2022 will be an important year at Credit Suisse. After the body blows of 2021, next year is all about cutting costs, implementing the recovery plan and putting the Swiss bank on a strong footing for the future.
While this is a worthy aspiration, not everyone is convinced that the plan is a good one. JPMorgan's European banking analysts voiced their doubts a few weeks ago. Now UBS's banking analysts have done the same.
UBS's analysts today downgraded Credit Suisse to neutral from buy based on the "long transition period" they see ahead for the Swiss bank, on various "uncertainties", and on their perception that other banks' stocks might be a better bet.
In particular, UBS thinks Credit Suisse's investment bank might have a hard time ahead. - In 2022 they expect revenues there to fall by 18%, driven by a 45% drop in equities revenues due to the knock-on effects of closing the prime brokerage business. This in turn is likely to drive up costs as a proportion of revenues.
If you're Credit Suisse, this has the potential to become problematic. The bank is engaged in a hiring spree in its focus areas of investment banking and wealth management, and has indicated a willingness to "invest" in securitization, electronic trading, leveraged finance and elsewhere. However, as Credit Suisse tries to attract and retain talent in the face of headwinds, UBS suggests costs could rise faster than expected, and that boosting control, legal and regulatory spending could make matters worse. JPMorgan's analysts highlighted the same issue - noting that Credit Suisse seemed to have underestimated the need to spend heavily on controls and on its "ongoing digitization and platformization."
What's the best course of action from Credit Suisse employees? Negotiating a multi-year guaranteed bonus (within constraints in London) might seem the obvious implication for anyone joining the bank. So might avoidance of the problem areas. But which are they?
The best jobs at Credit Suisse's investment bank in 2022 and beyond
JPMorgan's analysts aren't expecting revenues at Credit Suisse's investment bank to fall by as much as analysts at UBS next year. - The JPM analysts are predicting a mere 13% drop across the investment bank and a 23% year-on-year drop in equities when 2021's Archegos loss is excluded. However, they still think that Credit Suisse's equities business looks problematic. - Credit Suisse is not a top tier bank in equities and with a dwindling 2.3% market share, the JPM analysts suggest that CS equities risks getting stuck in the "vicious circle of lower scale leading to lower platform capability investment" and ongoing losses in market share.
From this perspective, the Credit Suisse equities business might be best avoided. - Except that JPM's analysts note it has something important in its favor: its links to the all-important Credit Suisse wealth management business. For this reason, they think that Credit Suisse is unlikely to follow Deutsche Bank in closing its equities business altogether.
If anything, JPM's analysts propose that Credit Suisse's dominant fixed income trading business could be more vulnerable. It's capital intensive and its wealth management links are limited. The only thing Credit Suisse's credit and securitization traders have in their favor is their profitability - and this isn't a given for the future.
The chart below, assembled by JPMorgan's banking team, suggests that the safest jobs at Credit Suisse are likely to be those in the investment banking division (IBD), which ticks all the boxes for strategic importance. The least safe are likely to be in prime broking (already being closed), macro trading (already seriously slimmed down), credit and securitized products. Equities jobs at Credit Suisse might turn out to be comparatively safe after all.
The strategic fits and anomalies at Credit Suisse's investment bank (by JPMorgan):
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