Credit Suisse’s Dougan Plans to Cut About 2,000 Jobs as Profit Drops 52%
Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, plans to cut about 2,000 jobs after second- quarter profit fell 52 percent on lower earnings from trading.
Credit Suisse dropped as much as 4 percent in Swiss trading after reporting net income of 768 million Swiss francs ($956 million), less than the 1.06 billion-franc average estimate of 16 analysts surveyed by Bloomberg.
Chief Executive Officer Brady Dougan is eliminating about 4 percent of the workforce to help the bank save 1 billion francs in annual costs beginning next year, after increasing staff in 2010 to win market share. Earnings at the investment bank tumbled 71 percent as Europe’s sovereign debt crisis and concerns over the global economic outlook increased risk- aversion among clients.
“The investment bank is a catastrophe,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets who put the stock “under review” today. “After the financial crisis, Credit Suisse expanded the investment bank but then the hoped-for volumes didn’t materialize.”
Credit Suisse fell 72 centimes, or 2.5 percent, to 28.54 francs by 9:26 a.m. in Zurich, bringing the decline this year to 24 percent. That compares with the 13 percent decrease in the 46-member Bloomberg Europe Banks and Financial Services Index, and a 15 percent slump at UBS AG (UBSN), Switzerland’s biggest bank.
Pretax profit at the investment bank dropped to 231 million francs from 784 million francs a year earlier as revenue from sales and trading of stocks, bonds, currencies and commodities tumbled 41 percent. The private bank, which caters to wealthy clients, reported a 3.6 percent decline in earnings to 843 million francs. Profit from asset management jumped to 202 million francs from 22 million francs.
“The markets were very challenging in the second quarter,” Dougan, 51, said in a Bloomberg Television interview today, adding that it’s “hard to say” when conditions may improve. “Clearly things continue to be challenging.”
The biggest job cuts will occur at the investment bank, Chief Financial Officer David Mathers said on a conference call with reporters. About 500 positions will be eliminated in Switzerland, he said.
Credit Suisse also booked 142 million francs of restructuring costs in the quarter. The total charges related to the reorganization are expected to amount to 400 million francs to 450 million francs, the bank said.
UBS Scrapped Targets
UBS, also based in Zurich, said two days ago that it won’t be able to reach its profit target by 2014 because of a “weakening economic outlook” and announced plans to cut costs and jobs to save as much as 2 billion francs over the next two to three years. Second-quarter profit dropped 49 percent at UBS.
Dougan cut Credit Suisse’s profitability goal in February, blaming stricter capital requirements, and now aims for a return on equity of more than 15 percent over the next three to five years, down from a previous goal of more than 18 percent. Tougher rules from the Basel Committee on Banking Supervision and Swiss regulators will require the bank to hoard more capital for its securities business.
Credit Suisse added 3,100 staff since the end of 2009, bringing the total to 50,700 by June 30. The bank brought on employees in wealth management and investment banking, including client advisers and salespeople for its credit, rates and foreign-exchange trading businesses.
“Our hope was that obviously client transaction volume would recover, that we would see eventually an increase in the interest rate environment, which is good for our business,” Dougan said in the interview. “A lot of what has happened, particularly in the second quarter if you look at the volatility of the market, the challenges that we’ve seen, those are the things that obviously have carried on for longer than we probably would have expected.”
Clients at the private bank added 11.5 billion francs of net new assets in the quarter. Credit Suisse said today that Hans-Ulrich Meister will become CEO of private banking on Aug. 1, adding to his role as head of Switzerland. Current CEO Walter Berchtold will become chairman of private banking.
Credit Suisse is a target of a criminal investigation by the U.S. Department of Justice over former cross-border private- banking services to American customers, the company said earlier this month. Eight bankers, including Credit Suisse’s former head of North America offshore banking, were charged with conspiring to help American clients evade taxes through secret bank accounts. The bank said at the time that it’s cooperating with the U.S. authorities “subject to our Swiss legal obligations.”
The management change at the private bank isn’t related to the U.S. investigation, Dougan said.
“Obviously these are issues that we take very seriously,” he said. “We’re going to do everything we can to try to get to a resolution of these matters as quickly and as cleanly as possible.”
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