Credit Suisse Group AG (CS) 2009 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 2009 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).

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.

Thanks very much. Welcome, everybody, to our third quarter results call. I'm joined by our CFO, Renato Fassbind. I'm going to make a brief introduction. Renato will then, as usual, take you through the detail of the results, and then I'll sum up and we'll open it up to questions.

Credit Suisse has responded to the changes in the industry over the past two years with the accelerated implementation of our client-focused capital efficient strategy and reduced risk business model.

I want to stress four main points. First, we are happy with the quality of our third quarter performance which, with the very strong return on equity of 25%, complements the strong first half, and shows that our strategic approach is working well.

Second, these returns were achieved in the context of our industry-leading capital position, and with 30% lower risk-weighted assets compared to the third quarter of last year.

Third, taken together, these results demonstrate that our differentiated strategy and business model provide the foundation for sustainable, high quality, lower volatility earnings.

And fourth, we believe that we are well positioned for growth in the new competitive landscape.

Turning to slide three, just looking at the left hand side of this chart, I wanted to highlight our focused areas over the past couple of years. First, we have continued to invest counter-cyclically in our Private Banking business. We have repositioned the Investment Bank towards less volatile, more capital-efficient, client-focused businesses. And Asset Management has been more closely aligned with the integrated bank and focused on our core strengths in asset allocation, the Swiss business, and alternatives.

Second, we have placed great emphasis on active risk management. This led to a rapid reduction of risky assets, and to a lending portfolio which is well diversified, most of which is either hedged, mark-to-market, or collateralized.

Third, we have focused on our competitive strengths. At a time of enormous change and market disruption, our consistent strategy, leadership, and client coverage have all helped us achieve gains in market share across our businesses. In particular, having client focus at the heart of our strategy has helped deliver sustainable results.

The benefits of our differentiated model are clear. We've delivered very strong results for the first nine months of 2009, with net income of almost CHF6 billion. Our return on equity for the year-to-date is over 21%, and we generated net new asset flows across the Bank of CHF17 billion in the third quarter, and over CHF31 billion for the first nine months. All of this has been achieved with lower risk-weighted assets.

Looking ahead, in Private Banking, our business model means that we can deliver our unique expertise through a scalable global platform, which will enable us to benefit from a market recovery.

Wealth Management is a very attractive growth market, and while client activity has picked up in selected areas, risk appetite has improved only moderately. However, we remain confident that overall levels of demand for comprehensive investment solutions will recover in the medium term.

We will, therefore, continue to invest in both our international expansion, and our Swiss home market, where our integrated model is yielding strong results, and where we are also actively contributing to economic recovery. For instance, our loan balances for Swiss corporate and institutional clients are unchanged over the first nine months of the year, and we remain steadfast in our commitment to the Swiss market.

In the Investment Bank, we continue to be disciplined about risk and capital allocation, and we expect to see sustained revenues, with potential growth across a number of businesses in the portfolio, which Renato will cover in more detail shortly.

Our industry-leading Tier 1 ratio of 16.4% gives us a very solid capital position. Our capital strength, combined with our capital-efficient strategy, gives us the flexibility to grow the business and deliver attractive returns for shareholders.

We are confident about our business model and our competitive position, and while we're only three weeks into the fourth quarter, so far, market conditions are consistent with the third quarter. If markets remain constructive, we expect to be able to maintain our momentum. And even if markets become more difficult, we believe that Credit Suisse is still positioned to perform well.

And with that, I'll turn it over to Renato.

Thank you, Brady, and good morning. I will start my presentation on slide five, with an overview of the third quarter and nine months key financial highlights.

Credit Suisse's third quarter 2009 performance continues to demonstrate that our strategy is working well, and that our business model provides sustainable high quality and less volatile earnings. We achieved revenues of CHF8.9 billion and net income of CHF2.4 billion. Diluted earnings per share stood at CHF1.81 for the quarter.

The net impact from tightening credit spreads on our results was minimal this quarter at CHF93 million, with a charge of CHF251 million recorded in the Investment Bank, largely offset by gains on the fair value hedge transaction in the corporate center.

Excluding the net fair value losses, the cost-to-income ratio improved slightly to 69.3% compared to the previous quarter, as we continued to maintain tight control on expenses. For the first nine months of this year, as shown on the right side of the slide, we have recorded net income of CHF5.9 billion on strong net revenues of CHF27.1 billion. The after tax return on equity stood at 25.1% for the quarter, and 21.8% for the first nine months of 2009.

Turning to slide six for an overview of our divisional results. This shows our third quarter 2009 divisional results side by side against the previous quarter and the first quarter of this year. We excluded only the impact from movement in own debt spreads for the Investment Bank, but footnoted other significant items in the other divisions.

With a pre-tax income of CHF867 million, Private Banking reported seasonally lower results in the third quarter, as seen in previous years. While the environment has improved since March, with increased levels of assets under management in the second and third quarters, the benefit from a higher asset base and higher transaction volumes was offset by lower interest income and generally conservative client behavior.

The quarterly trend in Private Banking includes the benefit of CHF100 million of insurance proceeds in the first quarter.

Investment Banking results represent another strong quarterly performance, with pre-tax income of close to CHF2 billion. This third successive strong result was achieved with well diversified revenues, despite the seasonally slower third quarter, and with disciplined cost control.

Asset Management continued to make progress on delivering a more focused business model aligned to the rest of the Group. This quarter's pre-tax income of CHG311 million includes a gain on closing of the transaction with Aberdeen of CHF207 million.

This result demonstrates that we have delivered consistently strong results for the last three quarters, operating a low risk profile and a capital-efficient strategy.

Let me continue with further detail of our results, starting with our Wealth Management Clients business within Private Banking on slide seven.

As highlighted at our recent investor day, we streamlined the organizational structure in our Swiss home market. As a consequence, the Wealth Management Clients business now includes the Suisse Private Client segments previously reported in Corporate and Retail Banking. Prior periods have been restated on all the relevant slides to reflect this change.

Pre-tax income for Wealth Management Clients was CHF723 million, a decrease of 5% from the prior quarter, with slightly lower revenues reflecting lower net interest income. Compared to the first quarter, published pre-tax income was at the same level, but actually increased by 16% on an underlying basis, adjusting for the insurance proceeds received.

Asset inflows during the seasonally slower third quarter continued to be strong, with net asset inflows totaling CHF11.2 billion. Contributions were broad and balanced across all regions. These inflows, together with positive market effects of CHF21 billion, resulted in assets under management being up CHF32 billion, or 4.2%, in the quarter.

And we continued hiring, adding an additional 80 relationship managers. And overall, our previously-announced talent upgrade process resulted in a net reduction of 50 relationship managers during the quarter. We are continuing to target our hiring on senior relationship managers, with a focus on ultra high net worth clients, as we seek opportunities to upgrade our talent pool, benefitting from our strong competitive position.

With assets under management increasing in the quarter, the average assets per relationship manager also increased during the quarter by CHF10 million, or 5%, to CHF197 [million] per RM.

In summary, assets are up, with continued strong inflows and improved markets, and we are seeing good opportunities to hire senior relationship managers as we take advantage of our competitive position.

Let me turn to net new assets on slide eight. Total net new asset inflows of CHF11.2 billion were at the highest quarterly level so far this year, and represent an annualized growth of 5.9%, only slightly below our across-the-cycle target rate of 6%, again, evidencing our strong competitive position. The rolling four quarter growth rate was lower at 3.8%, predominantly as a result of the deleveraging we experienced in the fourth quarter of last year.

CHF30 billion in net new assets for the first nine months, and the balanced regional contribution, evidences the strength of our platform, and the trust our clients have in Credit Suisse.

Those of you that followed our recent investor day will have seen that we have set ourselves ambitious growth targets for the coming quarters and years, targeting to achieve cumulative net new assets of between CHF175 billion and CHF225 billion by the end of 2012.

Net new asset inflows will always fluctuate from quarter-to-quarter, but this quarter's performance is a good start towards this target, given that we believe that global wealth creation will become more pronounced in coming quarters.

On slide nine, we show the gross revenue margin analysis on the bar chart, and key revenue trends affecting the margin to the right.

The gross margin decreased to 125 basis points during the quarter. The decrease in the transaction-based component is mainly driven by lower product issuing fees, and lower integrated solution revenues, which can always be somewhat lumpy quarter-to-quarter.

However, year-to-date, these integrated solution revenues are an important factor behind the increase in the transaction-based margin from 30 basis points to 34 basis points.

