Week of the big Swiss cheeses (updated)

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Both UBS and Credit Suisse report their full year 2007 results this week. Credit Suisse looks set to prove the more aromatic of the two.

UBS, as we have mentioned variously in the past, is looking rather over-ripe, what with CHF23.3bn of writedowns, 1,500 investment banking job cuts, and bonuses predominantly paid in stock that's declined nearly 50% in the past 12 months.

By comparison, Credit Suisse is exuding a more alluring aroma. Ok, so the bank is said to have eliminated 150 bankers from its securities arm unseemingly close to announcing bonuses, and plans to eliminate 500 in total, according to Bloomberg, but its sub-prime-related pong is a mere CHF2bn.

And while UBS has indicated it will announce a full year loss, 2007 profits at Credit Suisse from continuing operations were up 3% YoY, to CHF8.5bn.

Reuters also reports that CS plans to boost private banking headcount by around a third by 2010, and analyst Matt Clarke at Keefe, Bruyette & Woods tells us the bank is expected to join the rush to build out across commodities, derivatives and distressed debt this year.

UBS - more delectable than it seems?

However, analysts at JPMorgan think UBS might just be less fetid than it looks. According to their recent monumental analysis of the European banking sector, UBS is now the more flavoursome of the two Swiss banks, based on two factors:

1. Lower exposure to the leveraged finance and securitization business (6% of profits at UBS are typically derived from these now-defunct areas, vs 20% at Credit Suisse).

2. 'Lower downside risk to most scenarios' - put plainly, UBS's share price has already fallen just about as low as it's liable to go (which could prove good news to all those bankers paid in shares). Credit Suisse's may yet slip further.

CS - the connoisseur's choice?

Not everyone agrees with JPMorgan's verdict, however. "It might be true that Credit Suisse will suffer for a quarter or two," says Simon Maughan, an analyst at MF Global. "But CS is completely committed to its leveraged loan and commercial mortgage businesses and has always remained profitable over time."

Meanwhile, Maughan says UBS's decision to distance itself from anything resembling prop trading, and its insistence on an above average capital ratio to protect its private bank, should disincline serious investment bankers from working there.

"I don't see why the best people in the industry would want to work at UBS," he muses. "Most banks are moving to a model where bonuses will be paid based on the total return of the bank - how will UBS be able to keep paying people competitive salaries when it may well be facing a lower return on capital as a result of reduced trading activity?"