Credit Suisse: checkout time

Brady Dougan's bet that markets would swing back in his favour has paid off - at least partly - just as his stint as Credit Suisse chief executive draws to a close. While peers restructured their investment banks, he resisted the urge to cut costs and leverage aggressively, believing the change in the markets was cyclical and not structural.

Given the first-quarter rebound in trading activity at US banks it would have been disconcerting if Credit Suisse had not also benefited. Revenue from fixed income trading rose by 9 per cent from a year ago, and equities trading rose 11 per cent. Good news was absent elsewhere in the investment bank, however. Debt and equity underwriting was weak, and the advisory business lost share.

Trouble is, while revenue rose in the part of the investment bank that Credit Suisse will keep, costs climbed faster. The unit's decline in pre-tax profit is a reminder that it remains configured for sunnier times, just as its cost base in wealth management is shaped for higher volumes. In wealth, however, there was progress: higher revenue and a tighter grip on costs lifted the net margin to 30bp and secured a 10 per cent gain in pre-tax profit.

A one-quarter recovery in the investment bank's top-line fortunes - particularly in the often-strong first quarter - or in wealth management will not be enough to convince investors that Credit Suisse should stay the same when Mr Dougan hands over to Tidjane Thiam in June.

Investors have to hope that Mr Thiam will be less ginger at cost cutting and lift the bank's return on equity above its reported 10 per cent (versus a punchy 15 per cent target) and speed up deleveraging. They also expect him to put Credit Suisse's common equity tier one capital ratio, now at a peer-lagging 10 per cent, beyond doubt with a cash call. That is why the bank trades at 1.2 times tangible book value, a 25 per cent discount to rival UBS. Now let the real overhaul commence: the baton is yours, Mr Thiam.

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