Credit Suisse Group AG (CS) 2009 Q2 法說會逐字稿

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group quarterly results conference call. As a reminder, all participants are in a listen-only mode and the conference is recorded. You will have the opportunity to ask questions directly after the presentation. (Operator instructions). Please stand by.

Good morning, everyone, and welcome to our second quarter analysts' conference. I'm going to make some brief introductory remarks. Renato Fassbind will then take you through the details of the results. Renato and I then, along with our divisional CEOs, Walter Berchtold from the Private Bank, Paul Calello from Investment Banking and Rob Shafir of Asset Management, will be then happy to take your questions, and then I'll do a short sum-up at the end.

The events of the past couple of years have led to significant changes in the industry, and we believe this change will endure. We believe clients, investors and regulators will behave differently over the medium to long term. Our view seems to be in contrast to some who believe the industry will quickly go back to the old days. We do not agree with this.

Switzerland is a financial market; its regulators and Credit Suisse have been in the forefront of response to the new environment. We have adopted a differentiated, client-focused capital-efficient strategy which we believe puts us in an ideal position to compete strongly in a rapidly evolving industry landscape. And the second quarter and first half results demonstrate the strength of this business model.

If we look at the underlying operating performance of the business, excluding charges due to improvements in our credit spreads, the charges relating to the Huntsman settlement which we were happy to put behind us, and also excluding a discrete tax benefit, our normalized net income would have been CHF2.5b, with a return on equity of over 27%.

This is a superior return in an industry where, as you know well, many players have returned to profitability but few are generating strong returns on capital. We accomplished this result while strengthening our capital ratios, ending up this quarter with an industry-leading 15.5% Tier 1 capital ratio and further reducing our risk-weighted assets, our VaR and our nominal balance sheet.

So we improved our financial performance from the first quarter to the second, and did so not by increasing risk but in fact while reducing it. This is a result of excellent momentum in our client franchise, with CHF10.7b of net new assets in our Private Bank, with strong inflows in all regions and strong market share gains and client momentum in our Investment Banking franchise.

In the first half of 2009, we have produced CHF3.6b of net income and after tax return on equity of over 20%, increased our Tier 1 capital ratio by 200 basis points and reduced balance sheet by 7%. This demonstrates what can be achieved with our new client-focused capital-efficient strategy.

We had a solid quarter in Private Banking, with a high gross margin and strong asset inflows of CHF10.7b across all regions, leading to higher assets under management.

The Investment Bank performed very will, with underlying pre-tax income of CHF2.4b and a return on ERC of 46%. This is while we've continued to reduce our risks in the quarter and was a result of strong momentum in our client franchises. We continue to be disciplined in our deployment of risk. In US dollar terms, risk-weighted assets declined 10%. Average one-day value at risk was reduced by 7% compared to the end of the first quarter.

Private Banking and Investment Banking are performing well and are positioned to meet industry challenges. They are working very closely together to deliver solutions to clients. This has helped drive encouraging progress in revenues from cross-deliverable -- cross-divisional collaboration, which were up from CHF1.3b in the second quarter of '08 to CHF1.5b in the second quarter of '09. This was mainly the result of the delivery of integrated solutions to ultra-high-net-worth clients.

Asset Management continues to make progress with the return to profit and the successful completion of the sale of part of the traditional business. The strategy is now focused on asset allocation, the Swiss businesses and alternative investments. With a Basel II Tier 1 ratio of 15.5%, we have an industry-leading capital position, and the strength and stability of our integrated global bank is attractive to our clients and shareholders. And this ratio includes an increase to a more normalized level of dividend during the quarter.

We have a strong position and a clear differentiated strategy. The results in the second quarter and the first half and our positioning demonstrate that our business model is extremely well placed.

We continue to engage in close dialogue with regulators around the world and we appreciate the importance of building a more robust and sustainable financial services industry. Discussion around the size of banks is important, and Switzerland and Credit Suisse have already taken a number of important steps to address the issues, including significantly strengthening our capital and reducing our balance sheet and risk-weighted assets.

Switzerland has a long history as a leading financial center, and we believe this experience has helped it successfully manage through the challenging period of the past two years and puts it in a good position to remain internationally competitive. At the same time, we should recognize the important role the large banks play in the Swiss economy.

We believe that, particularly in the context of a continuing evolution in the industry landscape, our business model and our strong positioning provide the basis for a sustainable, high-quality, lower-volatility earnings stream. We believe that this will lead to superior shareholder returns in the years to come.

And with that, I will hand it over to Renato.

Thank you, Brady, and good morning. I will start my presentation on slide five, with an overview of the second quarter and half-year results.

The second quarter 2009 performance demonstrates that our differentiated strategy is working well, that our business model is providing the basis for sustainable, high-quality and less-volatile earnings. We recorded strong revenues of CHF8.6b and net income of CHF1.6b. Second quarter result includes charges of over CHF1b, as credit spreads on own debt tightened substantially during the quarter. I will talk some more about this item in a moment.

If you look at earnings per share, so that's CHF1.18 for the quarter. Excluding the fair value losses, the cost/income ratio improved to 69.7% during the quarter, as operating revenues improved in all divisions and we continued to maintain a tight control on expenses.

The first half of the year is shown on the right side of the slide. We recorded net income of CHF3.6b on strong net revenues of CHF18.2b. The half-year tax rate stood at 21%, below our guided rate for the year in the high 20s, as the second quarter rate benefited from a discrete tax benefit of some CHF400m.

The after-tax return on equity stood at 17.5% for the quarter and 20.1% for the first half of 2009.

The results on this page are as reported, which masks the underlying comparison of our results for the previous quarter, as they include significant special items. So we have produced slide six, to show you a reconciliation of our quarter-on-quarter underlying performance, where I will explain each column in turn.

As shown in the left column, we reported net income of CHF1.6b and a return on equity of 17.5% in the second quarter. However, in that quarter we had charges from the tightening of spreads on own debt of CHF1.1b and Huntsman-related charges of CHF500m pre-tax. In addition, we recorded a discrete tax benefit, as already mentioned, of some CHF400m in the quarter.

Adjusted for those three items, underlying second quarter net income would have been CHF2.5b, up 62% from the previous quarter's underlying result. Pre-tax income was up 30% and revenues increased 10% on an underlying basis. Finally, the adjusted return on equity was 27.4% for the second quarter.

We believe that these strong results evidence the momentum we have experienced so far this year. With an underlying return on equity of 22.3% in the first half of the year, these results evidence that our differentiated capital-efficient and client-focused strategy is delivering solid returns to shareholders.

At our first quarter results, we told you that we had put a hedge in place to reduce volatility resulting from the movement of credit spreads on our own debt. We also told you that the hedge is not fully effective when spreads move substantially. Slide seven sets out the basic mechanics.

The underlying concept is to amortize the cumulative fair value gains of CHF6.9b reported at the end of the first quarter over the life of the debt, resulting in a quarterly charge in the divisions of approximately CHF300m. The vast majority of this is booked in the Investment Bank.

In the second quarter, substantial credit spread movements resulted in hedge slippage. As a result, the fair value charge resulting from spread movements of CHF3.7b was only offset by gains of CHF2.7b. So we ended up with a net charge of over CHF1b. Of this, CHF280m has been charged primarily to Investment Banking, representing the pull-to-par charge just mentioned. The Corporate Center results included a CHF774m charge that reflects the hedge slippage, driven by substantial credit spread movements.

Going forward, though, the quarterly pull-to-par charge in the divisions will continue to be approximately CHF300m, and the additional CHF774m fair value loss recorded this quarter will ultimately be reversed over the life of our debt, dependent on our credit spread movements.

