Credit Suisse Group 3Q13 results reflect resilient Private Banking & Wealth Management profitability, strong Equities revenues and continued progress on cost and capital, mitigating the impact of reduced Fixed Income client activity
– Underlying*: Core pre-tax income of CHF 930 million, net income attributable to shareholders of CHF 698 million and return on equity of 7%
– Reported: Core pre-tax income of CHF 685 million, net income attributable to shareholders of CHF 454 million and return on equity of 4%
– Underlying*: Core pre-tax income of CHF 4,473 million, up from CHF 3,797 million in 9M12; net income attributable to shareholders of CHF 3,201 million and return on equity of 11%
– Reported: Core pre-tax income of CHF 4,017 million, net income attributable to shareholders of CHF 2,802 million and return on equity of 9%
Continued execution of capital plan, further reduction of leverage exposure as of the end of 3Q13:
– Look-through Swiss Core Capital ratio improved to 11.4%; Look-through Basel III CET1 ratio increased to 10.2%; Look-through CET1 plus high-trigger capital ratio of 13.2%, meeting Swiss 2019 requirement of 13%; ratios include 9M13 accrual for resumed cash dividend payments
– Swiss leverage exposure reduced by 16% since 3Q12 to CHF 1,184 billion, surpassing year-end target; Look-through Swiss Total Capital leverage ratio improved to 3.5% on an adjusted basis
3Q13 divisional results:
– Private Banking & Wealth Management: Reported pre-tax income of CHF 1,018 million; improved profitability, with progress in cost management offsetting continued impact from low interest rate environment and seasonally low client activity; net new assets of CHF 8.1 billion, with strong inflows in high-margin Asset Management products, emerging markets and the ultra-high-net-worth client segment
– Investment Banking: Pre-tax income of CHF 229 million; strong Equities performance reflecting continued market leadership more than offset by challenging Fixed Income market conditions; continued capital and expense discipline with Basel III RWA down USD 31 billion from 3Q12; total expenses down 14% from 3Q12; 9M13 pre-tax income of CHF 2,283 million, up 34% from 9M12; resilient 9M13 after-tax return on Basel III allocated capital of 13% vs. 9% for 9M12
Establishment of non-strategic unit within each division to shift resources to focus on growth in high-returning businesses:
– Further accelerate reduction of capital and costs currently tied up in non-strategic assets
– Clear separation of non-strategic operations to free up management time to focus on ongoing businesses and growth initiatives
– Material rebalancing of capital to reduce the percentage of RWA held in IB to around 50% of the Group’s total and free up capital for future growth in PB&WM; Group long-term Basel III RWA target revised to approximately CHF 250 billion, on a look-through, foreign-exchange neutral basis
– IB non-strategic unit to include existing Fixed Income wind-down businesses as well as impact from significant restructuring of Rates business and legacy litigation costs
– Establish similar function in PB&WM to include restructuring of former AM division, selected legacy cross-border run-off and litigation costs, primarily from the US, and the small markets initiative
Progress on cost savings initiatives:
– Annualized 9M13 expense savings of CHF 3.0 billion achieved, on track to realize target of over CHF 4.5 billion of expense savings by end-2015 versus adjusted* annualized 6M11 run-rate, up from CHF 4.4 billion previously announced
Zurich, Switzerland, 6-1-2014 — /EuropaWire/ — Brady W. Dougan, Chief Executive Officer, said: “In the third quarter of 2013, our continued expense discipline and effective capital management mitigated the impact of challenging market conditions, characterized by low levels of client activity across many of our businesses.”
He added: “Over the past two years we have taken significant steps to evolve our business model in response to the changing market and regulatory environment. Since January 2013, we have operated under the Basel III regulatory framework. During the third quarter, we further improved our Look-through Swiss Core Capital ratio from 10.4% to 11.4% and lowered our Swiss leverage exposure by CHF 74 billion to CHF 1,184 billion. As of the end of the third quarter, we met the 13% CET1 plus high-trigger buffer capital requirement applicable in 2019 with 13.2% on a look-through, adjusted basis.”
He continued: “To ensure that we continue to advance this evolution and drive growth in high-returning businesses, particularly in Private Banking & Wealth Management, we are accelerating our existing wind-down strategy and enhancing our disclosure through the creation of non-strategic units within each of our two divisions. The clear separation of the non-strategic units will free up management time and resources to focus on our ongoing businesses and growth initiatives. Further reductions in leverage and risk-weighted assets will release capital for future growth especially in Private Banking & Wealth Management and provide further support to our objective of returning significant capital to our shareholders. This is an important step towards achieving a more balanced allocation of capital between our two divisions.”
