Both Swiss banks have a tough leverage ratio to meet, meaning low margin, low risk government bond trading just does not stack up.
So Credit Suisse is closing most of European rates. No rates options, no market-making in European government bonds, and no primary dealerships. One assumes the SSA business is not long for this world either.
That means thousands of job losses, but it has the virtue of being simple, clear and focused.
It is not a slow, painful death by starvation, squeezing balance sheet use, compensation and staffing until businesses are open in name only.
It also frees Credit Suisse to deploy capital immediately in high-return business. Trying to incrementally shrink everything while maintaining a full service bank just means that no business will be world-class.
The new boss, Tidjane Thiam, was clear about the need to spend money to make money, in the businesses it wants to be in.
The most telling part of his presentation was a willingness to “burn capital” in credit and securitization — both unfashionable businesses in the regulatory firing line, but businesses where Credit Suisse is top-notch.
Leveraged finance is another business that devours balance sheet — but Credit Suisse, a top three shop, is prepared to double down.
Lots of banks say they are taking tough decisions, battening down the hatches, cutting costs and focusing on strengths; it’s the mood music of the time.
But Credit Suisse really means it. It takes real guts and strategic vision to shut entire business lines, rather than tinker around the edges, but rivals are grudgingly impressed.
Sparing a thought for the thousands of Credit Suisse employees at risk, it looks like the right call.
The shares don’t like it (or perhaps they don’t like the Sfr6bn capital hike) but an investment bank with a clear strategy is a precious thing.
Then again, UBS hired a rates sales head this year — and led an SSA deal last week. Bonne chance, Tidjane.