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Credit Suisse Group reports net income of CHF 2.0 billion in the first quarter of 2009
Credit Suisse Group reported net income attributable to shareholders of CHF 2,006 million in the first quarter of 2009 compared with a net loss of CHF 2,148 million in the prior-year period. Core net revenues were CHF 9,557 million in the first quarter of 2009 compared with CHF 2,926 million in the prior-year period. The return on equity attributable to shareholders was 22.6% and diluted earnings per share were CHF 1.60.
Strong return on equity of 22.6%, low risk profile and further strengthened capital position - tier 1 ratio of 14.1% as of quarter-end.
Private Banking pre-tax income of CHF 1.0 billion; net new assets of CHF 11.4 billion with strong inflows from both the international and Swiss businesses.
Wealth Management business is positioned well for success in a changing industry landscape.
Investment Banking returned to significant profitability with pre-tax income of CHF 2.4 billion; strong revenue growth and market share gains in key client businesses, leading to good returns on capital and lower risk usage.
Consistent, disciplined fair value accounting approach, including net writedowns of CHF 1.4 billion in commercial mortgage-backed securities (CMBS).
- Asset Management pre-tax loss of CHF 0.5 billion primarily reflects unrealized private equity losses in line with the decline in public markets; continued progress made on strategy to focus on asset allocation, the Swiss businesses and alternative investments and more closely align them with the integrated bank.
Brady W. Dougan, Chief Executive Officer, said: "We are pleased with Credit Suisse's performance in the first quarter of 2009. We believe that these results, in particular our strong return on equity, show that our differentiated strategy and our robust, integrated and capital-efficient business model with a low risk profile can be a powerful generator of earnings. The results also show the benefit of the measures we took last year across the bank, including cost reductions and the further strengthening of our capital position."
Commenting on the strategic measures taken across the bank, Mr. Dougan said: "Wealth Management and our Swiss Corporate & Retail Banking businesses proved their resilience, with strong profitability and total net new assets of CHF 11.4 billion. We are reaping the rewards from the steps we have taken over recent years to expand our international footprint and build a more efficient platform. Wealth Management is positioned well for success in a changing industry landscape. We will continue to judiciously invest in growth, both globally and in our Swiss businesses."
"Investment Banking returned to significant profitability, reflecting the progress that has been made in reducing risk and executing on its client-focused, capital-efficient strategy. We believe that our realigned platform is capable of delivering sustainable profitability and good returns on capital, with reduced earnings volatility. During the quarter, we saw our key client businesses generate strong revenue growth and gain market share. At the same time, we made substantial progress in repositioning a number of previously loss-making businesses, returning these areas to profit this quarter through changed operating models and revised risk limits."
"Credit Suisse's strengths are increasingly recognized by existing and potential clients and this provides us with a distinct competitive advantage. Our combination of a differentiated strategy, a strong capital position, an absence of government ownership, strong funding and liquidity, well-positioned businesses, a capital-efficient business model and a significantly lower risk profile makes Credit Suisse a trusted partner for clients."
Mr. Dougan concluded: "We remain optimistic about the prospects for Credit Suisse, particularly in the context of the overall industry. Our prudent approach in the new market environment has served us well in the first quarter and we will continue to manage our business in this manner. While we may still be affected by continued volatility and market disruptions if difficult conditions persist, we believe that we are in a position to weather the storms and perform well when market opportunities arise."
Private Banking, which comprises the Wealth Management and Corporate & Retail Banking businesses, reported income before taxes of CHF 992 million in the first quarter of 2009, down 25% from the prior-year period, reflecting the impact of the challenging operating environment. Net revenues were solid at CHF 2,878 million, down 14%.
The Wealth Management business reported income before taxes of CHF 646 million in the first quarter of 2009, down 25% from the prior-year period, primarily reflecting lower revenues, which were impacted by a decline in average assets under management, and cautious client behavior. Net revenues in the first quarter of 2009 were CHF 1,925 million, down 17% from the prior-year period, reflecting a decrease in both recurring and transaction-based revenues. Total operating expenses were 12% lower, mainly due to recoveries on non-credit-related provisions in the first quarter of 2009 and lower commission expenses. The pre-tax income margin was 33.6% in the first quarter of 2009 compared with 37.2% in the prior-year period. The gross margin on average assets under management in the first quarter of 2009 was 116 basis points, slightly below the prior-year period.
The Corporate & Retail Banking business reported income before taxes of CHF 346 million in the first quarter of 2009, down 25% from the prior-year period. Net revenues were CHF 953 million, down 9%. Provision for credit losses was CHF 45 million in the first quarter of 2009 compared with net releases of CHF 9 million in the prior-year period. Total operating expenses were down 4%. The pre-tax income margin was 36.3% in the first quarter of 2009 compared with 44.5% in the prior-year period.
Investment Banking reported income before taxes of CHF 2,414 million in the first quarter of 2009, compared with a loss before taxes of CHF 3,423 million in the prior-year period. Net revenues increased significantly to CHF 6,442 million from negative CHF 503 million in the prior-year period, reflecting the substantial progress that has been made on the realignment of Investment Banking towards a client-focused, capital-efficient strategy. Investment Banking achieved a significant increase in market share in key client businesses, increasing revenues in these areas to CHF 6.3 billion, reflecting strong results in areas including global rates and foreign exchange, US residential mortgage-backed securities secondary trading, cash equities, prime services, and flow and corporate derivatives.