Commenting on the results of the Private Banking & Wealth Management division, he stated: “While we are making good progress towards our previously announced cost savings targets in Private Banking & Wealth Management, our results were impacted by the ongoing low interest rate environment and low levels of client activity. We continued to see strong net asset inflows with CHF 8.1 billion in the quarter. These inflows were driven by high-margin Asset Management products as well as by our emerging markets and ultra-high-net-worth client franchises, partially offset by outflows in the Western European cross-border business. As we refocus our regional footprint in certain smaller markets, we are reallocating resources to growth areas. In particular, we expect to increase our presence in key emerging markets in Asia and Latin America, but also in parts of the Middle East and Eastern Europe, and we will strive to further strengthen our market share in the ultra-high-net-worth client segment. We will also invest in expanding our digital client interface to include a wider product range, portfolio analytics, research and transaction services, particularly in Asia. At the same time we remain positioned to benefit from a market consolidation.”
Commenting on the results of the Investment Banking division, he added: “In Investment Banking, our strong performance in Equities and debt origination and our continued cost and capital discipline moderated the impact of challenging Fixed Income market conditions. In the third quarter, compensation and benefits were 24% lower than in the prior-year quarter. Total operating expenses were 14% lower compared to the prior-year quarter, and we additionally provided for litigation matters with a further CHF 128 million of certain litigation provisions in the third quarter of 2013. Since the third quarter of 2012, we have further reduced risk-weighted assets by USD 31 billion to USD 169 billion, thereby exceeding our 2013 year-end target ahead of schedule. Investment Banking’s after-tax return on Basel III allocated capital for the first nine months was 13%, compared to 9% in the same period of last year, driven by the continued shift in capital to high market share and high-returning businesses as well as by increased cost efficiency. As part of this shift, we are restructuring and simplifying our rates business to increase returns, adapt to the changing regulatory environment and anticipate market structure evolution.”
Private Banking & Wealth Management with 3Q13 net revenues of CHF 3,320 million and pre-tax income of CHF 1,018 million
– Stable net revenues compared to 3Q12, as gains from strategic divestitures were offset by lower net interest income
– Net new assets across Private Banking & Wealth Management of CHF 8.1 billion in 3Q13 with continued strong contribution from high-margin Asset Management products, emerging markets and the ultra-high-net-worth individual client segment, partially offset by cross-border outflows in Western Europe
– Good progress towards previously announced cost savings targets of CHF 950 million by year-end 2015 versus adjusted* annualized 6M11 run-rate, with realized run-rate savings of CHF 350 million at the end of 3Q13, up from CHF 200 million at the end of 2Q13
– Cost/income ratio of 68%, improved from 69% in 2Q13, excluding the UK withholding tax charge
– Wealth Management Clients gross margin of 105 basis points, down from 110 basis points in 3Q12, driven by the continued adverse impact from the low interest rate environment
– 9M13 after-tax return on Basel III allocated capital of 26% driven by improved costs and stable revenues
Investment Banking with 3Q13 net revenues of CHF 2,552 million and pre-tax income of CHF 229 million
– Net revenues declined compared to 3Q12, reflecting continued strength in Equities and strong debt origination activity, more than offset by challenging market conditions, particularly in Fixed Income
– Continued focus on cost efficiency with 14% reduction in total expenses compared to 3Q12; additional CHF 128 million of certain litigation provisions were recorded
– Significant improvement in capital efficiency with risk-weighted assets down USD 31 billion from 3Q12 to USD 169 billion
– Resilient after-tax return on Basel III allocated capital for 9M13 of 13% compared to 9% in 9M12
Creation of non-strategic units within divisions
Today, Credit Suisse announced that it is creating a non-strategic unit within each of its two divisions to accelerate reduction of capital and costs associated with non-strategic activities and to shift resources to focus on its ongoing businesses and growth initiatives. The units will have separate management within each division, and will be reflected beginning with Credit Suisse’s 4Q13 reporting.
In Investment Banking, Credit Suisse is transferring into the divisional non-strategic unit its existing Fixed Income wind-down portfolio, parts of a restructured rates business, primarily legacy capital instruments that are not compliant with Basel III and capital-intensive structured positions, as well as certain legacy litigation costs and other small non-strategic positions.
In Private Banking & Wealth Management, Credit Suisse is establishing a similar function to include positions relating to the restructuring of the former Asset Management division. It also includes operations relating to the small markets initiative, selected legacy cross-border related run-off operations and litigation costs, primarily US cross-border, as well as the impact from the restructuring of the German onshore operation.
