Credit Suisse Group AG (CS) 2008 Q3 法說會逐字稿

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group third quarter 2008 results conference call. (Operator Instructions). At this time I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead Mr. Dougan.

Good morning everybody. Thank you very much for joining us this morning for our third quarter results presentation. I'm joined this morning by our CFO, Renato Fassbind, and Paul Calello, the CEO of the Investment Bank. I'm going to give you a short introduction, Renato's going to run through the numbers and then Paul will speak to the performance of the Investment Bank during the third quarter. Paul will also provide more details on the measures we're taking to further transform our Investment Bank.

The events of the last few months have led to dramatic changes in the financial services industry as you know. Last week we announced that we have taken steps to supplement our already-strong capital base, giving us unquestioned capital strength, confirming our position as a safe haven in difficult markets and allowing us to maintain and accelerate our client momentum. It also means that we already meet the regulatory requirements set for 2013 and we're positioned to take advantage of opportunities that present themselves.

Last week we also announced preliminary third quarter results which we are confirming today. The overall loss for Credit Suisse in the third quarter, while understandable in the context of extreme market conditions, is clearly disappointing.

Private Banking delivered a strong operating performance. However, pre-tax profit was impacted by provisions of CHF310m for auction rate securities. We continue to see a strong inflow of net new assets of CHF11b in Wealth Management. In addition we achieved inflows of CHF3b in our Swiss Corporate and Retail business. And we've seen a good distribution of asset growth across all regions. Asset Management reported a loss of CHF58m and we are progressing with our strategy to build on our strengths and align the business more closely with the integrated model.

In Investment Banking the third quarter presented very challenging operating conditions for the industry and for Credit Suisse. Paul will take you through the details of this result in a moment.

We remain cautious regarding the outlook. The environment is changing rapidly. The third quarter was challenging and volatile and our business has been impacted and the fourth quarter has continued to be challenging.

Now let me hand over to Renato who will take you through the numbers. Renato?

Thank you Brady and good morning. I will start my presentation on slide five with an overview of the divisional results side by side. Last week we reported a net loss of CHF1.3b while banking delivered another strong operating performance in the third quarter. However the pre-tax income of CHF789m was impacted by provisions of CHF310m for auction rate security settlements.

Net new assets continue to be strong with good contributions from all international regions and from the Swiss institutional and retail business. We have good hiring momentum with continued success in hiring new relationship managers and our hiring pipeline remains strong.

Investment Banking recorded a pre-tax loss of CHF3.2b in the third quarter. This reflected write-downs of CHF2.4b in leveraged finance and structured products and adverse trading conditions in September. As Brady mentioned, Paul Calello will provide more details on the Investment Banking results shortly.

Asset Management recorded a pre-tax loss of CHF58m as a result of private equity losses of CHF109m and a further CHF36m of net valuation reductions on securities purchased from our money market funds.

Let me continue with further detail of the results starting with Wealth Management on slide six. On this chart we show the revenues in Swiss Francs on the left side and the corresponding gross margin on assets under management on the right. The composition of our revenue margin has become more stable. We have increased the contribution from recurring revenues by 3% for the first nine months compared to the same period last year.

The recurring revenues are down only 4% in the quarter compared to the third quarter of 2007. The reduction in transaction based revenues reflects the adverse markets and the more cautious client behavior. The nine-month gross margin shown on the right-hand side of the slide further evidences the resilience of our business model as the year to date 2008 margin is almost in line with the previous year. In summary we have been very successful in compensating for a reduction in client activity and the lower asset base due to market movements.

Let me turn to the net new assets on slide seven. The net new assets were strong at over CHF11b with good contributions from all international regions. We continue to exceed our 6% net new asset growth target on a rolling four-quarter basis. Going forward we expect these trends to continue.

We are seizing the current opportunities to hire great people. As shown on slide eight, we continue to hire relationship managers across all the regions. We added almost 500 relationship managers in the last 12 months with strong growth rates in particular in Asia and the US but also in our other international locations. This keeps us on track to reach our target of 4,100 relationship managers by the year 2010.

The strengths and stability of the platform has made us increasingly attractive during this period of turbulence. We should also see net new asset inflows benefit from this recruitment success in the coming quarters.

This growth also demonstrates our geographic expansion. Since the beginning of 2007 we entered four new local markets and opened 50 new offices globally. And these growth initiatives are clearly delivering results. Currently more than 40% of our net new assets come from relationship managers that are in their first three years with Credit Suisse.

Such expansion comes at a cost as we spend over CHF350m annually on our international development. We have told you that under normal conditions efficiency gains in our existing platform should make room for such additional investment. In the current market environment however this is resulting in a short term deterioration in our efficiency ratios. However we believe that especially large and well-capitalized firms like ours will benefit in the long run and come out of this environment stronger than the competition and this is clearly our goal.

Let me continue with Corporate and Retail Banking on slide nine. Pre-tax income in Corporate and Retail Banking increased 3% to CHF400m compared to the third quarter of 2007. This reflects continued resilience in the economic environment in Switzerland. Net new assets from Swiss institutional and retail clients were CHF3.2b.

Let's now turn to Asset Management on slide 10. On that slide we show you current assets under management, third quarter and nine months net new assets and third quarter gross margin of our businesses side by side. In the net new assets column you can see that the alternative investments business, which comprises our leading private equity and real estate business and our single and multi-manager hedge fund strategies, continues to see good asset inflows of CHF2.2b in the quarter or nearly CHF12b year to date. These businesses account for nearly half of Asset Management's fees and commissions, commanding a healthy 67 basis points gross margin during the third quarter. We believe that the alternative asset inflows will fuel further revenue growth also driven by our best in class capabilities.

Overall the gross margin stayed stable at 39 basis points as outflows were primarily in lower margin assets such as money market funds and the pension fund advisory business.

This concludes my divisional results review. I will now continue with the Group's funding and capital position on slide 11. Here you can see on the left the composition of our balance sheet at the end of the third quarter underpinned by our strong deposit base which is over 120% of our loans. Our long term debt and deposit based funding makes up around a third of our balance sheet. We have already successfully achieved our 2008 long term debt issuance target of CHF29b and will continue to take advantage of opportunities to raise further long term debt.

The chart on the right shows a solid level of deposits from our retail and -- from our private banking clients as clients seek a safe haven in uncertain times.

Let me move over to capital position on slide 12. During the quarter the Basel II tier one ratio improved 20 basis points to 10.4% as risk-weighted assets increased by CHF6b, driven by a 22b increase in foreign exchange movements, largely offset by business reductions. The loss recorded in tier one capital was more than offset by the reversal of the dividend accrual, capital issued in the quarter and the foreign exchange benefit.

Despite the continued strength of our existing capital base we decided last week to announce proactive steps to further increase our capital position. We are raising CHF4.5b of core tier one capital and CHF5.5b of hybrid tier one capital. This increases the pro forma tier one ratio as at September 30 2008 to 13.7%. And with this capital increase we now already exceed EBK's 2013 capital targets and minimum leverage requirements.

