Morningstar | Best Idea Credit Suisse Disappoints
Narrow-moat Best Idea Credit Suisse reported third-quarter pretax profits of CHF 0.7 billion. This represents a 68% year-on-year increase and it was in line with consensus expectations for the quarter but below our expectations. Restructuring charges continue to be higher than we anticipated and the low-interest-rate environment continues to place pressure on net interest income. We cut our estimates for the full-year by 10%. We believe our long-term investment case remains intact and we maintain our CHF 22 fair value estimate and narrow-moat rating.Operating leverage works both ways. This was reaffirmed to us by Credit Suisse's third- quarter results. While our expectations for revenue growth during fiscal 2018 was only 2% higher than the run-rate Credit Suisse has achieved for the first nine months of the year, Credit Suisse's high cost base (it has a 82% cost/income ratio currently) magnified the top-line miss greatly, forcing us to cut our full-year estimates by 10%.
The longer-term indicators were, however, positive. Once again, it was pleasing to see solid net new money generation in the wealth management businesses. In the second quarter, Credit Suisse had private banking clients investing a net amount of CHF 10 billion, with CHF 6 billion in its strategic focus area in Asia. Furthermore, 85% of new money came from ultra-high-net-worth individuals. The asset management business unit also saw net inflows of CHF 5 billion for the quarter. For the first nine months of the year Credit Suisse has added CHF 57 billion of net new money and it now manages CHF 1.4 trillion.
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