The news from Credit Suisse's investment banking results is hard to put a positive spin on. Both FICC and equity sales and trading are effectively flat on the same quarter last year; this is partly due to unfavourable Swiss franc currency movements, but even adjusted for this we are looking at 10% for fixed income and 5% growth for equities. Compared to global peers, only Bank of America has reported worse, and the comparison with UBS (which was up over 40% on 3Q 19 in both lines) is likely to sting.
Capital markets and advisory revenues were a little closer to the pack with 33% growth in USD terms driven by a near tripling in ECM, but there’s no way this can be described as a vintage quarter for the bankers or traders. This is reflected in the compensation accrual – for the first nine months of 2020, total compensation and benefit expense at Credit Suisse investment bank is actually down 1% in Swiss franc terms, despite a 5% increase in headcount (which was largely due to insourcing of technology employees).
There are some comparative bright spots, which have to be picked out of CS’ cross-divisional reporting. The “Global Trading Solutions” business (which includes investment banking products sold to super-rich private banking clients) saw 28% growth, and the Asia Pacific region had 32% growth in “transaction based revenues”, citing “higher client activity” and strong equity underwriting. Things like this could arguably be regarded as part of the overall picture for the investment bank. But even putting the best possible face on things, there seems to have been a loss of momentum from the first half, which was described as “the best in a decade”.
What’s happened? Partly the effect of US dollar/Swiss franc exchange rates, plus the curse of all volatile revenue lines – reversion to the mean. CS has a credit-heavy business mix in fixed income trading, so it was always going to underperform franchises with more rates and forex flow clients. But it’s also hard to avoid noticing that there was a major divisional reorganisation announced at the start of the quarter. In investment banking, one of the biggest drivers of performance is always the ratio between energy spent on outward-facing activity versus energy spent on inward-looking activity and a big reorganisation of the reporting lines tends to push that ratio out of equilibrium. Thomas Gottstein will be hoping that this is only a temporary fillip and that the bankers will be back to business as usual before long.