Let me turn to slide eight for an overview of our divisional results. Private Banking achieved a solid result with pre-tax income of CHF935m, in spite of the challenging economic and operating environment. Investment Banking delivered a strong result with an underlying pre-tax income of CHF2.4b, having made further progress in executing its client-focused and capital-efficient strategy. Asset Management returned to profitability, as we continued to make progress on delivering a more focused business aligned to the rest of the Group.

Let me continue with further detail of the results, starting with Wealth Management on slide nine. Wealth Management recorded a pre-tax income of CHF662m, which represents an increase of 2% from the first quarter. Please be reminded that the prior quarter includes the proceeds from captive insurance settlements of CHF100m.

Revenues were up 8%, as client activity and product issuance increased from the depressed level of the previous quarter. Assets under management continued to increase, up 6.7% in the quarter.

Our business model remains resilient in these challenging markets, as we continue to deliver strong asset inflows, resulting in market share gains for Credit Suisse. We have achieved these asset inflows despite the regulatory uncertainty and the lack of wealth creation.

We increasingly see the benefit from delivering integrated solutions to our clients, in particular in transactions with ultra-high-net-worth individuals. These transactions were jointly originated and executed with Investment Banking.

The total number of relationship managers has increased by 20 heads during the quarter, to 3,380, primarily reflecting the continued hiring of senior relationship managers with a focus on ultra-high-net-worth clients.

We will continue to be actively focused on this attractive segment and continue to seek opportunities to upgrade our talent pool, benefiting from a strong, competitive position. In summary, revenues and assets are up in the quarter and we continue to see positive trends in our competitive position, with strong asset inflows.

On slide 10, the revenue levels in Wealth Management are on the left side of the chart and the resulting gross margin is shown in the middle. The gross margin increased to a high 119 basis points. This noticeable increase is driven by an increase in the transaction-based margin, offset in part by a reduction in the recurring margin.

The transaction-based margin increased 7 basis points compared to the first quarter, mainly benefiting from higher integrated solution revenues and increased brokerage and product issuing fees. The increase in fee income is reflecting improved investor confidence and an increase in client activity and financial market transaction volumes from the low levels seen in the prior quarter.

The recurring margin declined 4 basis points, as average assets under management increased 4.9% but interest income only increased 3.3%. Further, we recorded lower asset-based commission and fees as the increase in managed investment products in the quarter will only be fully reflected in the revenues in the third quarter.

In summary, the overall margin showed a strong improvement, benefiting from an increase in activity from the low levels experienced in the first quarter. As important, we continue to increasingly see the benefits from offering integrated solutions to our clients. We believe that this activity will increase in importance over time, as we benefit from the successful implementation of the integrated bank, delivering incremental revenue streams based on clearly differentiated client offering.

Let me turn to net new assets on slide 11. Despite the lack of wealth creation in the second quarter, we achieved total net new asset inflows of CHF8.5b, with broad contributions from Asia, Switzerland and Europe and the Middle East. Annualized net new asset growth stood at 5.1% for the quarter and 5.4% for the first half of the year. This is slightly below our across-the-cycle target rate of 6%, but this is not a surprise at this phase in the cycle and reflects a continued challenging environment.

Slide 12 shows the development of assets under management. Total assets under management increased 6.7% to CHF712b in the second quarter. Positive market movements and strong net new assets were offset in part by negative currency movements, as the US dollar weakened against the Swiss franc.

The asset mix continued to reflect the cautious client behavior, but on the positive side we have seen a gradual shift of assets from on-balance sheet deposits back to securities accounts. In addition, the proportion of assets held in managed investment products also improved.

As mentioned, we see a positive trend in product issuing fees, which have increased over 30% from the depressed levels in the first quarter, driven in particular by improved demand for fixed-income products.

Let me now move to Corporate and Retail Banking on side 13. Pre-tax income in Corporate and Retail Banking decreased to CHF273m. Net new asset inflows continued to be strong at CHF2.2b, reflecting continued client confidence in our business. Revenues were down CHF74m from the first quarter, reflecting lower margins on loans as a result of higher funding costs and fair value losses of CHF32m on loan portfolio hedges, compared to gains of CHF5m in the first quarter.

We continue to support the funding of the local economy, as corporate loans increased by 1% in the first half of 2009, following an 8% increase during 2008. Provisions for credit losses were CHF75m and continue to rise from the benign levels we experienced over the last few years.

With that, let me turn to slide 14, to Investment Banking. We reported pre-tax income of CHF1.7b in the second quarter in the Investment Bank. Adjusted for charges from the tightening of credit spreads on own debt of CHF269m and Huntsman-related charges of CHF483m, pre-tax income stood at over CHF2.4b, an increase of 17% from the first quarter. The underlying pre-tax return on economic capital was a strong 46% in the second quarter and 41% in the first half of the year.

Our strong results reflect the good performance in our client and flow-based businesses, as we gained market shares across many product areas. The underlying pre-tax income margin stood at a very solid 37% during the second quarter and 36% for the first half of the year.

We continue to apply a disciplined approach to risk deployment. In the second quarter, we continued to reduce the risk-weighted assets and value at risk, both by 10% in dollar terms. As a result, we have delivered six months early on our risk-weighted asset target, but more on this later.

In summary, the Investment Bank built on the strong results in the first quarter with another set of very good operating results and a high return on capital deployed.

Slide 15 shows you a more detailed analysis of the CHF6b revenues achieved in the second quarter. This analysis splits the revenue contribution into key client, repositioned and exit businesses that we established when we announced the strategy of the repositioned Investment Bank in December 2008. There is more detail of the business activities within each of these three categories in the appendix.

In the second quarter of 2009, we generated total revenues of CHF6b. The key client businesses generated CHF5.3b of revenues, which is down from the previous quarter. However, the first quarter included CHF700m of rebound revenues resulting from more normalized market conditions compared to the fourth quarter of last year.

The repositioned businesses delivered a significant increase in revenues to CHF1.7b, where rebound revenues contributed CHF600m of the CHF1.4b in the first quarter. Losses in the businesses we are exiting totaled CHF700m, of which around CHF300m related to further write-downs in the CMBS portfolio. Also, in these exit businesses, the results significantly improved from the first quarter, a trend which we expect to continue as we aggressively wind down these operations.

Let's have a closer look at the revenue trends on slide 16. Fixed income revenues were strong this quarter. Many of you have questioned the sustainability of the first quarter revenue levels, particularly in fixed income. You can see that, excluding the rebound revenues in the first quarter, fixed income revenues have increased from CHF2.7b to CHF3.6b.

In key client businesses, we achieved strong results with robust revenues in global rates and in RMBS secondary trading, although the contribution was lower compared to the very strong first quarter. We made good progress in improving the contribution from the repositioned businesses, despite lowering our risk in this area. Specifically, we saw significant improvement in emerging markets and in the US leveraged finance business.

On the right, you can see the improving trend for the exit businesses, with significantly lower write-downs and continued exposure reduction in legacy assets. For the quarter, CMBS write-downs were CHF300m compared to CHF1.4b in the first quarter. And we reduced marks further during the quarter, moving the average portfolio price from 59% to 56%.

Equity revenues, as shown on slide 17, were also very strong. Excluding the rebound revenues, equity revenues have increased from CHF2.2b to CHF2.6b, quarter on quarter, driven by strong performances across our key client businesses.

We achieved record revenues in prime services and strong revenues in cash equities. In flow derivatives, we saw a solid performance, and underwriting revenues benefited from an increase in equity issuances and market share.

Results for the repositioned businesses were stable, as the convertibles business is now focused on client flows and the sell-down of the trading book is now complete. The ongoing business will focus on quantitative and liquid trading strategy.

On the far right, you see that the risk reduction on the exit businesses is largely completed.