We believe that a strong capital base together with a conservative liquidity profile is a competitive advantage, especially in these markets.

With that I welcome Paul to present the next section of the presentation.

Thank you Renato and good morning. I'd like to spend a few minutes this morning updating you on the Investment Bank's results for the third quarter. You're all well aware of the events in the markets this quarter and they help explain our losses in the third quarter but this does not make them either excusable or acceptable. I will discuss specifics on how significant market events including those that we witnessed in September have impacted on our trading results. I will also cover some of the businesses, particularly in our client and flow-trading franchises which experienced good and in some cases record results in the quarter.

The market environment has made it important for us to accelerate our strategy for the Investment Bank. This is reducing risk, diversifying earnings, growing our client businesses and increasing our efficiency. First of all given the overall results in the Investment Bank we'll be extremely transparent in explaining our third quarter performance. Many of you are familiar with slide 15. It shows our exposure reduction on the quarter and the write-downs we've taken and leverage, finance and our structured product area.

Although liquidity became more challenging this quarter, we've continued to make sales and have reduced risk. As you can see from the first two rows on this slide, our overall exposure decreased 17% and 15% for leveraged finance and CMBS respectively. Most of our exposures are in fact dollar-denominated and if you look in dollar terms exposures were reduced by 25% for leveraged finance and 22% in CMBS.

We also took further write-downs, CHF900m, in leveraged finance and CHF1b in CMBS as market levels for these asset classes continued to decline. And while the table shows our RMBS and CDO portfolio increased in the quarter, this is entirely due to FX movements. The underlying US dollar positions actually fell in the third quarter. Overall during the last five weeks it's been more challenging to move these older assets off our books but we remain very focused on selling down these positions.

On slide 16 we show material reductions that have been made since the beginning of the crisis. Our leveraged finance exposures now stand at CHF12b. This is concentrated now on a small number of transactions. Of this CHF12b only CHF3b of these have been funded and CHF9b are unfunded, that is these transactions have not yet closed.

Of the $34b of sales we've had made since the third quarter in '07 in leveraged finance I'd like to stress that we've only needed to provide $4b of financing related to these sales. I'd also like to highlight that we've completed $5b of new business in the quarter, of which over three-quarters were sold down and distributed in the market already. We continue to have tight standards of approval for any new transactions.

We've reduced our CMBS positions to CHF13b down from CHF15b at the end of the second quarter. Our focus here is entirely to reduce risk by exploring single property and portfolio reductions through various avenues.

Let me now turn to slide 17 where we've included a listing of the key trading areas which were adversely affected by the volatility in market events in this quarter. You can see on this slide the trading results for financial securities, convertible bonds and equity trading strategies, and I'll go through each of these areas in additional detail and describe our risk reduction plans.

On slide 18 we explain the write-downs on our US financial institutions securities book. This book is a portfolio of preferred and hybrid securities of banks and other financial companies. The chart on the left shows the performance of various preferred financial securities during 2008. And you can see that Fannie and Freddie on the top and the Wachovia hybrid and preferred index on the bottom.

During September when the US government placed GSEs into conservatorship this resulted in severe reductions in the value of their preferred securities. More importantly the loss of value in the preferred securities at Fannie and Freddie and the subsequent loss in some other financial firms created a loss of confidence that spread to preferreds of other blue chip financials. These are now all trading at significant discount or distressed levels. While the US government's intervention has stabilized this market and the portfolio, our plan is to opportunistically exit this portfolio.

The convertible bond market was one of the most negatively affected asset classes in the quarter as the ability to hedge convertibles was adversely impacted by the short sale rule and stresses in the CDS market. The chart on slide 19 shows performance of the convertible index during 2008. Ongoing hedge fund unwinds, deleveraging and forced selling caused additional pressure on asset prices. Our plan for this business is to focus entirely on facilitation for our customers and to support primary issuance which we'll do by holding significantly lower levels of inventories. We've already cut this portfolio in the third quarter and we will substantially reduce these positions further in the next few months.

Moving to slide 20, I'd like to focus on the performance of our equity trading strategies. The chart on the left is a public index of selected trading strategies which I show to give you reference to the performance of these businesses in the third quarter.

Following the Lehman bankruptcy and unwinds, adverse market conditions prevailed across a number of strategies as a result of risk aversion and accelerated unwinds in the leveraged market participants. This led to reduced valuations across many asset classes and disrupted various arbitrage trading strategies.

Throughout the crisis our strategy has been to reduce our trading risk. For example we've reduced our long-short positions in the third quarter by more than half. However the sharp volatility and price moves related to many of these positions have outpaced our reduction in risk.

As a result we've experienced losses in our fundamental long-short trading positions and in our risk arbitrage and event-driven trading books. Our plans for equity trading focuses principally on the quantitative and statistical arbitrage trading businesses. These are market-neutral trading strategies and liquid underlying securities. Overall we will significantly reduce the size of the portfolio and focus on the strategies which we've had strong historical returns throughout market cycles.

As we move to slide 21 I'll explain our corporate loan book which is a diversified portfolio of term loans and commitments. The overall book size is just over $62b and it's approximately 80% investment grade. I think it's important for you to be aware that we value this book on a fair value basis. And accordingly we mark our loans of both the drawn and undrawn portions and the associated hedges, both single name and index CDS, on the basis of current market prices.

During this quarter, as you can see from the chart on the upper left, the deterioration in the credit markets led to a CHF1.4b fair value decline in the loan values which was only partly offset by a CHF0.5b increase in the prices of the associated credit default swaps. Under fair value our loss was CHF900m for the quarter. Under accrual accounting losses are recognized only when credits are impaired. Given the quality of our book impairment charges in the quarter would have been minimal, and as you can see from the lower box on the chart we would have shown a gain of CHF562m on this quarter under this alternative methodology.

While painful now, recognizing the market impact under fair value accounting should allow us to avoid recognition of significant losses in the future in the event that credit defaults do rise. Finally, the fair value discounts to our portfolio imply default rates which are significantly above the highest default rates experienced during the past 25 years.

Turning to slide 22 and on a more positive note, I've highlighted just a few of our stronger performances in the quarter. More than ever we're seeing clients wanting to do more business with Credit Suisse as a strong counterparty in these tough markets.

In our electronic trading businesses, where revenues were up over 50% versus the same period last year, we're market leader in electronic trading with strong market share. We believe that an increasing number of financial products will move to electronic execution. As more products like credit default swaps are traded and cleared on electronic platforms, Credit Suisse is ideally positioned.

Our rates and FX business represented in the bar chart in the middle had record revenues in the third quarter. We've experienced significant client activity in these businesses and we've seen good contribution across different products and across the regions. We continue to expand our sales coverage in these businesses and expect them to fuel revenue growth in the coming quarters.

