Corporate Press Release
3Q12 results evidencing successful execution of strategic measures while maintaining strong client momentum, with underlying* core pre-tax income of CHF 1,203 million, underlying* net income attributable to shareholders of CHF 891 million and underlying* return on equity of 9.6%
3Q12 reported core pre-tax income of CHF 359 million, net income attributable to shareholders of CHF 254 million and return on equity of 2.9%, reflecting fair value losses of CHF 1,048 million before taxes resulting from a significant tightening of own credit spreads
Credit Suisse Group reports 3Q12 and 9M12 results and provides an update on the implementation of the previously announced capital measures.
- Underlying* core pre-tax income of CHF 3,835 million, underlying* net income attributable to shareholders of CHF 2,761 million and underlying* return on equity of 10.4%
- Reported core pre-tax income of CHF 1,510 million, net income attributable to shareholders of CHF 1,086 million and return on equity of 4.2%, reflecting fair value losses on own debt of CHF 2,563 million before taxes
Cost saving measures exceed targets:
- Expect to exceed CHF 3.0 billion of cost reductions in fiscal 2013 versus adjusted* annualized 1H11 run rate
- Target additional longer-term cost reductions for 2014 and 2015, thereby resulting in a total cost run rate reduction of CHF 4.0 billion versus adjusted* annualized 1H11 run rate
Continued strengthening of capital base; announcement of further measures to reduce risk-weighted assets and leverage:
- Progress on implementation of announced capital measures with 3Q12 Look-through Swiss Core Capital ratio of 8.2%, on track to be at around 9.3% by end-2012 on a pro-forma basis and to achieve end-2018 requirement of 10% by mid-2013
- Targeting balance sheet reductions of CHF 130 billion or 13% of total assets by end-2013, which will improve leverage ratio
- Targeting further 10% Basel III RWA reduction in Investment Banking to USD 180 billion by end-2013
- Basel II.5 core tier 1 ratio increased by 2.2 percentage points to 14.7%, total capital ratio increased by 1.0 percentage point to 21.2%
- Strong liquidity with estimated Net Stable Funding Ratio in excess of 100%
Brady W. Dougan, Chief Executive Officer, said: “We are successfully executing on the strategic measures we began last year, while maintaining strong momentum with our clients. We have realigned our business to better meet the demands of a changed regulatory and market environment and, in doing so, have substantially reduced risks. At the same time, we have significantly cut costs and improved efficiencies across the bank. Additionally, we have further strengthened our capital base and have improved our balance sheet structure to meet future regulatory requirements. Despite this, we have built a very strong platform to provide the best advice and service to our clients.”
He continued: “In the third quarter of 2012, our businesses produced solid earnings, while at the same time improving the efficiency of their operations. We expect to deliver savings in excess of the CHF 3.0 billion previously announced for full year 2013 and we are committed to deliver additional cost savings in subsequent years. The implementation of the capital actions we announced in July 2012 is well underway. By the end of the third quarter, our Look-through Swiss Core Capital ratio stood at 8.2% and we are confident that, through the completion of the capital measures we announced and the further risk reduction in Investment Banking, we will be at around 9.3% on a pro-forma basis by end-2012 and are on track to achieve our target and the Swiss end-2018 requirement of 10% by mid-2013.”
He concluded: “Year to date, we have generated an underlying* return on equity of 10% in what we consider to be a very volatile environment with low levels of client activity. We are confident that the full implementation of the strategic, capital and cost-savings measures that we began in 2011 will enable us to reach our target return on equity of 15% or more over the cycle as well as the other stated targets for the bank.”
3Q12 Results Summary
Credit Suisse Group reported 3Q12 core pre-tax income of CHF 359 million, net income attributable to shareholders of CHF 254 million, a return on equity of 2.9% and net new assets of CHF 5.3 billion. 3Q12 results reflected fair value losses on own debt of CHF 1,048 million before taxes, reflecting a significant tightening in own credit spreads.
Underlying* core pre-tax income for 3Q12 was CHF 1,203 million, underlying* net income attributable to shareholders was CHF 891 million and underlying* return on equity was 9.6%. This represents an improvement compared to underlying* core pre-tax income of CHF 1,148 million in 2Q12 and an underlying* core pre-tax loss of CHF 34 million in 3Q11.
