Corporate Press Release
Credit Suisse Group full-year 2012 results: underlying* core pre-tax income of CHF 5,008 million, up from CHF 2,371 million in 2011; underlying* net income attributable to shareholders of CHF 3,577 million, up from CHF 1,797 million in 2011 and underlying* return on equity of 10%
2012 reported core pre-tax income of CHF 2,106 million, net income attributable to shareholders of CHF 1,483 million and return on equity of 4%, reflecting fair value charges on own debt of CHF 2,939 million before taxes due to an improvement in own credit spreads and other significant non-operating items
Credit Suisse Group reports 4Q12 and 2012 full-year results.
- 4Q12 underlying* core pre-tax income of CHF 1,173 million, underlying* net income attributable to shareholders of CHF 816 million and underlying* return on equity of 9%
- 4Q12 reported core pre-tax income of CHF 596 million, net income attributable to shareholders of CHF 397 million and return on equity of 4%, reflecting fair value charges on own debt of CHF 376 million before taxes due to an improvement in own credit spreads and other significant non-operating items
4Q12 divisional results year-on-year:
- Significantly stronger results in combined Private Banking & Wealth Management with pre-tax income of CHF 911 million compared to CHF 532 million in 4Q11
- Substantially improved results in Investment Banking with pre-tax income of CHF 298 million compared to a loss in 4Q11; with significant benefits from a focus on market-leading, high-return businesses
- 21% of Group-wide net revenues generated as collaboration revenues from the integrated bank, exceeding KPI target of 18%-20%
Continued delivery of capital plan:
- Capital: 4Q12 Look-through Swiss Core Capital ratio of 9.4% on a pro forma basis in line with target, on track to exceed end-2018 requirement of 10% by mid-2013
- Balance sheet: Reduced total balance sheet assets by CHF 99 billion since end of 3Q12 to CHF 924 billion, substantially ahead in progress toward target of below CHF 900 billion by year-end 2013
- Risk-weighted assets: Basel III RWA reduced by CHF 77 billion since end of 3Q11 to CHF 293 billion, close to year-end 2013 target of below CHF 280 billion
Progress on cost savings:
- Achieved expense savings of CHF 2.0 billion, increasing 2013 interim target to CHF 3.2 billion and raising total cost run rate reduction target to CHF 4.4 billion by end-2015 versus adjusted* annualized 1H11 run rate
Brady W. Dougan, Chief Executive Officer, said: “2012 was a year of transition. We took significant steps to adapt our businesses and our organization to new regulatory requirements, changing client demands and the current market environment. Since the beginning of 2012, we have further reduced Basel III risk-weighted assets by CHF 55 billion across the Bank, substantially strengthened our capital position by adding CHF 12.3 billion in pro forma Look-through Swiss Core Capital, lowered our cost base by CHF 2.0 billion compared to the adjusted* annualized run rate for the first half of 2011, and continued to invest in key markets. Throughout this transformation, we generated solid revenues and an underlying* return on equity of 10% for the full year of 2012, and we maintained our strong market share momentum across businesses. In the fourth quarter, we also continued to see the benefit from our integrated bank model, with 21% of our group-wide net revenues being generated from the collaboration between our divisions. Our clients appreciate the swift and decisive action that we took to adapt our organization to the new regulatory requirements and view us as a strong and reliable partner.”
Commenting on the results of the Private Banking & Wealth Management division, he continued: “We made good progress in the fourth quarter in adapting our Private Banking & Wealth Management business to the new environment, capturing client momentum and improving profitability. We generated good top-line results due to solid transaction- and performance-based revenues, despite continued client risk aversion. In the fourth quarter, we also took organizational steps to better manage the alignment of the products, advice and services that we deliver to clients. We are confident that this will further increase our productivity and efficiency.”
Commenting on the results of the Investment Banking division, he added: “The results for the fourth quarter 2012 improved significantly compared to the prior year quarter. We are one of the first banks globally to have substantially adapted our business model in Investment Banking and are now generating higher revenues and higher returns on significantly less risk-weighted assets and on a substantially reduced expense base. Even in a year of transition with periods of difficult market conditions, our ongoing businesses generated a normalized* return on Basel III allocated capital in our ongoing businesses of 8% in the fourth quarter and 14% in the full year of 2012. We have created a capital-efficient Investment Banking business that is focused on our market-leading, high-return businesses.”
