Dec 7 (IFR) - Credit Suisse is to cut more costs from its
global markets division in an effort to meet group pre-tax
profit targets for 2018. Those initial targets were set out by
chief executive Tidjane Thiam in October 2015 but market
conditions have changed, calling for a revision of his plans.
"I have always said we can get there [pre-tax profit target]
by growing revenues or cutting costs. We are flexible given the
unsupportive market environment," Thiam told investors at a
market update in London.
The bank said it had achieved its plan of cutting 6,000 jobs
across the group over the last year. Initially 4,000 roles had
been earmarked but that went up by a further 2,000 positions in
February, all from global markets, which reported worse than
Overall, a net 6,050 people have now left the organisation.
Neither Thiam nor Brian Chin, CEO of global markets, outlined
where the further costs would come from. Chin intends to keep
all the remaining product areas in equities and fixed income,
having cut back its macro trading offering and refined its
Efficiencies are expected to come from strategic changes.
"We will target structural cost changes and not simply do a pro
rata cost reduction across businesses," said Chin. "We want to
be very strategic about it, for example by redeploying people
out of high-cost locations."
Chin said that after a turbulent year, dominated by the
restructuring, trading in the markets businesses had stabilised.
Revenues for the 12 months to the end of September stood at
US$5.5bn, down 23% compared with the whole of 2015, and 32%
below the levels seen in 2014.
Chin expects annual revenues will now rise to US$6bn by
2018. Costs are anticipated at US$4.8bn by then, 8% lower than
currently, which should give a return on equity of at least 10%.
However, analysts said the division's US$1.2bn pre-tax profit
target was more like an 8% RoE .
"There appears to remain a RoE gap," said Jeremy Sigee,
analyst at Barclays. "The question will be whether they can
deliver a sub-consensus cost number [in global markets] while
maintaining as-consensus revenues."
More ambitiously, Thiam expects that the strong year for
advisory revenues in the investment bank and capital markets
division will be repeated and fees, stemming largely from Asian
outbound deals, will rise even faster, since those transactions
play to Credit Suisse's strength.
The revised plan sees investment banking fees increase by
60% over the next three years. That would produce returns on
regulatory capital in that division of between 15% and 20%.
Thiam dismissed fears that China would implement its capital
controls on outbound investments more rigorously, hampering this
"I don't believe the Chinese government wants domestic
savings to flow into domestic assets. Those assets can't grow
forever as that would be bad for domestic cohesion. There is a
tactical reason to slow that down a bit," he said. "There are
US$3trn of FX reserves so the [outward investment] trend is
Much of the Asia-Pacific investment banking revenues are
booked in the geographical division. As a group, a third of
equities trading revenues are made in the Asia-Pacific division,
not global markets.
However, the severe equities slowdown in Asia-Pacific means
that the profit target for this business has been revised down
by SFr500m to SFr1.6bn. "We need to lower our targets here,"
The group also said the profit target for its asset
management activities in the international wealth management
division would also be revised down.
Still, Thiam was bullish for the year ahead. "We are
protecting returns during volatile markets to provide
significant upside when conditions improve and there's good
reason to believe that they are improving," he said.
The changes were welcomed by investors, with the shares up
5% at SFr15, the highest since April.
(Reporting by Christopher Spink)