Credit Suisse risks 3rd straight loss on Trump tax overhaul

Credit Suisse is at risk of posting a third consecutive annual loss after predicting it will take a €1.97 billion hit from a US tax overhaul signed into law by President Donald Trump.

Unless the Zurich-based bank made significantly more than 1 billion francs in the final quarter of this year, the writedown could trigger yet another yearly deficit for the lender, which had a net income position of 1.14 billion francs (€0.85 billion) after nine months.

The new tax bill means both “Credit Suisse and UBS will have to book a loss,” Andreas Brun, an analyst at Mirabaud, said by phone. Credit Suisse spokeswomen Amy Rajendran declined to comment on whether the charge would result in a fourth-quarter loss. She said the bank will report results in February.

“It won’t affect Credit Suisse’s share price since they’ve guided for it and the writedown doesn’t affect the regulatory capital,” Brun said. “However, it doesn’t look nice for Credit Suisse to post another full-year loss because of a one-off regardless of all the progress they’ve made.”

Credit Suisse has sought to reassure investors by saying that the policy for returning capital to shareholders remains unchanged and that the one-time accounting adjustment will have a “minimal” effect on the capital position. Tidjane Thiam announced a return on tangible equity target of as much as 12% by 2020 at the investor day in London on 30 November, the first profitability target under his tenure.

‘Negative impact’

The new tax on services and interest payments to affiliates outside the U.S. is “likely to have a negative impact” on tax liabilities in 2018, Credit Suisse said. The bank will provide a more detailed account on the US tax reform’s impact with the release of its full-year results scheduled for 14 February.

The lowering of the corporate tax rate from 35% to 21% will benefit most companies but it also requires them to recalculate deferred tax assets that have accumulated on their balance sheets. Bank of America will also take a $3 billion charge and biotechnology company Amgen announced a writedown of €5.06 billion to €5.48 billion.

“Credit Suisse anticipates that the reform will have a positive impact on the U.S. economy and our activity levels in the US,” the bank said in a statement on Friday, particularly in investment banking activities in advisory and underwriting.

The writedown may result in a loss of between 900 million francs and 1 billion francs for 2017, said Daniel Regli, an analyst at Main First. “I don’t believe that this will be a concern for shareholders, as the writedown isn’t relevant for the CET1 ratio and thus the dividend,” he said.

UBS guided in September that every one percentage point reduction in the tax rate would result in a writedown of approximately 200 million francs. UBS spokesperson Alec Zimmermann confirmed the guidance but wouldn’t comment any further.