Credit Suisse Group AG (CS) 2010 Q4 法說會逐字稿

Thank you. Welcome, everybody, to our results presentation for the fourth quarter and full year 2010.

Today's announcement strongly underscores three themes. First, the good fourth quarter and strong full-year earnings, best in class returns, and one of the highest dividends in the industry demonstrate the power of our business model and its resilience in volatile environments like what we saw in 2010.

Second, our strong momentum of industry-leading client asset gathering and market shares, having one of the strongest balance sheets in the industry, and our strong capitalization, positions us extremely well for an upswing in market activity.

And third, we believe we've broken through much of the regulatory uncertainty that the industry is facing. Most of our competitors are still engaged in the debate over a long list of potential regulatory measures; where it will end up and how it will affect them; whereas we have already transparency on much of our regulatory framework, and we're acting to rapidly implement the measures necessary for sustainable performance under the new regulatory regime.

And, as a result of having worked through many of the regulatory uncertainties, we have set a new group of long-term KPIs reflective of the new market environment and our new regulatory capital requirements. And, most importantly, we have set a target for ROE to exceed 15% over the next three to five years.

We're confident that these KPIs are realistic, and that we can meet or exceed these over time. And furthermore, we would expect that this industry-leading ROE would lead to a consistent and significant book value accretion of 10% or more per annum.

We believe all of this puts us in a strong position coming into 2011 and for years to come.

So let me just address these areas in more detail.

First, performance in 2010 was strong. We ended the year with over CHF5 billion of net income; a return on equity of close to 15%; net new assets are close to CHF70 billion, a Tier 1 ratio of over 17%; and are recommending to our shareholders a distribution of CHF1.30 free of Swiss taxes. Our returns, net new assets, Tier 1 ratio and dividend paid, are all among industry best in class.

Our fourth quarter underlying net income was close to CHF1 billion, with an ROE of over 10% for the quarter, net new assets of CHF14 billion. All divisions of the Bank were profitable in the fourth quarter.

The Private Bank's performance is consistent with previous quarters, with strong asset gathering numbers, and an improvement in gross margin.

The Investment Bank continued to make gains in market share across all businesses, and delivered a resilient financial performance in equities and investment banking. And while the overall performance was strong, we were nonetheless somewhat affected by more difficult market conditions in fixed income.

Perhaps most notable, Asset Management continued its consistent improvement in investor returns, asset gathering and profitability.

On the second issue, perhaps more importantly, the trends throughout 2010 positioned us strongly for 2011 and beyond. With the dramatic increase in net new assets and continued investment in the platform, our Private Banking business is well positioned for a powerful performance once client activity improves and rates increase.

CHF69 billion in net new assets in 2010 means that since the crisis started, we have gathered close to CHF200 billion in client assets. That is dramatically more than any of our competitors, and positions us to benefit handsomely when markets turn more positive.

Our Asset Management business has successfully executed a material restructuring and is now refocused. The business is capable of making material contributions to our bottom line by growing diversified fee-based revenues, and has already attracted positive net new assets over each of the last six quarters.

In the Investment Bank, we saw dramatic increases in our market share during the year, with tremendous momentum in all our client franchises, maintaining our number one position in global cash equities, and making great progress in M&A. The Investment Bank is poised to benefit from these market share increases with any upward move in market volumes.

To give you two examples, we improved our position in globally completed M&A from number eight in 2009 to number three in 2010; and we ended up 2010 as the number one investment bank to the sponsor community. And these are areas that are likely to be among the most active in 2011. So our business is well positioned to benefit from any uptick in market and customer activity.

Our balance sheet quality is best in class. On the asset side, we have a very high quality loan book, immaterial exposure to certain European credits, and de minimis exposure to legacy asset areas.

In the funding area, we've continued to substantially lengthen and bulletproof our liability profile, leaving us as one of the most conservative liability profiles in the industry. And with a Tier 1 ratio of 17.2% at the end of the year, we are strongly capitalized.

Third, we are out in front of the rest of the industry in transitioning to the new environment. We've substantially reengineered our business over the last few years in ways that have correctly anticipated the changes in industry, client and regulatory environment. We have certainly around the treatment of our balance sheet, and are implementing the measures needed to manage and mitigate Basel 3 requirements.

