Corporate Press Release
Credit Suisse Group reports 2011 net income attributable to shareholders of CHF 1,953 million, Core Results pre-tax income of CHF 2,749 million, return on equity of 6.0%, underlying* return on equity of 7.3%
4Q11 net loss attributable to shareholders of CHF 637 million, Core Results pre-tax loss of CHF 998 million, including negative impact of aggregate CHF 981 million from realignment costs, strategic exits from businesses and the accelerated Basel III risk-weighted assets reduction
Full year 2011 results were impacted by low levels of client activity and the relative strength of the Swiss franc versus 2010, as well as several special items, mainly relating to cost reduction efforts and the evolution of the bank’s strategy.
Net new assets:
- 2011 Private Banking net new assets of CHF 44.5 billion, 4Q11 Private Banking net new assets of CHF 7.6 billion
- 2011 Credit Suisse Group net new assets of CHF 40.9 billion, including CHF 0.9 billion net asset outflows in Asset Management, 4Q11 Credit Suisse Group net new assets of CHF 0.4 billion, including outflows of CHF 9.6 billion in Asset Management
Continued strong capitalization and funding position:
- Basel 2.5 tier 1 ratio increased by 0.9 percentage points to 15.2%
- Basel 2.5 core tier 1 ratio increased by 0.7 percentage points to 10.7%
- Net stable funding ratio (NSFR) further improved to 98%
Risk-weighted assets (RWA) reduction: Well ahead of schedule on implementation of Basel III RWA reduction program; previously announced end-2012 RWA reduction target of CHF 80 billion to be achieved nine months early, by end of 1Q12; reduced Basel III RWA in Investment Banking by CHF 35 billion in 4Q11
Compensation plan: Economic value of 2011 discretionary variable incentive compensation for the Group down 41% compared to 2010; aggregate variable incentive compensation for current members of the Executive Board down 57% versus 2010; no cash variable compensation for Executive Board members, consistent with practice over past four years
Cost reduction: On track with previously announced CHF 2.0 billion cost reduction program to be completed by year-end 2013; expect costs and results to reflect the reduction of CHF 1.2 billion in our annual cost base beginning in 1Q12, excluding the impact from the expense for the PAF2 compensation plan in 1Q12
Distribution to shareholders: Board of Directors to propose distribution of CHF 0.75 per share for 2011, free of Swiss withholding tax and with scrip alternative granting shareholders an option to receive distribution in the form of shares
Full-year 2011 results summary
- Credit Suisse Group reports full-year 2011 net income attributable to shareholders of CHF 1,953 million, Core Results pre-tax income of CHF 2,749 million, Core Results net revenues of CHF 25,429 million, net new assets of CHF 40.9 billion, strength of the Swiss franc versus 2010 reduced pre-tax income by CHF 909 million, return on equity of 6.0%
- 2011 underlying* net income attributable to shareholders of CHF 2,406 million, underlying* Core Results pre-tax income of CHF 3,155 million, underlying* Core Results net revenues of CHF 24,510 million, underlying* return on equity of 7.3%
- For 2011, Credit Suisse announced the PAF2 compensation plan, leading to material risk reductions for the Group. The awards vest in March 2012, resulting in costs of approximately CHF 500 million in 1Q12.
- As reported previously, the US investigations of Swiss banks’ legacy cross border businesses remain ongoing. This continues to be a matter that Credit Suisse together with governmental authorities is working to resolve. Credit Suisse is strongly supportive of a resolution acceptable to both the US and Switzerland. Credit Suisse continues to cooperate with the authorities both in the US and Switzerland to resolve this matter in a responsible manner that complies with its legal obligations.
4Q11 results summary
- Credit Suisse Group reports 4Q11 net loss attributable to shareholders of CHF 637 million, Core Results pre-tax loss of CHF 998 million, Core Results net revenues of CHF 4,473 million; diluted loss per share of CHF 0.62, net new assets of CHF 0.4 billion
- 4Q11 pre-tax loss includes negative impacts of an aggregate CHF 981 million consisting of realignment costs of CHF 414 million from cost-efficiency measures, and CHF 567 million from businesses we are exiting and the reduction of risk-weighted assets in our Investment Banking fixed income business.
