Credit Suisse wields axe after Sfr3 billion loss

Credit Suisse is planning to cut 5,300 jobs following a Sfr3 billion ($2.5 billion) net loss at the firm during October and November this year. Two-thirds are expected to be in investment banking - the primary source of the bank's losses.

According to a statement by Credit Suisse, the investment banking loss reflects "the impact of adverse market conditions and costs associated with risk reduction".

In response, chief executive Brady Dougan said he would speed up an overhaul of the investment bank. This will involve reducing complex credit and structured product origination, as well as exiting some proprietary and principal trading activities.

"The measures we announced will reposition the business in line with a fundamentally changed macroeconomic environment. They reflect, among other factors, the impact of weaker macroeconomic conditions, continued market volatility, increasingly conservative behaviour by all market participants and a lower appetite for leverage," Dougan remarked during an analyst call on December 4.

The expedited measures will also bring an additional cost of approximately Sfr900 million in the fourth quarter.

The 5,300 people set to lose their jobs represent 11% of Credit Suisse's total workforce, the bank said. It comes alongside a reduction of 1,400 in external contractors. Together with other cost-cutting measures, Credit Suisse believes the moves will save Sfr2 billion - representing 9% of the bank's annual cost base in the first three quarters.

Despite the loss in investment banking during October and November, the bank stressed it was "mostly profitable" as a group during November.

Dougan also emphasised risk-reducing measures the bank had already taken as part of its strategic overhaul. By the end of November, underlying one-day value at risk had been cut by 34% since the beginning of the quarter and by 60% for the year to date, according to the bank.

Risk-weighted assets had also dropped from $236 billion at the end of 2007 to $193 billion by the end of the third quarter. This decline will continue, the bank asserted, with risk-weighted assets reaching $170 billion by the end of 2008, and $135 billion by the end of 2009.

During the analyst call, Dougan claimed the size of Credit Suisse's gross prop trading book had already been reduced by 72% during the fourth quarter. Meanwhile, positions in financial institution and hybrid securities had decreased by 45%, while positions in convertibles had been slashed by 61%.

The announcement follows another Sfr3.2 billion pre-tax loss in investment banking during the third quarter, including writedowns of Sfr2.4 billion on leveraged finance and structured products. The poor result - partly due to losses on financial institution, hybrid and convertible securities - contributed to an overall net loss of Sfr1.3 billion for the group in the third quarter.

In light of the dismal results at Credit Suisse, both Dougan and Paul Calello, chief executive of the investment bank, have said they will forgo bonuses this year.

See also: Banks cut staff in Europe and US
Credit Suisse plunges into the red after investment banking losses