NEW YORK (TheStreet) -- European banks, especially Credit Suisse (CS) - Get Report, are trading at ultra-low valuations, making for a great buying opportunity. The Swiss bank's reputation has been damaged by a recent tax-evasion investigation. However much of the related fines and negativity are already priced into the stock. Credit Suisse is one of the top private banking giants in the world with exceptional operating profitability and normalized margins of around 40%.

Basic Fundamentals

Credit Suisse, the second-largest Swiss bank next to UBS (UBS) - Get Report, oversees about $1.36 trillion (or CHF 1.3 trillion) in assets. The financial services it offers span from private banking, including asset management, to investment banking, including securities underwriting, trading, and brokerage services. Private banking makes up 30% of revenue while investment banking accounts for 50%.

Credit Suisse is restructuring Swiss-based operations by laying off employees and expanding into developing countries. Tidjane Thiam, the new CEO as of June 2015, may cut nearly 3,000 employees or 15% of personnel from investment banking operations. Thiam may slice 150 billion Swiss francs from assets in the bank's fixed income, commodities and currencies units to focus less on investment banking and more on asset management and private banking. Private banking and asset management are twice as profitable as other financial services.

As the CEO of


(PRU) - Get Report

, Thiam carries a superb record for growth. Credit Suisse's stock price jumped 5% the day the company announced that

Thiam was taking the helm

. Investors are wagering that he will boost margins and expansion into Asia.

Credit Suisse reduced costs by CHF 3.5 billion by the end of 2014. It's aiming to save another CHF 1.0 billion by the end of 2015, including savings in private banking and investment banking. Credit Suisse forecasts a CHF 300 million reduction on 2014 pre-tax income, roughly 3%, from the Swiss franc appreciating and negative real interest rates. But additional savings of CHF 200 million aimed by the end of 2017 should mitigate the adverse impact from negative rates and currency appreciation.

"Credit Suisse's results have been supported by its stable and less capital-intensive private banking business as the bankreconfigures and downsizesits investment banking business," wrote S&P Capital IQ in a stock report April 25. "More aggressive cost cutting and restructuring will help alleviate some pressure on the bottom line, and pressure on revenues should ease as the restructuring progresses."

If Credit Suisse maintains strong performance in investment banking, continues with cost-cutting efforts, and remains on track for growth in assets under management in emerging markets, it should trade with higher earnings multiples like its peer UBS. It trades at a forward price-to-earnings ratio of 12.6.

UBS' analysts project Credit Suisse's assets under management will expand 7% in 2015. Growing assets under management amid strong equity markets and currency moves should overcome earnings challenges regulatory uncertainty and ultra-low interest rates, they say.

Thomson Reuters projects Credit Suisse's earnings per share will increase 5.4% year-over-year this year to $2.50 a share. Earnings for next year are expected to increase 6% to $2.65 a share; in 2017, it's forecasted to grow 25% year-over-year to $3.30.

The 30% spike in the Swiss franc in January resulted in a 3% decrease to the bottom line. That's not nearly as much as some analysts had speculated. Many worried that Credit Suisse would have to reduce its dividend. But it is maintaining a 3.3% annual dividend.

Cheap Valuations

Credit Suisse has strong potential for upside in the coming years. It trades at lower valuations compared to both the European stock market and its peers. It trades at a forward price-to-earnings ratio of 11. The

iShares MSCI Europe Financials ETF

(EUFN) - Get Report

trades a higher forward price-to-earnings ratio of almost 13.

Vanguard FTSE Europe ETF

(VGK) - Get Report

trades at 17 times forward earnings.

Credit Suisse trades at 1.6 times sales and under book value at 0.9 times book. The iShares Europe ETF trades at slightly cheaper valuations on these measures, 1.2 times sales and under book value at 0.98 times book. Vanguard's Europe ETF is at 1.2 times sales and 1.8 times book.

Investment Risks To Consider

Credit Suisse paid $3.7 billion to settle accusations of selling bad mortgages to Freddie Mac (FMCC) and Fannie Mae (FNMA) . The state of New York is suing it for selling bad mortgage-backed securities before the 2008 financial crisis for $10 billion. The largest risk to Credit Suisse is the legal problem with New York. The stock has already priced in the cost. But an unfavorable outcome could cripple it more.

Credit Suisse produces more than half of revenue from investment banking -- a business with very volatile profits. Like many of its rivals, it had huge legal and settlement charges from the financial crisis. It settled legal charges for CHF 2.5 billion in May 2014 for helping U.S. clients evade taxes.

Regulators could mandate that banks to have more capital or pass new regulations that squeezes profits. The Volcker Rule, restricting banks from making certain speculative investments, will most likely dampen revenue from proprietary trading. 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.