- Private Banking results marked by an ongoing low interest rate environment, significantly lower levels of client activity and higher expenses for legal matters and credit provisions, driven by isolated cases in both Wealth Management Clients and Corporate & Institutional Clients; 4Q11 net revenues of CHF 2,574 million, pre-tax income of CHF 467 million, net new assets of CHF 7.6 billion, mainly from emerging markets and the ultra-high-net-worth individual (UHNWI) client segment as well as from Corporate & Institutional Clients in Switzerland
- Investment Banking reported net revenues of CHF 1,251 million and a pre-tax loss of CHF 1,305 million; results were impacted by a difficult trading environment and the above mentioned losses incurred from exiting businesses as well as from the reduction of Basel III risk-weighted assets in the quarter; client franchise across businesses remained strong despite continued subdued client activity levels
- Asset Management with net revenues of CHF 455 million, pre-tax income of CHF 87 million, fee-based revenues of CHF 464 million decreased versus 4Q10 reflecting the adverse foreign exchange translation impact and the decrease in average assets under management and net asset outflows of CHF 9.6 billion
Brady W. Dougan, Chief Executive Officer, said: “Our performance for the fourth quarter 2011 was disappointing. It reflects both the adverse market conditions during the period and the impact of the measures we have taken to swiftly adapt our business to the evolving market and regulatory requirements.”
He continued: “In mid-2011, we decided to aggressively reduce risks and costs. This decision was rooted in our belief that the market and regulatory environment is undergoing fundamental change, and that by embracing these developments and proactively adjusting our business model, we can position Credit Suisse to succeed in the new environment. The regulatory developments and the subdued market environment in the second half of 2011 have confirmed our views. The accelerated implementation of the risk reduction plan and our measures to exit businesses that are no longer expected to deliver attractive returns in the changed regulatory environment, as well as higher charges incurred due to the rapid execution of the cost reduction programs, led to negative impact of CHF 981 million in the fourth quarter of 2011. We are taking these steps in order to reduce risk and deploy our balance sheet to our client-focused growth businesses, which offer attractive returns in the new environment. This will position us well to achieve superior returns to the benefit of our clients and shareholders.“
He concluded: “While we are mindful that the market and economic environment remain uncertain, we are encouraged that our business is off to a good start with year-to-date underlying* return on equity consistent with our target level of 15%, including the benefit from our risk and cost reduction plans. We have accelerated the reduction of risk-weighted assets and expect to reach the risk-weighted assets level originally targeted for the end of 2012 by the end of the first quarter 2012. Furthermore, we are on track with our CHF 2.0 billion cost reduction program, which is to be completed by year end 2013, and expect our results and costs, excluding the costs from PAF2, to reflect the annualized reduction in our cost base of CHF 1.2 billion beginning in the first quarter 2012.”
Private Banking, which comprises the global Wealth Management Clients business and the Swiss Corporate & Institutional Clients business, reported income before taxes of CHF 467 million in 4Q11.
The Wealth Management Clients business reported income before taxes of CHF 284 million in 4Q11 compared to income before taxes of CHF 606 million in 4Q10 and a loss before taxes of CHF 34 million in 3Q11 (including litigation provisions of CHF 478 million). Net revenues were 14% below 4Q10, and were stable versus 3Q11. Total operating expenses decreased slightly (-3%) compared to 4Q10 and were 17% lower compared to 3Q11. Provisions for credit losses increased to CHF 43 million compared to CHF 20 million in 3Q11 and CHF 14 million in 4Q10, driven by an isolated case. The gross margin of 109 basis points decreased eleven basis points compared to 4Q10, and was five basis points lower versus 3Q11, reflecting the substantially lower contribution from transaction-based revenues. In light of the changing regulatory requirements combined with a low interest rate environment and subdued client activity, Credit Suisse initiated a series of measures in the fourth quarter to improve the efficiency and productivity of its Wealth Management Clients business. This included the integration of its independent private bank Clariden Leu.
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 183 million in 4Q11, down 16% from 4Q10 and 3Q11. Net revenues and total operating expenses were stable compared to 4Q10 and provision for credit losses were CHF 32 million compared to a net release of CHF 10 million in 4Q10. Despite the strength of the Swiss franc and its impact on the Swiss economy, the quality of the loan portfolio remained sound. The Corporate & Institutional Clients business in Switzerland contributed strong net new assets of CHF 3.6 billion in 4Q11.
