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Credit Suisse Investors to Reap Benefit From 3-Year Overhaul

Zacks

Credit Suisse’s CS investors finally heaved a sigh of relief when the company’s CEO, Tidjane Thiam, announced plans to distribute about half of the net income earned to shareholders in the years to come. Also, he laid down fresh cost-cutting targets for 2019 and 2020.

Credit Suisse, which is about to step in the final year of its restructuring plans, seems to have come a long way from desperate cash calls to planning high returns for shareholders. Thiam’s focus on expanding Wealth Management unit and keep costs under control have shown positive results.

Thiam told investors, “Our strategy is working. We have delivered profitable growth, reduced risk in our trading activities and strengthened compliance and controls across the Group.”

Shares of Credit Suisse gained 1.5% in the last trading session, reflecting investors optimism for the CEO’s future plans.


Cost-Cut Targets

The company announced that it is on track to keep its cost base below CHF 18.5 billion in 2017. Through the year, Credit Suisse was seen undertaking cost cutting initiatives that helped it keep the cost base below CHF 18 billion.

Further, Thiam laid down his future cost-cutting plans. He seeks to keep the cost base below CHF 17 billion in 2018. For 2019 and 2020, he plans to operate with a cost base target of CHF 16.5 billion and CHF 17 billion, respectively.

Future Plans

While providing an update on the three-year restructuring plan, ending 2018, the company disclosed several new targets for the coming three years.

For Wealth Management business in Asia Pacific, it has a new target of achieving adjusted pre-tax income of CHF 850 million for 2018, above the previously guided figure of CHF 700 million for 2017.

Further, Thiam remains confident in terms of completing the winding down of Strategic Resolution Unit and achieve targeted adjusted pre-tax loss of about CHF 1.4 billion in 2018. He reduced the pre-tax loss target for this non-core unit from $800 million to $500 million for 2019.

The company feels that it would be able to achieve return on tangible equity of 10% to 11% for 2019 and 11% to 12% for 2020 on successful completion of its plans. For the nine months ended September 2017, Credit Suisse reported return on tangible equity of 4.1%. The company aims to keep its capital position strong by operating with a look-through CET1 ratio of above 12.5% from 2018 to 2020.

The most prominent promise made was to return about 50% of the net income in the form of share buybacks or special dividends to shareholders. On investors day Thiam said, “Our teams remain strongly focused on driving value for our clients and shareholders through 2018."

Our Take

Having sorted most of the legal issues, Credit Suisse might now be on the comeback trail with renewed focus on tapping profitable investment opportunities. Controlled expenses and stronger capital position are likely to support the company in undertaking growth measures.

Shares of Credit Suisse have gained 18.1% year to date, underperforming the 19.2% rally for the industry it belongs to.

Currently, the stock carries a Zacks Rank #4 (Sell).

Key Picks

Some foreign banks worth considering are Bank of N.T. Butterfield & Son Limited NTB, Credicorp Ltd BAP and Shinhan Financial Group SHG. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of N.T. Butterfield & Son’s Zacks Consensus Estimate for current-year earnings has been revised 2.2% upward in the last 60 days. The company’s share price has risen almost 26.6% year to date.

Credicorp’s current-year earnings estimates have been revised slightly upward over the last 60 days. Also, its shares have gained 33.7% so far this year.

Shinhan Financial’s Zacks Consensus Estimate for current-year earnings has moved 8.5% up over the last 60 days. Its share price has rallied 20% year to date.

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