February 15, 2018 / 5:25 AM / 9 days ago

Breakingviews - Asia spotlight gives Credit Suisse gleam, not glow

HONG KONG (Reuters Breakingviews) - Credit Suisse’s openness about Asia is yet to pay off. Since taking over in 2015, Chief Executive Tidjane Thiam has been keen to ensure the $47 billion group is seen as the “entrepreneurs’ bank” in a region where managing private fortunes goes hand in hand with cutting corporate deals. 

That means being unusually transparent about Asia. Other Western banks, including Goldman Sachs, are typically more reticent. Citigroup, a force in regional consumer and institutional banking, falls somewhere in between. Credit Suisse’s Wednesday’s full-year results demonstrate the pros and cons of its own approach.

The figures show Asia Pacific is a work in progress. It accounts for roughly a sixth to a seventh of employees, assets under management (AUM), and profit before tax. With 792 million Swiss francs ($854 million) of adjusted pre-tax earnings it is slightly more than half the size of the regional operations of Swiss rival UBS.

Private banking’s charms are also dulled by other difficulties. The unit’s AUM soared 18 percent to 197 billion francs in 2017, helping pre-tax earnings across the region’s broader Wealth Management & Connected business grow 63 percent. Asia’s markets business lost money before tax, however, in a tough year for traders everywhere. So by Credit Suisse’s own proprietary measure of returns on capital, the region was middle-ranking compared to its businesses elsewhere.

The setup introduces new confusion too. Uniting traditional investment banking with wealth management, instead of splitting them out for reporting purposes, makes it harder to see exactly how either is doing. The separate breakdown on Asian trading effectively flatters the performance of traders elsewhere. And of course, emerging markets bring special challenges: like a U.S. probe into Asian hiring practices which Credit Suisse just disclosed. 

Credit Suisse shares fetch just slightly over 12 times forward earnings: a little above UBS but below the 14 times HSBC enjoys as an Asia-focused universal bank. It may in time grow into a higher valuation; especially if the trading business regains ground. For now, the Swiss bank’s spotlight on its Asian business reveals a glimmer, not a glow.

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