Private Banking with 3Q12 net revenues of CHF 2,591 million and pre-tax income of CHF 689 million
- Net revenues were stable compared to 3Q11, with lower transaction-based revenues, higher net interest income and stable recurring commissions and fees
- Corporate & Institutional Clients with strong contribution of CHF 206 million to Private Banking pre-tax income
- Net new assets of CHF 5.2 billion, driven by inflows in booking centers outside Switzerland, partially offset by outflows on Swiss platform from mature markets, mainly from Western Europe
- Wealth Management with net new assets of CHF 5.1 billion across all regions
- Corporate & Institutional Clients with net new assets of CHF 0.1 billion
- Private Banking assets under management exceeded CHF 1 trillion (CHF 1,023.6 billion) for the first time since 2007, up CHF 35.7 billion from 2Q12
- On track to achieve the targeted CHF 800 million cumulative benefit by 2014 from previously announced strategic initiatives
Investment Banking with 3Q12 net revenues of CHF 3,296 million and pre-tax income of CHF 508 million
- Strong fixed income sales and trading revenues of CHF 1,496 million, up 26% from 2Q12, reflecting robust client flow and favorable trading conditions, with particular strength in securitized products, credit and corporate lending
- Equity sales & trading revenues were resilient at CHF 1,026 million, despite an 11% decline from 2Q12, due to lower results in derivatives and prime services, offset by stronger revenues across equity arbitrage trading, fund-linked products and convertibles
- Underwriting and advisory revenues of CHF 868 million, up 35% from 2Q12, reflecting strong performance across debt underwriting, equity underwriting and M&A and advisory fees
- Total operating expenses of CHF 2,783 million, up 10% from 2Q12, driven by higher litigation provisions, primarily concerning mortgage-related matters
- Improved operating efficiency with pre-tax margin of 18% for 9M12 compared to 10% for 9M11
- Enhanced capital efficiency with 46% increase in revenue per Basel III risk-weighted assets usage compared to 9M11, driven by a 31% reduction in Basel III risk-weighted assets since end of 3Q11
- 9M12 normalized* return on Basel III allocated capital of 11%, up from 3% in 9M11; 9M12 normalized* return on Basel III allocated capital in our ongoing businesses of 16%, up from 6% in 9M11
Asset Management with 3Q12 net revenues CHF 607 million and pre-tax income of CHF 222 million
- Results included a gain of CHF 140 million on the sale of the remaining 7.0% ownership in Aberdeen Asset Management and an impairment of CHF 38 million related to Asset Management Finance LLC (AMF)
- Strong investment-related gains of CHF 101 million compared to losses of CHF 17 million in 3Q11
- Fee-based revenues of CHF 438 million, down 14% from 3Q11, were impacted by lower carried interest on realized private equity gains and lower equity participations income
- Net asset outflows of CHF 0.5 billion, with outflows in traditional investments and diversified investments partially offset by inflows in alternative investments
- Progress in implementing strategy in Asset Management toward more liquid and capital efficient alternatives business
Cost saving measures
After successfully delivering CHF 2.0 billion of cost reductions in 6M12 versus adjusted* annualized 6M11 run rate and increasing the full year 2013 cost savings target to CHF 3.0 billion in July 2012, Credit Suisse announced today that it intends to further increase its savings target by CHF 0.5 billion, to be achieved during 2014, and by another CHF 0.5 billion to be achieved during 2015, thereby targeting a total of CHF 4.0 billion in cost savings versus the adjusted* annualized cost run rate of 6M11. In 3Q12, related business realignment costs of CHF 144 million were recognized in the Corporate Center.
Capital and funding
In July 2012, Credit Suisse announced a number of measures to strengthen its capital by CHF 15.3 billion in light of the current regulatory and market environment.
As of the end of 3Q12, CHF 12.8 billion of the previously announced total of CHF 15.3 billion of additional capital until end-2012 has already been achieved. The Look-through Swiss Core Capital ratio as of the end of 3Q12 stands at 8.2% and Credit Suisse is confident it will be at around 9.3% by end-2012 on a pro-forma basis, will achieve the Swiss end-2018 requirement of 10% in mid-2013 and will approach 12% by year-end 2013.
As of the end of 3Q12, Credit Suisse reported a Basel II.5 core tier 1 ratio of 14.7% and a Basel II.5 tier 1 ratio of 18.5%, up 2.2 percentage points and 2.0 percentage points, respectively, versus 2Q12. As of the end of 3Q12, Credit Suisse reported a total capital ratio of 21.2%.