The KPIs we're setting out today are a reflection of the fact that we feel confident in the future stability of our business model. We have laid out a carefully considered forward-looking and achievable set of metrics, including ROE in excess of 15% over the next three to five years.

Setting an ROE target which is achievable and also best in class, demonstrates the quality and resilience of our business model, but doing so now demonstrates our confidence that we have emerged from the uncertainty that the rest of the industry is still experiencing.

And furthermore, we believe that consistently meeting or beating this ROE target will lead to consistent and material book value accretion, we believe in excess of 10% per annum.

In summary, we've seen a strong historical performance, and are extremely well positioned for the future. And, as one of the first firms to emerge on the other (technical difficulty) certainty regarding regulatory environment, we have established strong performance metrics for the new industry environment.

And with that, I will turn it over to David.

Thank you, Brady, and good morning. I will start my presentation on slide 5 with an overview of the financial highlights.

In terms of our fourth quarter results, we achieved revenues of CHF7 billion, pre-tax income of CHF1.3 billion, and net income of CHF800 million. Total net new asset inflows were CHF13.9 billion, reflecting strong contributions from both the Wealth Management and Asset Management businesses.

As usual, we've also set out the underlying results. Overall net revenues on this basis were CHF7.1 billion, pre-tax income CHF1.5 billion, and net income CHF1 billion. And we include, as usual, a detailed reconciliation of the underlying results in the appendix to the slide pack.

In terms of the full year, net income was just over CHF5 billion, net new assets totaled almost CHF70 billion, diluted earnings per share were CHF3.89, and our return on equity was 14% in 2010.

Let's turn to slide 6 now for an overview of our divisional results.

In the Private Bank, we saw continued momentum in our industry-leading multi-shore business model, achieving strong net new asset inflows of CHF54.6 billion, of which CHF9.6 billion was achieved in the fourth quarter.

Net revenues were stable compared to 2009, reflecting a 9% increase in average assets under management, offset by reduced client activity and a continued risk averse asset mix. Furthermore, the strong Swiss franc also had a CHF380 million negative impact on the Private Banking year-on-year revenue comparisons.

We continue with Wealth Management results on slide 7.

You see that revenues increased by 3% quarter on quarter, which was driven primarily by an 18% improvement in brokerage and product issuance fees. Pre-tax income for Wealth Management stood at CHF606 million, with a pre-tax income margin of 25%.

Wealth Management's gross margin also improved slightly in the fourth quarter to 120 basis points in line with the level that we achieved for the whole of 2010. And we focus on the gross margin trends on slide 8.

This slide sets out how revenues and gross margins are being affected by the current operating margin environment. As you can see in the top chart, net revenues saw an increase in fees and net interest income, but was offset by a reduction in transaction revenues. The gross margin came down as average assets under management increased by 9% compared to 2009, whereas net revenues remained flat.

On the left hand side of the chart we lay out the drivers for the reduction in the gross margin. I'm sure these are not a surprise to you, but the decrease is a combination of lower brokerage fees and integrated solutions revenues, the continued effect of a risk averse asset mix, some dilution from higher growth in ultra high net worth net new assets -- but I point out that these will be accreted to the pre-tax margin -- and, not least, the low interest rate environment.

Let's turn to slide 9.

Looking forward, there are a number of factors that will positively influence Wealth Management's future potential. First, we continue to expect investor confidence and risk appetite to normalize as the economic environment stabilizes. Second, in due course, higher interest rates will improve the deposit spreads, leading to increased net interest income. And third, the accelerated growth in the ultra high net worth segment should be beneficial to our pre-tax margin.

If we turn now to slide 10, where we've updated the booking center analysis of our net new asset inflows and related gross margins that we showed you in the third quarter.

The trends for the full year remain consistent with what we showed you three months ago; so just to reiterate the main conclusions.

First, while we have seen outflows from our mature market based offshore clients, this has been more than offset by net new asset accumulation in Switzerland from onshore clients and emerging market based offshore clients.

Second, looking at the gross margin dynamics, you can see that the gross margin for the mature markets segment is not, in fact, the highest gross margin contributor to our results.

Third, and finally, as we discussed before, there is a broad correlation between the relative gross margin contribution and the depth and maturity of our product and service offering. This is clearly strongest here in Switzerland, but weaker in some of the still developing international booking centers.

