It's Credit Suisse's 2017 investor day! We've come a long way since the 2016 investor day, when the bank first declared its intention of cutting costs while coincidentally raising revenues and hiking returns. This has now been achieved.
However, the cost cutting at Credit Suisse is not over. Nor is the restructuring. Nor is the revolution in what banking jobs entail. Whatever your job in banking, Credit Suisse's various investor day presentations are a proxy for how things have changed, and the disturbances yet to come.
Despite the perception that banking professionals jump from job to job, people in Credit Suisse's investment bank stick around. During today's presentations, the bank boasts that people in its credit sales and trading team (excluding executive officers) have an average tenure of between nine and eleven years (nine for securitized products, 11 for credit) and that managing directors in its investment bank have an average tenure of 12.5 years.
Even if you leave, it won't necessarily be forever. Having slashed the MDs in its investment bank five years ago, Credit Suisse has been busy hiring them back. Since 2015, the managing director population in its investment bank has increased by 8%. The bank says 10% of its new MDs are "repeat hires."
Credit Suisse doesn't like risk. Not in equities. Not in fixed income. Since 2015, the amount of risk it takes in its global markets division has fallen by 51% (61% in credit). This has taken its toll on revenues.
With trading out of fashion, financing professionals are the new thing. Think leveraged finance, which Credit Suisse has been busy building up in 2017 after losing staff to Jefferies and scaling back just a year earlier.
Source: Credit Suisse
While the notion of cross-selling between corporate and investment banking has been discredited by HSBC's failure to make a go of it, Credit Suisse is still big on cross-selling its investment bank to clients of its private bank. This is CEO Tidjane Thiam's key strategy. Today's global markets presentation says that wealth management revenues at Credit Suisse are 1.3 times higher than they would have been as a result.
Every bank's doing it, but only Credit Suisse has a special word for it. - In the push for efficiency, clients who consume resources but generate little in return are being thrown overboard. Credit Suisse says it plans to "off-board" more than 70,000 return client accounts in 2018.
In today's presentations, Credit Suisse also divulges that it employs 900 traders. Alongside those traders, it employs 300 "supervisors" and 150 "compliance coverage officers." For every two traders, there is therefore one control person.
This, however, is about to change.
In his opening speech, Thiam said burgeoning control costs have been the bane of all banks' existence: "The reason costs in banks have been so stubborn is control costs." Banks need a "strategic answer," said Thiam. The answer is technology. Once technology is deployed, control costs will fall. It's already started: witness the chart below.
Source: Credit Suisse
The worst place to work in an investment bank now is therefore compliance and "control". In the next year, Credit Suisse expects to eliminate 45% of its headcount in this area. 20% will go through "process re-engineering", 25% will go through "digitalization." Get out. While you can.
It's a bad time to be a contractor at Credit Suisse. Huge numbers have been let go (7,400 to be precise). Those who remain are being forcibly converted into permanent staff (1,000 so far.) Only contractors with "specialist skills" are being maintained, but by all accounts they're not happy.
Meanwhile, relentless nearshoring and off-shoring continues apace. Credit Suisse says it's cut 2,800 people in "high cost" locations. At the same time, it's added 1,500 people in "business delivery centres." The process of offshoring is therefore combined with that of automation and rationalization. This is why jobs lost in London because of Brexit won't necessarily materialize elsewhere.
Credit Suisse is big on monitoring staff. In August, it invested in Sapience analytics, a company which allows firms to see how employees use their computers and phones. The bank said at the time that it had no intention of using Sapience on its own people, but it's definitely up to something.
In today's presentations, Credit Suisse says it's started to use "software development telemetry" to keep an eye on developers' productivity. Using this system, it's able to, "evaluate coding effort depending upon language, volume of code and complexity," and to identify the coders who put in effort and who are good and the slacker coders who are not. Witness the chart below. If you're a coder at Credit Suisse, you want to be a blue ring - not an orange one.
Source: Credit Suisse
If you survive all this - the cyclical firings, the reductions in risk taking, the process re-engineering and digitalization, the off-shoring, and the continuous scrutiny of your productivity, you will soon be faced with a new scourge: artificial intelligence.
Sergio Ermotti, CEO of UBS, has said that technology and artificial intelligence could eliminate 30% of banking jobs in the next decade. John Cryan at Deutsche Bank has complained that too many of his staff are no more than a human abacus and can be done away with.
Today's Credit Suisse presentations help explain how this will happen: group financial accounting will be replaced by a "big data" capital calculation engine; robots will handle trade exceptions, email out automated responses and "update the narrative" of a standardized template as they go along. Ultimately, Credit Suisse says that robots (ie. AI programmes) will actually read emails and decide which department is best placed to resolve the issues they raise.
Welcome to 2018, and beyond.
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