Credit Suisse's Luigi de Vecchi on how the bank's model will deliver

When Credit Suisse reported third-quarter results in October, the headline news was that the group's net profit had fallen by 74% and the investment bank's income had halved on the back of sluggish client trading volumes. Many argued that this did not bode well for Credit Suisse's client-focused business model, which leaves it vulnerable to any decline in client-led business because the lack of bank trading means there is nothing to take up the slack. With the bank still aggressively hiring investment bankers, it also meant that costs remained high against this tougher earnings background. One or two analysts even suggested the bank had over-expanded and needed to contract.

But, if Credit Suisse's results disappointed after better-than-expected results for the same quarter from other investment banks such as Goldman Sachs, JPMorgan and Bank of America Merrill Lynch, one quarter's figures are not enough to undermine the model. For one thing, from the outset the bank's senior management have made it clear that the business model is not built to deliver the highest revenues or the highest return on equity in a single quarter or a single year; it is designed to provide attractive returns to investors over an economic cycle. On the investor call, CFO David Mathers flagged a pick-up in securities markets activity in the final quarter of the year, suggesting fourth-quarter results could be better.

And, while the investment bank's income may have halved, figures from Dealogic imply that investment banking (stripping out the trading business) is making headway. In terms of global investment banking revenue, Credit Suisse is in the same league table position as last year (sixth), but 2010 revenue is up 17% on 2009. In debt capital markets revenue the bank is up two positions to fourth; in loans it has risen from 14th to fourth; in global mergers and acquisitions (M&A) it has gone from seventh to fourth. For financial sponsor-related revenues, it tops the league table.

In the deal league tables, core strengths, such as debt capital markets (DCM), high yield and leveraged finance, continue to shine, and the firm's equity capital markets (ECM) business is also doing well; it began the new year with two accelerated bookbuilds: a complicated $900m capital raising for Germany's Commerzbank (which will swap trust preferred securities for new stock) and disposing of 25 million shares in Danish bioscience firm Christian Hansen held by French private equity firm PAI Partners.

M&A surge

But a telling signal is that Credit Suisse is a top three M&A house (by announced deals) for the first time since 2000. "This is a clear sign that the business has gained significant momentum," says Luigi de Vecchi, who is co-head of the global investment banking department alongside Jim Amine. "From discussions with our clients, it was clear that we performed well during the crisis, but it is good to see that this view is also reflected in market share gains as evidenced by the league tables," he says.

The bank has a clear strategy: focusing its capital-efficient business model on key clients. In Europe, the Middle East and Africa (EMEA), for which Mr de Vecchi has primary investment banking responsibility, this breaks down to about 70 so-called franchise clients (for which the bank can be meaningful across every area of its business) and about 200 priority clients.

Credit Suisse's stated mission is to be the 'most admired' investment bank, and to build trusted advisor status with the world's governments and most important companies. Mr de Vecchi says this is more than just a slogan. "We have been very disciplined to identify which clients we want to focus our resources and capital on. If we can deliver the firm to these clients, they can 'move the needle' for us. The level of dialogue with these companies has significantly improved and companies are now starting to include Credit Suisse as one of a select group of trusted advisors," he says.

The bank is also positive about the outlook for the industry. Mr de Vecchi says it sees some promising trends in 2011, coupled with positive client dialogue and a good deal pipeline. "Corporates have cash that they want to put to work and we are bullish about financial services activity. We also estimate that there will be about $700bn to $800bn of privatisations around the globe over the next two or so years as governments deleverage. We've been working to build relationships with these client groups and we are sure that this will pay off in the coming months."

Treading carefully

There are, of course, some caveats. Mr de Vecchi says that a few things could offset the more positive trends that are emerging. "The global recovery is still at a delicate stage," he says.

In addition to the uncertainty surrounding peripheral eurozone sovereigns – notwithstanding January's successful government debt sales – Mr de Vecchi cites developments such as Brazil's recent interventions to counter upwards pressure on the real. In the second week of January, Brazil's central bank sold nearly $1bn in reverse currency swaps, following separate measures the previous week to curb short selling of the dollar.

