Credit Suisse To Cut 1,500 Jobs As It Scales Back Investment Banking Unit
Credit Suisse (NYSE:CS) plans to cut another 1,500 jobs while scaling back its investment banking business in order to help meet new capital requirements after reporting disappointing third-quarter results. The new cuts come on top of 2,000 announced by the Swiss bank in July. The cuts, which amount to 7% of the bank’s global workforce, should cut spending by 2 billion francs by 2013.
Credit Suisse isn’t the only bank shedding jobs as strict capital rules aimed at shielding them from future financial crises, as well as tough third quarters that took a heavy toll on investment banking divisions, force banks to reduce spending. UBS (NYSE:UBS) cites cost-cutting as the main reason it plans to cut 8,500 jobs globally. Bank of America (NYSE:BAC) and RBS (NYSE:RBS) are among the banks scaling back their investment banking departments. Japan’s Nomura Holdings reported its first quarterly loss in two and a half years on Tuesday, and also increased its cost-cutting target.
Credit Suisse’s third-quarter results were worse than those of UBS and Deutsche Bank (NYSE:DB), according to analyst Dirk Becker at brokerage firm Kepler. “We downgraded Credit Suisse in August after a string of disappointing results and amid still relatively high valuation. We confirm this view now,” he said in a note.
Credit Suisse CEO Brady Dougan said the cuts will hit all regions and units, including its private bank. “We’re ahead of the curve versus our peers who still face many of these challenges,” Dougan told a news conference. Rival UBS is expected to announce a similar overhaul of its bank at an investor day on November 17, as well as more job cuts.
Credit Suisse said net profit rose 12% to 638 million francs during the third quarter, while underlying net profit was 441 million francs. As was the case with many other banks during the last quarter, Credit Suisse numbers were flattered by a 1.34 billion franc accounting gain on the value of its own debt, which occurred because the bank could profit from buying back its own bonds at lower levels.
Credit Suisse’s investment bank unit reported a pre-tax loss of 190 million francs, its first loss since the last quarter of 2008, after recording a 231 million-franc profit in the second quarter. And Dougan predicts that “subdued economic growth and the low interest rate environment and increased regulation” will persist. “We may well continue to see … low levels of client activity and a volatile trading environment.”
Private banking also took a hit, with net new assets at 7.4 billion francs, missing an average analyst forecast for 9 billion francs.
Credit Suisse said it had taken a provision of 295 million francs for settling an ongoing U.S. investigation into its activities in helping wealthy Americans avoid paying taxes. Credit Suisse also took a provision of 183 million francs for a German fine to settle a separate tax investigation it had announced in September.
In response to new capital rules, Credit Suisse is targeting a 50% cut in risk-weighted assets in fixed income by 2014, and plans to more closely align investment banking with its private banking and asset management units. Credit Suisse has already slashed risk-weighted assets by 22% to 210 billion francs since 2008, when the bank pledged to largely exit proprietary trading in order to cut risk.