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Credit Suisse upbeat after topping Q3 forecasts

Credit Suisse Group AG said it was upbeat about its prospects after exceeding third-quarter net profit forecasts by a wide margin thanks to a solid investment banking performance and good client inflows.

Buoyant financial markets in the quarter and improved market share in some investment banking segments helped boost the bank's results. It is also emerging stronger than many of its peers from the crisis after it managed to avoid the need for state aid.

But shares fell at the start of trading, broadly in line with a weak European banking sector, as analysts' views were mixed on the bank's ability to keep up its strong pace.

“They outperformed their peers in investment banking,” said Sebastien Lemaire, an analyst with Natixis Securities. “For the time being they are well positioned. But earnings sustainability in the future is a tough question to answer.”

“The investment banking environment next year is going to be significantly more challenging,” bank ZKB said in a note.

But analysts at Wegelin said strong inflows at the private bank would balance out earnings volatility at the investment bank. The bank's ability to attract net inflows at its asset management unit also came as a positive surprise, traders said.

Credit Suisse, now worth more on the market than domestic rival UBS AG said it made a net profit of 2.4 billion Swiss francs ($2.4 billion) in the three months to the end of September, its best quarter this year.

Analysts polled by Reuters had on average expected the bank to post a net profit of 1.6 billion Swiss francs.

“We are confident about our business model and our competitive position. If markets remain constructive, we expect to be able to maintain our momentum,” Chief Executive Brady Dougan said in a statement.

“Even if markets become more difficult, we believe Credit Suisse is still positioned to perform well.”

Some traders pointed to a fall in investment banking revenues from the previous quarter and lower profits and margins at the private bank as reasons behind the share fall.

“A repeat of the profit of the investment bank is questionable, but the massive increase of inflows at the private bank makes the case for further profitability,” analysts at Wegelin said in a research note.

Credit Suisse, which posted results two days after unveiling a new pay structure, continued to strengthen its capital base by shrinking its balance sheet. Its Tier 1 ratio, a closely-watched measure of capital strength, rose to 16.4 percent, confirming it as one of the best-capitalized banks in the world.

Chief Financial Officer Renato Fassbind said the strong capital base would give the bank room for small or medium-sized acquisitions and was also enabling it to accrue a "more normalized" dividend after a big annual loss in 2008 forced it to pay next to nothing to shareholders this year.

While UBS had to resort to state aid in the subprime crisis, Credit Suisse was able to raise capital from investors and has so far emerged as one of the winners.

The investment bank reported third-quarter pretax profit of 1.7 billion francs.

“We continue to see potential on the investment banking side,” Fassbind told a conference call, adding market conditions in October were consistent with the positive market trend seen at the end of September.

Credit Suisse, which has won market share in key segments, ranked number five in terms of investment banking revenue, making it the largest non-US investment bank ahead of UBS and Deutsche Bank AG, Vontobel and Dealogic data showed.

In private banking, which also includes some corporate and institutional clients, Credit Suisse was able to attract 13.1 billion francs of net new money. Of these, more than 11 billion came from private clients alone, higher than expected and more than in previous quarters as the bank continued to win market share.

In asset management, which suffered outflows in the previous quarter, the bank was able to attract 3.9 billion francs of new assets, well above analysts' forecasts. (Reuters)