Credit Suisse still firing on one cylinder
By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Credit Suisse is firing on one cylinder. The Swiss lender’s reshaped private banking arm is pulling in more money. But an 11 percent year-on-year dip in quarterly investment banking revenue shows its other main unit is still sputtering.
The Swiss bank’s problem – fixed-income trading – is a familiar one for investment banks. Citigroup and JPMorgan have already reported top-line falls in bond-trading revenue similar to Credit Suisse’s 21 percent quarterly year-on-year decline. Still, the Zurich-based lender should be more disappointed.
The bank’s historic strengths in trading junk bonds in America should have translated into a relatively better performance right now, given rock-bottom interest rates are still stoking demand for higher-yielding assets. Looking forward, Credit Suisse’s focus on riskier credit, emerging markets and securitisation could suffer the most as the Federal Reserve tapers its bond-buying. The bank is ranked well outside the top six banks active in the fixed-income products – foreign exchange, rates and commodities – that would prosper from a turn in the interest-rate cycle.
For now, Chief Executive Brady Dougan seems to be just taking more risk. Risk-weighted assets rose 4 percent to 286 billion Swiss francs at the end of March. Yet overall quarterly group return on equity remained a lacklustre 8 percent.
The good news for Dougan is that Credit Suisse’s wealth management and private bank can provide a counter-weight to rising rates. Performance is already improving. Asset gathering in the part of the division Credit Suisse is sticking with rose 12 percent to 16 billion Swiss francs year-on-year – a sign that targeting new clients in Asia-Pacific is finally paying off.
The bad news is that more action may be needed in fixed income. The bits in which Credit Suisse lacks scale consumed 16 percent of the core investment bank’s total capital base in the first quarter, but have added little by way of returns on a rolling 12-month basis. And Credit Suisse still has to deal with the alleged abetting of tax evasion for American clients. If that lands a bigger-than-expected reputational blow, the chief executive’s fixed-income timidity could end up costing him his job.