Over the past months, we have spent a lot of time discussing a previous version of slide 18 with investors and analysts. The feedback in describing some of the industry dynamics for our major business lines has been very positive. This slide is an update of that presentation, comparing trends in the second quarter with those prevailing in the first quarter.

In the first two columns, we measure where we think industry volumes and margins have trended for each of the businesses shown on the left. The next two columns show you how Credit Suisse market share and revenues are developing compared to the first quarter in each product area. And on the right, you see some of the proof points supporting the market share gains and franchise momentum we have achieved. I will take a brief moment to touch on some specific examples behind these trends.

In cash equities, we saw higher revenues on higher volumes and we continue to improve our market position. We were ranked number one in Pan European equity trading in the recently published Thomson Extel Survey. It is a similar volume and revenue story in electronic trading, where we were again ranked number one in algorithmic trading. And in prime services, we saw record revenues and continued to gain market share, gaining some high-profile industry awards. In a survey by Eurohedge, we ended number two overall, with 15% market share in Europe.

Fixed income is highlighted in the middle section of the page. Our businesses in rates and foreign exchange have recorded market share momentum and our objective is to continue to gain market share, leveraging our strengthened position with clients and integrated bank relationships.

In mortgage trading, we've benefited for some quarters from strong market share increases, as many of our peers have disappeared from this market segment. And we continue to operate with one of the strongest sales and trading teams in the industry.

Finally, in our Investment Banking business, revenues and activity levels in the underwriting businesses have improved, but industry-wide M&A activity continues to be very low.

This was an overview of how we are thinking about some of the key dynamics and trends in our business as we execute our strategy.

Let me turn to slide 19. Please note that this slide is all in dollars and shows the risk trends for the Investment Bank. I mentioned risk reduction as an important part of our strategy and we continued to show a good trend, actually achieving our announced year-end risk-weighted asset reduction target of $135b six months ahead of time. Risk-weighted assets ended the quarter at $139b, down 10%. For the key client and repositioned businesses, risk-weighted assets stand at $113b, already below our original year-end 2009 target level.

But we are not just cutting risk. As we are rebalancing and reallocating our capital to our key businesses, we are able to address client needs by decreasing our risk and P&L volatility. Our priority is to release capital by continuing to manage down the $26b of risk-weighted assets related to our exit businesses, for reinvestment into our targeted client businesses.

Average one-day VaR also fell 7% in the quarter and 40% from the second quarter last year, and we did not record any backtesting exceptions in the first six months of the year. As we reinvest capital in client and flow businesses, we may see some increase to VaR over time.

The next slide, number 20, shows you the development in our cost base. Compensation component is shown in the top chart, where the total compensation expenses are down 6% from the first quarter. Our compensation accrual is based on an economical model, recognizing the risk-adjusted profitability of the Investment Bank and the industry environment. Excluding the impact from the change in credit spreads on own debt, our compensation-to-revenue ratio in the Investment Bank fell from 48% in the first quarter to 44% this quarter.

G&A expenses declined from the first quarter, due to lower occupancy and rent expenses, partly offset by higher legal fees and travel and entertainment expenses. Total non-compensation expenses decreased 8%, reflecting our continued focus on expense discipline. In US dollar terms, total non-compensation costs decreased 13% from the second quarter last year.

This concludes the review of the Investment Banking results and I will now continue with Asset Management on slide 21. In the second quarter, Asset Management returned to profitability, reporting pre-tax income of CHF55m. Fees increased 10% or CHF30m, quarter on quarter. The gross margin before investment gains has held up well at 41 basis points for the second quarter and the half-year period.

Our private equity investment portfolio stabilized, as losses in real estate-related positions were largely offset through gains in our credit portfolios and in emerging market investments. Our costs have reduced by 24% compared to the first quarter, driven by lower performance-related compensation.

Assets under management increased slightly in the quarter, with positive market movements of CHF18.3b, partly offset by net new asset outflows of CHF4.1b. The outflows occurred in product areas such as US money market funds, where we have been strategically de-emphasizing our business over time, as well as in multi-asset class solutions, due to continued preference of investors for cash-related products.

Let me turn to the next slide, number 22. On July 1, we completed the sale of our non-strategic traditional equities and fixed-income businesses to Aberdeen, transferring CHF60b of assets under management. The client consent rate to the transfer was over 90%, which resulted in us receiving the maximum possible equity stake of 23.9% in Aberdeen Asset Management. We structured the transaction as an asset deal in exchange for shares, to allow us to participate in the benefit from the value-enhancing platform Aberdeen is establishing.

As a result of the appreciation in Aberdeen shares, upon closing of the transaction, we will realize a gain of CHF227m, of which we recorded already CHF21m in the second quarter. The remaining gain of CHF206m will be recorded in the third quarter.

Going forward, we will apply equity method accounting for our stake in Aberdeen, recognizing our share of Aberdeen's net income each quarter. The transaction allows us to focus on our core capabilities where we have scale and expertise, namely in alternative investments, our Swiss franchise and in multi-asset class solutions. The transaction is also a sign of our capability to successfully close complex transactions, as we implement our strategy to grow this business going forward organically and potentially through acquisitions.

This concludes the divisional review.

We presented slide 23 last December, when we announced the realignment of the Investment Bank and the streamlining of our overall capacity around the Group. As of end of the second quarter 2009, we have achieved the run-rate cost reduction equivalent to our CHF2b annual cost saving target. We are on track to achieve the planned 5,300 headcount reduction, with 4,900 positions reduced already, partly offset with new positions in Private Banking and IT.

We also communicated the year-end 2009 headcount target of 17,500 positions for the Investment Bank. However, we have now reassessed the viability of certain of our client and flow-related businesses, given the change in market conditions and strong market gains achieved. As a result, we expect the headcount to remain around the current level for the rest of the year.

Let me move to our capital position, on slide 24. During the quarter, the Basel II Tier 1 ratio improved by 140 basis points to 15.5%, making us one of the best capitalized banks globally. Our Core Tier 1 ratio, excluding hybrid capital, stands at over 10%. Risk-weighted assets fell by CHF26b, primarily due to a CHF17b reduction in Investment Banking and a CHF7b exchange rate impact.

We place great importance on ensuring that Credit Suisse maintains a strong capital position. We also see great opportunities to reinvest excess capital to fund organic growth in the business, and potentially through tactical acquisitions that complement our platform. At the same time, we will continue to actively manage our capital levels by returning excess capital to our shareholders over time. In that regard, we decided to increase the half-year dividend accrual to a more normalized level.

We also have maintained a strong balance sheet this quarter, as you can see on slide 25. Total assets were reduced by CHF63b, or 5%. The regulatory leverage ratio increased to 4%. This ratio will be affected by changes to consolidation rules from the beginning of next year under US GAAP. We expect total assets to increase by less than 10% as a result. Level 3 assets, in which we have an economic interest, declined approximately 12% to $57b.

This concludes my presentation and with that I will hand back to Brady.

Before we take your questions, I just wanted to alert you to an Investor Day focused on Private Banking that we're organizing for September 22 in Zurich, and that's obviously in line with our commitment to communicating openly and transparently about our business. So you'll be receiving more details about that event shortly.

So, with that, I'm happy to open it up to questions. I guess we'll start with questions in the room here. We have microphones here, so if you'd like to ask a question raise your hand and we'll have a microphone brought over to you and then I will then, after that, go to questions on the webcast. We'll start here. Why don't we start here? And next we'll go over here.

Morning. Christian Stark from Cheuvreux. A quick question on the slide 18, where you show the changes in margins, industry volumes and market share. If I compare that to last quarter's, then the volumes are clearly up, the margins seem to be sustained at the improved levels that we've seen in Q1 and the market share gains are continuing. In terms of the market share gains, is it possible to get your view on the duration of this process? So are you seeing competitors coming back quickly and aggressively, or do you think it's going to be a longer-term process where competitors still reduce balance sheets and withdraw from businesses, just to get a feeling of the timing of this process?

