What's going on?
Another beaten-down European bank reported better than expected first quarter results as Credit Suisse said it lost less money than investors expected – and its stock jumped 5%.
What does this mean?
Credit Suisse’s CEO emphasized that things had clearly improved versus January and February. The beginning of the year saw, in his words, “some of the most difficult markets on record,” which had caused large institutional clients to not trade as much. Activity has picked up in recent months, he said, but warned that “low levels of client activity” would persist. In other words, don’t expect too much from Credit Suisse. The “good” news is that, with the stock down about 35% this year ahead of Tuesday’s results, investors really weren’t expecting much (which is probably why the stock jumped).
Why should I care?
For stocks: Some European banks have lost more than half their value in the past 9 months. We’re not talking about obscure, tiny banks. Some of Europe’s biggest, most well-known banks have lost half of their value recently (like Credit Suisse and Deutsche Bank). Negative interest rates – which hurt banks’ profitability by limiting what they can charge borrowers – are to blame, amongst other factors. Most bank stocks in Europe have stabilized in the past few months as their valuations have perhaps become too low – but the question is whether they will recover much from here or if current valuations are just a good reflection of a sobering reality.
For you personally: Credit Suisse, like other banks, is focusing on expanding its private wealth business (especially in Asia). Put simply, they want to focus on managing rich people’s money – and so far it seems to be working as the amount of money under management at its private bank (outside of Switzerland) jumped by about $5 billion during the first quarter. In recent years, banks with money management divisions have prioritized this rather stable business over the typically more volatile business of trading stocks and bonds with their own money. Credit Suisse is doing exactly that: hiring private bankers and cutting jobs in its “investment bank.”