Credit Suisse's chart explaining why 25 year-olds are a false economy
Credit Suisse is busy cutting costs. The Swiss bank is embarking upon a whole new round of London redundancies this week. In a presentation today, Credit Suisse chief executive Tidjane Thiam, explained that cost cutting in the bank's global markets division is being ramped up (and up and up). One group of employees at Credit Suisse will be spared though: the oldies working for the private bank; they will be ok.
The chart below - from Thiam's presentation - helps explain why. While juniorization might be a thing in investment banking, it's an anathema to private banking. Here, years of experience equate with loyal clients and lucrative assets under management (AUM). Asia-Pac-based relationship managers (RMs) with more than eight years' experience at Credit Suisse have five times more assets under management than those with fewer than three years' experience.
Experienced relationship managers are best...
Source: Credit Suisse
This explains why, as per the next chart, Credit Suisse's growing Asia Pac private banking business is being staffed with comparative oldies. Only 10% of the relationship managers the bank's hired this year in Asia have less than three years' experience. 25 year-olds are out.
Which is why Credit Suisse has been hiring experienced relationship managers in 2016....
Source: Credit Suisse
More cuts to come in the global markets business
Unfortunately, the benefits of experience are not as straightforward in Credit Suisse's shrinking global markets division. Here, Thiam said different influences are at work. As the bank cuts risk weighted assets, it has less capital to commit to the trading business and the capital that is available must be used as efficiently as possible. This means dumping clients who suck capital but generate little in return. "We're focusing our scarce capital on key client relationships," Thiam declared, adding it's, "very easy to have a long tail of unprofitable relationships." In other words, you can be a highly experienced salesperson in the investment bank, but you're highly dispensable unless you're working with the newly pared-down key client list.
In better news, Thiam said he expects the global markets business to be profitable in the third quarter, even though the post-Brexit bounce hasn't endured. Less promisingly, he also indicated that Credit Suisse's cost-cutting aspirations for global markets are subject to their own inflationary momentum. The bank will beat its global markets cost target this year and now plans to make even deeper cuts in future. "We said we'd hit CHF5,4bn [in global markets annual costs] by 2018, but we need to drive it further down... Once you are below CHF5bn and CHF4-4.5bn you start to have a breakeven point – you need to create operational leverage..."
In other words, the latest round of cuts to Credit Suisse's global markets business will not be the last. Thiam said Brian Chin, the new head of global markets, will be instrumental in tightening the screws, referred to euphemistically as, "incremental efficiency savings." In the first half of 2016, costs in Credit Suisse's global markets division were CHF2.9bn, implying an annual run rate of CHF5.8bn. If costs at the global markets division are to be cut to CHF4.5bn, another 22%+ of costs must be taken out. Whether you're highly experienced or not, beware the incremental efficiency savings to come.