Credit Suisse's third quarter results are out. Inexplicably, the Swiss bank is deferring its full financial release until October 31st, but in the meantime there's still plenty to go on.
Credit Suisse's current investment banking staff will be pleased to hear that pay is up. Credit Suisse's would-be investment banking staff will also be pleased to hear that the bank might be doing some hiring.
Compensation spending in the investment bank rose by a gigantic 31% year-on-year in the third quarter, and by 10% year-on-year in the first nine months of 2014. This looks generous on a per head basis, with CHF233k accrued so 2014 so far compared to CHF204k for the first nine months of 2013. Headcount within the investment bank has been shrinking, which may flatter the compensation figures, with 19,200 employees across the division, compared to 20,000 at the same point last year. The third quarter headcount figures typically includes any graduate recruits for the year and Credit Suisse brought in an additional 200 people over the last three months, net of any departures.
It's also difficult to say whether Credit Suisse's bankers will actually receive any more in their pay packets for 2014, though - the bank indicates that some of the increase in its compensation bill is down to deferrals from previous years.
Despite the higher wage bills, Credit Suisse has reduced the cost/revenue ratio at its investment bank to its target of 70% or less (thanks mostly to a 24% leap in revenues in the third quarter), and is in a position to make positive noises about hiring. Credit Suisse has already said that it wants to hire in M&A. Today the bank said that it wants to expand its credit franchise in EMEA. It's also in the middle of a 'strategic build out' of its strategic products franchise. As we've noted a few times, it's been hiring some big securitized loan originators.
Despite this, the restructuring continues and its the investment banks' trading desks that will receive the bulk of the cuts. Speaking during today's conference call, CEO Brady Dougan said that cuts would come within the "two trading business, equities and fixed income. Within that though, I think it’s still an open question about how much will be reduced where".
After the third quarter, this statement will be particularly galling for Credit Suisse FICC traders. FICC revenues at the bank came in at CHF1.5bn up from CHF1bn in Q3 2013, or a 50% rise. This is comparable with revenue increases at Goldman, which booked a 50% increase in FICC revenues to $1.8bn once all accounting gains are extinguished and beats the 19% gain at Morgan Stanley and 2% and 5% rise at JPMorgan and Citigroup respectively. Credit Suisse does, however, admit that the third quarter last year was particularly difficult and so far year on year gains for 2014 are a modest 4% within its FICC business, which again compares favourably with the US investment banks.
Within this, though, there are more obvious targets for job cuts. Credit Suisse says that its FICC revenues were helped by a "significant" uplift in emerging markets trading, which could change if the slowdown in Asia persists. Elsewhere, an increase in volatility in the FX market helped its global macro desk improve, but a decline in leveraged finance activity impacted its credit business, despite its intention to hire in the division.
Equity trading was relatively stable, down 2% year on year for the quarter, but has declined by 10% for the first nine months of 2014. However, Credit Suisse's (now famous) bubble chart continues to highlight cash equities as a business area where the bank is doing well and capital usage is low. The same can't be said for its equity derivatives business.
The real star was equity capital markets, predictably given Credit Suisse's involvement in the mammoth $25bn Alibaba IPO and a general uptick in equity market revenues. They were up by 66% in Q3 on last year to CHF214m, while year to date revenues are up by 35% to CHF665m.
Whether Credit Suisse continues to focus on ECM and M&A is debatable, with CEO Brady Dougan suggesting the recent increase in volatility could benefit the FICC business while advisory work slows: “We have seen a mixed start to October, with recent market volatility benefitting certain businesses across both divisions, while negatively impacting others. We have a strong advisory and underwriting pipeline, but the pace of execution in the fourth quarter will depend on market conditions." he said.