By Joshua Franklin and Anjuli Davies
ZURICH (Reuters) - Credit Suisse (SIX:CSGN) shares slumped on Thursday after a surprise third quarter profit failed to match some investor expectations following strong results from U.S. rivals, while others cashed in on a recent stock price rise.
And just over a year since Chief Executive Tidjane Thiam outlined plans to turn Switzerland's second-biggest bank into a regionally-focused wealth manager, he hinted at deeper cost cuts in investment banking to compensate for tough markets ahead.
Credit Suisse, which has already cut thousands of investment banking jobs, said net revenue for the quarter in its Global Markets division, had dropped by 14 percent.
Although its third-quarter net profit of 41 million Swiss francs (£33.79 million) was well above the average estimate for a 120 million franc loss in a Reuters poll of five analysts, the bottom-line was boosted by one-off gains of 346 million francs from the sale of real estate.
Credit Suisse shares fell by as much as 5.7 percent, making it one of the worst performers in the European banking index, with some analysts saying the reaction was down to hopes for a better performance being raised by strong Wall Street earnings last month.
Fellow Swiss bank UBS also beat forecasts last month with an 11 percent rise in quarterly profit to 877 million Swiss francs, thanks to strong business at home and cost cuts.
"It looks like some expectation was higher after the U.S. banks reported," Vontobel analyst Andreas Venditti, who has a "hold" rating on the stock, said.
Thiam said the share price fall was due to profit taking by investors, who have seen it rise by more than 25 percent since early July.
OCTOBER COMEBACK
Equities trading revenue in its global markets business, fell by 38 percent, which Thiam said was 80 percent driven by a poor showing in Europe.
"We've had a bad quarter in London," Thiam said. "There's every indication that it has come back in October."
U.S. and some European banks reported bumper revenues in bond trading last month, driven by volatile markets between July and September after Britain's vote to leave the European Union and bouts of anxiety about monetary policy around the world.
But the effect was muted at Credit Suisse, with revenue from its credit business up 2 percent compared with a year ago.
Credit Suisse made some progress in bringing down costs and now expects to approach its cost base target of $5.4 billion in Global Markets by the end of 2016, two years ahead of schedule.
Thiam hinted at further cuts ahead of a Dec. 7 investor day.
"We have effectively pointed (to) costs as a potential upside to improve the economics of the business," he said.
LONG ROAD AHEAD
All European banks are trying to cut costs amid sluggish growth, economic uncertainty and restrained trading by clients.
Thiam cautioned that these tough conditions, which have complicated his plan for more stable earnings by expanding wealth management and placing less reliance on investment banking, would persist for the foreseeable future.
"We still have a long way to go in our journey," he said.
Net new money inflows - a volatile but important indicator of future earnings - totalled 9.2 billion francs at Credit Suisse's three private banking divisions, Asia Pacific, Switzerland and International Wealth Management.
Meanwhile, Credit Suisse's common equity Tier 1 capital ratio rose to 12 percent from 11.8 percent in the previous quarter, at the top end of its target of 11-12 percent for 2016 and a record high for the bank, Thiam said.
Some investors welcomed the overall figures, despite the negative share price reaction.
"I think there are more positives - NNA (net new assets), cost cuts, capital - than negatives," one said.
Credit Suisse said it had set aside another 357 million francs for legal bills in cases mainly relating to residential mortgage-backed securities, following last week's disclosure by UBS that it had set aside an extra $417 million to cover potential penalties tied to RMBS cases.
A 38-million Swiss franc provision for credit losses in its Asia Pacific business was due to loans secured against shares in Hong Kong which had plunged in value, it said.
(This version of the story has been refiled to add dropped word "on" in paragraph one)