Our prime service business has experienced tremendous growth in this quarter. As demonstrated on the bar chart furthest to the right, our franchise has experienced over 44% growth rate year to date. In the third quarter alone our balances increased over CHF100b. We are maintaining a highly selective approach in taking on clients and collateral during the crisis, accepting just 40% of new clients who approached us for business as we keep a close focus on operational risk and client service. We expect our client franchises to be the lynchpin and driver of the development of our businesses in the coming years. We continue to develop strong and deep relationships with the most important clients in the markets and this will be an important contributor to our activities in the years ahead.

Slide 23 sets out how we worked to reduce risk capital over the last year. As you can see in the chart on the top left since the beginning of the year we've reduced risk-weighted assets by $43b or 18%. We've also reduced trading VAR across the Investment Bank by 42% from the peak in the first quarter of 2008. After normalizing for methodology and data set changes, this is effectively halving our risk positions. But in the trading environment driven by deleveraging and specific market events which we have experienced, particularly in the month of September, our risk reduction was clearly outpaced by the deteriorating market conditions.

I'd like to close by reiterating the top priorities for the Investment Bank set out on page 24. The recent market environment has validated our strategy and only heightened the importance of acceleration of the execution of it. Our priorities are reducing risk and volatility, diversifying earnings across products and geographies, growing our client-based businesses and driving efficiencies. These have been our priorities and they remain the areas where we will be focused. Navigating the ongoing financial turmoil will certainly be challenging, but our position is strong and we expect these actions will enhance our franchise and improve the overall contribution that the Investment Bank makes towards the integrated banking model of Credit Suisse.

With that I'll turn it back to you Brady for some final observations on the quarter.

Thanks Paul. Let me just sum it up. The continuing financial market turbulence and the cloudy outlook for economic activity are serious issues in the near term. We're clearly going to need to continue to manage through a challenging period. Our unquestioned capital position will help us weather these difficult conditions and maintain our strong client momentum. Credit Suisse remains strongly positioned to benefit when favorable markets return.

And with that I'd like to open the call up for any questions for myself, Renato or Paul that you may have. So operator, if you can open up for questions.

We will now begin the question and answer session. (Operator Instructions). The first question is from Elad Ben-Am from Bank Bellevue. Please go ahead.

Yes, hi, I have three questions if I may. First of all on the corporate loan, could you elaborate a little bit more on this portfolio in terms of geographic split and what type of loans are included in this $62b portfolio? That's the first question.

Then the second question, with regard to any Lehman losses, did you book any losses related to your Lehman exposure? And if yes would that be part of the -- of the trading losses of 1.7b or where would that pop up?

And the third question is on Wealth Management. I'd be interested to hear how you managed to increase the recurring margin? What led to this increase of the recurring margin? Thank you very much.

Maybe I'll just start with -- on the Lehman loss. I assume there you're talking about our counterparty exposures with Lehman and I believe we've said that there was no material impact to our third quarter results. So there was no real material impact from our Lehman exposures.

On the corporate loan issue, Paul, do you want to comment?

Maybe I can -- the $62b corporate loan book which I referred to is, as I said, is 80% investment grade. Of that book only about one third of it is drawn, two-thirds are undrawn.

To answer your question on geographic split, about 70% is US-based, 20% in Europe and 10% other, principally Asia.

Thanks.

I think on your third question on Wealth Management, as you say, the Private Banking business in general continues to be pretty resilient through difficult markets and particularly as you say on the recurring as opposed to transactional part of the business. It's really a -- it's really -- a lot of it's based on our continuing efforts to increase our managed investment products which is very -- which has been a successful initiative for us. And as a result it's actually -- that part of the business has held up quite well.

Okay, great. Thank you very much.

Thank you. Next question.

The next question is from Kinner Lakhani from RBS. Please go ahead.

Yes good morning. Three questions focused on the Investment Bank. Firstly could you give us a size, a rough size of the convertibles trading book as it stands today, especially given that prices in stress seem to have increased significantly post the quarter end?

The second question is on the fixed income business where even if I adjust for the corporate loan book mark to market the results look weak and you are saying that you've got record rates in ForEx. So I'm trying to understand the missing variable.

And final question, clearly you've seen a very sharp growth in prime brokerage balances. I just wanted to try and understand how that affects the Group balance sheet and funding position as relates to slide 11?

Okay. Paul, do you want to take the first two of those at least?

Yes. As you see here, we've disclosed, provided an enormous amount of transparency with regards to our positions, but -- and the related losses associated with those portfolios. But we're not going to say exactly what our positions are.

We've had I think a good convertible business across client franchise but obviously, given as you can see the market moves in that portfolio, suffered significant loss as a result of downturn in the market. And correspondingly we've been bringing the size of that portfolio down materially. It's already down more than a third from the balance where it was. But we haven't been disclosing the overall size of that portfolio.

About the next question --

Regarding to fixed income, as we showed very specifically the fixed income results were adversely affected by continued write-downs. You can see in not only the corporate loan book which you mentioned but also across continued write-downs in the CMBS and our leveraged finance area, as we've seen -- as you saw the effect there of continued deterioration in markets there. And then we also saw additional losses which I described under the GFCs, this preferred and hybrid portfolio that I described the losses, in that also resides in the fixed income portfolio. And as you noted, those losses more than offset the gains, the record results we had in FX and rates.

I think on your last question on the impact on the overall balance sheet of the prime brokerage, the prime services growth, clearly it does have an impact on the balance sheet. There's been growth in the balance sheet in that business as a result of -- we mentioned an additional CHF117b of client assets in the quarter. And that manifests itself in a couple of different ways, but it certainly has had -- it's a material increase in the balance sheet.

We've had other decreases in some of the more riskier asset categories to get to the net number that we are reporting, but that certainly is an increase. We view that as pretty, a pretty low risk part of the balance sheet.

Okay. Great. Thank you.

Thank you. Next question.

Your next question comes from Christoffer Malmer from Goldman Sachs. Please go ahead.

Morning. It's Chris Malmer from Goldman. Just a question on the revenues in the Investment Bank. If I add back the write-downs and the gains on debt and look at this on a nine-month basis effectively for the first nine months of this year, try and strip those out and annualize those revenues, I get to somewhere around 14 -- between CHF14b and CHF14.5b in revenue. So first of all I'm wondering if that's a number at all that you would think sound, sounds reasonable?

And looking at that then going forward, obviously you are talking about substantially reducing risk across a number of your trading strategies within the Investment Bank. I was wondering if -- obviously these strategies have contributed positively to revenues earlier on this year, so wondering whether the nine month run rate is anything that is realistic to look at, considering how you'll be cutting back on risk appetite across those businesses. Or are you comfortable that maybe some of the client improvements, client franchise gains you've made should be comfortably offsetting some of those trading reduction in revenues going forward? Thank you.

Thanks Chris. Paul, you want to take this?

