Corporate Press Release
Credit Suisse Group 1Q12 normalized* net income attributable to shareholders of CHF 1,355 million and return on equity of 15.9%;
Credit Suisse Group 1Q12 reported net income of CHF 44 million and return on equity of 0.5%, primarily due to fair value losses of CHF 1,554 million before taxes resulting from a significant tightening in own credit spreads
Private Banking with net revenues of CHF 2,651 million and pre-tax income of CHF 625 million;
Credit Suisse Group reports 1Q12 Core Results normalized* pre-tax income of CHF 1,918 million, normalized* net income attributable to shareholders of CHF 1,355 million, normalized* return on equity of 15.9%; net income attributable to shareholders of CHF 44 million; diluted earnings per share of CHF 0.03
- Net new assets of CHF 8.4 billion;
- Good progress on strategic realignment in Private Banking, including the integration of Clariden Leu;
- Significant cost and profit improvement measures executed in 1Q12
Investment Banking with net revenues of CHF 4,140 million and pre-tax income of CHF 993 million;
- Further reduced risk-weighted assets by USD 38 billion or 15% in 1Q12 and by 33% since 1Q11;
- Increased operating efficiency through lower cost base; normalized* after-tax return of 19% on Basel III allocated capital up from 15% in 1Q11;
- Strong client market share momentum across businesses
Asset Management with net revenues of CHF 663 million; pre-tax income of CHF 250 million;
- Excluding a gain of CHF 178 million from the partial sale of an investment in Aberdeen Asset Management, pre-tax income of CHF 72 million;
- Net asset outflows of CHF 13.7 billion, primarily from a single low margin mandate
Reduced 1Q12 normalized* expense run rate on an annualized and FX-neutral basis by CHF 1.5 billion versus annualized 1H11 run rate, exceeding previously announced CHF 1.2 billion reduction target
Continued strong capitalization and funding:
- Basel II.5 core tier 1 ratio increased by 1.1 percentage points to 11.8%, Basel II.5 tier 1 ratio increased by 0.4 percentage points to 15.6%;
- Successful issuance of CHF 750 million of high-trigger contingent convertible bonds, thereby fulfilling Swiss high-trigger requirement, and repurchase of CHF 4.7 billion in capital instruments ineffective under Basel III;
- Net stable funding ratio (NSFR) of 100%
Exceeded previously announced Basel III risk-weighted-assets reduction plan targets with overall RWA for the Group of CHF 294 billion; Investment Banking RWA of USD 210 billion already close to previously announced year-end 2012 reduction target of USD 190 billion
Brady W. Dougan, Chief Executive Officer, said: “We had a good start to 2012. We began to see the effects from the measures we announced in mid-2011 to evolve our business model and cost structure and we benefited from an improved market environment. Our reported results were adversely impacted by accounting driven fair value losses due to tightening of our own credit spreads. Adjusted for this effect of CHF 1.6 billion, as well as for other significant non-operating items, we delivered a normalized* return on equity of 15.9% for the quarter, consistent with our group target range.”
He continued: “Investing in our client franchise while at the same time reducing risks and tightly managing costs has been a priority for us. In the quarter, we achieved a good mix of revenues across our businesses while reducing our annualized cost run rate by CHF 1.5 billion, which exceeded our previously announced reduction target of CHF 1.2 billion. Our performance in the first quarter is indicative of what our business model can produce and it underscores the strength of the client franchise we have built over the past years. Despite ongoing low levels of client activity in Private Banking, we attracted net new assets of CHF 8.4 billion in the first quarter 2012, for a total of CHF 149 billion in net new assets since the beginning of 2009. We are pleased that while reducing Basel III risk-weighted assets by 33% over the past year in Investment Banking, we were able to improve our market share positions and client momentum across businesses.”