Credit Suisse has decided to retain these non-strategic units within the divisions, rather than establishing a separate non-strategic unit, so as to benefit from senior management’s expertise and focus. Results will be disclosed separately within the divisional results, enhancing transparency, and governance is planned to be designed to accelerate position and expense reductions. As a result, Credit Suisse expects that the establishment of these non-strategic units will drive further reductions in leverage and risk-weighted assets. It is also expected to free up capital for future growth in Private Banking & Wealth Management and to allow further return of capital to shareholders. Credit Suisse believes this is a significant step towards achieving a more balanced allocation of capital between its two divisions.
Structural changes in the rates business
Credit Suisse is restructuring and simplifying its rates business in order to increase returns. Recent developments, such as the heightened regulatory focus on leverage and the migration of market structure towards electronic trading, make it prudent to adapt the rates business model. In cash products, Credit Suisse is focusing on high-volume, high-liquidity electronic trading. In derivatives, the rates business model is geared towards simplified products, which are primarily cleared, while still focusing on serving the needs of financial and corporate clients in the rates business. This restructuring is expected to free up significant resources and result in a USD 60 billion reduction in Swiss leverage exposure and a USD 7 billion reduction in risk-weighted assets.
Update on cost savings
As of the end of 3Q13, Credit Suisse delivered expense savings of CHF 3.0 billion, compared to an adjusted* annualized 6M11 run-rate. Credit Suisse is today updating its end-2015 total run-rate reduction target from previously announced CHF 4.4 billion to over CHF 4.5 billion, reflecting the impact of the non-strategic unit plan. Business realignment costs recognized in the Corporate Center in 3Q13 were CHF 38 million.
Capital and funding
As of the end of 3Q13, Credit Suisse’s Look-through Swiss Core Capital ratio stood at 11.4%. The calculation of this ratio includes a pro-rata accrual for the resumption of an expected cash dividend in respect of 2013. As of the end of 3Q13, Credit Suisse reported a Look-through Basel III common equity tier 1 ratio of 10.2%, increased from 9.3% in 2Q13. The Basel III CET1 ratio as of the end of 3Q13 was 16.3%, up 1.0 percentage point from 2Q13, reflecting a reduction in risk-weighted assets. As of the end of 3Q13, Credit Suisse’s capital ratio under the CET1 plus high-trigger capital requirement stood at 13.2% on a look-through, adjusted basis, meeting the Swiss requirement of 13%, applicable in 2019.
Reflecting the impact of the establishment of the divisional non-strategic units, Credit Suisse is updating its year-end 2013 Swiss leverage exposure reduction target to CHF 1,070 billion, from the previously announced target of CHF 1,190 billion. As of the end of 3Q13, Credit Suisse’s Swiss leverage exposure amounted to CHF 1,184 billion, down from CHF 1,258 billion at the end of 2Q13. The Look-through Swiss Total Capital leverage ratio improved to 3.5%, on an adjusted basis, compared to a 2.7% as of the end of 2Q13.
Credit Suisse is also updating its long term Look-through risk-weighted asset target to approximately CHF 250 billion from the previously announced CHF 285 billion target for year-end 2015 on a foreign-exchange neutral basis, following the creation of the divisional non-strategic units. As of the end of 3Q13, Group Look-through risk-weighted assets stood at CHF 261 billion.
Credit Suisse is continuing to conservatively manage its liquidity, with an estimated long-term net stable funding ratio (NSFR) in excess of 100% under the current FINMA framework and short-term liquidity under Swiss regulations in excess of requirements as of the end of 3Q13.
Benefits of the integrated bank
In 3Q13, Credit Suisse generated CHF 1,097 million of collaboration revenues from the integrated bank. This corresponds to 20% of the Group’s net revenues in 3Q13.
Private Banking & Wealth Management
Private Banking & Wealth Management, which comprises the Wealth Management Clients business, the Corporate & Institutional Clients business and the Asset Management business, reported pre-tax income of CHF 1,018 million and net revenues of CHF 3,320 million in 3Q13. The sales of the exchange traded funds (ETF) business and Strategic Partners, the secondary private equity business, were completed in 3Q13, resulting in equity participation gains of CHF 237 million. Net revenues were stable compared to 3Q12, as higher other revenues and slightly higher recurring commissions and fees were offset by lower net interest income. Compared to 2Q13, net revenues were slightly lower, primarily reflecting lower transaction- and performance-based revenues and slightly lower recurring commissions and fees, partially offset by higher other revenues.
