Fixed-income trading isn't really part of the new strategy of Credit Suisse. Which doesn't mean that all traders are being kicked out: in the U.S., the bank is operating an electronic platform for fixed income – in cooperation with a conspiracy theorist.
Credit Suisse (CS), Switzerland's second-biggest bank, in recent weeks released more than 200 investment bankers – mainly fixed-income traders, according to a report by «Reuters».
The job cuts at the investment bank in London are part of a plan made public in October. Fixed-income traders and their back office staff have become targets for the cost cuts because trading with interest-bearing and debt securities is capital intensive and therefore less profitable than it used to be. The profitability of the business declined by more than half in the fourth quarter.
A Subsidiary Called Wake
The investment bank in New York, unlike London's, has mostly been spared from the job cuts. The reason: CS outsourced the trade with fixed-income papers to a subsidiary in 2013.
The company is called Wake. CS never officially communicated this transaction. Wake's headquarters in New York are listed under the same address as CS – 11 Madison Avenue.
Mark Gorton – Founder of Tower Research
One of the owners of Wake is the hedge fund Tower Research Capital, founded by a certain Mark Gorton. More on him later.
Brady Dougan, CEO of CS until the summer of 2015, pursued a particular interest with the outsourcing. Dougan wanted to retain the business with fixed-income securities but on a technological level akin the electronic trading platforms for equities.
Furthermore, using a detour via a subsidiary was a means to relieve the balance sheet of CS, a strategy Dougan had adopted for corporate bonds with the subsidiary Park View BDC.
With one significant difference: CS is majority owner of Wake, meaning that it can't carry out the fixed-income business outside its own books.
U.S. Bond Market Liquidity
In 2014, CS said it was looking for partners to participate in Wake, but documents of regulator Finra show that it wasn't successful in its search.
Wake however is fully operational. Frederic Dassori, who previously was in charge of the electronic fixed-income trading at CS, is head of the subsidiary. At the beginning of the year, Paula Ann Dominick took charge of compliance, a role she also has at Credit Suisse Americas.
CS Chief Executive Tidjane Thiam is clearly happy to keep that part of the fixed-income business and deploy the necessary cash. Unless CS after all found an investor.
The idea behind Wake still makes sense. There's plenty of money in the U.S. bond market and the high-frequency trade is an innovation, which allowed CS to retain a customer base that had been shown the door at other institutes.
Man With an Illustrious Past
But, if the documentation at Finra is up-to-date, Wake remains a subsidiary, which cannot perform business on behalf of CS but outside its balance sheet. Having omitted to make a public statement regarding this arrangement, CS chose to keep the business under wraps.
The partner of CS in Wake has an illustrious past. Mark Gorton (pictured below), the founder of Tower Research Capital, spent part of his career at Credit Suisse First Boston, working as a fixed-income trader. In 1998 he founded Tower. His claim to fame however is owned to the file-sharing platform Limewire, which he had to close down following a verdict by a U.S. court.
Conspiracy Theories
The man is known as a genius on Wall Street. His vita includes several essays about the truth behind the killings of John F. and Robert Kennedy, about the background to the terrorist attacks of September 11 as well as the murders of witnesses and journalists – putting all these events in a context.
Gorton is a conspiracy theorist. He considers Bill Clinton to be a member of the mafia and says the then boss of the CIA, George Bush senior, was responsible for the attempt to kill Ronald Reagan.
An interesting partner of choice for CS.