Furthermore, Investment Banking achieved a significant improvement in the performance of the business areas targeted for repositioning. Businesses such as emerging markets trading, US leveraged financed, equity trading strategies and convertibles returned to profitability, achieving total revenues of CHF 1.4 billion in the first quarter of 2009. This reflected the benefit of changed operating models and a revised approach to risk usage.
Investment Banking recorded negative revenues of CHF 1.7 billion in the businesses it is exiting, primarily driven by net writedowns in CMBS of CHF 1.4 billion. However, Investment Banking continued to reduce its legacy positions, cutting holdings of dislocated assets by a further 31% since the end of the fourth quarter of 2008 and a cumulative 92% since the end of the third quarter of 2007.
Of Investment Banking's total net revenues, Credit Suisse estimates that approximately CHF 1.3 billion was due to more normalized market conditions, including the narrowing of credit spreads, the reduction in the differential between cash and synthetic instruments, the reduction in market volatility and the stabilization of the convertible bond market since the fourth quarter of 2008. Revenues in Investment Banking also benefited from fair value gains on Credit Suisse's own debt of CHF 365 million.
Investment Banking's results also benefited from lower non-compensation costs. These fell by 19% in US dollar terms compared with the first quarter of 2008 due to a combination of lower fixed non-compensation costs (including reduced travel and entertainment costs and professional fees) and reduced brokerage & commission expenses. Compensation expense of CHF 2.9 billion included the vesting of prior-year compensation awards (including from the Partner Asset Facility plan) and a performance-related compensation accrual for 2009 that reflected the improved risk-adjusted profitability of Investment Banking.
Overall risk capital usage was reduced further during the first quarter of 2009, in line with Investment Banking's strategic objectives. Excluding the impact of methodology changes, underlying risk-weighted assets in US dollar terms declined 11% from the end of the fourth quarter of 2008, while average one-day Value-at-Risk fell 14% in the same period.
Net valuation adjustments and exposures in Investment Banking
Credit Suisse took a consistent and disciplined approach to fair value accounting throughout the first quarter of 2009. This led to CHF 1.4 billion of net writedowns in CMBS. In the first quarter of 2009, Credit Suisse did not early adopt the new accounting guidance concerning fair value issued in April 2009 by the Financial Accounting Standards Board. Credit Suisse is obliged to and will adopt these new standards in the second quarter of 2009 but does not expect a significant impact on fair values as a result of this guidance.
Asset Management reported a loss before taxes of CHF 490 million in the first quarter of 2009, compared with a loss of CHF 544 million in the prior-year period. The result included mostly unrealized investment-related losses of CHF 387 million, mainly in private equity positions, compared with losses of CHF 9 million in the prior-year period, as well as losses on securities purchased from Credit Suisse's money market funds of CHF 21 million, compared with losses of CHF 566 million in the prior-year period. Net revenues were CHF 6 million in the first quarter of 2009, up CHF 52 million from the prior-year period. Excluding securities purchased from Credit Suisse's money market funds and investment-related gains/losses, net revenues decreased CHF 115 million to CHF 414 million. Total operating expenses were stable.
Net New Assets
Of the CHF 11.4 billion net new assets in Private Banking in the first quarter of 2009, Wealth Management generated CHF 9.0 billion, which represents a rolling four-quarter average growth rate of 5.0%, with strong inflows from Europe, Middle East and Africa (EMEA), Asia Pacific and Switzerland. The CHF 2.4 billion net new assets generated in Corporate & Retail Banking were mainly from institutional clients but also reflected healthy inflows from private clients. Asset Management reported net asset outflows of CHF 3.5 billion in the first quarter of 2009. The alternative investment strategies business within Asset Management reported net inflows of CHF 1.0 billion, confirming its strength. The Group's total assets under management from continuing operations were CHF 1,121.7 billion as of the end of the first quarter of 2009, up 1.4% from the end of the fourth quarter of 2008, primarily reflecting positive net new assets in Private Banking and favorable exchange-related movements, partly offset by adverse market movements and net asset outflows in Asset Management.
Benefits of the integrated bank
Credit Suisse generated CHF 1.0 billion in revenues from cross-divisional activities in the first quarter of 2009, compared with revenues of CHF 1.2 billion in the prior-year period.
Capital and liquidity management
Credit Suisse's capital position remains very strong. The tier 1 ratio was 14.1% as of the end of the first quarter of 2009, compared with 13.3% as of the end of the fourth quarter of 2008. Credit Suisse continues to have a strong liquidity position and therefore intends to redeem its two Upper Tier 2 issues callable in July 2009 (the Credit Suisse, Guernsey Branch EUR 125 million bonds and the Credit Suisse, London Branch GBP 150 million bonds).
Credit Suisse today announced that Tobias Guldimann, currently Chief Risk Officer of Credit Suisse Group and a member of the Executive Board, will assume sole responsibility for risk management on the Executive Board with effect from June 1, 2009. At this time, D. Wilson Ervin, Chief Risk Officer of Credit Suisse, will step down from the Executive Board and take up a new role as a Senior Advisor, reporting to Brady W. Dougan. Mr. Ervin and Mr. Guldimann have worked closely together over the last 10 years on the development of Credit Suisse's risk management strategy and more recently in planning the transition.