However you look at it, the first quarter was not a good one for Credit Suisse’s investment bank. Net revenues at the division were down 50% year-on-year and the investment bank made a loss of CHF297m after being caught out on Russia. There were a few bright spots, but many more dark ones.
“I don’t think the first quarter of 2022 is the right basis to look at where we should be,” said Credit Suisse CEO Thomas Gottstein, speaking of Credit Suisse’s fixed income trading revenues today. Credit Suisse’s performance in the first quarter of 2022 was blighted by its business mix, said Gottstein: the bank is strong in securitization and credit trading, which underperformed across the market; it’s weak or absent in macro and commodities trading, which did well. Comparisons with last year are worsened by the fact that 2021 was a strong year for both securitization and credit, Gottstein added. The Russia-related emerging markets trading loss didn’t help.
Some areas of Credit Suisse’s investment bank did ok in the first three months. Equity derivatives trading revenues were up “significantly” on the fourth quarter. Cash equities didn’t do badly either. Overall, though, equities revenues were also down nearly 50% year-on-year, partly due to the absence of CHF173m in revenues from the closure of the prime services division.
The poor performance of the investment bank in the first quarter is show in the chart below. The decline in equities sales and trading might have been inevitable following the closure of prime services. The decline in capital markets might have been inevitable following the market-wide drop in ECM activity. And the decline in fixed income sales and trading might be excused by the business mix. But at other banks (eg. Deutsche), M&A bankers had a roaring first quarter.
Credit Suisse: percentage change in revenues by business area, Q1 2021 vs. Q1 2022
Despite the troubles, Credit Suisse said today that it’s all about hiring new senior people. 50 new managing directors have been recruited into the investment banking and capital markets division since the start of 2021, of whom 21 are expected to start in the first half of 2022. Credit Suisse is adding talent across leveraged finance, M&A and equity capital market, said Gottstein today. New arrivals may not find an entirely hospitable environment: Credit Suisse is reducing risk-taking and cutting back on capital allocated to its investment bank; CHF2.5bn has been cut since 2021, another CHF500m will be cut before the end of this year.
At the same time, Credit Suisse is spending more on pay – but only due to an accounting change. Exiting CFO David Mathers said today that the bank will normalize the vesting of bonuses this year, and that this is leading to increased compensation accruals in 2022. However, Mathers also said that cash bonuses will remain high, suggesting that Credit Suisse might retain this year’s unpopular strategy of paying a large proportion of cash and clawing it back (plus income tax) if people leave.
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