Credit Suisse released its annual report for 2015 today allowing us to update its progress through winding down its eurodollar activity exposures. As expected, the bank’s gross notional balance sheet offerings declined by quite a bit in Q4. Gross notional interest rate swaps fell by 15% from Q3 to just CHF 28.8 trillion, the largest quarterly decline (in percentage terms) in the data going back to 2009. Since Q3 2013 and the start of taper (end of the QE as supposedly “open ended”), Credit Suisse’s IR notionals have declined by 40%. As you can plainly see below, regulations don’t seem to playing any role whereas obvious market events and timing matter:
As if we needed further evidence beyond the regular and painful turmoil that keeps Credit Suisse in the news, this curtailment, undoubtedly being accomplished via compression trading, coincides exactly with the “rising dollar.” Since, as noted yesterday, CS had as late as early 2014 made a point of emphasizing growth through “high returning yield businesses” we can infer that interest rate swaps were trading and liquidity offerings to compliment that overall position – at the worst possible time to be offering anything.
The derivatives book(s) may not directly declare the extent or even the nature of this sudden disfavor. Despite likely being heavily on the “wrong” end of all this, that doesn’t necessarily lead to losses; in fact, it is never losses that cause the most problems except at the end. The issue is liquidity and from certain perspectives we can figure out the negative effects, and thus why CS (and its peers) are very keen on exiting and cutting back resources, risk-weighted assets, and jobs in investment banking.
This is not a perfectly comparable estimation as it conflates several functions, but in general terms we can see some of the liquidity impact on CS from its derivatives book. Not only does the bank show large declines in both trading assets and liabilities (fair values, not notional) in derivatives, the change in collateral is rather stark. In 2014, CS received CHF 45.2 billion in collateral (both netted and not) against collateral paid of CHF 44.3 billion. The events of 2015 shifted that position to CHF 35.9 billion in collateral received against CHF 39.8 in collateral paid.
