Two banks have reported this morning: Nomura and Credit Suisse. There is one word for both: redundancies.
The redundancies at Nomura - more than just a quick cost cutting exercise
It turns out the Wall Street Journal was right when it said a few weeks ago that Nomura was rethinking its investment banking operations.
After reporting a third quarter loss of 41bn Yen in its wholesale business, Nomura announced today that it will be cutting out $1.2bn of costs, including the $400bn it announced earlier in the year. This isn't quite as bad as the WSJ had indicated (it suggested the total might be $1.4bn). But it's still bad.
The cuts at Nomura are likely to fall disproportionately in Europe.
In an accompanying strategy statement, Nomura says it plans to "rebalance" its resources "across regions." In America, it says it will: "continue to pursue organic growth." In Asia (a "strategically important region for the firm), it will: "strengthen its integrated management." But in EMEA, Nomura says its focus will be: "to lay a foundation for future growth under a new cost structure." This sounds a lot like a euphemism for cutting the European business back and trying to work out where to go from there.
As we noted previously, Nomura employs 4,436 people in Europe. Assuming compensation of around US$350k per head - which would put Nomura's pay on a par with rival investment banks - this implies it may need to get rid of 3,400 people in order to achieve the $1.2bn in savings.
Nomura's retrenchment is about more than just cost cutting, however. The bank's wholesale business was (just) profitable for the first half of the year. To achieve profitability in the third quarter it would need to have cut $526m from costs, not $1.2bn. By going for far higher cost reductions than are necessary, it looks like Nomura is using this as an opportunity to pull back from international investment banking - in Europe at least.
Credit Suisse is now removing 16% of its investment bankers
Credit Suisse is also in urgent need of cost savings. Like Nomura's wholesale business, Credit Suisse's investment bank made a loss in the third quarter, with a cost income ratio of 105.3%. To return to a normalized cost income ratio of - say, 75% - CS would have needed to eliminate CHF624m of costs in Q3. At the current rate of annualized pay per head in the investment bank (CHF341k) that implies 1,800 job cuts.
Like Nomura, Credit Suisse seems to be cutting more than is necessary. The bank announced another 1,500 investment banking job cuts today - in addition to the 2,000 announced in July. Credit Suisse doesn't appear to have done much cutting so far: headcount in the investment bank was actually up 200 in Q3 vs. Q2.
Like Nomura, Credit Suisse gives an indication of where it plans to cut people and where it plans to hire people. "Growth and emerging markets" like as Russia are popular. EMEA coverage banks are not. We've reproduced the list in full below.
Where Credit Suisse plans to, 'Invest/Grow'
- Foreign exchange
- Global rates (including electronic trading)
- Fixed income businesses in fast growing and emerging
markets (including Brazil, Southeast Asia, Greater China,
- Prime services
- Derivatives (including flow and corporate)
- Equity underwriting (target top three globally)
Where Credit Suisse plans to, 'Evolve'
- Credit products
- Securitized products (including non-agency and agency residential mortgage-backed securities (RMBS) trading and commercial mortgage-backed securities (CMBS) trading)
- Structured financing business in emerging markets
- Cash equities
- Continued alignment of corporate lending with key clients
- Reallocate investment banking resources to growth markets, particularly Asia
Where Credit Suisse plans to, 'Downscale/Exit'
- Structured long-dated unsecured trades, including in rates, emerging markets and commodities
- Exit CMBS origination
- Downscale less capital efficient securitized products
- Improve investment banking client coverage efficiency and profitability in Europe, Middle East and Africa (EMEA)