Credit Suisse Profit Beats Estimates, But Outlook Remains “Challenging”

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Credit Suisse

Credit Suisse fared better than analysts expected in the third quarter by posting a surprise profit, but its CEO warned that tough times are still ahead.

Net profit for the quarter came in at 41 million Swiss francs ($42 million), the Zurich, Switzerland-based lender said on Thursday. It was significantly down from $779 million francs posted in the same period a year, but it smashed expectations of analysts.

Analysts polled by Reuters had predicted a loss of 120 million francs.

The unexpected profit, the second in successive quarters, was mainly attributed to the sale of a historic building near the bank’s Zurich headquarters as well as reduction in costs. The lender reported a gain of 346 million francs from the sale of real estate and a 5 percent drop in operating expenses.

Chief Executive Officer Tidjane Thiam has been working to shift the bank’s focus away from investment banking to wealth management business, which has been receiving good inflows, since assuming the position last year. But like other lenders in Europe, Credit Suisse has been hurt by low and negative interest rates, which have suppressed revenue growth.

Revenue slumped 10 percent to $5.4 billion. The Swiss bank’s investment banking divisions saw its net revenue dip to 2.4 billion francs, down 6.5 percent from the year before.

“Looking ahead, we expect market activity to continue to be influenced by geopolitical and macro-economic uncertainty over the next several quarters and the outlook to remain challenging,” Thiam said in a statement.

The bank’s shares were down about 4 percent Thursday morning following the announcement of the results.

Investors think Credit Suisse still has a lot of work to do to guarantee steady profits despite impressive inflows in its wealth management unit. Analysts observed that net margins have been dropping since the beginning of the year.

Analysts at Morgan Stanley pointed out Credit Suisse’s return on tangible equity which stood at 0.4 percent during the quarter, compared to 8.9 percent a year ago.

The bank said it has cut 5,400 jobs out of the 6,000 targeted in its restructuring plan. It had announced in March that it was shedding 2,000 more positions in its investment banking division. Total head count in the third quarter dropped 1 percent.

The private banking division’s net new assets plunged to 200 million francs, from 3.1 billion francs a year ago, with greater emphasis now placed on the International Wealth Management unit.

Credit Suisse is also planning to sell up to 30 percent of its subsidiary in Switzerland to raise as much as 4 billion francs next year.

The wealth management operations of the bank posted a 24 percent jump in pretax profit during the third quarter, although net revenue declined by 1 percent.

Credit Suisse set aside additional 357 million francs to cover legal costs, mainly resulting from mortgage-backed securities cases. This follows similar action by fellow Swiss bank UBS which last week raised its legal reserves by $417 million to cover possible penalties from similar cases.

The bank said its common equity Tier 1 capital ratio, which is considered an important measure of capital strength, climbed to 12 percent in the third quarter, up from 10.2 percent a year earlier.