Credit Suisse looks to shrink credit trading by 25%

4 min read
Christopher Whittall, Eleanor Duncan

Credit Suisse is on track to reduce its headcount in global credit trading by about 25% this year, according to sources familiar with the matter, as the embattled Swiss lender continues to shrink its investment bank following a series of recent missteps.

Credit trading co-head Jonathan Moore's decision to leave the bank in May was partly motivated by the scale of the planned cuts, sources said, which have already seen a staff reduction of over 15% this year in that business. Many of the departures are in Europe, which is smaller and less profitable than the bank’s US credit trading franchise, the sources said, but a number of senior New-York traders have also headed for the exit.

Credit Suisse declined to comment. Moore couldn’t immediately be reached for comment.

Credit Suisse has struggled following a number of costly blunders over the past year or so, which have raised questions over the future of many of its risk-taking activities and dented morale within the firm. The Swiss lender recently warned that its investment bank would make another loss in the second quarter after having already ended up in the red in the first quarter and in 2021. It also acknowledged that its business revamp had hurt revenues.

Many of the cuts to date have landed within Credit Suisse's equities trading division following the shuttering of its prime services unit after it sustained SFr5.5bn in losses from the collapse last year of Archegos Capital Management.

But it has struggled to retain senior personnel in its broader investment bank too, with many fearing that a protracted overhaul will mean several years of crimped bonuses. That includes in credit trading, an area where the Swiss lender has traditionally punched above its weight by specialising in areas such as leveraged finance and credit default swaps.

The exodus of senior credit traders started in 2021, with the likes of US credit derivatives head David Goldenberg moving to Barclays and star high-yield debt trader Hamza Lemssouguer leaving to set up his own investment firm. But it was the recent departure of Moore, a 20-year veteran of the bank, that gave the starkest sign yet of the dimming prospects for the business.

The reduction in headcount has largely occurred through attrition, one source said, with the bank declining to replace senior staff after they left for jobs elsewhere. Basil Eggenschwyler, head of credit trading in EMEA, left in April to join hedge fund Brevan Howard. There have been a number of senior departures in New York too, such as co-head of investment-grade trading Brian Connors and head of high-yield Daniel Brand.

Daniel McCarthy, who is based in New York, has taken over as sole credit trading head. Moore had been based in London and some sources said his exit may also have been linked to a plan to rejig credit trading that would have put the US in charge of the global business.

A number of traders that have remained at the bank have been shifted to focus on private credit, one source said. Meanwhile, Credit Suisse’s appetite to underwrite new leveraged finance transactions has diminished significantly, other sources said, in what has been a particularly difficult time for banks to offload legacy deals from their books.

The cuts come amid a challenging period for credit trading desks. Corporate bonds prices have tumbled as recession fears have accelerated, pushing credit spreads to their most distressed levels since mid-2020 following the start of the pandemic.

Credit trading revenues at the top 12 investment banks were 23% lower in the first quarter compared to a year earlier, according to analytics firm Coalition Greenwich, with “flow” credit down 40%. That contrasts with an increase of 24% in macro trading revenues (which encompass products linked to interest rates and currencies) as expectations of higher inflation have convulsed those markets.

Such an environment is particularly painful for Credit Suisse, which scythed back its macro trading activities about a decade ago, leaving it more reliant on credit trading to generate revenues in its markets business.