Credit Suisse today announced it will further reduce risk-weighted assets in Investment Banking to USD 180 billion by end-2013 from USD 204 billion in 3Q12.
Credit Suisse today also announced targeted measures to reduce total balance sheet assets by CHF 130 billion or 13% by end-2013 on a foreign-exchange neutral basis. These measures are expected to have a limited impact on the bank’s earnings and will increase its leverage ratio. As of the end of 3Q12, Credit Suisse’s FINMA leverage ratio stood at 5.2%, well in excess of current requirements.
Credit Suisse is continuing to conservatively manage its liquidity, with an estimated Net Stable Funding Ratio under the current FINMA framework in excess of 100% as of the end of 3Q12.
Segment Results Detail
Private Banking, which comprises the global Wealth Management Clients business and the Swiss Corporate & Institutional Clients business, reported net revenues of CHF 2,591 million and income before taxes of CHF 689 million in 3Q12. The results reflected margin pressure in an operating environment with low client activity and increasing costs of doing business, partially mitigated by the continuing implementation of our strategic initiatives. Net revenues were stable compared to 3Q11. In comparison to 2Q12, net revenues were 4% lower, reflecting a decrease in all major revenue categories. Total operating expenses were stable compared to 3Q11and 2Q12, when adjusting for litigation provisions of CHF 478 million in 3Q11 in connection with US and German tax matters.
The Wealth Management Clients business reported net revenues of CHF 2,117 million, stable compared to 3Q11, with higher net interest income, stable recurring commissions and fees and lower transaction-based revenues. Compared to 2Q12 net revenues were 5% lower, reflecting a decrease in all major revenue categories. Net interest income decreased slightly in a challenging interest rate environment. The decrease in transaction-based revenues compared to the prior quarter was mainly due to gains recognized in 2Q12 from the integration of Clariden Leu, of which CHF 41 million related to the sale of a non-core business. This was partially offset by higher brokerage and product issuing fees in 3Q12. Recurring commissions and fees were lower, primarily due to semi-annual performance fees in the previous quarter. Income before taxes was CHF 483 million in 3Q12. This compares to a loss before taxes of CHF 9 million in 3Q11, which included litigation provisions of CHF 478 million, and income before taxes of CHF 551 million in 2Q12, which included the gains from the integration of Clariden Leu. Total operating expenses of CHF 1,608 million were slightly lower compared to 3Q11, excluding the 3Q11 litigation provisions. Compared to 2Q12, total operating expenses were slightly lower, with lower compensation and benefits partially offset by higher general and administrative expenses, primarily driven by higher regulatory costs. Provision for credit losses was CHF 26 million on a loan portfolio of CHF 145 billion. The gross margin of 107 basis points decreased significantly compared to both 3Q11 and 2Q12, reflecting the 2Q12 gain from the integration of Clariden Leu, the conservative client asset mix, low levels of client activity, the continued adverse interest rate environment and an increase in assets under management. By the end of 3Q12 Wealth Management assets under management were CHF 803.3 billion, up from CHF 774.1 billion in 2Q12 and CHF 721.8 billion in 3Q11.
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 474 million, stable compared to 3Q11 and slightly lower compared to 2Q12. In 3Q12 income before taxes of CHF 206 million was 5% lower compared to 3Q11, reflecting higher provision for credit losses and slightly higher total operating expenses. Compared to 2Q12, income before taxes was 8% lower, mainly driven by lower net revenues and higher operating expenses.
In 3Q12, Investment Banking reported net revenues of CHF 3,296 million and income before taxes of CHF 508 million.
Investment Banking’s normalized* after-tax return on Basel III allocated capital in its ongoing businesses increased from 6% in 9M11 to 16% in 9M12, reflecting a more balanced business mix, continued market share momentum, significant Basel III risk-weighted asset reduction and increased operating leverage.
In the third quarter, Investment Banking results demonstrated strong franchise momentum and the continued execution of the strategy to increase operating and capital efficiencies.
Fixed income sales and trading revenues of CHF 1,496 million reflected solid client flow and favorable trading conditions. Relative to 3Q11, results were 178% higher, driven by a substantial increase in securitized products and global credit products revenues, due to a more favorable market environment with greater client demand for higher yielding instruments, and improved results in emerging markets. Results benefitted from a more balanced business portfolio with reduced revenue volatility, reflecting the significant decline in inventory levels as part of our refined strategy. Revenues also increased 26% compared to 2Q12 due to stronger performance in securitized products and global credit products, higher revenues from corporate lending and lower losses from the businesses that Credit Suisse is exiting.
