The big news for the investment bank in EMEA is the effective closure of the macro business, which housed foreign exchange and rates. That means no more principal trading in European government bonds or Gilts, no more primary dealerships in Europe, and more than 1,500 jobs lost in London.
But the decision to get out of rates has to be the right call, and it will force the banks still in the business to think hard about what they are actually bringing to the table.
Regulation has made the juicy parts of the business — structured rates, rates options, bespoke products — uneconomic, while technology is gradually starving the low margin parts.
The more trading shifts to electronic platforms and agency or matched principal approaches, the less need there will be for banks to maintain a full service bond dealer set-up, complete with inventories and expensive salespeople. Investors that want to trade flow rates — on-the-run govvies, vanilla swaps — do not need expensive coverage, they need firm prices and tight bid-offer spreads.
With the closure of rates, the UBS comparisons were not far behind. Credit Suisse seems to have stage managed the announcementfar better than UBS’s strategic turnaround in 2012. Nobody has been locked out of the building so far, but it’s an equally firm choice, and driven in part by the tough leverage ratio rules the Swiss regulator has introduced.
The UK, despite a recent easing in regulatory tone, is also a fan of high leverage ratios, which hurt flow rates and mortgage banking alike. This should put pressure on Barclays, which is due a new strategic course when it finally firms up its new chief executive, and has a huge macro business of its own.
But the crucial difference is one of scale. There’s still money to be made somewhere in the macro business, and Barclays is much better placed to capture it. According to GlobalCapital data, it had a 10% market share in European sovereign syndications this year, putting it second in the league table. Credit Suisse wasn’t even top 24.
Other themes from Credit Suisse’s seven hour marathon of strategy announcements included a somewhat disingenuous fascination with wealth management.
Managing CS's wealth
All of the speakers were at pains to stress how “connection to wealth management” informed their strategic choices and the businesses Credit Suisse wanted to invest in, but it doesn’t really stack up. In investment banking, two of the absolute best businesses Credit Suisse has are leveraged finance and securitization.
Both are extraordinarily lucrative, balance sheet intensive, and nothing whatsoever to do with wealth management. Naturally the bank wants much more of both, and Thiam will “burn some capital” to make it happen. But it’s actually just an old fashioned strategy called doing more of the stuff we’re good at, stop doing the stuff we’re bad at.
That’s more or less how things will go down in corporate finance. Thiam likes the business, which was restructured and pruned in 2012 to spend less money chasing revenues and more time thinking about profits.
But since then, the wallet has shifted a bit in corporate finance. Leveraged finance and sponsor related business — Credit Suisse specialities — are down a lot this year, while strategic corporate M&A and investment grade bonds are riding high, but more readily captured by banks with a lot of financing capacity to throw around.
Marisa Drew and Mark Echlin will still be in charge in EMEA, while the business will be headed by former high yield banker Jim Amine. More coverage of more clients is the plan, but don’t expect a headlong league table charge.
Rights issues done right
And so we come to the Sfr6bn rights issue, the fuel for Credit Suisse’s future growth. GlobalCapital’s equity team have delved into the two step strategy, with a private placement and public issue afterwards.
That’s not dissimilar to Deutsche’s approach last year, but Credit Suisse should be congratulated for laying it out in a sober, sensible way — not jamming the market with a monster deal announced on a Sunday. Other than CS as global co-ordinator, banks underwriting the deal include Citi,HSBC and Société Générale.
Back in the cosy world of the bond market, it’s too late in the year for big buyouts or team deals, but there’s still gossip to be had.
Mizuho, GlobalCapital understands, will hire AJ Davidson, the ex-head of capital solutions at RBS. Davidson has been in the wilderness since October 2014, but we understand he’ll be running FIG debt capital markets when he joins.
There’s some way to go in building the Mizuho FIG business. It is in 25th place in the league table for bookrunners of global FIG anddoes not place at all in the European subordinated bonds league table, Davidson’s specialist subject. Luckily, there’s still plenty of sub debt to issue.
Derry Hubbard, head of FIG and SSA syndicate at BNP Paribas, is swapping Marylebone for the happiest city in the world as he heads to Danske Bank to become global co-head of syndicate.
He will work alongside co-head Jeremy Spinney at first, and take full responsibility following Spinney’s retirement.
His departure raises further questions about how to run a covered bond business. Hubbard started out in covered bonds, despite his broader role, and played a big part in building BNP Paribas up to the top tier covered bond house it is today.
But covered bonds are increasingly originated and led by non-specialists, while covered bond stalwarts such as Richard Kemmish, Julia Hogget, Mauricio Noé, Jez Walsh and Christoph Anhamm are either out of the market or doing generalist jobs.