If there were an optimal moment for stocking up on M&A bankers and primary markets professionals, Q12020 was surely not it. As Credit Suisse CEO Thomas Gottstein said many times this morning, deals declined substantially in March as the virus took hold. - But then, maybe Credit Suisse was busy accruing staff in January and February?
Today's first quarter results reveal that headcount in Credit Suisse's investment banking and capital markets division rose by 230 people, or 7% in the first quarter compared to the end of 2019. The increase looks anomalous, particularly as Credit Suisse usually cuts a few staff at this time of year - in 2018 and 2019 it trimmed 70 and 20 bankers respectively in the first quarter. The last time CS added bankers in Q1 was 2017, when it accumulated 120 extra bankers in the first few months of the year. This year's headcount increase therefore looks exceptional in recent terms. It also seems strange given the current environment.
Credit Suisse didn't mention all its new employees in today's investor call. The additions come after David Miller was appointed head of the investment bank in November 2019 and after former CEO Tidjane Thiam said the bank wanted to hire some new investment bankers to revive its fortunes. It looks like Miller made the most of his opportunity.
As the chart below shows, Credit Suisse's M&A business didn't do badly in Q1: revenues rose 9% year-on-year while most rivals saw substantial falls. This might be a reflection of the softness of the bank's business at the start of 2019, but it looks impressive nonetheless.
Unfortunately, though, the coronavirus scuppered the reinvigoration of the Credit Suisse investment banking and capital markets business (IBCM) as the quarter went on. The bank was obliged to book unrealized losses of CHF142m in its leveraged finance underwriting portfolio, plus net losses of CHF49m on its uncollateralized corporate derivatives exposure. This led to a loss before taxes of CHF378m in the business. As the chart below shows, IBCM hasn't been profitable for a while - now it's even less so.
In the circumstances, it might be expected that Credit Suisse would heavily cut pay, and indeed there are some signs of softening. - Overall spending on compensation in the IBCM was down 6% year-on-year in the first quarter; average pay per head for the three months fell to CHF88k from CHF101k a year earlier, a fall of 13%.
Notably, however, Credit Suisse seemed much harsher with its global markets division, which was actually profitable in the first quarter. Despite a 17% increase in income before taxes, headcount in global markets fell by 80 people to 12,530 in Q1 compared to the end of 2019. Average pay per head in global markets was cut by 14% to CHF49k. It all seems a bit unfair, although Gottstein said several times that he doesn't expect the favourable market conditions of Q1 to endure so maybe he's getting ahead of the curve.
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