I can give a quick answer and then, Paul, maybe you could give a more detailed answer. I think, in general, we think over time the margins will probably come down as others come back into the business, and potentially that could have impact on our share as well. But we do see a lot of momentum in our business and we do see fairly persistent margins there. So I think, actually, this is -- I think this is a trend that's probably going to be more long lasting than many people think, but obviously it's hard to predict. But we actually think probably margins are going to hold up better and our market share gains hopefully will continue to benefit from that over time. But, Paul, I don't know if you want to --

Let me add just a few things. I think I'd agree with Brady that margin compression eventually is inevitable, as more people come into the market. But I think still, as you mentioned, really, with the (inaudible) from the first quarter, the first quarter, the second quarter, and so you rightly identified it. What you're seeing there with the flat line is that they're maintaining very healthy margins. And I think it'll take some time before those come in.

Specifically to your question on our own market share, we certainly hope to maintain the gains we've had. But it's also there are great opportunities in there as well, because there are some market shares, for instance in rates and foreign exchange, where we're not a leading player right now. And we think there's still an enormous amount of gain we can make, built off of the momentum that we've had to date.

Here for the next question.

Kilian Maier, NZB. The first question would be on dividend accrual. You said that is now more normalized. Could you provide some help in interpretation of a normalized level in terms of payout ratio, for example?

The second question would be on Asset Management. If I read the report correct, then there has been outflows in alternatives. That's quite new, because you've performed pretty well in the past in this area. Maybe you can comment on that.

And then, a last question on slide 18, which is really highly appreciated, but I wonder how stable volume, stable margins and increasing market share can result in lower revenues for Credit Suisse in the FX area.

Okay. I can answer your first question. Maybe I'll ask Rob Shafir to take -- to address your question on the AM outflows in alternatives, and then Paul could quickly give an answer to the FX question.

I think, on the dividend accrual, obviously we don't -- we're not going to make specific comments about it, but we wanted to just give guidance of the fact that we have increased the accrual to a more normalized level. So I think that's -- it's obviously just an indication given. The -- I think the strong capital accretion we've had in the business over the first half. But I think we'll leave it at that.

Rob, do you want to address the question of (multiple speakers)?

On the outflows, actually, where we've seen outflows has primarily been in two places - in our money market business, which we are strategically de-emphasizing, as well as some outflows in our multi-asset class business, where we're still seeing some effects of de-leveraging with some of our private clients. The only outflows we actually saw in alternatives, we've actually been very stable in our fee streams there, was in a small quant product. And it's an index enhanced product, so it's very liquid and it's somewhat volatile over the course of the quarter. But broadly speaking, our alternatives business has been extremely stable.

Paul, do you want to address the specific question on FX?

Your question on the arrows with regard to the foreign exchange, the answer to that is we show in that arrow the actual revenue from quarter to quarter. And the volatilities in FX dropped quite significantly in the second quarter and we didn't have the same level of trading gains inherent there. So that's our actual revenue base on that measure of foreign exchange.

The only other thing to mention on that slide is the gains in equities, and related to the earlier question, are quite significant, and I think quite sustainable, particularly in areas of prime services in the electronic trading.

Next question here.

Good morning. It's Daniele Brupbacher from UBS. Just a question on your compensation model in the Investment Bank, and there the comp ratio has been below 50% year to date. You are saying that it is based on an economic profit model and I would assume that capital consumption is one important input factor there. Now, with your strategy to move even more into, let's say, capital life client driven revenues businesses, what should we assume in terms of structural compensation ratio going forward? Does that have an impact? Should we assume an increase in ratio there? That's question number one.

And then, just on Private Banking, net new money was resilient, I would think. Do you have the impression that you are gaining market shares in Switzerland abroad? And what's your view on the recently announced tax amnesties in Italy and the UK, or at least the intention to make those tax amnesties? Thanks.

On the first question, on the compensation model in the Investment Bank, I guess the first thing I'd say is obviously it's an area that's obviously under discussion. As you know, there's a [FINMA] regulatory paper out in terms of the structured pay, and it's obviously something that's being, I think, thought about and discussed really all around the world right now. So I think it is an area that is somewhat -- that's dynamic now.

I do -- we clearly have adopted what we think is a more -- a better model in terms of looking at how we think about paying Investment Banking, which is, as you mentioned, based on risk, etc. And that's also something which, again, is somewhat dynamic and we're going to see how that develops. I think our view is that, in terms of the accrual in the second quarter, obviously one quarter's accrual, as you know, is not necessarily decisive in terms of where we'll end up or what will happen. But we do think that that was an appropriate level of accrual, allow us to pay responsibly but also competitively, and I think it also does reflect some of the changes in the business model.

So we're going to have to see, obviously, how the industry evolves and how things evolve, but I think in general our view is that that's a reasonable level. We'll have to be obviously responsive to the competitive environment, though, and we'll have to watch how that develops over time, so.

I think, with regard to the Private Banking, Walter, would you like to address that?

Okay. We do believe that we gain market share. Especially when you look at the Wealth Creation, I think that we're still on a very reduced level.

Then, when it comes to tax amnesties, obviously, knowing the history of tax amnesties, we've prepared ourselves very well for all sorts of tax amnesties. Just to give you an example, in Q2, for example, we were able to capture about 80% of transferred assets. And we would hope, obviously, that whatever the outcome will be, we'll see, we can do similarly or maybe even better, get some additional assets from other banks.

I think that was obviously one of our big initiatives in the Private Bank, and -- what Walter has been pushing is obviously the build-up of our onshore businesses really all around the world, and so I think that does put us in a position to, I think, hopefully fare pretty well because our onshore businesses are strong in these areas.

Yes?

On the Wealth Management side, the gross margin surprised on the upside, coming in at 119 basis points, and there were indications of increased brokerage activity, product issuance fees. In light of the normal seasonal downturn, should we expect that this rebound in activity will offset the usual downturn? Or should we expect normalization again in Q3 to the normal around 110 basis points gross margin that we see throughout the summer months, when clients are on vacation?

Paul, do you want to do this?

I think obviously the third quarter always has some cyclicality, especially because of holidays and so on and so forth, so we probably have a little bit of a normalization. But we will still be able to keep them well above 110.

I think that's one of the -- as we mentioned, one of the big contributors to that was the integrated bank activity, and obviously that's a big focus of ours. And our hope is that that will continue to have a pretty prominent role in allowing us to maintain those margins.

Are there questions here? Maybe we should go to the webcast for a while. We can always come back to the auditorium here. But are there questions?

The first question comes from Jon Peace from Nomura.

Morning, everybody. A couple of quick questions, please. First one's just on the sustainability of the Investment Bank revenues into the second half. I just wondered if you could give us any color on how July has traded relative to the second quarter.

And on the observation that you've made your numbers on quite a strong reduction in VaR and risk-weighted assets, could we conclude that maybe you've got a higher mix of customer business versus prop business than some of your peers? In other words, perhaps your run rate of revenues is a little bit more sustainable than some of your peers, going into the second half of the year.

And the second question's just on capital. The FINMA ratio of 4% is obviously well ahead of the target of 3% by 2013. But under pressure from the SNB, do you see that target getting changed? And does it put any significant limit on your capital flexibility or are you free to pay a CHF2 dividend again this year? Thanks.

I think, on the first question, Paul should answer it in more detail. I think our view is that in the IB we do feel it's sustainable and I'd say activities so far, it's been a short period, but they've, I'd say, remained consistent with what we saw. In the second quarter I think, similar to Walter's point, there is most years some seasonal slowdown in August, for instance, but so far I'd say that the flows are quite -- are pretty much continuing. I don't know, Paul, if you want to address sustainability and the question of reductions in VaR, etc.

