Corporate Press Release
Credit Suisse Group reports 2Q11 underlying* pre-tax income of CHF 1.2 billion and underlying net income of CHF 835 million; underlying* return on equity 10%
Including business realignment costs of CHF 142 million and net fair value gains of CHF 41 million on own debt and stand-alone derivatives relating to own funding liabilities, pre-tax income was CHF 1.1 billion and net income CHF 768 million; return on equity 9.7%
Credit Suisse Group reported underlying pre-tax income of CHF 1.2 billion, underlying net income of CHF 835 million and an underlying return on equity of 10% for 2Q11. Including business realignment costs of CHF 142 million and net fair value gains of CHF 41 million on own debt and stand-alone derivatives relating to own funding liabilities, pre-tax income was CHF 1.1 billion, net income attributable to shareholders was CHF 768 million and core results net revenues were CHF 6.3 billion. The return on equity attributable to shareholders was 9.7% and diluted earnings per share totaled CHF 0.48. The Basel II tier 1 ratio was 18.2% at the end of 2Q11.
Net new assets totaled CHF 14.3 billion; continued strong capital position with a Basel II tier 1 ratio of 18.2%
6M11 underlying* net income of CHF 2.4 billion, underlying* return on equity of 15% and net new assets of CHF 33.4 billion
Walter Berchtold to assume role of Chairman of Private Banking;
Hans-Ulrich Meister appointed Chief Executive Officer of Private Banking
*Excluding business realignment costs of CHF 142 million and net fair value gains of CHF 41 million on own debt and stand-alone derivatives relating to own funding liabilities.
2Q11 results marked by:
- Low levels of client activity and a difficult trading environment with concerns over the European debt crisis and deteriorating global economic indicators
- Low interest rate environment
- Strong Swiss franc that reduced pre-tax income by CHF 348 million vs. 2Q10 and CHF 637 million vs. 6M10
- Continued strength in net new asset generation and continued market share momentum across divisions
- Pre-tax income of CHF 843 million and net revenues of CHF 2,797 million; adverse foreign exchange translation impact on pre-tax income of CHF 205 million vs. 2Q10
- Solid net new assets of CHF 11.5 billion
- Lower net interest income and transaction volumes lead to gross margin of 115 bps in Wealth Management Clients
- Very strong performance in Corporate & Institutional Client business with pre-tax margin of 53%
- Pre-tax income of CHF 231 million and net revenues of CHF 2,822 million; adverse foreign exchange translation impact on pre-tax income of CHF 151 million vs. 2Q10
- Fixed income sales and trading results impacted by challenging trading conditions and moderately lower client flows
- Solid equity sales and trading revenues despite reduced market volumes
- Solid underwriting and advisory performance and improved market shares
- Reduced risk exposure in light of volatile markets, with 98% value at risk (VaR) down 24% vs. 2Q10
- Pre-tax income of CHF 202 million and net revenues of CHF 629 million; adverse foreign exchange translation impact on pre-tax income of CHF 27 million vs. 2Q10
- Net new assets of CHF 4.0 billion
Adjustment of cost base to increase the resilience of returns
- Implementation of measures to achieve CHF 1 billion in run-rate cost savings in 2012 compared to 6M11 annualized run-rate level
- Total implementation costs in 2011 of CHF 400 million to CHF 450 million, of which CHF 142 million recognized in 2Q11
Brady W. Dougan, Chief Executive Officer, said: “The strength of our business model is underscored by an underlying return on equity of 15% for the first half of 2011 despite a disappointing performance in the second quarter. Asset Management showed a strong performance in the quarter, and Private Banking recorded solid results despite significant market headwinds and maintained its strength in gathering net new assets. However, our performance in Investment Banking was below our expectations.”
He continued: “In order to ensure attractive returns in the face of an uncertain and challenging economic and market environment, we continue to be proactive about seeking cost efficiencies across the bank. The ability to take concerted actions to achieve efficiencies while at the same time investing in client-focused businesses, continuing to grow our assets under management and winning market share, is confirmation of the strength of our business model.”
He concluded: “We have adapted early to the new regulatory landscape, we are taking action to adjust the cost base of our business, and our platform will provide us with substantial upside potential when economic and market conditions improve.”
