Credit Suisse braced for a further reduction in costs

David Hellier
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THERE was some positive news for Credit Suisse yesterday as the investment bank announced its role as joint lead manager of one of the larger share issues in Europe this year.

Along with UBS, its arch rival, Credit Suisse is joint global co-ordinator and joint bookrunner for Deutsche Wohnen’s €475m (£383m) rights issue to help fund the acquisition of a property portfolio it recently bought from Barclays Bank.

The mandate is a welcome boost for the investment bank, which has been struggling to improve market share in the obsessively watched Thomson Reuters and Dealogic league tables despite the large number of investment bankers it carries within its ranks.

One of Credit Suisse’s characteristics is that it has a high cost base, which it is trying to trim. At the end of 2011, for example, it employed 20,900 investment bankers, which is 200 more than at the beginning of the year.

So despite being involved in the gargantuan Glencore merger with Xstrata – Mark Echlin was one of the only bankers that Ivan Glasenberg took on the road with him during last year’s IPO – and acting on the mega UniCredit rights issue earlier this year, the bank is simply not busy enough to justify its cost base.

Partly this is a reflection of the dire market conditions all investment banks are currently facing, but partly there is a feeling that in many of the bank’s advisory functions, it is simply punching below its weight. “I would argue that they have got a large bench of non-performing mediocre bankers,” said one rival.

The word on the street is that we are about to witness a large cull of up to 30 per cent of the managing directors and directors involved in investment banking in Europe.

Credit Suisse declined to comment on this. Sources close to the bank said that if such a move was announced, it would all be part of the 1,500 headcount reductions that are still to be implemented following an announcement last year.

Bankers say that Credit Suisse’s management is frustrated by the constant losses the bank makes in the advisory side of investment banking. Having weathered the financial crisis towards the end of the last decade, the feeling is the bank then wasted an opportunity to take market share from weakened competitors.

However, it’s also clear that this is not just a Credit Suisse problem. With so few IPOs and relatively little M&A and capital raisings, all investment banks are having to keep an ever watchful eye on costs. Thank heavens for the likes of Deutsche Wohnen.
Meanwhile word reaches me of an exciting hire for UBS, which is busy strengthening some advisory teams.

David James, Citigroup’s chairman of corporate broking, has quit the bank and is set to join UBS as joint head of corporate broking in September.
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