Legal Costs Hurt Credit Suisse Profit

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Brady Dougan, chief of Credit Suisse, expressed confidence in its investment banking unit, despite its 40 million franc loss.Credit Ennio Leanza/European Pressphoto Agency


Updated, 7:15 p.m. | Credit Suisse said on Thursday that weakness in its investment bank and money set aside to cover legal costs weighed on its fourth-quarter results, contributing to a small profit increase for the Swiss bank.

For the last three months of 2013, the bank reported net income of 267 million Swiss francs, or $295 million, up about 2 percent from the period a year earlier, but still short of analysts’ expectations. Shares fell in morning trading, but they recovered by the end of the day to close up 1.5 percent in trading in Zurich.

Credit Suisse’s investment bank had a pretax loss of 40 million francs in the three months ended Dec. 31, compared with a pretax profit of 298 million francs in the year-earlier period. The loss was attributed to litigation provisions and a weak performance by the fixed-income trading and general advisory businesses, the bank said.

Still, the investment banking operation was “well positioned to continue to serve our clients’ needs and deliver strong returns and profitability in 2014,” Credit Suisse’s chief executive, Brady W. Dougan, said in the statement.

Earnings were also hurt as the bank set aside 514 million francs for continuing mortgage litigation and for a tax dispute in the United States.

Credit Suisse was sued in December by the State of New Jersey, which claimed that the bank had misrepresented the level of risk associated with about $10 billion in residential mortgage-backed securities. Separately, Credit Suisse and other Swiss banks face an American investigation into accusations that they helped private banking clients evade United States taxes.

Mr. Dougan is aiming to cut annual costs by 4.5 billion francs by the end of 2015. He also plans to reduce risk-weighted assets at the investment banking unit and to increase its underlying return on equity, a measure of profitability, to more than 15 percent from 10.1 percent in 2013. Mr. Dougan repeated that goal on Thursday.

But like some of its rivals, including Deutsche Bank, Credit Suisse has been struggling to move on from past problems and the uncertainty about how much its legal fines will amount to. Last month, Deutsche Bank reported an unexpected loss of 1.2 billion euros ($1.62 billion) in the fourth quarter, partly attributing it to lawsuits and official inquiries.

Even though Credit Suisse was on the right track, the fourth-quarter performance was disappointing, said Kian Abouhossein, an analyst at J. P. Morgan Cazenove in London. The quality of the earnings is low, he said, because they were driven mainly by better performance-related fees in the asset management division, which may not recur.

Credit Suisse’s business has also been hurt by difficult conditions in the fixed-income market. The bank eliminated jobs in the division and combined its rates, foreign-exchange and commodities business in a new unit. The bank’s earnings fell short of analysts’ expectations in the third quarter after a weak performance in its investment banking operation.

In October, Mr. Dougan announced that the bank would move nonstrategic assets into new units within its private banking and investment banking divisions to allow management to focus on more profitable areas. The move was partly a reaction to Swiss regulatory changes that asked banks to further reduce the amount of risky assets they held.

Credit Suisse also eliminated 1,400 jobs in the fourth quarter, mainly in its private banking and investment operations.

Correction: February 6, 2014
Because of an editing error, an earlier version of this post incorrectly described the Credit Suisse report on its profit for the fourth quarter of 2013. The bank said its profit barely showed an increase, not that it barely showed a profit.