PREVIEW-Credit Suisse Q3 profit seen down on tepid trading

* Investment banking Q3 earnings seen in doldrums

* Derisking, new hires could pay off longer term

* CS seen meeting stricter capital requirements

* Results due on Oct. 21

By Jason Rhodes

ZURICH, Oct 20 (BestGrowthStock) – Net profit at Credit Suisse
(CSGN.VX: ) (CS.N: ) is expected to have fallen in the third quarter
as trading activity failed to pick up, hitting investment
banking earnings at Switzerland’s second-largest bank.

Analysts polled by Reuters expect the number two Swiss bank
behind UBS (UBSN.VX: ) to post a net profit of 980 million Swiss
francs ($1.02 billion), down from 1.6 billion in the second
quarter and 2.4 billion a year earlier. [ID:nLDE69I1LV]

CS is the first big European bank to report third-quarter
numbers after U.S. rivals Bank of America (BAC.N: ), Citigroup
(C.N: ), JPMorgan Chase & Co (JPM.N: ) and Goldman Sachs (GS.N: )
posted higher-than-expected quarterly profit despite low trading
volumes in the U.S. equity market.

“If this (strong performance of U.S. banks) is due to
proprietary trading then UBS and Credit Suisse will not have a
similar good third quarter because in our view they simply don’t
have so much prop trading,” said Vontobel analyst Teresa
Nielsen.

“They have done a lot of derisking over the last year which
should make their earnings less volatile than at the American
big banks. We already saw the divergence in the second quarter
where American banks’ revenues suffered more than UBS and Credit
Suisse,” Nielsen said.

UBS results are due on Oct. 26.

Chief Executive Brady Dougan, who steered CS safely through
the credit crisis without state aid, hired investment bankers
aggressively in the second quarter just as markets flattened.

His bold strategy could have backfired in the third quarter
as trading activity remained weak, although it may pay off
longer term if CS retains its talent and markets improve.

Growth in the group’s private banking client assets will
also come under scrutiny as the wealth management industry
struggles to maintain margins.

“Like all wealth managers and fixed-income houses, Credit
Suisse now faces the challenge of maintaining revenue while its
two major client groups face much reduced return opportunities,”
said Royal Bank of Scotland analyst Stefan Stalmann.

Shares in Credit Suisse have fallen around 15 percent this
year, against a 3 percent dip in the Stoxx 600 European banks
index (.SX7P: ) and a 10 percent rise in the stock of local rival
UBS, playing catch-up to CS’s strong rally in 2009.

SWISS FINISH

New capital rules for banks, known as Basel III, make the
issue of capital strength another key issue for European banks
during the third-quarter earnings season. [ID:nLDE69D0M7]

While rights issues by Deutsche Bank (DBKGn.DE: ) and Standard
Chartered (STAN.L: ) ignited worries more lenders will be forced
to raise capital, CS CEO Dougan said last month that the bank
would stick to its growth and dividend plans despite stricter
global and domestic capital requirements. [ID:nLDE68S0LC]

The local regulatory top-up to Basel III requirements, known
as the “Swiss Finish”, could crimp the ability of the country’s
two biggest banks to compete in investment banking in Europe and
on Wall Street. [ID:nLDE6920GP]

Investors are also keen to hear details about how CS plans
to meet a proposed Swiss requirement to lift its total capital
ratio by deploying contingent convertible (CoCo) bonds.

“Given the already good capitalisation, we believe that CS
is likely to achieve the ‘Swiss Finish’ to the Basel III
regulations through profit retention alone and without a further
capital increase, which is to be viewed positively,” said DZ
Bank analyst Matthias Duerr.
(Additional reporting by Catherine Bosley; Editing by Michael
Shields)

PREVIEW-Credit Suisse Q3 profit seen down on tepid trading