The Swiss lender considers itself one of the top ten investment banks, which is of no use to it. A study by JP Morgan offers indications of what new president Antonio Horta-Osorio might do.

President of Credit Suisse Antonio Horta Osorio ruffled the feathers of its investment bankers in London this week when he said the wealth management business “with its ancillary services” was excellent.

Rather than a blunder, it could have been a calculated statement.

“Drag” on Credit Suisse

A JP Morgan study titled “The Future of Investment Banking” indicates that Credit Suisse’s most pressing problem is investment banking, which today is more than a supplement to wealth management.

Analysts say in the study that they believe investment banking is “a drag” for Credit Suisse because it is still too heavily biased towards trading credit and interest rate instruments.

Bottom of the heap

The investment bank’s credit activity is the most heavily leveraged of all the investment banks studied in the report. Besides Credit Suisse, these are Goldman Sachs and Morgan Stanley, Barclays, Deutsche Bank, BNP Paribas, Société Générale and UBS. Trading in credit products was a source of uncertainty, especially when markets were volatile, analysts said.

The study ends with a ranking of these eight investment banks in which Credit Suisse comes last.

Basel IV, RWA

In its first quarter results, Credit Suisse said its investment bank has significantly increased its risk-weighted activities, resulting in increased capital and reserve requirements. JP Morgan analysts show that under the new Basel IV capital requirements, Credit Suisse’s RWAs would increase by 26%, more than any other investment bank.

This would reduce the return on capital, which was not exactly stellar at 7.9% anyway. This meant that Horta-Osorio would have to start with the investment bank’s fixed income department which is dominated by credit trading, according to the study.
Potential Credit Suisse does not have

JP Morgan’s study is a reality check for Credit Suisse where trading is in its DNA. Neither it nor UBS still count as top investment banks. One of the reasons is the large gaps in banking transactions, large cash and liquidity, as well as custody and enforcement services.

Many analysts, not just those at JP Morgan, say that much of the future potential of the global investment bank lies in this area, as it involves long-term relationships with clients who might adopt other services. in the field of corporate finance.

Lowest IT budget

Transactional banking is a highly technological activity. Analysts said Credit Suisse simply couldn’t keep up with a budget of around $ 3 billion. They said the same of UBS with its $ 3.5 billion budget.

Goldman Sachs has pumped huge sums into building a transactional banking platform for which it is winning high praise from analysts. Indeed, according to them, transactional services will be at the heart of the future ecosystem of investment banking because they offer many cross-selling opportunities.

Global Business Solutions

However, analysts did not find any fault with the Credit Suisse investment bank. They appreciated the Global Trading Solutions unit which worked well as an interface between investment banking and global wealth management. Its turnover also increased sharply due to improved cooperation within individual divisions, according to the study, food for thought for Horta-Osorio.