Credit Suisse Restates Results, Hikes CEO Pay - Analyst Blog

Credit Suisse Group AG CS revised its 2013 results owing to a higher litigation reserve related to an ongoing tax probe by the United States Department of Justice (DOJ). The tax probe resulted in an after-tax charge of CHF 468 million. DOJ is suspecting that the Swiss banking giant has deliberately helped its U.S. clients to evade tax which amounts to violation of U.S. tax obligations.

Notably, results also include the impact of CHF 275 million after-tax charges which Credit Suisse incurred after the company settled a mortgage-related dispute in Mar 2014 with the Federal Housing Finance Agency (FHFA) – the conservator of Government Sponsored Enterprises (GSEs) Freddie Mac FMCC and Fannie Mae FNMA.

Per the annual report 2013, the company now has made a total provision of CHF 895 million relating to tax and securities law issues.

Revised Q4 and 2013 Results

Credit Suisse restated fourth-quarter 2013 results with a net loss of CHF 476 million. For full-year 2013, revised income from continuing operations before taxes came in at CHF 3,504 million versus CHF 1,888 million reported in 2012. Net income attributable to shareholders finally stood at CHF 2,326 million compared with CHF 1,349 million in the prior year.

Further, as of Dec 31, 2013, Credit Suisse's revised Look-through Total Capital ratio was 15.7%, down from the previously reported ratio of 16.1%, while Look-through Basel III CET1 ratio came in at 10.0%, down from the previously reported ratio of 10.3%.  Revised Basel III CET1 ratio was 15.7% versus the previously reported ratio of 16.0%.

CEO Pay Hike

Chief Executive Officer CEO Brady W. Dougan received an approval for compensation worth CHF 9.79 million for 2013, per the annual report. This reflects a year-over-year increase of 26% from CHF 7.77 million in 2012.

The hike is a reflection of of Dougan's efforts in driving Credit Suisse to book significantly higher year-over-year profit in 2013.

Our Viewpoint

Though the litigation issues seem to be weighing on the company's financials for some time, we remain optimistic about its efforts in gradually resolving the legal disputes. The higher litigation reserve indicates that the company is perhaps nearing a settlement with the DOJ.

Credit Suisse currently holds a Zacks Rank #4 (Sell). Argentina-based Banco Macro S.A. BMA is a better-ranked foreign bank worth considering. It holds a Zacks Rank #1 (Strong Buy).