So I think this does illustrate the strength of our business model and the growth that we're seeing, both in Switzerland, and in the international booking centers.

I'll continue with net new asset inflows on slide 11.

We had strong net new asset inflows in Wealth Management, CHF8.1 billion in the quarter, which we regard as a significant outperformance in a more challenging environment, given seasonal consumption impact from mortgage amortization and tax payments.

During 2010 as a whole, we achieved CHF45 billion of net new asset inflows in Wealth Management, with strong gains across all regions demonstrating strength of our platform, and the trust that our clients have in Credit Suisse.

Turn to slide 12. This shows the development in assets under management during 2010.

The CHF45 billion of net new asset inflows and positive market movements of CHF37 billion have been offset by a significant weakening of the US dollar and the euro against the Swiss franc in 2010. And I'd also point out that the strength in the Swiss franc had an adverse affect on Wealth Management's year-on-year performance.

Around half of the revenue base in this business is euro and US dollar denominated, whilst the majority of our expenses in Wealth Management are Swiss franc based. We estimate this negatively impacted revenues and pre-tax income by CHF350 million and CHF250 million respectively.

Let me now turn to Corporate & Institutional Clients on slide 13.

Pre-tax income in this business was CHF218 million in the fourth quarter, with a strong pre-tax margin of 48%; and this contributed to a near 20% year-on-year improvement in pre-tax income, and an overall pre-tax margin of 50%. Annual net new asset inflows were strong at CHF9.3 billion.

Net credit risk provision releases of CHFH10 billion were supported by the continued recovery in the Swiss economy, and reflect a higher quality loan book.

Let me turn now to Investment Banking on slide 14. The Investment Bank produced a resilient result in 2010, but with market share gains only partly offsetting the impact of a challenging market environment.

Equity sales and trading performed well, despite uneven industry volumes, and we maintained our number one global ranking in Cash Equities, and a top three position in Prime Services, with improved share in both businesses.

Fixed income sales and trading results were adversely affected by the macroeconomic uncertainties that persisted for most of the year, as well as a decline in client activity in the second half of 2010, which was exacerbated by certain seasonal factors.

Nonetheless, many of our businesses had strong results, particularly Credit and RMBS, and I'd point out that in Fixed Income, we saw an overall improvement in our client-based market share to 7% in 2010 according to the latest Greenwich Associates survey.

We've seen strong underwriting and advisory revenues in the year. That was driven by a combination of improved industry-wide activity, and by market share gains, with our total wallet share of both advisory and underwriting fees increasing year on year.

Slide 15. Net revenues for the fourth quarter, excluding the fair value own debt moves, increased slightly compared to the previous quarter. Other operating expenses were lower, which reflects the combination of good cost control, but also the depreciation of the US dollar against the Swiss franc; and I'd note that headcount was also slightly down in the Investment Bank in the quarter.

Pre-tax income totaled CHF612 million in the fourth quarter. For the full year, net revenues were CHF16.4 billion, pre-tax income CHF3.8 billion, giving a pre-tax margin of 23%, and a return on economic capital of 19%.

We think this is a resilient result, given the impact of challenging market conditions, and the subdued levels of client flows in the second half of the year.

Compensation expenses were down 7% year on year, reflecting lower performance-based compensation, partly offset by increased [base salaries].

Let's turn to the Equity business on slide 16. Client market volumes were uneven during the year, with weakness particularly in the third quarter. However, the year started and finished strongly, and our quarterly results reflect this trend.

Overall, we had solid results across all of our Equity businesses in 2010, and in particular, I'd highlight that we achieved record dollar revenues in our Prime Service business. We also maintained our leading market share positions in both Cash Equities and in Prime Services.

So let's move to Fixed Income on slide 17.

There's no doubt that 2010 was a challenging year for many of our Fixed Income businesses. Macroeconomic uncertainties persisted for the majority of the year, resulting in lower activity levels for many of our customers. And as I said before, this was exacerbated by certain seasonal trends in the second half of the year.

Despite this, many of our businesses performed well. We had strong results in Credit and in RMBS, which benefited from increased investor appetite for yield driven products.

We also had solid results in emerging markets as we continued to make progress in refocusing the business towards a more flow-based model.