You asked the question about -- the general sustainability, I think, is -- we said in the -- it was asked in the first quarter and, as you saw, the underlying performance in the Investment Bank and the Group as a whole for the second quarter was actually better than the first quarter. A good mix in our portfolio overall, in terms of that performance, but most of it focused where we've been focused, on our key client businesses overall.

As I mentioned before, and it's on that slide 18, I think you can get an idea that there's a good mix of businesses and there are areas that we think we can continue to benefit enormously, like foreign exchange where we're not a top player and like equities where we can benefit. For instance, in prime services, as leverage comes back into the hedge fund community, we'll benefit from the market share gains that we've seen there. So I think it's a good mix. It makes us feel quite comfortable.

You asked about the third quarter. We obviously can't comment specifically on how July has started, except to say that the general market trends that we saw in the first and second quarter have continued into the third quarter. And you can see, by most measures, our market shares have been maintained.

I think certainly our hope is that, as you mentioned with the business model, that if things continue to actually be positive in the markets we can benefit from that. But also, if things are more difficult, we think we've got -- with our capitalization, our very clean balance sheet and our focus on client flows, we think we're in a good place to actually weather difficult markets even better.

I think, on the question of the leverage ratio and the general issues around that, obviously we are extremely well capitalized now and I think that we're at a very comfortable leverage ratio. We don't know of any changes than what we've already laid out in terms of the 2013 requirements, etc. There aren't any changes in that. But we'll continue, obviously, to pursue our business model and our strategy and I think that -- and that will evolve also over time. So I think that -- with regard to capital leverage, all those issues, I think we're extremely well positioned pretty much no matter how you look at it.

Next question comes from Huw Van Steenis of Morgan Stanley.

Morning. Two questions, one to just get back to the dividend and the leverage ratio. I interpreted the comments as saying that you could go back to CHF1.5 to CHF2 of dividend. As you think about the policy, is it more driven by a percentage payout or is it what you have in excess of a 4% Tier 1 leverage ratio? Or just maybe, if you can't give us a number, the thinking behind the dividend policy.

And then, secondly, you've obviously done a great job of further reducing risk assets. CMBS remains stubborn and we realize was still a closed market for most of Q2. To what extent do you see potential for that becoming a two-way market in the second half and you'll be able to clear that out from the levels you're currently holding assets at? Thanks.

Thanks, Huw. I think, on the dividend, our thinking around dividend, capital, etc., obviously we believe maintaining a very strong capital ratio is a competitive advantage in these markets, particularly for our business model. So our Private Banking clients, but also our Investment Banking clients and counterparties, they're obviously -- I think security and safety is something that continues to be very important. So keeping a strong capital ratio is going to continue to be very important.

We are generating a lot of capital, though. We see good organic opportunities to grow. We'll continue to pursue those. It's not out of the question that we wouldn't see some tactical acquisitions because of our position now, in terms of the strength of our capital base. And the fact that there is some unevenness in the industry in terms of performance, I think there may well be some opportunities to add some businesses that are smaller but actually fit the business model well. So we'll certainly be looking at that as well. We want to be opportunistic of the things that really meet a high bar in terms of being able to integrate in well.

And I think, obviously, though, that the other part of the equation is making sure that we continue to return capital to shareholders if that's appropriate. So I'm not sure. I don't think we have any -- I don't think there are any particular formulaic approaches to it, but that's kind of the way we think about it. We're going to take advantage of organics. Clearly, if we see something on the tactical acquisition side that's very attractive, we may take advantage of that, and then we'll continue to be focused on returning capital to shareholders.

Then, Paul, on the risk asset side.

Good morning, Huw. You know, with CMBS, you see on slide 25 (sic) of the presentation we've taken the balance down to CHF6.6b. The activity there is, as you know, we've been very disciplined about bringing our risk down and this is no exception. There's good dialogue in the market. We're seeing indicative pricing in the market which continues to validate our marks, which we discussed, bringing the portfolio from 59% to an average price of 56%. So we continue to be confident in our ability to manage the position, and you can also be confident of our continued discipline on bringing that risk down.

Next question.

Next question comes from Derek De Vries of Banc of America.

Yes. Two areas of questions, first is I guess following up Mr. Dougan's comments on acquisitions. And specifically within the Wealth Management business, for the first time in a long time you've got companies that don't consider that a core business and would be willing to sell it. As you go down the list and say is the price reasonable, am I buying a regulatory nightmare, can I keep the people, etc., how many different acquisitions would you be looking at right now? And which are the right geographies for you and where you're really looking to grow by acquisition as opposed to organically?

And then the second question relates to some of the Basel II change that have been published in recent weeks, I guess just sort of firming up what I suspect you already knew. I was wondering if you could give us an estimate of the impact that would have on the risk-weighted assets on your trading book. In the past you've always given us some guidance that's proven pretty accurate, so I was wondering if you could do the same this time around.

I think, on the first question on the Wealth Management side, as you say, that probably is an area where we might have some interest. We've put a pretty high bar on acquisitions and making sure that they fit and that they're quality businesses at the right price, and I think that'll continue to be the case. So, again, we'll continue to monitor and see, but I'm not sure that we have a specific list in terms of regions, etc. So we've put a pretty high bar and I think we'll continue to do that, but if there are opportunities we will take a look at them.

I think, on the Basel II changes, we obviously are fully aware of them. Renato, do you want to (multiple speakers)?

We are of course fully aware of them in the sense of what they are, what they could be going forward. Now we have to assess the impact on our business. It also depends if we are keeping the same business mix going forward. As you know, they will come in place by the end of 2010, most in 2011, and we will yet have to see what the impacts are. But we will not see dramatic increases in risk-weighted assets level due to these rules. And of course part of it will also be taken care of by adjusting the business model and the way we do business.

But there is -- as you know, and this a good example, as you mentioned, there are some headwinds in terms of increased capital requirements out of the evolution of those measures. But as Renato said, we're obviously managing against that and feel we're well placed.

By the way, one of the reasons why we have set out the Tier 1 ratio target at 12.5%, because we are aware of course that the risk-weighted asset piece of it will change.

Next question comes from Fiona Swaffield of Execution.

Hi. I had a couple of questions. Just coming back to the definition of normalized on the dividend, when you say normalized do you mean '06/'07, when the dividend was well over CHF2 a share, CHF2.2, I think the last -- the normal years I think the lowest dividend you paid was CHF2. I know you've reluctant to talk about payout ratios, but your payout ratio I think in history hasn't been higher than 38%. So could you just comment on that?

And then, in terms of the recurring margins, are you concerned at all about the fact they've gone down to 82 basis points? Or do you think that that is really all timing and this issue on the net interest income, that there's nothing happening competitively?

And then, in terms of the secrecy, I think you used the word minimal impact in terms of what it did in your net new money, and I just wondered if that -- if you could be more specific. So there has been some impact. Maybe I'm just being -- in terms of being too specific here, but whether you could say what has been going on in terms of secrecy and any movement in clients or fears from clients at all.

And sorry, one more. The Corporate Center, ex the fair value of own debt, seems to be quite negative, something like CHF250m loss, which was a surprise to me. I just wondered if there's anything unusual there. Thanks.

Thanks, Fiona. I think, on your first question, it's a good question but I think we're just going to stick with what we've said, which is we're not going to be any more specific than saying that we've increased it to a more normalized level.

With regard to the recurring margin at 82 basis points, I don't know, Walter, do you want to take that?

