Swiss bank Credit Suisse is reported to be on the verge of slashing up to a third of its European investment banking staff, including many senior traders and managers as part of a wider downsizing operation.
Citing unnamed sources familiar with the planned layoffs, Reuters and The New York Times reported layoffs would begin in the summer and continue over the next 12 months. Reuters said the cuts would primarily affect advisory and financing jobs in London.
Credit Suisse declined to comment on the reports.
If confirmed, the layoffs will cap a rocky couple of weeks for the bank during which it was downgraded by a credit ratings agency and had its ability to absorb market downturns publicly called into question by the Swiss National Bank (SNB).
The latest negative headlines surrounding investment banking layoffs come as no surprise to observers who feel that the time is ripe for Credit Suisse to downscale operations in a particularly volatile business segment.
“Credit Suisse is probably correcting what it should have corrected before,” Bank Sarasin analyst Rainer Skierka told swissinfo.ch. “In the last few months, other banks were busy downsizing investment banking while Credit Suisse has been expecting a recovery.”
“Credit Suisse mastered the first part of the financial crisis, from 2007 to 2009, but have since sat back and followed the wrong approach rather than admitting that they needed to implement structural changes.”
The bank partially blamed the accelerated exit of certain investment banking operations for a disappointing SFr637 million ($664 million) net loss in the last quarter of 2011. A SFr1.95 billion profit for the whole year was well down on the SFr5.1 billion recorded in 2010.
Credit Suisse announced a job cutting programme affecting 3,500 posts last year while its Zurich rival UBS said 3,900 jobs would go worldwide.
Credit Suisse recently said that some 2,000 positions had already been scrapped. The latest reports emphasise the job cuts are part of the already announced downsizing operation rather than a new measure.
The Swiss banks, like most of their international peers, have been caught out by the continued adverse global economic conditions that have reduced risk-taking activity by their clients while keeping interest rates low.
All of the major international banks have been ordered by regulators to slim down their risk-taking portfolios and build up capital buffers to cushion against the risk of another major crisis.
The Swiss banks are required to go one step further than the Basel III rules as the country’s financial authorities seek to make them the most crisis resistant in the world.
The SNB criticised both big banks, but especially Credit Suisse, two weeks ago in a damning financial stability report. Credit Suisse was particularly taken to task for continuing its dividend payments while its capital cushion was deemed as being too low.
Credit Suisse hit back angrily at the SNB’s assessment, with chief executive officer Brady Dougan going on the offensive in the Swiss press. This was followed by the unusual move of the bank’s board of directors issuing a statement backing their embattled CEO last Friday.
“The Board is comfortable with the progress that has been made towards meeting the Basel III capital requirements, and is confident that management’s plans will continue to ensure that Credit Suisse Group not only fulfills, but exceeds its regulatory capital requirements,” the statement read.
The move by Moody’s credit ratings agency to downgrade Credit Suisse three notches and UBS by two was another piece of unwelcome news, if hardly unexpected.
Moody’s had signalled its intention in February and was widely perceived by the markets to be playing catch-up, having failed to act more decisively sooner.
The SNB statement was far more damaging, according to Skierka, as evidenced by the bank’s falling share price once the report was issued. Skierka would not be drawn into the debate about whether the SNB or Credit Suisse had done its sums right, but acknowledged the damage caused by the row.
“It was another blow to a guy already on the floor,” he told swissinfo.ch.