Credit Suisse's Shares Climb Over 5% On Cost Savings Drive

Shares of the Swiss banking giant, Credit Suisse (SIX:CSGN) Group AG (TO:CS) , rose over 5% in the last trading session. This is actually a recovery, as the stock declined more than 28% year to date. This price gain was triggered by the announcement of accelerated cost cuts by the group’s CEO, Tidjane Thiam, at the company’s Investor Day held on Dec 7.

The company increased its cost cut targets to tackle the financial market challenges that has impeded the banks’ profits across the globe and shifted their focus toward cost containment to meet earnings targets.

The company plans to cut an additional CHF 1 billion ($990 million) in expenses, lowering its operating cost base to less than CHF 17 billion by 2018, compared with the previous target of less than CHF 18 billion. In addition, it increased its savings target from CHF 3.2 billion to more than CHF 4.2 billion by the end of 2018.

Notably, management lowered its profit targets against cost-saving targets, with a view to increase resilience and generate better returns for the shareholders when the market conditions improve. Also, the company expects to exceed its projected cost containment target of CHF 1.6 billion of net cost savings by the end of 2016. The company has already surpassed its full-year cost-cutting goals through Sep 2016.

Further, Credit Suisse reduced 2018 pre-tax income (PTI) targets for its Asia Pacific (APAC) and International Wealth Management (IWM) divisions to CHF 1.6 billion and 1.8 billion, respectively. This is largely due to weaker trading in APAC and falling asset management performance fees in IWM. The prior target for both divisions was CHF 2.1 billion. Nonetheless, the bank maintained its target for both units’ wealth management businesses.

Regarding its Swiss Universal Bank (SUB) operations, the 2018 PTI target was confirmed at CHF 2.3 billion. For Strategic Resolution Unit (SRU) division, the company projects that it will have a pretax loss of $1.4 billion in 2018 and $800 million in 2019. Notably, by that time, management strives to reduce the unit’s capital consumption by about 80%.

Further, the company reduced its 2018 year-end target common equity Tier 1 capital ratio, a measure of balance sheet strength, to 12–13% from around 13%.

Bottom Line

Since the last Investor Day held in Oct, 2015, the company has witnessed drastic changes in the market environment and political outlook. These unfavorable changes affected the market-dependent targets of the company, compelling management to adapt to squeezing profitability.

Consequently, the company’s executives had to revise the targets twice, from the time Thiam unveiled the original targets in October last year. Thiam’s restructuring moves, involving focus on markets in Switzerland and Asia, while emphasizing wealth management by reducing investment bank activities were hampered by global market uncertainties, along with loss of investors’ confidence.

The company trimmed its global workforce by more than 6,000 in 2016 and has plans for additional layoffs this year. Notably, the company intends to expand its presence in emerging markets, along with increasing profits from its European operations.

Credit Suisse’s stock currently carries a Zacks Rank #4 (Sell). The company’s stock has underperformed the 6.3% growth for the Zacks categorized Foreign Banks industry so far this year.

Some better-ranked stocks in the finance space include Banco de Chile (NYSE:BCH) , sporting a Zacks Rank #1(Strong Buy), Itaú Unibanco Holding S.A. (NYSE:ITUB) and Comerica Incorporated (NYSE:CMA) , both holding a Zacks Rank #2 (Buy). All the three stocks have delivered an average positive earnings surprise for the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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