While the environment improved from March through the end of the third quarter, the majority of our clients remained conservative in their investment behavior, favoring direct investments in equities and bonds, and thus negatively impacting the level of product issuing fees. These trends were partially offset by slightly higher brokerage fees.

Recurring margin declined 5 basis points as recurring revenues decreased by CHF23 million in the quarter. This was mainly driven by lower interest income due to lower margins on loans from higher funding costs.

Asset-based commissions and fees increased with higher assets under management, but this quarter's increase in assets under management will only be fully reflected in revenue levels from the fourth quarter onwards.

In summary, the overall margin decline was due to lower integrated solution revenues and lower interest income. Specifically, the combination of lower interest income, and the 5.1% increase in average assets under management, accounts alone for more than 5 basis points dilution of the gross margin when compared to the second quarter.

As pointed out before, these quarterly movements in the margin even out over the longer term, as evidenced by the margin for the first nine months this year, which actually improved by 1 basis point from last year to 131 basis points.

I will now continue with our Corporate & Institutional Clients business on slide 10.

Pre-tax income decreased by 18% to CHF144 million. Net new asset inflows continued to be strong at CHF1.9 billion, reflecting continued client confidence in our business. Although revenues were down CHF46 million from the second quarter, it was mostly driven by fair value losses of CHF61 million on loan portfolio hedges. Provisions for credit losses stood at a moderate CHF40 million, despite the continuing challenging economic environment.

On an underlying basis, pre-tax income was resilient at CHF205 million. For the nine months, the fall in pre-tax income was driven by credit provisions and fair value charges on loan hedges. Even after this reduction in profitability, the pre-tax margin is a very respectable 43% for the nine months.

With that, let me turn to Investment Banking on slide 11.

We reported pre-tax income of CHF2 billion in the third quarter in the Investment Bank, adjusted for charges from the tightening of credit spreads and own debt. That is a similar level to the second and first quarter in the year, but please note that the second quarter included charges of CHF483 million related to the settlement with Huntsman.

The pre-tax return on economic capital was a very strong 40% in the third quarter, and 38% for the first nine months of the year.

Our strong results reflect the good performances in our client and flow-based businesses as we continue to gain market share across many product areas. But lower revenues also reflect reduced market activity, including the seasonal third quarter slowdown in many of the flow businesses.

Pre-tax income margins stood at a very strong 38% during the third quarter, and 34% for the first nine months of the year. We continue to apply a disciplined approach to risk deployment, with further reductions in both risk-weighted assets, and value at risk in dollar terms.

Despite the reduction in market activity and the seasonal slowdown, the Investment Bank built on the strong results in the first and second quarters, with another set of very good operating results, and a high return on capital deployed.

Slide 12 shows you a more detailed analysis of the CHF5 billion revenues achieved in the third quarter.

As shown in prior quarters, this analysis splits the revenue contribution into key clients, repositioned and exit businesses. There's more detail of the business activities within each of these three categories in the appendix to this presentation.

The key client businesses generated CHF4.1 billion, driven by higher underwriting market share, and strong non-agency RMBS revenues, offset by seasonally lower client activity affecting especially our Global Rates and Foreign Exchange businesses.

The repositioned businesses had revenues of CHF1.4 billion, with higher leveraged finance results, partly offset by subdued emerging market activities. Losses in the businesses we are exiting were small at just CHF200 million, reflecting our success in reducing our exposures to areas that do not meet our strategic criteria.

Let's have a closer look at the revenue trends on slide 13.

Equity revenues continue to be strong, being down just 12% compared to the very strong second quarter. Key client businesses saw higher equity underwriting fees, based on increased IPO activity, and improved market shares for Credit Suisse, especially in Europe, offset by a seasonal decline in trading volume.

Revenues in the repositioned businesses reflected reductions in risk positions, and an operating model refocused on quantitative and liquid trading strategies.

On the far right, you see the risk reduction in the exit businesses is largely completed, and without material write-downs.

In summary, for the first nine months this year, total equity revenues of CHF7.1 billion reflect continued market share gains, primarily across our Cash Equities and Prime Services businesses.

Total fixed income revenues, as shown on slide 14, were down 17% this quarter to CHF3 billion, as a reduction in key client revenues more than offset the noticeable improvement from lower losses in the exit businesses.

Key client businesses were affected by seasonally reduced activity, resulting in lower revenues in rates, foreign exchange, and high grade and agency RMBS trading. This reduction was partially offset by improved debt underwriting fees with higher market share, and improvements in the non-agency US RMBS business. Revenues in the repositioned businesses were stable.

On the right, you can see the improving trend for the exit businesses with lower losses, due to continued wind-down of activity and exposures in these businesses.

We have reduced our commercial mortgage exposure by a further 45% during the quarter, down to CHF3.6 billion, with significant portfolio sales in Europe and the US.

In summary, for the first nine months, total fixed income revenues of CHF10.5 billion reflect the growth in our client and flow activities, improved performance on the repositioned areas, and the sharp reduction of losses in the businesses that are being exited.

Let me turn to slide 15. This slide is reported in dollars and shows the risk trends for the Investment Bank. The consistent trend in risk reduction, which we have shown now for many quarters, continued into the third quarter 2009.

Risk-weighted assets ended the quarter at $137 billion, down 2% in the quarter, and down 29% year-on-year.

For the ongoing businesses, risk-weighted assets increased to $119 billion, as some of the capital was reallocated from the exit businesses. This redeployment of capital remains a priority, as we free up existing risk capital from exit portfolios for reinvestment into our targeted client businesses.

Average 1-day VaR also fell further in the quarter and 44% year-on-year, and we have no recorded any back-testing exceptions for the first nine months. As we reinvest capital in client and flow businesses, we may see some increase to VaR over time.

Our progress in moving to a low risk capital efficient strategy for the Investment Bank has proved very effective over the last 12 months. Going forward, we will take advantage of opportunities to selectively redeploy capital in our targeted client businesses.

Slide 16 shows you the development in our cost base. The compensation component is shown in the top chart, and total compensation expenses continue to trend downwards, being down 22% from the second quarter. Our compensation accrual is based on an economic profit model, recognizing the risk adjusted profitability overall and of each business, as well as 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 44% in the second quarter to 40% this quarter.

Non-compensation expenses declined from the third quarter last year due to cost reduction measures and the US dollar translation impact, partly offset by higher legal, consulting and service fees in line with higher deal activity and costs associated with exiting certain businesses.

The increase compared to the second quarter is primarily due to incremental IT investment costs and legal consulting and service fees, in part relating to the exit businesses.

Although we are one of the most efficient banks when it comes to managing costs, we remain extremely focused on realizing cost efficiencies wherever possible. This enables us to invest in the business where we see opportunities to significantly grow our revenues. One such example is an infrastructure project to build out our electronic trading capability within fixed income.

Slide 17 is an update to a slide that we first showed at an industry conference earlier this month. It shows the relative revenue contributions from our major businesses in the Investment Bank in the nine months of 2009. We have attempted to give a picture of the businesses' medium term prospects, as markets and client activity return to more normalized levels on the X axis, and how we assess the future opportunity in respect of their current market share positions on the Y axis.

We have color coded this chart to help illustrate how we see each of our businesses contributing going forward; green for those businesses we see having the potential to increase revenues as they capture market share. An example would be in foreign exchange, where despite doubling our market share, we are still only a top 10 player in this business, compared to our ambition of becoming a top 5 player through initiatives such as providing enhanced electronic trading capabilities for clients; blue for those businesses benefiting from revenue growth as markets improve.

As good examples, we had significant market share gains in cash equities and prime services over the last 18 months, but revenues over the first nine months of this year generally reflected lower trading volumes, reduced hedge fund leverage, and subdued client activity.

In addition, we also anticipate that emerging markets and leveraged finance, strong franchise businesses for Credit Suisse, will benefit from improving markets and client activity.

And finally red for those businesses where we see some risk of revenue reduction. An example would be our RMBS trading and non-US rates businesses that benefited in the first nine months from favorable market conditions, including higher levels of volatility, wide bid/offer spreads, and high volumes, although we saw these conditions begin to normalize in the third quarter.

We've also included two slides in the appendix showing the market share and margin movements in some of our key product lines on a quarterly and nine-month cumulative basis.

Supporting the sustainability of our earnings over the medium term, we believe that any revenue reduction in the currently outperforming businesses will be more than compensated by improvements in other areas.

