Credit Suisse cited low volatility and client volumes in its decision to exit commodities trading and said the move will cut costs about $75 million and lower risk-weighted assets and leverage exposure by $2 billion and $5 billion, respectively. The bank didn’t provide numbers for the revenue generated by the business or say how many jobs would be affected by the pullout.
Dougan said the commodities trading business was loss- making so far this year. Credit Suisse may keep small parts of the business, such as precious metals, and move them to the foreign exchange unit, he said. The bank is keeping its commodity trade finance business, which is part of the corporate and institutional clients division.
Commodities revenue at the 10 largest banks fell 18 percent last year amid reduced volatility, London-based analytics company Coalition Ltd. said in February. The Bloomberg Commodity Index of 22 raw materials had its third consecutive annual drop in 2013 as gold fell the most since 1981 and corn, arabica coffee and wheat slid at least 20 percent.
Credit Suisse is also cutting expenses at its foreign exchange and rates businesses by shifting more of those trades to its electronic platform, Chief Financial Officer David Mathers said on a conference call with journalists today.
The reorganization of the macro unit, which includes commodities, foreign exchange and rates businesses, will yield about $200 million in cost savings and reductions of $8 billion in risk-weighted assets and $25 billion in leverage exposure, Credit Suisse said.
“It’s certainly fair to say that all three areas face very adverse market conditions and to varying degrees they face regulatory and market structural changes,” Mathers said. “It’s really a package of measures intended to significantly improve the returns in the macro business.”
Credit Suisse aims to cut Basel III risk-weighted assets to about 250 billion francs in the long term from 279 billion francs at the end of the second quarter.
U.S. banks posted better results than expected earlier this month because of higher-than-expected debt trading revenue. All asset classes within fixed income stabilized or improved in June compared to April and May, JPMorgan analysts Kian Abouhossein and Amit Ranjan said in a report last week. The results of the U.S. banks are a “positive read” for European investment banks, they said.
Credit Suisse is the first European bank with large securities business to report second-quarter earnings. UBS AG and Deutsche Bank AG are due to report earnings on July 29, followed by Barclays Plc a day later.
JPMorgan, Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley reported a 2.5 percent decline in cumulative revenue at their investment banks in the quarter from the year-earlier period, excluding valuation adjustments, data compiled by Bloomberg Industries show. Revenue was helped by gains in equity underwriting and advising on mergers.
Credit Suisse took a charge of 1.6 billion francs in the quarter after it became the first global bank in 10 years to plead guilty to a crime in a U.S. courtroom. The bank last posted a loss for the fourth quarter of 2013, amounting to 476 million francs, after booking charges for settling lawsuits over mortgages sold to Fannie Mae and Freddie Mac and increasing provisions for the U.S. tax case.