Finally, we had significant market share gains across products and geographies in our Fixed Income businesses, but we still see further opportunities for improvement. Our recent sales force expansion positions us well to deepen the relationship with our key clients as we broaden our product suite and improve our coverage.

So let's turn to Underwriting and Advisory on slide 18.

Our results in these businesses were strong in 2010, which were driven by a combination of robust industry volumes and improved share. Total Underwriting revenues were CHF4 billion for the year, benefiting from a seasonally strong fourth quarter, when we booked revenues of CHF1.2 billion. And particularly, I'd highlight our improved market share in both M&A and high yield issuance, where we were ranked third in both businesses.

For a more complete picture of our market share positions, we've included the usual analysis in the appendix.

Let's turn to slide 19. I think this is a chart you may have seen -- you've seen before and that we use to illustrate the market positions, the trading environment, and the size of our key businesses' contribution to revenues in 2009 and in 2010.

I think the three points I'd pull out from the slide for you are, firstly, Prime Service, Cash Equities and RMBS are businesses where we clearly have strong market leadership, as you can see from the chart. And I'd note the continued strong performance in RMBS in what was a resilient environment for those products in 2010.

Second, as we warned a year ago, the market conditions in Rates normalized from the favorable conditions of 2009, and revenues across the industry declined. We actually feel we actually increased market share in 2010 to 2009, but that wasn't enough to offset the normalization in the markets.

Third, in leverage finance, the market environment improved considerably, driven by a combination of increased investor appetite for high yield products, high yielding products, and a surge in refinancing activity in the year.

In 2011, we would expect these trends to broadly continue. There remains a significant appetite for high yielding products amongst our investors, which should continue to benefit our Credit and RMBS businesses.

Within the Rates business, we expect the outlook to remain subdued. We will hope to see continued market share gains as we build out our distribution capabilities. Within Equities, we would expect to see some improvement in activity levels as client confidence improves.

Let's turn to slide 20. The top chart provides a client oriented analysis of the Investment Bank's revenues. For full year 2010, 91% of our Investment Banking revenues are direct client revenues, which consist of fees and commissions, gains and losses from matching client trades, and the revenues from financing activities. And the percentage of direct client revenues we show here is consistent with what we discussed in the third quarter.

The lower chart shows our standard histogram with daily revenues, and I think it's clear that the client-focused business model continues to deliver a more consistent daily revenue contributions, with no [outside] losses. The number of loss days reduced from 22 to six in 2010, and as you can see from the table histogram, the average size of those losses was much reduced from the prior year.

Turn to slide 21. The chart at the top of this slide shows the risk-weighted assets reducing by $5 billion for the Investment Bank in the fourth quarter of 2010. This was driven by a decreased counterparty credit risk across many of our businesses, and a decline in RWA as we continued to sell down our exit portfolio. In particular, we sold a substantial proportion of our legacy European CMBS portfolio in the fourth quarter.

As you can see from the bottom chart, quarterly value at risk trends have remained fairly stable during 2010, with no backtesting exceptions.

So let me turn now to Asset Management on slide 22. Our strategy in Asset Management is again to deliver results. Pre-tax income exceeded CHF0.5 billion last year, and this business is focused on areas that capitalize on the strength of the Credit Suisse brand and on our global platform.

With core strengths in alternative investments, asset allocation, and here in Switzerland on the Swiss platform, the product suite is aligned to the synergies that exist through a collaboration with both the Private Bank and the Investment Bank.

So, for example, ultra high net worth individuals require access to private equity and hedge fund products. Asset allocation is a key requirement for our Private Banking clients, and it's delivered via a discretionary mandate capability. Or by leveraging the emerging market platform in the Investment Bank, we've created our first global emerging market credit fund.

I think in leveraging the integrated bank, our objective in this business is to create a high margin, capital efficient model that's focused on raising third party capital for our funds; and it's clear this business is now in a much better strategic position, reflecting improved investment performance and the build-out of our distribution capabilities.

Slide 23. You can see that pre-tax income in Asset Management was strong this quarter at CHF180 million. Total revenues were up 6% compared to the third quarter, and expenses down 2%, demonstrating the continuing momentum in the execution of our strategy for this business.

Slide 24. The fee-based margin was broadly stable at 41 basis points in the year, with stable management fees and performance-related fees more diversified across the portfolio, with good contributions from both private equity and hedge fund products. Investment-related gains reflected both improved management of our portfolio and better market conditions.

