Credit Suisse Announces Layoffs

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In an effort to reduce costs and reinforce its balance sheet, Credit Suisse Group (CS) announced 300 job cuts in Switzerland. The layoffs are a part of this Zurich-based bank’s strategy to achieve CHF 4.0 billion ($4.2 billion) in cost savings by 2015.

The streamlining initiatives also involved combining the bank’s retail and private banking divisions in Switzerland from January 2013, which will result in the job cuts. The company anticipates the strategy to lead to cost savings of CHF 50 million ($53 million).
 
The combined unit is expected to be led by Christoph Brunner, presently the head of retail operations at Switzerland. Further, Rolf Boegli, the present operating chief at the private banking unit, will lead a separate division.
 
This division will cater to asset managers as well as clients in Switzerland having roughly $50 million as bankable assets. However, according to the bank’s statements, the present head of private banking in Switzerland, Arthur Vayloyan, will stand down.
 
Management anticipates these measures to help the company achieve the expected performance standards. Eventually, these are also expected to secure as well as improve Credit Suisse’s market position. The layoffs plan follow 3,500 job cuts announced earlier in 2011.
 
Majority of the global banks are currently struggling to bring down costs amidst the gloomy macro-economic factors and Eurozone crisis. These layoffs are an outcome of a challenging operating environment, which Credit Suisse is facing in Europe.
 
The sovereign debt crisis has been a matter of concern and the company resorted to such restructuring measures to address the issues. Notably, Credit Suisse faced huge headwinds in the private banking segment in the third quarter of 2012, with declining margins.
 
Recently, another Swiss banking giant UBS AG (UBS) slashed 10,000 jobs with roughly 2500 in Switzerland itself. The layoffs are part of this bank’s efforts to reorganize its business by developing core businesses and downsizing troubled units. UBS has been trimming down the workforce in its investment bank unit over the past year and aims to refocus on building its market-leading wealth management and asset management business.
 
Amidst the stressed operating environment, lower returns and stringent capital norms, many Swiss banks are rightsizing businesses to meet the aforementioned challenges. In September this year, as part of its integration process and cost reduction efforts, Julius Baer Group Ltd. (JBAXY) also announced roughly 30%–40% reduction in workforce at its recently acquired foreign wealth management division of Merrill Lynch − a unit of Bank of America Corporation (BAC).
 
Our Viewpoint
 
As the near-term outlook of an economic recovery remains bleak, banks are increasingly adopting rigorous cost-cutting measures to maintain a sound capital buffer in order to withstand any financial crisis.
 
Overall, until revenue generation revives, a worsening cost-to-income ratio will continue to force many more banks to reduce costs through job cuts since these institutions need to enhance profitability in order to boost capital ratios.
 
Credit Suisse currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
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