Credit Suisse’s results are out and it seems like the investment bank has outperformed peers. But it’s a bit tricky to get like-for-like numbers: CS doesn’t seem to have a Tradeweb gain to report, it breaks out its APAC business separately, and it allocates a significant proportion of its underwriting revenues to Global Markets rather than Investment Banking.
But adding things all together, we get equities trading broadly flat on 2Q18 and on 1H18 (better than nearly all peers except Goldman Sachs), and FICC trading up 7% year on year for the quarter and 5% for the half (right out at the top of the pack). Total advisory and underwriting revenues are somewhat worse, down 14% versus 2Q18, which is in line or possible a little worse than industry median, but this seems to have been driven by APAC
So, good bonus year? Well, not so fast. We have total compensation for H1 19 down 8% year on year in Investment Banking and Capital Markets (versus a basically flat headcount – they only added ten bodies in the quarter) and up 5% in Global Markets (exactly in line with the headcount increase – there are 560 more mouths to feed since this time last year). The narrative comments in the accounts suggest that discretionary compensation is higher than 2Q18 but lower than 1Q19 in Global Markets; lower than 2Q18 but higher than 1Q19 in Investment Banking; and down across the board in APAC. In other words, flat to nothing?
To an extent, it seems that bankers have been looked after a little better than traders. Compared to the same quarter last year, Global Markets has grown revenues by 9%, but only seen compensation rise by 7%. And since there has been a marked fall in contractors and consultants, plus the drop-out of restructuring costs, the cost/income ratio has fallen sharply from 89% to 77%. Employees don’t seem to have got any credit for their part in reducing overhead and non-compensation expenses.
In the investment bank, the cost income ratio has risen from 80% last year to 99% in Q2 19 (which is an improvement from the first quarter when a loss was made), but pay has been significantly insulated from revenue falls. Looking at it on a half-year basis to smooth out the volatility, revenues are 31% down but compensation only 8%. Credit Suisse has historically been a strong trading house, but it isn’t necessarily paying like one at the moment.
It’s not hard to see what’s driving this, and the reason for the relatively mean comp accrual (particularly compared to UBS) is most likely related to the FY2019 objectives of one particular employee – CEO Tidjane Thiam.
Group-wide, Credit Suisse is on track to deliver its target return on tangible equity of 10% for the year (up from 9% in the first quarter), and with the prospect of a victory lap in sight for the restructuring program, it was hardly likely that bonuses were going to be a priority over reporting good news to shareholders. Which means that the message to CS staff is probably “you’ve got everything to play for” – although the H1 bonus accrual hasn’t really reflected performance, anything that the staff can continue to deliver in the second half is much more likely to flow through to the compensation pool.
Image cerdit: Chris Mansfield, Getty