November 1, 2011 / 5:35 PM / 6 years ago

Credit Suisse overhaul steals a march on rivals

LONDON (Reuters) - Call it putting a gloss on some bad news, but Credit Suisse (CS) CSGN.VX chief Brady Dougan reckons the bank is ahead of the pack with Tuesday’s announcement of an overhaul of its investment banking operations.

Responding to the host of new regulations that are constraining banks’ use of capital, CS is cutting hundreds of jobs, including in advisory, and slashing the operations where it no longer sees good returns.

“We’re ahead of the curve versus our peers who still face many of these challenges,” Dougan told a news conference.

The measures, likely to find an echo in forthcoming restructurings by other integrated banking groups, are among the first and most detailed expositions of how the sector is responding to the austere post-credit crisis environment.

But they also show the areas where CS, and perhaps others, see the best future prospects.

The Swiss bank beat arch-rival UBS UBSN.VX -- set to make its own restructuring announcement on November 17 -- with details of how it will free up capital and boost profitability in its fixed income business, which has been hard hit by recent market turmoil and new rules forcing it to hold more capital.

Such pressures have already prompted others in the sector to try to release as much capital as possible from their investment banks -- France’s Societe Generale (SOGN.PA) and BNP Paribas (BNPP.PA) for instance are getting out of shipping finance and real estate lending in dollars.

CS -- whose investment banking operations fell to a pretax loss of 190 million francs in quarterly figures released on Tuesday -- said it would cut 1,500 jobs, on top of 2,000 announced in July, as it outlined how it will slim down.

CUTTING BACK

It will trim client coverage in Europe, the Middle East and Africa -- through which it tries to win merger and acquisition or fundraising business -- cutting out some countries and industries, for example.

It plans to grow other areas such as foreign exchange, rates, equity underwriting and fixed income in bigger emerging markets, including Brazil, southeast Asia and Russia.

CS will rejig fixed income, which it tried to expand in the past two years, and cut 100 billion francs ($115 billion) of risk-weighted assets by 2014.

It will chop out some forms of securitizations and will no longer create commercial mortgage-backed securities. And it will cut positions in credit.

It expects such measures would have boosted fixed income’s return on equity over the past three years -- a key measure of profitability -- to 16 percent if calculated under Basel III from the paltry 7 percent it would be now under these rules.

    The bank suffered losses on fixed income inventory positions in the third quarter and revenue only beat a weak second quarter thanks to an accounting gain.

    Fixed income is also the area where UBS is expected to pull back from even more sharply when it unveils its own overhaul.

    Despite a crackdown on expenses and the fresh round of layoffs to slash 2 billion francs in yearly costs by 2013, pay in CS’s investment bank held up in the third quarter.

    In contrast to UBS, where a large chunk of the bonus pot consisted of awards deferred from other years, CS said third-quarter compensation was flat from the previous three months, reflecting an increase in new bonus accruals and a drop in deferred awards.

    Its compensation ratio came in at 58 percent, higher than at some rivals such as Barclays Capital (BARC.L), but lower than at UBS.

    ($1 = 0.871 Swiss Francs)

    (Editing by David Holmes)

    This story corrects paragraph 13 to clarify RoE figures are a projection

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