Credit Suisse Group reports 2Q14 and 6M14 results

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Credit Suisse Group reports 2Q14 and 6M14 results

Credit Suisse 2Q14 results: Core pre-tax income of CHF 1,767 million for strategic businesses and return on equity of 13%; reported Core pre-tax loss of CHF 370 million, reflecting the previously announced CHF 1,618 million charge relating to the final settlement of all outstanding US cross-border matters

Credit Suisse 6M14 results: Core pre-tax income of CHF 3,707 million for strategic businesses and return on equity of 13%; reported Core pre-tax income of CHF 1,030 million

Look-through CET1 ratio of 9.5% as of the end of 2Q14; on track to exceed 10% by year-end 2014

Resilient 2Q14 performance of Private Banking & Wealth Management’s strategic businesses with strong net new assets of CHF 11.8 billion

2Q14 Investment Banking results reflect strong origination activity, continued strong performance in credit and securitized products and improved capital efficiency

Credit Suisse Group reports 1Q14 and 6M14 results

Zurich
22.07.2014

Media Relations Credit Suisse AG

T: +41 844 33 88 44
E: media.relations@credit-suisse.com

Investor Relations Credit Suisse AG

T: +41 44 333 71 49
E: investor.relations@credit-suisse.com

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Private Banking & Wealth Management strategic performance reflecting lower revenues but continued efficiency gains:
- 2Q14 resilient profitability in strategic businesses with pre-tax income of CHF 882 million, down 13% from a very strong 2Q13, and a return on capital of 28%
- 2Q14 total reported pre-tax loss of CHF 749 million, including the previously announced CHF 1,618 million charge relating to the final settlement of all outstanding US cross-border matters
- Further increased cost efficiency of strategic businesses in 6M14 with cost/income ratio of 68%, improved from 71% in 6M13
- Increased Wealth Management Clients net margin to 28 basis points for 6M14, supported by significant progress on cost reduction
- Wealth Management Clients 2Q14 gross margin at 99 basis points, down five basis points compared to 1Q14, reflecting an increase in assets under management, a change in client mix, lower fee-based revenues and slightly lower net interest income
- Strong 2Q14 net new assets from strategic businesses of CHF 11.8 billion with annualized growth rate of 4%, notwithstanding continued outflows of CHF 2.9 billion from Western European cross-border business due to substantial progress on regularization of asset base; total net new assets of CHF 10.1 billion with total Western European cross-border outflows of CHF 4.1 billion

Investment Banking performance reflecting stability of diversified strategic franchise:
- Strategic businesses with pre-tax income of CHF 1,034 million and return on capital of 18%; strong performance from fixed income yield franchises and underwriting businesses, partly offset by less favorable trading conditions for equity sales and trading and continued weakness in global macro products
- Total reported pre-tax income of CHF 752 million with strong performance in key businesses and acceleration in the wind-down of the non-strategic unit
- Strong 6M14 return on capital in Investment Banking, with 20% from strategic businesses and solid 13% in total reported results
- Restructuring of macro business, including exit from commodities trading, to further enhance capital and operating efficiencies targeting approximately USD 200 million in expense savings, USD 8 billion in risk-weighted asset reduction and USD 25 billion in leverage exposure reduction by the end-state

Resilient capital base and leverage ratio as of the end of 2Q14, notwithstanding the settlement of the US cross-border matter:
- Look-through BIS CET1 ratio of 9.5%, progress in executing capital measures expected to fully mitigate impact of litigation settlement and on track to exceed 10% CET1 ratio by year-end, including continued accrual of cash dividend for 2014; Look-through Swiss total capital ratio at 15.3%
- Leverage exposure at CHF 1,156 billion; Phase-in Swiss leverage ratio of 4.8%; Look-through Swiss leverage ratio of 3.7% within reach of the 2019 requirement of 4%

On track to reach cost reduction targets:
- Delivered CHF 3.4 billion of adjusted annualized savings compared to the annualized expense run rate for 6M11; maintaining momentum towards target of over CHF 4.5 billion by end-2015

