Credit Suisse (NYSE:CS), a Swiss financial services group, was the largest detractor from performance for the fiscal year. Credit Suisse’s share price has been weak over the past year for multiple reasons. The company’s investment banking results have struggled, although we recognize that the underperformance is partially due to restructuring activity and we expect performance to strengthen once restructuring is complete. One-off expenses related to litigation, pension true-up charges and write-downs on certain credit assets also hurt performance. Additionally, the U.K.’s decision to leave the European Union negatively impacted the share price. Credit Suisse’s management has responded to these challenges with a series of restructuring measures. Its management has made progress expanding its wealth management franchise, which we believe is a good move since that business is fee based, requires little capital and has very good secular growth trends. Additionally, Credit Suisse has reduced its exposure to the global markets business, which has enabled it to de-risk its balance sheet and operate with a more efficient cost structure. Credit Suisse’s management has confirmed the restructuring of its global markets business is nearing completion and should improve profitability over the coming quarters. Credit Suisse’s common equity Tier 1 ratio of 11.8%, above the 10% minimum requirement, should increase even more on the back of higher consolidated profitability.
From David Herro (Trades, Portfolio)'s Oakmark International Fund third quarter 2016 commentary.
