Zurich: A slump in investment banking revenues prompted Credit Suisse on Wednesday to accelerate its restructuring plan and cut a further 800 million Swiss francs ($821 million) of costs.
The first quarter is normally the most lucrative period for the industry, when investors put their money to work at the start of the year, but this year revenues have been hit by record low interest rates, low commodity prices and slower growth in emerging markets.
Rival Deutsche Bank’s finance chief said on Tuesday the first two months of 2016 were the worst start to a year for banks that he has seen in his banking career.
Credit Suisse said trading revenues at its Global Markets division were set to fall 40-45% from the first quarter of 2015. It will cut 2,000 jobs at the division, mostly in London and New York.
The latest cuts bring the total to 6,000 job losses announced by chief executive Tidjane Thiam, who took over the running of Switzerland’s second-largest bank last year.
Thiam, who told analysts he and other senior executives were surprised by the extent of illiquid positions Credit Suisse had taken, revealed he had asked for his 2015 bonus to be cut by 40%, even more than the 36% cuts in bonuses for staff in the Global Markets division.
The chief executive from Ivory Coast is five months into implementing his new strategy. He raised around 6 billion Swiss francs in capital last year and is cutting back Credit Suisse’s volatile investment banking business while focusing on more stable wealth management.
Bowing to the inevitable
The shares, which had fallen by more than a third this year, rose around 2% by 1200 GMT.
“This was the restructuring plan investors were hoping for last year,” said George Karamanos, an analyst at Keefe, Bruyette & Woods. “A negative operating environment has forced management to address tough issues it avoided last time around.”
A top-30 investor in the bank added: “I believe he is bowing to the inevitable. In my view the big ‘universal’ banks are, in their current forms, broken models and unmanageable.”
In the statement on Wednesday Credit Suisse boosted to “at least” 4.3 billion francs its targeted savings by 2018, up from 3.5 billion announced in October. It aims for 1.7 billion francs in cost savings in 2016 and is likely to make a first-quarter loss after exceptional items, Thiam said.
He declined to say whether 1 billion francs in restructuring costs expected this year would allow a 2016 net profit.
Thiam said a combination of high costs, exposure to illiquid inventory in fixed income, “historically low levels of client activity” and challenging market conditions had led to disappointing results at the Global Markets division.
“In this context, we have taken immediate action to reduce outsized positions in activities not consistent with our new strategy and systematically reduced our exposures,” Thiam said.
Thiam said that write-downs at Global Markets, which totalled $633 million in the fourth quarter of 2015, were lower in the first quarter at $346 million as of 11 March, 2016.
On a brighter note, the bank cited net new money inflows so far this year of 3.6 billion francs at its Asia Pacific business, 7.1 billion at international wealth management, and 4.5 billion at its Swiss universal bank, whose partial public listing in 2017 was on track if market conditions permit. Reuters