Wind-down of non-strategic units and progress in resolving legacy litigation issues:
- Wind-down ahead of schedule with Swiss leverage exposure reduction of USD 3 billion and risk-weighted asset reduction of USD 6 billion in the Investment Banking non-strategic unit
- Significant progress in resolving key legacy litigation issues in 2014 to date

Brady W. Dougan, Chief Executive Officer, said: "Our reported results for the second quarter and the first half of 2014 were impacted by the resolution of our most significant legacy litigation issue. During the quarter, we continued to see good momentum with clients, while at the same time making further progress in winding-down our non-strategic units. Our strategic results were solid, demonstrating the resilience of our business model, notwithstanding subdued client trading activity in certain areas which impacted both Private Banking & Wealth Management and Investment Banking."

He continued: "With the final settlement of all outstanding US cross-border matters as announced in May, we brought to a close the most significant and longstanding litigation issue for Credit Suisse. I want to reiterate that we deeply regret the past misconduct that led to this settlement and that we take full responsibility for it. The continued trust and support of our clients helped us mitigate the impact of the settlement on our business. We are executing our capital measures and are on track to improve our Look-through CET 1 ratio to above 10% by the end of the year. This includes the continued accrual for a cash dividend for 2014. Once we reach 10%, and as we continue to accrete capital towards our 11% long-term target, we intend to return approximately half of our earnings to shareholders through our annual distributions."

Commenting on Private Banking & Wealth Management, he said: "We generated strong net new assets of CHF 11.8 billion in the second quarter from our strategic businesses, driven by growth in Asia Pacific and Switzerland – two of our key markets. This strong growth more than offset outflows from our Western European cross border business, where we are taking proactive steps to regularize our asset base. This is part of the secular transformation of the cross border wealth management business. During the quarter, we further improved the efficiency of our strategic businesses with lower operating expenses, which helped us mitigate the impact of the subdued transaction activity and the continued low interest rate environment on our results."

Commenting on Investment Banking, he said: "Investment Banking delivered solid results for the second quarter of 2014, reflecting strong origination activity, continued momentum in our yield franchises and improved capital efficiency compared to the first quarter. The restructuring of our macro business, including the exit from commodities trading, is expected to drive further capital, leverage and expense reductions. Our strategic businesses reported a return on capital of 18% for the second quarter and 20% for the first half of 2014, demonstrating the stability of our diversified strategic franchise."

The full Earnings Release is available in PDF

Important information
The Group has not finalized its 2Q14 Financial Report and the Group’s independent registered public accounting firm has not completed its review of the condensed consolidated financial statements (unaudited) for the period. Accordingly, the financial information contained in this Earnings Release is subject to completion of quarter-end procedures, which may result in changes to that information. Certain reclassifications have been made to prior periods to conform to the current presentation.

For purposes of this Earnings Release, unless the context otherwise requires, the terms "Credit Suisse" and "the Group" mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the Swiss bank subsidiary of the Group, is substantially similar to the Group, and these terms are used to refer to both when the subject is the same or substantially similar. The term “the Bank” is used when referring to Credit Suisse AG, the Swiss bank subsidiary of the Group, and its consolidated subsidiaries.

Information referenced in this Earnings Release, whether via website links or otherwise, is not incorporated into this Earnings Release.

As of January 1, 2013, Basel III was implemented in Switzerland along with the Swiss "Too Big to Fail" legislation and regulations thereunder. The related disclosures are in accordance with Credit Suisse’s current interpretation of such requirements, including relevant assumptions. Changes in the interpretation of these requirements in Switzerland or in any of Credit Suisse’s assumptions or estimates could result in different numbers from those shown herein.

References to phase-in and look-through included herein refer to Basel III requirements. Phase-in reflects that for the years 2014 – 2018, there will be a five-year (20% per annum) phase in of goodwill and other intangible assets and other capital deductions (e.g., certain deferred tax assets and participations in financial institutions) and for the years 2013 – 2022, there will be a phase out of certain capital instruments. Look-through assumes the full phase-in of goodwill and other intangible assets and other regulatory adjustments and the full phase out of certain capital instruments.