On slide 18, we have used the color scheme from the previous slide to illustrate this point. Looking across from the left of the page, the dark gray bar shows the reported revenues for the first nine months of 2009, and the light gray bar shows the impact of the wind-down businesses. The blue bar shows the reported revenues, excluding losses made in the wind-down businesses.

The green and light blue bars to the right show the areas where we expect the revenues to be sustainable or grow. The green bar, where we are building market share, shows existing revenue pools that should improve over the midterm, whereas the light blue bar shows revenue pools that should increase more quickly if the markets recover to more normal levels. Together, these totaled CHF14.5 billion for the first nine months of 2009.

On the far right, we think that CHF5.3 billion of our nine months' revenue are at greater risk of slowdown in the coming few quarters, predominantly due to a normalization of the market, some of which we have already experienced during the third quarter.

This pattern of performance leads us to a constructive outlook for our overall revenue base in the Investment Bank.

This concludes the review of the Investment Banking results, and I will now continue with Asset Management on slide 19.

We continued to implement our Asset Management strategy to focus on alternative investment strategies and asset allocation products and solutions. We completed the sale of part of our traditional investment strategies business to Aberdeen Asset Management, recording a gain of CHF207 million during the quarter.

Also, we have now fully exited the US money markets funds business and halved our legacy exposure to securities purchased from our money market funds to around CHF250 million.

Assets under management were up CHF17 billion during the quarter, driven by positive market movements and, more importantly, by encouraging inflows into our target growth areas.

Overall, the business performed well and is now in a position to also benefit from a more stabilized market environment. The gross margin remained very stable as Asset Management fees increased 5%, in line with asset levels from the second quarter.

Let me turn to slide 20. Here we show you current assets under management levels, third quarter and nine month net new asset inflows, and nine months gross margins of our businesses side by side. In the net new asset column in the middle, you can see that we saw encouraging inflows into our targeted growth areas, alternative investments, and asset allocation products called MACS.

The Alternative Investment business, which comprises our leading Private Equity and Real Estate business, and our single and multi-manager hedge fund strategies, continued to see good asset inflows of CHF1.4 billion in the quarter, despite the fact that global private equity fundraising activity remained low.

This business accounts for roughly half of Asset Management's fees and commissions, commanding a healthy 54 basis points gross margin year-to-date. In MACS, we saw inflows of CHF3.9 billion, reversing the negative trend we have seen in the first half of the year. These two positive inflows were offset in part by outflows from our US Money Market business, which we have largely exited.

In summary, we continued to make progress in refocusing the business on its core strengths, and better aligning with the integrated bank. We saw encouraging asset inflows in the multi-asset class solutions and alternative investments, a sign of the strengthening in our institutional client relationships.

The profitability of the business continues to improve as we report stable underlying gross margins, a stabilized private equity portfolio, and a near complete disposal of the money market [lift-out] portfolio, while delivering further reductions in general and administration expenses.

This concludes the divisional results review. I will now continue with the Group's funding and capital position on slide 21.

We built on our position as one of the best capitalized banks globally as the Basel 2 Tier 1 ratio improved by 90 basis points to 16.4% in the quarter.

Our core Tier 1 ratio, excluding hybrid capital, improved to over 11%. While we see great opportunities to reinvest excess capital to fund organic growth in the business, potentially through tactical acquisitions, we continue to accrue towards a normalized dividend.

Risk-weighted assets fell 5%, about half of which is due to foreign exchange rate impact.

We have also maintained a strong balance sheet this quarter, as you can see on slide 22. In addition, the regulatory leverage ratio increased further to 4.1%. As indicated in the past, this ratio will be affected by changes to consolidation rules from the beginning of next year under US GAAP. We currently expect these changes to increase total reported assets by less than CHF60 billion. We are currently finalizing the Level 3 assets detail to be disclosed with our quarterly report, and expect them to be down by approximately 5%.

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

Thanks, Renato. Just to sum up, we think our strategy has put us in a strong position, not only to deliver sustainable profitability and growth, but also to meet the challenges of a changing industry landscape.

On slide 23, we lay out on the left hand side elements which will change as regulators respond to the crisis. We think we're well placed in this regard. We've already talked about our strong capitalization; we're already meeting new leverage requirements. And in addition, we've maintained a strong liquidity position throughout the crisis, and we're working with industry regulators to ensure the industry foundation in this area is solid.

With regard to compensation, we've looked [to defend] the draft proposals and the principles outlined by the G-20 based on the proposals from the FSB, and we've developed and put in place a state of the art compensation structure consistent with those principles, which we announced on Tuesday. This reaffirms the Bank's continuing commitment to fair, balanced and performance orientated compensation policies that align long-term employee and shareholder interests.

We recognize that we have a duty to play a responsible role in economic recovery, both in Switzerland, and as a positive force in global capital markets. We're doing this in a number of ways.

First, in Switzerland, we remain steadfast in our commitment to the economy, with loans to clients unchanged in the first nine months of '09. Second, we continue to engage in dialogue with regulators to help foster a globally coordinated approach in an effort to build a more robust financial sector that can promote global economic prosperity. Third, we believe the industry globally needs to do more to respond to regulatory recommendations on compensation, and we believe that we were the first major bank to adopt the principles outlined by Finland in the G-20, and hope that this will encourage others to move the same direction. We believe it is important to play a responsible role in these matters, and we will continue to play an active part.

Let's turn to slide 24. In summary, the Credit Suisse franchise has gained considerable momentum over the past couple of years. We've benefited from a consistent and accelerated implementation of our strategy and stable leadership teams, and this has helped attract a wealth of talent from across the industry enabling us to truly focus on our clients. This is translating into our financial results.

Looking forward, our Private Bank has a significant opportunity to strengthen its position and grow faster than the market in an encouraging industry environment. The Investment Bank, with its lower risk, more capital efficient client focused model, will continue to produce more sustainable results from its well diversified portfolio businesses. The Asset Management business with its refocused strategy, aligned with the integrated bank, has the potential to make a significant contribution to our earnings over time.

And our strong capital position means that we can better manage our business in the face of changing regulatory requirements. At the same time, it gives us the flexibility to grow our businesses and provide attractive returns to shareholders, including material dividend payments.

I believe that Credit Suisse has a truly differentiated position in the marketplace with our client-focused, integrated business model, and lower risk capital-efficient approach. If markets remain constructive, we expect to be able to maintain our momentum, and even if markets become more difficult, we believe that Credit Suisse is still positioned to perform well.

And with that, I'm happy to open it up to questions. Operator.

We'll now begin the question and answer. (Operator Instructions). The first question comes from Huw Van Steenis from Morgan Stanley. Please go ahead.

Good morning; two questions. First, given your strong results, could you perhaps share your and the Board's latest thinking on the dividend accrual, and to the extent -- it's obviously not yet formalized? From the outside, would it be unreasonable to be getting in the [CHF200 million to CHF250 million] range?

And then the second question is really more speaking about the Investment Bank and obviously a great result. On page 32, you obviously mention that margins continue to slip. Perhaps could you give us your assessment over the next six to 12 months of how the volume margin trade-off works and whether the continued tiptoeing down of margins concerns you at all? Thanks.

Thanks, Huw. Thanks for your questions. Yes, as to the dividend, as you know, we obviously make accrual decisions, but it's ultimately a Board recommendation that gets approved at the AGM. So as you say, there's still -- those are matters yet to be determined.

I think we use the language in the release, which is what we'll stick to, which is that we're accruing towards a normalized dividend. So as you say, I don't think we're going to get more specific than that, but you can -- I think you can read into that kind of the approach on dividend.

On the Investment Banking side, yes, obviously, there are a couple of issues. Obviously, the third quarter is seasonally a little bit less; from a volume point of view gets impacted. I think as we have said, there certainly are, and there probably will continue to be over time, margin movements that margins will come out of some parts of the business. And I guess what we've tried to do is lay out on this slide 17 our view of the different businesses. And, obviously, the question you're asking, which is a good one, is I guess the pace of these different pieces of the business.

We have said pretty consistently since the first quarter that we felt that the high margin businesses were going to actually sustain those margins for some time, but that obviously over time, they would work down. I think we continue to feel that way. So if you look at RMBS trading or parts of the rates businesses that are up in that red part of the box, we still certainly see very good margins there and very, very good market shares from our point of view, but we do think that over time, those will come down, and I think it is a matter of a number of quarters as opposed to a number of months, or whatever. So we think there's probably more legs to that than people generally think. That's just our perspective.