Just quickly on the margin. Obviously the 82 basis point recurring, they will not automatically come back to 86 or 87. Part of it will come back, which is a timing issue, which has to do with management fees. And we started to produce a lot more management fees in the second quarter, but only in the middle of it, so you'll see some of that effect coming back in the third quarter. And the other one is obviously a question of assets under management, so if assets under management are rising and interest rate income does not rise at the same level, you have a certain dilution going forward. But I would expect, whatever the market will do in the third quarter, that those recurring are coming back up a little bit.

I think, on the third question about, as you say, the confidentiality discussions and issues out in the market, we obviously had good strong net new asset flows from all regions in the second quarter. I think that's probably the best -- that's the most factual answer to it. Obviously, it's hard for us to know exactly what the impacts are, but we're not -- I'd say in general we continue to see healthy inflows and we're pretty comfortable with where the business is situated. Again, related to how we've obviously built our onshore businesses and the fact that we've pursued the offshore business in a highly compliant manner.

But I don't know if you have anything to add, Walter.

Well, just maybe quickly to add, even if you only look at Swiss specifics, we haven't really seen a lot of impact. As Brady said, we by now have about 25 different booking platforms around the globe and we have expanded our international strategy quite some while ago. So to a certain extent we are almost immune to these sort of like discussions because we can offer services all over the globe.

And then, Renato, did you want to talk about Corporate Center?

Yes, sure. Corporate Center, as usual, is a number of smaller items that typically add up to a specific number in a quarter, which of course is very difficult to separate quarter to quarter, so I look at it from a full year perspective. And as we have guided to the market before, this will be at around CHF400m pre-tax, CHF300m roughly after tax. I think if you look at it now year to date, we might be slightly over there but that is nothing unusual, nothing that could pose a problem. So I still expect to be in that neighborhood some time at the end of the year.

Okay. Next question.

Next question comes from Kian Abouhossein of JP Morgan.

Yes, hi. The first question is regarding Wealth Management. You haven't hired anybody but you have net new money inflows and you're definitely outperforming, I would say, the industry. So why not be anti-consensus, anti-cyclical and start aggressively hiring to gain market share?

The second question is on risk taking in the Investment Bank. You're de-risking and we're hearing from a lot of peers who want to take on extra risk. How can I be comfortable that you're not following everybody else in six months' time and start adding risk again, in line with consensus? How can I be sure that you won't fall into that trap?

And the last question is on fixed income. You talk about higher revenues in leveraged finance, US RMBS. Can you talk to me a little bit about what kind of products and leveraged finance you see? Is it unwinding business, is it new business, restructuring business in particular? Just to understand, is this -- is there a new trend developing that we're going back in some of the securitized products? Thanks.

Okay. On the first question, where you say we haven't hired anybody, we actually have hired in Private Banking. I think, as we talked about in December, that we were actually going to bring down the size of the staff there but then grow it back over time. So actually, in fact, we have been making a number of hires and -- but --

Just quickly. So, quarter over quarter, we obviously have added 20 relationship managers, as we said. We are currently really concentrating on ultra-high-net-worth individual specialists and we're obviously as well quite cost conscious around that. But this is just the net number. And if you look at the gross numbers, we have hired way over 100 relationship managers. But still our efficiency program which we introduced at the end of December 2008 in the underperforming programs is still obviously running against that. We'll probably finish, or has finished now, with -- at the end of the first half.

So we think it actually is the right place to be. It's -- because it is a good environment to hire and we're taking advantage of that, but we're also trying to maintain the discipline in the business and it seems to be working reasonably well.

I think, on the Investment Banking, I'll let Paul address it as well, but we obviously have a clear strategy that we've laid out. We don't expect to alter from that. But just to make clear, we're continuing to reduce risk in our exit businesses but we will be probably investing, putting risk back into the client businesses. So the focus will remain the same and I would suspect that our risk levels will remain around these levels; could be a little higher. But basically, we'll make sure that we're focused on those client businesses. So I think we've been very clear about it.

But, Paul, I don't know if you want to --

I would just add to that, I think that's right. We've -- as you can see, the risk-weighted assets now went to CHF139b. That was CHF113b in those ongoing businesses and CHF26b in the wind-down businesses. So, as we continue to exit the businesses, it'll free up capital to reinvest. And we've always said that we'd look to invest more capital into those key client businesses. And the characteristics of that risk is faster to market, it is client facing, more transparent overall, and so it's the kind of risk and a different kind of risk profile overall that we do look to take.

And then there was a question, Paul, about leveraged finance, RMBS, what kinds of businesses are we actually seeing there. Because we talked about those businesses performing reasonably well. What -- is it recaps and leveraged finance? What kind of business is it, and RMBS?

Yes. You've seen -- I'll start with leveraged finance. We went down to CHF0.5b of balances. Now we're seeing again some quicker-to-market transactions, much as I've just referred to, in the leveraged finance market out of the United States that have been quite attractive for us. So we'll continue to look to take advantage of those opportunities, the different characteristic, not the long origination underwriting kind of model that we saw before in the market.

With regard to RMBS, as we said, there it very much is business as usual as a trading market. As many of you are aware, we have a leading market share in RMBS businesses and we look to benefit from the flows that we see in that market. Many of you may have seen the PennyMac transaction, where we underwrote and fully distributed that very large transaction in the RMBS space.

This is -- the RMBS market in the US continues to be one of the biggest securities markets in the world. There continues to be a lot of flow. It's distressed, but there's a lot of flow. And we have -- particularly because we missed -- we obviously avoided a lot of the losses in that area over the past couple of years, we have an intact team that's really one of the leading teams in that area, and so we continue to be very active on a much lower risk basis there.

Next question.

Next question comes from Christopher Wheeler of MainFirst Bank.

Yes. Good morning, everybody. Two quick questions, the first one on deposits. I note that the increase in deposits almost matches the net new money. And obviously, on slide 12 you are talking about a gradual shift from on-balance sheet deposits to securities accounts. Obviously, I think Walter said that investors need two good quarters before they start getting more exited about taking risk. Have you seen any evidence that you are starting to see investors moving to higher-margin products and seeing them assume more risk?

And the second point is on the non-performing loans. Currently they've come down about 10%, as you've taken a fairly big write-off in the Investment Bank. But the actual non-performing loan ratio's now come down from, I think, on my numbers, 121 basis points to 103. That's quite a surprising performance across the board, not just in the Investment Bank but also in the domestic bank. Perhaps you could comment on that and what are you expecting going forward. Thank you.

Yes. I think the first issue on deposits, I could just comment generally on the activity, which is we certainly did see some gradual -- I think some slightly more opportunistic behavior by clients in the second quarter. But I'd say it's by no means back to what we saw pre-crisis and nor do I think we would expect that. So we have seen some more opportunistic behavior.

I don't know, Walter, if you want to specifically address the question about the deposits versus security type products.

I believe what you see in the deposits is the overall deposits the whole bank receives, so there's obviously as well other deposits coming in, [in terms of] net new assets from Private Banking. And we --

Well, I have to assume a large portion is the Private Bank, Walter.

No.

No? Okay.

I don't know exactly. It's in -- we'll give you that number. We'll look into it.

Okay. Fine.

And then we have obviously seen nevertheless a shift from deposits into securities accounts.

Okay. Thank you.

I think, on the non-performing loans (multiple speakers).

The next question from Jernej Omahen of Goldman Sachs.

Sorry, we (multiple speakers).

Just very quickly, on the non-performing loan answer, it's a little early to calculate that yet because we're still working through, as you know, most of our books on fair value accounting. So if you'd just give us some time on that, you'll see -- as we come out, you'll see new ratios.

Question from Jernej Omahen of Goldman Sachs.

Yes, hi there. It's Jernej here from Goldman's. I just have three very quick questions. The first one is slightly technical. I would just like to understand how you actually hedge your gain on own debt. Who is the counterparty in this hedge transaction? And I would also like to understand whether it's got something to do with the fact that Credit Suisse reports under US GAAP, because it's my understanding that the investment banks -- IFRS reporting investment banks aren't able to do the same thing. So I guess a dry accounting question here.

