Credit Suisse Group (CS)

CS's Chief Executive Brady Dougan warned that the performance of the Swiss firm's investment bank was mixed in the third quarter with volume in its fixed income and currency trading businesses down.

President Obama's plan to restrict the activities of commercial banks, specifically outlawing proprietary trading and preventing commercial banks and institutions that own banks from owning, investing in or sponsoring private equity and hedge funds as well as limiting the size of banks could greatly reduce future revenues and growth potential for US and foreign banks.

President Obama's plan to restrict the activities of commercial banks, specifically outlawing proprietary trading and preventing commercial banks and institutions that own banks from owning, investing in or sponsoring private equity and hedge funds as well as limiting the size of banks could greatly reduce future revenues and growth potential for US and foreign banks.

UBS AG and Credit Suise Group AG may have to almost triple the amount of cash they hold in relation to customer deposits under new proposals by Swiss regulators.

Switzerland may be the first country to introduce rules requiring banks to keep more liquid assets on hand after the global credit crisis. Such regulations, according to Tobias Lux, a spokesman for the Swiss Fiancial Market Supervisory Authority, are aimed at boosting the banks' short-term liquidity buffers, which ultimately creates greater security for customer deposits. However, they could also significantly decrease profits for the two Zurich-based banks as well as any other financial institutions subject to similar regulations.

The costs of extending long-term funding and holding more liquid assets could amount to as much as 30 percent of pretax profits at European banks, according to Credit Suisse analysts Jagdeep Kalsi, Daniel Davies and Guillaume Tiberghien.

Additionally, the stricter lending requirements would increases the cost of capital and decrease the amount of loans issued by UBS and Credit Suisse, which together control about one third of domestic lending in Switzerland.

High profits in 2006 and 2007 are likely to be unsustainable, as they are based largely on the strength of the overall market. There is no reason to believe that revenues will continue to rise, especially given the weak U.S. housing market.

The bank's trading desk has been undertaking more significant investment risks, which could pose a problem if the market turns sour. Since Credit Suisse is exposed to great volatility, they could stand to lose a lot of money extremely quickly if market conditions prove unfavorable.

Credit Suisse is in the middle of a massive reorganization campaign, which includes the One Bank initiative as well as internal consolidation within the asset management and private banking divisions. So far, CS has been making great progress through this restructuring program; however, this progress depends on management remaining committed to the reform, even if results may take years to be fully realized.