Sure. I think your run rate assumptions, they're not crazy although given certainly our -- the uncertainty in the market it's very difficult at this time to assess the stable run rate of the fixed income department overall. What we are seeing, as you pointed out, is very good results from client-related activities and we expect those to continue and some fully accelerate. To answer your question, the businesses that we are scaling back the risk impact have not contributed materially to results. In fact they've been negative contributors over the past year.

Right, but if I look at for example the slide you're providing on page 29 on the supplemental information, for example the equity result obviously there is a substantial contribution in the second quarter. Presumably there was some decent trading related revenues in that CHF2.3b number?

Yes. I think you're probably referring to some of the trading gains in the equities and those have, as you know, over a period of time our proprietary trading results have been -- have been very good. In the second quarter some of those strategies did perform well. Having said that, we -- what I mentioned earlier is we are scaling back some of the more -- some of the outright strategies in the proprietary trading and we'll continue with the quant and stat arb strategies which I believe will continue to contribute to the overall result. So I don't see there's a material impact in the actions that we're taking.

Okay. Great. And just finally on that, would you expect there to be any meaningful capital release as a result of reducing those risk levels, or is it, as you mentioned, if it's not going to have a significant impact on revenues it might not have a significant impact on capital either?

Probably has a modest, it probably has a modest impact on -- modest reduction in risk-weighted assets.

Great. Thanks a lot.

Thanks Chris. Next question.

Your next question comes from Matt Clark from KBW. Please go ahead.

Good morning. My question has been answered. Thanks.

Thanks Matt. Next question.

Your next question comes from Van Steenis from Morgan Stanley. Please go ahead.

Yes, morning. It's Hugh Van Steenis. I've got three quick questions. First, clearly the world has proved to be a lot tougher than we'd all hoped. To what extent do you feel there's more cost flexibility in the Investment Bank? Because certainly the expense base in G&A certainly remains fairly flat, do you think it's unrealistic to look for 15%, 20% cost cuts into next year?

Secondly just on the new Swiss regs, at least it strikes us that probably you've now sold for at least a 3.25 tier one leverage ratio. To what extent if the market environment remained extremely harsh would the Swiss regulators now give you forbearance to slip below that, or would you or the regulators actually like to keep above that and therefore that requires more balance sheet shrinkage?

And thirdly and lastly, any perspectives on emerging markets? You've historically been very strong in Brazil, Russia and so forth and to what extent does that cause you concern for Q4 and beyond? Thank you.

Thanks Huw. Paul, maybe you can answer the costs and I can address maybe the Swiss regulatory issue.

Certainly. As you know, we've been very focused on cost for now quite some time and we continue to believe there is good flexibility in our cost structure. As you know, for the first nine month period we brought down non comp expenses about CHF167m. Over the same nine month period our G&A per head we've brought down materially from CHF164,000 to CHF135,000. Our non variable non comp expenses continue to come down in the Investment Bank. You did -- you can witness a slight increase in the BC&E expenses as volumes in the underlying markets increase.

We do believe there's more flexibility in the cost structure in the Investment Bank and that's going to be I think particularly true also as you look across as well including compensation.

I think Huw, as to your second question, as you know we haven't talked about the precise levels and exactly how the capital targets and the leverage ratios line up exactly. But as we said last week, we are -- we exceed those levels with the capital raise that we completed. And I think that -- it's hard to, as you say, it's hard to imagine a situation where we would not be in excess of those levels. So I guess right now I'd say we do well exceed the levels and I think that will be the case hopefully some time to come.

And the third question, what's the third question?

Emerging markets. Just emerging markets. View on emerging markets. We're strong in those areas. How do we do -- are they going to be a good contributor or what are our perspectives on them for next year?

We are optimistic but extremely cautious for the emerging markets. I think the probably decoupling play has been overplayed. Certainly we have started to see the effects in the emerging markets on -- from the global crisis.

We think that diversification is important. We think the underlying fundamental growth in many of the markets, particularly and as we see in Asia will be important and strong contributors to our earnings going forward. In '07, as you noticed, we earned more than 50% of our earnings in the Investment Bank outside of the United States and certainly (technical difficulty) to continue.

Okay. Thanks ever so much. And also I think we all appreciate the transparency in the Investment Bank. It's very helpful.

Thank you.

Thanks Huw. Our next question.

Your next question comes from Matthew Czepliewicz from HSBC. Please go ahead.

Okay. Thank you, yes. Two questions on Wealth Management and then one on leveraged finance. On slide seven, your Wealth Management slide, you give the net new money figures by region for the first nine months. And could you just comment on the momentum within those regions. Which is growing best, which is facing the most pressure either in Q3 or maybe if you could a little bit perspectively?

And second question on Wealth Management, you had a 25 basis point transaction margin which I suppose given market conditions wasn't too surprising. But you tend to have a pretty opportunistic and trading savvy clientele in Wealth Management, at least that's been the perception. Counter-intuitively, was there any pick-up in trading activity among some of your Wealth Management clients late in the quarter? And if not when would you perhaps expect to see some? I know that's a difficult question.

And then final one just on leveraged finance, if I heard correctly, you said you had $5b of new commitments in the quarter. And if that's so, given your move away from the large multi-bank deals toward the smaller ones, do you in fact see some pick-up in that smaller market -- in activity in the smaller market in leveraged finance? Thanks.

Thanks Matt. Paul, maybe you can take the last one first and then we'll get to the other two.

Certainly. And I think -- I'm glad you picked up on that. In fact in a market that is as distressed as we've seen it with regards to some of the legacy positions I think it's a positive step to see some transactions being done and distributed within the same quarter.

So we, as you noted, we've picked up $5b of new commitments, which about two-thirds of those have been distributed during the quarter. As you also noted, they tended to be smaller transactions, obviously much shorter closing periods. And we do think that that will be -- that is indicative of some of that business and how that business will trend going forward.

I think Matt on the first two questions on Wealth Management, yes, you know, in general, we've seen strong flows pretty evenly around the world, certainly Americas and Asia have been strong on a nine months, as well as I'd say in the third quarter. Europe has been solid. I think Switzerland's been solid, particularly across the whole business in Switzerland. It's been pretty solid.

So the truth is it's been pretty good all around the world. I'd say it's been -- if you -- the two regions that probably stand out as stronger would be Americas and Asia if I had to pick two, but pretty strong really around the world.

Okay.

On the -- and in terms of perspectively, it's a little hard to say. I think we continue to see I think good even flows around the world. So I'd say that I would guess that would probably continue.

On the transaction margin, as you say it's a little, it's always a little bit hard to, hard to gauge how that's going to move. We have seen a pick-up in October in terms of transactional flows, particularly equities brokerage which has been -- which is encouraging I think. Obviously the product issuance side, particularly structured derivatives, things like that, are obviously still on the low side in terms of that aspect to transactional margins. So we have seen a pick-up in some of the brokerage though.

So -- and again I think it very much depends on how these markets develop as to whether that, whether that maintains or whether it falls off again. So -- but actually, interestingly, a pick-up in October.