The green parts of the box here are, obviously, where we're looking to gain share are things that take a little bit longer for us because we, obviously, have to put people in place; it takes time to build those market shares. So the green part is we think there's definitely upside to that, but it probably has a little bit longer of a tail. And then the blue piece is really more of a market call from people's point of view.

So in prime services, we have excellent market share, we continue to have growing market share in that area, and yet the levels of leverage of the hedge funds, the level of activity there has not really picked up as much as one might have thought. And so you can impose your views of what might happen in that part of the business, or the Leverage Finance business, for instance, where we think there is a lot of upside to that business, but how quickly that will actually materialize will be somewhat dependent on markets and players within the market.

So you put that all together, we continue to be pretty constructive about what we think will be the outlook for our Investment Banking business, but each of those probably has different timelines as you can imagine.

Thanks.

Thanks, Huw. Next question?

The next question comes from Kian Abouhossein from JP Morgan. Please go ahead.

Yes, hi. I have a few questions, but hopefully very quick. Basel II impact on market risk is the first one.

Then top line margins on Private Banking under your new accounting, what should we see as a range going forward?

The third one is revenue gap on FX and commodities relative to your peers. I'm sure you've done analysis on how you stand up against some of your peers, or the top three. How would you look at that, and how -- what's the likelihood of closing that gap and over what timeframe?

And lastly comp; The US banks looking more at 42, 40, 43 exit run rate of comp for the year, for the full year of '09. Where should we look at your comp for revenues for the year? Thanks. In the IB.

Okay, thanks a lot. Maybe for the first question, the Basel II impact, I'll turn that over to Renato and --

Thank you, Brady. We are still finalizing the calculation, but you can count on a couple of hundred basis points.

Okay. The kind of indication we had from peers in terms of market risk doubling to tripling; that kind of range, I assume, this is the same for you?

Yes, this is expressed then in the couple of hundred basis points deterioration in the Tier 1 ratio; that's included.

Okay.

On the second question, in terms of the gross margin, yes, basically, as you say, it is a re-stated gross margin we kind of went through, but we think the right range is CHF125 billion to CHF135 billion over the cycle. And, obviously, there's quarterly variation as well. So you can see that we're, I think, at CHF131 billion for the nine months, which is in the middle of that range. So we would expect the gross margin to remain in that CHF125 billion to CHF135 billion range.

The FX and Commodities businesses, yes, I think our position in those areas are, obviously, we don't have the market share we'd like to have there. I think in Foreign Exchange, we are a top 10 player, but we're not really a top five player. We have actually seen a substantial increase in our market share there over the past year, and it's something we are very focused on. We've made some significant IT investments in there, and you actually see that in some of our costs commentary.

We think we have a real advantage with some of our automated trading systems that we've actually started with on the equity side that are now applying more to the fixed income side, so we think that's something that will be a real benefit for us, and also we are beefing up the sales force there.

So we think we're in the top 10 range, but not in the top five where we'd like to get to. And I would think over the course of the next year or so, that ought to be something that hopefully would be achievable. We'll see.

On Commodities, we're probably in, again, not in the top five in terms of the business. We're really not in the power segment; stronger in the metal side than say gas and oil. But we continue to look at that business. We've got, as you know, I think a very advantageous, a strong partnership with Glencore in the business, which I think is helpful, but we look to continue to expand that business, as clearly -- we clearly would like to have a stronger position there.

And then on the comp side, yes, you can see the numbers. Obviously, it's -- I don't think we're really making any projection as to where we're going to be for the year. We've obviously -- I think we've been pretty disciplined about it all year, but we've obviously brought it down in the third quarter. Where we end up will depend on performance in the fourth quarter and competitive issues, etc., but you can see where it is.

I think year-to-date in Investment Banking, it's about [43, 44], and so we'll see how the fourth quarter goes and see how it progresses from there.

But unlikely we see some hockey stick movement in the comp to [rev] in the fourth?

Hockey stick up or hockey stick down?

Up; well, either way, whatever.

Yes. No, it depends on -- it depends, obviously, on performance, but my hope would be that it would be a relatively continuous development.

Okay. Thank you.

Thanks. Next question?

The next question comes from Derek de Vries from Bank of America. Please go ahead.

Great, thanks. I have actually three questions, the first two on the Private Bank side of the business. You were talking about risk appetite of your clients, and you say that clients remain conservatively positioned owning direct equities and bonds. I was wondering how that compares with what you're telling them to be in terms of your strategy allocation. So has there been a progression towards risk appetite in terms of what you're telling your clients in the Private Bank over the first nine months of the year, or have you been telling them to stay pretty conservatively positioned? That's question number one.

Question number two, you've hinted towards the possibility of acquisitions in the Private Bank, and I was wondering if there's a sense of urgency, i.e., do you see a six to 12 month window with people willing to sell private banking operations given all the changes going on right now in the banking landscape, or is that just the longer term three to four year, we could do acquisitions if there's a good opportunity?

And then my last question is just a detail question. If you could just remind us on compensation costs, in terms of the deferred compensation, what are you accruing now? Do we have the deferred compensation from '08/'07/'06 in the '09 numbers, and has there been a step-up in terms of the percentage of compensation that is deferred? So I'm just trying to think out to 2010/2011 in terms of what I should be doing with my comp to income ratio there.

Okay. Derek, thanks very much for those questions. I'd say on the first question, I think we think it's important -- we think it's an important aspect of obviously our product offerings to be certainly tailoring to where we see the opportunities. And so, for instance, we have increased the equity quota in the different investment strategies and profiles. But on the other hand also, clearly, I think in general clients are -- they're focused on maintaining pretty conservative profiles.

So when you look at a lot of the different investment strategies we're recommending, or products we're recommending, they tend to be more in that area, as you would expect, and I think that's where we want to be. So I'd say we've continued to -- we have continued to -- we've probably progressed in terms of the recommendations, as the markets have in order to allow our customers to take advantage of that, but I think that it's a relatively gradual movement.

In terms of the acquisition side, I think we obviously believe we're in a good position to make an acquisition, both from a point of view of capital strength and financial strength, but also we've had a very strong and continuous management team in these areas, and that's -- we haven't had a lot of distractions in the business, which I think allows us to better be able to integrate a business well, etc.

So I think we're actually well placed for acquisitions, but we're not going to force anything, and things have to meet pretty high, I think, operating bars for us in terms of things that fit well.

And it's, as you say in terms of urgency, obviously, over the past -- really for the past two years, things have only gotten better in terms of the kind of properties that are available and the prices, etc., so -- and it may not continue for forever, but we want to be opportunistic, but we're also going to be prudent about what we add to the business. So it's a balance, obviously.

But just maybe to follow-up on that, urgency is probably the wrong word I used, but I guess you don't see a window right now with the dislocations in the landscape and not everyone's been as fortunate as you guys in terms of having continuous management teams and keeping governments out of shareholder ownership. You don't see a six to 12 month window whereby, if you're going to do an acquisition, it's likely going to happen in that period, or you do see opportunities today that you wouldn't have seen two years ago, and you want to act on those, I guess is my question?

Well, I think there are probably more opportunities now and particularly, as you say, as the landscape sorts out, and I think many people are getting back to more core businesses, this is not a business that's core for everybody. This is a business that's core for us. So I think that's probably helpful. And there are also people who need capital, etc., and so I think all that is probably making it a more interesting environment now, but I'm not sure it's a three month or six month phenomenon; I think it will be -- I think there will be probably available -- I think there'll be -- you know, I think it's something that will probably have a longer window than that.

Okay, thanks.

And then on your last question on the deferred compensation costs, I guess the quick answer to your question is, yes. There is deferred compensation flowing through from all those years. To be honest with you, I'm not sure that I could identify a discernable trend in terms of amounts of deferred compensation and how they're going through. There clearly are -- I think it's relatively stable, but there clearly are impacts on -- from the deferred on that line, but I think it's relatively stable.

Okay, thanks.

There are no broad distortions to this year's compensation from that, I think.

Thanks. That's helpful.

Thanks, Derek. Next question?

The next question comes from Jacques-Henri Gaulard from Autonomous Research. Please go ahead.

Yes, good morning. Jacques-Henri Gaulard from Autonomous; three quick questions. The bad debt charge in Switzerland is now very low. Would you assume this is something which is recurring because the risk has stabilized, or we shouldn't obviously get carried away and we should be worried about the situation here in Switzerland?

Second question on Private Banking, very good numbers on net new money and assets. There is inertia in revenue, clearly. When do you expect those new assets to effectively trigger some recovery in revenue? Is it more for the first half of next year, second half of next year, a bit earlier than that? Just to have a little bit of guidance there.

