Credit Suisse underwhelms with plan to shrink interest rate trading

ZURICH (Reuters) - Credit Suisse CSGN.VX will shrink interest rate trading after revenue and profit at its investment bank slid in the third quarter, it said on Thursday, further scaling back an area squeezed by strict new regulation and a drop in activity.

A logo is seen on the main entrance of the headquarters of Swiss bank Credit Suisse at the Paradeplatz square in Zurich, January 31, 2012. REUTERS/Christian Hartmann

Rivals UBS UBSN.VX, Deutsche Bank DBKGn.DE and Barclays BARC.L are all restructuring their investment banks - less lucrative in volatile post-crisis markets and under fire from regulators insisting banks swap risk for more capital - and some analysts said Chief Executive Brady Dougan had not gone far enough compared to his peers.

After announcing that investment banking income slid nearly a fifth, Credit Suisse said it would ramp down the rates business with the aim of lowering risky assets by $7 billion and leverage by $60 billion. The bank, which added 500 staff at its investment bank in the third quarter, said this would result in job cuts but gave no further details.

Credit Suisse’s investment bank, already suffering a general slump, was also hit by a fall in fixed income trading in the third quarter when clients steered clear of those products until the U.S. Federal Reserve clarified its intentions regarding its bond buying programme.

While Credit Suisse is not alone in suffering from this - American banks including Goldman Sachs GS.N have said they too tussled difficult fixed income markets - analysts suggested the Swiss bank had been slow to limit its exposure.

At Credit Suisse, fixed income and bond trading made for 29 percent of overall revenue last year, compared with 22 percent before the financial crisis of 2008-09. By contrast UBS said a year ago it planned to cut 10,000 investment bank staff by withdrawing from large parts of fixed income and would focus almost exclusively on private banking.

Meanwhile, Barclays is cutting 1,800 staff and Deutsche is trimming 1,500 jobs at their investment banking arms.

Credit Suisse said it would cut spending by at least another 100 million francs to more than 4.5 billion by the end of 2015. Analysts expect it to slash its repo book and push derivatives trading onto exchanges as opposed to over-the-counter, but many were underwhelmed: Deutsche Bank called Thursday’s announcement “a small evolutionary step” and JPMorgan said Credit Suisse needed to make deeper investment banking cuts.

JPMorgan analyst Kian Abouhossein noted the bank will still be left with a 50-50 mix of investment banking capital and private banking business - and an investment bank almost double that of UBS in terms of risk-weighted assets.

“We would have liked and expect in the long-term further investment banking restructuring within the Tier II fixed income, currencies and commodities franchise,” Abouhossein said.


Investors also voiced their disproval. By 1321 GMT, the stock was down 2.9 percent at 29 francs, against 0.7 percent rise across European banks overall .SX7P

Credit Suisse’s overall net profit rose to 454 million Swiss francs ($509.1 million) from the year-ago period - when charges linked to its own debt ate into profits - well short of analyst estimates, which averaged 705 million francs. Revenue dipped little more than 1 percent.

CEO Dougan told analysts Credit Suisse still plans to pay a 2013 dividend and stowed funds in the most recent quarter to do so. He did not specify a payout ratio. The bank paid a largely stock dividend of 0.75 francs in 2012, and flagged a return to cash when it met key capital ratios, which it has now achieved.

Credit Suisse private bank’s net new money stood at 8.1 billion francs amid inflows from lucrative asset management products as well as ultra-wealthy and emerging market clients.

However the unit faces headwinds: Credit Suisse is among roughly a dozen Swiss banks under investigation by U.S. prosecutors for helping wealthy Americans evade tax and is negotiating to settle the allegations.

A July deal brokered by the Swiss government paved the way for Credit Suisse and others to hand over information on where clients closing their accounts moved their money.

Since then, Credit Suisse has delivered “substantial, high-level” data on clients leaving, and is preparing to provide more specific data, financial head David Mathers said on Thursday.

More banking results follow Credit Suisse this week: Deutsche Bank and UBS both report the quarter on Tuesday and British bank Barclays reports on Wednesday.

($1 = 0.8918 Swiss francs)

Additional reporting by Steve Slater; Editing by Sophie Walker