Let's turn to slide 25. I think as important as the 2010 financial result was the continued strong net new asset inflows into this business. These totaled CHF4.5 billion in the fourth quarter, and over CHF20 billion for the full year. These inflows were well distributed across product types, with strong contribution from Asset Allocation and ETFs, and as well as continued inflows into emerging market products, hedge funds and private equity fund of funds. And we believe that the superior investment portfolio performance and our expanded distribution capability will continue to support future net new asset inflows.

Slide 26. This concludes the divisional results review, but before I continue with the discussion of the Group's funding and capital position and an update on our KPI targets, on slide 27, we lay out our exposure to selected European countries.

In the past, we've said that we have limited exposure to the European economies that we list here on slide 27, but we thought it would be useful to quantify these exposures to you this quarter.

I think the main focus with regard to exposures relates to sovereign risk. As you can see from this chart, our total net sovereign exposure to the countries listed here is around EUR200 million.

On a gross basis, before taking into account collateral or [CMBS] hedges, our exposure is EUR2.7 billion, and you can see it's predominately in Italy.

I think just for the sake of completeness, we thought it would be useful to include our non-sovereign exposure to financial institutions and corporates in these same countries, and this amounted to EUR1.4 billion and EUR1.8 billion respectively. And I'd point out that this exposure predominately relates to large global finance institutions and major corporates in these countries. I'd also note that the equivalent gross exposure is not that much larger at EUR3.2 billion and EUR4.9 billion respectively.

So in conclusion, I think it's clear that we do have a limited exposure to both sovereign and non-sovereign risk in these countries.

Let's turn to slide 28. I think you can see that we continued to maintain a strong balance sheet with a conservative approach to liquidity, which leaves us well positioned to succeed in a changing regulatory environment.

A few key points; we already substantially exceed the new liquidity requirements that were introduced by the Swiss regulator last year, and there is no doubt that the stable and low cost deposit base remains a key competitive advantage, enabling us to overfund loans by 25%.

The Swiss leverage ratio was maintained at 4.4%, comfortably ahead of the requirements. And furthermore, we've continued to lengthen our overall long-term debt profile to 6.5 years duration.

I'd also point out that in terms of our long-term debt maturity, these amount to CHF12 billion in each of 2011 and 2012, which is substantially lower than our recent annual issuance levels.

Let's turn to slide 29. We continue to maintain our strong position as one of the best capitalized banks globally, with a Basel 2 Tier 1 ratio at 17.2% at the end of 2010. Our core Tier 1 ratio, which excludes hybrid capital, improved to 12.7%.

In terms of the pro forma calculation of the Basel 2.5 impact on the Tier 1 ratio, the risk-weighted assets would increase on a pro forma basis by approximately CHF29 billion, with further capital reductions of CHF2.5 billion, which results in a pro forma Tier 1 ratio at the end of 2010 of 14.2%, which is approximately 300 basis points lower than our current Tier 1 ratio.

As Brady mentioned already, the Board of Directors will propose a cash distribution of CHF1.3 per share from reserves to the AGM. This distribution will be free of Swiss income tax and withholding tax of 35%, making it equivalent for individual Swiss investors to the 2009 dividend.

Going forward, we will gradually grow dividend per share as we build capital reserves to comply with the new regulatory requirements. I'd point out that we have substantial capacity to pay such cash distributions free of withholding tax for the coming years.

Let's turn to slide 30. On slide 30, we lay out the Group's KPIs that we're setting for the next three to five years. I think the key changes I'd highlight here are firstly, in terms of the ROE target. We'll look closely at our returns for the next five years, particularly as we enter the new Basel 3 regime from 2013 onwards, and we've set a target of a return on equity to exceed 15% compared to the old target of 18%. And I'll return to this in a little more detail in a few minutes.

Secondly, we've reset the target for collaboration revenues, which remains an important benchmark for the Bank, to 18% to 20% of total revenues compared with the previous absolute target, which we feel this better reflects the likely pattern of collaboration business within the Group.

We've maintained the net new asset growth KPI at above 6% per annum, and in terms of our capital target, we clearly intend to be fully compliant with the new B3 and Swiss [KBCS] rules.

