Corporate Press Release
Credit Suisse accelerates its restructuring
For clarity: The NNA inflow figures referenced for Swiss UB, IWM and APAC refer to our current projections for the full 1Q16.
Tidjane Thiam, Chief Executive Officer of Credit Suisse, commented:
“Our recent performance has highlighted further two key areas of challenge for Credit Suisse:
- Our fixed cost base, and
- Our scale in Global Markets in the Americas and Europe.”
“When presenting our 4Q15 results on February 4, 2016, we indicated that we would further develop our plans to tackle these challenges. Today, we are presenting the results of this assessment and will also take the opportunity to update you on elements of our 1Q16 performance.”
“Since October 2015, we have made good progress in reducing our fixed cost base across the organization and our cost program is moving at pace. Today, we are announcing an increase to our 2018 cost reduction target from CHF 3.5 billion gross savings to at least CHF 4.3 billion, driving our absolute operating cost base below CHF 18 billion by 2018. For 2016, we aim to achieve CHF 1.7 billion in cost savings.”
“Regarding our Global Markets activities, the combination of a high and inflexible cost base, exposure to illiquid inventory in fixed income, historically low levels of client activity and challenging market conditions has led to disappointing financial results. In this context, we have taken immediate action to reduce outsized positions in activities not consistent with our new strategy and systematically reduced our exposures. Write-downs were USD 633 million in 4Q15 and were lower in 1Q16 at USD 346 million as of March 11, 2016. Revenues have remained weak in the period, with negative operational leverage.”
“More fundamentally and in parallel, we have reassessed our portfolio of business in this new context and are engaged in a further restructuring of Global Markets.”
“Our reconfigured Global Markets activities will consume less capital and produce more stable earnings with a more fee-based, client-driven model. We are reducing our RWA target from USD 83-85 billion announced in October 2015 to USD 60 billion and our leverage target from USD 380 billion to USD 290 billion by end-2016. Going forward, our activities will be more closely aligned to our wealth management and IBCM divisions.”
“Our divisions targeted for growth have been making good progress in 1Q16 and we have recorded positive NNA inflows for APAC, IWM and Swiss UB of CHF 3.6 billion, CHF 7.1 billion and CHF 4.5 billion, respectively, year to date. We remain confident about the long-term potential for profitable growth in our chosen markets, as well in our IBCM activities.”
“Our capital position remains strong in spite of challenging market conditions. The cost savings underway and the continued restructuring of Global Markets will contribute to making our capital position more resilient. In addition, we plan to execute asset and business sales of more than CHF 1.0 billion in 2016. We will also adjust our growth investments, keeping up to CHF 1.0 billion of the announced CHF 1.5 billion growth investment spend discretionary. With these actions, we aim to operate between 11% and12% look-through CET1 ratio in 2016 in challenging conditions1.”
“Our efforts aim at putting Credit Suisse in a position to generate capital and grow profitably in the medium and long term. The measures we are taking to strengthen our capital base and reduce our operating costs will improve our resilience and flexibility going forward. We are well-positioned for profitable growth in our chosen markets, with our geographic divisions – APAC, IWM and Swiss UB – set to benefit over time from the investments we are making and the continued focus of our teams.”
Acceleration of cost savings
- The Group has accelerated the pace of cost savings in 1Q16. To date, we have announced a headcount reduction of 6,000 of which 2,800 have been actioned year to date. Every division has contributed to the cost savings and headcount reductions over the quarter.
- Today, we are in a position to set a gross cost savings target of CHF 1.7 billion for 2016 and CHF 1.4 billion on a net basis. This will lead to an operating cost base of CHF 19.8 billion in 2016.
- The Group is increasing its 2018 gross cost saving target from CHF 3.5 billion to at least CHF 4.3 billion and its 2018 net cost saving targets are increased from CHF 2.0 billion to at least CHF 3.0 billion. This will lead to an operating cost base of below CHF 18.0 billion by end-2018. The Global Markets’ cost base will be reduced from CHF 6.6 billion at end-2015 to CHF 5.4 billion by end-2018.
