Credit Suisse Group AG, the second- biggest Swiss bank, said it will cut about 1,500 more jobs and reorganize its securities unit after the division reported its first quarterly loss since 2008.
Third-quarter net income rose 12 percent to 683 million Swiss francs ($776 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said in a statement today. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.
Chief Executive Officer Brady Dougan, who said the quarter was “challenging” with a “high degree of uncertainty,” is adding to the 2,000 staff cuts announced in July. Larger Swiss rival UBS AG and Deutsche Bank AG, the biggest bank in Germany, last week signaled more jobs may be at risk amid demands for more capital and as the European sovereign debt crisis and global economic slowdown crimp investment-banking revenue.
“In the current environment and with new capital requirements I don’t see Credit Suisse delivering adequate returns, so it makes sense to adjust capacity,” Dirk
Becker, a Frankfurt-based analyst at Kepler Capital Markets, said before today’s release. “Investment banking is affected most by the stricter regulation, while other businesses are suffering from clients’ low risk appetite.”
Credit Suisse’s investment bank reported a pretax loss of 190 million francs for the quarter, compared with a profit of 395 million francs in the year-earlier period. Earnings at the private bank slumped 78 percent to 183 million francs after the company made 478 million francs of litigation provisions for tax matters in Germany and the U.S. Asset management profit fell 32 percent to 92 million francs.
Credit Suisse has dropped 30 percent in Zurich trading this year, compared with a 27 percent decline at UBS and the 46- company Bloomberg Europe Banks and Financial Services Index.
“We believe subdued economic growth and the low interest rate environment and increased regulation that we are seeing may persist for an extended period,” Dougan said in a statement.
“We may well continue to see continued low levels of client activity and a volatile trading environment.”
Credit Suisse’s job cuts will reduce the bank’s total headcount by almost 7 percent from the current 50,700 by the end of 2013. That will save about 2 billion francs in annual costs, the bank said.
Deutsche Bank Chief Financial Officer Stefan Krause said Oct. 25 the Frankfurt-based lender will continue to adjust its “platform” if the challenging environment persists after announcing 500 job cuts earlier that month. His UBS counterpart Tom Naratil said in an interview the same day that a reorganization of the investment bank, which the Zurich-based company plans to announce on Nov. 17, may lead to a lower headcount at the unit. UBS in July abandoned its goal of doubling pretax profit by 2014 and Deutsche Bank scrapped its full-year profit target last month.
Dougan cut Credit Suisse’s profitability goal in February, blaming stricter capital requirements, and now aims for a return on equity of more than 15 percent over the next three to five years, down from a previous goal of more than 18 percent.
Tougher rules from the Basel Committee on Banking Supervision and Swiss regulators will require the bank to hoard more capital for its securities business.
Credit Suisse, UBS, Deutsche Bank and Barclays Plc have already disclosed plans to shrink their combined risk-weighted assets by as much as $415 billion to prepare for the stricter capital requirements under Basel III rules. As the euro area’s sovereign debt crisis erodes earnings, the banks may have little choice but to accelerate asset reductions and job cuts, analysts including JPMorgan Chase & Co.’s Kian Abouhossein said last month.
Analysts have cut Credit Suisse’s mean 2011 profit forecast by 47 percent since the beginning of this year, according to data compiled by Bloomberg, while the mean estimate for 2012 fell 43 percent.
Credit Suisse, which previously aimed to reduce risk- weighted assets by as much as 70 billion francs to prepare for Basel III, said today it will cut them at the fixed-income unit by 99 billion francs by the end of 2014. That will improve the return on equity at the investment bank, which would have slumped by 9 percentage points without any measures.
Credit Suisse’s private bank needs to prepare for “a difficult environment” as its decline in profitability is “more than a cyclical slump,” Hans-Ulrich Meister, who took over as head of the division on Aug. 1, told staff in an internal memo in September.
The annualized gross margin in wealth management, or the amount of revenue earned on assets under management, fell to 114 basis points in the third quarter from 131 basis points in 2009.
A basis point is one-hundredth of a percentage point.
Credit Suisse in September agreed to pay 150 million euros ($210 million) to settle proceedings in Germany against employees investigated for allegedly helping German clients evade taxes. The bank made provisions for the German settlement and set aside 295 million francs for U.S. tax matters, it said.
The bank is a target of a criminal investigation by the U.S. Department of Justice over former cross-border private- banking services to American customers, the company said in July. Eight bankers, including Credit Suisse’s former head of North America offshore banking, were charged with conspiring to help American clients evade taxes through secret bank accounts.
Credit Suisse said at the time that it’s cooperating with the U.S. authorities “subject to our Swiss legal obligations.”
Swiss banks will probably settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, two people familiar with the matter who declined to be identified because the talks are confidential, said last month.