Let's turn to slide 31. Just in terms of the divisional goals on this slide, we've recallibrated their targets just in terms of our expectations for each business.

We've maintained the target for the Investment Bank of a pre-tax margin in excess of 25%, whilst the Private Bank and Asset Management we will target a pre-tax margin in excess of 35%, which we feel is in keeping with the top quartile performance for their peer groups.

We've also introduced a new target for Asset Management of net new asset inflows to exceed 6% per annum, which is the metric of our Group targets and that's for the Private Bank.

Let me turn now to slide 32 and discuss return on equity, which I think is perhaps the most important KPI.

In 2009, we achieved an after-tax ROE of 18%, and in 2010, the return on equity was 14%.

Looking forward, the new Basel and Swiss rules that take effect from 2013 onwards, mean that we will need to increase the equity base as we move towards meeting an eventual target of core Tier 1 of 10% under the combined Basel 3 and Swiss rules.

Against that, we believe that we have significant upside in all of our businesses. In Private Banking, from the normalization of the environments, and the investment that we've made in the international booking centers; in Asset Management from a continued focus on building out our fee-based revenues; and in Investment Banking, the client franchise momentum will benefit from the flow-based sales expansion and a full realization of the market share gains we discussed this morning.

So the 15% ROE target, as a minimum, is a balance between the increased common equity [refinance] we expecting under the new rules and the improving prospects for our businesses over the next few years.

I think, as importantly, we do expect these returns to result in significant and consistent book value accretion. In fact, with this target for our return on equity, we would expect this to exceed 10% per annum over the next -- over the coming years.

So on this note, I'd like to conclude my presentation and hand it back to Brady.

(Operator Instructions).

If appropriate, I'm sure we have a number of people who've called in, but maybe we should start here in the audience and see if there are questions here that you want to ask in person, and start with that. So if you raise your hand and wait for a microphone, and then we'll --

The first question would be on your Wealth Management loan book. There I saw a decrease quarter over quarter, which is somehow contradictory to what other executives, e.g., [Julius Baer] said to see increasing risk appetite and higher demand for Lombard credit. Is that related to the mortgage book, or what are the reasons here?

And the second question would be on CoCo. What is the schedule here, and especially what is the time schedule for the necessary changes in Swiss law that you can proceed in this respect.

Well, maybe I'll answer the second one first, and then maybe, Walter, you can address the first question on the loan book side.

I expect, as you know, our belief is that the contingent convertible market is one that will be a pretty receptive market and one that will be -- allow banks to raise capital. We obviously are thinking about our approach to that market and looking at opportunities there.

We do think again it'll be receptive. We don't have any specific plans as to issuance or when we would do it, but we think that probably it is something clearly that we're going to try to address in the course of this year.

I think the -- I think from the point of view of the necessary regulatory issues, I think that our belief is that as and when we look to access that market, we'll be able to -- I think we'll be able to put in place what is necessary from a regulatory point of view. Issuance may be subject to approval at the AGM of conditional capital depending upon the size of the issuance. We already have some authorized conditional capital, so it will depend on the size of the issuance.

But in general I think we -- I think we feel like we -- that's something that could develop in a pretty timely basis. So, Walter, do you want to address the question on --?

I think overall, the business is still [expandable]. But overall, with the impact on foreign exchange had a massive impact on the Swiss franc reported number, and a lot of loans outstanding and developed management business are in dollars and euros.

Philipp Zieschang, UBS. Three questions, if I may, what's your CoCo assumption based into your Group ROE target going forward?

Second question relates to your comments on the impact of Basel 2.5. You've mentioned CHF29 billion risk-weighted assets up and CHF2.5 billion capital deductions. Could you put that into the context of your disclosure provided in the third quarter where you've mentioned Basel 2.5 and Basel 3 it's going to lead to about CHF170 billion risk-weighted assets uptick on gross basis, and roughly CHF100 billion on a net basis. So is that still intact, particularly given that your previous Basel 2.5 guidance was 200 basis points impact and it is now 300 basis points?

