New Credit Suisse CEO effects on equity research? (and IB as a whole)

ThatOtherGuy's picture
Rank: King Kong | 1,420

Hi guys,

As many of you may know, Credit Suisse's CEO Brady Dougan is being replaced by Tidjane Thiam in June, and many analysts are speculating that Thiam will downsize the securities and investment banking arms by as much as 3,000 positions in 2015.

Do you guys think CS will go the same way as UBS at this point? Personally, I have an interest in equity research and actually find the day-to-day of a sell-side analyst quite interesting. CS supposedly has a strong reputation in ER, but will the change in management direction affect this franchise? Thanks.

Comments (31)

Mar 11, 2015

A good research platform is important to wealth management. So, even if CS IBD gets some axing ER should be fine.

Mar 11, 2015

S&T gets axing, not IBD. The PB has its own research team

Mar 11, 2015

Not true. IBD may get axed in an effort to derisk CS' business. Stricter lending requirements = higher capital requirements = less debt deals done = less need for investment bankers.

    • 1
Mar 11, 2015
packmate:

Not true. IBD may get axed in an effort to derisk CS' business. Stricter lending requirements = higher capital requirements = less debt deals done = less need for investment bankers.

... a much smaller portion of debt advisory is affected than trading even if they're completely reliant on financing to close deals (which they're not)

Mar 11, 2015

PBs would still utilize the research of their (likely superior) actual securities research arm.

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Mar 11, 2015

PB would use PB research, not equity or debt research. Due to regulations those teams are strictly separate, and it's illegal to show ER to PB clients or vice versa.

Seeing as research is not an actual revenue generating position, it's not exactly the safest place to be.

Mar 11, 2015

How much will this affect SA conversion rate at CS this year?

Mar 11, 2015

I don't think it is true that is illegal to show your franchise's equity research to your private banking clients...I am almost 100% certain that it is not the case, in fact.

Mar 11, 2015

I side with xq on this, equity research is public published research. We just aren't allowed to talk to PB without having legal listen in because they're afraid we may say something that isn't public but market moving yet. Actual published research is not private information

Mar 11, 2015
PIKBIM:

I side with xq on this, equity research is public published research. We just aren't allowed to talk to PB without having legal listen in because they're afraid we may say something that isn't public but market moving yet. Actual published research is not private information

Agree

Mar 12, 2015
xqtrack:

I don't think it is true that is illegal to show your franchise's equity research to your private banking clients...I am almost 100% certain that it is not the case, in fact.

I am 100% certain it is. My team almost got intro trouble with compliance for that. We can't show PB research to institutional investors, and the PB guys cannot sign up clients for our fixed income/equity research.

Anyways, it doesn't really matter, because private banking has their own research teams, and their research is often different from IBD research. So, IBD research is most certainly not safe from cuts.

    • 1
Mar 12, 2015

PB has their own research but still uses ER and FIR all the time when talking to clients. With the new CEO, with more of a wealth management background, who knows if CS will take UBS's approach to 'doubling-down' on PB and making the IB run even more leanly.

Mar 12, 2015

PB has their own research but still uses ER and FIR all the time when talking to clients. With the new CEO, with more of a wealth management background, who knows if CS will take UBS's approach to 'doubling-down' on PB and making the IB run even more leanly.

Mar 13, 2015
Monkeyfaces:
xqtrack:

I don't think it is true that is illegal to show your franchise's equity research to your private banking clients...I am almost 100% certain that it is not the case, in fact.

I am 100% certain it is. My team almost got intro trouble with compliance for that. We can't show PB research to institutional investors, and the PB guys cannot sign up clients for our fixed income/equity research.

Anyways, it doesn't really matter, because private banking has their own research teams, and their research is often different from IBD research. So, IBD research is most certainly not safe from cuts.

When I was a wealth management client at my old firm (we had to use their platform) -- I had access to their standard equity research through the global portal.

Mar 11, 2015

God I hope not. But it makes sense some hamfisted new CEO thinks he can chop up the business and call it an improvement regardless of what happens.

Mar 13, 2015

In general, CS ER runs pretty lean compared to S&T groups they support so there won't be many cuts.

Mar 13, 2015

In general, CS ER runs pretty lean compared to S&T groups they support so there won't be many cuts.

Mar 15, 2015

Bump on effect on SA conversion rate?

Mar 17, 2015

bump

Best Response
Mar 21, 2015

There are some interesting and inaccurate posts on this thread that relate to CS, so I would like to clarify most of them with this post. Hopefully people reading will find it useful.

