The Quarterly Results Credit Suisse Doesn't Want You to See

Credit Suisse, quarterly results, obfuscation, consensus, adjusted, shareholder confusion

Credit Suisse shares slid nearly 6 percent on Thursday after third-quarter results beat expectations. Why? reveals the results that the Swiss bank has gone to great lengths to bury.

The Zurich-based lender turned a profit this quarter, but it wasn't enough to excite investors. What went wrong?

It began with expectations: A consensus compiled by Credit Suisse itself was actually the most pessimistic by far, calling for a loss of nearly 200 million francs. As a result, the bank's paltry 41 million profit appeared buoyant in comparison.

Forecasters from independent outlets including Bloomberg, Reuters and Swiss newswire AWP ranged from a loss of 150 million francs to a profit of 63 million.

This led early headlines to refer to Credit Suisse demolishing profit expectations like some sort of profit-generating wrecking ball – hardly an accurate reading for a profit which shrank by 95 percent on the year. While some reputable outlets rightly pointed out a profit tumble, others talked about a surprise profit.

Results Obfuscation

If the initial headlines were confusing, the situation only worsened when going back to the original source itself: Credit Suisse's results.

Here it is important to note that Credit Suisse is in the middle a wide-ranging restructuring under Tidjane Thiam, who is hiving off a lucrative Swiss banking unit in preparation to float a minority stake, and more clearly delineating an Asian unit, another centerpiece of the bank's new strategy.

The bank has long argued that for this reason, investors should look at figures which have been modified to account for its mid-term restructuring, and assign profits to units as they are now organized, not in the past.

This would be a valid point were the bank not in the habit of presenting at least three sets of such modified earnings, including core results, which strip out the undesirable part of the bank that Thiam would rather have already made disappear, but cannot be disposed of from one day to the next.

Wild Optimism

Adjusted profits, which exclude goodwill and other revenue and spending by the bank, represent another set of results. On top of this, Credit Suisse also reports a reconciled result, which seeks to streamline accounting differences. 

To make matters worse, Credit Suisse has fallen into the habit of reporting things that haven't happened yet: Thiam bragged about cutting costs by 1.5 billion francs for all of 2016 – which simply isn't true. He means that is the bank's cost-cutting efforts so far were to be extrapolated to the full year, the bank would have slashed spending by 1.5 billion francs.

He repeated the assertion on «CNBC», thus ensuring it would enter investor lexicon regardless of its accuracy.

Thiam, one year into his tenure at Credit Suisse and now under pressure to begin showing his bulk-up gains, doesn't help himself with wildly optimistic predictions of current business.

As the quarter closed, he told «Bloomberg» that Credit Suisse would show «a good quarter, a good performance of the bank», which even those very favorably disposed to the bank would have trouble defending in view of its latest results.

Field Day for Accountants

The full force of these efforts, besides a field day for accountants, finance types, controllers, and communications experts, is utter chaos for your average investor: nowhere in a 15-page press release nor 44 pages of Powerpoint slides has Credit Suisse managed to provide an accurate snapshot of where the bank stood in the three months to September 30.

For this investors, must  peruse a 178-page quarterly report until they happen upon a table called, simply, «results», on page 9. 

But it is exactly these bottom-line results that investors – from Switzerland's legion retail shareholders who show up angrily every spring at the bank's shareholder meeting to heavyweight U.S. fund firms like Franklin Templeton, which holds nearly 3 percent – are looking for. 

Overtaken by Deutsche Bank on ROE

Regardless of investors' pocketbook, they care about what the bank earned at the end of the day, and what dividend they may hope for based on a company's ability to generate cash flow and profits.

A view of Credit Suisse's profit-and-loss accounts without the entire specials effects song and dance is sobering: the 41 million francs in quarterly profit translates to a mere 0.02 francs per share – Switzerland doesn't even have a currency this puny; its smallest coin is 0.05 francs.

What about Credit Suisse's return on equity, a measure of profitability based on each franc of shareholders equity? It was 0.4 percent in the quarter. Even Deutsche Bank, which Credit Suisse is quick to compare itself to favorably when criticized, posted a 1 percent return on equity for shareholders this quarter.


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