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Credit Suisse earnings boosted by tax windfall

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Via Financial Times

Assets under management at Swiss bank Credit Suisse fell 9 per cent to SFr1.37tn in the first three months of the year, even as the lender reported its highest quarterly net income since 2015. 

In a sign of the extent to which the coronavirus pandemic has put the financial system under extreme pressure in recent weeks, Credit Suisse reported a 600 per cent increase in provisions for losses from bankruptcies and defaults to SFr568m, compared with the first quarter of 2019.

The bank has also benefited significantly from regulatory action to help the financial system as the coronavirus pandemic roils markets around the world.

New tax rules in Switzerland to curb the punitive effects of negative interest rates on banks’ balance sheets led to a SFr113m windfall for Credit Suisse, boosting pre-tax profit from SFr1.2bn — a 13 per cent rise year on year — to SFr1.3bn net, up 75 per cent. 

The bank’s effective rate of taxation fell from 30 per cent in 2019 to minus 9.2 per cent in the last quarter.

Credit Suisse’s core tier 1 leverage ratio — a key measure of capital strength — rose 30 basis points to 5.8 per cent over the quarter thanks to new rules on risk weightings introduced by the Swiss market watchdog Finma. 

Excluding exceptional gains, including those related to the sale of its InvestLabs fund platform business, net income was down 11 per cent year on year at SFr951m.

Quarterly revenues were robust at SFr5.8bn, up 7 per cent year on year, as the bank’s divisions reported increased trading activity as clients repositioned themselves to weather the market turmoil. 

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“In my first quarter as chief executive of the group, we all witnessed a highly challenging environment with a severe impact from the Covid-19 pandemic,” said the bank’s head Thomas Gottstein. “Thanks to our strong capital and liquidity base, we are well positioned to support our clients, employees and societies in the coming quarters, during which we expect the Covid-19-related uncertainty to persist.”

The bank warned that the outlook was highly uncertain and measures to protect its balance sheet and shore up capital meant payouts to shareholders would be limited. Revenues on advisory and underwriting businesses were also likely to be significantly impacted, it said, and corporate defaults may hit its reserves. 

The bank’s conservative positioning in risky areas of corporate lending such as structured finance and oil and gas meant it was nevertheless well positioned compared with peers, it said. 

Revenues at Credit Suisse’s investment banking division were severely hit in the first three months of the year — down 47 per cent at SFr183m, compared with the same period in 2019. The figures reflected a pre-tax loss of SFr392m.

The hit was driven primarily by SFr198m in mark-to-market losses on its leveraged finance portfolio and corporate derivatives portfolio. The losses were mitigated by hedging activities. The bank did not disclose the size of the underlying exposures. 

The bank’s global markets business, meanwhile, provisioned SFr156m for credit losses based on deteriorating conditions in its corporate lending portfolio. Net revenues for the division rose 14 per cent to SFr1.7bn. 

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