Credit Suisse to Eliminate 5,300 Jobs After Losses

Credit Suisse to Eliminate 5,300 Jobs After Losses
Bloomberg, 4-Dec-08
By Elena Logutenkova and Christian Baumgaertel

Credit Suisse Group AG, Switzerland’s second-largest bank, will eliminate 5,300 jobs and scrap bonuses for its top executives after about 3 billion francs ($2.5 billion) of losses in the past two months.

The job cuts, which amount to 11 percent of the workforce, include about 3,800 at the securities unit, Zurich-based Credit Suisse said today. The 2 billion francs in savings will help the bank weather “continuing challenging market conditions,” Chief Executive Officer Brady Dougan said in a statement.

Dougan, Chairman Walter Kielholz and Paul Calello, head of the investment bank, will forgo bonuses for 2008 after about 5.2 billion francs in net losses so far this year. Banks and insurers worldwide have reported about 200,000 job cuts and more than $970 billion in credit losses and markdowns since the global financial crisis began, data compiled by Bloomberg show. Credit Suisse rose 10 percent in Swiss trading.

“While the job cuts in investment banking are strategically right, it raises the question why they didn’t do this two quarters ago,” said Christoph Berger, a Frankfurt-based fund manager at Cominvest Asset Management, who helps manage about $100 billion, including Credit Suisse shares.

Credit Suisse rose 2.8 francs to 30.5 francs, leaving the shares down 55 percent this year. UBS AG, Switzerland’s largest bank and the lender with the highest losses in Europe from the credit crisis, has dropped 69 percent over the period.

No Need for Aid

Most of the job cuts will occur by the end of next June, and will include support positions in both asset management and private banking. The reductions will be concentrated in the U.S., where the investment-banking business is bigger, Dougan said. Credit Suisse said earlier this week it will eliminate 650 employees in London.

Today’s announcement brings total job cuts at Credit Suisse to 7,390, compared with 9,000 at UBS. UBS agreed in October to a $59.2 billion aid package from the Swiss government and the central bank to relieve it of risky assets, while Credit Suisse declined assistance.

Dougan, 49, who took over as CEO in May 2007 after heading the investment bank for three years, foresees no circumstances under which state aid would be required, he told reporters on a conference call today. The bank should still be able to achieve a 20 percent return on equity over the business cycle after the reorganization, he said.

‘Disappointing’

Standard & Poor’s said today it will review by the end of the year whether to lower Credit Suisse’s A+ long-term counterparty credit rating because of “larger-than-expected” losses following a “disappointing” third quarter.

The nation’s financial regulator said today it agreed with UBS and Credit Suisse on higher requirements on risk-weighted capital and the introduction of a leverage ratio to improve their ability to sustain losses.

Credit Suisse raised 10 billion francs from investors in Qatar, Israel and Saudi Arabia in October to raise its Tier 1 capital ratio, a gauge of a bank’s ability to absorb losses, to about 13.7 percent. The company said today it expects a ratio of about 13 percent at the end of this year.

Investment banks globally are grappling with widening losses after the bankruptcy of Lehman Brothers Holdings Inc. in September locked up credit markets and sent stocks tumbling. Top executives at competitors including UBS, Deutsche Bank AG and Goldman Sachs Group Inc. are also forgoing bonuses this year.

Nomura

Nomura Holdings Inc. is firing as many as 1,000 employees in London, the company said today, after worsening financial markets and costs related to buying parts of Lehman pushed the shares to a 26-year low.

Commerzbank AG plans to close Dresdner Kleinwort Ltd.’s regional U.K. mergers and acquisitions business as it integrates the securities unit of Dresdner Bank, spokesman Reiner Rossmann said. Frankfurt-based Commerzbank said in September it would cut about 1,300 jobs at Dresdner Kleinwort and its own investment bank after agreeing to buy Dresdner from Allianz SE.

Credit Suisse “missed the opportunity to be the global banking star,” JPMorgan Chase & Co. analysts including Kian Abouhossein said in a note. Nevertheless, “we believe CEO Dougan has the ability to turn the investment bank around.”

Credit Suisse’s investment bank will scale back operations in complex products and exit some proprietary trading. The unit had a “significant” pretax loss in October and November as it cut risks in “challenging” markets, Credit Suisse said.

‘Challenging’ Markets

Christoffer Malmer, an analyst with Goldman, estimated on the conference call that Credit Suisse’s securities unit probably recorded a loss of about 5 billion francs for the two months. Dougan declined to confirm the number.

“Investment banking will remain a valuable contributor to the integrated bank with lower volatility and attractive risk returns,” Credit Suisse said in the statement.

The bank will take a charge of 900 million francs for the reorganization measures, mostly in the fourth quarter, which isn’t yet reflected in the net loss estimate.

Credit Suisse’s private banking operations were “solidly profitable” during October and November, Dougan said on the conference call. The bank as a whole had a “modest” profit in November.

The Swiss company will “judiciously invest in the growth of private banking globally,” Dougan said. The business hired 370 new client advisers by the end of November, more than the targeted 330 for 2008, and had “solid” new asset inflows so far, Credit Suisse said.