Credit Suisse Group AG (CSGN) will stay “very active” in government bonds after shrinking some parts of its fixed-income business because its customers demand access to those markets, its head of European rates trading said.
The second-biggest Swiss bank is a market maker for sovereign debt in nine European nations, including Germany and the U.K., and has no plans to cut back in those markets, London-based Laurent Curtat said in a phone interview yesterday. Credit Suisse is creating a new division that combines rates, foreign-exchange and commodities operations and is cutting more than 100 fixed-income jobs to boost profitability.
“It’s absolutely clear we want to continue to be very active and growing in the sovereign, supranational and agency business,” Curtat said. “Sovereign bonds are one of our key products. For our clients, it is important that they have access to these markets, both in the primary and secondary sides. We see this as part of a holistic business strategy.”
Credit Suisse’s Chief Executive Officer Brady Dougan is scaling back debt trading and cutting costs companywide to boost its return on equity. Its investment bank’s pretax profit declined 53 percent in the third quarter from a year earlier to 229 million francs ($253 million) as revenue from fixed-income sales and trading slid 42 percent to 833 million francs. UBS AG (UBSN), Switzerland’s biggest bank, said yesterday it would merge its foreign-exchange and precious metals unit with rates and credit.
The bank will retain its primary-dealer business in Austria, Finland, France, Germany, Italy, Portugal, Spain, the Netherlands and the U.K., according to Curtat.
“We are a primary dealer in nine countries in Europe, and we are very comfortable with this and we are fully committed to these markets,” he said.
Primary dealers are firms obliged to bid at government-bond sales to ensure demand. They have to purchase a certain amount of the debt issued each year and take the risk they may be unable to sell the securities afterward.
In return, primary dealers benefit because, in most cases, investors buy the securities. Central banks and some pension funds will only do business with such financial institutions.
Primary dealers also manage so-called syndicated sales. Among others, Credit Suisse helped to manage a 15-year Spanish deal in July, Italian bonds due in May 2021 in October and an offering of U.K. gilts maturing in July 2068, also in October.
At the securities division, the bank will transfer 10 billion francs of risk-weighted assets including parts of the rates business into a non-strategic unit, which will wind them down over coming years.
The restructuring that Credit Suisse has undertaken is likely to give it an advantage over some of its competitors, according to Curtat.
“As far as economic resources are concerned, we have reduced risk-weighted assets more aggressively than many other banks and we are now fully compliant in terms of capital and liquidity rules,” said Curtat. “The Swiss regulator wanted the big Swiss banks to meet tougher capital, liquidity and leverage rules. A lot of other banks are only now trying to adapt to the new rules. This puts us in a strong competitive position.”
Credit Suisse says it has already met a core equity capital ratio requirement set out by the Swiss regulator, before a 2019 deadline. It reported a common equity ratio of 10.2 percent under Basel III rules. That was the sixth-highest ratio among 14 global investment banks, according to data compiled by Bloomberg Industries.
The remaining rates business will have a higher return on equity after the reorganization, according to Credit Suisse. In cash products, it will focus on high-volume electronic trading, while the derivatives business will be geared toward simplified products that would mostly be centrally cleared, the Zurich-based bank said last month.
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