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Scar issue

10 May 2016 By Dominic Elliott

Credit Suisse’s minor achievements in the first quarter should be set against the lasting damage that looks to have been inflicted upon its investment bank. Switzerland’s second biggest lender by assets cut costs briskly while keeping capital levels steady in the three months to March, despite an overall 302 million Swiss franc ($311 million) loss. But the scars from boss Tidjane Thiam’s botched restructuring of Credit Suisse’s trading arm may never fully heal.

Thiam has at least shown that his prescription for change at the group level can produce some positives, even if part of his initial diagnosis was wrong. Wealth management net margins in Credit Suisse’s businesses were ahead of bigger rival UBS, excluding the latter’s Americas business. Although net new money was a third below its Swiss rival on a comparable basis, Credit Suisse matched the ratio of mandates it secured relative to its clients assets. That means higher recurring fees, visible partly in the revenue resilience displayed by its Swiss universal bank and international wealth management businesses.

But the value destruction at Credit Suisse this year – worse than for any big European bank over the same period in 2008 (see graphic) – will take some mending, and Thiam’s warning over the bank’s second quarter is dispiriting. Fixed income revenue was down 82 percent in the three months to March from the same period a year ago, the worst performance of the big investment banks. Even Nomura, which was unable to hedge against Japan’s move to negative rates, did better.


What has happened to Credit Suisse in equities trading is equally alarming. Back in 2013 and 2014, the group was among the top three biggest investment banks in that business line by revenue. Last year it slipped back at least two places. Now that its business has been split across three divisions it is hard to be absolutely sure of its performance, but it has clearly lost traction. Within its global markets arm, equities revenue fell 29 percent, with only Deutsche Bank doing as badly among U.S. and European peers. Factor in a corporate finance arm that was loss-making even in the less-challenged first quarter of last year and Credit Suisse’s investment banking operations look deeply troubled.



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