ZURICH Credit Suisse said it expects steps taken to overhaul its business will bear fruit this year, after fourth-quarter profit missed forecasts because of weak results at its investment bank.
Like peers, Credit Suisse is cutting back riskier assets and reducing costs to meet tougher regulations aimed at preventing a repeat of the 2008 financial crisis. But unlike hometown rival UBS it is not withdrawing from fixed income.
Pretax profit at the investment bank dropped 38 percent, with low levels of business activity in both its fixed-income and equity arms. However, that was still better than the fourth-quarter losses reported by UBS and Deutsche Bank at their investment banks.
"The main disappointment with the results come from the investment bank," said Kepler Capital Markets analyst Dirk Becker. "But it was still the best result among the European investment banks."
Overall, Credit Suisse made fourth-quarter net profit of 397 million Swiss francs (277 million pounds), missing analysts average forecast of 645 million in a Reuters poll. It took 304 million francs in charges related to its own debt.
Chief Executive Brady Dougan said on Thursday steps taken to boost capital and cut risks and costs were starting to pay off:
"Going into 2013, revenues have so far been consistent with the good starts we have seen to prior years, with profitability further benefiting from the strategic measures we took in 2012."
The Zurich-based bank said it would cut costs by 4.4 billion francs by the end of 2015, up from a previous 4 billion target, by folding its asset management unit into its private bank and by moving some jobs offshore.
All told, Credit Suisse cut 2,300 staff in 2012.
Credit Suisse shares, which have risen 21 percent so far this year compared with just 10 percent for UBS, were down 0.2 percent at 1220 GMT compared with a 1 percent fall for UBS - both lagging a 0.2 percent firmer European bank index.
PRESSURE ON TAX EVASION
Credit Suisse said net new assets from wealth management clients tumbled 28 percent to 2.9 billion francs in the fourth quarter. Like UBS, it suffered big outflows of money from clients in Europe, where Swiss banks are under fire for helping tax cheats.
Dougan forecast 5 to 10 percent of assets from western Europe, where clients withdrew 6.9 billion francs last year, will leave the bank through 2015. Clients at Clariden Leu, a boutique bank integrated into Credit Suisse last year, pulled out 7.5 billion francs.
Credit Suisse has already made provisions of $325 million to settle a U.S. investigation into allegations it helped wealthy Americans evade taxes, but said on Thursday it could not give any information on timing of a settlement.
The bank said it does not expect to have any material hit from a global investigation into rigging of benchmark interest rates, adding it will vigorously defend itself against civil lawsuits relating to Libor.
"Credit Suisse remains our preferred choice in the investment banking space, based on earnings momentum, timeline to high dividend yields, plus its relative lack of exposure to Libor issues," said Nomura analyst Jon Peace.
UBS accepted a $1.5 billion (954.5 million pounds) fine for rigging Libor and other benchmark rates in December, while Royal Bank of Scotland was fined $612 million on Wednesday by U.S. and British regulators.
Credit Suisse said it cut risk-weighted assets (RWAs) by 99 billion francs in the quarter to 924 billion francs, close to a target for less than 900 billion francs by the end of 2013.
Credit Suisse said it would pay a dividend of 0.75 francs per share, with 0.10 francs in cash and the rest in shares. It expects to lift key capital ratios by mid-year, allowing a return to an all-cash payout, finance chief David Mathers said.
(Additional reporting by Rupert Pretterklieber; Writing by Emma Thomasson; Editing by Erica Billingham and Mark Potter)