And once again the focus is on investment banking

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What does an intern need to survive in the shark tank of investment banking, or IB for short? A toothbrush – three out of three meals a day are eaten at the office desk. Spare tie to be prepared in case of coffee stains. Vitamins and vitamins to get through the 15-hour days healthy. The list comes from eFinancialCareers, which claims to be the world’s leading website for finding financial jobs. So it has to be taken seriously.

In the banking earthquake around Credit Suisse, the focus is again on investment banking. The IB was already of particular importance during the global financial crisis of 2008: US investment bank Lehman Brothers had gone bankrupt at the time and dragged the global banking world with it.

High profit – high risk

Investment banking includes trading in the stock market and foreign exchange, advising companies on acquisitions, public offerings, securities issuances, or the trading of highly complex financial products (e.g. derivatives). On the other hand, there is the “classic” banking business: accepting savings, issuing mortgages and corporate loans, wealth management.

“There are high profits in investment banking, but there are also big risks,” explains Andreas Ita (49). He has worked at UBS for over 20 years, 14 of which are investment banking. Today he is Managing Director of Orbit36, a strategy consulting firm that supports banks in risk management.

American banker culture

The origin of the IB business is the USA. “From the 1990s and 2000s, European banks also wanted to be involved in this global business,” Ita explains. In addition to CS, UBS and Deutsche Bank are also involved.

They never kept up with the American competition. Also, the best people on Wall Street would rather work at Goldman Sachs or Morgan Stanley than work at CS, UBS & Co.

Ita describes American investment banking as “The environment is extremely competitive.” Bonuses are higher than other banking areas. “There is a risk of paying investment bankers extremely well in good times. But in bad times you can’t reduce salaries to 0 for everyone.” Also, because individual traders bring huge profits even if they lose for years. Especially in times of crisis, he doesn’t want to lose the bank at all costs.

“The Paradeplatz Wolf”?

While CS and UBS have long been active in the American IB business, the culture has never fully spread to the parade ground. The “Wolf of Wall Street”, embodied by Leonardo Di Caprio (48) on the Hollywood strip, remained a predominantly American phenomenon.

“There are also many people in Switzerland who work in investment banking and do very sensible business,” Ita reassures. This is because local investment bankers as employers can practically only choose between CS and UBS. “You have less incentive to take excessive risks and simply switch jobs if things go wrong.”

But the cultural divide has made it difficult for European banks to keep their Wall Street workers in check. For example, the Archegos fiasco, which caused CS 2021 to lose more than five billion francs, was caused by the IB on Wall Street. In 2022, Credit Suisse’s IB again resulted in losses of more than three billion.

CS wanted to shut down its IB business and outsource it to CS First Boston – this is what President Axel Lehmann (64) and CEO Ulrich Körner (60) envisioned in their strategic realignment that they presented in the fall. “But finally CS expired,” Ita said.

UBS was years ahead of CS: As early as 2011, it began reducing its involvement in investment banking. But not voluntarily, but due to public pressure in the wake of the government bailout in the financial crisis.

Brady Dougan’s Legacy

CS, on the other hand, weathered the financial crisis recklessly and had less reason to reform. Also, from 2007 to 2015 Brady Dougan (63), an American top-notch investment banker, was the CEO of Credit Suisse.

However, blaming investment bankers alone for CS’ failure would not go far enough: For example, Greensill, CS’s second leading business with billions in losses, was in Asset Management, not IB.

In the end, the back of the camel did not result in yet another failure in investment banking. But the bankruptcy of the US Silicon Valley Bank and the consequent loss of trust in CS.

Source :Blick