Credit Suisse's Quality Comes to the Fore
We don't think the market appreciates the significant derisking that has taken place.
Credit Suisse (CS) reported net profit of CHF 749 billion for the first quarter of 2019, which is 8% higher than the first quarter of 2018 and 11% higher than consensus expectations. However, the increase was solely the result of a lower tax rate; pretax profit of CHF 1.1 billion was stable compared with the first quarter of 2018. We expect a full-year pretax profit increase of 39%, which may look a bit rich considering the flat first quarter. However, we point out that the first quarter of 2018 contributed 31% of pretax profit and the first half of 2018 accounted for 62% of pretax profit. We maintain our narrow moat rating and fair value estimate and believe the shares are undervalued.
Group revenue declined 4% year over year as primary market activities in the investment bank collapsed; equity underwriting and debt underwriting declined 44% and 27%, respectively, year on year. Management did indicate that there is a substantial pipeline of deals that should support future revenue growth.
Johann Scholtz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.