Credit Suisse Group AG reported its biggest quarterly loss since the peak of the financial crisis in 2008, the result of a 1.6 billion Swiss franc ($1.78 billion) settlement with U.S. authorities over helping its clients evade taxes.
The Swiss bank also said it would quit commodities trading, reversing a statement of just two months ago, as it continues to overhaul its investment bank to get back to double-digit capital returns from its remaining activities.
Credit Suisse's fixed income unit outshone both its wealthy client unit and its U.S. rivals with a 4 percent rise in sales and trading. That compares to drops of at least 10 percent at American banks including Goldman Sachs and JPMorgan last week.
Credit Suisse said the investment bank cuts would allow resources and funds to be reassigned to its private bank, which disappointed investors with a 39 percent drop in revenue and swung to a loss due to the fine.
"I want to reiterate that we deeply regret the past misconduct that led to this settlement and that we take full responsibility for it," Brady Dougan, chief executive of the Zurich-based lender, said on Tuesday.
"The continued trust and support of our clients helped us mitigate the impact of the settlement on our business.
Credit Suisse's private bank has been under scrutiny since the bank's guilty plea to the U.S. criminal charge, with investors worried about clients pulling money out of its wealth management business as a result. Dougan said the bank's capabilities to offer services to clients were not hampered as a result of the settlement.
The private bank won 10.1 billion francs of net new money in the quarter - a key indicator of future revenue - which was slightly above analysts' consensus for 9.27 billion francs.
"The guilty plea in the U.S. appears to have had no negative impact on business and... we believe the shares remain attractively priced," Nomura analyst Jon Peace said. He rates the stock at buy with a 36 franc target price.
Pre-tax profit at Credit Suisse's investment bank, where it cut back underperforming areas like its interest rate trading arm, was near unchanged on the year at 752 million francs.
But the investment bank result failed to underpin the bank's shares. At 0726 GMT, the stock was 1 percent lower, bucking a 0.5 percent rise in the European sector.
QUITTING COMMODITIES
The bank said it would wind down its commodities trading, where it is mid-sized player, joining the likes of investment banks like Deutsche Bank, JPMorgan and Barclays that are either exiting or significantly downsizing their activities in commodities.
Credit Suisse's exit leaves only a small number of players in commodities trading, which had been seen as the absolute necessity of investment banking only a few years ago, including Goldman Sachs, Citigroup, Morgan Stanley and some new comers such as BTG Pactual.
The fixed income out performance, on the back of activities such as mortgage servicing, helped it counter a drop in equity trading.
But the shifts in mix may not be enough to catch up to crosstown rival UBS, the largest private bank in the world, according to Espirito Santo Investment Bank.
"Overall, while the investment bank has outperformed this quarter, private banking and wealth management continues to disappoint," said Espirito's Shailesh Raikundlia.
"Given the focus on private banking to drive returns going forward, we continue to believe that UBS' private banking franchise offers higher returns potential than Credit Suisse's."
ON TRACK
Credit Suisse wants to eventually return to double-digit capital returns from its core investment bank, including its equities and advisory divisions, following the overhaul.
The bank said on Tuesday it was on track to cut spending by 4.5 billion francs by the end of next year, having cut 3.4 billion. All the measures form part of a plan to begin paying out roughly half of profits once a key ratio, which stood at 9.5 percent in the quarter, reaches 10 percent.
Credit Suisse's finance chief told journalists the bank, which paid out 0.70 francs last year, had stowed funds for a cash payout for this year, but that the ultimate level would depend on second half business.
The bank swung to a second-quarter loss of 700 million francs, wider than a Reuters analyst poll which called for a 581 million franc net loss.
German lender Deutsche Bank and crosstown rival UBS both report the quarter next Tuesday.
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