Walter Berchtold to assume role of Chairman of Private Banking; Hans-Ulrich Meister appointed Chief Executive Officer of Private Banking
Effective August 1, the Board of Directors has appointed Walter Berchtold Chairman Private Banking and Hans-Ulrich Meister Chief Executive Officer Private Banking thereby assuming responsibility for our Private Banking business in addition to his role as Chief Executive Officer Credit Suisse Switzerland. In his new position Walter Berchtold will focus on further growing our strategically important business with UHNWI clients globally, and will work closely with divisional and regional CEOs helping build our integrated model and expanding our global footprint. Walter Berchtold and Hans-Ulrich Meister are members of the Executive Board of Credit Suisse and report to Brady Dougan.
Brady W. Dougan, Chief Executive Officer, said: “Walter Berchtold and his team have built the premier Private Banking franchise globally. Since 2008 we recorded more than CHF 150 billion in net new assets with wealth management clients alone, almost three times the result of our closest competitor, and we have consistently reported the highest margins in the industry. Recognizing early on that our international clients require multishore capabilities, during Walter Berchtold’s tenure we have built a strong network of booking platforms around the world thereby growing our international business significantly. Our strong track record of providing superior advice and services globally and attracting best in class people has been recognized by our clients and also through various industry awards. Since joining Credit Suisse in 2008 Hans-Ulrich Meister has proven outstanding leadership capabilities in a period that presented us with significant challenges. We are very pleased that with his appointment we can ensure a smooth succession in this critically important business.”
To position the Group to perform well in the continued challenging market, a number of efficiency enhancements are being implemented that target CHF 1 billion in cost savings and resulting reductions in the expense run-rate during 2012. This program includes targeted headcount reductions of approximately 4% of the total headcount across the Group. The initiatives will involve implementation costs in 2011 of CHF 400 million to CHF 450 million, of which CHF 142 million were recognized in 2Q11, with further amounts to be recognized during the rest of the year. As a result of these implementation costs the program will provide for limited net savings in 2011 with the full benefits of the initiatives expected to be realized during 2012.
Private Banking, which comprises the global Wealth Management Clients business and the Swiss Corporate & Institutional Clients business, reported income before taxes of CHF 843 million in 2Q11, down 4% compared to 2Q10. The weakening of foreign exchange rates, primarily that of the US dollar and the euro against the Swiss franc, had an adverse impact on the result: excluding the foreign exchange impact, income before taxes increased by CHF 174 million or 20% in 2Q11 compared to 2Q10, and net revenues increased by CHF 100 million or 3% in 2Q11 compared to 2Q10.
Net revenues were driven by a 10% decline in net interest income and a 7% decline in transaction-based revenues. The reduction in net interest income reflected the adverse foreign exchange translation impact and the continued low interest rate environment. Transaction-based revenues decreased primarily due to substantially lower brokerage and product issuing fees and lower foreign exchange income from client transactions, reflecting very low levels of client activity during the quarter, partially offset by gains from the sale of real estate. Total operating expenses decreased due to the foreign exchange translation impact and declines across most expense categories.
The Wealth Management Clients business reported income before taxes of CHF 595 million in 2Q11, down 6% compared to 2Q10, as lower net revenues were partially offset by lower total operating expenses. The decline in net revenues mainly reflected the adverse foreign exchange translation impact, very low levels of client activity with a drop of over 20% in turnover volumes of equities and bonds and the low interest rate environment. The gross margin of 115 basis points decreased 5 basis points compared to the prior-year quarter, driven by the decline in the contribution from net interest income and transaction-based revenues.
The Corporate & Institutional Clients business, which provides comprehensive coverage for all the financial service needs of corporate and institutional clients in Switzerland and for banks worldwide, reported income before taxes of CHF 248 million in 2Q11, up 3% from 2Q10, as a slight decrease in net revenues was more than offset by a 7% reduction in total operating expenses. The pre-tax income margin remained very strong at 53%, compared to 51% in 2Q10. This strong result was driven by all businesses, with a high level of business activity in the large Swiss corporates sector and strong business growth in the commodity trade finance business. Despite the strength of the Swiss franc and its impact on the economy, the loan portfolio remains strong.
Investment Banking reported income before taxes of CHF 231 million, down 71% compared to 2Q10 and down 83% from 1Q11. Net revenues of CHF 2,822 million were down 31% from 2Q10 and down 43% from 1Q11.
Results in 2Q11 were significantly impacted by difficult trading conditions and weaker client activity triggered by European sovereign debt concerns, widening credit spreads and deteriorating economic indicators, particularly in the US.
