Credit Suisse takes an additional $850 million provision

Darren Sinden

Royal Bank of Canada recently published a sector-wide note and flagged significant growth in investment banking fees at Credit Suisse, which Dealogic estimates suggest grew by 77% year over year.

Credit Suisse

Credit Suisse said it will post an unexpected 4th quarter loss thanks to an additional $850.0 million provision.

That money is being set aside in relation to a possible settlement of a court case that dates back to the global financial crisis and is relating to the sale of residential mortgage-backed securities, or RMBS.

The latest set back comes on top of the $450.0 million that the bank set aside in November against the winding down of York Capital Management, a hedge fund in which it had invested.

In November York Capital announced it would return money to clients, wind down its European operations and focus solely on managing internal money. Credit Suisse had been an investor in the fund since 2010 and took the hit to offset a related markdown in the value of its common equity tier one or CET1 capital ratio.

Today’s news is the latest development to frustrate attempts by the recently appointed CEO, Thomas Gottstein, to refocus the business by streamlining the structure at both the investment bank and the asset management division.

The bank’s guidance on Q4 investment banking revenue suggests it should grow by around 15% when measured in US dollar terms, and despite the increased provisions, Credit Suisse will press ahead with a $1.70 billion share buyback program.

Credit Suisse is one of a number of banks that are still defending claims related to the sale of mortgage-backed securities, which suffered sharp falls in value during the market turmoil seen in 2008. Peers Morgan Stanley, UBS and Nomura are also facing similar claims.

However, it’s not all bad news for the bank despite its shares trading almost 3% lower this morning, Credit Suisse believes it has strong grounds for appeal should any judgement in the case go against it.

Earlier this week JP Morgan upgraded the Swiss bank to overweight from neutral and raised its price target to CHF 14.00 from CHF 12.70. At the time of writing, Credit Suisse stock was trading at CHF 12.20.

Royal Bank of Canada published a sector note on global investment banks this week and was generally bullish of the sector prospects. RBC flagged significant growth in investment banking fees at Credit Suisse, which Dealogic estimates suggest grew by 77% year over year in 2020. However, despite assuming that larger provisions would be necessary at the Swiss lender, the Canadian bank kept its rating on the stock at sector perform.

We don’t have long to wait before we find out how US investment banks fared in the final three months of last year. Goldman Sachs and Bank of America will report Q4 2020 earnings on January 19th, whilst Morgan Stanley will publish results the following day.

We have already had seen how smaller rivals Jefferies Group LLC performed as they published their Q4 2020 results on Tuesday this week.

Their figures showed that net revenues were up by more than 115% in the 4th quarter, over the same period in 2019 and investment banking revenues had jumped by 133.0% on the same basis. Looking at the full financial year 2020 IB revenues were up 69.7% and sales and trading revenues by 69.7% when compared to 2019.

Shares in the parent company Jefferies Financial Group have rallied by 8.50% over the last week as a result.

Read this next

Retail FX

ThinkMarkets expands CFDs lineup to over 4000 ETFs and shares

ThinkMarkets has expanded its service offering by incorporating 2500 new CFDs on shares and ETFs on its ThinkTrader platform.

Retail FX

France regulator warns investors of Omega Pro, Businessempire.fr

France’s financial markets regulator alerted investors that scams related to Omega Pro Ltd are beginning to circulate, with the blacklisted firm capitalizing on the situation to run a range of “unrealistic” offers.

Digital Assets

Web3 platform Grand Time paid $2 million in token earnings to date

Community-driven Web3 platform Grand Time said its offering – which includes a multifaceted platforms and its native token – has been gaining significant traction highlighted by impressive operational metrics.

Institutional FX

FX volumes at MOEX halved in April as ruble gains gorund

Currency trading at Moscow Exchange (MOEX) halted its upward route in April as monthly volumes nearly halved from a month earlier.

Digital Assets

FTX US adds stock trading, fractional shares to crypto platform

FTX US, the American subsidiary of crypto exchange FTX has kicked off stock trading feature to its customers in an effort to compete with popular platforms such as Robinhood and eToro.

Industry News

UK FCA empowered to remove brokers’ permissions in 28 days

Businesses with permissions they don’t need or use, risk misleading consumers. These new powers will enable us to take quicker action to cancel permissions that are not used or needed.

Industry News

CFTC charges $44m Ponzi scheme but millions may have fled to foreign crypto exchange

The CFTC alleged that defendants transferred millions of dollars to an off-shore entity that, in turn, may have transferred funds to a foreign cryptocurrency exchange. None of these funds were returned to the pool.

Technology

Saxo Bank deploys Adenza to address Basel and EBA requirements

The integration of ControllerView will enhance Basel-driven capital calculations and reporting at Saxo Bank in support of the bank’s multijurisdictional capital and liquidity reporting requirements throughout Denmark, Switzerland and UK, with plans to expand into the Netherlands.

Executive Moves

ComplySci appoints CTO, CPO, and CLO to further regtech’s product expansion

ComplySci offers compliance software used by more than 1400 global institutions to identify risk and address regulatory compliance challenges.

<