JPMorgan's warning for Credit Suisse bankers if Thiam goes

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Tidjane Thiam 6

Could Tidjane Thiam leave Credit Suisse? It's an entirely hypothetical question and one that has - until now - been largely posed in the context of Thiam eyeing up the top job at the IMF (which is in any case now filled by Kristalina Georgieva of the World Bank). However, following this week's rumpus over spies and an argument at Thiam's house party in response to a longstanding dispute over building works, some have been suggesting the issue is a threat to Tidjane Thiam's role as CEO.

This could be bad news for anyone working at Credit Suisse's investment bank or markets division.

As JPMorgan's banking analysts pointed out in their most recent note on the Credit Suisse Group, issued at the end of July, Credit Suisse's 'investment bank-related businesses' are not necessarily in great shape.

At issue in particular is the high cost income ratio in Credit Suisse's IBCM (investment bank and capital markets business), which houses its M&A bankers and equity and debt capital markets professionals. In the last quarter, this was at 97%. As research firm Tricumen pointed out in August, Credit Suisse was one of the least efficient large banks for operating costs as a proportion of revenues across M&A and capital markets activities in the first half of this year.

The cost income ratio was almost equally high, at 95% in Credit Suisse's Asian markets business in the third quarter, although it was lower at 76% in the global markets division in Europe and the Americas. 

Credit Suisse declined to comment for this article, but if Thiam were to go, the danger is that his successor could decide that Credit Suisse's investment bank needs a further round of dramatic cost cutting to improve its margins.

JPMorgan's analysts suggest that such a course of action would be advisable. While praising Thiam for the growth in Credit Suisse's private banking business, over-delivery on cost targets and generation of positive operating leverage, they 'question the ongoing underperforming IB strategy.'

In particular, JPMorgan's analysts note that Credit Suisse's investment banking businesses consume 35% of group capital and generate only 24% of group profit before tax (in their model). They estimate, too, that the equity business is loss making and needs to be "rightsized" to wealth management clients, and suggest that the credit business will not be viable once the credit cycle turns.

Of course, it might be argued that JPMorgan's analysts would say this given they're at JPMorgan which is a competitor of Credit Suisse, but analysts are supposed to be impartial. It might also be argued that Credit Suisse's investment banking business will pick up once its pipeline of deals comes good.

However, Credit Suisse employees should hope JPMorgan's analysts are wrong, and that the scandal in Zurich blows over so that Thiam stays in place and helps protect them.

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