Corporate Earning Release

Earning Release

Credit Suisse Group reports 4Q14 and full-year 2014 results

Credit Suisse 4Q14 results:
- Core pre-tax income of CHF 1,449 million for strategic businesses and return on equity of 11%
- Reported Core pre-tax income of CHF 1,178 million and return on equity of 8%
- Look-through CET1 ratio of 10.2% as of the end of 4Q14, exceeding the 10% year-end 2014 target

Credit Suisse full-year 2014 results:
- Core pre-tax income of CHF 6,790 million for strategic businesses and return on equity of 12%
- Reported Core pre-tax income of CHF 3,509 million, stable compared to 2013, including the impact of the US cross-border settlement; return on equity of 5%

Private Banking & Wealth Management strategic pre-tax income of CHF 1,007 million in 4Q14 reflects strong loan growth and gains from sales, more than offset by lower performance fees and continued low interest rate environment compared to 4Q13; Wealth Management Clients with solid net new assets of CHF 4.4 billion

Investment Banking strategic pre-tax income of CHF 579 million in 4Q14 reflects strength of diversified franchise; stable revenues and improved returns in spite of increased market volatility and adverse impact from the recognition of funding valuation adjustments

Leverage exposure reduced by CHF 51 billion in 4Q14 before foreign exchange impact; announcing revised Group leverage targets

Implementing significant measures expected to more than offset impact of changing currency and interest rate environment after Swiss National Bank actions

Economic value of variable incentive compensation awarded for 2014 for the Group 9% lower than in 2013; reflecting continued compensation discipline and stable reported pre-tax income, including the impact of the US cross-border settlement

Consistent with 2013, Board of Directors proposes cash distribution of CHF 0.70 per share for 2014, free of Swiss withholding tax; also offering an optional scrip alternative, which allows shareholders to choose to receive distribution in the form of new shares

Brady W. Dougan, Chief Executive Officer, said: “Our solid results for the fourth quarter demonstrate consistency in our performance amid a challenging market environment with increased volatility. Our strategic businesses generated a return on equity of 11% for the quarter and 12% for the full year. During the quarter, we further reduced leverage exposure, continued to execute our capital measures and exceeded our 10% Look-through CET1 year-end target, including the impact of the US settlement.”

On the distribution to shareholders, he said: “Consistent with 2013, the Board of Directors proposes a cash distribution of CHF 0.70 per share for 2014. We are offering an optional scrip alternative to our shareholders, allowing them to choose to receive the distribution in the form of new shares. Going forward, we remain committed to returning half of our earnings to shareholders, provided our Look-through CET1 capital ratio continues to exceed 10% and we meet our leverage ratio targets.”

Commenting on the changing currency and interest rate environment, he said: “We are implementing a number of measures to offset the impact from the strong appreciation of the Swiss franc and the more pronounced low interest rate environment on our profitability, following the SNB’s announcement in January. Based on 2014 earnings, we estimate the net adverse impact on our profit to be approximately 3% and expect to more than offset this impact through the announced measures by end-2017.”

Commenting on Private Banking & Wealth Management, he said: “In Private Banking & Wealth Management, we reported solid strategic pre-tax income of 1 billion Swiss francs. Our results were negatively impacted by lower performance fees and the ongoing low interest rate environment, compared to the fourth quarter of 2013. However, we continued to see strong loan growth from our ultra-high-net-worth individuals lending program and improved collaboration revenues between our two divisions. In Wealth Management Clients, we generated good net new assets with strong inflows from emerging markets.”

Commenting on Investment Banking, he said: “The profitability of our strategic businesses in Investment Banking improved by 20% compared to the fourth quarter of 2013. Revenues from our strategic businesses were consistent, amid a more volatile market environment, which generally benefitted our trading businesses while adversely impacting underwriting activity. This highlights the stability of our diversified franchise. Furthermore, we made continued progress in reducing the division’s risk-weighted assets and leverage exposure, in line with our strategy to sustain strong returns in Investment Banking.”

On the outlook for the first quarter of 2015, he said: “Year-to-date profitability of the Group is in line with last year. Our private banking and sales and trading businesses have shown an improving trend in recent weeks. Underwriting and advisory activities have started the year more slowly due to market volatility but we have a strong pipeline with execution dependent on market conditions.”