Total operating expenses of CHF 2,268 million decreased 3% compared to 3Q12 and 8% compared to 2Q13, driven primarily by lower compensation and benefits and by an expense provision of CHF 100 million in 2Q13 relating to the withholding tax treaty between Switzerland and the UK. Provision for credit losses was CHF 34 million on a net loan portfolio of CHF 214 billion.
The Wealth Management Clients business in 3Q13 reported pre-tax income of CHF 510 million and net revenues of CHF 2,146 million in 3Q13. Net revenues were stable compared to 3Q12, as higher recurring commissions and fees were offset by lower net interest income. Compared to 2Q13, net revenues were 8% lower, driven by substantially lower transaction- and performance-based revenues, reflecting seasonally lower client activity after a strong 2Q13. In 3Q13, the gross margin was 105 basis points, 5 basis points lower compared to 3Q12, mainly reflecting a continued adverse interest rate environment and higher average assets under management. Compared to 2Q13, the gross margin decreased 6 basis points, mainly reflecting the lower transaction- and performance-based revenues.
The Corporate & Institutional Clients business, which provides comprehensive coverage for all the financial services needs of corporate and institutional clients in Switzerland and for banks worldwide, reported pre-tax income of CHF 240 million in 3Q13 and net revenues of CHF 512 million. Net revenues were stable compared to 3Q12, as higher recurring commissions and fees offset lower net interest income and lower transaction- and performance-based revenues. Compared to 2Q13, net revenues were slightly lower, driven by seasonally lower trading and sales income and lower revenues from integrated solutions. Total operating expenses in 3Q13 were 9% lower compared to 3Q12 and slightly higher compared to 2Q13. The cost/income ratio of 51% improved from 56% in 3Q12, but rose 2.0 percentage points compared to 2Q13. Provision for credit losses was CHF 13 million in 3Q13 on a net loan portfolio of CHF 62 billion, reflecting a well-diversified credit portfolio and strong risk management.
The Asset Management business reported pre-tax income of CHF 268 million, with net revenues of CHF 662 million in 3Q13. Net revenues increased 7% from 3Q12 and 18% from 2Q13, driven by the equity participation gains of CHF 237 million recorded in 3Q13 from the sales of the ETF and the secondary private equity businesses.
Private Banking & Wealth Management recorded net new assets of CHF 8.1 billion in 3Q13. Wealth Management Clients contributed net new assets of CHF 3.2 billion with continued strong inflows from emerging markets and from the ultra-high-net-worth individual client segment, partially offset by continued cross-border outflows in Western Europe. Corporate & Institutional Clients reported net inflows of CHF 0.5 billion. Asset Management reported net new assets of CHF 3.8 billion in 3Q13 with inflows mainly in emerging markets and credit products.
Investment Banking reported net revenues of CHF 2,552 million and pre-tax income of CHF 229 million in 3Q13, reflecting a challenging market environment − particularly in the Fixed Income sales and trading business. Net revenues decreased 20% compared to 3Q12, as higher equity sales and trading results were more than offset by lower fixed income sales and trading revenues and lower underwriting and advisory results. Compared to 2Q13, net revenues were 25% lower, with lower revenues across all three businesses.
Fixed Income sales and trading revenues of CHF 833 million declined 42% compared to 3Q12, driven by lower results across most of our Fixed Income businesses. Compared to 2Q13, they decreased 34%, reflecting a seasonal slowdown across most businesses, exacerbated by rising interest rates and widening spreads which adversely impacted client activity.
Equity sales and trading revenues of CHF 1,065 million improved 8% from 3Q12, reflecting continued market leadership and favorable equity market conditions. Following a strong performance in 2Q13, equity sales and trading revenues declined 20% during the quarter, reflecting a seasonal slowdown.
Underwriting and advisory revenues of CHF 705 million were 18% lower compared to 3Q12, as lower equity underwriting and advisory performance offset continued strength in debt underwriting. Compared to 2Q13, revenues declined 22% driven by lower revenues across debt and equity underwriting and advisory consistent with lower industry volumes.
Compensation and benefits decreased by CHF 348 million, or 24%, compared to 3Q12 due to lower discretionary performance-related compensation expense, reflecting lower results and lower deferred performance-related compensation expense from prior year awards. Compared to 2Q13, compensation and benefits declined CHF 337 million, or 23%, driven by lower discretionary performance-related compensation expense, reflecting lower results. Total other operating expenses declined 3% compared to 3Q12, mainly due to lower litigation provisions and professional fees, and were stable compared to 2Q13.
In 3Q13, Investment Banking reported Basel III risk-weighted assets of USD 169 billion, exceeding the previously announced target of less than USD 175 billion of Basel III risk-weighted assets by end 2013.