Okay. Thank you.

Thank you. Next question.

Your next question comes from Derek De Vries from Merrill Lynch. Please go ahead.

Yes, hi guys. I have three questions if I might. The first one comes back to emerging markets. And given the recent market volatility in that space I was wondering if you can give us some specific risk mitigations that you've employed in the last six months in the region?

And then maybe specifically there's been a lot of press speculation about your exposure to Russian oligarchs and I was wondering if you could comment on how you're handling these important clients in the severe dislocations in their home market?

And then second, if we go back to the period where Brady first took over the Investment Bank. And there was much discussion back then about ensuring Credit Suisse had prop trading activities across all the different asset classes and there was a lot of talk about diversification not being too dependent on any one asset class. Now you're talking about active reduction in trading risks in press, convertibles, long-short equities. So is this somewhat of a reversal of the previous diversification strategy? And if so, do you run the risk of having more concentrated positions by asset class?

And then finally, you guys seem to be avoiding talking specifically about the leverage ratios that the EBK is looking at. Is that intentional? Or maybe you could tell us exactly what they look at from leverage because I doubt it's the tangible equity to assets that we all focus on.

Yes, thanks very much. I guess on the third question, it's just that we actually said in conjunction with last Thursday that it's not really our -- we don't think it's our -- it's not our place really to announce what the guidelines are. That will obviously be up to EBK.

And I guess they'll determine whether or not they will actually lay out the specific requirements and how those are calculated etc. They obviously didn't in the past and whether that will change going forward or not, we don't know. So we're not trying to be mysterious about it. We just don't think it's our position really to lay those out.

I do think, as we mentioned, we thought the important thing was to say that with this capital raise we already meet the 2013 requirement. We have, as you know, a very accretive capital-generative business model, and any kind of normal markets. So I think we're -- our view is that we are, well, we think we're probably the best capitalized bank in the world and in extremely strong position now. So that point of view, that hopefully is the most important message there.

I think on the Investment Banking side, and Paul can add to this if he wants, I guess my view is that we have actually been talking about for probably a couple of years now the concept of continuing to reduce the volatility in our Investment Banking earnings, diversify the revenue streams, and continue to effectively lower the risk and lower the volatility in the Investment Bank. That's been part of our, I think, pretty clear announced strategy of what we've been trying to do.

I think that as we -- I think as Paul mentioned in his preamble to his remarks, this is really more, I think, an acceleration of some of the steps in response to some pretty volatile trading conditions. So I actually think that when you look at the portfolio of activities that remain, I think we still have a very good breadth of businesses that is a diversified portfolio that will, I think, put us in the position of, in addition to building out our client businesses and the other initiatives we have, I think a more diversified, lower volatility, less correlated set of revenue streams in our businesses.

But I'll let Paul --

I think that's exactly right, Brady, and it's not a reversal. Number one, we're responding to just enormous increase in volatility in the underlying markets and some of the market dislocation events that we're experiencing. So that's part of the response to the prop trading strategies.

And then secondly, as Brady said, we're really looking at it in the context of not only the entire Investment Bank but with regards to the integrated Bank. And we're looking at the correlation of the various strategies to volatility of our earnings. So, as I said earlier, we really will be focusing on those strategies, the quant and stat arb strategies, that truly have significantly less correlation with the underlying businesses. And that's where we'll continue to focus as opposed to outright proprietary positions, like you mentioned the preferred securities, which is more of a directional play rather than a market-neutral type position.

Maybe just so I understand it, so this is a long-term -- we're not going to see two years from now when convertibles is back in favour or whatnot, this is a reducing it, not getting back into it kind of strategy.

What you will see from us is we'll continue to focus on strategies that we think are complementary, that we believe are -- we can accommodate our goal of reducing risk and volatility across the Investment Bank.

Okay. Thanks.

And then to answer your question on emerging markets, we share your concern of continued contagion of some of what we've seen in the crisis in the more developed markets. What steps have we taken? We have generally reduced positions overall, where we've been able. We've tightened collateral agreements and arrangements with our counterparties, and we've taken in particular point of change in interest rate exposure down across emerging markets.

So just to -- do you have a sense of how much your economic capital has been reduced in emerging markets in, say, the last six or 12 months, I mean ballpark kind of numbers? Are we talking a 20% reduction in economic capital or 50% or 5% or no reduction in economic capital? Higher economic capital because of the increased volatility, I don't know.

Maybe my guess, Paul probably has a better view, but my view is we actually were -- had run it pretty tight even coming into this. So we had run a pretty disciplined risk profile coming into it. We had been concerned as the obviously emerging markets been pretty frothy for some time so we had been concerned well into this. I think even now though we probably, I don't know, reduced by probably 15% or 20% maybe the ERC.

We'd have to confirm that, but that feels about right to me in the context of our overall reductions and RWA and our VAR measures. More -- as importantly, as I stated before I think, are tightening up some of the other control issues which can mitigate our risk, like collateral agreements which again mitigate the overall exposure to the counterparties in those markets.

Perfect. Thank you. Very helpful.

Thanks, Derek. Next question?

Your next question comes from Georg Kanders from WestLB. Please go ahead.

I have only one question left. You said that the assets from prime brokerage have increased by 44% in the last nine months. I think the bulk of it is due to Q3. Can you confirm this?

Paul, can you answer that?

The increase in flows in prime brokerage really have been significant throughout the entire year, obviously from the events starting mid March. But you are correct in assuming that the third quarter saw the most significant inflows.

Okay. Thanks.

Okay. Next question?

Your next question comes from Philipp Zieschang from UBS. Please go ahead.

Good morning. Couple of questions please. The first one is you increased your headcount in the Investment Bank by 4% quarter over quarter. Could you just share your thoughts whether this is related to volume increases or whether you think this is appropriate going into a pretty tough revenue environment, say, for the next couple of quarters?

Second question, on risk-weighted assets you disclosed them I think for the first time for the Investment Bank. Thanks a lot for that. It's $193b. It went down about 10% quarter over quarter. Could you just share your views as where you think it might trend to, say, over the next 12 months also in terms of potential Basel II changes?

Then a quick one on the loan book. The Investment Bank has $62b loans outstanding. Is the entire amount of that mark to market because at least based on the full year numbers shown in the annual report, it says that only $31b back then was actually reported at fair value in terms of your $240b loan book.

And a final one just quickly on Glencore. You announced in August 2006 a strategic partnership with Glencore with CDS (inaudible) has also blown out recently. And could you just comment on the status of this relationship and potential impact from falling commodity prices? Thanks.

Okay. Thanks very much, Philipp. Paul, do you want to start with the first question on IB headcount.

Sure. Philipp, maybe I can address some of the issues around the headcount. We have had significant amount of movement in the headcount in the Investment Bank. As you know, we've announced approximately 1,300 layoffs in the Investment Bank. There's been enormous reallocation of resources, some from the more risk-intensive businesses into the client-related businesses and this is moving people.

