It’s Credit Suisse results day.
Last time Credit Suisse reported, it had a few issues in its investment bank: the cost income ratio was 228%.
In the circumstances, you might think Credit Suisse would have made a lot of investment banking redundancies. It hasn’t. Since the fourth quarter of 2011, it’s reduced headcount in the investment bank by 200 people. Compared with the first quarter of 2011, headcount is down just 100.
Far more zealous chopping has taken place in Credit Suisse’s private bank. There, headcount is down by 800 since the end of 2011 and by 1,200 year-on-year.
Maybe Credit Suisse needs to remove a few more investment bankers? At 76.2%, the cost income ratio at its investment bank still looks a little high. And its sales and trading businesses especially haven’t performed particularly well. Despite this, Brady Dougan has stated that there are no plans for additional job cuts.
Fixed income sales and trading revenues at Credit Suisse were down 21% year-on-year, versus an industry average increase of 3% (according to Glenn Schorr at Nomura). Remember that Morgan Stanley achieved an increase of 34%.
Equity sales and trading revenues were down 12% year-on-year, versus an industry average decline of 7% (according to Schorr) and an increase of 6% at Morgan Stanley.
Nor can Credit Suisse point to substantially reduced risk taking as the source of its sales and trading underperformance. While Goldman and Morgan Stanley cut VaR around 30%, Credit Suisse reduced it 12%.
Instead, Credit Suisse attributes its comparatively poor fixed income results to an excellent first quarter for securitised products in 2011 and to the exit of various business lines. In equities, it points the finger at, “sustained weak trading volumes.”
Credit Suisse is refining its strategy. It is hiring. The chart below, taken from today’s results, shows where.
Is Credit Suisse paying? Today’s figures suggest compensation in the investment bank is down 14% year-on-year. At first sight, this is in line with industry norms, but Credit Suisse has expensed its entire CHF 534m PAF2 toxic asset payment in the first quarter. If this is excluded, the implication is that pay for rank and file investment bankers is down more substantially.
Equally, while Credit Suisse once aspired to pay on a par with US banks like Goldman Sachs and JPMorgan, it’s now falling behind. In the first quarter, compensation per head at Goldman was $135k. At JPMorgan’s investment bank it was $113k. At Credit Suisse it was $81.9k.