More pressure less pay at Credit Suisse?

Screws are being turned at Credit Suisse. After the Swiss bank revealed a 4% year-on-year revenue decline in its global markets division in the first quarter, and a 13% decline in its investment banking and capital markets (IBCM) division, strain is in the air. CEO Tidjane Thiam said today that the global markets business may not achieve the $6bn target assigned to it this year, and that "pressure is on" global markets CEO Brian Chin and his team. Chin apparently nodded in agreement: he can feel the burn.

Chin's challenge comes as Credit Suisse has been both allocating more risk weighted assets to its global markets division and adding senior staff to its equities division.

Despite boasting today that it's cut risk weighted assets (RWAs) allocated to global markets by 45% in three years, Credit Suisse divulged that global markets RWAs rose 18% in the year to March 2018. Six percentage points of this rise were a result of the "re-allocation" of risk weighted assets from operational risk, but the year-on-year increase was nonetheless substantial. With a lot more assets, Credit Suisse's traders might've been expected to generate a lot more revenues. It didn't happen.

Credit Suisse's equities business might also have been expected to generate extra revenues with its shiny new staff. The bank had been hiring heavily under newish global equities boss Mike Stewart last year. Earlier this month, Stewart told Bloomberg he aspires for a top five position for Credit Suisse's equities business globally. For the moment, however, CS seems to be losing rather than gaining share: equities revenues rose by less than 1% in the first quarter, compared to increases of 17% at UBS and 38% at the likes of Goldman Sachs and Bank of America.

If Credit Suisse's equities business looked miserable, though, it was in investment banking and capital markets (IBCM) that things seemed particularly excruciating. Here, a 12% year-on-year decline in revenues was accompanied by a 60% year-on-year decline in profits. In the first quarter of 2017, the return on equity (RoE) in the IBCM division was 23.1%. In the first quarter of 2018? 8.1%. The bank pointed to the old chestnuts of, "lower revenues and higher operating expenses."

If operating expenses are rising, Credit Suisse's bankers and traders don't seem to be to blame. As pressure to perform rises, average pay per head appears to be falling. Compensation per head fell 11% in the global markets division in the first quarter (to CHF53k) and 7% in investment banking and capital markets (to CHF101k). The bank declined to comment on the average figures.

Nonetheless, it's not all gloom at CS and there were some mitigating factors.

The bank said lower compensation spending was partly the result of lower deferred compensation from previous years - possibly because the bank paid more in cash. There was also the issue of the Swiss franc, which declined around by 7% against the dollar in the year to March, thereby eroding the performance of the bank's U.S. business when converted back to francs. Credit Suisse doesn't break out its U.S. revenues, but it's particularly exposed to the U.S. market after acquiring First Boston in the 1990s. UBS is reportedly thinking of reporting its results in dollars. Credit Suisse might want to do the same, although it would still be hard to portray the equities division as making much headway given the double digit percentage rises in equities revenues at U.S. banks.

Away from investment banking and global markets, Credit Suisse looked healthier. Group profitability was at its highest level for 11 quarters and profits in wealth management were up 27% year-on-year. If you want an easier life at Credit Suisse, this may be the place to work now.

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