It's layoffs in one area and hiring people in others. Some areas down, like the -- if you look at the CMBS area, leveraged finance, 50%, 65%, as you know. Whereby other areas that we've talked about investing in, some of the client-related businesses, prime services businesses, up material over that same period of time.

On the increase that you see on the over the year is -- represents more than anything an investment in infrastructure. Almost half of that increase is attributable to IT where we have people supporting the infrastructure for the build-out of our prime service, electronic trading and derivative platforms that we've talked about in the investment there.

It also -- those numbers would include increases to our COE, to our centers of excellence, in places like Pune and Wroclaw. It includes increase in people. We have our mortgage servicer which we've -- there's been increase in heads to that mortgage servicing company which continues to do reasonably well. It includes the new graduate classes that have come on board as well.

So there are a lot of moving pieces here. Probably more relevant to look at our overall non-comp expenses and how that's moved because some of this shift in headcount that you'll see is to a lower cost base and lower cost base centers overall.

And then take on the risk-weighted assets question.

Yes, we have -- pleased to show that you're pleased with transparency that we've provided in terms of risk-weighted assets here. And certainly from all the comments we've made today, I think it's very clear that that trend in risk-weighted assets will continue.

And then, sorry, a question on loan book. So --

Sure, the corporate loan book. The corporate loan book in the Investment Bank is -- that specific loan book is about one third drawn. So about $20b of that you see is the balance -- on the balance sheet. The entire loan book, and that includes about -- that includes the drawn force and the non-drawn is fair value accounted for. There's about $5b of bridges in there which is low comp.

Yes, Renato, do you want to answer that?

Yes, it'll be a little bit -- very precise here what we talk about. You see in the quarterly report an amount of some $60b loans by the Investment Bank. About half of that is on accrual basis and about another half, roughly $30b is on fair value basis. Out of that $30b fair value, as Paul mentioned, on balance sheet, about $20b is out of the so-called corporate loan book. On top of that, as Paul mentioned, we have another some $40b in that corporate loan book on commitments which is fair valued as well.

So, again, for the on-balance-sheet amount you can see in the report about half is fair value.

I think on your last question on Glencore, they've been a terrific partner for us in the commodity space and our joint venture has actually done extremely well. As you may recall, it is in a number of different areas of commodities where we work together to generate transactions and then share the revenues that come out of those. So it's a pretty straightforward joint venture.

They've been a great partner and obviously have terrific contacts into the whole commodities world. And that obviously gives us a lot of advantages in terms of being able to market to customer bases in terms of ideas around products, etc. So it continues to be -- I think it has been throughout a profitable joint venture and continues to be. And we're very happy with them as a strategic partner.

Next question?

Your next question comes from David Williams from Fox-Pitt Kelton. Please go ahead.

Hello, good morning. I've got two questions please. The first is on the compensation policy within the Investment Bank. In what appears to be, from a revenue perspective, possibly the worst quarter you've had at any time over recent years, the compensation has actually held up at a reasonably robust level, I think. And certainly comparing it to year on year, you're up 78% on the compensation. So I just wondered if you could discuss how we should view compensation ratios or compensation levels going forward please.

The second is, again, with respect to your value at risk, obviously you see your value at risk coming down from the second quarter and broadly where we are, or where it's been over the past year, and yet again the revenues, especially in the equities business, very, very weak. Now how meaningful is it now the value at risk as an idea, as a measure of the risk that you're running? And especially if we think about the VIX index having reached new highs over the recent week or so, should we expect another very difficult fourth quarter in terms of your equities result? Thank you.

Okay. Thanks very much. Paul do you want to -- or maybe you can take both of those.

Sure. To start out with compensation, our compensation, you refer to the quarter on quarter. In fact, if you look at the third quarter last year we actually had a negative accrual as we had accrued quite a bit through the second quarter and then the poor results in that quarter last year allowed us to draw down. So if we look just on versus quarter two, it's down about 40%. But, as you know, the final decisions on compensation accrual will be determined when we see full year results and I can assure you they'll be in line with performance of the Investment Bank.

With regards the question on VAR, VAR is just one measure, as you know it. It's -- there are material methodology effects inherent in that. It's somewhat backward-looking. It is a valuable measure of risk, but that has to be combined with other risk assessment metrics, including looking at our risk-weighted assets, in particular in these market environments, really focusing on our scenario analysis.

Thank you.

Okay. Next question?

Your next question comes from Fiona Swaffield from Execution. Please go ahead.

Hi. On the Wealth Management division, you talk about the resilience in your recurring fee margin, but I'm assuming that's partly because of timing on the assets and I would assume that Q4 is going to be rather difficult for revenues given what's happening on market values. Could you talk a little bit about costs? I know that you've got this investment plan, and you mentioned 250. But how much scope is there to have any cost flexibility in Wealth Management given the revenue outlook that's pretty difficult?

And then on the alternatives business within Asset Management, which looks, particularly in the third quarter, with continued net inflows. Could you talk about the hedge fund business and any potential outflows coming, or what is happening within that business? Thanks.

Yes, thanks. Maybe I'll start with the second question. As you say, we've had good inflows into the alternatives business all year on net basis, so every quarter, I believe, and continued in the third quarter. So I think particularly in these difficult investing markets I think that's a very strong sign.

And clearly though, as you say, we have had some outflows on the hedge fund side. I think about -- included in that net inflow numbers in the alternatives area, I think there was a little less than 2b of outflows on the hedge fund side. So we have seen some outflows through the fund of funds business, etc. And as you say, I think the fourth quarter, obviously your guess is as good as ours, but it would seem to be that there probably will be additional redemptions in that area.

But we do still continue to see -- obviously right now is a great time to be investing in the private equity space. And so people who do -- I think people who are looking forward are interested in actually putting money to work in private equity now and hopefully that will mean we'll have some healthy inflows.

With regard to your first question about the recurring fee margin fourth quarter and then cost flexibility, actually, interest income is quite stable in that business generally. And even though assets under management are down, the margins are better on what we're doing. And so we, again, think that that's pretty resilient.

We still do believe that a gross margin of 110 over the cycle, 110 basis points over the cycle is achievable. And we haven't seen -- we haven't seen a big impact on the business so far. It has been fairly resilient. So I think on that front I would just say I'm not sure that, I'm not sure that we would agree with your assessment that it's going to be a very difficult fourth quarter.

I think actually the business has shown itself -- if you look over the past, whatever it's been now, four or five quarters of this crisis, the business has continued to be very resilient throughout. So I actually think it's -- I hope it's likely to continue that way. And we do feel, as we mentioned before, that there could even be a pick-up on the transaction based side in the fourth quarter.

As for cost flexibility, we continue on -- we can't answer the question specifically for Investment Bank, but we continue to look closely at our cost on overall Bank-wide basis. And the non-comp cost side is -- has been a focus for some time and I think we've got good momentum and good systems and processes in place to help make that happen.

