Credit Suisse had seemed immune to the gloom pervading banking circles across Asia in recent years. Its focus on the region’s burgeoning number of entrepreneurs even created a rare source of growth within the Swiss lender.
However chief executive Tidjane Thiam made clear on Wednesday that its Asian cash equities has to shrink. The firm cut broking jobs in the first few months of this year with more redundancies expected in the second quarter.
“Efficiency is imperative and there is no Asian exception to that,” said Thiam who has been reshaping Switzerland’s second-largest bank since he joined in 2015.
Credit Suisse is not alone in feeling the pain in Asian cash equities. Last year Barclays closed its cash equities division in Asia in January; Nomura cut staff in its Asia ex-Japan equities division; Macquarie cut about 30 people; Goldman Sachs also quietly cut trading headcount through the year as did BNP Paribas and CIMB. Standard Chartered shut down its equities division in 2015.
New regulation and a structural shift towards e-trading have shrunk commissions paid by institutional investors to brokers on trades of Asian equities by about 16% since 2015, according to consultancy Greenwich Associates.
Institutional investors are cutting commissions used to compensate equity research providers globally ahead of the European Union’s new rules on trading, known as MiFID II.
Thiam, 54, said he has already led a cost-cutting drive in US cash equities division.
Smaller footprint?
Credit Suisse’s review clearly has no sacred cows. “We are looking at the regional footprint,” said Thiam.
Investment banks and brokers have long struggled with balancing the need for eyes and ears on the ground in Asian outposts, outside the hubs of Hong Kong and Singapore, with the cost of maintaining a presence onshore in smaller markets.
Credit Suisse kept operations running in markets such as Indonesia through the depths of the Asian financial crisis and in Vietnam when there were no sizeable investment banking deals for over a year, even when others brokers pulled out.
Credit Suisse’s country head in Vietnam, Le Hoai Anh, previously worked at Morgan Stanley.
Despite the firm’s long history in the region and the importance of maintaining a continuous presence onshore in terms of relationships with clients and regulators, Thiam made it clear he had financial targets to hit.
“The platform has to be commensurate with the demand today,” said Thiam, who was speaking on the sidelines of the firm’s annual Asian Investment Conference.
Credit Suisse plans to cut between 5,500 and 6,500 jobs in 2017, it said in February, and has targeted Sfr4.3 billion ($4.36 billion) in cost savings by 2018.
An increasing numbers of investors have been directing flows through the largest equity players, whose greater economies of scale allow investment into the fastest trading systems. Up until now it has been the mid-sized brokers who have made drastic cuts.
Now it seems even the flow monsters in Asia are feeling the pinch. Credit Suisse held the top market share in 2016 for Hong Kong, Singapore, Malaysia, Taiwan and Thailand, according to trading information from the respective exchanges.
Credit Suisse, Bank of America Merrill Lynch and Morgan Stanley jointly led in Asian Equity Research and Advisory Vote Share in a survey conducted by Greenwich between July and September last year. Greenwich interviewed 219 Asian equity fund managers and analysts, 128 buy-side trading desks and 42 users of equity derivative products in Asia.
Credit Suisse has already rejigged management in the division. On March 1, Credit Suisse said Ali Naqvi has been appointed executive chairman for global markets, Asia Pacific, a more client-facing role, while Ken Pang was named head of global markets in Asia Pacific.
One Credit Suisse manager said the view internally was that the firm had lost its leading edge in trading technology and Pang was the right man to fight back as the shift towards e-trading continues in Asia.
From 2015 to 2016 large institutions cut the share of trading volume executed through high-touch, single-stock trades facilitated by broker sales traders to 58% from 65%. Meanwhile, the share of trading volume executed by this group through algorithmic trades jumped to 26% from 20%, according to Greenwich.
To be sure, there is a limit to how deep it can cut into cash equities if Credit Suisse wants to support its core clients: entrepreneurs.
“Equities cash and prime are strategic,” said Thiam “All that wealth that is being created will ultimately find their way into the equities market.”
As Credit Suisse considers the size and shape of its regional footprint it can be more flexible and creative than most. Unusually in Asia, all divisions report into one man: Helman Sitohang, who can consider which part of the bank benefits most from an onshore presence at any time – and which one is able to bear the brunt of the cost.
The structure also makes Credit Suisse more flexible when considering Asian entrepreneurs’ needs.
Credit Suisse was a joint global co-ordinator on the IPO of Viz Branz, which was postponed after the company’s owner, Ben Chng Beng Beng, decided he was not prepared to accept a valuation at the very bottom of the price range.
“We were involved in a transaction last week where we pulled the IPO for various reasons. The founder was a bit annoyed. It turns out the private banker found out what he actually needs is a loan – so we can make him the loan,” Thiam said.
Credit Suisse’s historic loss rate on structured loans to wealthy clients was just two basis points and typically it lends at a 15% to 20% loan-to-value ratio, Thiam said.
Another reason to keep boots on the ground around Asia is the group’s need to diversify its sources of funding.
“Ultimately, for any global institution Asia is a potential source of capital,” Thiam said. “Asian capital is also looking for diversification outside of Asia.”
Credit Suisse is currently weighing whether or not to IPO its Swiss bank unit. Thiam said the firm had some breathing space after boosting its capital ratios.
“We have made a lot of progress on capital … Which allows us to look at options,” Thiam said.
Whilst last year revenues fell in Credit Suisse’s global market division in Asia, the wealth management division put in another record performance and is still receiving investment dollars to bulk out the franchise.
“We are investing in wealth management in Japan – that is a big opportunity,” said Thiam.
