Credit Suisse Group (XSWX:CSGN), the Swiss-based financial services company, was the largest detractor for the quarter, declining 9%. First-quarter results released in April were mixed. Overall revenues and net profit were less than market expectations, while net new money inflows in the wealth management/private banking and asset management divisions were strong. Margins in wealth management and asset management also expanded. In May, Credit Suisse announced that it settled its U.S. tax evasion case that resulted in a total fine of CHF 2.5 billion (USD 2.8 billion). Credit Suisse was not required to relinquish any of its licenses, and its internal due diligence suggests that no clients have terminated their relationship due to the issue. We are pleased that this situation is finally resolved. Although Credit Suisse’s Tier 1 capital ratio declined to 9.3% based on its first-quarter results, management expects to exceed a level of 10% by current year-end. Management also stated that the company plans to return approximately half of its earnings to shareholders, which is better than the 35% previously announced. Lastly, Credit Suisse issued USD 5 billion of senior debt during the quarter, its first large senior debt sale in three years. Despite its settlement with the U.S. authorities, the deal attracted USD 10 billion of demand. We believe this illustrates that Credit Suisse’s fundamentals are sound and that it is still an attractive investment.
From David Herro (Trades, Portfolio)'s Oakmark International Fund Second Quarter 2014 Letter.
