Analyst Note| Johann Scholtz, CFA |
Narrow-moat Best Idea Credit Suisse reported pretax profits of CHF 1.6 billion for its second quarter, a 19% improvement over the CHF 1.3 billion it reported for the second quarter of 2019. Reported pretax profits was also materially ahead of the CHF 1.1 billion consensus estimate for the quarter as collected by Credit Suisse. Impressively, Credit Suisse managed to generate organic capital, boosting its common equity Tier 1 ratio by 0.4% to 12.5% during the quarter. It will be harder to achieve revenue growth during the second half of the year as it is unlikely that the robust growth in the revenue from the trading of securities will continue. Loan-loss provisions should be lower in the second half of 2020, however. Credit Suisse follows U.S. GAAP, and under its provisioning standards, banks typically recognize loan losses earlier in the cycle than what is the case for banks reporting under IFRS. While we have made some changes to our near-term earnings expectations, these changes largely offset, and our midcycle assumptions for Credit Suisse remain the same. We maintain our CHF 17 fair value estimate and narrow moat rating.