Commenting on the business development in 2013 to date, he concluded: “Going into 2013, revenues have so far been consistent with the good starts we have seen to prior years, with profitability further benefitting from the strategic measures we took in 2012, including our strengthened capital position and our significantly reduced risks and cost base.”
4Q12 and Full Year 2012 Results Summary
Private Banking & Wealth Management with 4Q12 net revenues of CHF 3,334 million and pre-tax income of CHF 911 million
- Net revenues were stable compared to 3Q12, reflecting a significant increase in transaction- and performance-based revenues offset by lower other revenues. Net interest income and recurring commissions and fees were stable
- Wealth Management Clients with 4Q12 pre-tax income of CHF 490 million, down 2% compared to 3Q12 and with stable net revenues of CHF 2,209 million, despite continued pressure on the deposit margin and low levels of client activity
- Corporate & Institutional Clients with 4Q12 pre-tax income of CHF 238 million, up 11% from 3Q12, and with net revenues of CHF 547 million, up 8% from 3Q12 included higher recurring commission and fees
- Asset Management with 4Q12 with pre-tax income of CHF 183 million, down 18% from 3Q12, and with net revenues of CHF 578 million, down 6% from 3Q12 which included a CHF 140 million gain on the final sale of Aberdeen ownership interest, despite an increase in performance fees and carried interest in 4Q12
- Net new assets of CHF 6.8 billion in 4Q12
- Wealth Management Clients contributed net new assets of CHF 2.9 billion, particularly from emerging markets and from ultra-high-net-worth individual (UHNWI) client segment, partially offset by outflows in Western Europe
- Corporate & Institutional Clients contributed net new assets of CHF 1.1 billion
- Asset Management contributed net new assets of CHF 2.5 billion, with inflows in credit, index strategies and alternative investments, partially offset by outflows from fixed income products
- Total operating expenses of CHF 2,355 million in 4Q12, stable from 3Q12, as lower compensation and benefits, reflecting the efficiency measures, were offset by higher general and administrative expenses, mainly due to investments in IT infrastructure and seasonal expenses
- Achieved pre-tax income benefit of CHF 300 million for the full-year of 2012 from strategic initiatives
Investment Banking with 4Q12 net revenues of CHF 2,664 million and pre-tax income of CHF 298 million
- Net revenues were 16% lower compared to 3Q12, reflecting year-end seasonality in some products
- Fixed income sales & trading with seasonally lower revenues of CHF 887 million, down 38% from 3Q12, given reduced December volumes across most businesses; maintained market leading positions in key franchises
- Equity sales & trading revenues of CHF 910 million, down 7% from 3Q12, reflecting continued muted client activity
- Continued strong underwriting and advisory revenues of CHF 982 million, up 14% from 3Q12, driven by robust global high yield issuance volumes and completed mergers & acquisition (M&A) activity
- Total operating expenses of CHF 2,364 million, down 12% from 3Q12, with continued progress on cost discipline; excluding certain litigation expenses of CHF 136 million recorded in 3Q12, operating expenses were down 8%
- 2012 normalized* return on Basel III allocated capital for Investment Banking of 9%, compared to a negative return in 2011; 2012 normalized* return on Basel III allocated capital in ongoing businesses of 14%, with Fixed Income returns improved to Investment Banking division average
- Further material Basel III RWA reduction in 2012, down 23% to USD 187 billion, close to year-end 2013 target of USD 175 billion
Update on cost savings
After delivering CHF 2.0 billion of cost reductions in 2012 versus adjusted* annualized 6M11 run rate, Credit Suisse today announced that it is increasing its 2013 cost run rate reduction target to CHF 3.2 billion and raising its total target by CHF 0.4 billion to CHF 4.4 billion by end-2015. In 4Q12, business realignment costs of CHF 285 million were recognized in the Corporate Center. Total compensation expenses for the full-year 2012 were down 5% compared to 2011.
Benefits of the integrated bank
In 4Q12, Credit Suisse generated CHF 1,202 million in collaboration revenues from the integrated bank. This corresponds to 21.0% of the Group’s net revenues in 4Q12, exceeding our key performance indicator (KPI) target of 18%-20% of net revenues.
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 4Q12, Credit Suisse’s Look-through Swiss Core Capital ratio on a pro forma basis stands at 9.4%, assuming the completion of the remaining measures that were announced in July 2012. The year-end 2012 reported Look-through Swiss Core Capital ratio stands at 9.1%. Credit Suisse is confident it will exceed the Swiss end-2018 requirement of 10% in mid-2013. The additional strategic divestments and remaining measures that were part of the capital plan are on track to be completed in the near term. In January 2013 we announced the sale of the exchange-traded funds business and expect completion of the sale by the end of 2Q13.
