Credit Suisse: job cuts, bonuses cut, staff added

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The third quarter results and the new strategy presentation of Credit Suisses have been released. As expected, job cuts are expected, especially in investment banking. But the cuts are not the only story.

Bloomberg suggested yesterday that Credit Suisse would tinker rather than decimate its investment bank’s workforce, and that the new strategy would result in 500 job cuts. No numbers are given in today’s presentation, but Credit Suisse indicates where these cuts will come from: The blue-chip service company is shutting down completely (which is why people are voluntarily leaving for months), with a loss of about $ 600 million in revenue; 10 unnamed “non-core” markets in the GTS cross-division between investment banking and wealth management activities are being closed; and spot stocks are “reshaped” to strengthen “alignment” with wealth management.

No further details on the cuts are given, but it should be noted that even after the disappearance of 500 jobs, the Credit Suisse investment bank could still employ more people at the end of 2022 than at the beginning of 2020. the capital markets and investment banking and capital markets divisions employed 15,850 people. Today, the investment bank employs 17,100 people.

Through all its tribulations this year, the Credit Suisse investment bank has hired: Speaking today, investment bank chief Christian Meissner said that Credit Suisse has hired around 1,200 new employees in the investment bank in 2021. This is “above pre-pandemic hiring levels,” Meissner said, adding that the bank hired all of its “major competitors” and added many chief executives. However, in a measure of the number of people who left – voluntarily or not, the net membership only increased from 300 to 800 people.

Adding jobs cuts wages

Unfortunately, these net workforce additions coincided with Archegos-inspired pay cuts. Salary expenses at Credit Suisse’s investment bank fell 11% in the first nine months. Per capita wages are down 13%.

Credit Suisse says “discretionary” pay (bonuses) in investment banking are lower this year than last year. There are also bonus clawbacks from previous years due to the loss of Archegos. However, some people seem to be lucky: there is mention of “higher discretionary compensation spending “in the third quarter compared to the second, suggesting that bonuses are at least accruing somewhere for 2021.

These accrued liabilities appear more likely in the M&A advisory business, where revenue grew 185% year-over-year in the third quarter and 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 an integral part of the bank’s strategy for the future.

Reduce capital, increase income

Headcount aside, today’s strategy presentation – which dates from the coming months – highlights how Credit Suisse’s investment bank has already been and will continue to be downsized.

In the six years since 2015, the capital allocated to the investment bank has halved, as have the risk-weighted assets. Further cuts are to come: CHF 3 billion of capital will now be redeployed from investment banking to Credit Suisse’s preferred activity – wealth management. Meissner announced today that the capital allocated to the investment bank will be reduced by 25% by 2022.

This does not mean that there will be no hiring and investment. As the capital allocation is reduced and blue chip services are closed, Credit Suisse is also “pivoting” towards a “lighter, more advisory-driven business model ”in its investment bank. technology, healthcare industry and ESG-related fields. There will also be investments in credit, securitized products, GTS (defined as a “wFranchise focused on wealth management with the best cross-asset capabilities, structured products and trade execution for non-cognoscenti), and (oddly) leveraged finance.

That’s not all. In investment banking in particular, Credit Suisse says it also invests in e-commerce, data, controls, China, a new global investment banking advisory franchise (providing investment banking advice to very wealthy clients), a new Mid-market direct lending platform for wealthy businesses and clients with a focus on Asia and of course ESG.

This is all quite ambitious.

Wealth management recruitment

Naturally, there are also large recruitments and investments in wealth management, this is where Credit Suisse reaped its golden eggs. The bank still plans to add 500 account managers over the next five years, an increase of 15% from its current level. It also increases spending on wealth management technology by 60%.

So the bottom line is that the restructuring of Credit Suisse is not as bad as it could have been. If you work in mergers and acquisitions, that’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 great bargaining power: not only are their incomes growing dramatically, but they’re central to the bank’s plans for its future . Credit Suisse cannot afford not to pay them. This could explain why headhunters say it has suddenly become more difficult than expected to persuade them to move elsewhere.

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