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Old 01.08.2011, 18:04
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Re: Credit Suisse cuts jobs on poor results

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Overnight funding is not the same as cost of capital! It provides liquidity (or soaks up excess liquidity). For cost of capital you need to use the Weighted Average Cost of Capital, which (simplified) is the average of the interest payments on long term debt and the rate of return required by shareholders, which itself is a function of risk free investing (if such a thing exists right now cf USA), the premium for investing in a risky asset and how correlated the individual share is to other shares.
Two things. 1. Loans from the central bank are almost NEVER short term. These loans are to cover long term projects or running of the company. There is too much PT to use central bank funding as short term capital or running capital. 2. If a bank, ANY bank has a capital cost of 14% then there is no way in hell they would offer any loans or finance at anything less than 14.5%.

P.S. Weighted average cost of capital is the weighted average of the interest rates of all their capital (short term loans (money market), long term loans (Banks) and working capital (shareholders & profits)) weighted by their value. This is of course a pure accounting explanation. But hey! When has accounting ever had anything to do with banking.
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  #42  
Old 01.08.2011, 20:22
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Re: Credit Suisse cuts jobs on poor results

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are you sure you don't mean IRR? i find it hard to believe that CS would have such a high cost of capital...

http://pages.stern.nyu.edu/~adamodar...afile/wacc.htm
You're right Phil - I used an internal project hurdle rate as an approximation. I couldn't find the WACC online without a subscription and wasn't in the mood to calculate it myself. According to a presentation I was at on Friday the CoC is around 10%.

In any case the board have a publicly stated RoE target of 15%. My money is on CS not hitting that target this quarter, as the summer is always quiet, irrespective of the macroeconomic issues and will struggle to hit it for the full year, not least because of the restructuring charges being taken for the cuts.

Last edited by eyebeebe; 01.08.2011 at 20:36. Reason: Clarification of RoE Target
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  #43  
Old 01.08.2011, 20:44
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Re: Credit Suisse cuts jobs on poor results

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Two things. 1. Loans from the central bank are almost NEVER short term. These loans are to cover long term projects or running of the company. There is too much PT to use central bank funding as short term capital or running capital. 2. If a bank, ANY bank has a capital cost of 14% then there is no way in hell they would offer any loans or finance at anything less than 14.5%.

P.S. Weighted average cost of capital is the weighted average of the interest rates of all their capital (short term loans (money market), long term loans (Banks) and working capital (shareholders & profits)) weighted by their value. This is of course a pure accounting explanation. But hey! When has accounting ever had anything to do with banking.

I've had a decent look through the last Annual Report and can't find any mention of significant loans from a central bank. Could you reference the page for me please?
https://www.credit-suisse.com/invest...ar_2010_en.pdf

You also have a different definition of Weighted Average Cost of Capital to me too. The one I have been taught at various stages of my education and career is akin to one of the links below:
http://www.investopedia.com/terms/w/wacc.asp
http://en.wikipedia.org/wiki/Weighte...ost_of_capital
Could you show me where your definition comes from please?

For the time being I am going to go with my definition of WACC. In a well run bank, loans aren't financed out of any of the components of WACC (or Money Markets, yes you Northern Rock!). They are funded from customer deposits. This is illustrated by the chart on slide 40 of the presentation below. As I'm sure you know as an accountholder you don't get paid 14% or 10% or even 5% (in CH) for the privilege of letting CS loan out your money
https://www.credit-suisse.com/invest...011_slides.pdf
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Old 24.08.2011, 15:47
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Re: Credit Suisse cuts jobs on poor results

hmmm... I was about to apply for a job posting at CS. Not so sure anymore after reading this post... I might even be applying for the position of a person who has just been fired...
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