Accelerating the restructuring of Global Markets
- We are reducing the RWA targets from USD 83-85 billion to USD 60 billion by end-2016. The 2016 leverage target has been reduced from USD 380 billion to USD 290 billion.
- A number of actions have been underway since our Investor Day on October 21, 2015, to address the challenges we face in our Global Markets activities. A high and inflexible cost base was exacerbated by volatile market conditions and lower volumes in 4Q15. We are taking action to lower the cost base of Global Markets by reducing headcount by 2,000. This will drive a decline in the Global Markets’ cost base from USD 6.6 billion to USD 5.4 billion by end-2018. Global Markets expects further write-downs in 1Q16 (USD 346 million as of March 11, 2016 vs. USD 633 million for 4Q15), resulting in a loss for 1Q16, albeit at a lower level compared to 4Q15.
- We have downscaled exposures that are not commensurate with our risk appetite. Our legacy exposures have been actively managed lower since 4Q15. In Distressed Credit, we have reduced the size of our inventory from USD 2.9 billion to USD 2.1 billion, with gross write-downs of USD 99 million. US CLO positions have been substantially cut from USD 800 million to USD 300 million, with gross write-downs of USD 64 million to date. To date, 1Q16 trading revenues are expected to be down 40-45% compared to 1Q15.
- We are exiting activities that are not consistent with our new strategy. The future shape of Global Markets will comprise an Equities business, a restructured Credit business and a Solutions platform, which will aggregate our derivative capabilities across products as well as Emerging Markets. We are exiting Distressed Credit, European Securitized Product trading and Long-Term Illiquid Funding and we are reducing capital allocation to other lines of business, including consolidating FX Cash and Options into our STS operations, which are part of the Swiss UB. Equities will remain a core area of focus for the bank and we will continue to build on our leading Cash, Prime and ECM franchises.
- Post restructuring, Global Markets will achieve improved risk-adjusted returns through lower inventory and improved business mix. The business is expected to generate returns on regulatory capital at or above 15% in market conditions similar to those in 2014. The maximum quarterly loss scenarios will be reduced by approximately 50% in a stressed scenario.
Measures to ensure a strong capital position
- In terms of look-through CET1 ratio, Credit Suisse intends to operate within a range of between 11% and 12%2 in 2016.
- In addition to the accelerated cost reductions and the restructuring of Global Markets, a number of additional measures, including business and asset disposals of at least CHF 1.0 billion and a more precise targeting of our growth investments spend, will help us to protect our capital position in challenging markets.
- The partial IPO* of the Swiss UB3 planned for 2017 is on track.
Asia Pacific (APAC)
APAC has continued its solid performance in Private Banking in 1Q16 with NNA inflows of CHF 3.6 billion year to date, delivering stable growth and momentum to the Private Bank. Recruitment of relationship managers remains positive, with the platform attracting talent from across the region. The close collaboration between Private Banking and Investment Banking continues to be a source of strength for our APAC division. Investment Banking revenues are down in 1Q16 year to date when measured against an exceptional 1Q15 and are broadly flat against the same period in 2014. The business remains on track.
Swiss Universal Bank (Swiss UB)
Our Swiss UB has performed well year to date, with resilient pre-tax income performance expected in 1Q16.
Private Banking has generated positive NNA inflows totalling CHF 4.5 billion year to date and is making solid progress with mandates penetration.
Cost savings for the division are encouraging year to date.
The partial IPO* of the Swiss UB4 (20-30%) in 2017 is on track, market conditions permitting. In January 2016, the banking license application was filed for Credit Suisse (Schweiz) AG and the legal entity is expected to be operational during 3Q16.
International Wealth Management (IWM)
IWM has a focus on compliant business growth. We have announced the launch of a joint venture with Palantir, taking a technology-led, innovative approach towards compliance and operational risk after the success we have had in improving our investment bank compliance working closely with Palantir.
IWM delivered resilient revenues year to date within Private Banking, driven by strong net interest income and strong NNA inflows at CHF 7.1 billion year to date. In addition, loan penetration among key clients has increased, with transaction revenues progressing well over the quarter.
