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Credit Suisse Group reports 1Q10 net income of CHF 2.1 billion, return on equity of 22.3%, net new assets of CHF 26.0 billion, tier 1 ratio of 16.4%
- Strong results overall with improved operating performance versus 1Q09, industry-leading return on equity; risk levels among lowest in industry; continued to generate strong net new assets
Credit Suisse Group reported net income attributable to shareholders of CHF 2.1 billion in 1Q10 and core net revenues of CHF 9.0 billion. The return on equity attributable to shareholders was 22.3% and diluted earnings per share were CHF 1.63. The tier 1 ratio was 16.4% as of the end of 1Q10.
- Results demonstrate continued successful execution of client-focused, capital-efficient strategy; over last five quarters, average operating net income of CHF 1.9 billion, average underlying return on equity of 21% and average net new assets of CHF 14.0 billion for the Group
- Solid Private Banking pre-tax income of CHF 0.9 billion and very strong net new assets of CHF 18.6 billion from international and Swiss businesses
- High-quality results in Investment Banking: pre-tax income of CHF 1.8 billion; strong pre-tax return on economic capital of 37.2%; continued strong momentum in client franchise; sustained market share gains across securities businesses; strong underwriting and advisory pipeline
- Asset Management pre-tax income of CHF 0.2 billion and strong net new assets of CHF 11.2 billion across most asset classes
- Very strong capital base and liquidity position; well positioned to meet new liquidity rules announced by Swiss Financial Market Supervisory Authority (FINMA)
Brady W. Dougan, Chief Executive Officer, said: “In the first quarter of 2010 we provided further evidence that our client-focused, capital-efficient strategy and reduced-risk business model can generate stable, high-quality earnings. We are pleased that we were able to improve our operating performance compared to the strong first quarter of 2009 and achieve an industry-leading return on equity and capital position. We also generated strong client flows and maintained our track record of attracting strong net new assets.
Market conditions in the second quarter to date have remained similar to those in the first quarter and we are confident that our business model will enable us to continue to generate high-quality results in good as well as in more challenging market conditions.”
Commenting on Private Banking, he said: “We believe that we will further improve our profitability in Private Banking when markets and the demand for comprehensive solutions recover. We also expect to benefit from a higher interest rate environment. We are positioned to perform well in the changing regulatory environment in cross-border banking as we have been building a multi-shore business with a robust compliance framework for many years. We will continue to invest in strengthening and expanding our international presence.”
Commenting on Investment Banking, he said: “Investment Banking is thriving as a result of the action we took to reposition the business in the changed financial services landscape. We believe that we have a significant opportunity to extend our market share gains across our Investment Banking businesses as we build our distribution platform and expand our client base. We are significantly increasing our distribution capabilities in our securities businesses by growing our flow sales headcount across key businesses, including our rates and foreign exchange, emerging markets and credit products businesses.”
Commenting on Asset Management, he said: “We are focusing on core fee-generating businesses in which we believe we can excel – asset allocation, the Swiss businesses and alternative investments. Asset Management is expected to benefit further from the strategic measures undertaken last year and to be a significant contributor of value to the bank and to our clients in 2010 and beyond.”
Private Banking, which comprises the Wealth Management Clients and Corporate & Institutional Clients businesses, reported solid income before taxes of CHF 892 million in 1Q10. Net revenues increased slightly, by CHF 22 million, to CHF 2,900 million. Total operating expenses rose 8% compared to 1Q09, which included captive insurance settlement proceeds of CHF 100 million. Income before taxes declined 10% in 1Q10 compared to 1Q09 as a result of this impact, but would have been flat excluding the captive insurance settlement proceeds. Private Banking recorded CHF 18.6 billion of net new assets in 1Q10, with very strong inflows from Swiss and emerging markets clients in particular.
The Wealth Management Clients business reported income before taxes of CHF 677 million in 1Q10, down 6% compared to 1Q09, as a 4% increase in net revenues to CHF 2,464 million – reflecting higher recurring and transaction-based revenues – was more than offset by an 8% rise in total operating expenses. Excluding the above-mentioned captive insurance settlement proceeds in 1Q09, income before taxes would have increased by CHF 53 million, or 8%. The increase in recurring revenues compared to 1Q09 was driven by higher recurring commissions and fees, offsetting a decline in net interest income, while the increase in transaction-based revenues was mainly due to higher brokerage and product issuing fees. The gross margin on assets under management was 121 basis points, a decrease of 13 basis points compared to 1Q09, as average assets under management increased 14.8% and net revenues increased 4%. Of Private Banking’s total net new assets, the Wealth Management Clients business contributed CHF 12.9 billion, corresponding to an annualized net new asset growth rate of 6.4%.