And the final question, just I'm struggling a bit to get an answer on your fixed income revenue performance. You've mentioned market share gains across the board. Nevertheless, even adjusting for currency, XLD, the non-recurring write-downs you've flagged for 2009, it is down roughly 40% year over year. So is that --? In your opinion, should we think about this revenue performance that there is already some [hits] baked in from the preparation for Basel 2.5 or Basel 3 (inaudible) and derivative contracting, etc.? And if so, would that be just the revenue impact of your normal mitigation plan flagged in Q3 with the [50% of the CHF1 billion], or would that actually pose downside risk, or let's say better risk-weighted asset number in your Fixed Income business than you currently flagged?

Thank you.

I think on the first question in terms of the assumptions that are baked into the ROE, obviously, the ROE -- I think it's very important to reiterate that the ROE target is a three-year to five-year target, so it's meant to include the Basel 3 development and other development requirements. As you know, the contingent capital, or the buffer, the 9% buffer that has been proposed in Switzerland is not actually something that has to be in place in 2013. It's something that I think has to be in place by 2019, but it's not something that has to be in place even over the next three years to five years, is the current thinking on it.

So I guess what I would say is that -- I guess a technical answer to that could be, there doesn't have to be anything baked into that ROE because we actually don't have to raise that until that point in time.

Having said that I think what we have said is we think the market is -- it will be quite receptive, and we believe, as we've said, that we will look to take opportunities to raise that capital earlier than that. And we've talked about the fact that we will -- we think that we will be looking at the markets and hopefully be able to access them this year.

I think the other thing that we have said is in general, and obviously will depend upon when it's raised and what the market conditions are at the time, but in general, we believe that even under current conditions, the contingent capital could be raised at levels which are at or below the current cost of our hybrid Tier 2 and non-equity Tier 1.

So in terms of looking at -- thinking about a comparison, say, 2010 or 2009, we don't believe that the cost of putting this capital in place will actually be higher than what we've had in place before.

So I don't know if that's a -- that's obviously not a very precise answer. I think our belief is that we will probably move faster in terms of putting a lot of this capital in place, but we also believe that it will display simply other capital. So at the end of the day, we think it's probably pretty fully incorporated in the ROE target.

On the third question on Fixed Income performance, I guess what I would say is it's very hard to parse out how much is based on market conditions and plant flows during a quarter, etc., versus other impacts. We continue to believe that we actually have done a lot and we've actually got our business in a pretty good place versus a lot of these trends. You obviously know the mitigation that we have talked about and the potential mitigation against the Basel 3 changes that will come.

And so I think we -- we obviously will see those over time, but we continue to believe that actually the Fixed Income business made a good return in 2010. We think it will continue to make a good return. I think in terms of -- if you're talking about normalized revenue levels for the business, obviously, that will be very dependent on market conditions and client flow conditions.

But our belief is that if you look at last year, the first quarter was a very good quarter; the fourth quarter was probably the worst quarter of the year. Our belief is that the sustainable level of revenues in the market is somewhere in between those two. I know that's a very broad bracketing, but that's our view

And I think that our belief is that those kind of revenue levels will be able to make good returns and actually make the business work well, and we are going to see continued improvement in our business. So over time, I think that we will see that.

So I wouldn't say -- you mentioned a number of different hypotheses about the fourth quarter. I think sustainable revenue is somewhere between the fourth and the first quarter. And I think based on that and the capital that we need to put against the business, we'll be able to make good returns. We'll have to change that over time. We'll obviously be taking different mitigation approaches in order to continue to earn that good return, but we think we can do that.

And, David, do you want to address the Basel 2.5 issue?

So I think, as you say, we disclosed that the pro forma impact of the Basel 2.5 changed into an increase of risk-weighted assets of CHF29 billion and deductions from capital of CHF2.5 billion. If you think back to what we said in the third quarter, what we actually said is we actually expect the RWA impact to be up CHF45 billion, and then towards a [glide] path of CHF400 billion pre-mitigation for Basel 3, offset then by between CHF50 billion to CHF70 billion of mitigation measures to give you a target of CHF330 million to CHF350 million.

Now under Basel 2.5, you have certain securitizations, which are deducted from capital directly into the 2.5. That's then reversed under the B3 implementation, which is actually grossed up. So the securitizations actually will be grossed up, and that's actually included in our targets for the Basel 3 and, therefore, I think as we stand today, the guidance we gave at the third quarter in terms of CHF400 [million] down to and CHF330 million/CHF350 million isn't really affected by that.

