Though it had managed to navigate the post-recessionary economic climate, Credit Suisse posted its first quarterly loss in three years this week.
Under chief executive Brady W. Dougan, Credit Suisse has effectively implemented business cost reduction programs that have helped fuel quarterly earnings over the past few years. As a result of its successful cost reduction campaigns, the bank has outpaced rivals such as UBS, posting impressive growth amid a dire climate.
However, the bank - one of the largest in Switzerland - said this week a slowdown in its core businesses negatively impacted earnings in its most recent fiscal quarter. Credit Suisse reported a net loss of 637 million Swiss francs - approximately $700 million - which was down precipitously from the $915 million profit it posted in the same period the year prior.
The dismal earnings report from Credit Suisse comes on the heels of a number of poor fiscal reports from some of its major competitors, including Deutsche Bank and UBS, The New York Times reports. The ongoing sovereign debt crisis in Europe contributed to market volatility throughout the second half of 2011, and that hit financial institutions' investment banking segments, which historically drive earnings.
The finance sector has been particularly affected by the economic downturn and the subsequent slow recovery. In an attempt to improve profitability, banks have announced sweeping cost reduction measures, with firms laying off hundreds of thousands of employees over the past few years. Other financial firms have overhauled spend management and indirect spend as they endeavored to drive profit gains, but the fruits of such efforts will likely not be realized for some time, experts say.
Credit Suisse said in a statement on Thursday that its cost reduction program is "on track," as the bank seeks to trim $2 billion by the end of 2013. The Switzerland-based bank also noted that it is scaling back its investment banking operations in an attempt to stem losses from the division. Dougan affirmed the bank's lackluster performance in its latest fiscal quarter underscored the challenges facing financial institutions.
"Our performance for the fourth quarter 2011 was disappointing. It reflects both the adverse market conditions during the period and the impact of the measures we have taken to swiftly adapt our business to the evolving market and regulatory requirements," he said in a statement. "In mid-2011, we decided to aggressively reduce risks and costs. This decision was rooted in our belief that the market and regulatory environment is undergoing fundamental change, and that by embracing these developments and proactively adjusting our business model, we can position Credit Suisse to succeed in the new environment."
The bank's financial results largely surprised analysts, who had projected Credit Suisse would post a profit in the quarter, according to the Times. CA Cheuvreau analyst Christian Stark noted that while the firm's performance was mediocre, it is taking the necessary steps to achieve business cost reductions and improve future prospects.
"The results are very weak," he said. 'At least they are taking the pain upfront by exiting risky assets quickly and gave some encouraging indication about the first quarter of this year."
Credit Suisse announced last year it planned to lay off 3,500 workers as a part of a company-wide cost reduction initiative. The bank also reduced bonuses 41 percent for workers this year, with executive board members receiving a 57 percent cut to their annual bonus payments.