As Credit Suisse struggles to recover from its $5.5bn loss relating to Archegos Capital, it's the Swiss bank's equities sales and trading business that has most to lose. After all, while U.S. banks pour money into technology underpinning their prime broking businesses in a battle for equities share from quant hedge funds that generate the biggest revenues, it's in prime broking in particular that Credit Suisse is now cutting back.
After years of investment into the equities business and the gradual erosion of a once market leading electronic trading franchise, the turnaround leaves Credit Suisse's equities salespeople and traders looking exposed.
Insiders at the bank say Credit Suisse was ahead of the curve in the early days of electronic and algorithmic trading. Its system - Advanced Execution Services - was developed by Daniel Mathieson, a New York proprietary trader, in the 2000s and was initially state of the art. But, Mathieson left Credit Suisse in 2016 and AES fell behind. In 2018 the bank announced a shakeup of AES business under Anthony Abernante, the then head of global equities execution services, and Julian Corner, a Credit Suisse veteran. This was completed in 2019, and AES has subsequently expanded into new products in fixed income.
However, there's little sign that the revamp of AES has helped lift Credit Suisse's equities sales and trading market share. In 2015, revenues in Credit Suisse's equities sales and trading business were CHF2.3bn; last year they were only marginally higher at CHF2.4bn, and in the first six months of 2021 they were just CHF874m, following Archegos and what the bank described as a subsequent "significant" drop in prime services revenues combined with lower revenues in both equity derivatives and cash equities.
The new lows following a period of heavy investment in the equities business by former Credit Suisse CEO, Tidjane Thiam. In late 2016, Thiam hired Mike Stewart, an ex-head of equities trading at UBS. Stewart spent the next few years hiring-in various former colleagues who'd worked with him at both UBS and Merrill Lynch, before leaving again for reasons that were unclear in August 2019.
Stewart is now a board member at wealth management firm Robertson Stephens. Abernante, who was one of his hires, is now running the whole equities division. Other Stewart recruits were less of a success. - In 2018 Stewart also hired Ryan Nelson, as global head of prime financing after cutting many of Credit Suisse's existing prime broking veterans. Nelson was let go after Archegos.
As the Swiss bank struggles to regain momentum after Archegos, some at the bank caution against another bout of recruiting senior people from outside on inflated packages. "We hired all these guys who were on their last jobs before retirement," says one insider. "They were all from the 2010s and clearly weren't going to reignite the business. They were collecting millions but were clearly out of touch." Following the influx, many of Credit Suisse's established electronic equities traders left for Barclays.
As Credit Suisse licks its wounds and chairman António Horta-Osório completes his strategic plan, due to be unveiled at the end of this year, the big question is what happens with the equities business next. Credit Suisse's sweet spot has long been flow derivatives trading, but the bank also lost its top derivatives trader - Ross Mtangi - who died tragically earlier year. Abernante might want to think carefully before hiring an old colleague from another firm to replace him.
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