Credit Suisse needs return on investment bank hires
Credit Suisse needs to show its drive to hire investment bankers last year is starting to pay off when it reports results on Thursday, after sluggish client activity hit profit in the third quarter.
February 10, 2011 / 08:36 IST
Credit Suisse needs to show its drive to hire investment bankers last year is starting to pay off when it reports results on Thursday, after sluggish client activity hit profit in the third quarter.
Switzerland's second-largest bank has reduced high-risk but potentially very profitable proprietary trading to focus on steadier flow business, which depends on fees from clients trading with their own assets.Chief Executive Brady Dougan hired investment bankers aggressively in the second quarter of 2010 just as markets flattened. While his bold strategy backfired in the third quarter as trading revenues wilted, Credit Suisse is widely seen as well placed to benefit from any upturn in trading activity.Investors hope the bank will mirror the improvement in client activity at cross-town rival UBS on Tuesday, bucking the disappointing trend set by other big competitors such as Goldman Sachs."We believe equity trading results have recovered in Q4, following a weak Q3, and we expect commission and fee income to rebound as a result of recovering asset levels and market share gains," said S&P analyst Frank Braden.In wealth management Credit Suisse should show it continued to win decent amounts of new client money, especially after a strong showing by Swiss private bank Julius Baer in its full-year numbers released on Monday.But the profitability of the business will be under scrutiny because wealth management margins have slipped as revenues from client trading shrank, and the cost of hiring the bankers who in turn bring in new clients can be expensive."It is true that investors expect that the bank has managed to meet their 6 percent net new money target, but the suspicion is that they have only been able to do so through ramping up the cost base," said Helvea analyst Peter Thorne.Efforts to build capital to meet stringent new Swiss regulation is likely to crimp Credit Suisse's dividend payout.While these rules, which go beyond tough new international banking laws, could put the big Swiss banks at a disadvantage to overseas peers, Credit Suisse and UBS have already cut back further on capital-sapping activities than most rivals.However, both banks are still defending their universal banking model, saying ultra-rich clients also demand investment banking services such as share placement and debt issuance."For integrated banks it makes sense to hang on to investment banking activities where there are strong synergies with its wealth management business," said Cheuvreux analyst Christian Stark. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
