IG Group Holdings plc (LON:IGG) market analyst Andreas Ruhlmann takes a look at Q2 results at the Swiss banking giant.
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Credit Suisse posted a profits while the Street awaited more losses
Andreas Ruhlmann, IG
Credit Suisse posted a net profit of 170 million SFr, compared to 1.05 Billion in the same quarter last year. Nevertheless it is better than the analyst consensus who expected a deepening of the yearly losses.
The good:
Costs were 8% below consensus. One of Thiam’s priority is to make the bank run more efficiently, and this is the first time we witness that his strategy is finally bearing fruit. The company is on track to meet its cost cutting target for the year. Wealth management, which another priority, also managed to continue attracting funds with Net New Assets up 5.4 Billion francs, despite the geo-political challenges in Europe. This is clearly helped by Credit Suisse’s global footprint.
The not so good:
Like the other investment banks who reported, CS ‘s IB division benefitted from higher trading volume on the days following the Brexit vote. This is a one-time event, and we would prefer to see rising profits in the Wealth Management business. On the contrary both Asia Pacific and International wealth management showed slowing profits compared to last year.
What next?
The environment will remaining challenging. The Brexit story will continue to have unprecedented impact on the political landscape, not just in Europe, but also into the US elections. This will dampen investors’ confidence, especially for Private Banking clients. Interest rates will remain low globally. The Fed kept rates on hold yesterday, the BOE will almost certainly cut its rate, and the ECB, BoJ and SNB will remain accommodative given the global deflationary pressure. Credit Suisse also has important operation in London, which for now remains a question mark.
Having said that, Credit Suisse stock is one of this unloved story, with an important level of short positions. At 50% discount to its book value seems cheap for a major bank with a global footprint. So if you can look beyond the current challenges, and the resulting high volatility in the stock, Credit Suisse offers good value over the longer term.