Credit Suisse quits Taiwan

Credit Suisse exits Taiwan fixed income

The Swiss bank is closing its Taiwan bank branch as it restructures the fixed income business worldwide.

Credit Suisse is closing its Taipei bank branch as part of a plan to shore up its fixed income business worldwide. It informed the Taiwan Banking Bureau of its intentions on Tuesday, according to a statement it released last night.

“Credit Suisse is working with the local regulators to ensure minimal disruption to its business activities in the Taipei Bank Branch and to its clients, as well as making appropriate arrangements for impacted staff,” said the statement.

The third quarter was a rough one for fixed income bankers, with revenues at the 10 biggest investment banks falling by a third from the second quarter, according to Coalition, an analytics firm. The prospect of persistent low interest rates and stricter capital treatment under Basel III poses a further challenge for fixed income businesses.

In response, Credit Suisse is realigning its investment banking business to focus on the areas where it thinks it can make money ­— and cutting back in certain fixed income businesses where it has struggled to improve revenues despite hiring aggressively last year.

The closure of the Taipei branch, which houses the fixed income business, is clearly in line with this effort. The office employs around 20 people.

However, Credit Suisse has made a commitment to developing the rest of its franchise in Taiwan, which comprises brokerage, research and investment banking businesses, while conceding the difficulties that lie ahead.

“Global banks experienced a challenging environment in 2011,” it said. “The current subdued economic growth and the low interest rate environment globally is expected to persist for an extended period. This environment, coupled with greater capital requirements for all banks, has led Credit Suisse to realign resources and evolve its strategy globally to focus on scalable platforms.”

The bank told shareholders in its third-quarter results announcement that it would halve its risk-weighted assets in fixed income by 2014, accelerating its previous plans on the back of a Sfr190 million loss in investment banking. In particular, it aims to sell down its exposure to long-dated unsecured rates trades, which is one of the businesses that will be hardest hit by Basel III requirements, as well as scaling back in securitised products and securitised mortgage origination.

That looks like a sensible decision, but markets remain sceptical about Credit Suisse’s outlook. Its stock has traded down 28% since its recent high on October 27, just a few days before the announcement of its third-quarter results, prompting some analysts to propose more radical action.

“We remain unconvinced that [Credit Suisse] will ever be able to make adequate returns in [fixed income] on a standalone basis, even with its new strategy,” wrote Kian Abouhossein, a European banks strategist at J.P. Morgan Cazenove, in a provocative report that argues the case for a merger between Credit Suisse and UBS. “Should both [investment banks] fail to show adequate progress to acceptable returns and ongoing cost management ability in the IB, we believe this scenario analysis as a possible next step in restructuring could gain momentum.”

Fixed income is one of the businesses that would gain most from such a tie-up, according to Abouhossein. UBS is strong in credit trading and foreign exchange, while Credit Suisse is a powerhouse in structured credit trading. Together, their fixed income revenues would compete with the worldwide market leaders: Citi, Goldman Sachs, Bank of America Merrill Lynch and Deutsche Bank, which J.P. Morgan Cazenove estimates had average revenues of about $14 billion.

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