He concluded: “We further reduced risk-weighted assets in the first quarter, and are now close to our previously announced year-end 2012 target with Basel III risk-weighted assets of USD 210 billion in Investment Banking. During the quarter, we successfully issued CHF 750 million of contingent convertible bonds, thereby fulfilling our expected Swiss requirement for high-trigger contingent capital. Furthermore, our strong liquidity position enabled us to repurchase CHF 4.7 billion in capital instruments which will no longer qualify for regulatory capital treatment under the proposed Basel III framework while achieving a NSFR of 100%. Both measures further strengthened our regulatory capital in preparation for the Basel III requirements.”
Private Banking, which comprises the global Wealth Management Clients business and the Swiss Corporate & Institutional Clients business, reported net revenues of CHF 2,651 million and income before taxes of CHF 625 million in 1Q12. Net revenues increased 3% from 4Q11, mainly driven by higher transaction-based revenues. Total operating expenses were 2% lower compared to 4Q11, driven by lower general and administrative expenses.
The Wealth Management Clients business reported net revenues of CHF 2,185 million, 10% below 1Q11 and 3% above 4Q11 both mainly due to transaction-based revenues. Income before taxes was CHF 406 million in 1Q12 compared to CHF 624 million in 1Q11 and to CHF 285 million in 4Q11. Total operating expenses were CHF 1,757 million, slightly below 1Q11, due to lower commission expenses and lower compensation and benefits, while general and administrative expenses were slightly higher. Compared to 4Q11, total operating expenses were slightly lower, despite full recognition of the deferred compensation expense from the PAF2 awards, which were granted and expensed in 1Q12. Provision for credit losses increased to CHF 22 million compared to CHF 12 million in 1Q11, but decreased compared to CHF 43 million in 4Q11, due to lower new provisions. The gross margin of 109 basis points decreased 9 basis points compared to 1Q11, reflecting the substantially lower transaction-based revenues and lower recurring commissions and fees. The gross margin was stable versus 4Q11.
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 net revenues of CHF 466 million, stable compared to 1Q11 and slightly up compared to 4Q11, mainly due to higher recurring commissions and fees. Income before taxes of CHF 219 million in 1Q12 was down 6% compared to 1Q11 due to higher provision for credit losses and up 20% compared to 4Q11, mainly due to lower provisions for credit losses. Total operating expenses were stable compared to 1Q11 and decreased 5% compared to 4Q11.
In 1Q12, Investment Banking reported net revenues of CHF 4,140 million and income before taxes of CHF 993 million. Investment Banking’s normalized* after-tax return on Basel III allocated capital increased from 15% in 1Q11 to 19% in 1Q12, reflecting a more balanced business mix, continued market share momentum, significant Basel III risk-weighted asset reduction and increased operating efficiency.
In the quarter, consistent with the execution of the refined strategy in Investment Banking, Basel III risk-weighted assets were further reduced by USD 38 billion to USD 210 billion. Compared to the first quarter 2011, risk-weighted assets were reduced by 33% from USD 312 billion.
Fixed income sales and trading revenues of CHF 2,024 million were significantly higher compared to 4Q11, driven by client momentum, the execution of our strategy, improved trading conditions and better client flow. We had more balanced results among our macro businesses (global rates and foreign exchange), securitized products and global credit products, and a strong performance in emerging markets. Relative to 1Q11, fixed income sales and trading revenues were 21% lower. This was primarily due to a record quarter for securitized products in 1Q11, which benefited from higher inventory levels, and losses in 1Q12 from businesses we are exiting versus revenues in 1Q11. Since 1Q11, fixed income Basel III risk-weighted assets were reduced by 45%, while revenues declined by substantially less, demonstrating improved capital efficiency and resource allocation resulting from the refined strategy in Investment Banking.
Equity sales and trading revenues of CHF 1,401 million were solid, despite sustained weak trading volumes, reflecting stable market share positions across key businesses such as prime services and cash equities. A significant improvement in derivatives over 4Q11 was driven by improved market conditions and stronger customer flows. Results were 84% higher than in 4Q11 but 12% lower than in 1Q11, primarily driven by client volumes and activity levels.
