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Eight key takeaways from Credit Suisse’s surprise Q1 results

Credit-suisse

Banks’ quarterly reports appear now to be an ad hoc thing. Credit Suisse was scheduled to release its Q1 results in early May, but here they are before Easter. Perhaps it’s a way of deflecting the probe by U.S regulators into how it trades foreign currencies, or maybe it’s a way of ensuring it’s lost amid a sea of American banks unveiling their first quarter results.

Either way, for its investment bank, it’s not looking good – pre-tax profits were down 36% on the same period in 2013, following (predictably) a quarter when fixed income currencies and commodities revenues slid by 21%, matching that of JPMorgan.

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So, what do you need to know?

1. Credit Suisse has shown 500 people the door from its investment bank

The post-bonus clear out has begun – after keeping headcount steady in its investment bank for a few years (and maintaining 100 more people than before the 2008 crisis), headcount has slipped from 19,700 at the end of last year to 19,200 in Q1. This is still a tiny 3% of total employees, which is a decidedly smaller proportion than the 15% called for by some banking analysts to make up for the decline in fixed income revenues.

2. Strangely, compensation has increased

Credit Suisse set aside CHF1.52bn for its investment banking compensation in the first quarter, at 12% rise on Q4 and 2% up on the same period in 2013 when the bank brought in CHF473m more. On a per-head basis this looks even better – with an average of CHF79.2k put aside in the Q1 compared to CHF75.3k last year. This, coupled with generous cash bonuses and high deferral thresholds, makes the Swiss bank appear to be a very good payer.

3. Worryingly, there are no green bubbles

Credit Suisse’s predilection for bubble charts continues, but while its Q4 results demonstrated increased return on capital for cash equities, global credit and equity derivatives, there were no significant positives on the previous year. Prime services, cited as a growing area by the bank in Q1, has also become a lot more capital intensive.

Credit-suisse-bubbles

4. Rates and emerging markets look most shaky

Credit Suisse puts its poor FICC performance down to a “significant” declines in its global macro products business, particularly rates. In October last year, it announced that it was transforming the global macro division into a “client focused, capital light franchise”. Also exposed were its emerging markets business – a traditionally strong business for Credit Suisse – which could be targeted for any future cuts.

5. Securitized products and credit did OK

Credit Suisse’s FICC results could have been a lot worse, were it not for strong performance in its credit and securitised products businesses. In other words, it’s a decent period for asset finance and high-yield, says the bank.

6. DCM is also looking a little shaky

Credit Suisse’s advisory business is a supposed positive, with revenues up 9% year on year. However, the first quarter – while brighter than the comparable period last year – doesn’t look great when compared to the second and fourth quarters of 2013. This may in part be down to the fact that debt capital markets, which equates for the lion’s share of revenues, is still struggling. Equity capital markets, buoyed by higher IPOs activity, are up 17% year-on-year, but this is still a 33% decline on the final quarter of 2013.

Credit-suisse-advisory

7. Prime services and equity derivatives are doing well

Equity trading revenues were up by 13% on the previous quarter (but down 8% year on year) to CHF1.2bn. This was largely down to ongoing strong performance in Credit Suisse’s prime services division. Equity derivatives have been performing badly across the investment banking sector, with some banks again preparing redundancies, and JPMorgan’s results highlighted this fact. It’s a role reversal at Credit Suisse – cash equity revenues fell, but equity derivatives performance improved.

8. The real anchor for Credit Suisse is the wealth management division

This is no surprise, but the Swiss bank is becoming less reliant on its investment bank and more geared towards wealth management. Pre-tax income was up 28% year on year, with strong inflows across Asia and the Middle East offsetting the tendency for European clients to withdraw their cash to avoid bigger tax commitments.

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