Credit Suisse Group chief executive officer Tidjane Thiam pledged to accelerate a restructuring through deeper cost cuts and by eliminating an additional 2,000 jobs as he forecast a first-quarter loss.
The bank may post a net loss in the first quarter, Thiam said on a conference call with reporters yesterday after announcing the second restructuring plan in five months. Trading revenue is seen dropping as much as 45% in the first quarter, with the bank looking to cut risk-weighted assets in that business by another 20% to about $60bn this year. Credit Suisse is now targeting 6,000 job cuts in 2016.
Thiam, 53, has pledged to focus on wealth management to tap growth across Asia while shrinking the securities business, which helped contribute to the bank’s biggest quarterly loss in seven years in the three months through December. His restructuring plans, announced in October, have so far failed to convince investors, with shares losing about 41% of their value in that period.
“We’re cutting deeper, there will be more restructuring costs,” Thiam said in an interview with Francine Lacqua on Bloomberg Television yesterday. “The divisions, before restructuring are profitable —  Asia, Switzerland, International — a small loss in IBCM and a big loss in global markets. Once you take the restructuring charges, you fall into losses. That’s structural and due to investments we’re making right now.”
The shares rose 2% to 14.60 francs at 11:52am in Zurich. They have dropped about 33% this year, reaching the lowest since 1989 last month.
As part of its latest overhaul, Credit Suisse expects restructuring costs to peak at 1bn francs this year, before dropping to 600mn in 2017. The bank is targeting net cost savings of at least 3bn francs by 2018, up from 2bn francs, while costs at global markets will be cut to 5.4bn francs from 6.6bn francs at the end of last year.
The bank has already eliminated some 2,800 positions as part of the plan this year, with every division contributing to cost cuts, it said. Job cuts will help achieve gross savings of 1.7bn francs ($1.7bn) this year.
Some of Europe’s largest banks have cut their trading businesses as regulators step up scrutiny of riskier activities while a slump in energy costs and cooling emerging-market growth eroded revenue. At Deutsche Bank, co-CEO John Cryan said earlier this month that he doesn’t expect to post a profit this year as he eliminates thousands of jobs and sells assets as part of an overhaul. Barclays has also scaled back its securities unit.
This is Thiam “fighting back and saying we actually have to do more,” Chris Wheeler, a London-based analyst at Atlantic Equities, said in an interview with Manus Cranny on Bloomberg Television yesterday. “It’s part of the strategy trying to say to the markets, ‘we are really very serious about this.”’
The global markets business, led by Tim O’Hara, has been hurt by emerging markets showing “much lower client activity,” with concerns tied to China’s economic performance resulting in an outflow of funds, according to slides. The stocks business has been less affected, showing “solid results” in cash equities, equity derivatives and prime services, the bank said.
“What we’ve announced today is really pushing the cost- cutting program further and shrinking global markets more,” Thiam said in the interview. “If you look at markets, January was the worst January ever.”
The investment banking and capital markets business also posted a loss in the first quarter, according to Thiam. While mergers and acquisitions revenue more than doubled from a year earlier, the unit was hurt by reduced issuance activity in primary markets, according to the statement.
Bonuses at global markets were cut by about 35% in 2015, according to slides yesterday. Thiam said on a conference call that he asked for a 40% cut in his variable pay. The lender will publish compensation details yesterday.
“This accelerated restructuring move comes at the right time and should be positively received as it addresses some key criticism from shareholders that the investment bank still is too big,” said Andreas Venditti, an analyst at Vontobel, who has a hold rating on the stock. He said the first quarter performance at the securities unit has been “dismal.”
Credit Suisse plans to exit most of the distressed credit, European securitised product trading and long-term illiquid funding, while equities will remain “a core area of focus.” The bank said it will take more than $200mn in write-downs in the first quarter as it’s selling some credit positions.
Credit Suisse said it will recommend a dividend of 70 centimes per share until it reaches its capital target.
The bank’s International Wealth Management unit has delivered “resilient” revenue this year within private banking, led by “strong” net interest income and net new asset inflows of 7.1bn francs year to date. The Swiss Universal bank, earmarked for a partial initial public offering in 2017, has also “performed well” this year, with “resilient pretax income performance” expected in the fist quarter, the lender said.
“We are confident” that it’s the end of cost cuts at the moment, Thiam said in the interview. “But really this is a very dislocated market, my natural caution makes me say that this is it for the moment. I don’t want to be hostage to fortune.”