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ZURICH—Credit Suisse Group, which had emerged from the crisis relatively
unscathed, disclosed plans to scale back its investment bank, squeeze more
profits from private banking and slash 3,500 jobs.
In July, Credit Suisse, Switzerland's second-largest bank after UBS AG, said
it would reverse a hiring spree of the last couple of years, when the bank
hired employees from rivals that had suffered sharply during the financial
crisis. It then announced cuts of 2,000 jobs, as the bank adjusted to
tougher securities markets, a renewed economic downturn and tougher capital
rules, particularly in Switzerland.
On Tuesday, Credit Suisse said it will cut another 1,500 jobs out of a total
of 50,700, and will shed two billion Swiss francs ($2.77 billion) in costs
by the end of 2013.
Chief Executive Brady Dougan said Tuesday the bank expects the current tough
conditions, which have driven a reduction of investment-banking industry at
many of its rivals, to persist for some time. "The longer term secular
trends will likely be challenging for some time to come," he told analysts.
Credit Suisse stock fell 7.7% in afternoon trading in Europe, driven down in
part by a general selloff of European banks owing to new tensions in the
euro-zone crisis.
The cost-cutting follows a dismal third quarter for Credit Suisse. Net
profit rose to 683 million francs, from 609 million francs a year earlier.
However, the figure benefited from a 1.3-billion-franc accounting gain on
the bank's own credit. The gain is due to a fall in the value of the bank's
bonds, which theoretically make it cheaper for Credit Suisse to buy it back.
The investment bank had revenues of 2.5 billion francs, down 27% on the
third quarter of 2010, while it reported a pretax loss of 190 million francs
, swinging into the red after a profit of 395 million francs last year. The
division saw declines across most businesses, with fixed-income revenues
down nearly half compared to the same period last year, as client activity
fell due to the economic downturn and jitters over the euro-zone crisis.
By contrast, the private bank held up better during the quarter. Revenues
declined 7.6% compared to last year, while pretax profit fell to 183 million
francs, from 836 million francs in the third quarter of 2010. The fall in
profit stemmed in part from large provisions the bank made to settle tax
disputes.
Credit Suisse set aside 295 million francs in provisions in connection with
a tax dispute in the U.S. In July, the U.S. Justice Department notified the
bank that it was a formal target of a criminal investigation into how Swiss
banks allegedly helped U.S. citizens avoid paying U.S. income tax. Mr.
Dougan declined to comment further on the status of the investigation. The
bank also set aside 183 million francs to settle a tax dispute with Germany.
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In general, private banking has suffered over the last 18 months because low
interest rates, volatile stock markets and nervous clients have depressed
fee and transaction income. However, Credit Suisse has managed to contain
the decline in revenues by focusing on the booming market of ultrarich
clients in Asia and by pushing its investment bank to offer them
sophisticated investments that generate rich fees.
Indeed, Mr. Dougan said the bank will reduce its investment-banking
activities and focus more on the private bank. While Credit Suisse cut back
two years ago on the proprietary trading that eats up large amounts of
capital, it will further reduce its fixed-income operations—exiting, for
instance, certain mortgage-backed securities businesses—and focus more on
foreign exchange and commodities, which require less capital. Indeed, its
foreign-exchange business—No. 8 in the world—held up relatively well in
the third quarter, as clients sought help in hedging large currency
fluctuations and the bank invested in trading platforms that exploit small
changes in the market.
Credit Suisse will try to squeeze more out of its private bank, targeting an
increase in pretax profit of 800 million francs by 2014. It will cut costs
at the private-bank units throughout Europe, where low interest rates and
euro-zone jitters have made it particularly hard to squeeze extra fees from
wealthy clients. Instead, it will invest more in the booming market of
serving products and services to the ultrawealthy in emerging markets, in
particular by offering more investment banking opportunities, such as access
to initial public offerings or private equity investment. Credit Suisse
already counts 35% of the world's billionaires among its clients.
The focus on the ultrawealthy is similar to that being pursued by cross-town
rival UBS AG. Later this month, UBS, which is struggling with the fallout
from a rogue trader scandal, is expected to unveil a major reduction in its
investment banking activities and a greater focus on its private bank. While
Credit Suisse was a major beneficiary of UBS's past woes, it has not yet
seen a similar trend as a result of the trading scandal. |
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