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Best Global bank: Credit Suisse |
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Also nominated: Barclays, HSBC and Santander |
There’s a widespread belief that Credit Suisse was the bank that reacted best to the financial crisis that began in the autumn of 2007. It’s broadly correct. Few, if any banks, were as aggressive in selling down positions in distressed assets and exiting business lines that now look like a relic of the past.
But Credit Suisse was simply accelerating a strategy that it had formulated even before the crisis hit. That strategy – of a client-focused, capital-intensive, low-risk model – is one that many other banks are now trying, at least in part, to emulate.
“Back then [in 2008, after the Lehman Brothers collapse] there was far from an industry-wide consensus that our strategy was right,” says Paul Calello, chairman of Credit Suisse’s investment bank. “But we were determined to persevere, getting rid of the more complex positions and reducing our risk.”
Doing so paid big dividends in 2009. Credit Suisse had reduced its dislocated asset balance from SFr99 billion ($91.4 billion) in the third quarter of 2007 to around SFr5 billion in Q1 2009. It had also reduced its investment banking risk-weighted assets from $212 billion to $153 billion over the same period.
These decisions, and a focus on client-based business in which margins had risen following the crisis, allowed Credit Suisse to produce industry-leading figures for 2009.
Full-year net income of SFr6.7 billion was impressive enough but it was the statistics underlying that performance that really stood out. Return on equity for the full year was 18% – second in class behind Goldman Sachs. But Credit Suisse produced that return on risk-weighted assets of just $215 billion. Goldman’s were twice as high at $432 billion. Credit Suisse also had a lot of capital to work – its tier 1 ratio, which stood at 16.4% at the end of Q1 2010, is the highest in its peer group. Contrast that performance with the bank that most consider to be the biggest winner since the financial crisis, JPMorgan Chase, which produced a ROE of just 6% for full-year 2009, with risk-weighted assets of $1,198 billion and tier 1 capital of 11.5%.
Credit Suisse continued its outstanding performance in the first quarter of 2010, with net income of SFr2.1 billion and a market-leading return on equity of 22%.
As well as its strong capital position, Credit Suisse has built out a strong funding position, terming out the maturity of its long-term debt from an average of 4.9 years in 2006 to 6.5 years today. Around 17% of balance sheet is funded in long-term debt, and more than 40% is match funded.
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“You need the right people and the right systems to control and incentivize this collaboration”
Brady Dougan, Credit Suisse |
The strength of Credit Suisse’s credit rating has been apparent throughout 2010, a period in which the bank has raised $12 billion in the public debt markets. This included six issues in May and June, two of the quietest months for FIG issuance on record.
“Given the uncertain macroeconomic environment across much of the developed world, we think it is only appropriate to continue to take a conservative stance,” says David Mathers, group CFO of Credit Suisse.
It’s not just the underlying strength of the group that impresses at Credit Suisse. The bank has also achieved some notable performances in its investment bank and private banking divisions.
In investment banking, Credit Suisse has moved into the top tier of global M&A houses this year. It continues to perform strongly in cash equities, in particular in the US.
But it’s in emerging markets that Credit Suisse really stands out, topping the league tables for M&A and ECM fees and focusing on business within and between emerging markets (see 2010 Awards for excellence: Best Emerging markets investment bank).
“With our capital-efficient model, we need to be smart in the way we serve clients,” says Eric Varvel, chief executive of Credit Suisse’s investment bank. “The inter-connectivity of our emerging markets platform plays a crucial role in achieving that.”
Through a difficult time for Swiss private banking, Credit Suisse’s wealth management business has coped well. The bank anticipated early the regulatory changes in private banking by building out onshore business. Its safe-haven position has also helped it attract net inflows throughout the market turmoil of the past two years.
Moreover, Credit Suisse is perhaps more successful than any other bank in creating revenue streams between its investment and private banks. It has created over SFr5 billion in what it terms ‘collaboration revenues’ in each of the past few years.
Brady Dougan, Credit Suisse’s chief executive, says: “We think we do a better job than anyone else on this. We’ve worked for a long time on linking up our businesses to make sure we can deliver all of the bank’s services to all of our clients. You need the right people and the right systems to control and incentivize this collaboration.”
2010 Awards for excellence Bank of the Year: Credit Suisse
Brady Dougan trumps the banking sector
