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Credit Suisse hit by weak investment bank performance

(Corrects typographical error in first paragraph)

* Credit Suisse Q1 net profit 859 mln Sfr vs poll 1.155 bln

* Aims to pay dividend at least at 2013 level of 0.70 Sfr

* Focused on resolving U.S. probe into tax offences

* Set aside 107 mln Sfr more for legal fees in Q1

By Katharina Bart

ZURICH, April 16 (Reuters) - Credit Suisse (NYSE: CS - news) said on Wednesday first-quarter net profit fell by more than a third due to a big drop in bond trading revenues, increasing pressure on CEO Brady Dougan to make deeper cuts to its investment banking business.

Switzerland's second-largest bank, unlike larger rival UBS , has largely stuck with a full-range investment bank. But this may change after first-quarter pretax profits from this division fell by 36 percent on the year and bond trading revenues were down 25 percent.

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JPMorgan Chase & Co (NYSE: JPM - news) and Citigroup Inc (NYSE: C - news) . in the United States have also reported sharp declines in revenues from fixed income, a business that has been hit hard by tough new rules imposed on banks since the financial crisis.

UBS (Xetra: UB0BL6 - news) is abandoning large parts of fixed income - which traditionally includes debt and foreign exchange trading, securitised products and commodities - in a three-year restructuring to focus almost exclusively on private banking.

Under Dougan, Credit Suisse has decided to scale back on riskier areas in the investment bank which soak up capital.

But this has not gone far enough for some. Bank analysts at JPMorgan have downgraded Credit Suisse stock to "underweight" from "neutral" and said the bank's fixed income arm was unsustainable given its smaller size and narrower focus.

British bank Barclays (LSE: BARC.L - news) is also facing calls to make deeper cuts to its investment bank, which contributes about half of group profits, as it embarks on a third review of the unit in as many years.

Credit Suisse shares, which were down more than 2 percent on Wednesday, have lagged UBS. Credit Suisse shares trade at 10.1 times forward earnings, while UBS commands a valuation of 13.4 times.

"Over time, we feel Credit Suisse management will tend towards a more UBS-style strategy to re-rate the stock," Alex Potter, a London-based analyst with private bank Mirabaud, said.

Credit Suisse's investment bank contributed 59 percent of the group's overall pretax profit in the quarter.

The bank's return on equity stood at 8 percent in the quarter, against a 15 percent target. Stripping out the activities Credit Suisse is offloading, the ROE stood at 14 percent in the quarter.

Credit Suisse's poor results don't bode well for the rest of Europe's banks, said Rainer Skierka, an analyst at private bank J.Safra-Sarasin, who rates Credit Suisse as "neutral."

Deutsche Bank (Xetra: DBK.DE - news) and Barclays report results in two weeks, while rival UBS reports on May 6.

Credit Suisse is also still grappling with the scandals of the past. Last month, it said it would pay $885 million to resolve claims by a U.S. regulator that it misled Fannie Mae (Munich: FNM.MU - news) and Freddie Mac (Berlin: FHL.BE - news) into buying mortgage-backed securities that later went sour.

That leaves a U.S. tax probe as the largest remaining litigation for CEO Dougan, who has apologised to U.S. senators for the bank's misconduct.

The bank is being targeted by U.S. officials in a tax probe over helping wealthy Americans hide cash from the tax man, and it recently set aside more to settle and avoid prosecution.

CEO Dougan said the bank was eager to settle the probe, but that the timing and outcome remained uncertain. It set aside an additional 107 million francs for legal fees in the quarter.

One bright spot in Credit Suisse's earnings was its private bank, which pulled in 13.7 billion francs in net new client assets - a key indicator of future revenue. The private bank's pretax profit rose 15 percent on the year.

Credit Suisse's group net profit of 859 million Swiss francs ($977.19 million) missed analyst views, which averaged 1.155 billion francs in a Reuters poll.

"Our intention remains to deliver cash returns to our shareholders at or above 2013 levels," CEO Dougan said.

The bank proposed paying shareholders 0.70 francs per share for last year. UBS has said it expects this year to hit a target which triggers a payout of 50 percent of profits to shareholders, a goal announced in late 2012.

($1 = 0.8791 Swiss Francs) (Reporting By Katharina Bart; Editing by Jason Neely and Jane Merriman)