Credit Suisse: High costs, low pay?
'Must try harder' - this seems to be the verdict on Credit Suisse's recent attempts at cost containment. Consultants say not doing so could impact employees' pay.
The Swiss bank, which yesterday announced fourth quarter results, saw its shares fall 6% due to disappointment on rising costs and poor trading revenues. According to an article on Bloomberg, the cost income ratio in the institutional securities division rose to 92.4% in 2005, up from 90.8% a year ago.
News of rising costs follows a declaration from Credit Suisse last December that it would save as much as €850m a year in costs as a result of group-wide restructuring. Under a plan announced in late 2004, the bank has merged its debt and equity capital markets businesses, and is focusing on growth areas such as derivatives, mortgage securitisation, and commodities trading.
Although overall costs have risen, Credit Suisse has had more success in containing compensation costs in institutional securities: the ratio of compensation to revenues in the division was 56% in the final quarter of 2005, up only marginally from 55% in 4Q04.
However, consultants say this remains high for the banking industry. "Most bulge bracket banks have managed to keep compensation costs as a proportion of revenues somewhere between the high 40%s to the mid 50%s," says Jon Terry, a financial services compensation and benefits specialist at PricewaterhouseCoopers.
Long term, Terry says high compensation costs may need to be brought under control: "It would seem unsustainable for compensation costs to increase further." The choice would seem to be clear: either Credit Suisse raises revenues, or it starts to look at the costs of human capital. And that could mean being more judicious when it comes to paying its staff.
