February 23, 2012 / 7:41 AM / 7 years ago

Pressure builds for more CS investment bank cuts

ZURICH, Feb 21 (Reuters) - Credit Suisse is facing increased shareholder criticism about the size and cost of its remaining investment banking operations, raising pressure on chief executive Brady Dougan for more cutbacks.

The Swiss bank’s stock has floundered in recent months as European bank stocks rallied, and Dougan has struggled to balance the investment bank’s hopes for a recovery against shareholders’ impatience for more decisive restructuring.

Last year, staff count at Credit Suisse was largely stable even after two rounds of cuts eliminated 7 percent of the bank’s overall workforce, or 3,500 jobs. The investment bank actually ended 2011 with 200 more staffers — 20,900 in total — than at the beginning of the year.

Credit Suisse said most of the remaining 1,400 cuts under the ongoing reduction plan will eliminate positions in the bank’s fixed-income arm this quarter.

Some shareholders say this is not enough, however, and that the planned cuts still leave the securities unit much larger than business warrants.

“Part of the justification for Credit Suisse’s investment bank is that resources are needed to cater to the asset management arm and the private bank,” said Andre Kohler, who is head of Investment Services at B+B Vorsorge AG, which advices Swiss pension funds on their investments.

“I think some demand may exist, but not to the extent they are still staffed — there is still far too much capacity in the investment bank,” Kohler said.

Meanwhile, although Credit Suisse expects to exceed its year-end target of cutting risky assets by $39 billion, not all shareholders will be happy to be asked to take a hefty cut in dividend this year as the bank stows capital to meet new adequacy requirements.

“We see continued structural headwinds on an inflexible cost base considering no profit generation in the investment bank,” JPMorgan analyst Kian Abouhossein said after Credit Suisse reported fourth-quarter earnings earlier this month.

The discontent has spilt over into occasional criticism of Dougan, who spent 17 years rising through the investment banking ranks, at a time of year when the Credit Suisse boss is usually on the defensive about his annual bonus pay.

“Dougan’s strategy for running Credit Suisse is part management by hope,” a Zurich-based fund manager who owns Credit Suisse stock and declined to comment on record told Reuters.

Analysts say that as a former investment banker himself, Dougan may be reluctant to make deeper cuts to the securities unit for fear of damaging the bank beyond repair if markets recover.

“He is inflexible. The fixed salaries of investment bankers have to go lower, but Dougan is unyielding in his views,” said the Zurich portfolio manager.

As large investment banks cut bonuses in response to popular and political outcry over banker pay in the wake of the financial crisis, fixed pay rose, leaving the banks choking on a high, inflexible block of costs when revenue slides.

Credit Suisse’s investment bank shelled out more in fourth-quarter pay than it took in as revenue. The unit’s compensation-to-revenue ratio was 109 percent, far more than 62.8 percent at UBS and 28.2 percent at Deutsche Bank , which doesn’t include back-office and other supporting staff in the equation.

Insiders at Credit Suisse say the cutbacks made thus far have met with resistance internally, with investment bankers cautioning Dougan not to slash too much in areas such as equities, potentially risking irreparable damage to its franchise should markets snap back in 2012.

While no shareholders have so far openly criticised Dougan, the Credit Suisse CEO’s future is the subject of some discussion in Zurich. Nearly two thirds of respondents in a survey by online financial news provider finews.ch said he would not survive the year in the job, while a quarter said he was likely to leave before Credit Suisse’s April shareholder meeting.

Dougan could not be reached personally by Reuters, but a Credit Suisse spokesman said the CEO would not comment on the criticism.

Dissatisfaction with the extent of its investment bank retrenchment has been reflected in Credit Suisse’s stock, which has languished as European bank shares rallied earlier this year. Since November, after Credit Suisse reported third-quarter earnings, the shares have gained less than 3 percent, compared to a 26 percent rise in the Stoxx 600 bank index. (Additional reporting by Oliver Hirt; Editing by Hans-Juergen Peters)

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