As you say, we are expanding the business, though, and of course that does require investment and that does incur additional expenses. We continue to believe that this is probably the best time that we've seen in decades to hire people and to add very good resources in the business. And we want to take advantage of that given our strong positions in the market. We want to take advantage of that to make sure that when the markets do turn we're in very, very strong position in the Wealth Management business.

So there is some cost flexibility, probably on the non-comp side we'll continue to drive that. But overall, we think it's more important now to be making the right investments and have them pay off when things get better.

Can I just follow up? One number in the Wealth Management division that really surprised me was lending is still growing very strongly and there's absolutely no signs of deleverage. Could you just -- are you very surprised about that too?

No, not really. We said -- our -- the areas that we saw as big opportunities for us were increasing our managed assets, which we've already talked about a little bit, increasing the liability side, the lending side without our Private Banking business, and then lastly increasing the cross-sell, particularly across Investment Banking and Private Banking. And that's been -- those have been our themes really for the last, I don't know, couple of years.

And so we were, I think we were a much smaller lender in the Private Banking space than many of our big competitors. And so we have been in a disciplined and in a gradual but consistent way growing the liability side of that business. It gets very good capital treatment. We think we've got high quality loans that we're putting on there, but it is part of our conscious strategy to grow the liability side of our business. So -- and again that is helping to contribute to the profitability of the business. And again it's, as you know, it's very high quality lending business because it's mostly secured lending. So it's pretty good business.

Thanks.

Thank you. Next question?

Your next question comes from Peter Thorne from Helvea. Please go ahead.

Yes, thank you. Just a couple of questions. Firstly, do you think you might use some of the relaxation on the fair value rules going forward, particular if you're going to have to fair value commitments that you haven't actually lent out yet?

And secondly, on the level three assets, I know we're going to get those on the segment on October 31, but can you maybe give us a clue as to the direction of those in the last quarter?

And then finally on Note 13 in the financial statement, I see there's a big increase in brokerage receivables of 50b or so. Is that the Lehman effect or is it something else?

On -- I think I'll ask Renato to answer a couple of others. But on the, on the third point I believe that increase in brokerage receivables, a lot of that is around, as you probably know, there's been an increase in the fail situation in the treasury market, repo market in the US as a result of -- just the volatility in the markets and some of the unusual circumstances.

Some of the traditional holders have stopped lending out those securities, which is resulting across the industry enormous amount of fails.

So there's a very high and persistent fail rate there. So I think that you're very perceptive to pick that up. And then note that that's what it is basically, is that there's a large and persistent industry-wide issue around sales on -- in treasuries. And it has -- so you see that in the gross number.

It has a small impact on our risk-weighted assets. It's not a risk issue or anything. It's not something that -- where we're at risk, but it is a persistent fail situation that gives rise to that balance sheet item.

Do you, Renato, want to talk about, yes, fair value and level three?

We do not anticipate that we substantially change our approach when it comes to fair value. As Paul said, with the fair value approach we are very close to the market. We are actually frontrunners in valuing properly to market out positions. We actually believe that it would create quite some additional uncertainty if suddenly we would have a different approach to valuing our positions.

On the level three assets, as you rightly say, we will come out with them in a week. My first estimate we have is that we come down slightly in Swiss franc terms, even considering the impact of the US dollar. So you will see lower numbers in the level three asset level.

And percentage-wise about the same.

About the same. Compared to the fair-valued assets, we will probably have about the same percentage as we had in the second quarter.

Thank you.

Thanks very much. Next question?

Your next question comes from Jeremy Sigee from Citigroup. Please go ahead.

Hi there. Just one further question please. Are you seeing any early signs of stress in any bits of your Corporate and Retail Banking loan book? Are there any parts of that portfolio that start to cause you concern with economic forecasts coming down pretty sharply all round?

Thanks Jeremy. No, we're not seeing any signs of stress. Obviously we're -- in these kinds of markets and with what you -- given all the things that are happening, we're certainly watching everything. We're not seeing any early signs of stress and, as you know, particularly in Switzerland, there was never really any of the excesses that we saw in many other markets. So we didn't have any of the real estate excesses, etc. And I think that we've certainly tried to be extremely disciplined about the quality of the book, etc., but no, we're not seeing any stress in it.

I think we will, as you know, we're continuing to see the trend that we have been seeing for a while which is that our releases will be lower than what they've been in the past. So -- and in terms of problems beginning to mount, we do not see that now.

Okay. Thank you.

Thanks Jeremy. Next question?

Your next question comes from Ivan Vatchkov from Algebris Investments. Please go ahead.

Good morning. It's actually Davide Serra. I have two questions. The first one is your headcount keeps on growing at Group level and particularly in the Investment Bank you added about 1,000 -- about 800 people year on year, at about 5% growth. Now the environment is changing and you are de-risking. Every competitor is cutting staff by between 10% and 20%. I agree you're one of the winners, one of the best capitalized, but as a shareholder, when do also employees in the Investment Bank are going to take the hit? Are you thinking of a more significant headcount reduction to align the lower profitability expected through the next couple of quarters?

The second question is I appreciate the fact that you've been growing the total assets. I just want to say why quarter on quarter you added 150b of total assets, because from the risky assets you're de-gearing, the trading assets are coming down. So I'd love to understand the CHF150b delta total assets growth third quarter on second quarter, what exactly it is. We can see it's [8b] loans. And if you can give me a color whether it's government bonds or whether it's carry trade, more color on this CHF150b delta.

Okay. Davide, thanks very much. On the second question which I'll take first, the -- I think the bulk of the quarter-on-quarter increase in balance sheet is actually due to FX, so about CHF100b of that. And then there's probably the remainder of about CHF50b is mostly from the prime brokerage side where we've seen tremendous inflows during the quarter. We showed about over CHF100b of client balances increase and that has given rise to increases in the balance sheet as well.

So you're right. The risky assets have been going down, etc. We think we are showing good discipline on our risk-weight asset side, for instance. But clearly FX has gone against us and our client-related assets are going up pretty rapidly, which we think is a good thing. So -- but anyway, that -- I think hopefully that explains the changes.

And Paul, do you want to address the headcount question again?

Sure. Let me address the headcount. In the Investment Bank we, as you know, we entered this turbulent period last summer with the lowest headcount of any of the major investment banks which I think put us in a stronger starting position here. We've made significant cutbacks in some of the affected business areas, the CMBS, RMBS and CDOs are down as much as 60%, so significant cuts. Having said that, we have shifted resources to areas that we have mentioned as key areas, robust growth opportunities across some of the areas such as prime services, some of the flow areas, foreign exchange and rates.

