Credit Suisse's fourth quarter results are out this morning. The investment bank performed reasonably well. Revenues across the business in 2012 rose 20% year-on-year, fixed income revenues were up 60% even though Basel 3 risk-weighted assets were down 31%, and a CHF593m loss for 2011 was converted into a CHF2bn profit for last year.
Nevertheless, costs in Credit Suisse's investment bank still look worryingly high at 84% of revenues (and 89% of revenues in the final quarter). In today's presentation, the Swiss bank said it wants to reduce this to 70% in future. At current revenues, this implies that another CHF1.8bn of costs must be taken out of the investment bank.
In a separate statement accompanying this morning's results, Credit Suisse also said that it plans to increase its total cost cutting target by CHF400m a year and that it now wants to cut a total of CHF4.4bn in annual costs by the end of 2015.
It's not clear whether the new cuts will fall entirely on the investment bank, nor whether they will fall disproportionately on headcount. However, Credit Suisse paid its average investment bank CHF307k last year (down 2% on 2011). 1,300 investment bankers would therefore need to be laid off if the additional cost CHF400m cutting target were met entirely through investment banking headcount cuts. Worse: if costs at the investment bank were to be reduced to 70% of revenues and this were achieved entirely through headcount cuts, 5,000 jobs would need to be cut from the business.
Credit Suisse provides the following helpful chart suggesting which areas of the investment bank are likely to be squeezed. Conclusion: anything below the top row looks suspect. Especially the rates business.