And the third question, you have reduced your risk-weighted assets in your VaR Investment Banking. Well, if I remember well last quarter you had said that maybe those measures would effectively increase. Are you completely free to effectively take as much risk as you want in your Investment Bank, or it's maybe not risk as you want, or are you still slightly monitored by the regulator and a bit constrained about what you can do there? Thank you very much.

Okay, maybe I'll start with the last question first and then we'll go back to the others. Yes, as you say, we are -- we continue to be in a position where we can certainly take more risk and when we see opportunities, we will do that.

In fact, it's interesting, because if you look at the RWA progression, what you'll see actually is that while the overall RWAs are down, actually what we have done, which is one of the things we will continue to look to do, is as we've reduced our RWAs in some of the exit legacy businesses, we've actually redeployed those into the ongoing businesses. So you may not have access to the color slide, or whatever, but we've --

No, I actually don't. No, that's true.

Okay, yes, you may want to look at that because it's actually pretty interesting. What you can see is we're down a little bit in risk-weighted assets, but actually ongoing businesses are up a bit, so --. But you're right, actually, the bar is down and -- but again, yes, we will -- as we see ongoing opportunities, we're certainly going to take advantage.

We don't have any constraints in that respect expect that we'll obviously want to run a disciplined model and we want to make sure that we're disciplined about the risk that we take.

In terms of your other two questions, I'd say the bad debt charges, or the loan provisions in Switzerland, as you say, are low. We continue to feel pretty comfortable with the portfolio that we have in Switzerland and with the way it's performing right now. Obviously, future quarters are, as always, unfortunately hard to predict. I think a lot depends on the economy and how that develops.

But we do feel like we've got a high quality portfolio that's well diversified; there's a lot of collateral against it, and so we see that loan portfolio actually performing pretty well. So I guess our hope is it's recurring, but obviously there's no way to predict that because it depends very much on how the economy rolls out, etc.

On the last question, which was your second question on when we might see some inertia on revenues from, as you say, the good asset developments there, hard to say. I think it depends a lot on the picking up of demand for comprehensive investment products like funds, alternatives, structured products, things like that some of our PMAC type asset allocation product, etc., and I'd say we believe it will come.

It's probably a little bit harder to determine exactly which quarter it's going to come in and how pronounced it's going to be. We certainly see clients getting more comfortable and being more opportunistic, but when we'll actually see the full impact of that over time, we'll have to wait and see.

Thank you.

Thanks, Jacques. Next question?

Your next question comes from Jernej Omahen from Goldman Sachs. Please go ahead.

Yes, hi there. It's Jernej here from Goldmans. I have four questions. The first one, and I'll just go through the relevant slides as well, the first one is on slide eight of your presentation where you show the net new money inflows, and I was just wondering if you could split out how much of this CHF11.2 billion was down to loan, [bad] loans this quarter?

The second question is on page nine, which is on again a question on the margin. And thanks very much for the explanation that the margins should stay within the communicated [125, 135] band, but I was just wondering, you quote lower net interest income due to increase in funding costs in the third quarter as one of the reasons for the margin having compressed, and I probably think many investors are going to find this a little bit surprising given that I think funding costs in the third quarter seem to have come down a little bit, or -- well, a little bit on Q2 but a lot I guess on the previous quarters. If you could just elaborate on this one; i.e., what exactly do you mean by higher funding costs pressuring your margin here?

The third question is on -- actually, the third and final question is going to be on page 21 where you show your risk-weighted assets development. And I was just wondering this decline of 5%, how much of that is due to FX and how much have risk-weighted assets come down on a constant currency basis? Thanks a lot.

Okay, thank you. Thanks a lot. I think on the last question, about half of the risk-weighted asset reduction is due to currency, so about half is underlying and half is due to currency.

On the first question in terms of the net new money inflows, as you say, the CHF11.2 billion, I guess your question is the leverage thing that we've talked about in the past.

Yes.

So, yes, we think probably about CHF2.5 billion of that is due to leverage, so due to increased leverage. So around CHF2.5 billion of the CHF11.2 billion is due to an increase in leverage in the quarter.

That's perfect.

And then your last question, it's a bit complex, but the bottom line is that the funding cost is a mixture of longer term and shorter term deposit costs. The longer term, the more wholesale part of the funding that comes in, is actually -- as you say, certainly costs are lower, funding costs are lower now than they were a year ago, but they're actually higher, they're somewhat higher than the debt, that some of the new debt is replacing stuff that's rolling off. And so net, there's a slight increase in the overall cost of funding and I agree with you, that's somewhat counter-intuitive when you look at what's happened with spreads, etc., in the last six or 12 months. But on a -- overall, a longer term blended basis, it actually has increased the funding costs somewhat which has squeezed the margins a bit.

Okay, thanks a lot. If I can just add to this final question, given that it seems that essentially there was a positive carry on the legacy funding you had in the Private Bank and that's now being rolled over into something that is more expensive, I was just wondering what -- from where then this certainty that the margins should rebound in the following quarters, because it seems to be a relatively longer term issue. If you've put on new funding which is more expensive than the funding that rolled off, why should we think that there will be a rebound in the coming quarters?

Well, it's obviously that the gross margin is made up of a number of different elements, as you say, as we tried to lay out. So one is --

Do you think there's going to be upward pressure in the other quarters?

Yes. Already we're encouraged by the brokerage side and the fact that that was positive in the quarter, and we think that should hopefully continue. The asset-based commission side is also an encouraging development, so we're happy about that. And we also think this whole -- the integrated solutions revenues, which really actually are still pretty strong but just off a very strong second quarter, we think those should continue to probably have positive developments. So all those are positive.

The interest side, frankly, the interest side may well continue to be under pressure because, as you say, that's probably not -- the funding cost side of that is not something that's going to reverse quickly. And again, it's not a big element of it, but it is an element of it. So I think as we look at all those factors, our hope and our view is that that will actually -- that this is bottom of the range gross margin type numbers. So we will see higher numbers going forward, but we'll see.

So obviously, an interplay among all those issues, but we do feel there's probably more items where we see upside than where we might see some downside.

Okay. Thanks very much.

Thank you. Our next question?

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

Hi. I had two questions. One was just coming back to the net new money. Have you got any idea of how much is driven by new hires? I was just trying to understand how much is market share gain versus also hiring.

And the second is, the way that you talk about the compensation ratio and the Investment Bank, I think in the slides you tell us you can't really look at the comp to revenue ratio any more, and that as revenues go up higher, the staff there must be some limits on bonuses. And can you talk about that a bit more? Does that mean that the comp to revenue ratio could go below [40]? I'm assuming that is the case. Thanks.

Well, yes. On the second question there is -- what we're basically saying is that as we continue to evolve the approach on compensation, this is in line with a lot of the regulatory issues as well, we're looking at things much more in a capital allocation, return on capital type basis. And so, obviously, at the end of the day the comp to revenue is still a common way to look at it, and it's an easy thing to calculate so we do make reference to it, but it's actually not the way that we're actually setting the compensation accruals.

So I guess in that context it could go a lot of different directions, but again, it's not the way we look at it, but on the other hand, as you can tell from the first three quarters, it's not that inconsistent in terms of how things come out. But, as you said, we do think there is a diminishing scale element to it, so I think as and if performance continued to improve, that could certainly lead to lower numbers; it's not impossible.

In terms of the quarterly fluctuations, we don't really look at that. It's not easy to isolate out a quarterly movement in net new assets and how much came from new hires, etc. In general, as you know, we tend to think that on a 12 monthly basis, we think about 60% of the net new assets have come from new hires. And so it's not -- I don't think it's -- it's obviously a lot more lumpiness and a lot more discreet issues that come in to any particular quarter's net new assets, but that's in general how we view it as 60% from new hires.

But what I suppose I was trying to get at was at the investor day there was a slide saying that your new hires were bringing in -- I think it was multiples of what they previously had brought in, i.e., you're hiring better people. Is that one of the reasons for the improving net new money?

Well, I think if you look at -- I think we've talked about and if you look at we actually had -- on net, we had less RMs than in the third quarter. We actually did a fair amount of gross hiring, particularly in the ultra High Net Worth area, for instance, which does end up with higher quality or more assets per RM, and so in that respect, yes, I think it is. It is a big focus of ours is to focus on quality, and that obviously leads to improvements in that area. So I think in general the answer to that is, yes.

Thanks.

