Picking bank winners is a loser’s game
THE grim news for bankers just keeps coming. Revenues at Credit Suisse’s investment bank fell off a cliff last quarter: overall they were down by nearly two thirds on the end of 2010, but in fixed income the decline – 96 per cent – was particularly sharp.
Chief executive Brady Dougan is scrambling to respond: the investment bank slashed three per cent of its staff last quarter, or 600 jobs. For those who remained, their pay also fell by 25 per cent – or by more if one excludes deferred bonuses awarded in previous years. But ultimately, change costs money: the bank had to pay out SFr414m in severance pay to those it laid off, and it will have to stump up more as it cuts costs.
Like other banks, it is also incurring expenses from write-downs on assets as it shrinks its balance sheet. Unlike some others, it is going ahead anyway, rather than hanging on and waiting (fruitlessly, in many cases) for values to rise.
The balance sheet matter has prompted some creative thinking, with the bank transferring a large chunk of unwanted assets into a “bonus” scheme that will pay out to staff in due course.
But cutting costs is of little use if revenues are falling by far more. Investment banks are now battling it out over a shrinking pie: Credit Suisse might have moved quickly, but quick thinking is no guarantee of success in this brutal fight for survival.