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Press Release
Credit Suisse Group reports net income of CHF 1.2 billion in the second quarter of 2008
All three divisions profitable; diluted earnings per share of CHF 1.12
Strong asset inflows in Private Banking: net new assets totaled CHF 17.4 billion
Solid operating performance in Investment Banking; net writedowns were immaterial at CHF 22 million
Continued significant reduction in risk exposures during 2Q08: risk exposures declined 31% in leveraged finance and 22% in commercial mortgages from the end of 1Q08, and 76% and 58% from the end of 3Q07, respectively
Strong BIS tier 1 ratio under Basel II of 10.2% as of June 30, 2008
Zurich, July 24, 2008 Credit Suisse Group reported net income of CHF 1,215 million in the second quarter of 2008, compared with net income of CHF 3,189 million in the second quarter of 2007. Core net revenues were CHF 7,830 million, up 159% from the first quarter of 2008 but down 33% from the second quarter of 2007. Diluted earnings per share in the second quarter of 2008 were CHF 1.12 compared with CHF 2.82 in the same period a year earlier.
Brady W. Dougan, Chief Executive Officer, said: "We are pleased with our second-quarter results, which reflect the resilience and earnings power of our integrated business model and our continued focus on risk and cost management. During the second quarter we saw strong momentum in our Wealth Management business and a solid operating performance in Investment Banking. We continued to reduce our risk positions, as we have done since the early stages of the credit crisis. At a time when the industry is undergoing fundamental change, our strength in the right mix of businesses provides us with excellent prospects to grow market share."
He added: "Our conservative funding structure and our position as one of the world's best capitalized banks remain competitive advantages. The quarter's strong net new assets in Private Banking and other client flows across our franchise underscore the trust that clients are placing in Credit Suisse. We anticipate that the current challenging market conditions will persist over the near to medium term and we will continue to manage our business conservatively."
Segment Results
Private Banking
Private Banking, which comprises the Wealth Management and Corporate & Retail Banking businesses, reported income before taxes of CHF 1,220 million in the second quarter of 2008, a decrease of 12% from the second quarter of 2007.
The Wealth Management business reported income before taxes of CHF 830 million in the second quarter of 2008, down 17% from the strong second quarter of 2007. Net revenues declined 4%, as an improvement in recurring revenues was more than offset by a decrease in transaction-based revenues. Total operating expenses rose 5%, primarily due to the ongoing strategic investment in expanding the global franchise. As part of that effort, Credit Suisse hired 120 relationship managers globally during the quarter, further strengthening its professional team. The pre-tax income margin was 36.4% in the second quarter of 2008 compared with 42.0% in the same period a year earlier.
The Corporate & Retail Banking business reported income before taxes of CHF 390 million in the second quarter of 2008, up 3% from the second quarter of 2007. Net revenues rose 2% from the same period a year earlier. Net releases of provision for credit losses were CHF 5 million compared with net releases of CHF 28 million in the second quarter of 2007, which benefited from the resolution of a single exposure. Total operating expenses were 2% lower than in the second quarter of 2007, as an increase in compensation and benefits was more than offset by lower general and administrative expenses and commission expenses. The pre-tax income margin was 39.5% in the second quarter of 2008 compared with 39.2% in the second quarter of 2007.
Investment Banking
Investment Banking returned to profitability in the second quarter of 2008, reporting income before taxes of CHF 281 million, compared with the record CHF 2,502 million in the second quarter of 2007. Net revenues declined 50% from the second quarter of 2007, but rose substantially from the previous quarter. Despite the challenging market conditions, many businesses reported solid results. The year-on-year decline in revenues was due in large part to an industry-wide decline in origination activity, particularly in the structured products and leveraged finance businesses, compared with exceptionally high levels in the second quarter of 2007. Net revenues in the second quarter of 2008 also reflected combined net writedowns of CHF 22 million in the leveraged finance and structured products businesses and a fair value loss of CHF 503 million on Credit Suisse debt due to narrower credit spreads.