Unless otherwise noted, leverage ratio, leverage exposure and total capital amounts included herein are based on the current FINMA framework. The Swiss leverage ratio is calculated as Swiss total eligible capital, divided by a three-month average leverage exposure, which consists of balance sheet assets, off-balance sheet exposures, which consist of guarantees and commitments, and regulatory adjustments, which include cash collateral netting reversals and derivative add-ons.
Following a revision to the Swiss Liquidity Ordinance in June 2014 implementing Basel III Liquidity Coverage Ratio (LCR) rules, beginning in 2Q14, the majority of a portfolio of high-quality liquid assets previously recorded in the Corporate Center and managed by our Treasury function have been allocated to the business divisions. This allows for a more efficient management of their business activities from an overall Group perspective with respect to LCR and Swiss leverage requirements arising from the portfolio of assets. Prior periods have been restated for the related impact on assets and Swiss leverage exposures.
Return on equity for strategic results is calculated by dividing annualized strategic net income by average strategic shareholders’ equity (derived by deducting 10% of non-strategic risk-weighted assets from reported shareholders’ equity). Return on capital is calculated using income after tax and capital allocated based on the average of 10% of average risk-weighted assets and 2.4% of average leverage exposure.

Adjusted cost run-rates are non-GAAP financial measures. All expense reduction metrics against 6M11 annualized total expenses are measured at constant foreign exchange rates and exclude realignment and other significant expense items and variable compensation expenses. For further information regarding these measures, see the 2Q14 Results Presentation Slides.

The Group’s estimate of the aggregate range of reasonably possible losses that are not covered by existing provisions which is discussed above relates only to those proceedings for which the Group believes an estimate is possible and which are discussed in Note 38 to the Consolidated Financial Statements in the Group’s Annual Report on Form 20-F and updated in its quarterly reports (including the 2Q14 Financial Report that is scheduled to be released on July 31). It is inherently difficult to determine whether a loss is probable or even reasonably possible or to estimate the amount of any loss or loss range for many of the Group’s legal proceedings. The Group’s aggregate litigation provisions include estimates of losses, additional losses or ranges of loss for proceedings for which such losses are probable and can be reasonably estimated. The Group does not believe that it can estimate an aggregate range of reasonably possible losses for certain of its proceedings because of their complexity, the novelty of some of the claims, the early stage of the proceedings, the limited amount of discovery that has occurred and/or other factors. For additional details, see Note 38 to the Consolidated Financial Statements in the Group’s Annual Report on Form 20-F and the litigation note in each of its quarterly Financial Reports.

Investors and others should note that we announce material information (including quarterly earnings releases and financial reports) to the investing public using press releases, SEC and Swiss ad hoc filings, our investor relations website and public conference calls and webcasts. We intend to also use our investor relations Twitter account @creditsuisse (https://twitter.com/creditsuisse) to excerpt key messages from our public disclosures, including earnings releases. We may retweet such messages through certain of our regional Twitter accounts, including @csschweiz (https://twitter.com/csschweiz) and @csapac (https://twitter.com/csapac). Investors and others should take care to consider such abbreviated messages in the context of the disclosures from which they are excerpted. The information we post on these Twitter accounts is not a part of this Earnings Release.

In various tables, use of “–” indicates not meaningful or not applicable.

Cautionary statement regarding forward-looking information
This press release contains statements that constitute forward-looking statements. 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 2014 and beyond;
- the direct and indirect impacts of continuing deterioration or slow recovery in residential and commercial real estate markets;
- adverse rating actions by agencies in respect of sovereign issuers, structured credit products or other credit-related exposures;
- the ability to achieve our 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, nationalizations or confiscations in countries where we conduct 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 where we conduct 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 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 2013.

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Credit Suisse Group reports 2Q14 and 6M14 results

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