Thanks, Fiona. Next question?

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

Good morning. Three questions, please. The first one is the implementation of the market risk charge. Is that going to be all in 2010, because Deutsche flagged probably a split hit in 2010 as well as 2011? Or is it line with the Basel II press release that it's all in 2010?

Second question is in thinking about dividends and normalized levels, how do buybacks fit into this thinking? Are buybacks also a normalized component in your thinking?

And the third one is coming to Jernej's question on the Private Banking gross margin. Earlier this year, you recorded a step-up in net interest income because the corporate center charged you with more interest income in the Private Bank for your access deposits because your CDS spread widened. Is that already being reversed? Or I thought it was back then about a 5 basis point impact. Or should we be expecting that the CDS spread came down obviously over the past couple of months that this should also be a negatively impacting net interest income in the Private Bank? Thank you.

Renato, do you want to answer the first question about the market risk charge? I think it's actually all in 2010 but --

Yes, that's what we foresee by the end of 2010 and includes -- basically, that couple of hundred basis points includes all the known changes that will come out under the new Basel II framework. So I cannot give you a straight answer if it's not in January '11 or in December '10, but this is our rough estimate of what the impact will be on our risk-weighted assets. Out again on all the foreseeable or announced changes for Basel II.

On your second question on, I guess, buybacks specifically, now don't think, given the environment and the way -- with all the discussions on the regulatory side all round the world, I don't think there's -- there's not a lot of discussion about buybacks. So obviously, your guess is as good as ours as to how that goes over time. We clearly have a lot of capital. We have a very capital-generative business model, and I think that will continue to be the case. But exactly how that develops over time I think your guess is probably as good as ours. But right now I don't think it's really something that a serious discussion.

So that actually means when you say normalized levels that we just should look at historic payout ratios and just forget about the buybacks? I.e., if you don't factor in buybacks would a historical normalized payout ratio be higher?

Yes, I guess we're -- I guess when we're -- our references to the dividend payouts in the past. So yes, without reference to the share buyback activity.

Thanks.

Your question on revisiting this net interest margin with the reference to the CDS, as you say, the corporate center CDS charge. Certainly, the higher funding rates have a positive impact on deposit revenues, but there's not so much change there. And I think in this quarter, it was really more the higher funding rates take on overall basis that is the only really negative impact on the net interest margin revenue side.

I'm actually not sure about the CDS; we may have to get back to you on that because I'm not exactly sure how -- what that previous charge was. I actually don't know the answer to what the previous charge was and how that's playing through now. So we can -- maybe we can get back to you with that.

Okay. Thanks.

Thank you. Next question?

Your next question comes from Christopher Wheeler from MainFirst Bank. Please go ahead.

Yes. Good morning, everybody. Three questions. The first one, you've given us quite a good indication as to where you think the opportunities are in the Investment Banking revenues. But if we just perhaps focus on fixed income, obviously, this year we've seen obviously the widening of margins and the high levels of corporate debt issuance as two crucial trends that have driven revenues. If I was to ask you what you think those trends might be over the next five quarters, perhaps you'd like to just give some thought or give some suggestions what you think they might be. That's the first question.

Second question is on Asset Management. You've talked in the presentation about obviously the way the business has stabilized, but can you give us a flavor for what still sits in there in terms of what Bob has in there in the private equity portfolio, and to what extent that has been now reduced, so that we can see not so many losses going through that line in the P&L which shows the losses on the private equity book?

And perhaps just following on from that, clearly, Bob's job has been to stabilize the business, and he stepped up to the plate when David left. What are your plans for the business going forward? Because, obviously, Bob's background isn't in Asset Management -- well, it has been for the last couple of years, but it hasn't been historically. What are you plans in terms of driving the business forward once it's actually come out of the phase it's been in?

And then the final question which is a tricky one but you seem to have done everything in terms of compensation within the Investment Bank to really deal with all the noise from G-20 and other constituents. But having said all of that, you see Alastair Darling last night being quoted as saying what happened to Goldman Sachs last week sends the wrong signals, and while you've been dealing with obviously the regulatory issues, the political issues are building very rapidly in terms of the bonus payouts. And clearly, I think you're now at a situation where compensation for employees is higher than it was in '07 for the Investment Bank.

So I just wonder what contingency plans you've put in place, or thinking about, in terms of dealing with those pressures. And you might well say, well, it doesn't really matter because everybody will be hit with the same issues and therefore it's not a competitive problem.

What are you thinking about? Last week Goldman Sachs obviously gave $200 million to charity as, I'm sure, part of their strategy. I don't know, Brady, whether you can share anything with us how you're going to deal with this noise that undoubtedly from a political perspective will get louder as you get towards December and January.

Okay. Thanks for those questions. First of all on the fixed income revenues, and I guess you've asked the prospects for the next 12 months or so, where we see things going.

I think a lot of it comes back to that slide 17. We think that while we've enjoyed very good margins and also activity in the RMBS, and a lot of the rates areas particularly outside the US, we think that those will certainly -- that we're going to continue to see good performances in those areas but they may well become more competitive over the next 12 months.

But I think our guess is that in RMBS, the volume remains high. Rates might be a little bit less, and then, obviously, the rate side somewhat comes on to the question of when and if central banks start to increase rates around the world, that could obviously have some impact.

In terms of other areas in fixed income, the investment grade area, as you mentioned, you cited there was an area that obviously had a very strong performance so far this year. We continue to see good opportunities there, but to expect it to repeat over the next 12 months what we've seen in the last 12 months is probably not highly likely.

We do see a lot more upside though in areas like leverage finance and emerging markets and, obviously, that's really good news for us because we have very strong franchises in those areas. But we see -- in leverage finance, there's a lot of pent-up activity; a lot of refinancing activity from the '05, '07 deals which were done, both corporate and private equity, and just a lot -- there's going to be a lot of restructuring, a lot of new issuance that happens there. And we have, in leverage finance, number one sales trading research team, and we think we should actually be pretty well positioned for that.

The same thing in emerging markets; we have a very strong franchise and we think activity will probably increase over the next 12 months in that area.

We're probably still going to see volatile FX markets given the environment, and that probably leads to opportunities in FX. So I think our view is that FX probably -- there's decent prospects for market activity in FX.

And then, obviously, the whole government bond issuance area is one where it's really a question of we continue to see favorable interest rate markets, then I think we'll continue to see decent trends there, but we'll have to see how that develops.

So it's, I guess, mixed, but in general I think our view is that there are a lot of areas which really haven't performed all that strongly so far that we think have prospects of doing so. So we'll see on that.

On the Asset Management side in terms of private equity, I guess -- I don't know. There's good news and there's bad news there in the sense that we do, obviously, have some of our own capital at work which, as you say, has given rise to losses over previous quarters. Those are obviously, for the most part, unrealized losses, so we still actually have those investments and will continue to, because it's not a business that you can move out of very quickly.

So I suspect that those positions will not change that much. I think we have in general about a couple billion dollars worth of exposure there. And again, obviously, as you say, to the extent that markets are difficult it's possible that there could be further write-downs there. But if markets are -- continue to be constructive as they've been, there could also be mark-ups there over time. And there's also then, obviously, Company-specific issues that come up, but I think that's the balance.

In terms of the overall business in Asset Management, I think we've -- we've been working hard at executing on our strategy which is to focus the business more and to align it better with the Bank as a whole. As you know, we've done a number of things in terms of trying to focus the business; sales of our Loan-only business to Aberdeen, exit from the Money Market business; number of other measures taken.

What we're left with now is a business model where we're really focusing on our Asset Allocation business, which is very tied in to the Private Bank, and we think has good prospects; our Swiss business, where we obviously have good market share and good scale. And then lastly, the Alternatives business, where we have a number of excellent aspects of that, but also areas where we're looking to build over time.

And so that's our focus really, is on building that; building the contribution to the bottom line and, therefore, to the market cap of the firm overall.

And I think we're -- I think the net new asset flows in the third quarter were encouraging and, obviously, it will be dependent on how the market goes, but we're going to continue to execute on that strategy. So we're actually very positive about the strategy and the impact it will have on the business.

And your last question was on compensation. As you say, it's obviously an issue that's of concern to shareholders and management. It's also a concern that goes broader to regulators and the general public.

I think in general we have tried to be a very responsible player in this area, starting with the fact we've had for a number of years plans that have been designed in ways that are consistent with what's currently being suggested by regulators as best practice. We did the PAF structure late last year, which I think was generally viewed as a constructive development on the compensation side.

