presence in China and expanding elsewhere in the Asia-Pacific region, CFO David Mathers said in an interview with Reuters.

The company also intends to allocate more capital to its international wealth management division outside Asia to boost lending, and said net interest income will gradually stabilize after interest rates put pressure on business last year.

The bank’s shares fell 0.8% 108 GMT as analysts pointed to mixed results.

The profit cap was a turbulent year for Credit Suisse, beginning with the overthrow of Tidjane Thiam as managing director due to a spy scandal and the outbreak of the pandemic when his successor Thomas Gottstein took over the helm.

Asset managers benefited greatly from bumper trading and customer demand for more advice during the COVID-19 pandemic, helping rivals UBS Group AG (SIX 🙂 and Julius Baer Group AG generate profits.

Last year, however, Credit Suisse suffered setbacks in its core business everywhere except Asia.

Outside of Asia, only the Credit Suisse investment bank managed to grow earnings in 2020 as higher expected credit losses, headwinds from negative interest rates and a strong Swiss franc weighed on earnings.

In the fourth quarter, turnover in bond trading was 713 million francs, 8% below the previous year’s figure, while share turnover and trading income fell by 5% to 498 million francs and undercut strong profits at some other investment banks.

Barclays (LON 🙂 reported a stellar year in investment banking on Thursday, with strong equity and fixed income earnings in line with US peers.

Credit Suisse announced that it started 2021 with its strongest January in a decade, with earnings before tax being particularly strong across all businesses, as well as investment banking and trading activities.

Factoring in one-time gains that boosted results in 2019 and rolling them back in 2020, the company would have posted a pre-tax profit of 6% last year.

The Zurich-based bank is aiming for 10% annual profit growth in its wealth management business over the next three years.

Reversal of wealth

Gottstein, who became managing director last February when the novel coronavirus was on the rise in China, is reconfiguring Credit Suisse’s investment banking business and is aiming to close branches and digitally overhaul its home business to cut costs.

The standalone international wealth management unit, which covers wealthy clients outside of Asia and Switzerland, saw sales decline 17% in 2020 as bumper trading failed to offset the impact of lower interest rates and a depressed US dollar.

The division was affected by a CHF 414 million impairment loss on a hedge fund equity component in the fourth quarter, which affected the difficult asset management business.

The Swiss retail banking business, which covers both high net worth individuals and the bank’s only retail accounts, saw pre-tax profit declined 16% due to weaker revenues and higher loan loss provisions.

In the Asia-Pacific region, revenue increased 4% due to higher transaction fees and the region’s stronger recovery from the pandemic. However, this failed to offset an increase in loan loss provisions, resulting in a 10% decline in profits.

In a reversal of luck, Credit Suisse investment bank, which has been the focus of overhaul efforts for the past five years, saw sales spike in 2020, helping the company its second consecutive year of earnings growth.

The bank proposed a dividend of CHF 0.2926 per share, an increase of 5.4%, and said it had started a buyback in January as part of buybacks totaling CHF 1.0 to 1.5 billion, that she is aiming for this year.

($ 1 = 0.8987 Swiss Francs)

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