The results also reflect the weakening of the US dollar against the Swiss franc, which adversely impacted revenues and favorably impacted expenses. Excluding the foreign exchange impact, income before taxes declined by CHF 402 million or 51% in 2Q11 compared to 2Q10, and net revenues declined by CHF 534 million or 13% in 2Q11 compared to 2Q10.
Fixed income sales and trading results were significantly lower than in 2Q10 and 1Q11, reflecting challenging market-making conditions and moderately weaker client flows. While all businesses reported positive revenues, results in the securitized products, credit and rates businesses were impacted by volatile trading conditions and reduced liquidity in the markets that resulted in losses on inventory positions related to client trading business. In addition, losses were incurred in securitized products from the sale of inventory positions and related hedges as risk levels were reduced. Stronger results were reported in emerging markets and commodities. The result also included a loss of CHF 115 million relating to a change in estimate due to the adoption of Overnight Index Swap (OIS) interest rate yield curves used to determine the fair value of certain collateralized derivative instruments.
Equity sales and trading results were solid although they were lower compared to 2Q10 and 1Q11 reflecting muted client trading activity and the foreign exchange translation impact. Equity sales and trading results mainly consisted of revenues from prime services, cash equities, derivatives and equity arbitrage.
Underwriting and advisory also reported a solid result, driven by improved equity underwriting and advisory performance.
Compensation and benefits of CHF 1,446 million in 2Q11 were lower than in 2Q10 and 1Q11, reflecting the foreign exchange translation impact of CHF 321 million versus 2Q10 and lower discretionary performance-related compensation accruals.
The average one-day, 98% risk management Value at Risk (VaR) was CHF 71 million in 2Q11, down 24% and 8%, respectively, from CHF 94 million in 2Q10 and CHF 77 million in 1Q11.
Asset Management posted income before taxes of CHF 202 million, up CHF 180 million compared to 2Q10 and up CHF 30 million compared to 1Q11. Net revenues of CHF 629 million were up 25% from 2Q10 and 6% from 1Q11. Net revenues before investment-related gains and securities purchased from Credit Suisse money market funds totaled CHF 473 million, up 12% compared to 2Q10, reflecting improved results in alternative investments and diversified investments.
Overall fee-based revenues increased 9% compared to 2Q10 despite a 12% decrease in management fees to CHF 313 million, reflecting the foreign exchange translation impact and the spin-off and sale of non-core businesses. Placement, transaction and other fees were 30% higher, primarily due to higher private equity placement fees, partially offset by lower real estate transaction fees. Performance fees and carried interest were up CHF 57 million, benefitting from significantly higher semi-annual performance fees from Hedging-Griffo and carried interest on realized private equity gains. Equity participations income increased 57%, mainly reflecting higher income from investments in single manager hedge funds and diversified strategies. Investment-related gains were CHF 156 million, up CHF 113 million compared with 2Q10, including realized and unrealized gains in private equity investments.
Total operating expenses of CHF 427 million were down 11% compared to 2Q10, with lower compensation and benefits and lower general and administrative expenses and commission expenses.
Net New Assets
Private Banking generated net new assets of CHF 11.5 billion. Wealth Management Clients recorded broad-based inflows with two-thirds from international regions. Compared to the end of 2Q10, assets under management decreased 0.7%, as strong net new assets and positive equity and bond market movements were offset by adverse foreign exchange-related movements, mainly from the weakening of the US dollar and the euro against the Swiss franc.
Asset Management recorded net new assets of CHF 4.0 billion, including net inflows of CHF 2.8 billion in traditional investments mainly in multi-asset class solutions and CHF 1.5 billion in alternative investments, driven by inflows in real estate, commodities and ETFs. Compared to 2Q10, assets under management were stable, with adverse foreign exchange-related movements mostly offset by net new assets and positive market performance.
Credit Suisse’s capital position remains very strong. The BIS tier 1 ratio was stable at 18.2% as of the end of 2Q11, compared to the end of 1Q11, reflecting a decrease in tier 1 capital and lower risk-weighted assets (RWAs). The core tier 1 ratio increased to 13.1% as of the end of 2Q11 compared to 13.0% as of the end of 1Q11.
The Corporate Center recorded a CHF 190 million loss in 2Q11, reflecting losses from the movement of spreads on own debt and business realignment costs of CHF 142 million, compared to a loss of CHF 745 million in 1Q11 and a profit of CHF 126 million in 2Q10.
Benefits of the integrated bank
Credit Suisse generated CHF 1.1 billion in collaboration revenues from the integrated bank in 2Q11, or 17.5% of net revenues for 2Q11.