Credit Suisse continues to lose FX market share, thousands of jobs to go

Credit Suisse continues to lose FX market share, thousands of jobs to go. Will they sell FastMatch?

Andrew Saks

Will ailing Credit Suisse want to distance itself from FXCM and sell its FastMatch share to Leucadia?

Credit Suisse CEO paid £13.7 million in 6 months

Credit Suisse, one of the world’s most prominent interbank FX dealers with 1.66% of the world’s Tier 1 order flow on its books, placing it in fourteenth position globally, continues to experience commercial dire straits.

Today, the company made its position clear, with an extensive £1.9 billion loss for the fourth quarter of this financial year on its record, and a total loss for the entire year of almost £2 billion.

Despite assets under management having grown by 8% this year, the bank continues to be in the red, and will begin to make several thousand redundancies in 2017, adding to the 7,200 job losses that took place at Credit Suisse last year, largely within the investment banking division.

Whilst Credit Suisse has demonstrated extremely good commercial conduct with regard to its interbank eFX business during the last two loss making years, other aspects of its corporate structure have been the subject of regulatory scrutiny and censuring which has cost the bank a fortune.

The settlement with US Department of Justice which totalled £4.3 billion for mis-selling mortgage-backed securities in the lead-up to the financial crisis had been a case in point to which CEO Tidjane Thiam began to concentrate even further on cost cutting.

In February last year, in the aftermath of its first reported loss since 2008, the firm confirmed that it was to cut bonuses for its investment banking executives by 36%.

The losses for the current financial year add to the woes experienced last year, when Credit Suisse whcih is the largest foreign broker by market share across seven regions in the Asia Pacific region, but has fallen to 14th place worldwide in terms of volume over the last year and a half, reported an annual loss of CHF 2.42bn (£1.65bn) for the full year.

The company’s performance during 2015 was actually worse than the CHF 2.09bn that analysts had forecast, and include a fourth quarter loss of CHF 6.4bn.

Credit Suisse has interests in non bank FX ECN FastMatch, which is a highly well organized entity that makes profit and has done very well over its five years since inception.

In 2012, Credit Suisse was one of the founding investors in FastMatch, and owns 40% of the firm along with FXCM which owns 32%.

As a result of the complete decimation of FXCM’s US division by the banning of the company from operating in the US markets as a result of the Commodity Futures Trading Commission (CFTC) having ruled that the firm has been trading against its customers for several years via a market maker in which it had an undisclosed interest and was taking rebates of up to 70% of the market maker’s profits, FXCM CEO Drew Niv and senior Managing Director William Ahdout were removed from the board of directors of FastMatch and replaced by senior Leucadia personnel, however it is quite possible that Leucadia may buy the 32% of FastMatch owned by FXCM, and it certainly will not be for 32% of $200 to $250 million that the firm was valued at when ICE attempted to buy it.

FinanceFeeds maintains that this should be thought of as a fire sale, therefore $1 is likely, and Credit Suisse may look to increase its mettle by upping its stake in FastMatch at a time during which FastMatch is looking to remove FXCM from its list of shareholders, and then sell the entire firm for a massive profit.

If Credit Suisse pay $1 for the 32% owned by FXCM, or if the bank can broker a deal with Leucadia to take the majority and install its directors as shareholders instead of the recently installed Leucadia directors in place of Drew Niv and William Ahdout who were promptly stripped of their directorship of FastMatch last week.

FastMatch, which relies on absolute transparency, cannot be associated with the opaque activities of its 32% shareholder.

In December 2015, FinanceFeeds looked closely at FastMatch’s continually evolving edge in terms of innovation and transparency, the company explaining at the time that it values fairness as one of its key tenets. The company has pioneered many concepts that improved transparency among FX ECNs:

– Real time reporting of the venue’s volumes
– Public fee schedule
– Real time reporting of all trades with prices and sizes
– Real time dissemination of the FastMatch midpoint
– Indicating of every quote if it is last look vs no last look
– Indicating on the quotes the maximum last look time

In further desire to make FX institutional markets more transparent and operate a fair marketplace, FastMatch has for over one year required all liquidity providers to use only a “Symmetrical Last Look” practice on the ECN Service. “Symmetrical Last Look” is the practice by which the same trade rejection logic is applied to all trades within the last look holding period, regardless of their P&L impact to the maker and / or taker.

Trades rejected only when an order is unprofitable to the liquidly provider by the end of the last look holding period shall be considered to be the subject of “Asymmetrical Last Look” practice.

For this reason, it would be good practice in terms of reputation to take a hit and remove FXCM completely, even for $1. Then, Credit Suisse could re-approach ICE at what has now become an opportune time, when exchanges are looking to get firmly into the institutional and retail OTC business and see if they can re-broker the deal to buy FastMatch at the aforementioned prices.

That would mitigate Credit Suisse’s balance sheet black hole to some extent, and give FastMatch the ability to uphold its reputation as a fully transparent ECN as well as gain access to exchange listed derivatives marketplaces at a time when the entire retail world is looking in that direction in the quest for future-proofing, the latest example being MetaQuotes’ sudden direction towards connectivity to exchange liquidity with major global venues.

Times they are a-changing

 

 

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