The Corporate Center recorded a loss before taxes of CHF 562 million in 3Q13, including fair value losses on own debt of CHF 68 million, debit valuation adjustment losses on certain structured notes liabilities of CHF 99 million and fair value gains on stand-alone derivatives of CHF 4 million, resulting in overall losses on such items of CHF 163 million in 3Q13. This compares to a loss before taxes of CHF 1,071 million in 3Q12 and a loss before taxes of CHF 140 million in 2Q13. 3Q13 results also included a net reduction of CHF 189 million, comprising reclassifications to discontinued operations of revenues and expenses arising from sales of our ETF and Strategic Partners businesses and the announced sale of our Customized Fund Investment Group business (CFIG) recorded in our Private Banking and Wealth Management segment.
*Underlying results and adjusted cost-run rates are non-GAAP financial measures. For a reconciliation of the underlying results to the most directly comparable US GAAP measures, see Annex A “Reconciliation to underlying results – Core Results” of this media release. For further information on the calculation of cost run-rates on an adjusted annualized basis, see the 3Q13 Results Presentation Slides.
In this media release, revenues and expenses and the relevant gains on disposal of Private Banking & Wealth Management businesses are classified as discontinued operations in the Group’s income statement, whereas gains and expenses related to those business disposals are included in the segment’s results but excluded from underlying results. See “Format of presentation and changes in reporting” in I – Credit Suisse results – Core Results – Information and developments in the 3Q13 Financial Report.
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Credit Suisse AG
Credit Suisse AG is one of the world’s leading financial services providers and is part of the Credit Suisse group of companies (referred to here as ‘Credit Suisse’). As an integrated bank, Credit Suisse offers clients its combined expertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over 50 countries worldwide. The group employs approximately 46,400 people. The registered shares (CSGN) of Credit Suisse’s parent company, Credit Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at www.credit-suisse.com.
Cautionary statement regarding forward-looking information
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:
– our plans, objectives or goals;
– our future economic performance or prospects;
– the potential effect on our future performance of certain contingencies; and
– assumptions underlying any such statements.
Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements except as may be required by applicable securities laws. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:
– the ability to maintain sufficient liquidity and access capital markets;
– market and interest rate fluctuations and interest rate levels;
– the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular the risk of continued slow economic recovery or downturn in the US or other developed countries in 2013 and beyond;
– the direct and indirect impacts of continuing deterioration or slow recovery in residential and commercial real estate markets;
– adverse rating actions by credit rating agencies in respect of sovereign issuers, structured credit products or other credit-related exposures;
– the ability to achieve our strategic objectives, including improved performance, reduced risks, lower costs, and more efficient use of capital;
– the ability of counterparties to meet their obligations to us;
– the effects of, and changes in, fiscal, monetary, trade and tax policies, and currency fluctuations;
– political and social developments, including war, civil unrest or terrorist activity;
– the possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;
– operational factors such as systems failure, human error, or the failure to implement procedures properly;
– actions taken by regulators with respect to our business and practices in one or more of the countries in which we conduct our operations;
– the effects of changes in laws, regulations or accounting policies or practices;
– competition in geographic and business areas in which we conduct our operations;
– the ability to retain and recruit qualified personnel;
– the ability to maintain our reputation and promote our brand;
– the ability to increase market share and control expenses;
– technological changes;
– the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;
– acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets;
– the adverse resolution of litigation and other contingencies;
– the ability to achieve our cost efficiency goals and cost targets; and
– our success at managing the risks involved in the foregoing.
We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, including the information set forth in “Risk Factors” in I – Information on the company in our Annual Report 2012.
Capital and liquidity disclosures
As of January 1, 2013, Basel III was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder. Our related disclosures are in accordance with our current interpretation of such requirements, including relevant assumptions. We have calculated our Basel III NSFR based on the current FINMA framework. Changes in the interpretation of these requirements in Switzerland or in any of our assumptions or estimates could result in different numbers from those shown herein. The calculation of after-tax return on Basel III allocated capital assumes (i) tax rates of 27%in 9M13 and 25% in 9M12 for Investment Banking and 28%for Private Banking & Wealth Management and (ii) that capital is allocated at 10% of Basel III risk-weighted assets. The calculation of the Look-through Swiss Total Capital leverage ratio on an adjusted basis and the Look-through CET1 plus high-trigger capital ratio on an adjusted basis, assumes the completion as of the end of 3Q13 of the October 23, 2013 exchange of CHF 3.8 billion hybrid tier 1 notes into high-trigger capital instruments. For further information regarding these measures, see the 3Q13 Results Presentation Slides.