Previous week, Citigroup and J.P. Morgan reported above-average results in investment banking. Trading with different financial products and merger-and-acquisition advice turned out extremely prosperous. Morgan Stanley and Goldman Sachs are to follow suit this week and are also predicted to demonstrate top results.
Such a strong performance is a thorn in flesh for Credit Suisse top managers.
What about the timing?
A while ago, Tidjane Thiam, CEO of Credit Suisse, came to a decision to terminate bank’s investment banking business due to the risks and expenses proving themselves excessive in the past. Instead, the bank’s focus will be shifted to private banking. At this point, it seems that such resources reallocation might are a good decision.
In the second quarter, Credit Suisse encountered first signs of a turnaround, a development continuing in three months through September, not least in investment banking.
In the past months, market instability was significantly high, making trading particularly profitable for banks with the Credit Suisse being extremely prosperous in the mergers-and-acquisition business. With this background, Switzerland’s No. 2 might finally have turned the corner towards a financially safe future. Division rose to 4th place in global M&A table after advising on 3 big deals, FT reported. Analysis by the Financial Times found that special bonuses at the Swiss bank tripled last year — a rate of increase much faster than its peers.
Test regime for Credit Suisse
Analysts remain certain that investment banking is an unstable business. When the going is good, banks snatch large sums, when the going is bad, the banks need ceaseless financial resources to finance acquisitions. Income generated from private banking frequently had to make amends for sharp deficits at the investment banking division.
Situation now is quite the opposite. Private banking, which has recently been on the decline, will be backed up by investment banking. Because of the economic and political risks, affluent investors have kept their powder dry.
The third quarter will become a trial for the strategy of Credit Suisse. The bank will have to both indicate that Thiam’s decision to shift the focus to wealth management was a correct one and still reap the fruits of investment banking prosperous times.
In case of Credit Suissefailing to take advantage of its investment banking expertise, the response from analysts will probably come in the form of lowering of their share price targets.
Irony still suitable
After a little while, it will be interesting to see how the strategy in Asia has worked out, where Credit Suisse offers investment-banking and private-banking services as a package to most affluent customers.
It is possible that Thiam’s announcement and explanation of his strategy have helped Credit Suisse avoid the tumble. How ironic would be if the unit that was his target for cutting more than any other has helped him the most to ensure the stability for the Swiss banking giant.