The Corporate & Institutional Clients business reported income before taxes of CHF 215 million in 1Q10, down 20% compared to 1Q09, as net revenues declined 14% to CHF 436 million and total operating expenses rose 11%. The decrease in net revenues was mainly due to a reduction in net interest income, reflecting the low interest rate environment. The results included fair value losses related to Clock Finance, a synthetic collateralized loan portfolio, of CHF 12 million in 1Q10, compared to fair value gains of CHF 5 million in 1Q09. Net releases of provision for credit losses of CHF 13 million were recorded in 1Q10, compared to net provisions of CHF 31 million in 1Q09. The Corporate & Institutional Clients business recorded particularly strong net new assets of CHF 5.7 billion in 1Q10.
Investment Banking continued to execute its client-focused, capital-efficient strategy in 1Q10 and maintained market share momentum across most products and regions. Income before taxes was CHF 1,794 million on net revenues of CHF 5,216 million, reflecting well-diversified results across the businesses. Investment Banking’s strong fixed income sales and trading revenues were driven by credit products (both high yield and investment grade), US residential mortgage-backed securities trading and emerging markets, which offset the impact of the weaker market environment in global rates and foreign exchange. Equity sales and trading revenues were resilient despite subdued market activity, and were driven by strong revenues in cash equities, prime services and equity derivatives, reflecting sustained market share gains across major markets. Compared to 1Q09, Investment Banking’s income before taxes and net revenues decreased, by 26% and 19% respectively. Results in 1Q09 had benefited from approximately CHF 1.3 billion of revenues driven by the normalization of market conditions that had been severely dislocated in 4Q08, as well as fair value gains on Credit Suisse debt of CHF 365 million, compared to fair value losses of CHF 59 million in 1Q10. Results in 1Q09 also included CHF 1.7 billion in losses from businesses that Credit Suisse is exiting. Investment Banking’s 1Q10 results were also impacted by the weakening of the average rate of the US dollar against the Swiss franc compared to 1Q09, which adversely affected revenues and favorably impacted expenses. The pre-tax income margin was 34.4%, compared to 37.5% in 1Q09. The pre-tax return on economic capital remained strong at 37.2%, compared to 45.3% in 1Q09. Compared to 4Q09, Investment Banking’s performance improved significantly, as client-driven revenues recovered after a marked slowdown in 4Q09.
Compensation in Investment Banking continues to be accrued on the basis of the economic profitability of each business and of the division as a whole; this resulted in compensation expenses in 1Q10 of CHF 2,324 million, which is equivalent to 44% of revenues (excluding fair value moves on own debt), compared to 48% of revenues (excluding fair value moves on own debt) in 1Q09. Total other operating expenses increased 18% from 1Q09, primarily due to higher IT investment costs associated with the expansion of client flow businesses across equities and fixed income.
Risk-weighted assets increased to USD 144 billion compared to 4Q09 as Investment Banking grew its client-focused businesses. Average one-day, 99% Value-at-Risk of CHF 104 million increased 9% compared to 4Q09.
League table highlights
- Announced M&A: ranked number one in the Americas and number three globally
- Equity underwriting: among the top five globally and number two in Europe, Middle East and Africa
- Debt underwriting: one of the top five globally in investment grade and high yield underwriting
- Emerging markets: number one in underwriting and advisory share of wallet
Asset Management reported income before taxes of CHF 166 million in 1Q10, compared to a loss of CHF 490 million in 1Q09. Net revenues totaled CHF 631 million, an increase of CHF 625 million compared to 1Q09. Net revenues in 1Q10 benefited primarily from investment-related gains of CHF 126 million, mainly in private equity and credit-related investments, compared to losses of CHF 387 million in 1Q09, and from realized and unrealized gains of CHF 107 million on securities purchased from Credit Suisse’s money market funds, compared to losses of CHF 21 million in 1Q09. Total operating expenses decreased 6%, as lower compensation and benefits and general and administrative expenses were partially offset by higher commission expenses. Net new assets of CHF 11.2 billion included inflows of CHF 4.4 billion in multi-asset class solutions, CHF 4.3 billion in alternative investments and CHF 1.3 billion in Swiss advisory.
Benefits of the integrated bank
Credit Suisse generated CHF 1.0 billion in collaboration revenues from the integrated bank in 1Q10, which was in line with 1Q09.
Capital and liquidity
Credit Suisse’s capital position remains very strong. The tier 1 ratio was 16.4% at the end of 1Q10, compared to 14.1% at the end of 1Q09 and 16.3% at the end of 4Q09.
Credit Suisse entered the credit and financial market dislocation with a strong liquidity position, which it has maintained and strengthened through open market funding ever since, incurring significant additional costs as a result. This has positioned Credit Suisse well to meet the new rules for quantitative and qualitative liquidity management announced yesterday by FINMA, when they become effective at the end of 2Q10.