The division continues to make progress in recruiting relationship managers.
Investment Banking and Capital Markets (IBCM)
Year to date, Credit Suisse’s M&A revenues more than doubled when measured against the same period in 2015. We are growing share with investment grade corporates that represent a greater share of industry fees. The performance in 1Q16, however, has been adversely affected by reduced issuance activity in primary markets. Industry issuance levels are lower in ECM by 58% year to date against the same period in 2015 and leverage finance 74% lower.
The business has contributed to a number of marquee transaction wins in APAC during the quarter, with close global collaboration between teams in IBCM. IBCM continues to make strategic senior hires with a strong pipeline for the remainder of 2016.
Strategic Resolutions Unit (SRU)
The SRU is proving to be an effective utility to manage run-off assets, separate from ongoing businesses. We are projecting costs to fall from CHF 2.3 billion in 2015 to CHF 1.6 billion in 2016 and CHF 1.0 billion in 2017. We anticipate RWA to reduce from CHF 62 billion in 2015 to CHF 45 billion by 2016 and CHF 37 billion by 2017. Excluding operational risk, this will represent a decrease of 60% over the period.
We will transfer USD 10-15 billion of RWA from Global Markets in connection with the actions we have announced today.
Our underlying wealth management businesses have delivered a strong performance year to date and continue to generate profitable growth for the Group. We are accelerating our efforts to reduce our fixed cost base and thus make our earnings more resilient. We are taking action to optimize our Global Markets activities by reducing its capital consumption and lowering the volatility of earnings going forward.
Credit Suisse will emerge from this set of actions significantly stronger in 2017. The Group will operate with a lower cost base. In addition, we will have a more focused and de-risked Global Markets division, and our APAC, IWM and Swiss UB divisions will be well positioned for profitable growth following investments in 2015 and 2016.
Analyst call and media Q&A
Speakers Tidjane Thiam, Chief Executive Officer of Credit Suisse Group
Timothy O’Hara, Chief Executive Officer of Global Markets
David Mathers, Chief Financial Officer of Credit Suisse Group
The presentation will be given in English.
Analyst call Start: 09:00 CET / 08:00 GMT / 03:00 EST
End: 10:25 CET / 09:25 GMT / 04:25 EST
Telephone Switzerland: +41 44 580 40 01
Europe: +44 1452 565 510
US: +1 866 389 9771
Reference: "Credit Suisse Group Conference Call"; Meeting ID "71660156"
A live broadcast is available.
We recommend that you connect to the webcast and dial in to the telephone conference approximately 10 minutes prior to the start of the presentation.
Documentation The presentation slides will be available from around 06:30 CET / 05:30 GMT / 00:30 EST today.
Information for media Media representatives will be able to follow the analyst call via telephone.
They will then have the opportunity to participate in a separate media Q&A following the analyst call.
Please note: journalists will be asked to dial back in to the separate media call.
Media Q&A Start: 10:30 CET / 09:30 GMT / 04:30 EST
End: 10:55 CET / 09:55 GMT / 04:55 EST
Switzerland: +41 44 580 40 01
Europe: +44 1452 565 510
US: +1 866 389 9771
Reference: "Credit Suisse Group Conference Call"; Meeting ID "75423630"
Playbacks for the investor call A replay of the webcast will be available approximately two hours after the event.
A replay of the telephone conference will be available approximately two hours after the event. It can be accessed by dialing +41 44 580 34 56 (Switzerland), +44 1452 550 000 (Europe) and +1 866 247 4222 (US), conference ID: 71660156#
A replay of the telephone conference will be available approximately two hours after the event. It can be accessed by dialing +41 44 580 34 56 (Switzerland), +44 1452 550 000 (Europe) and +1 866 247 4222 (US), conference ID: 75423630#
1Making no allowance for significant litigation expenses.
2Making no allowance for significant litigation expenses.
3Credit Suisse (Schweiz) AG
4Credit Suisse (Schweiz) AG