And the fact that, as you say, two days ago we basically announced that we had put into implementation, detailed implementation, a compensation plan that is consistent with both what [Finland] had laid out in their discussion draft, as well as what the G-20 under the auspices of the FSB had endorsed. We think the fact that we're, as far as we know, the first mover on that represents a pretty responsible step forward.

So, as you say, exactly where this whole debate will go, or how it will develop, is hard to call. We're trying to do our best to make sure that we are a responsible player there; that we're doing the right things, certainly for our shareholders, for our clients, but also in the broader context here. So -- and as you say, I guess we'll see how that works out.

Thank you, Brady. Appreciate that.

Thank you. Next question?

The next question comes from Jon Peace from Nomura. Please go ahead.

Yes, hi. Good morning. Just two questions, please. The first one is, how should we think about the size of your excess capital today? You said obviously that new changes to Basel II would take about 200 basis points off your Tier 1, so 14.4%. What standard do you think the Swiss regulator's going to hold you to? In other words, what kind of buffer over excess -- over the 8% legal minimum might they require of you? I'm thinking, should your target in the new world with new rules be more or less than the current 14%?

And then the second question's just on the Private Banking flows. Net new money's very good this quarter, but how do you see the risks short term of amnesties in Italy and potentially elsewhere? And do you see a risk that we might temporarily run below your 6% rate? Thank very much.

Jon, thank you. As you say, we've got -- I think we've got a pretty -- we've got a very strong level of capitalization. I think, obviously, we've talked about one specific element, which is some of the changes in Basel II, but we also have a business that's pretty capital-generative so over that period we'll also be generating capital. So it's a little hard to know where that all comes out.

I think, as you know, we've set a medium term target of, I think, 12.5% Tier 1 ratio. We think right now it will be very well capitalized; it's helpful from a client and a counterparty point of view, and also takes into account some of these developments and how things are going to move and uncertainties in the market.

So I don't know that I can give you an exact answer to the question. I think we're -- I think by pretty much any measure we're very well capitalized, and I kind of think that you can -- we can go through a lot of different scenarios, but I think we're well capitalized and I think we'll remain well capitalized.

So in general, I think our medium term target of 12.5% would probably be sufficient. But obviously, we'll see how things develop and whether there are other issues that come up.

The net new money issue and, as you say, in the context of amnesties in Italy, etc., we'll have to see how it evolves. It's probably too early to comment in any decisive way on the Italian tax amnesty issue. Overall, we don't expect to have any material impact on that. And as we said at our investor day, by the end of 2012, we kind of think $175 billion to $225 billion of net new assets between now and then, and I think we believe that in the face of a number of these things that are happening.

I think the other thing to remember as well is that we are -- this is the benefit that we have, and we keep talking about our onshore presences in these markets. We do have strong capabilities to pick up, even if clients do want to move money from one country to another. For instance, in Italy we have strong onshore capabilities, and I think we will certainly see flows. If there are people who -- customers who want to move money out of Switzerland into Italy, we're in a very good place to actually pick up that flow in our onshore business in Italy. So that's really -- that's been our focus in developing these networks.

That's great. Thank you.

Okay. Thank you. Next question?

The next question comes from Matthew Clark from KBW. Please go ahead.

Good morning. Firstly a plea; just wondering if it would be possible to get the same line by line disclosure for the new [segments] Wealth Management Clients, etc., as we get to the other divisions. So the break-out of expenses and personnel, general admin, etc., would just to make it easier to model, if nothing else.

And then secondly, a question on slide 18 where you give your adjusted revenue for the Investment Bank, and you make a -- I think it was CHF3.6 billion adjustment for the nine month revenues. I was just wondering what elements actually go into that CHF3.6 billion. So is it own debt moves? Is it the write-downs, the write-ups? Is it other de-risking?

Just trying to match up that disclosure with some of the other figures that we've been given on non-recurring items over the past few quarters. Thanks.

Thanks, Matthew. Thanks for those questions. The segment, obviously, is Private Banking overall. And as you say, we do provide the information for Private Banking. Whether -- I guess what you're saying is you'd like to see it on a granular basis for Wealth Management and Corporate and Institutional, right?

Yes, please. Yes, if possible.

I think we're going to give some thought to that. Obviously, that would be additional information. We'll consider it and see what we can come back, but we hear what you're saying.

On the CHF3.6 billion which is, as you say, what we call the wind-down losses and other, about CHF2.6 billion of it is actual exit losses from the business, and about CHF1 billion is some unallocated treasury costs, etc. So that is non-business specific costs. So about CHF2.6 billion is actually related to specific losses on the businesses, and you can refer back to the fixed income slide.

Okay. And would those only -- say you had write-downs taken in the key clients business, or repositioned businesses, would those not be a part of those adjustments? The adjustments in that CHF2.6 billion you highlighted only relate to the exit businesses?

Yes, that's right. That's right. So any write-downs or any write-ups in any of those ongoing businesses would not be in that CHF3.6 billion number.

Okay. And does that include the repositioned as well as the key clients?

Yes, it does.

Great. Thanks very much.

Thank you.

Your next question comes from Jaap Meijer from Evolution. Please go ahead.

Hi. Jaap Meijer from Evolution. A question on page 53 of your financial statements where it shows reconciliation between your equity and Tier 1. Equity was up 5% in the quarter and Tier 1 is virtually stable. And I noticed that there is a strong increase in other adjustments in this reconciliation. I just wondered what it was. Is this perhaps a change to your dividend accrual from a nominal level towards a percentage of earnings?

Okay, thanks for that question. Just a second, and we'll see if we can take a look at the number, and take a look at the page, and come back. Just one second.

Your next question comes from --

Operator; sorry, operator, just hold on. We're going to answer that question. Just hold on one second.

Just to answer your question, what is included in other or the [delta]?

Yes. So you see the change of the deduction in other adjustments is going up from CHF3.5 billion to CHF4.8 billion in the quarter, and I was just thinking, what does it relate to? Is this increased dividend accruals? Because I think you might have just accrued for a nominal dividend, I think, in the first six months, and this is perhaps changed into a percentage of earnings in the line of you used to pay in the past.

Most of that is foreign exchange impacts that were higher in the third quarter than in the second.

Okay. So it is not relating to --?

And then we had a -- then we had to book a -- we booked the goodwill of the Aberdeen acquisition which, of course, goes against capital, so that was also a reason why it's slightly -- it's higher.

Okay.

And that explains the difference.

And the dividend is in there, as you say. But those are some other elements that are in there.

Okay, and could you be slightly more specific on the trading assets? Because the first quantitative impact study of BIS was showing quite a wide dispersion, so could you also confirm it's not more than at least a couple of hundred basis points? So it's not going to be -- Credit Suisse was not the one -- the outlier in the 43 banks that was being reviewed in the survey?

No, I think, as we said, it's -- obviously, it's a preliminary estimate. We'll have to see how things roll out. But no, ours was a couple of hundred basis points in that period.

All right, thank you.

Thank you. Next question, Operator. Sorry.

Your next question comes from Elad Ben-Am from Bank Am Bellevue. Please go ahead.

Yes, hi. I have one question. You had this net release of tax contingency accruals for around [CHF205 million]. Could you elaborate a little bit more on what that is related to and whether we should expect more of these items to come? Thanks.

Renato, do you want to take that?

Yes, sure. As usual, we are having a lot of tax assessment, that when you file a tax return, you assess your tax, you estimate your tax, and then you resolve these tax discussions with the local tax authorities. And then, of course, occasionally, that results in a positive impact, because you have put aside more provisions than you actually find we need. And, of course, hopefully you will see those rather than the other way around, going forward.

Okay, thanks.

But it's a reflection of the way we are assessing the (multiple speakers).

Yes, it's a number of specific tax issues around the world where, as you say, the sum total of those where there was a tax benefit.

Okay, thanks.

Next question.

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

Hello. I have a question on page -- slide 16 on the incremental costs in the Investment Banking division. Do you expect further IT investment costs to come, and further costs associated with exiting businesses?

Thanks. Thanks for the question. Yes, I think, in general, we don't -- on the costs associated with exit, there will be costs going forward, but we think they're probably pretty stable. So it's not that they're going to rise, but we do still have some businesses to work out of.

In terms of investment on the IT side, yes, we are going to -- we view that as one of the important aspects of the overall client offering is to make sure that we have strong IT. We've talked about some things like adapting our industry-leading AES platform across our fixed income platforms, etc., FX, so we probably will have -- we will continue to have investment on the IT side.

