EUR 850.00 For Business Accounts Only

Morningstar | Credit Suisse First-Quarter 2019: Underlying Qualities Coming to the Fore

Credit Suisse reported net profit of CHF 749 billion for the first quarter of 2019, which is 8% higher than the first quarter of 2018 and 11% higher than consensus expectations for the first quarter. The increase was, however, solely the result of a lower tax rate--pretax profits of CHF 1.1 billion was stable compared with the first quarter of 2018. We are looking for a full-year increase of 39% in pretax profits, which may look a bit rich considering the flat first quarter. We do, however, highlight that the first quarter of 2018 contributed 31% of pretax profits and the first half of 2018 accounted for 62% of pretax profits. We maintain our narrow moat rating and CHF 20 fair value estimate.

Group revenue declined by 4% year on year as primary market activities in the investment bank collapsed with equity underwriting and debt underwriting declining by 44% and 27%, respectively, year on year. Management did indicate that there is a substantial pipeline of deals that should support future revenue growth.

The key wealth management banking businesses did see a decline revenue of 3% year on year, but given market weakness and a flattening yield curve we view this as a robust result. Most pleasingly, the wealth management businesses recorded a net new money inflow of CHF 10 billion for the first quarter of 2019.

Despite buying back CHF 261 million of shares Credit Suisse managed to maintain its common equity Tier 1 ratio ratio at 12.6% compared with the final quarter of 2018.

We continue to believe that 2019 will be the first relatively clean fiscal year for the better part of a decade, with earnings free of distortions from noncore portfolios in run down. This will confirm the solid profitability of the underlying business to the market. We also believe that the market has to date not acknowledged the significant de-risking that has taken place at Credit Suisse. Compared with a few years back Credit Suisse is much less reliant on volatile trading revenue and it is on a much sounder capital footing.