In late 2017, the giant Zurich-based financial services group Credit Suisse published its new Investor Day presentations – its detailed look at how the bank planned to evolve through 2018.

For Credit Suisse, 2018 is supposed to be the final year of a three-year campaign to get itself back in shape. The field-marshal of that campaign is Tidjane Thiam, a former McKinsey consultant who joined the bank in 2015 from insurer Prudential.

The presentations set out Thiam’s response to the changing shape of financial services since the global financial crisis (GFC) – to the worldwide pressures on the once-mighty investment banking industry, to the rise of Asian wealth, and to the eternal investor pressure for better returns. And they contain lessons not just for investors in huge Swiss banks, but for any business and any business adviser trying to survive in the post-GFC world.

Investment banking’s fall

Credit Suisse was among the banks least affected by the GFC that hit in earnest in September 2008. Nevertheless, Credit Suisse’s shares peaked in May 2007 and have fallen by more than three-quarters since then.

The bank simply could not escape the long post-GFC decline in investor sentiment about investment banking giants. Reports from Boston Consulting Group (BCG) show that world investment banking revenue has fallen from 2010’s US$271 billion to just US$226 billion in 2016, sucking out some of the industry’s profits. Formerly lucrative fields such as trading – in fixed income instruments, currencies and commodities – now generate far less revenue.

 

The strategy is right and management is executing.

 

BCG says Credit Suisse and its rivals have been following a supermarket model of banking. New players, new technologies and new regulatory patterns are all putting pressure on that model, it suggests.

Pinching pennies

Credit Suisse’s presentations show that like other investment banks, it has responded to the sector’s problems by cutting back on trading and other traditional investment bank activities. It has concentrated its growth efforts on wealth management, worldwide but particularly in the Asia-Pacific region.

And almost everywhere it has been cutting costs, aiming at “embedding sustainable cost discipline” right throughout the business – through outsourcing, making greater use of cloud-based information technology systems, automating processes, jettisoning unprofitable clients – and much more.

Credit Suisse was once a major global player in activities such as fixed-income and foreign exchange trading, a collection of activities that it calls “global markets”. But it has been shrinking that business, stripping out CHF1 billion (US$1.07 billion) in yearly operating costs since 2017.

Some of the biggest expenses have come from Credit Suisse’s ‘Strategic Resolution Unit’ (SRU), the division charged with winding down businesses that it’s getting out of and selling assets. Back in 2015, this pile of unwanted assets included derivatives with a ‘leverage exposure’ of US$133 billion; the company has cut that to US$46 billion. And in the years since Thiam’s arrival, the shedding of unwanted businesses has removed CHF1.7 billion of yearly expenses.

It has also chopped a substantial CHF300 million out of its annual corporate centre costs. The result: Credit Suisse’s annual operating expenses are now CHF4.0 billion lower than they were in 2015, the bank says.

The human costs

Among Credit Suisse’s biggest costs is its people. The bank is known to have slashed thousands of jobs; the presentation shows that 7400 of these staff were ‘contingent workers’ – that is, people on contracts rather than actually employed. The count of permanent employees dropped by a smaller 1300.

The company worked to cut 2800 people, particularly back-office staff, out of ‘high-cost locations’ such as London and Zurich. Those locations were a Thiam target from the very start of his time at the bank. Also cut was 14% of the company’s office space.

It’s also identifying people it can cut from the ranks of its programmers. Today computer code is a huge part of investment banks’ work. In 2015, for instance, it was claimed that 9000 of Goldman Sachs’ 33,000 employees were programmers and engineers. In its presentations, Credit Suisse claims it can use data analysis to spot low-performing programmers.

But the company is shedding not just workers but customers. It says that to make itself more efficient and cut “client maintenance costs”, it plans to “off-board more than 70,000 low-return client accounts in 2018”.

The costs of (non-)compliance

It’s no surprise that Credit Suisse has been trying to reduce the cost of complying with regulations. When a government investigation led it to plead guilty to a charge of conspiring to help US investors evade paying taxes, it paid a huge US$2.6 billion fine. In November 2017, the New York state financial regulator fined the bank US$135 million for foreign exchange trading breaches where its traders shared information with other traders to make money at customers’ expense.

In its presentation, Credit Suisse also highlights what it sees as the soaring volume of financial services regulation. The bank highlights BCG’s estimate that between the GFC and early 2017, banks incurred US$321 billion of regulatory fines globally. That seems intended as a rebuke to critics of the finance industry who claim it has gotten off lightly from the GFC.

De-risking the business

Credit Suisse no longer wants to be such a daring financial engineer; it has been ‘de-risking’ itself since the early 2010s. In the company’s global markets business, for instance, risk as measured by the ‘value at risk’ metric has fallen by more than half between the first nine months of 2015 and the same period in 2017. One way to de-risk, the presentations make clear, is to do less trading – and, as noted, Credit Suisse has been stripping expenses and activity from its trading in items such as fixed-income instruments and foreign exchange. In its global markets operations, it has replaced that trading with activities such as leveraged finance, where it provides advice and loans for debt-heavy activities such as heavily debt-driven corporate buyouts.

Revenue from Credit Suisse’s Asia-Pacific (APAC) markets activities – mostly equities and fixed-income trading – have been falling over the past few years, and Credit Suisse says it is “optimising” them. The same thing is happening in asset management, where the business is moving away from capital-hungry investments towards fee-based business. ‘Investment banks’ are less and less interested in investment.

Where it’s growing

Credit Suisse’s wealth management businesses are its consistent growth winners, just as Thiam intended back in 2015. Like many other banks, Credit Suisse is opening new wealth management units in cities such as Bangkok and Manila, keen to manage some of the region’s swelling private fortunes. And like many other firms, it’s struggling to hire and retain people.

Bloomberg reported in March that the bank’s main wealth management business, led by Iqbal Khan, will have a 7% larger bonus pool this year, much more than the rest of the bank.

Less is more

Observers seem to think the plan set out by Credit Suisse is working. David Herro, whose Harris Associates holds 9% of the bank’s shares, was quoted in The Financial Times in October 2017 saying that despite a few bumps, “the strategy is right and management is executing”. In November, Bloomberg news service described Thiam as “no longer a man under siege” and reported that “the strategy to focus on wealth management is paying off”.

In February, the company announced a CHF948 million loss. But that red ink came from a CHF2.3 billion writedown that was triggered by US tax changes. Before tax, the company was in the black for the first time since Thiam’s arrival. And its assets under management, now a record CHF772 billion, are growing faster than those of Swiss rival UBS.

By chopping away at less productive businesses and investing in more promising ones, this financial giant may just have set itself up for a new stretch of success.

Photograph: Michael Buholzer / Getty Images.