Credit Suisses's third quarter results and new strategy presentation are out. As predicted, there are job cuts on the cards - particularly in the investment bank. But cuts are not the only story.
Bloomberg suggested yesterday that Credit Suisse would be tinkering with rather than decimating headcount in its investment bank, and that the new strategy would bring 500 job cuts. No numbers are given in today's presentation, but Credit Suisse indicates where those cuts will come: the blighted prime services business is being closed altogether (which explains why people have been voluntarily leaving for months), with a loss of around $600m in revenues; 10 unnamed "non-core" markets in the GTS crossover division between the investment bank and wealth management business are being closed; and cash equities is being "reshaped" to strengthen the "alignment" with wealth management.
No further details of the cuts are given, but it's worth noting that even after 500 jobs have gone, Credit Suisse's investment bank could still employ more people at the end of 2022 than it did at the start of 2020. - Then, the combined global markets and investment banking and capital markets divisions employed 15,850 people. Now, the investment bank employs 17,100 people.
Through all its tribulations this year, Credit Suisse's investment bank has been hiring: speaking today, head of the investment bank Christian Meissner said Credit Suisse has hired around 1,200 new employees into the investment bank in 2021. This is "above hiring levels before the pandemic", said Meissner, adding that the bank has hired from all its "major competitors" and added numerous MDs. However, in a measure of the number of people who've left - voluntarily or otherwise, net headcount is up by just 300 - 800 people have left.
Adding jobs cut pay
Unfortunately, these net additions to headcount have coincided with Archegos-inspired reductions to compensation. Spending on pay in Credit Suisse's investment bank fell 11% in the first nine months. Pay per head is down 13%.
Credit Suisse says "discretionary" compensation (bonuses) in the investment bank are lower this year than last. There are also clawbacks of previous years' bonuses by virtue of the Archegos loss. However, some people seem to be in luck: there's mention of "higher discretionary compensation expenses" in the third quarter versus the second, suggesting that bonuses are at least being accrued somewhere for 2021.
Those accruals seem most likely in the M&A advisory business, where revenues rose 185% year-on-year in the third quarter and are up 77% in the first nine months. If anyone gets paid at Credit Suisse this year, it will surely be the bank's M&A bankers, who are integral to the bank's strategy for the future.
Cutting capital, growing revenues
Headcount aside, today's strategy presentation - which has been months in the coming - underscores the extent to which Credit Suisse's investment bank has already been slimmed down and will continue to be slimmed further.
In the six years since 2015, capital allocated to the investment bank has been halved, as have risk weighted assets. Further cuts are coming: CHF3bn of capital will now be redeployed out of the investment bank and into Credit Suisse's favourite business - wealth management. Meissner said today that capital allocated to the investment bank will be cut by 25% between now and 2022.
This doesn't mean there won't be hiring and investment. While capital allocation is cut and prime services is closed, Credit Suisse is also "pivoting" to a "more capital-light, advisory-led business model" in its investment bank. M&A bankers are in vogue and Meissner said Credit Suisse will be hiring bankers focused on technology, industrials healthcare and areas linked to ESG. There will also be investment in credit, securitized products, GTS (defined as a "wealth management centric franchise with best-in-class cross-asset, structured products and trading execution" capabilities for the non-cognoscenti), and (curiously) leveraged finance.
This isn't all. In the investment bank specifically, Credit Suisse says it's also investing in electronic trading, data, controls, China, a new global investment banking advisory franchise (providing investment banking advice to ultra-high net worth clients), a new direct middle market lending platform for corporates and rich clients with a focus on Asia, and - of course - ESG.
It's all quite ambitious.
Hiring in wealth management
Naturally, there's also big hiring and investment in wealth management, which is where Credit Suisse gets its golden eggs. The bank still plans to add 500 relationship managers in the next five years, an increase of 15% on its current level. It's also increasing spending on wealth management technology by 60%.
The upshot then, is that Credit Suisse's restructuring isn't as bad as it might have been. If you work in M&A, it's almost certainly a good thing. - While Credit Suisse's structured credit bankers should probably fear for their bonuses this year, its M&A bankers have a lot of bargaining power: not only are their revenues up substantially, but they're central to the bank's plans for its future. Credit Suisse can't afford to not pay them. This might explain why headhunters say it's suddenly become harder than expected to persuade them to move elsewhere.
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