(Bloomberg) — Credit Suisse Group AG’s turnaround is entering its final phase, but there’s one headache that Chief Executive Officer Tidjane Thiam can’t seem to shake off: the Global Markets unit.
The key trading unit — whose struggles have been one of the most difficult challenges in Thiam’s three-year tenure — posted an unexpected loss in the third quarter, forcing the bank to abandon its $6 billion revenue target this year for the unit. The result added to investor disappointment over missed revenue and net income.
Thiam has promised to return half the bank’s profit, mainly through buybacks or special dividends, once the lender strengthens capital generation from next year. Scaling down Global Markets — once one of the strongest trading units on Wall Street — and restoring profitability has been a key project of Thiam’s. The loss is likely to add to fresh questions about future strategy for the unit.
“Credit Suisse results are uninspiring, worse compared to peers,” Vontobel analyst Andreas Venditti wrote in a note to investors. “Global Markets disappoints again and keeps underperforming its peers.”
The shares dropped as much as 4.7 percent in Zurich and traded 2.6 percent lower at 12.88 francs as of 10:48 a.m. local time and are down by about a quarter this year.
Since Thiam joined from insurer Prudential Plc, he’s exited multiple business lines in global markets, from distressed-debt trading to securitized product trading in Europe. He’s not giving up on the unit, though. The bank plans to invest about 250 million francs in the business after reducing some funding costs, Thiam said in an interview with Bloomberg Television, while acknowledging some targets had been too ambitious.
Credit Suisse has focused on boosting the wealth management business and dealing with legacy issues, including a settlement with the Department of Justice over the sale of faulty securities, and the buyback of expensive capital instruments from key shareholders. Thiam, though, still needs to reassure investors on how the bank will boost growth.
There was some good news: the bank’s CET1 ratio — a key measure of financial strength — increased about 10 basis points from the end of the second quarter, while the bank continues to attract inflows at a healthy clip in its wealth management and asset management businesses, adding about 14.8 billion francs of new assets in total. The bank also said it expects to meet a target cost base of less than 17 billion francs by the end of the year.
Credit Suisse is freeing up funds for investment after buying back about 5.9 billion francs ($6 billion) of debt issued after the financial crisis to cut funding costs. Thiam is refocusing the bank as new regulations after the financial crisis — including higher capital requirements — forced it to abandon the investment bank-led strategy.