Underwriting and advisory revenues of CHF 761 million increased 47% from a weak 4Q11, driven by market share momentum and strong debt underwriting results, reflecting an increase of new issue activity in high yield and investment grade. Revenues decreased 18% relative to 1Q11, reflecting low industry-wide volumes.
Compensation and benefits of CHF 2,063 million were higher than in 4Q11, driven by higher deferred compensation expense of CHF 418 million related to the PAF2 awards, but lower than in 1Q11, primarily reflecting lower discretionary performance-related compensation expense. Total other operating expenses declined from 1Q11 and 4Q11.
Asset Management reported net revenues of CHF 663 million and income before taxes of CHF 250 million with a pre-tax margin of 38%.
In February 2012 a partial sale of our investment in Aberdeen Asset Management was completed, resulting in a gain of CHF 178 million. This sale reduced Credit Suisse’s investment in Aberdeen from 19.8% to 9.8%. Excluding this gain, income before taxes was CHF 72 million, down from CHF 175 million in 1Q11 and from CHF 90 million in 4Q11.
Investment-related gains of CHF 101 million decreased 37% from 1Q11 but increased significantly compared to 4Q11.
Fee-based revenues of CHF 409 million decreased 9% compared to 1Q11, with a decline in placement fees, asset management fees and equity participations income. Our fee-based margin was 40 basis points compared to 41 basis points in 1Q11.
Total operating expenses of CHF 413 million were up 12% compared to 4Q11 and remained stable compared to 1Q11. They include higher deferred compensation expense of CHF 46 million from the PAF2 awards.
Net new assets
Credit Suisse Group reported net asset outflows of CHF 7.1 billion in 1Q12. Private Banking attracted net new assets of CHF 8.4 billion. Wealth Management Clients contributed net new assets of CHF 5.8 billion, driven by inflows mainly from its ultra-high-net-worth individual client segment and emerging markets. Corporate & Institutional Clients in Switzerland reported inflows of CHF 2.6 billion. Asset Management recorded net asset outflows of CHF 13.7 billion, primarily from a single low margin mandate.
Capital and liquidity
Credit Suisse continued to conservatively manage its liquidity with an estimated NSFR of 100%. Credit Suisse’s capital position remains very strong, with a Basel II.5 core tier 1 ratio of 11.8% and a Basel II.5 tier 1 ratio of 15.6% as of the end of 1Q12 up 1.1 percentage points and 0.4 percentage points versus 4Q11, respectively. This increase was driven by the stronger performance of the Group and strong regulatory capital generation during the quarter.
The Corporate Center recorded a loss before taxes of CHF 1,828 million in 1Q12, including net fair value losses on own debt of CHF 894 million, debit valuation adjustments on certain structured note liabilities of CHF 482 million and on stand-alone derivatives of CHF 178 million. The fair value losses on debt reflected the narrowing of credit spreads on senior and subordinated debt across all currencies. This compares to a loss before taxes of CHF 886 million in 1Q11 and a loss before taxes of CHF 113 million in 4Q11.
Beginning in 1Q12, DVA relating to certain structured note liabilities and fair value adjustments on Credit Suisse debt are fully reflected in the Corporate Center rather than allocated across the Corporate Center and the segments. Therefore, the segments’ results reflect reclassifications made to prior periods to conform to the current presentation.
Benefits of the integrated bank
Credit Suisse generated CHF 948 million in collaboration revenues from the integrated bank in 1Q12.
* Normalized and underlying results in the following table are non-GAAP financial measures. The table below includes a reconciliation of certain of these measures. For further information on the calculation of normalized and underlying measures, including the normalized measures in table on page 3, normalized cost run rate for 1Q12 on an annualized, FX-neutral basis and Investment Banking's normalized after-tax return on Basel III allocated capital, see the 1Q12 Results Presentation Slides.