In theory, Credit Suisse is a good place to work if you're a fixed income trader. Yes, the bank is "reshaping" its fixed income business after a dismal 2015, and yes headhunters say Credit Suisse's traders were mightily peeved after CEO Tidjane Thiam allegedly announced in public that the bank was selling its distressed assets without fully briefing them first. But Credit Suisse actually plans to increase the risk weighted assets allocated to its investment bank by more than 25% between now and 2018. Even better, there are no profit targets at Credit Suisse and there is no target for return on equity. Life is easy.
Or is it?.
Two notes out today, from banking analysts at Deutsche Bank and Morgan Stanley, suggest different futures for fixed income traders at Credit Suisse.
Deutsche Bank's note echoes last week's from Bernstein Research on the effect of QE on European banks' fixed income franchises. - Except Deutsche thinks QE could be a good thing, whereas Bernstein thought it would be bad.
Firstly, Deutsche notes that European banks tend to do better than the rest during periods of European QE (eg. the third quarter of 2012 and the first quarter of 2015), and that European banks' fixed income trading businesses tend to do best of all.
Secondly, Deutsche notes that Credit Suisse's investment bank is disproportionately exposed to fixed income sales and trading revenues.
If Deutsche is right, therefore, the EU's increased QE could be good for Credit Suisse's fixed income traders and good for the bank as a whole. And yet, Deutsche's analysts sound a note of caution, saying, "we suspect that € denominated franchises will benefit the most [from QE], notably BNP Paribas and CASA [Credit Agricole]."
Morgan Stanley's analysts sound a far more negative tone. In their new note today, they suggest that Credit Suisse will suffer more than the rest from the incredibly weak fixed income revenues in the first quarter. The poor start in fixed income is likely to weigh disproportionately on Credit Suisse, say Morgan Stanley's analysts. QE or not, the bank may need to do more restructuring than it had planned.