Credit Suisse Group AG cannot promise to distribute more than 50% of its net income as a dividend in the medium term as it needs to keep a buffer for "things completely outside of its control" such as regulatory changes, CEO Tidjane Thiam said Dec. 12 at the Swiss bank's investor day in London.
The bank plans to buy back up to CHF 3 billion over the next two years, committing to take CHF 1 billion out of the market in 2019-2020, in what is its first share repurchase since 2006.
The news did not give much impetus to Credit Suisse's stock, which on Dec. 12 traded almost unchanged from the prior-day close, opening at CHF 11.06 and closing at CHF 11.30. At 12:43 CET on the SIX Swiss Exchange the bank was trading up 0.65% at CHF 11.38.
The size of the buyback was rather disappointing for investors and analysts with some having expected a repurchase of up to CHF 5 billion in the next two years, the Financial Times reported Dec. 12.
Apart from the buyback, Credit Suisse has announced a plan to raise the dividend on registered ordinary shares by at least 5% per year. The bank has chosen to a one-year dividend planning schedule as it provides "maximum flexibility," Thiam said.
"There is no intention to hold anything beyond what is necessary for our business," Thiam said. The 30% capital buffer Credit Suisse has decided to keep is not a business need but dictated by mainly by regulatory contingencies such as the expected increase in risk-weighted assets as a result of the implementation of Basel III capital reforms, he added.
"I've often said that it would be nice to have a moratorium on regulatory capital changes for three or four, five years," he told analysts and investors. If in 2022, when the implementation of the final Basel III capital rules starts, Credit Suisse is told "that's it for five years", it would create "a lot of opportunities to distribute," Thiam said. "But as long as we don't have that message there is no other way to manage than to keep a buffer," he added.
CFO David Mathers also said that based on current projections for the next two to three years, 50% of net income is a good guidance for dividend distribution.
Not a European bank
Investors were hoping for a higher payout given the devaluation of Credit Suisse's stock price, which has dropped by about CHF 6 from CHF 17.57 at the beginning of 2018.
Thiam said the share price is "misaligned with the value of the company" because apart from the execution risk related to Credit Suisse's large-scale restructuring, the stock took a blow from the volatile markets this year but also because it is constantly associated with the EU and eurozone banks.
"When we look at the share price moving on some eurozone issues we feel there is a need to re-explain this because we are not in the eurozone," he said. The Swiss economy is extremely geared to the world economy not to the EU, he noted.
"[W]e are primarily a Swiss bank and secondarily a global bank," Mathers added as well. "The one thing we are not really is a eurozone bank because the amount of revenues we actually own in the eurozone is relatively limited and yet we get rated and treated as a European bank," the CFO said.
Raising the market value now boils down to growing the tangible book value per share, "which from this point, I am confident, we can drive up," Thiam said. The CEO believes the group is well-positioned to face future challenges after completing its three-year revamp at year-end.
No scrip dividends
Thiam also noted that Credit Suisse has managed to recover part of its market value over the past three years, but this is not visible because of high dilution. Credit Suisse shares have grown to 2.5 billion from 1.7 billion since 2015, which has to be taken into account when comparing share prices, he noted.
Thiam said he was very happy to stop scrip dividends, which include the issue of new shares instead of the purchase of existing shares, at Credit Suisse because they dilute shareholder value. "I never understood the purpose of scrip dividends," he said and vowed to not raise the number of shares in the future.
Credit Suisse has paid dividends out of its own reserves since 2010, gradually reducing the payment on registered shares to CHF 0.25 each for 2017 from CHF 1.30 in 2010. The bank offered new shares as part of the distribution for 2014, 2015 and 2016.