Credit Suisse is paying more; BarCap is NOT doing well enough. And other important messages from today's results
Both BarCap and Credit Suisse have whopped out their first quarter results today.
Neither of them are wonderful, but Credit Suisse is best: revenues at its investment bank declined only 6%, profits declined 25% and it hired 100 people. BarCap didn't say how many people it hired, but revenues there fell 15% and profits plummeted 33%, putting it on an unfortunate par with BAMl (profits down 34% in the investment bank) but ahead of Citi (profits down 66%).
Away from the headline figures, sands were shifting and messages were emerging in the dunes. Here's what they said:
1) All that hiring at Credit Suisse has been very worthwhile
Last year, Credit Suisse hired 1,300 people for its investment bank, with a particular focus on salespeople for fixed income, currencies and commodities. That hiring has totally paid off.
As slide 15 in Credit Suisse's presentation clearly shows, all the new salespeople have generated lots of new sales. Sales credits were up 19.1% year-on-year in the first quarter; Credit Suisse's new rates salespeople have particular reason to feel special at this point.
2) All that hiring at BarCap has not been as worthwhile as expected
Last year, BarCap hired around 2,000 people, most of them in equities and IBD. With those people, it wants to increase revenues by 2bn over three years compared to 2010 levels.
This implies an increase of 167m a quarter. Unfortunately, however, the increase in equities and IBD in Q111 versus Q110 was just 108m, a shortfall of 35%.
This is better than predicted by analysts at Morgan Stanley who were of the opinion last year that BarCap would achieve only 40% of its revenue targets. However, it is not great - particularly as the first quarter is generally the strongest.
3) Credit Suisse has increased pay, unless you're in Switzerland
Credit Suisse has increased pay. Compensation costs for the investment bank in the first quarter were CHF2.4bn versus CHF2.3bn last year.
And yet, the increase is not as simple as it seems.
This is because:
i) Credit Suisse has brought forward its share awards to Q1 and incurred a CHF70m tax charge (which last year fell into Q2)
ii) Credit Suisse has increased headcount in its investment bank by 800 people compared to last year.
When these two factors are taken into account, pay per head at Credit Suisse fell 3% in the first quarter to CHF112k. However, as long as you're working for the bank outside Switzerland, you're fine - the appreciating Swiss franc means you'll earn more in your local currency anyway. Credit Suisse claims, for example, that its compensation costs increased 18% in dollar terms year-on-year in the last quarter.
4) Credit Suisse is delivering excellent returns, Barclays isn't
Even under the rigorous strictures of Basel III, Credit Suisse claimed its return on equity for the investment bank in the first quarter would be 16%. Across the bank as a whole, Barclays achieved 10%.
5) Barclays will be cutting costs further soon
In the last quarter, Barclays spent around 65m on restructuring charges. For the full year, it expects to spend 250m. More restructuring/cost cutting is imminent.
6) Credit Suisse intends to hire in commodities and FICC and to continue building on the ground in emerging markets
Credit Suisse said it wants to expand carefully in commodities and that it aspires to build an onshore model in emerging markets. It also said that it sales hiring isn't over, but that it's now mostly a question of 'infill.'
7) BarCap is spending more on compensation than it has historically
In the first quarter of 2010, BarCap said its compensation ratio was on a par with full year 2009 - 38%. In the last quarter it was 44%. This was comparable with full year 2010 (43%), but the trend is definitely upwards.
8) Regulation is leading to extra legal hiring
Credit Suisse attributed part of the 100 person increase in its investment banking headcount to legal staff, recruited to deal with the additional regulatory burden.
9) Cost cutting is leading to IT trimming
On the other hand, Credit Suisse also said it had been trimming the number of IT professionals allocated to its investment bank.
10) BarCap's equities and investment banking staff need to bring in extra revenues soon
As noted in Point 2, BarCap's expansion hasn't proven as fruitful as expected. This is problematic given those divisions are probably operating at a cost income ratio of 90% according to one analyst on today's call.
BarCap is adamant that it likes those businesses because - although costs are high - they deliver good returns. Not good enough yet, however. Barclays' shares fell11p this morning on concerns about performance at BarCap.
