Paranoia stalks Credit Suisse’s investment bank

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While Citigroup’s 11,000 dramatic redundancies are making the headlines, a more insidious form of job reduction seems to be taking place at Credit Suisse.

The Swiss bank is in the process of implementing the additional $1.1bn of cost savings it announced in October and is cutting jobs in the process. Some of these cuts have already made headlines. For example, Thomas Farrer, head of European hedge fund forex sales, has gone and the bank is said to be closing its Russian IBD business and moving coverage staff to London.

However, headhunters say additional cuts are happening behind the scenes. “Around 40 senior people are going in cash equities at Credit Suisse this week,” says one headhunter. “They’ve got rid of some very senior salespeople and some highly ranked research teams. Everyone there is very paranoid.

“The strategy at Credit Suisse seems to be that they will get rid of senior people and make do with juniors while the market is weak,” the headhunter adds. Exited bankers are said to include Ian MacKichan, global head of equity sales, although this has not been confirmed by the bank.

Despite the redundancies, Credit Suisse’s equities business is seen as comparatively secure. Ranked third globally, the equities business has an 11% market share according to analysts at Bernstein, giving it the scale necessary to survive.

The same can’t be said for Credit Suisse’s fixed income business. Here, Bernstein says Credit Suisse has a share of just 3.8% and falling

“Questions remain” about FICC at Credit Suisse, said analysts at Morgan Stanley in a recent note – especially in the post Basel III environment, which is being made worse by onerous Swiss regulations, which imposes additional capital charges on Swiss banks. Senior fixed income bankers at Credit Suisse say there are real fears about the business’s future and there are rumours that Gael de Boissard, the fixed income banker recently appointed as co-CEO of Credit Suisse investment bank, has plans to cut the business heavily in 2013.

Credit Suisse declined to comment.

There’s little question that Credit Suisse needs to do something about its investment bank. The table below from analysts at JPMorgan suggest that the bank has the lowest revenue yield on its assets of all its peers. JPMorgan also suggests that Credit Suisse has one of the highest percentages of investment banking staff as a proportion of the total (43% vs.10% at JPMorgan, 26% at UBS and 10% at RBS).

JPMorgan revenue yield

With luck, the paranoia at Credit Suisse will prove overdone. Analysts at Bernstein suggest the bank's strategy of cutting capital intensive business lines in fixed income and focusing on growing FX and electronic global rates, BRIC markets and commodities, is viable. The real fear, however, must be that Brady Dougan, the investment bank's protector, proves as vulnerable as a Reuters article earlier this week suggested.  In that case, Credit Suisse's investment bank may prove very vulnerable indeed.