So the average salary of an employee in Credit-Suisse was more than CHF 200,000 a year in 2020. This figure was obtained by dividing the total amount Credit-Suisse spent on Compensation and Benefits of CHF 9.9 billion in 2020 over the total employees of just under 50,00 (48,770 to be exact).
This is quite a high figure and many Rembaunians would like to earn that annual salary of RM 890,000, which is the figure when converted to Ringgit Malaysia.
So with all that high paid talent, how did they just encounter their worst month on history?
Now in 2021, Credit-Suisse was hit by two things
- Fraud involving a major trade finance customer, called Greensill, which is estimated to cost $3 billion (see link)
- Single customer trading loss involving Archegoes, which is estimated to cost it over $4 billion (see here)
In fact, those two combined to cost the bank over CHF 7 billion, with the final figure could be even be CHF 10 billion if there are hidden skeletons left in the closet.
The thing is that this could amount to over 20% of the banks capital. Perhaps sensing the storm that is brewing, the rating agency had decided to lower Credit Suisse parent company’s outlook to ‘negative’.
Which means to say nothing , as everybody knows that the outlook has been challenged by Greensill and Archegos.
So what gives and why did this happen?
I think the answer is in the components of revenues for the bank.
If you look at the chart, you will notice that the components for trading revenue increased massively over the past 5 years, even while total revenue remained flat. (This was because the increase in trading revenue was mostly offset by the fall in Net Interest revenue).
Having a higher percentage of trading revenue requires sophisticated systems to monitor risks. While JP Morgan spends $10 billion a year on IT, we are not sure whether Credit Suisse spends the same amount?
Also any ratings cut below BBB will mean a Lehman moment. Currently, Credit Suisse rating is BBB+, so it is not out of the woods.