Investment Banking reported a loss before taxes of CHF 1,305 million in 4Q11 compared to income before taxes of CHF 558 million in 4Q10 and a loss before taxes of CHF 190 million in 3Q11. Results reflected losses before taxes of CHF 567 million from businesses we are exiting and the reduction of risk-weighted assets in our fixed income business. Basel III risk-weighted assets were reduced by CHF 35 billion in 4Q11. Net revenues of CHF 1,251 million were down 64% from 4Q10 and down 50% from 3Q11.
Fixed Income sales and trading reported net revenues of CHF 36 million, significantly lower than revenues of CHF 888 million in 4Q10 and CHF 762 million in 3Q11, reflecting continued challenging trading conditions, subdued client activity levels and unfavorable market movements on related hedges. Fixed Income incurred losses of CHF 469 million, of which CHF 320 million relating to businesses we are exiting and CHF 149 million from reducing risk-weighted assets.
Equity sales and trading reported net revenues of CHF 758 million in the quarter, down from CHF 1,387 million in 4Q10 and CHF 1,182 million in 3Q11. Derivatives results were impacted by reduced customer flow and losses on hedges related to maintaining the conservative risk position. Despite declining client trading volumes, prime services had a solid performance and cash equities achieved resilient results.
Underwriting and advisory recorded net revenues of CHF 516 million, down from CHF 1,241 million in 4Q10 and down from CHF 606 million in 3Q11, reflecting continued low industry-wide issuance levels and completed M&A activity.
Compensation and benefits of CHF 1,364 million in 4Q11 were 25% lower than in 4Q10 and were 6% lower compared to 3Q11, mainly reflecting lower discretionary performance-related compensation expense.
Total operating expenses were CHF 2,534 million, down 14% from 4Q10 and down 3% from 3Q11.
The average one-day, 98% risk management value-at-risk (VaR) was CHF 77 million in 4Q11, compared to CHF 91 million in 4Q10 and CHF 76 million in 3Q11.
Under the accelerated plan, Basel III risk-weighted assets were reduced by CHF 35 billion in 4Q11. Credit Suisse expects to exceed the previously announced year-end 2012 Basel III risk-weighted assets target of USD 229 billion nine months early, by the end of the first quarter in 2012. As Basel III will not be implemented before January 1, 2013, our Basel III risk-weighted assets were calculated for purposes of this release in accordance with the currently proposed requirements and our current interpretation of such requirements, including relevant assumptions. Changes in the requirements upon implementation of Basel III would result in different numbers from those used in the release.
Asset Management reported income before taxes of CHF 87 million in 4Q11, down 52% compared to 4Q10 and 5% compared to 3Q11. Net revenues of CHF 455 million were down 26% from 4Q10 and 3% from 3Q11.
Fee-based revenues were CHF 464 million, down 13% compared to 4Q10, and down 5% compared with 3Q11, reflecting lower asset management fees, lower performance fees and carried interest, partially offset by higher placement, transaction and other fees.
Investment-related gains were CHF 6 million compared to gains of CHF 101 million in 4Q10 and losses of CHF 17 million in 3Q11. In 4Q11, realized and unrealized gains included revenues in the industrial and transportation sectors, partially offset by unrealized losses in the energy and commodities sector.
Total operating expenses of CHF 368 million were down 16% compared to 4Q10 and 3% compared to 3Q11, reflecting lower compensation and benefits and lower general and administrative expenses.
Net new assets
Credit Suisse Group reported net new assets of CHF 0.4 billion in 4Q11. Private Banking attracted net new assets of CHF 7.6 billion. Wealth Management Clients contributed net new assets of CHF 4.0 billion, driven by strong inflows from emerging markets and the UHNWI client segment. Corporate & Institutional Clients in Switzerland attracted strong inflows of CHF 3.6 billion. Compared to the end of 4Q10, Private Banking assets under management were stable, as net new assets were offset mainly by adverse market movements. Asset Management recorded net asset outflows of CHF 9.6 billion.
Capital and liquidity
Credit Suisse continued to conservatively manage its liquidity with a net stable funding ratio (NSFR) of 98%. Credit Suisse’s capital position remains very strong, with Basel 2.5 tier 1 ratio of 15.2% and Basel 2.5 Core Tier 1 ratio of 10.7% at the end of 4Q11 up 0.9 percentage points and 0.7 percentage points versus 3Q11, respectively. Our tier 1 ratio under Basel II was 18.1% as of the end of 4Q11, compared to 17.7% as of the end of 3Q11.