"The uncertainty around the macro-economic environment makes a case for being relatively cautious about projections, but we see a lot of promising trends and are positive about the prospects for this year. In Europe, for example, we are planning on an increase in activity of 20% to 25%," he says.

Another reason for Credit Suisse to be optimistic is the growing role of emerging markets in global deal activity and its own prowess in those markets. If it has slipped a little in the emerging markets league tables in terms of volume (it ranked sixth in Asia-Pacific, for example, in 2010), in terms of emerging markets-derived investment banking revenues in this crucial space, it is joint second with Morgan Stanley – behind JPMorgan – according to Dealogic.

For the first time ever, the Asian region raised more equity capital than the US in 2010, while China alone raised more than EMEA. Mr de Vecchi says Credit Suisse is well placed to capitalise on developing markets' continued dynamism. "We are leveraging our historic strength in emerging markets both for clients in developed and emerging countries. We are well placed to help our clients with their emerging markets strategies, but we also help clients to realise their global ambitions," he says

New strategies pay off

Mr de Vecchi says Credit Suisse's CEO network, put in place by investment bank CEO Eric Varvel and aimed at bringing the bank's clients together, is proving to be a powerful component of its strategy. In addition, it is continuing to build out its emerging market investment banking footprint: for example, in 2010 it appointed five new managing directors to the Chinese business, and hired a team (from JPMorgan) for its Indian platform.

Both strategies are already helping to build relationships that should yield dividends. For example, Credit Suisse was one of the banks advising on the potential IPO of Spanish oil major Repsol's Brazilian arm in order to fund exploration and production at offshore fields. This strategy was later dropped following a bid from Chinese refiner Sinopec, which in October last year, acquired 40% of the Brazilian business for $7.1bn. The relationship should not be wasted, however, as it is reported that Sinopec and Repsol have this year agreed to set up working groups to examine new business opportunities.

"We are also seeing outbound business coming from other emerging markets," says Mr de Vecchi. For example, Credit Suisse is one of the banks advising Italian telecom Wind on its merger with the Russian telecom Vimpelcom. The bank, which is one of the leading banks in terms of Russian companies' issuance of Eurobonds, is also among the group of banks that will advise the Russian government on creating a financial centre in Moscow, according to Alexander Voloshin, head of the government working group which is overseeing the effort.

Tough times in Europe

Mr de Vecchi says the competitive environment remains tough. In Europe, 2010 was one of the lowest in terms of fees paid to investment banks, partly because activity stalled as the macro-economic environment remained unpredictable and financial institutions waited to see what new rules would come out of the regulatory space. But some argue that an ever-tougher regulatory environment, the lower prospects for growth and the vitriolic debate about banker compensation in Europe, could lead non-European banks to rethink their European strategy. It is not unthinkable that some will no longer be present in European markets to the same degree they have in the past.

This can only be a positive for a European firm such as Credit Suisse, however. "Notwithstanding the regulatory and capital requirements, and the fact that it has been the slowest year for a decade in terms of fees to the street, being a European bank with global ambitions, we want to continue to build on our successes over the past few years. As a European bank, we are firmly committed to being a leader in the region."

Career history

Luigi de Vecchi

2009 - appointed co-head of the global investment banking department of Credit Suisse. This includes the global markets solutions group, mergers and acquisitions and the sector and country coverage groups, with a particular focus on the EMEA region. Mr de Vecchi is a member of the Investment Bank Management Committee and the EMEA Operating Committee

2007 - appointed CEO of Credit Suisse Italy and member of the EMEA Operating Committee

2004 - joined Credit Suisse First Boston as head of investment banking department for Credit Suisse Italy

2002 - appointed head of investment banking services at Goldman Sachs in Italy

1998 - joined Goldman Sachs as head of telecoms, media and technology for Latin America in New York

1995 - appointed head of the investment banking division at Kleinwort Benson in Brazil

1989 - joined Kleinwort Benson in London