Trading units of Swiss banks move in opposite directions

Over three years, Credit Suisse has cut RWAs allocated to trading 17%; UBS has increased them 46%

The risk-based capital costs of Credit Suisse’s trading business have fallen in the last three years, while over the same period, UBS’s capital charges have ballooned. 

Since Q1 2016, Credit Suisse’s Global Markets division has cut its risk-weighted assets by 17% to Sfr58 billion ($58 billion), while group-wide RWAs fell 3%. At UBS, the investment bank’s RWAs are up 46% to Sfr93 billion over the same period, compared with an overall RWA uplift of 25%. 

Despite the cut in RWAs, net revenues attributable to Credit Suisse’s Global Markets arm at end-March 2019 were 27% of its total, on a par with the results three years prior. At UBS, net revenues for the investment bank were 25%, down from 28% in Q1 2016.

Credit Suisse’s trading unit now accounts for 20% of the bank’s total RWAs, down from 25% three years earlier. In contrast, the share of RWAs assigned to the investment bank at UBS has increased to 35% from 30% over the same period.

Who said what

“... We said we need to increase profits in global markets. We have created a new platform, and now once you have a platform, your trend is to grow revenue. And we were absolutely convinced that was the right way to go” – Tidjane Thiam, chief executive officer at Credit Suisse.

“We’ll continue to be aligned with making sure that the investment bank, over the cycle, delivers its cost of capital and, in good moments and in good cycles, can over-deliver on that target”– Sergio Ermotti, chief executive officer at UBS.

What is it?

Credit Suisse’s global markets division incorporates securities sales, trading and execution, prime brokerage and investment research. UBS’s investment banking arm encompasses corporate client solutions, which covers financing and underwriting, investor client services, which covers trading, and investment research.

Why it matters

Tidjane Thiam assumed the helm at Credit Suisse in March 2015 and initiated a far-reaching restructuring plan that involved reining in the bank’s trading unit, where earnings have been volatile in recent years. This involved hiving off or winding down unprofitable businesses and getting a tighter grip on risk. 

While risk-weighted assets, a proxy for both the size and risk of the division, have declined dramatically over time, this does not appear to have come at the cost of reduced revenues, although these continue to jump around quarter-to-quarter. This suggests that the trading arm has boosted earnings for each dollar of regulatory capital it consumes on three years prior, showing that the turnaround plan is bearing fruit. 

It’s a different story at UBS, which has seen investment bank RWAs bloat, but not seen a commensurate rise in net revenues. 

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