As of the end of 4Q12, Credit Suisse reported a Basel II.5 core tier 1 ratio of 15.6% and a Basel II.5 tier 1 ratio of 19.5%, up 0.9 and 1.0 percentage points from 3Q12 respectively. As of the end of 4Q12, Credit Suisse reported a Basel II.5 total capital ratio of 22.3%, up 1.1 percentage points from 3Q12.
Credit Suisse in October 2012 announced targeted measures to reduce total balance sheet assets by 13% to below CHF 900 billion by end-2013 on a foreign-exchange neutral basis. As of the end of 2012, the total balance sheet assets amounted to CHF 924 billion, down CHF 99 billion or 10% from 3Q12. As of the end of 4Q12, Credit Suisse’s FINMA leverage ratio stood at 5.8%, up from 5.2% in 3Q12.
Credit Suisse is continuing to conservatively manage its liquidity, with an estimated long-term net stable funding ratio in excess of 100% under the current FINMA framework and short-term liquidity under Swiss regulation in excess of requirement as of the end of 4Q12.
Proposed distribution out of reserves from capital contributions**
At the Annual General Meeting on April 26, 2013, the Board of Directors will propose for the financial year 2012 a distribution of CHF 0.10 per share in cash out of reserves from capital contributions. In addition, the Board of Directors will propose the distribution of new shares (stock dividend). The new shares for the stock dividend will be paid in at the par value of CHF 0.04 per share out of reserves from capital contributions. The distribution out of reserves from capital contributions (cash and stock) 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. The ex-dividend date has been set to April 30, 2013 (for cash distribution and stock dividend).
The stock dividend will be distributed to all shareholders as follows: for every share that they own, shareholders will receive a non-tradable right to the receipt of a given number of new shares for free. Following distribution, the rights will automatically be exchanged for new shares at the ratio determined by the Board of Directors immediately prior to the Annual General Meeting. The Board of Directors will set the subscription ratio in such a way that the theoretical value of each right will be approximately CHF 0.65.
The proposed distribution is in line with Credit Suisse Group’s capital plan as announced in July 2012. The implementation of this plan is on track and progressing to allow for significant cash distributions after the Look-through Swiss Core Capital ratio of 10% is reached. We target to reach this ratio in the middle of 2013.
Segment Results Detail
Private Banking & Wealth Management
Private Banking & Wealth Management, which comprises the global Wealth Management Clients business, the Swiss Corporate & Institutional Clients business and the global Asset Management business, reported pre-tax income of CHF 911 million and net revenues of CHF 3,334 million in 4Q12. Net revenues were 8% higher compared to 4Q11, reflecting a significant increase in transaction- and performance-based revenues, primarily from higher performance fees and brokerage and product issuing fees. Compared to 3Q12, net revenues were stable, as higher transaction- and performance-based revenues were offset by lower other revenues, which, in 3Q12, included investment-related gains and the final sale of Credit Suisse’s ownership interest in Aberdeen.
Total operating expenses of CHF 2,355 million were 5% lower compared to 4Q11, with lower compensation and benefits and lower general and administrative expenses, primarily reflecting the benefits of our cost efficiency initiatives. Compared to 3Q12, total operating expenses were stable as lower compensation and benefits were offset by higher general and administrative expenses, mainly due to investments in IT infrastructure and seasonal expenses.
The Wealth Management Clients business in 4Q12 reported pre-tax income of CHF 490 million with net revenues of CHF 2,209 million, 4% higher compared to 4Q11. This increase was driven by higher transaction- and performance-based revenues, mainly by higher brokerage and product issuing fees, higher revenues from integrated solutions and higher performance fees. These increases were partially offset by lower foreign exchange fees from client transactions. Compared to 3Q12, net revenues were stable, as higher transaction- and performance-based revenues were offset by slightly lower recurring commissions and fees and lower net interest income. In 4Q12, the gross margin was 110 basis points, five basis points lower than in 4Q11 and stable compared to 3Q12.
