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Credit Suisse just aced Goldman Sachs, but there are issues

Credit Suisse Q3

Goldman Sachs is having problems in Asia. In the first six months of this year, revenues at Goldman’s Asian business were reportedly down 70%, promoting Goldman to ponder cutting 30% of its Asian investment bankers. This was later cut to 15%, but still: Goldman’s Asian investment banking division (IBD) is not going well. Credit Suisse’s, by comparison, is flying.

Witness the chart below, taken from the presentation accompanying today’s third quarter results. Revenues at Credit Suisse’s Asia Pacific IBD business rose 98% in the third quarter.

Credit Suisses’s Asian IBD revenues soared in Q3

Credit Suisse APAC

Source: Credit Suisse

Goldman Sachs doesn’t break out IBD revenues in Asia. It seems highly unlikely they were quite as perky as Credit Suisse’s though.

Credit Suisse’s Asian excellence looks like a vindication of CEO Tidjane Thiam‘s strategy in the region. Thiam attributed the increase to the bank’s strategy of cross-selling to its Asian wealth management clients.

But Credit Suisse’s global markets business is in a mess

If Credit Suisse’s Asian IBD business is going great, the same can’t be said for its global markets business. This is doing badly. Very badly.

As the chart below shows, revenues in Credit Suisse’s equities sales and trading business were down 32% year-on-year in the three months to September. Only Citigroup did worse, and at Citi the decline was partly due to a valuation adjustment, without which the drop would have been just 23%.

Fundamentally, therefore, Credit Suisse’s equities business just turned in the worst performance of the lot. As an analyst on the call (cough) pointed out, Credit Suisse’s equities sales and trading revenues in Q3 was its worst for a decade.

Thiam blamed this on Credit Suisse’s European equities business, which he said was almost entirely responsible for the decline. The drop in Europe was due to falling revenues rather than a trading loss and Thiam said Credit Suisse will be hiring new people equities to make amends. As we reported yesterday, however, the bank just let go of a trader it hired only two months ago as it tries to trim costs.

Things weren’t much better in fixed income sales and trading. There, Credit Suisse crowed about a 3% year-on-year increase in its credit trading revenues. That’s nice – except Barclays’ (which is the only other bank to break out its credit trading revenues) achieved an increase of 74% in Q3. 

The real issue in Credit Suisse’s global markets division though, is spending. The bank said today that it’s finished cost cutting in global markets, but costs there are still high. As the chart below shows, Credit Suisse’s global markets division – which has finished cutting costs – now has the distinction of having the highest cost ratio of all the banks which report markets costs. Hmm.

During today’s call, analysts asked Thiam and CFO David Mathers why this is. How can Credit Suisse have finished cost cutting when costs are eating 94% of revenues in a quarter which – for other banks – was pretty good? Mathers said costs will fall further as the bank trims expenses in its centralized functions (meaning the back office) and these feed through to the investment bank. Thiam said costs will fall as a proportion of revenues as the equities business rebounds in Europe.

Overall, however, Credit Suisse’s Q3 results give the impression of a bank run by a CEO who knows a lot about Asia and about wealth management and a lot less about global markets. Thiam wants Credit Suisse’s global markets division to generate returns of 10%, but so far this year returns are 2.4%, down from 12.4% in 2015.

Meanwhile, there are signs that Credit Suisse is having to win over its salespeople and traders with cash prizes. Pay per head in the global markets division is down 3% to CHF179k so far this year, but buried in today’s presentation is a line to the effect that operating expenses in global markets rose 3% year-on-year in the third quarter, “due to higher variable compensation.” In other words, bonuses for Credit Suisse’s traders and salespeople are rising. That’s the good news.


Contact: sbutcher@efinancialcareers.com

Photo: Peshkova, Getty

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