Thiam's Revamp Rewards Leave Credit Suisse Investors Unimpressed

(Bloomberg) -- As Tidjane Thiam handed out rewards to Credit Suisse Group AG investors who stuck with him through his three-year turnaround plan, perhaps the biggest surprise was a decided lack of excitement.

A plan to buy back as much as 3 billion francs ($3 billion) worth of stock was in line with expectations. A pledge to raise the dividend by 5 percent a year was, if anything, a little disappointing, and few analysts could get excited that the bank confirmed previously announced targets. Thiam, who was updating investors on the next steps after completing his revamp, quickly assured them the numbers were merely “prudent.”

“Overall we see the targets as unambitious,” Andrew Coombs, an analyst at Citigroup Inc., said in a note. “We welcome the decision to start buybacks, albeit we had hoped for more.”

Thiam, a former insurance executive, has pivoted the bank from more volatile trading in favor of wealth management, slashing thousands of jobs and tapping shareholders for billions of francs of funding. With his restructuring almost over, he can point to private banking gains even as the bank grapples with surprise losses at its main trading unit and warns that Asia Pacific markets revenue will decline this year.

Credit Suisse rose 0.3 percent to 11.07 francs as of 12:50 p.m. in Zurich. The stock has lost 36 percent this year. Thiam, in a Bloomberg Television interview, said that the decline represents a buying opportunity and that 2019 will be the bank's first “clean” year after concluding its restructuring.

“The capital distribution plans are a bit lower than expected, the dividend increase in particular,” said Daniel Regli, an analyst at Mainfirst Schweiz. “The guidance for 2018 is light and maybe they could have said more about global markets.”

‘Short-term Headwinds'

While Credit Suisse is far from the only European lender to suffer this year, it is one of the worst performers. The bank has abandoned some targets and continues to suffer from surprise trading losses. Still, there are signs the revamp will bear fruit. Funding costs are set to decline after the bank bought back expensive instruments held by Saudi Arabia and Qatar, while it's also set to complete the wind-down of its bad bank.

Credit Suisse is pledging to pay out at least 50 percent of earnings to shareholders in 2019 and 2020. The bank paid out a dividend of 0.25 francs per share for 2017 and 0.70 francs the year before. It warned on Wednesday that revenue from its Asia Pacific markets business may be 8 percent to 10 percent lower in 2018 than a year earlier.

“Persistent challenging market conditions have not changed our positive long-term outlook, however we are mindful of the short-term headwinds,” the bank said.

The bank continues to attract inflows at a healthy clip in wealth management, adding about 100 billion francs since the beginning of the restructuring, according to its presentation on Wednesday. It now manages about 785 billion francs, profiting as global wealth nearly doubled in the past decade.

UBS Chief Executive Officer Sergio Ermotti has been sending a similar message to investors, pledging to drive wealth management profit higher and cut costs. He's also said he'll return at least 50 percent of net income to shareholders and is undertaking a $2 billion share buyback plan.

Thiam has made cost cuts a major pillar of his strategy, focusing the restructuring on trading operations in New York and London where he's cut positions and reduced capital allocation to a markets division which today focuses on equities and credit trading.

“It was largely as expected,” Johan Utterman, a portfolio manager at Lombard Odier in Zurich, said by phone. “This investor day is supposed to mark the inflection point when Credit Suisse tilts towards growth. But given the market conditions I'm not sure that this kind of target would be a good idea right now."

--With assistance from Jan-Patrick Barnert.

To contact the reporters on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net;Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Ross Larsen

©2018 Bloomberg L.P.