There are some things that Credit Suisse's investment bank is getting right under CEO Tidjane Thiam. Costs, for example: the Swiss bank has succeeded in hiking revenues (up 1% in 2017) whilst cutting costs (down 7%) in its global markets division. In doing so, it reduced the proportion of revenues consumed by costs from a dangerous 99% to a more manageable 91%. Fixed income is also going well: while other banks' fixed income revenues were hammered last year, Credit Suisse was inured by its strong securitisation business, which contributed to a 14% year-on-year increase in fixed income revenues in 2017, compared to a fall of 25% at rival UBS.
This doesn't mean, however, that all at Credit Suisse is going swimmingly. While Thiam's plan is progressing nicely in some areas, it is making creaking noises in others.
One creak is coming from the Asian markets business, where revenues fell 30% last year compared to 2016 and a profit of CHF236m became a loss of CHF70m. Those with long memories will recall that Asia was once supposed to be driving growth across the bank, but that Credit Suisse has been "restructuring" the Asian business since last year. Some of the revenue decline in the region can be attributed to a decision to shunt systematic equities trading revenues into wealth management in the first quarter of 2017, but the bank also blamed weak emerging markets trading and "challenging conditions" for equity derivatives and prime services for the shrivelling. The problem looks deep-rooted: this time last year, Credit Suisse reshuffled management in its Asian markets business in an effort to resolve under-performance, One year on, things have gone from bad to worse.
Credit Suisse also looks rickety in equities sales and trading globally. Revenues in the division declined 8% last year compared to an increase of 2% at UBS and 3% at Bank of America. Again, this can be partially attributed to the (unquantified) effects of the decision to include systematic equities revenues in wealth management in Q1, but the bank also blamed the effects of lower volatility and "market challenges."
The equities under-performance matters because Credit Suisse invested heavily in its equities business under ex-UBS global head of equities Mike Stewart last year. Stewart, who has hired in many of his own people, is supposed to be reviving a business that was already flagging. Instead, he has so far presided over a further revenue decline and the loss of key CS equities professionals like Naseer Al-Khudair to Barclays. Thiam indicated last year that equities hiring at CS will be put on hold in 2018 while he waits for recent hires to take effect. Stewart and his colleagues need to show they can make a difference, soon.
Meanwhile, and following Thiam's warning that employees across the investment bank shouldn't expect big bonuses this year, there are some signs of penny pinching in both global markets and investment banking and capital markets. In the former, average compensation per head fell to CHF216k (from CHF236k for 2016) following the addition of 200 extra staff. In the latter, compensation per head was flat at CHF397k following the addition of 100 extra bankers, but there was dark talk of lower "discretionary compensation accrual" in the fourth quarter.
The good news is that 2018 does seem to be starting well. Credit Suisse said today that global markets revenues were up 10% year-on-year in the first six weeks of 2018 and that Asian markets revenues were up 15%. At least some of this was due to “strength in equity derivatives”, Stewart’s specialist area.