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Credit Suisse investment bankers paid 20% less than at UBS as bank swaps out highly paid staff

Brady Dougan

Dougan displaced

Credit Suisse has announced its fourth quarter and full year results. They don’t look good. The investment bank made a loss of CHF40m in the fourth quarter of 2013 (compared to a profit of CHF298m in the fourth quarter of 2012).

Credit Suisse is targeting a cost-income ratio in its investment bank of 70%. In the fourth quarter it was 101%. Oops.

The Swiss bank’s situation isn’t as bad as it looks, but it’s still bad. The fourth quarter pain in the investment bank came from a large loss in the non-strategic business due to ”litigation provisions’ related to mortgage matters – the core strategic division was still profitable. However, even in the strategic business profits were down 35% year-on-year in the final three months. And even in the strategic division, the cost income ratio was 82.5% in Q4 – considerably higher than the bank’s 70% target.

Cost non-control at Credit Suisse’s investment bank

Cost non-control at Credit Suisse

 

Credit Suisse therefore needs to cut costs and headcount. So far, it’s proven unwilling to do the latter. At the end of 2013, headcount of 19,700 was down only 100 versus the 19,800 with which Credit Suisse began the year.

However, something is happening – slowly, behind the scenes. Earlier results show that Credit Suisse cut 100 people from its investment bank between March and June 2013, only to add 500 people between June and September as the bank hired in its annual quota of university leavers and MBAs. Following this, another 300 investment bankers were then cut between October and December.

As existing staff are cut and junior staff are hired in, it therefore looks like Credit Suisse is slowly swapping out experienced senior staff and hiring in cheaper university leavers and business school graduates. This may help explain the decline in pay per head at the investment bank, which fell from an average of CHF306k in 2012 to CHF276k in 2013. UBS paid its investment bankers an average CHF343k per head in 2013, making it 20% more generous on average than Credit Suisse was last year. The house of Dougan is falling behind.

Credit Suisse’s apparent strategy of substituting highly paid staff for cheaper juniors is nothing new – most banks are pursuing something similar. Managing directors at all banks have reportedly had their pay cut more than anyone else this year. The only problem with the strategy at Credit Suisse is that it doesn’t seem to be biting hard or working fast enough. Credit Suisse needs to dump more senior staff, more quickly, or else it needs to find some other way of getting costs down and revenues up.

 

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