The second question is you were kind enough to provide us with a proportion of net new money, or the impact on net new money from loans being called in, in Q1 and Q2 -- sorry, Q1 and Q4 -- Q4 and Q1, rather. And I was just wondering whether there's any positive impact in this quarter, i.e. whether some of your private banking clients are re-leveraging.

And I guess the next question is when you say that Credit Suisse is well capitalized, or I guess that somebody even listening to the call even gets the impression that there is a sense there's some excess capital in the business, I understand that's your assessment, but I have to, I guess, ask the question whether when you have these discussions with the regulators, in Switzerland and internationally, do they agree with your assessment that there is excess capital in the business?

And I think, finally, fourth question is going to be very easy. Listening to this results call, I guess for the second quarter running, it's very hard to put a finger on anything which went wrong. In your view, what was the key negative in these results?

And I guess the follow-on question then would be, when you look further out to the second half of the year, what could really get better from your perspective? Thank you.

Okay. (Inaudible), do you want to answer that?

Sure. Yes. Let me quickly explain in a little bit more detail the hedge. The hedge is not against, so to say, losing the CHF6.9b accumulated gains we have made previously. The hedge is against the pull-to-par. So we are taking a CHF300m -- roughly CHF300m per quarter, CHF1.1b, CHF1.2b per year, straight-line amortization, so to say, of that accumulated gain we have by the end of the quarter. And the hedge is against that pull-to-par. So whatever noise we have in the real market, the real (inaudible) own debt, we have a hedge against that pull-to-par.

So you will see all the time the CHF300m in the quarter -- per quarter in the divisions. But of course the hedge is not absolutely completely effective, so we had a hedge ineffectiveness in Q2 which resulted in the CHF770m bookings we have made to the Corporate Center. So, again, it is not, so to say, to avoid the clawback of that gain, but it's to make sure that we have a smooth transition over the time when these bonds are elapsing.

Next question from (multiple speakers).

Sorry, we have more to answer here, sorry. In terms of the question on the leveraged -- CHF1b? In the second quarter, Walter tells me that basically we had about CHF1b of the positive net new money movement was as a result of re-leveraging, if you will.

The third portion of your question was on Credit Suisse's capitalization. And obviously I can't -- I don't think I can authoritatively comment on what other people think about our level of capitalization. I don't know of anyone who doesn't think that we're extremely well capitalized. So -- but, again, I'm not sure that I can express -- I'm not sure that I can answer on behalf of all the different counterparties out there, but certainly in any conversations I have there's no question about that.

The second quarter -- so you're saying what went wrong or -- I'm not sure -- in terms of things going wrong, I think there's certainly a lot of areas where we see where we could have performed better in the second quarter and we see those as potential opportunities going forward. I think Paul has already mentioned a couple of these areas in Investment Banking, where we have -- business performed well, but we certainly have lots of room to increase market share. I think the rates businesses, one where we've got a good business but we certainly still have a lot of room to do better there.

I think in general we feel like there's a lot of momentum, but also still a lot of runway for our client businesses, where we can continue to increase the performance and do better. And you could see even on the slide 18 there are a couple of areas where I think we do have work to do in terms of market share, things like M&A, some of the more public league table areas where I think we have work to do.

In the Private Bank, I think actually the business has performed very well over a tough period. And I think what we've seen in the second quarter is a turn in the assets under management and so that's hopefully going to lead -- if that carries through, that will obviously be beneficial for the business and so we could see some positives there. But obviously that continues to be, I'd say, a challenging environment generally.

Asset Management, obviously marginally profitable for the quarter; certainly not where we expect that business to be over time. And I think we've taken a number of the right steps strategically there, but we still have work to do. And that certainly is an area where we would expect to see better performance over time.

And as I said, I think obviously the industry environment continues to be challenging. I think we're actually -- we have a business model that puts us in a very strong position to meet those challenges, but there certainly are challenges out there, and -- as a lot of the questions have been directed at.

So I guess we don't -- we are happy with how the business performed in the second quarter. I think we're happy with the strategy and the direction that we're going in, but we certainly -- I don't think anybody -- there's no shortage of things that we're working on. I don't think -- you wouldn't get that impression from our management meetings, where we're always focused on things we can do better; we can always do a better job with clients, etc., so.

Next question.

Next question, Matthew Czepliewicz of HSBC.

Yes, good morning. Thank you. Three quick questions, actually. The first one, your Asia Pacific net revenues have more than doubled year on year in Q2. And I'm wondering, is that due to just counter revenue marks falling out, or are there any areas in which you've made, say, particular operating gains or there's been some industry capacity shakeout, anything like that?

The second question, in Wealth Management the gap between your gross and net margins continues to widen as you, I think successfully, invest in the business and make new hires and so forth. But at some point presumably those investments pay off very palpably and that gap starts to narrow again, to the benefit of the bottom line. I'm just wondering, as you look at it, do you internally have some sort of time horizon when you think it starts to narrow again?

And then, finally, foreign exchange, an area where you've made good market share gains and I think Paul mentioned you wanted to place more emphasis on that business. The answer's probably no to this, but can you give us some -- just some idea maybe of the four quarter actual revenue run rate in that business?

Okay. On the first question, I would say I think our Asia Pacific franchise has actually been performing quite well. We've got good positions across the different regions, different sub-regions and countries out there, and this year it has performed well. I don't know of any systematic difference in terms of the business out there versus the global businesses and how they performed. So I think it's just -- it is a strong franchise. We think we're well positioned there. And I think it mirrors some of the initiatives that we've taken elsewhere.

I don't know, Walter, do you want to address the net versus gross margin development?

Well, obviously it has a lot to do with markets and assets under management, how they increase over time. But already today new hires are contributing roughly between 40% to 50% of net new assets, so they're already bringing in revenues. But as I said, at the end of the day, we need as well a little bit of a positive market environment, and you tell me if you think two, three years, one year, I guess probably like in two years we should start seeing benefit.

Paul, do you want to -- I'm not sure we can address the specific question but --

As you expected, we won't be giving you an answer for the full year run rate, or even a quarterly run rate of the foreign exchange, except to say we think it's a business that plays very much to our strengths. It's -- again, it's liquid, transparent. It fits in extraordinarily well with the integrated bank model and what we can do working together with Private Bank and Asset Management. Also, it plays very well to our very strong electronic platforms that you're aware that we have. So, again, we're confident in gaining market share in that business.

Next question.

Next question comes from David Williams of Fox-Pitt Kelton.

Hi. Good morning. I just wondered if you can talk about leverage in the Wealth Management division. Looking at the compensation to revenue within that division, currently standing around about 41%, obviously there's a much higher fixed component in that division. Obviously, pre the downturn in the markets we're looking at 33%, 34% for that ratio. Just wondering what your thoughts are on how you'll be able to -- or the extent to which you can leverage profit in that division, as we start to perhaps enter a period of market recovery.

I think in general, as you say, and I think Walter made some good comments about the outlook for the business, we're obviously, I think, pleased to see the assets under management turn around in the second quarter. From the market's point of view, we've obviously had very consistent net new asset flows throughout. But clearly the business has been, as you know and as you'd expect, has been -- it's been more difficult operating conditions over the past year and a half in that business.

So I think certainly we will see -- if we see the environment continue to improve and we see the business improve, I think certainly we'll see better leverage out of that. It's hard -- I think it's a little bit too hard to predict exactly how quickly and when and how that will develop, but I think certainly we would expect to get more back towards the previous sort of margin and leverage conditions that we had in the business.

Next question.

Next question from Alan Webborn of Societe Generale.

