June 29, 2012 / 9:08 AM / 6 years ago

UPDATE 3-Credit Suisse seeks to reassure with profit promise

* Says made profit in Q2 overall and in all units

* Unscheduled statement highlights pressure on Credit Suisse

* Focusing on private bank by shrinking investment bank - source

* Own debt gains seen providing fillip to Q2 earnings (Adds source on Credit Suisse strategy, rewrites)

By Katharina Bart

ZURICH, June 29 (Reuters) - Credit Suisse said it will report a quarterly profit, including at its investment bank, in a surprise statement that will not banish pressure for more cuts to its securities unit which, a source said, could face the knife again.

Credit Suisse shares have slumped this week after a recent Swiss National Bank (SNB) warning it needed to bolster its capital base this year and a downgrade of its long-term debt rating by Moody’s.

Maintaining profitability is key for chief executive Brady Dougan because it underpins his response to the SNB that the Swiss bank does not need to issue new shares to bolster capital but should be able to do so by stowing profits.

“Credit Suisse informs that it expects based on quarter-to-date information to be profitable at the group level and in all its divisions,” the Swiss bank said in a one-sentence statement on Friday, the last day of the second quarter.

Credit Suisse shares, which tumbled to a new 20-year low of 16.35 francs on Thursday amid a rout of banking stocks, closed 4.1 percent higher at 17.26 francs, in line with the European banking index.

The unscheduled statement came in response to a report in the Tages-Anzeiger daily that the bank would make a modest second-quarter profit due to cuts to spending and risky assets. The paper also said the bank’s board was considering ways to boost capital, including by further paring the investment bank.

A source familiar with the matter confirmed that the board is seeking to make a more dramatic scaling back of the investment bank as part of a shift towards low-risk private banking.

Dougan has been reluctant to make deep cuts to the 20,700-strong securities business, which he ran before becoming CEO in 2007, although the unit is already shedding positions as part of 3,500 jobs that the bank is slashing.

Any new cut-back would come shortly after the board added two Swiss members - academic Iris Bohnet and retired government official Jean-Daniel Gerber - following criticism that Dougan has stocked top management with too many Anglo-Saxon investment bankers to the detriment of the Swiss private banking business.


The bank did not provide any further detail on the quarter, which saw a 25 percent drop in global investment banks’ fee income, the lowest level since early 2009 as the widening euro zone crisis weighed, Thomson Reuters data show.

However, Credit Suisse’s second-quarter profit is expected to get a fillip from the value of its own debt. Banks can record gains if the value of their debt falls, since it becomes theoretically cheaper to repurchase it, and conversely book losses if the value of the debt rises.

Analysts polled by Thomson Reuters expect a net profit for the second-quarter of 550 million Swiss francs ($569.00 million), up from 44 million francs in the first quarter.

The bank is working on bringing forward the issue of 6 billion francs of contingent convertible bonds, or CoCos, to the Olayan family and Qatari fund, both existing shareholders, the Tages-Anzeiger newspaper also reported.

The paper said at a board meeting last Friday, Aziz Syriani, who represents the Olayan family, and Jassim Bin Hamad Al Thani, member of the Qatari ruling family, reportedly both signalled their willingness to work with Credit Suisse on the CoCos.

A spokesman for Credit Suisse declined to comment. The Olayans and Qatar did not respond to a request for comment.

“It’s unusual for banks to highlight market rumours, but maybe they felt as they go through negotiations on the CoCos they wanted to make a public statement on profitability,” Nomura analyst Jon Peace said. He rates the stock at neutral with a target price of 30 Swiss francs.

Other options to boost capital include cutting the dividend, reining in spending more than planned and doing more to offload riskier assets. A capital hike is seen as Credit Suisse’s most painful option and one which could cost Dougan his job.

Raising capital has become “fundamentally impossible” for European banks, the chairman and CEO of France’s Societe Generale said on Friday. ($1 = 0.9666 Swiss franc) (Reporting by Katharina Bart; Editing by Emma Thomasson and Jon Loades-Carter)

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