Fixed income trading revenues were significantly lower in the second quarter of 2008 compared with the same period a year earlier, reflecting the above-mentioned net writedowns and lower levels of origination activity. Revenues from the global rates business also declined significantly. These declines were partly offset by increases in the residential mortgage-backed securities and European high grade businesses. Equity trading revenues decreased from the second quarter of 2007, primarily due to lower revenues in the equity proprietary trading and convertibles businesses than in the strong year-ago period. The decline was partially offset by a near-record performance in prime services and a strong performance in cash equities. Equity derivatives also posted solid results. Fixed income and equity trading were impacted by the fair value loss on Credit Suisse debt compared with significant gains in the first quarter of 2008. The underwriting and advisory businesses had lower revenues compared with the second quarter of 2007, in line with an industry-wide decline in market activity. Total operating expenses declined 32%, due primarily to a decrease in compensation and benefits, reflecting lower performance-related compensation on lower revenues.
Net valuation adjustments and exposures in Investment Banking
In the second quarter of 2008, combined net writedowns in the leveraged finance and structured products businesses were immaterial at CHF 22 million and exposures were significantly reduced compared with the previous quarters.
Asset Management
Asset Management returned to profitability in the second quarter of 2008, reporting income before taxes of CHF 167 million, compared with income before taxes of CHF 299 million in the second quarter of 2007. Income before taxes declined as a valuation gain of CHF 79 million on securities purchased from Credit Suisse's money market funds and semi-annual performance-based fees were more than offset by lower private equity and other investment-related gains and lower asset management and administrative revenues, reflecting a decline in average assets under management and higher funding costs. Compared with the second quarter of 2007, net revenues were down 13%, or 8% before the impact of the securities purchased from Credit Suisse's money market funds and private equity and other investment-related gains. Total operating expenses rose 3% from the second quarter of 2007, reflecting higher compensation and benefits and general and administrative expenses. In the second quarter of 2008, the pre-tax income margin was 22.6% compared with 35.1% in the second quarter of 2007, and was 13.3% before the impact of the securities purchased from Credit Suisse's money market funds. The fair value of Credit Suisse's balance sheet exposure from the purchased securities was CHF 1.5 billion at the end of the second quarter of 2008, down CHF 724 million from the first quarter of 2008.
Net New Assets
Private Banking recorded net new assets of CHF 17.4 billion in the second quarter of 2008, including net new assets of CHF 15.4 billion in the Wealth Management business, which represented a rolling four-quarter average growth rate of 5.9%. This result reflected good contributions from all regions, especially Europe, Middle East and Africa (EMEA) and Asia Pacific. Asset Management reported net new asset outflows of CHF 3.8 billion in the second quarter of 2008. The Group's total assets under management were CHF 1,411.9 billion as of June 30, 2008, down 13.3% from June 30, 2007, primarily reflecting adverse foreign exchange-related and market movements.
Benefits of the integrated bank
In the second quarter of 2008, Credit Suisse generated CHF 1.3 billion in revenues from cross-divisional activities, bringing the 2008 year-to-date total to CHF 2.5 billion.
Strong capitalization
Credit Suisse Group's capitalization remained strong, with a BIS tier 1 ratio of 10.2% under Basel II as of June 30, 2008. To achieve this, no dilutive equity capital was raised and the Group accrued a significant dividend during the quarter.
Enquiries:
- Media Relations Credit Suisse, Tel. +41 844 33 88 44, media.relations@credit-suisse.com
- Investor Relations Credit Suisse, Tel. +41 44 333 71 49, investor.relations@credit-suisse.com
- Credit Suisse
- As one of the world's leading banks, Credit Suisse provides its clients with private banking, investment banking and asset management services worldwide. Credit Suisse offers advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as retail clients in Switzerland. Credit Suisse is active in over 50 countries and employs approximately 49,000 people. Credit Suisse is comprised of a number of legal entities around the world and is headquartered in Zurich. 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 and non-GAAP information
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. 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;
- 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 a continued US or global economic downturn in 2008 and beyond;
- the direct and indirect impacts of continuing deterioration of subprime and other real estate markets;
- further adverse rating actions by credit rating agencies in respect of structured credit products or other credit-related exposures or of monoline insurers;
- 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; 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, as well as the information set forth in our Form 20-F Item 3 - Key Information - Risk Factors.
This press release contains non-GAAP financial information. Information needed to reconcile such non-GAAP financial information to the most directly comparable measures under GAAP can be found in the Credit Suisse Financial Report 2Q08.
