Credit Suisse Group CEO Brady Dougan. Picture: BLOOMBERG
Credit Suisse Group CEO Brady Dougan. Picture: BLOOMBERG

ZURICH — Credit Suisse Group said on Tuesday it would exit commodities trading and cut expenses at its foreign exchange and rates businesses, as a $2.6bn fine to settle a US tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008.

Credit Suisse shares fell as much as 2.7% on Tuesday and were 1.5% lower at Sf25.71 in afternoon trading in Zurich. Before Tuesday, the stock had fallen 4.3% this year, compared with a 2.9% drop by the Bloomberg Europe Banks and Financial Services Index.

The bank’s net loss in the second quarter was Sf700m ($779m), compared with a profit of Sf1.05bn a year earlier and a Sf691m estimate from analysts.

Zurich-based Credit Suisse posted higher-than-forecast earnings at the investment bank and lower profit in wealth management, even as it attracted more net new money from rich clients than analysts had estimated.

CEO Brady Dougan is reporting a second quarterly loss in less than a year as Credit Suisse grapples with regulatory probes.

Analysts and investors have said Credit Suisse should shrink its investment bank more decisively and focus on wealth management to boost returns and shore up capital that was hurt by the US fine.

“The decision to exit commodities was probably taken mainly in the light of the capital weakness,” Kepler Cheuvreux analyst Dirk Becker said in Frankfurt. “The results in the quarter weren’t that bad, with investment banking surprising on the upside. The only really negative development was the drop in wealth management gross margin.”

The settlement in May for helping Americans evade taxes raised questions among investors about Credit Suisse’s financial strength as the fine pushed its ratio of capital to risk-weighted assets for the first quarter to the lowest level among 16 global investment banks tracked by Bloomberg Industries. The group aims to boost that capital ratio to more than 10% by the end of the year from 9.5% at the end of June.

Global investment banks are pulling back from commodities trading as regulations tighten and revenue slides.

Deutsche Bank said in December that it would exit dedicated energy, agriculture, dry bulk and base metals trading. British bank Barclays said in April it would withdraw from most of its commodities activities.

JPMorgan Chase agreed to sell its physical commodities unit to Mercuria Energy Group for $3.5bn in March.

Pretax profit at Credit Suisse’s investment bank was steady at Sf752m, beating the Sf544m average estimate of six analysts surveyed by Bloomberg News. Revenue at the securities unit were boosted by a 14% increase in fixed-income revenue to Sf1.43bn and a 29% jump in equity underwriting to Sf268m.

Wealth management posted an 8.4% decline in pretax profit to Sf569m, as the gross margin in the business, which measures how much revenue it produces in relation to assets under management, dropped to 99 basis points from 104 basis points in the first quarter. A basis point is one one-hundredth of a percentage point. The unit attracted Sf7.4bn in net new money, more than the Sf6.2bn expected by analysts.

Earnings from corporate and institutional clients and in asset management fell 19% to Sf211m and 23% to Sf102m, respectively.

Credit Suisse said exiting commodities trading will cut costs about $75m and will lower risk-weighted assets and leverage exposure by $2bn and $5bn, respectively.

The bank is also cutting expenses at its foreign exchange and rates businesses by moving increasingly to electronic trading, Chief financial officer David Mathers said on a conference call on Tuesday. He declined to say how many people would be affected by the reorganisation.

“It’s certainly fair to say that all three areas face very adverse market conditions and to varying degrees they face regulatory and market structural changes,” Mr Mathers said. “It’s really a package of measures intended to significantly improve the returns in the macro business.”

The reorganisation of the macro unit will yield about $200m in cost savings, and reductions of $8bn in risk-weighted assets and $25bn in leverage exposure, Credit Suisse said.

Bloomberg