Equity sales and trading revenues of CHF 1,026 million increased 15% compared to 3Q11, reflecting favorable capital market conditions, despite lower secondary market volumes. Compared to 2Q12, revenues were 11% lower, reflecting weaker derivatives revenues due to conservative risk positioning in Asia and a seasonal decline in prime services revenues.
Underwriting and advisory revenues of CHF 868 million were 43% and 35% higher relative to 3Q11 and 2Q12, respectively, driven by strong debt underwriting revenues due to robust high yield and investment grade issuance volumes. Equity underwriting results also improved, reflecting higher revenues from global follow-on and convertibles offerings. In addition, mergers and acquisitions (M&A) and advisory revenues increased, driven by higher M&A advisory and private placement fees.
Compensation and benefits increased CHF 63 million, or 4%, from 2Q12, primarily reflecting higher deferred compensation expense from prior-year awards. Total operating expenses in 9M12, excluding the deferred compensation expense of CHF 418 million related to PAF2 in 1Q12 and certain significant litigation matters of CHF 136 million in 3Q12, were down by CHF 932 million, or 10%, compared to 9M11.
General and administrative expenses of CHF 1,027 million in 3Q12 increased 14% relative to 3Q11and 22% relative to 2Q12. The increase was driven by certain significant Investment Banking litigation provisions of CHF 136 million, primarily concerning mortgage-related matters.
Asset Management reported net revenues of CHF 607 million and income before taxes of CHF 222 million.
The sale of Credit Suisse’s remaining holding in Aberdeen Asset Management in July 2012 resulted in a gain of CHF 140 million. In 2Q12 and 3Q11, gains of CHF 66 million and CHF 15 million, respectively, were recognized from earlier sales. In addition to the gain on Aberdeen, equity participations and other gains included an impairment of CHF 38 million related to Asset Management Finance LLC. Excluding the gains from these sales and the impairment, income before taxes was CHF 120 million in 3Q12, CHF 67 million in 2Q12 and CHF 82 million in 3Q11.
Fee-based revenues of CHF 438 million decreased 14% and 8% compared to 3Q11and 2Q12 respectively, with lower performance fees and carried interest and lower equity participations income. The fee-based margin was 48 basis points compared to 56 basis points in 3Q11.
Investment-related gains of CHF 101 million in 3Q12 compared to a CHF 17 million loss in 3Q11 and gains of CHF 27 million in 2Q12.
Total operating expenses of CHF 385 million were down 3% compared to 3Q11 and down 8% compared to 2Q12. Total operating expenses for 9M12 were down CHF 48 million, or 4%, compared to 9M11, despite the adverse foreign exchange translation impact.
Net new assets
Credit Suisse Group reported net asset inflows of CHF 5.3 billion in 3Q12. Private Banking attracted net new assets of CHF 5.2 billion. Wealth Management Clients contributed net new assets of CHF 5.1 billion, driven by inflows across all regions, particularly from emerging markets, and from the UHNWI client segment. Corporate & Institutional Clients in Switzerland reported inflows of CHF 0.1 billion. Asset Management recorded net asset outflows of CHF 0.5 billion, with outflows in traditional investments and diversified investments, partially offset by inflows in alternative investments.
The Corporate Center recorded a loss before taxes of CHF 1,060 million in 3Q12, including fair value losses on own debt of CHF 681 million, fair value losses on stand-alone derivatives of CHF 29 million and debit valuation adjustments losses on certain structured note liabilities of CHF 338 million, resulting in overall losses on such items of CHF 1,048 million in the quarter. This compares to a loss before taxes of CHF 180 million in 2Q12 and income before taxes of CHF 1,452 million in 3Q11.
Benefits of the integrated bank
Credit Suisse generated CHF 1,166 million in collaboration revenues from the integrated bank in 3Q12.
*Underlying, normalized and adjusted 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 underlying normalized and adjusted measures, including reconciliations for historical periods, the cost run rate on an adjusted annualized basis and Investment Banking's normalized after-tax return on Basel III allocated capital for ongoing businesses, see the 3Q12 Results Presentation Slides.
3Q12 Financial Release
The 3Q12 Financial Release and the related Results Presentation Slides are available for download from 06:45 CET today.
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