Credit Suisse has increased pay at its investment bank. This is the conclusion from today's fourth quarter results. The pay increase was not negligible: compensation per head rose by 8% in 2014 compared to a year earlier.
What does this mean for Credit Suisse's squeezed investment banking staff? Unfortunately, the joy is more equivocal than it seems.
Firstly, the rise is at least partly the result of awards made in previous years rather than generosity this year. On slide 16 of the presentation accompanying today's announcement, Credit Suisse says higher deferrals drove its investment banking compensation expenses higher.
Secondly, it's likely that the pay rise was directed towards junior and mid-ranking investment banking staff and that senior staff lost out. Credit Suisse's board of directors approved a 25% reduction in its own pay for 2014 (resulting partly from a clawback of shares awarded last year). Anecdotally this pay restraint applies also to Credit Suisse's MDs, whom headhunters say are being paid flat or down.
Thirdly, even with their inflated compensation, Credit Suisse's investment bankers are still earning a lot less than UBS's. Last year, their pay per head averaged CHF294k ($317k). At UBS, the average was CHF342k.
And lastly, Credit Suisse's investment bankers are earning a lot less than in the past. As recently as 2010, average pay in the investment bank was CHF378k.
The good news is that Credit Suisse genuinely does seem to have increased bonuses. Despite banging the drum about variable pay cuts (ie. bonuses) in the investment bank in the fourth quarter, it admits to increasing variable expenses in the full year.
The bad news is that the investment bank remains at the forefront of Credit Suisse's cost cutting plans. As the chart below shows, the investment bank accounted for 44% of Credit Suisse's cost reductions in 2014. This year, it's expected to account for 60%. However, with 'only' CHF300m of expenses to be taken out of the investment bank this year, compared to CHF1.6bn last year, Credit Suisse staff should be at less risk of redundancy.This is particularly the case in Credit Suisse's macro products business, which having been targeted for redundancies in the past is now doing well as volatility returns.
Source: Credit Suisse