The Corporate Center recorded a loss before taxes of CHF 247 million in 4Q11, including CHF 414 million of severance and other compensation expenses relating to the Group-wide cost efficiency initiative, as well as net fair value gains of CHF 263 million on own debt and stand-alone derivatives. This compares to a loss before taxes of CHF 255 million in 4Q10, reflecting fair value losses on own debt of CHF 128 million.
Benefits of the integrated bank
Credit Suisse generated CHF 1.0 billion in collaboration revenues from the integrated bank in 4Q11.
Compensation 2011 and 2011 PAF2 awards
For 2011 Credit Suisse reduced total compensation, reflecting the lower absolute performance of the Group compared to 2010. The economic value of group-wide total discretionary variable incentive awards was down 41% compared to 2010 .
In addition to Credit Suisse Group share awards, the majority of which are subject to claw-back provisions, Credit Suisse introduced PAF2 awards in January 2012 as part of the deferred variable awards for senior staff for 2011. The PAF2 plan is a transfer of risk from the Group to employees, thereby contributing to risk reduction and capital efficiency. PAF2 units are linked to a diversified portfolio of derivative counterparty risks. The PAF2 awards will vest on March 31, 2012 and will result in costs of approximately CHF 500 million in 1Q12 and the change in the fair value of the PAF2 units will continue to be reflected in the results until the awards are finally settled.
The economic value of aggregate variable compensation paid to current members of the Executive Board for 2011 was down 57% versus 2010. In line with our practice over the last four years, 100% of the variable awards assigned to the members of the Executive Board were deferred.
Proposed distribution out of reserves from capital contributions**
At the Annual General Meeting on April 27, 2012, the Board of Directors will propose a distribution of CHF 0.75 per share out of reserves from capital contributions for the financial year 2011. The distribution will be free of Swiss withholding tax and will not be subject to income tax for Swiss resident individuals holding the shares as a private investment.
Subject to any legal restrictions applicable in their home jurisdiction, shareholders will be entitled to elect to either receive a cash distribution in the amount of CHF 0.75 per share or to receive new shares of Credit Suisse Group at a subscription ratio to be determined by the Board of Directors. The subscription ratio will be based on an issue price of the new shares equivalent to approximately 92% of the average opening price and closing price of the Credit Suisse Group shares on SIX Swiss Exchange during a period of five trading days following the Annual General Meeting, less the distribution of CHF 0.75 per share. The ex-dividend date has been set to May 9, 2012.
* Underlying results are non-GAAP financial measures. Underlying net income attributable to shareholders, underlying return on equity and underlying Core Results pre-tax income for 2011 exclude fair value gains on own debt and stand-alone derivatives of CHF 919 million (CHF 616 million after tax), litigation provisions of CHF 478 million for the US and the German tax matters (CHF 428 million after tax) and expenses in connection with cost efficiency initiatives of CHF 847 million (CHF 641 million after tax). Underlying Core Results net revenues in 2011 exclude fair value gains on own debt and stand-alone derivatives of CHF 919 million. Underlying year-to-date 2012 return on equity excludes fair value losses on own debt and stand-alone and expenses related to PAF2.
** A summary document containing a more detailed description of the option to receive the distribution in new shares will be made available to all shareholders of Credit Suisse Group on or around March 20, 2012. The conditions for the exercise of the option, including possible restrictions to its availability to some of Credit Suisse Group shareholders, will be specified in such summary document.
This press release does neither constitute an offer to buy or to subscribe for securities of Credit Suisse Group nor a prospectus within the meaning of applicable Swiss law. Shareholders should make their decision to receive a cash distribution or to receive new shares of Credit Suisse Group as part of the 2011 distribution solely based on the terms and conditions of the 2011 distribution and the additional information contained in the relevant documents, which will be available upon publication of the invitation to the 2012 Annual General Meeting. This press release does not constitute a recommendation to shareholders to elect to receive new shares of Credit Suisse Group as part of the 2011 distribution. Shareholders are furthermore advised to consult their bank or financial adviser before making any decision.