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Deutsche Bank's lesson for Credit Suisse on cutting costs in M&A

As Credit Suisse's investment bankers acclimatize themselves to the notion that they will receive lower bonuses for 2019, seemingly irrespective of how hard they work in the final quarter, the spectre of Deutsche Bank might cross their minds. After all, the German bank's July decision to cut its equities business proved strangely prescient - why shouldn't its earlier decision to selectively pull back from M&A prove prescient too?

As a reminder, Deutsche's M&A retrenchment was one of the first strategic moves by CEO Christian Sewing when he took over in April 2018. Sewing announced plans to trim investment banking roles and teams at Deutsche that didn't directly support clients in the European market. He promptly fired 300 U.S. investment bankers and closed Deutsche's oil and gas team in both the U.S. and in London. 

To be clear, there's no indication that Credit Suisse is planning anything like this - but this Swiss bank does need to do something drastic following the CHF100m loss at its investment banking and capital markets business in the first nine months of the year. M&A revenues at the bank were down 30% year-on-year over the same period (versus declines of 20% in ECM and DCM), suggesting M&A bankers might be at the sharp end of any cuts. 

As Credit Suisse CEO Tidjane Thiam looks for costs to take out, some of Credit Suisse's more marginal sector teams might suggest themselves as potential candidates. Data from Dealogic suggests the Swiss bank has lost its position in the top M&A advisors for fees earned for several U.S. sectors this year (industrials, consumer and retail, real estate) and that it didn't rank in the top 10 either this year or in 2018 in the U.S. for various others (telecoms, FIG, and media and entertainment). 

Similarly, in Europe Credit Suisse ranks outside the top 10 by fees earned year to date in 2019 for healthcare and energy and for natural resources, and didn't rank either this year or last for European industrials and real estate. 

Healthcare M&A bankers at Credit Suisse should be safe: Thiam has said the bank wants to focus on the healthcare and tech sectors in 2020. But some of the other teams look a bit superfluous, especially those that rank outside the top 10 in both the U.K. and U.S. markets. Industrials and real estate bankers might want to check their resumes, just in case. 

More should become clear at the coming Credit Suisse investor day. In the meantime, the bank declined to comment.

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AUTHORSarah Butcher Global Editor

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