What All Banks Can Learn from Credit Suisse Group AG’s Earnings Report

Credit Suisse Group AG’s earnings report disappointed Wall Street last week. The wealth management and investment banking business actually did extremely well, however. In fact both groups beat the market estimates. Most investment managers struggled in the fourth quarter but Credit Suisse actually gained AUM. Wealth management generated about 13 million francs more than expected in the quarter, while investment banking income was about 25 million francs above estimates. 

One of the major bets they have made is that an increase in affluence in developing countries will help grow wealth management on a global basis and will position the company for growth in the long term.  

“The uncertain political climate in a number of major world economies and the resultant potential disruptions to world trade are clear concerns,” CEO Thiam stated. “We expect to remain resilient in the face of downside risks.” It would seem this focus is paying off.   

So what went wrong on Credit Suisse earnings?

The answer is that the trading business had dramatic losses, with the Global Markets business losing $191 million in the fourth quarter alone.  As the banking executives continue to transfer the business to focus on wealth management, the trading activity is still hurting the overall business despite major cuts.  The bank warned that it was still in a weak trading environment even into 2019, and thus the reason why there was an unforeseen loss at the level it was in fourth quarter. 

One of the CEO Thiam’s major objectives was to make cost cuts and business exits in the trading area when he first joined four years ago and focused relentlessly on wealth management.  Thiam has not been able to make enough cuts and streamline the business into an impressive profit as of yet, as his tenure is coming to a close.  Only time will tell if the wealth management business will grow in such a way to strengthen the overall business.  

Additionally, Credit Suisse’s Asian Markets also underperformed. The bank posted a loss in its Asia markets business.  

One thing to be learned from the bank is that just because a bank is bigger and can engage in global activity, it does not always bring about better performance. Even the largest players are looking to focus on their specific strengths.  

The bank did not give any substantial guidance to investors for the remainder of 2019.