Credit Suisse steps up cost cuts as revenue eludes CEO Thiam

Credit Suisse Group lowered profit targets at two units and pledged to cut another 1 billion francs (S$1.42 billion) in costs.
Credit Suisse Group lowered profit targets at two units and pledged to cut another 1 billion francs (S$1.42 billion) in costs.PHOTO: REUTERS

ZURICH (BLOOMBERG) - Credit Suisse Group lowered profit targets at two units and pledged to cut another 1 billion francs (S$1.42 billion) in costs, as a slump in asset management and investment banking forces Chief Executive Officer Tidjane Thiam to adjust his turnaround plan.

The bank lowered 2018 pretax income targets for its international wealth management business and its Asian division to 1.8 billion francs and 1.6 billion francs respectively, according to a statement Wednesday. Both had previously targeted 2.1 billion francs in profit. The bank is targeting an operating cost base of less than 17 billion Swiss francs by 2018, down from an earlier goal of below 18 billion francs.

"Given the unsupportive market conditions we are facing, the realization of our profit objectives plan is now more geared to the delivery of cost reductions, over which we have greater control than revenue growth," the bank said in the statement. "This also leaves us with potential upside, should market conditions improve."

It's the second time Mr Thiam is adjusting his plan to reorganize the company along geographical lines, downsize the investment bank in favor of wealth management, and hold an initial public offering of the Swiss business. 

In March, he stepped up job cuts for this year after unexpected losses at the global markets unit. Thiam during a conference call on Wednesday reiterated the bank's focus on wealth management, including in Asia, while declining to give details on additional job cuts.

Credit Suisse rose 4 per cent at 9:10 a.m. in Zurich. Before Wednesday, the stock had lost 41 per cent since Mr Thiam's plan was first announced in October of last year, as investors questioned his ambitious profit goals for the new units.

"Credit Suisse's strategy was too dependent on growth in Asia and this is a moderation of that," said Neil Smith, an analyst at Bankhaus Lampe in Dusseldorf who has a hold recommendation on the shares. "They're scaling back their ambitions and readjusting expectations."

The new targets in Asia and the international unit resulted from declines in the Asian investment bank and lower fees for asset management, Credit Suisse said. The bank kept its target for both units' wealth management businesses.

In Asia Pacific, Credit Suisse plans to cut costs by 300 million francs to even out some of the market impact. The division, led by Helman Sitohang, aims to earn 700 million francs from private banking in the region in 2018.

The lower profit outlook in international wealth management, led by Iqbal Khan, reflects lower performance fees in asset management, the bank said. Credit Suisse expects to grow in emerging markets while also increasing profit from its European operations.