Credit Suisse shares gain after horrific earnings update! What’s going on here?

Credit Suisse shares gained 2% in pre-market trading on Wednesday despite massively underperforming and parting ways with its CEO.

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Credit Suisse (NYSE:CS) shares reversed their downward trend on Wednesday. The embattled bank has seemingly pleased investors by parting ways with Chief executive Thomas Gottstein and vowing to undertake another strategic review.

So, let’s take a closer look at the earnings report, and whether the stock now looks like a buy for my portfolio.

What did the bank say on Wednesday?

On Wednesday, Credit Suisse posted a CHF1.59bn second-quarter loss, badly missing market expectations. Analysts had expected a net loss of CHF206m. The Zurich-based bank’s losses exceeded expectations by eight times!

Losses were driven by the poor performance of the investment bank and trading businesses, as well as higher litigation expenses. Credit Suisse also saw net outflows of CHF7.7bn as clients traded less and reduced risk to fluctuating equity markets.

It was the lender’s third straight quarterly loss.

The bank announced a strategic review into its operations and parted ways with its CEO. Gottstein’s two years in charge had been marked by scandal and huge losses. He was brought in to stabilise the bank after it was embroiled in a spying scandal. But things didn’t go to plan. Gottstein only announced a new plan for the bank, going easy on investment management, at the end of 2021.

Credit Suisse named asset management expert Ulrich Koerner as its new chief executive.

Reputation in tatters

Credit Suisse has been hit by scandal after scandal in recent years. From failing to prevent money-laundering by a Bulgarian cocaine trafficking gang between 2004 and 2008, to a spying scandal that saw chief executive Tidjane Thiam hire private detectives to snoop on its former head of wealth management Iqbal Kahn.

The bank also pleaded guilty to defrauding investors out of $850m in a deal to fund a Mozambican fishing fleet. Credit Suisse bankers received $200m in returned loans as kickbacks.

More recently, a Bermuda court ruled that former Georgian prime minister and billionaire Bidzina Ivanishvili was due hundreds of millions in damages after a former Credit Suisse executive was found guilty of forging the signatures of clients over eight years.

And then there was the Greensill collapse.

This is by no means an exhaustive list of the Credit Suisse scandals.

Outlook

There is some good news for Credit Suisse. Its CET1 equity ratio — a metric that compares cash against assets — stood at 13.5% of risk-weighted assets, hitting its near-term target of 13.5%.

It also remains one of the largest asset managers on earth, with over CHF1.6trn under management. It’s an A-rated bank and has 50,000 employees around the world.

There has also been progress in terms of its restructuring and absorption of bad assets. Global markets, investment banking, and APAC markets have all been rolled into a a larger investment-banking segment.

Its wealth management business is also hugely profitable. And investors will be happy to see a pivot back in this direction. Although it’s worth considering that the world’s billionaires may be increasingly concerned about the bank’s reputation.

However, Credit Suisse is still reliant on its low margin, higher-risk investment banking operations. It’s worth noting that Swiss peer UBS has completely abandoned its investment banking segment.

Personally, I’m keeping well away from Credit Suisse, so I won’t be buying this stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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