Credit Suisse posts 22% annual profit decline on back of legal troubles

(Reuters) – Credit Suisse on Thursday posted a 22% fall in 2020 net profit as a 757 million franc hit from legal charges placed Switzerland’s second-largest lender in the red for the final three months of the year.

The bank posted a 353 million Swiss franc ($392.79 million) net loss for the fourth-quarter, compared with expectations for a 566 million franc loss in its own poll of 18 analysts.

The poll was compiled before the bank settled a legacy residential mortgage-backed security case for $80 million less than it had previously flagged.

“Despite a challenging environment for societies and economies in 2020, we saw a strong underlying performance across Wealth Management and Investment Banking, while addressing historic issues,” Chief Executive Thomas Gottstein said in a statement.

“Looking forward into 2021 and beyond, we aim to further accelerate growth in Wealth Management and deliver sustainable returns in Investment Banking.”

Wealth managers have profited richly off bumper trading and client demand for greater counsel during the COVID-19 pandemic, helping rivals UBS Group AG and Julius Baer Gruppe AG post windfall gains. Credit Suisse, however, faced setbacks in its core business last year everywhere outside Asia.

Outside Asia, only Credit Suisse’s investment bank managed to post profit gain in 2020, as higher expected lending losses and headwind from negative interest rates and a strong Swiss franc bit into earnings.

Factoring out one-off gains that boosted results in 2019 and set it back in 2020, the bank said it would have seen a 6% pre-tax profit gain for the year.

Zurich-based Credit Suisse targets 10% annual earnings growth in its wealth management business over the next three years as it strives towards profit goals.

Gottstein, who became chief executive last February as the novel coronavirus was surging in China, is also reconfiguring Credit Suisse’s investment banking business and targets branch closures and a digital overhaul of its home business to cut costs.

Its standalone international wealth management unit, which covers rich clients outside Asia and Switzerland, saw net revenue dip 17% in 2020, as bumper trading failed to offset the negative impact of lower interest rates and a depressed U.S. dollar.

The division was also hit by a 414 million franc fourth-quarter impairment on a hedge fund equity stake, which impacted its struggling asset management business.

Its Swiss private clients business, covering both wealthy home market customers and the bank’s only retail accounts, saw pre-tax profit dip 16% on the back of weaker revenue and higher provisions for loan losses.

Its Asia-Pacific business, meanwhile, saw revenue rise 4% on higher transaction fees and the region’s stronger recovery from the pandemic. That, however, failed to offset a jump in lending provisions, resulting in a 10% profit decline.

REVERSING COURSE

In a reversal of fortunes, Credit Suisse’s investment bank, which has been the focus of overhaul efforts over the past five years, saw a surge in revenue, helping the business to its second consecutive year of profit gain.

Profit grew six-fold from the prior year during the fourth quarter, with higher trading activity helping equity sales and trading rise 5%. Fixed income trading was largely flat and advisory revenue was up 16%, while capital markets revenue leaped by 90%.

The bank proposed a dividend of 0.2926 francs per share, up 5.4%, and said it started a buyback in January targeting a total of 1.0 billion to 1.5 billion francs in buybacks for the year.

($1 = 0.8987 Swiss francs)