1) CS ER, IBD, S&T, FIR... who will get axed?
Firstly, I believe that all departments in IB will get hit (in general) and believe it or not there is "headcount reduction" targets every year... but this can be interpreted in different ways. A type of headcount reduction strategy is if a VP leaves your team, hire an associate to replace them.. which will cost about 40% less to the ER department. Second, I believe S&T and most debt underwriting teams may get axed at CS with the new move. There is a simple thing people should understand about Equities vs. Fixed Income, Currencies, and Commodities (FICC), and that is Fixed Income is a Balance Sheet intensive business.. meaning, to extend a debt facility, underwrite a leveraged loan, hold inventories of commodities or currencies, you need capital... given the tightening of balance sheets with Basel 3 (and the next iteration from Swiss Regs) banks are trying to cut the exposure levels of their FICC businesses and focus on more profitable and less balance sheet intensive businesses (like IBD and Equities). The entire Equities division is not as balance sheet intensive as FICC (note Equities make up about 35% to 40% of securities revenue and use less balance sheet to generate that level), that is a fact, because we make money off of S&T businesses which are driven by commissions (ER broker votes boost the commission rates via something called BCE add-ons). Effectively, the more ER broker votes you get, the more money you will make from a client because the client will pay the bank for the trading costs and ER costs as a bundle charge... This basically means that your ER platform has to be solid to make sure your clients will use your S&T operation to transact or they could transact at JPM, GS, other firms with stronger access to ideas and information (which the ER department should always have).

2) Can PB use ER?
HECK YES. In fact, every ER franchise has their own global portal and PB teams are expected to use the IB-ER teams for in depth research (it is the first place they look before doing things on their own). PB at CS does not have an ER arm... they use to, but they cut them out when they realized it was a duplication of effort. The only PB/AM bank I know that has a research team embedded in their operation is JPM... most other banks do not have this setup. The ER department is generally considered an Investment Banking franchise.. not a PB/AM franchise. Most of the top ER departments are Investment Banking franchises, there should be no surprise there. Also, it is IN NO WAY illegal for PB to use IB-ER research.. in fact, the bank DOES WANT the PBers to use the ER department to service their global wealthy clients.... The teams assembled in CS ER are golden standard teams with a very aggressive focus on client service for mainly HFs and large cap asset managers, so there is a natural conviction to deliver a world class product to clients and PB clients (note, the CS PB is a CS IB client.. there are ratings/commissions and everything).

3) I could see S&T, FICC, and ER to get some axing.
Embedded in the front office, like in S&T and FICC, there is a lot of fat to cut. For example, there are trading desk COOs, there are "securities management" personnel, there are support teams that manage day to day roles that do not involve the markets or interactions with clients, but somehow these roles are attached to the front office, driving up headcount and carry the investment banking title under the umbrella... there is a good chance that people with these types of roles that do not manage relationships or generate revenue to get axed. In addition to these types of roles, people not carrying their weight (sales, trading, etc) may definitely get axed. The one business I know that is crushing it in CS Equities is the prime services business which is in the Equities franchise and services both equities and fixed income clients... not many people know what prime services does, but CS's prime services team will most likely see no axing since it is growing.

4) FICC may definitely get axed.
From a revenue perspective, FICC businesses have suffered significantly in the last 10 years due to decreased levels of activity across the board. Here is some perspective... the Interest Rates/Commodities/FX businesses all use to generate 2x to 10x the revenue 10 years ago compared to how much they are generating today (this applies to UBS, CS, DB, all other banks that do not have giant retail banking operations in the United States). So today, since most macro HFs and other buy-siders have found to play international global trades via equity markets (via the equity exchanges at the target markets) there is less of a need to put on macro bets using macro products (like interest rates, FX hedges/options, etc.). This drives down the activity in FICC investment banking operations. Clients can access foreign equity markets and play a bet more efficiently this way with slightly less exposure and potentially more/less risk depending on the stability of that target market... so the use for FICC has been driven down significantly.

5) FICC Research
This department/team has gotten axed big time in the last 2 years.. there is a huge round of layoffs last year, where a big number of FICC Research members were let go due to the revenue impacts to the bank in the FICC division. They are already running low on headcount, I don't see them getting hit as hard again since there are just not that many more heads to cut.

6) SAs will not get affected.
In general, the bank actually wants to hire younger more higher caliber people than not hire them... simple reason: there are very senior and expensive people in the bank now, why not bring in a younger guy, train them, and cut the older more dated analysts out.... it makes a lot of sense. Let me also note that there aren't even THAT many SAs coming into securities anymore... all banks have scaled back for front office roles.

7) The new CEO may axe PB/AM
People think that the PB/AM divisions are going to coast through this... this is a misconception.. the PB/AM teams are probably 2x more lacking from a caliber perspective compared to the IB... I've interacted with multiple PB/AM teams at multiple banks and I can tell you that those guys are not exactly going to be dancing around with this new CEO comes on board. The new CEO is a no bs kind of guy, meaning he will probably hit IB, downsize PB, and execute his new agenda.

8) What people think of the new CEO at CS.
Let me be clear, I like Brady and so do a lot of people... but the bank really does need a change. Asking some of my buddies and clients about the new CEO, most people and myself agree that this new CEO is going to crush this gig... a lot of people internally are excited! I could see that he is probably not going to be liked at CS in the beginning given the strong S&T culture, but the industry themes (headcount reductions and focuses on wealth management) are going to be a priority. Personally, I'm excited to see what is going to happen to CS... Retaining the top rep they currently have now and seeing the rep potentially rise will only mean one thing: CS will climb back to being the the beast of a bank the people see it to be.

Hope this helps.

.

    • 4
Mar 31, 2016
Comment
Mar 30, 2015
Comment
    • 1