The increase you see, as well, a significant amount, almost half of that is in IT as we're supporting infrastructure for the growth in many of our businesses. Prime services, electronic trading, derivatives, we need to ensure that we have a strong infrastructure to grow those client-related businesses. Additionally there are, in those numbers, people that we've hired in in terms of the Centers of Excellence, which are moving people in more expensive centers to more efficient centers in places like Pune, India. We have new graduates and some other in those groups. We keep -- we're keeping a very close eye on the resourcing that we have across the Investment Bank and ensuring that it is aligned with what opportunities we see in the market.

Thank you. Can I have actually a follow-up on these positive inflows of prime brokerage assets? In particular in Europe after the debacle of Lehman prime broker assets, I would expect you to be a clear winner because now you have the highest score capital, you're Swiss competitor is less capitalized even though it's probably less risky assets. But most importantly, but there is not much choice because in Europe if you take the US counterparts right now, you might end up with a Lehman II experience because of bankruptcy law.

So how much, let's say, the trend you're seeing in the third quarter, is it continuing into October? Is it a structural trend or has just been a panic move and you're just benefiting in September?

Yes, I wouldn't say it's a panic move because, as I mentioned, we've seen increasing flows in this business. We've been improving our market position for the past couple of years in prime services. Obviously the growth and inflow of assets over this past year, particularly since about mid March, particularly since about mid March has been significant. September was extraordinary in terms of the balances we've seen.

I think it's very important to note that we've been very selective in terms of both the counterparties and the collateral which we have on-boarded. Our acceptance rate has only been about 40% of those who've come to us have we on-boarded those clients. And our respective collateral holdings, I think, quite high standards as we've on-boarded business throughout the third quarter.

So I think our view is, I think, our hope and expectation is that the prime brokerage business will continue to -- we will be able to grow it. We can grow it. We obviously want to continue to be disciplined in terms of how we, how we do grow it so that we keep it very well controlled.

We do have, I think, a strong platform, but we clearly want to make sure that we grow it in a disciplined way. But I think certainly there is opportunity, as you say. There is, I think, lots of business to do.

Okay. Next question?

Your next question comes from Stefan Stalmann from Dresdner. Please go ahead.

Yes. Good morning. There's only one little question left and that relates to the inflows in your prime brokerage business. Could you give an indication of how much of these CHF117b was actually coming in the form of deposits? Thank you.

What do you mean by deposits? Do you mean cash as opposed to securities or what are you getting at?

Yes, money that has been deposited with you in bank accounts, transaction accounts.

I'm actually not sure I know. It's obviously a mixture. Sometimes it's actual collateral. Sometimes it is cash. I don't know the exact --

It is both sides of the balance sheet, I know that. I know that we have taken in a good deal of cash, but we'd have to get back to you on it or if even we would, I'm not sure we'd disclose that level of detail.

Okay. Thank you.

Thanks Stefan. Sorry we couldn't answer your one question. Sorry, next question?

Your next question comes from [Daniel Meier] from Blick. Please go ahead.

Yes. Hello, Mr. Dougan. I've got a question about the ongoing debate about salaries and bonuses. It's about what happened last week. Mr. Kurer said that he expects that salaries at UBS will stick above 10m and the reaction from the Federal Council was quite clear and fast, and after that intervention Mr. Kurer had to apologize for his statement. Now I was wondering about Credit Suisse. What do you think? What will happen to the salaries at Credit Suisse in the short-time future? Will they stick above 10m or not?

Well, I think more generally, first of all we've had, I think, a pretty clear record of making sure that our compensation for people was very much reflecting performance and was very much aligned with our shareholders. So I think there's no question that in a year like this where the firm is not performing as well as it has in previous years and where the shareholders have not done as well, clearly the employees also need to -- that needs to be reflected in compensation. There's no question about that.

I think -- and in general I think that it is -- I hope what we see out of a number of things that have happened here is that we will actually have a more reasonable approach to compensation for people in the industry. And it's something that we're hoping we see throughout the industry.

So we also I think have worked hard to design our compensation in a way that does align employee interests with shareholder interest and does have a longer tail on it. So that if people don't just get paid today for what they've done, they get paid today with a tail on that which links into the performance of the Company and the performance of the stock over time. And we have, I think, put in place some very good instruments in that respect that have ensured that if the Company doesn't continue to perform well, then some of that compensation that's given out is actually clawed back. And we think that's been something that's been very, very healthy as well.

So I think all of those principals will, I think, hopefully lead us to have a good, responsible compensation system that does reflect the value that's being added and is aligned with shareholders, and reflects the reality of the performance of the Company.

Yes, but you didn't comment on the 10m.

I don't think I'd comment. I can't really comment on any specific numbers. Certainly we don't even determine compensation until the end of the year. That certainly sounds like a very high number to me, so -- but anyway, I wouldn't comment on any particular numbers.

Even not for this year?

I'm just not going to comment on specific numbers, I don't think.

Okay. Thank you.

Thank you. Next question?

Your next question comes from Matt Clark from KBW. Please go ahead.

Hi again. Thanks for taking all these questions. Last one just on the CDS clearing house that's getting some press attention. How do you think this would impact your business if they did manage to get a central clearing house set up and running for CDS? Do you see a meaningful risk reduction or don't you think it really makes much difference? And how do you see it affecting the revenue side in terms of price discovery and that kind of thing? Thanks.

Sure. I spoke at the AGM, the last AGM about six, seven months ago and congratulated everyone for the 64 trillion balance in CDS. But I said at that time that I thought it would be very constructive to have a clearing mechanism for these products. I believe that it will be -- it's good structurally for the market. I think Credit Suisse is well positioned.

I talked a bit earlier about the success of some of our electronic trading platforms, AES in particular. And we believe that as this market moves to -- through more central clearing, through electronic trading, both it will be positive for us as a market participant and good overall for the further development in the market.

Okay. Thanks.

Okay. Thanks Matt. Next question?

Your last question comes from Peter Casanova from MainFirst. Please go ahead.

Yes. Good morning Paul. Thank you very much for all these questions. I wanted to follow up on the prime brokerage. I see that you're gaining great market share. I was wondering what is going to happen and what is happening to the margin of this business. Is it similar, like in reinsurers, where you can charge now every price because competitors are dropping off, or is there a big offsetting effect giving lower leverage of declines overall?

Thanks Peter. Paul, do you want to take that?

Yes, thanks Peter. Overall there are a couple of dynamics going on in the industry. Certainly credit is being priced properly or increments are with the market conditions. We are seeing general deleveraging across the industry, but offsetting that, margins in the business are increasing.

Okay. Thank you.

Okay. No more questions then?

There are no more questions. I'd now like to pass back to yourself, Mr. Dougan.

Okay. Thanks very much everybody. If anybody is still on, thank you for listening in to the presentation, for all the good questions. And, as always, we appreciate your support.

We do continue to believe that Credit Suisse is strongly positioned, particularly to benefit when markets turn more favorable, and we look forward to that happening.

So thanks very much everybody. Bye.

That does conclude today's conference. An email will be sent out shortly advising how to access the replay. Thank you for joining today's call. You may all disconnect.