Credit Suisse plans to axe one third of senior employees in its European investment banking department in a bid to shore up its capital base amidst a weaker economy and regulatory requirements that are eroding its capital raising and advisory activities, the IBTimes UK reports.
According to a set of unnamed sources first cited by Reuters, the Swiss bank is planning to cut 60 directors and managing directors' positions in the investment banking department (IBD) as part of its previous announced strategy to sever thousands of jobs as the Eurozone crisis and onerous capital requirement legalities chips away at the bank's balance sheet.
Credit Suisse is expected to announce the first set job cuts in July this year and will continue to layoff other staff until the end of 2012 and the bankers effected will be mainly those who advise on mergers and acquisitions, stock market listings, financing and debt issues.
The IBD is a smaller department within the investment banking group and is separate to fixed income.
One of the sources said that the job cuts could affect 20-30 percent of senior investment banking staff in Europe.
Credit Suisse declined to comment when contacted by the IBTimes UK.
Credit Suisse's Ongoing Jobs Cull
From 2008 to 2009, the global securities industry experienced a bloodbath of job losses.
Some 28,100 jobs were lost throughout the one year period as the credit crisis and the subsequent fallout meant jobs were immediately culled as financial firms and banks looked to downsize operations and costs.
In 2011, Credit Suisse announced it would slash 3,500 jobs throughout its global operations as part of a global efficiency programme that looks to cull 7 percent of staff in total in a bid to reduce costs.
By the end of the first quarter this year, Credit Suisse said it had cut 2000 jobs, which means there are 1500 positions still set to be axed. However the Swiss bank has not officially set a target as to when these will take place.
However, Credit Suisse said that earlier this year it planned to cull 126 employees in the New York area by August 6, which already follows 109 people losing their jobs there.
Credit Suisse's Quest for Capital
Credit Suisse, like all investment banks, is in a frenzy to shore up capital in order to legally comply with regulators over capital requirement levels.
In tandem, a weak Eurozone environment and weakening economies in the face of the ongoing sovereign debt crisis has haemorrhaged cash.
Credit Suisse said it hopes to eliminate $2.1bn in annual costs by the end of 2013. Moreover, as well as job cuts, the bank's CEO Brady Dougan said in a newspaper that he was not planning to issue new shares after the Swiss central bank called on the bank to improve its capital base.
As far back as the fourth quarter of last year, Credit Suisse's results shows that it swung to loss after adhering to regulatory capital requirements and paring down risk weighted assets, as part of Basel III rules.
Dougan said that "our performance for the fourth quarter 2011 was disappointing. It reflects both adverse market conditions during the period and the impact of the measures we have taken to swiftly adapt our business to the evolving market and regulatory requirements. In mid-2011, we decided to aggressively reduce risks and costs. This decision was rooted in our belief that the market and regulatory environment is undergoing a fundamental change."
Basel III rules that the minimum requirement for banks' tier-one capital ratio (ratio of equity capital to risk-weighted assets [RWA]) has been raised from 2 percent to 4.5 percent.
Effective as of 2019, lenders will also need to add a "conservation buffer" of 2.5 percent, meaning banks must hold a total core capital equal to 7 percent of their RWA.
This month, Moody's axed the credit ratings for 15 banks worldwide. The credit rating at Credit Suisse was slashed by three notches to A2 while UBS, which Moody's had singled out for a potential three- level cut, was actually lowered by two instead to the same level of CS.
"The biggest surprise is the three-notch downgrade of Credit Suisse, which no one was looking for," said Mark Grant, managing director of Southwest Securities.
In a move that surprised the wider market and investors and some say the bank, the Swiss National Bank (SNB) put pressure on Credit Suisse to bolster its capital base by halting dividends and issuing shares in order to safeguard against the risk of an escalation of the Eurozone banking crisis.
In the central bank's annual financial stability report, SNB warned that "for Credit Suisse, given the low starting point and the risks in the environment, it is essential that it already substantially expand its loss-absorbing capital base during the current year."
The group added that "apart from the planned reduction of risk, these improvements can also be achieved in other ways, such as by suspending dividend payments, or even by raising capital on the market through share issuance."
The SNB added that despite Credit Suisse, as well as UBS, both holding more capital than its European counterparts, the banks still fall behind in capital requirements under international Basel III rules, which are coming into force in 2019.
The central bank warned that leverage at UBS and Credit Suisse remains "very high", despite cutbacks on risky assets at both banks and that both Swiss rivals should trim their balance sheets, and not merely slash risk-weighted assets.