REUTERS/Denis Balibouse
Chief Executive Tidjane Thiam of Swiss bank Credit Suisse
- The 2019 bonus pool for the European cash equities division at Credit Suisse will plunge by about 30%, an insider said.
- Pretty much every Managing Director in the cash equity division is likely to get "zeroed," or no bonus at all, said the source.
- MDs are bracing for a possible overhaul of the unit that includes a big "RIF," or reduction in force, later this year.
It's been a brutal 2019 for banks' equities units in Europe, and Credit Suisse is no exception.
An insider told Business Insider that the bonus pool for the European cash equities division at the bank will plunge by about 30%, and the bonus of pretty much every Managing Director in the cash equity division is likely to get "zeroed," or no bonus at all.
MDs at the bank are saying it's so bad in Europe, the insider said, they're bracing for a possible overhaul of the unit that includes a big "RIF," or reduction in force, later this year.
The insider said numbers could change once final decisions are made on February 11, two days before the Swiss bank reports fourth-quarter earnings.
A Credit Suisse spokeswoman declined to comment.
The Financial Times reported on Monday that the bonus pool for Credit Suisse's investment bank would be unchanged from last year. That's an overall figure. While many banks have seen bond trading units turn around big gains in revenues in the later half of last year, it's been a different story for cash equities in Europe.
The trading environment has been made more competitive with the arrival two years ago of Europe's MiFID II regulation. The law was meant to boost transparency by separating research and trading commissions, but experts have said that shrinking fund manager wallets and plunging execution costs have forced banks to shift resources to their top-performing divisions and mid-tier players are getting squeezed.
The biggest and most profitable banks are able to take the revenue hit, while smaller rivals have been cutting more roles or exiting the space altogether.
European banks have fared worse than big US powerhouses JPMorgan, Morgan Stanley, and Goldman Sachs against non-regulatory headwinds as well, including low to negative interest rates and plummeting volatility.
"Trading has become about doing humongous amounts of trades at a very tiny margin and being very effective in the way you process and manage the risk," JPMorgan's co-President Daniel Pinto told CNBC last month. "That's why, if you're big and you have scale, that model is perfectly profitable. If you're a middle-of-the-pack player, it's very difficult to exceed your cost of capital."
In October, Macquarie announced it planned to exit from cash equities in the US and Europe. Deutsche Bank in July axed its derivatives and equities trading arms as part of massive job cuts. Nomura scrapped most of its European cash equities in 2016.
Among cash equities units at investment banks, "revenues have declined sharply and headcount has not been cut (as much), so they're sitting on a very high cost base," Amrit Shahani, Coalition's research director, told Reuters in November. "And that's really led to the operating margin pressure."
The bank industry has been shrinking for years, but the decline in equities roles have outpaced those in other units as of the first half of last year, according to industry consultancy firm Coalition.
See the Coalition chart below:
Coalition
If you have more information about what's going on inside Credit Suisse, contact Trista Kelley at tkelley@businessinsider.com. DMs are open on Twitter @trista_kelley for Signal.