The question was more related, is this now a spike for Q3? Is there quite a likelihood that it will come down in Q4? Or is it -- that's more the intention of the question.

I think it's -- yes, I guess, in general, we would probably expect, on the IT side, to remain at higher levels of cost investment.

Yes, okay.

Okay, thanks. Next question.

Your next question comes from Kilian Maier from NZB. Please go ahead.

Good morning. The question would be on slide 18 and how really to interpret it. I'm afraid it is kind of a repetition, but I will try my luck, nevertheless. So the right way to look at this would be to take the CHF4.7 billion, CHF9.8 billion, annualize it, plug in a growth rate, let's say 10%, and then also annualize the CHF5.3 billion, and then take out another percentage, let's say, 50% of revenues.

And if I take, for example that, that gives me CHF24 billion of revenues. Is that the way to look at it? Is that they way you look at it? And is that -- what's the time horizon for that?

Yes, what this was -- this was actually just a -- this was just looking at the nine month revenues and splitting it into those categories. So as you say, we haven't done -- we haven't shown here the analysis that you're going through. As you're saying, if you wanted to try to estimate how you thought revenues might develop, then that would be kind of a numerical way to do -- a quantitative way to do what I talked about when I think Huw asked the question in terms of estimating, timing and scale of impact on the different areas.

So for instance, you mentioned the CHF5.3 billion going down by 50%; that would be more than I would estimate, because I think, as I mentioned, I think it's got actually a much longer horizon and probably more stability than most -- than maybe some people would think. But on the other hand, I also don't think that the top two boxes go up by 50% either. And there are different timescales where, as I mentioned, I think probably the green box grows more slowly because it actually requires us doing things and building our franchises, whereas the gray box is somewhat more dependent on markets.

So if the prime brokerage environment just simply gets better because hedge funds increase their leverage and become more active, then that will be something that will feed through very quickly in our results because we've got the market share and growing market share. So, yes. But I guess, as you say, that would be a quantitative way to go through what I talked about in terms of what we view as the prospects for the different areas.

Okay, thank you.

Good. Thank you. Next question.

Your next question comes from Chris Malmer from Arrowgrass. Please go ahead.

Thank you very much. Just if we're trying to assess the earnings power of the Group in a post-crisis environment, do you think that the third quarter results here is reasonably useful as a run rate? I guess there is some seasonal weakness on the Private Banking margins; there is some excess returns perhaps in some of the fixed income revenues. But all in, do you think this is somewhat indicative of what this franchise should be able to deliver on an ongoing basis? Thank you.

Yes, it's a really good question. Obviously, in all these areas, you have the elements of the market environment, etc., that plays a big role, so hard to estimate on that.

I think what we've tried to -- when we look at the business, I think, in general, we feel like the Private Banking, our franchise in Switzerland, has maintained very good market share, in fact, grown market share; has seen very good net flows in. And yet, the underlying activity in that part of the business for the industry has been somewhat subdued. So our view is that probably over time there should be upside to that part of the business.

We believe on the Asset Management side, there are certainly some industry impacts. But also, for us, as we mentioned, we do feel like we are making progress on our strategy and our focus in those areas. And again, third quarter net new asset flows were encouraging in that regard. We still have more work to do, but -- so we feel like that's probably an area that should hopefully do better over time.

And on the Investment Bank, again, it kind of comes back to the same story we've talked about a couple of times, which is how do you weigh the different elements of the business mix, and how do you view them as developing over time? I think what we've tried to highlight is that we think there is -- obviously, it can go either way.

We think there's actually more potential for increases if markets continue to be constructive or get better in some of the areas like we mentioned, prime services, cash equities, emerging markets, leverage finance, then that will give some potential upswing to the revenues. We hope that the actions we take on market share will give us some increased revenues. And then, obviously, you have offsets to that in other areas where margins may come down or volumes may come down.

So I guess that's -- maybe that's a long non-answer to your question about whether we think the quarter is a decent run rate. But we certainly see -- certainly, conditions were good in the third quarter. There's no question that conditions were good; particularly for a third quarter, conditions were good. But in a number of parts of the business, we still see potential upside, and so hard to say how you balance all that out.

Right. But, obviously, [with the biggest claim] for broader market conditions, but you would not discourage people to use this as some sort of indication?

I think our hope and our aspiration is that we continue to grow the business and make more over time. But I also think -- our hope is also that people do focus on the quality of the returns because, again, a 25% return on equity on a 16.5% Tier 1 ratio, and on 30% less risk than what we had a year ago is, I think, a pretty high quality performance that's going to be fairly durable through various market environments so -- anyway, so I hope also people do focus on that.

Very helpful. Thank you very much.

Okay. Next question.

Your next question comes from [Daniel Zolov] from Basler Zeitung. Please go ahead.

Yes, good morning. Just one question. I understand you are displaying collaboration revenues of CHF3.6 billion. I'm not sure, but that's the first time I'm seeing this figure. And you are calculating that back until 2006 when you started to integrate Credit Suisse First Boston. I would like you to explain how you calculate actually that figure.

And maybe also give me an argument whether you are showing that figure now in the context of the whole regulation discussion which is going on. Just the too-big-to-fail problem in Switzerland is being discussed very hotly, and I understand that you are trying to show arguments to sustain your business model. Thank you.

Good, thank you. Actually, on the collaboration revenues, we've actually -- maybe we haven't made it prominent enough, but we've actually been disclosing those revenues, I think, for the last couple of years. And so we've been actually, on a quarterly basis, we have disclosed them. So if you wanted to see the kind of historical progression, you could go back and look at that, or we could provide it to you. So we have been showing it actually on a regular basis.

Your question about how it's calculated is a really good question. It's obviously, it's a somewhat complex question to answer, but what we've tried to is we've tried to be pretty honest about what we view as revenues that we do garner as a result of being an integrated bank. Because there are obviously some things, some revenues, that are provided by different parts of the Bank to other parts that you could actually do outside without much difference in the structure. And so we've tried to be pretty honest about where we see real value from the integrated institution.

And we do -- we still -- we've set a target for actually -- I think it's 2012 now, of getting that number up to CHF10 billion, and that's something that we still -- that's still our aspiration. We see a lot of benefit for our business from having a -- from this close collaboration, and so our hope is that over time we'll continue to see that development. We'll make that target, but obviously, it's a pretty aggressive target given where we are today.

I think the too-big-to-fail issue, we are -- I think, certainly that is, as you say, is a debate, and we are somewhat engaged in the discussions with regulators and in general with the public. I think that it's an important discussion.

I guess our hope is that people, first of all, recognize what's been done already which is, if you look at the changes that have been made in the Credit Suisse business model, substantial reduction in nominal balance sheet; substantial reduction in risk; a much less risky business model; much higher capitalizations than we had a couple of years ago. So, in general, that makes the institution much less systemically risky in the first place.

So we hope people actually do recognize what's been done. And we're not saying that it's not an important discussion and debate that we should carry on, but there should be recognition of what has changed.

And the other thing that we think is important, and maybe this is where you were getting at with your collaboration revenue question, is there also has to be some recognition of the positives that come out of the financial system and the large banks, etc., particularly here in Switzerland.

We take very seriously our role to provide capital for the economy here, to provide access outside of the country to capital, etc. And I think that's actually been -- I hope that's been an important part of the growth here and the financial system. So I just think we also need to keep that in context too when we think about the too-big-to-fail issue. But we've actually been regularly reporting the collaboration revenues.

Thank you.

Thank you very much. Are there any other questions?

There are no further questions at this time. Back to you.

Okay. Well, thanks, everybody, for your questions, and thanks for listening to our presentation. And for those who are still on listening to the Q&A, I guess I just wanted to leave you with a couple of points.

We -- the Investment Bank, with this lower risk, more capital-efficient client-focused model, we think will continue to produce more sustainable results from its well diversified portfolio of businesses.

We think also that the -- we are happy with the third quality -- the quality of the third quarter performance. We had a very strong return on equity at 25%. We think that complements a strong first half and shows the strategic approach is working well.

Secondly, as we mentioned, these returns have been achieved in the context of an industry-leading capital position, and with 30% lower risk-weighted assets compared to the third quarter last year.

And third, taken together, we think that the results do demonstrate that the differentiated strategy is providing a good foundation for sustainable high quality, lower volatility earnings.

And lastly, we do believe that we're well positioned for growth in the new competitive landscape.

So with that, I want to thank everybody for your time and your interest., and have a good day. Goodbye.

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.