Credit Suisse's results are out today. They're not bad. The Swiss bank is making good progress with its investment banking business. In the third quarter of 2011 the cost income ratio in that business was 134%; in third quarter of 2012 it was a mere 84%.
Nevertheless, Credit Suisse's cost cutting is not done. Alongside its pleasing results, Credit Suisse announced the much-predicted additional increase in cost savings. It was planning to save CHF3bn. Now? It wants to save CHF4bn.
This looks a little ominous - especially if you work in Credit Suisse's investment bank. Credit Suisse revealed today that the investment bank has contributed the bulk of the CHF2bn cost savings that have been achieved so far. Since the announcement of these savings in the third quarter of 2011 there have been 1,500 redundancies in the investment bank. Today's additional CHF1bn of cost cuts therefore implies another 750 investment banking redundancies. However, the burden could be far higher still - average pay per head at at Credit Suisse's investment bank is on track to reach CHF327k this year (up 1.3% on last year; lower than Goldman and JPMorgan). If it were to achieve the additional CHF1bn in cost savings purely by cutting investment bankers, Credit Suisse would need to get rid of another 3,000 people.
Credit Suisse is declining to comment on whether the additional cost reductions will lead to redundancies. If they do, the redundancies are likely to happen next year: the bank intends to achieve an additional CHF1bn of cuts in 2013, followed by CHF500m in 2014 and another CHF500m2015.
Business at Credit Suisse's investment bank doesn't appear to have suffered unduly as a result of the 1,500 redundancies that have happened so far. Revenues are up 5% year-on-year, and some businesses have done exceptionally well. Fixed income revenues were up an impressive 178% year-on-year in the third quarter thanks to a combination of strong securitized products, credit, emerging markets, FX and rates. In the third quarter of 2011, Credit Suisse made a lot of senior redundancies in its fixed income currencies and commodities business. Those people don't appear to have been much missed.
Most worrying however for anyone concerned about their indispensability, has been Credit Suisse's recent performance in M&A.
In June, the bank was rumoured to have done away with around 30% of its MDs in M&A in Europe. This was in order to eliminate the duplications in its country, product and advisory teams and to consolidate staff into execution hubs in the UK and Hong Kong. The strategy seems to have worked. While rivals like Bank of America have struggled to make much of an impression in M&A this year (advisory revenues at BAML were down 30% year-on-year in the first nine months), Credit Suisse's slimmed down M&A business has done very well. In a declining market, advisory revenues at Credit Suisse were up 8% year-on-year in the first nine months of 2012, and up 59% in the third quarter.
Maybe other banks ought to get rid of some of their senior M&A staff too?