Yes, hi. Could you put a little bit more color onto the repositioned businesses? Clearly you've had a very strong improvement underlying in the second quarter from them. How should we view this collection of businesses going forward? You've talked about stopping the headcount reductions in the Investment Bank overall. Is that to some extent a reassessment of whether some of those businesses are now looking more like key client businesses than they were? How should we look at those businesses going forward?

How should we interpret the CHF1.7b net revenues that you made in the quarter? Are these always going to be sitting on one side or do market conditions change and they come back into the main focus of your activity there? Any color on that would be very helpful.

I'll ask Paul to address it probably in more detail. But I think they are -- actually, the repositioned businesses are pretty core business for us, but we were trying to identify businesses where we needed to change the business model and make changes to the underlying approach that we have in those businesses. So in some of those businesses we had more capital heavy, longer term hold type approaches and we're trying -- and we need to reposition them into more -- getting more asset turns and making -- dealing in much more liquid ways in those markets.

But, Paul, I want to ask you to -- if you can address it more specifically.

Yes, certainly. If you look at it, you can look at slide 17 and 18, you'll see from that the repositioned businesses. In the fixed income spectrum, the two big repositioned businesses are EMG, our emerging markets business where we've had very strong franchises, you're well aware, although we looked to reposition it because it was less capital efficient, run less capital efficient than we'd like it to be. We already have brought down the amount of regulatory capital associated with that business successfully, and running more of a client flow type business there, which is proving profitable.

Leveraged finance has still got a long way to go. We mentioned some of the gains. We've seen some trading benefits in leveraged finance assets, but that's really now focused in the US where you have a shorter, quicker-to-market model. And I mentioned some of the success that we've had there.

On the equity side, the repositioned business, one of the large ones, just to give an example there, is the convertibles business. And there we are running a client business but also a very large back book associated with that. And now the focus is clearly on the client flow that we see in that business and away from the back book, which has proved beneficial. And as you know, the general state of the convertible market has improved.

Next question.

Next question from Dirk Hoffmann-Becking of Bernstein.

Hi. Thank you very much. First question is about the VaR decline in the second quarter. If I look at the numbers, it seems that practically all of the VaR decline comes from an increased diversification benefit. So why do you find that your portfolio now is much better diversified than it was last quarter or even at the end of last quarter?

The second question goes on trying to understand the 10% growth in revenues. And if I take the adjustments you suggest on page six of the presentation and run them through the trading revenue line, and trading revenues are flat, the commission fee income is up 21% but net interest income is down 41%. Can you explain to us where this decline comes from?

I saw the trading liability interest cost has gone up by about CHF2b. And then, if I take these three items together, I actually come to a flat revenue growth. The delta revenue growth, actually the CHF800m, comes from improvements in other revenues, and if I understand note seven correctly that's largely due to higher revenues in other investments. Can you explain to us what these other investments are?

Okay. On the first question, on the VaR, yes, do you want to answer that, Paul?

Certainly. With regard to the VaR decline, as you rightly point out, we had success at bringing down some of the more concentrated risk in some of the exit portfolios. We have the benefit of then being able to take off those corresponding hedges that are hedging that risk. We collapse or mitigate - in the case we exit them completely, they collapse - all of the basis risk inherent between those assets and the exit portfolio and the hedge. And the end result is we have a more diversified, balanced portfolio and that's where you're seeing the diversification benefit of the VaR model take effect.

Renato, do we have an answer to the revenue question? I'm not sure I followed all the detail on that. Or should we get back to him?

No, I think we can follow up.

Yes, can we come back to him? Sorry, I'm sure it's a good question.

On page 60, we see normalized revenues with 10% increase, while of course the gentleman refers to the actual development in the underlying businesses. So we have to have that bridge and we will do that for him.

Thank you. Next question.

Next question from Elad Ben-Am of Bank Bellevue.

Yes, hi. Two questions, please. First of all, on Wealth Management and the spike in the transaction-based margins of 37 basis points, you're mentioning one of the reasons being higher integrated solutions revenues. Could you give us one or two examples for these kind of revenues and whether you think that this level is a sustainable one?

And then, on the Investment Bank, on slide 35, you give us the regional split of your CMBS exposures; some two-third is European and 20% US exposure. Do you see certain regional differences in this particular asset class? Are you more concerned by a certain region than the other? [I'd be very interested to hear your thoughts]. Thank you.

I think, maybe just taking that second question first and Paul could add to this if he wanted to. But I think in general the CMBS market continues to be one of the slower markets in terms of distribution and activity there. But we do see -- we do certainly have dialogues and things going on. I'm not sure that there is a big difference between different regions in terms of performance in the actual underlyings, and -- so I'm not sure that we do see a big difference.

There is -- some of the markets, the US market was traditionally better, more well-established, because it's been a longer market; Europe was a little bit more recent. And so I think early on we saw issues around that, but I think in general right now I'm not sure that we differentiate that much between the different regions.

I would say (technical difficulty) difference in the specific underlying assets than in the geographic markets. So it's really, as we've mentioned many times before, the idiosyncratic nature of that business makes for, again, probably more significant difference in the assets you hold than to where you hold them.

Can you -- Walter, can you address the question about the integrated solutions or give a couple of (multiple speakers)?

Well, first of all, the increase from 30% to 37% is 4% is about integrated revenues, 3% is higher market activity. Integrated revenues is a result of the integrated bank, and basically what we do is we leverage the Private Banking franchise across all divisions.

So, in terms of some examples, obviously, most of the time really resulting out of ultra-high-net-worth individual clients, because they have a lot of institutional needs. Normally how this would happen is that the Private Bank identifies the issues and then goes through various channels into either Investment Banking or Asset Management to find solutions.

Typical one, someone wants to borrow money against a huge single stock position. Obviously, from a pure risk perspective, it's probably quite a risky business. It's a concentration risk, has not a lot of liquidity in the marketplace to liquidate in case of falling markets. So what we typically then would do, we'd do a risk transfer with Investment Banking, we'd buy puts or all sorts of other things to protect that. So that creates revenues.

Another thing could be that clients have certain assets in one country; they want to crystallize those profits. Big real estate investments, for example, they want to realize those but reinvest in real estate because they do understand that product, but in a different country. Again, you need to have some investment banking expertise to structure such deals. You need to have the legal expertise of an investment bank to do that, is another one.

And then, obviously, capital market transaction, if ultra-high-net-worth individuals want to sell certain stakes or crystallize certain stakes or certain wealth they have, you need to have a distribution network into an institutional world, and that is integrated solutions. So we do -- these are one-off deals I just explained to you, but we do hundreds of those in the background. There are lots of smaller ones going back and forth.

I think that is what we're building on. And just as well to give you a feel, these sort of revenues started to develop. Already in the first year we did it quite nicely, but they are even in 2008 flat year to date. We have actually a very strong performance and we do believe this will be a very growing segment for us.

I think we have no more questions on the webcast. Any last questions here? If not, I'd just like to sum up. Thanks for all your questions and for your attention.

I do believe Credit Suisse is well positioned to compete in the new industry landscape. I think the strength and stability of the integrated bank is attractive to clients and shareholders. I believe that the results in the second quarter and the first half show that our strategy is working. And it's particularly encouraging to see the progress in revenues driven by collaboration across the integrated bank, as Walter mentioned.

The environment has changed. The industry needs to make necessary changes. We continue to engage in dialogue with regulators around the world, and we do appreciate the importance of building a more robust and sustainable financial services industry. But most importantly, we are well placed to benefit with our differentiated business model and our very strong capital position.

We do expect the global economic environment to remain challenging and uneven business conditions to persist. However, if markets continue to improve, we expect to see further momentum across our businesses. And if markets become more challenging, we believe that Credit Suisse is positioned to perform well.

So thank you very much for your attention today.

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