Credit Suisse Group AG, Switzerland’s second-biggest bank, posted its biggest quarterly loss since 2008 after settling an investigation by the U.S. Department of Justice for $2.6 billion in May.

The bank’s net loss in the second quarter was 700 million Swiss francs ($779 million), compared with a profit of 1.05 billion francs a year earlier, the Zurich-based company said in a statement today. The average estimate of eight analysts surveyed by Bloomberg forecast a net loss of 691 million francs.

Chief Executive Officer Brady Dougan is reporting a second quarterly loss in less than a year as Credit Suisse grapples with regulatory probes. The settlement in May for helping Americans evade taxes raised questions among investors about the bank’s financial strength as the fine pushed Credit Suisse’s ratio of capital to risk-weighted assets for the first quarter to the lowest level among 16 global investment banks tracked by Bloomberg Industries.

“We expect Credit Suisse management’s main focus to be on reducing risk-weighted assets in order to reach a capital ratio of 10 percent again by year-end,” Andreas Venditti, a Zurich-based analyst with Vontobel, said in a report last week. He has a hold rating on Credit Suisse.

The company aims to boost that capital ratio to more than 10 percent by the end of the year from 9.5 percent at the end of June.

Credit Suisse shares dropped 4.3 percent so far this year, compared with a 2.9 percent decline for the Bloomberg Europe Banks and Financial Services Index.

Further Cuts

Pretax profit at the investment bank was 752 million francs compared with 754 million francs a year earlier. Six analysts surveyed by Bloomberg News had estimated 544 million francs on average.

Analysts and investors have said Credit Suisse should shrink its investment bank more decisively and focus on wealth management to boost returns. The topic of further cuts to the investment bank is “on the table, namely because it is being requested time and again by investors and analysts,” Chairman Urs Rohner said in a May interview with Neue Zuercher Zeitung.

“I wonder if one quarter is enough to feel safe keeping the investment bank this size,” said Andreas Brun, an analyst at Zuercher Kantonalbank with a market perform recommendation on the bank, said before the earnings were released.

U.S. banks posted better results than expected earlier this month because of higher-than-expected debt trading revenue. All asset classes within fixed income stabilized or improved in June compared to April and May, JPMorgan analysts Kian Abouhossein and Amit Ranjan said in a report last week. The results of the U.S. banks are a “positive read” for European investment banks, they said.

Credit Suisse is the first European bank with large securities business to report second-quarter earnings. UBS AG and Deutsche Bank AG are due to report earnings on July 29, followed by Barclays Plc a day later.

U.S. Banks

JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley reported a 2.5 percent decline in cumulative revenue at their investment banks in the quarter from the year-earlier period, excluding valuation adjustments, data compiled by Bloomberg Industries show. Revenue was helped by gains in equity underwriting and advising on mergers.

Credit Suisse took a charge of 1.6 billion francs in the quarter after it became the first global bank in 10 years to plead guilty to a crime in a U.S. courtroom. The bank last posted a loss for the fourth quarter of 2013, amounting to 476 million francs, after booking charges for settling lawsuits over mortgages sold to Fannie Mae and Freddie Mac and increasing provisions for the U.S. tax case.

Financial Strength

The U.S. fine pushed down Credit Suisse’s capital ratio, a key measure of financial strength, to 9.3 percent at the end of the first quarter from 10 percent.

Uncertainty around the DOJ’s investigation led to a lull in activity at Credit Suisse’s wealth management unit in the weeks before the settlement was announced on May 19, said Chief Financial Officer David Mathers later that month. Business picked up afterward, he said.

Bloomberg