Fines weigh heavy on Credit Suisse earnings

Despite improved cost control and an increase in assets under management, the groups wealth management division saw earnings fall.

Fines weigh heavy on Credit Suisse earnings

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The result, a significant turnaround from the£658m (CHF1bn) profit made in the first quarter came on the back of a £1bn (CHF 1.6bn) settlement paid to settle all of its outstanding US cross-border matters.

Stripping out the impact of the settlement, income from its so-called ‘strategic’ private banking and wealth management businesses saw a 13% decline in pre-tax income to£573m (CHF882m). This, the bank said, was largely the result of: “lower transaction- and performance-based revenues and lower net interest income, partially offset by lower operating expenses”.

However, the division did attract CHF10.1bn in new assets during the quarter, bringing AUM to CHF1,329.7bn and the division attracted net new assets of £6.57bn (CHF 10.1bn)

Credit Suisse CEO, Brady W. Dougan, said the increase in assets was driven by growth in Asia Pacific and Switzerland.

“This strong growth more than offset outflows from our Western European cross border business, where we are taking proactive steps to regularize our asset base. This is part of the secular transformation of the cross border wealth management business,” he added.

Dougan also emphasised the work the group has down to lower its operating expenses. For the
First 6 months of the year, the group improved the private bank and wealth management division’s cost/income ratio to 68%, from 71% in the first half of the comparable period in 2013.

The net margin on wealth management clients also increased to 28 basis points, while the gross margin in the second quarter fell five basis points to 99bps.

This reflected, Credit Suisse said: “an increase in assets under management, a change in client mix, lower fee-based revenues and slightly lower net interest income.”

The wealth management clients business reported pre-tax income of £370m (CHF569m) for the second quarter and net revenues of £1.3bn (CHF2bn), while net revenues fell 10% compared to 2Q13.

This came on the back of lower transaction- and performance based revenues, lower net interest income and slightly lower recurring commissions and fees.

On the asset management side of the business, Credit Suiise reported a pre-tax income of £66.3m (CHF102m) in for the three months and net revenues of £286m (CHF440m), down 9% from last year’s comparable period.

This it said, reflected: “lower carried interest on realized private equity gains and the absence of performance fees from Hedging-Griffo due to year-to-date returns performing below their respective high-water marks, partially offset by higher placement fees and slightly higher asset management fees due to higher average assets under management.”

At a group level, the bank reported core pre-tax income of £1.1bn (CHF1.8bn) for strategic businesses and return on equity of 13%.

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