Private Banking & Wealth Management 4Q14 results:

  • Strategic businesses with pre-tax income of CHF 1,007 million, on slightly lower revenues compared to 4Q13; return on regulatory capital of 30%
  • Total reported pre-tax income of CHF 882 million, including restructuring costs from the previously announced cost measures
  • Strategic businesses with cost/income ratio of 67% for 4Q14 and 68% for the full year 2014
  • Wealth Management Clients net margin increased to 27 basis points, including a 3 basis point benefit from sales gains
  • Significant growth of ultra-high-net-worth individual lending initiative across all regions; CHF 5.6 billion in net new lending for 2014 compared to CHF 0.9 billion in 2013
  • Net new assets of CHF 4.4 billion in Wealth Management Clients, driven by inflows from emerging markets, particularly EMEA and Asia Pacific
  • Strategic PB&WM net asset outflows of CHF 0.2 billion, impacted by the change of management of funds from Hedging Griffo to a new venture in Brazil, Verde Asset Management, in which we have a significant investment, which resulted in CHF 9.2 billion of outflows
  • Total reported PB&WM net asset outflows of CHF 3.0 billion including outflows in the non-strategic unit from ongoing regularization of asset base

Investment Banking 4Q14 results:

  • Pre-tax income of CHF 579 million for strategic businesses increased by 20% on stable revenues, a reduced cost base and lower leverage exposure compared to 4Q13
  • Total reported pre-tax income of CHF 12 million, including funding valuation adjustments and losses in the non-strategic unit
  • Results negatively impacted by initial funding valuation adjustments of CHF 279 million, of which CHF 108 million were booked in the strategic businesses and CHF 171 million in the non-strategic businesses
  • Strategic return on regulatory capital of 12%, excluding funding valuation adjustments
  • Consistent strategic revenues compared to 4Q13 highlight strength of diversified franchise; stable revenues despite the negative impact from funding valuation adjustments and increased market volatility
  • Improved capital efficiency with risk-weighted assets reduced by USD 10 billion and leverage exposure reduced by USD 62 billion compared to 3Q14

Exceeded 10% Look-through CET1 ratio target; revised leverage targets:

  • Look-through BIS CET1 ratio of 10.2%; exceeding 10% year-end target; Look-through Swiss total capital ratio of 16.5% compared to 15.8% as of the end of 3Q14
  • Leverage exposure reduced by CHF 51 billion in 4Q14 before foreign exchange movements; Look-through leverage ratio of 3.9%, Look-through CET1 leverage ratio of 2.4% as of the end of 4Q14
  • Targeting additional Group leverage exposure reductions of approximately CHF 230 billion, resulting in new target range of CHF 930–950 billion by end-2015 on a foreign-exchange adjusted basis; targeting Look-through leverage ratio, including high and low trigger instruments, of approximately 4.5% by end-2015, of which the tier 1 component should be approximately 4.0% and the CET1 component approximately 3.0%

Actions expected to more than offset impact of changing currency and interest rate environment:

  • Illustrative adverse impact on pre-tax income based on 2014 earnings of approximately CHF 125–175 million, or 3%, net of mitigating actions to be implemented in 2015, including incremental cost savings of CHF 200 million
  • Adverse impact expected to be more than offset by end–2017
  • Measures expected to be complemented by growth initiatives in PB&WM and by the remainder of the Group cost savings from 2011 cost reduction program; of which CHF 3.5 billion of adjusted annualized savings already delivered as of end-2014 compared to the annualized expense-run rate for 6M11

Compensation for 2014:

  • Economic value of variable incentive compensation awarded for the Group 9% lower than in 2013; reflecting continued compensation discipline and stable reported pre-tax income, including the impact of the US cross-border settlement
  • Both the Board of Directors and the Executive Board have voluntarily taken reductions to their compensation; total compensation of the Board of Directors was reduced by approximately 25% and the variable incentive compensation for the Executive Board was reduced by the equivalent of 20% of the amount that would have otherwise been granted, split between current and prior year awards

For further information on the differences between return on equity and return on regulatory capital, which are primarily due to the treatment of goodwill and capital components ineligible for look-through regulatory capital under Basel III, refer to the Appendix.