Arnd Wiegmann/ReutersA branch of Credit Suisse in Basel, Switzerland.
4:25 a.m. | Updated
LONDON – Credit Suisse said on Wednesday that its net profit rose 2.6 percent in the second quarter, as the bank announced a number of measures to increase its capital reserves in response to concerns from Switzerland’s central bank.
Credit Suisse said the steps to improve its capital base included issuing bonds to investors that convert into shares, as well as the sale of financial assets.
The measures will add 8.7 billion Swiss francs ($8.9 billion) to its capital reserves by the end of July. The bank expects to raise an additional 6.6 billion francs by the end of the year.
The European bank said it was tapping several existing global investors, including the giant money manager BlackRock, as well as new investors including Singapore’s sovereign wealth fund, Temasek, to increase the bank’s capital position.
The steps come after the Swiss National Bank singled out Credit Suisse last month as a bank that needed to “significantly expand its loss-absorbing capital during the current year.” Credit Suisse’s local rival, UBS, should just continue with its efforts to strengthen its capital, the central bank said.
At the time, Credit Suisse said it was “comfortable” with its progress toward increasing capital reserves. The bank said on Wednesday that it was responding to the calls from the Swiss central bank.
Credit Suisse’s chief executive, Brady W. Dougan, told investors on a conference call on Wednesday that he disagreed with the Swiss central bank’s statement about the firm’s capital position, but the Swiss bank had responded to calm concerns about its financial strength.
“The capital measures that we announced today take any question of the strength of our capitalization off the table,” Mr. Dougan said in a statement. “This is a robust and balanced set of capital initiatives.”
In response to the improvement in the bank’s capital position, the Swiss National Bank said it supported the steps.
“In an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse,” the Swiss central bank said in a statement.
Credit Suisse said the steps would increase its core Tier 1 capital ratio, a measure of firm’s ability to weather financial shocks, to 9.4 percent by the end of the year, compared with 7 percent at the end of the second quarter.
The bank’s share price rose 6.2 percent in morning trading in Zurich. Stock in the Swiss firm has fallen 39 percent in the last 12 months.
Credit Suisse also said it had achieved 2 billion francs of costs savings during the first six months of the year, and would now look for an additional 1 billion francs of savings by the end of 2013.
As part of the new cost savings sought by the end of next year, 550 million francs will come from the firm’s global investment banking unit, according to a company statement. The bank has previously said it intends to reduce its European investment banking division. An additional 450 million francs of savings will be extracted from the firm’s private banking division.
Net profit in the three months ended June 30 rose to 788 million francs from 768 million francs in the period a year earlier, while net revenue dropped to 6.2 billion francs from 6.9 billion francs.
Despite market volatility caused by the European debt crisis, pretax profit in Credit Suisse’s investment banking unit rose 84 percent, to 383 million francs. Pretax profit at the firm’s private banking division fell 7 percent, to 775 million. The bank did not provide the net profit figures.
Article source: http://dealbook.nytimes.com/2012/07/18/credit-suisse-boosts-capital-reserves-as-profit-rises/?partner=rss&emc=rss
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