Lowering the costs was one of the key points of Credit Suisse' new strategy presented in October 2015. While substantial cuts have already been applied since, the reorganization of the business needs to go even further. Instead of the previously announced 4,000 job cuts, Credit Suisse now wants to get rid of as many as 6,000 positions.
The announcement came as a surprise, a mere day before the publication of the compensation report of Credit Suisse (CS). Switzerland's second-biggest bank has to save even more money than anticipated, according to its statement today. The cost base is still too high and the fixed income business in the Americas and Europe oversized – the two key areas of concern identified by CEO Tidjane Thiam.
Based on this assessment, CS has increased its cost cutting target to 4.3 billion francs by 2018, from a previously defined 3.5 billion. The bank aims to reduce costs by 1.7 billion this year alone.
Illiquid Inventory in Fixed Income
Credit Suisse in particular will tweak the business of the Global Markets unit, where a combination of a high and inflexible cost base, an exposure to illiquid inventory in fixed income, historically low levels of client activity and challenging market conditions led to «disappointing financial results», the bank said.
«In this context, we have taken immediate action to reduce outsized positions in activities not consistent with our new strategy and systematically reduced our exposures,» the bank said in the statement.
Restructuring of Global Markets
The bank wrote down $633 million in the fourth quarter and $346 million in the first three months of the year through March 11: «Revenues have remained weak in the period, with negative operational leverage.»
Thiam also ordered a more fundamental restructuring of Global Markets, which is designed to make the unit to consume less capital and produce more stable earnings with a more fee-based, client-driven model. The investment bank will also be more closely aligned with the wealth management business – thus the business model of CS will be more in line with the one of its arch rival UBS.
Dramatic Cut in Head Count
To bring down the fixed costs faster and further, CS has accelerated the reduction of the headcount and extended the planned cull by 50 percent. Instead of cutting 4,000 jobs as announced previously, CS now wants to reduce its headcount by 6,000. Of this total, it has already eliminated 2,800 positions, the company said today. Each unit of the bank has had to contribute to the reductions.
In the statement, CS also made reference to business so far this year. Despite the difficult start on the equity markets, the wealth management businesses «delivered a strong performance year to date and continue to generate profitable growth,» CS said.
The Asian, Swiss and the other global units generated an inflow of assets. The initial public offering of the Swiss Universal Bank by 2017 is on track, the bank said.
