Credit Suisse (NYSE:CS), one of Switzerland’s top financial services groups, was the largest detractor from performance for the quarter, declining 22%. Although the U.K.’s decision to leave the EU has negatively impacted Credit Suisse Group’s share price, it is important to remember that the bank derives only 2% of its revenues from the U.K., while 13% of its costs are denominated in pound sterling currency, the net result of which may be somewhat positive for profitability. While the decision to leave the EU has caused notable market upheaval, global market declines were actually more extreme in the first few months of 2016 due to significant commodity price weakness, concerns regarding slowed economic growth in the U.S. and China, and monetary decisions by major central banks. Even so, Credit Suisse was able to grow net new money by 6.1% in the first quarter, which was meaningfully better than the 3.8% we estimated for the full fiscal year and higher than our expected normal run-rate of 5%. Additionally, we believe its overall first quarter results were good. Performance in its investment bank division lagged behind the industry, however we recognize that the underperformance is partially due to restructuring activity and we expect performance to improve when restructuring is complete. Also during the first quarter, Credit Suisse realized about half of its intended CHF 1.4 billion in cost cuts, which was ahead of schedule. Although the company’s near-term results may suffer, it is too early to know the extent to which the U.K.’s EU exit will affect Credit Suisse. The company reports its second-quarter financial results in late July, at which time we’ll have a clearer view.
From David Herro (Trades, Portfolio) and Bill Nygren (Trades, Portfolio)'s Oakmark Global Select Fund second quarter 2016 commentary.
