Credit Suisse has had a bad rap of late. Following an October reshuffle, it’s been accused of having too many chiefs in the investment bank. It’s been accused of strategic vacuity. It’s been pulled up for making more redundancies – this time in prime broking, but with the possibility of additional cuts in macro. Its return on equity (RoE) is just 3.7%, compared to a target of 15%. And to make matters worse, a Swiss-government appointed panel has just suggested that Swiss banks increased their capital levels still further.
In the circumstances, Credit Suisse doesn’t look such a good career bet. However, one market intelligence firm thinks otherwise.
In a note released today, finance-focused intelligence provider Tricumen, lays out a fairly convincing case why the latest cuts are a necessary evil and why Credit Suisse’s investment bank is actually doing ok.
Firstly, says Tricumen, CS’s prime broking business had to be culled. The unit accounts for a huge $18bn of the bank’s risk-weighted assets (RWAs) and is a big drag on its return on equity.
Secondly, Tricumen says CS may be able to reduce the risk weighted assets in its prime services business without badly impacting its revenues. The Swiss bank is big in synthetic financing, which is revenue rich and RWA-light.
Thirdly, Credit Suisse isn’t missing its targets by as much as its RoE undershoot might suggest. “Strategic IB reported RoRE of 19% in 9m14, significantly above the Group’s 15% target,” says Tricumen. “This is an impressive improvement on 8% from FY12 and 7% from FY13.”
And lastly, Credit Suisse has done an admirable job at reducing costs in its investment bank. In 2011, costs accounted for 94% of income in the unit. In 2012, they accounted for 74%. In 2013, 71% and in the first nine months of 2014, 69%. Tricumen says Credit Suisse is moving in the right direction, regardless of the adverse commentary along the way.