The Corporate & Institutional Clients business, which provides comprehensive coverage for all the financial services needs of corporate and institutional clients in Switzerland and for banks worldwide, reported pre-tax income of CHF 238 million with strong net revenues of CHF 547 million, 13% higher than in 4Q11 and 8% higher than in 3Q12. Total operating expenses were stable compared to 4Q11 and 2% lower than in 3Q12. Provision for credit losses was CHF 32 million in 4Q12 on a net loan portfolio of CHF 60.6 billion.
The Asset Management business reported pre-tax income of CHF 183 million with net revenues of CHF 578 million in 4Q12, 20% higher than in 4Q11, driven by higher fee-based revenues, reflecting higher performance fees and carried interest from realized private equity gains, partially offset by investment-related losses. 4Q12 net revenues were 6% lower than in 3Q12, as higher fee-based revenues were more than offset by the investment-related losses and lower equity participations and other gains.
Investment Banking reported net revenues of CHF 2,664 million and pre-tax income of CHF 298 million in 4Q12. Net revenues were significantly higher compared to 4Q11, due to higher revenues in all businesses, with substantial improvement in fixed income sales and trading, reflecting the repositioned franchise. Compared to 3Q12, net revenues were 16% lower, driven by seasonally lower results mainly in fixed income sales and trading. In 4Q12, the repositioned fixed income business continued to deliver more balanced and consistent results with less volatility on materially lower risk-weighted asset levels.
Fixed income sales and trading revenues of CHF 887 million were significantly higher compared to 4Q11, led by substantial increases in securitized products and higher results in corporate lending, global credit products and emerging markets. Compared to a strong 3Q12, revenues declined 38% driven by seasonally lower results across most fixed income businesses, including securitized products and global credit products, due to weaker volumes in the quarter.
Equity sales and trading revenues of CHF 910 million were 24% higher relative to 4Q11, reflecting increases in derivatives and cash equities. Revenues were 7% lower relative to 3Q12, as declines in fund-linked products and equities arbitrage trading more than offset higher revenues from cash equities, prime services and derivatives.
Underwriting and advisory revenues of CHF 982 million were 93% higher compared to 4Q11, driven by strong debt underwriting revenues due to robust global high yield issuance volumes. M&A and advisory revenues were also higher as increased global industry-wide completed M&A activity offset market share declines. Revenues were 14% higher compared to 3Q12, driven by higher revenues in debt underwriting, particularly in leveraged finance, and M&A fees.
Compensation and benefits decreased by CHF 148 million, or 11%, compared to 4Q11, primarily driven by decreases in deferred compensation from prior-year awards. Compensation and benefits decreased by CHF 305 million, or 21%, from 3Q12, reflecting lower discretionary performance-related compensation expense and lower deferred compensation from prior-year awards. Total other operating expenses increased 5% compared to 4Q11 due mainly to higher litigation provisions, but decreased 2% relative to 3Q12, primarily driven by a decrease in litigation provisions.
The Corporate Center recorded a loss before taxes of CHF 613 million in 4Q12, including fair value charges on own debt of CHF 197 million, fair value charges on stand-alone derivatives of CHF 59 million and debit valuation adjustments losses on certain structured note liabilities of CHF 120 million, resulting in overall losses on such items of CHF 376 million in the quarter. This compares to a loss before taxes of CHF 102 million in 4Q11 and a loss before taxes of CHF 1,060 million 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 existing as well as ongoing businesses, see the 4Q12 Results Presentation Slides.
**A summary document containing a more detailed description and the conditions of the stock dividend will be made available to the shareholders of Credit Suisse Group on or around March 25, 2013.
This press release does not constitute an offer to sell or an invitation to subscribe for, or the solicitation of an offer to buy or subscribe for, shares of Credit Suisse Group, nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor. Further, it does not constitute a prospectus within the meaning of applicable Swiss law nor a listing prospectus within the meaning of the SIX Swiss Exchange Listing Rules.
Changes in Reporting
The results presented herein reflect the integration of the previously reported Private Banking and Asset Management divisions into a single, new Private Banking & Wealth Management division and the transfer of the majority of securities trading and sales business in Switzerland from Investment Banking into Private Banking & Wealth Management. This reorganization was effective November 30, 2012. The new presentation of Private Banking & Wealth Management results includes a presentation of the results of its three operating businesses: Wealth Management Clients, Corporate & Institutional Clients and Asset Management. The results of the transferred securities trading and sales business in Switzerland are allocated among the three operating businesses. Prior periods have been restated to conform to the current presentation.
4Q12 Financial Release
The 4Q12 Financial Release and the related Results Presentation Slides are available for download from 06:30 CET today.