In terms of Basel 2.5 progress, I think we just wanted to be explicit. CHF29 billion is our RWA impact on a pro forma basis from that change. But actually against CHF45 billion, which we were thinking of actually back in October, the securitization deductions of 2.5, and that gives you a 300 basis points deduction for the pro forma Tier 1 ratio.

Are there questions here in the room? If not, I'm sure we have a long queue of people, and we can come back to the room after that. So if you have other questions we can ask later. Why don't we go then to the first caller?

Thank you. Derek de Vries from Bank of America.

Thanks, good morning. I have a few questions, actually. First, coming back to your ROE guidance, and just thinking in broad terms, back of an envelope calculations, it's about a third of your capital as in your Private Banking and Asset Management businesses. Can I pencil in a 25% ROE business there, and then a 10% ROE on your Investment Bank and that's broadly how you get to the 15%? Or is my math off somewhere there? Of you could give us some guidance on those two different business segments.

The second question, on slide 10, you've very helpfully given us some more detail on the split between your different booking centers. I was just wondering if you could give us just some broad sense of where cost income ratios go to hit your cost income ratio target for that segment. That would be helpful.

And then just to come back to your last point, Mr. Dougan, on the fixed income revenues. You said Q1 was exceptionally good; Q4 lacked some client trading, so think about something in between. If I were to take your Q2 and Q3, they both were about CHF1.5 billion, and annualize that it gets to a figure about CHF6 billion, so down a little bit on your 2010 revenues. Is that broadly the right way to think about it with market share gains and all the other stuff offsetting maybe an industry that's down a little bit on 2010, or are you more optimistic than that?

Well, I think with regard to -- on your third point on the Fixed Income revenues, obviously, it's -- it's obviously hard to project how the year will develop. As I said, I think that -- I do -- we're probably a little bit more optimistic about what we hope to see in terms of conditions and revenues this year, but again, a year ago, we probably would have been optimistic as well and, obviously, a lot of things happen during the year that impact the level of client flows and the performance of the business.

So I would hope that a normalized revenue level might be above what you just annualized, but it will obviously be very much dependent on market conditions. It could be a lot higher than that, or it could be lower than that depending on what we actually see. So I'm not sure -- I'm not sure how much that's helping you, but I'm not sure how to really answer the question.

That was actually very helpful. That's what I was hoping for.

David, do you want to address the ROE questions, and then can you guys address the cost question?

We actually look at the businesses, as you know, as a return on economic risk capital, which is not a direct relationship to equity, because that's obviously driven by other factors such RWA and balance sheet. And I don't think I could precisely comment on numbers. I would say that if I was thinking about it could be that way, I think probably the ROE assumption you're making is a little bit lower than we would expect of Investment Bank, would be my only real comment.

But then it must be higher your Private Banking and Asset Management, because I get to -- assuming the one-third/two-third split is broadly right.

I think -- yes, there's two factors; obviously, the split going forward over this period as well. I would just simply say that I think your number -- your calculation may be a little bit on the low side, but direction in the right level.

Yes, and I think that we've said that we think that the Private Banking business is actually in a position where it should earn a lot more over the period, if you think that client flows and interest rates are going to normalize. In addition, I think our Asset Management business hopefully will continue on this consistent path increasing its contribution to the overall business. And both of those are higher ROE businesses.

So again, one of the things -- we've tried to set a -- what we think is a realistic ROE, given how capital is going to develop, etc., over the next three years to five years. But just to be clear, right in 2009, we made an 18% ROE. Last year, which I think most people would argue was a somewhat challenging year, we made a 14.5% ROE. So I think we do have a lot of upside in our businesses, and so I think that is -- that's a measure that we hope to exceed. But we'll see how things develop in the markets. And clearly, there is additional -- I think all banks around the world are going to have additional capital requirements that are going to kick in and will drag down returns somewhat.

Walter, on the cost side?

On the cost side, I think I understand your question correctly. The cost income ratio, all the international platforms, it's not a number we do disclose because we are talking here about 23 different platforms with very different scales, very different leverage. So that's not something where I can give you an answer to.

Okay. Thanks.

Thanks, Derek. Next question?

Jon Peace, Nomura.

Yes. Hi, everybody; two questions, please. The first one is just following on from Derek's question about the ROE in the Investment Bank. If you're saying it's not -- only just covering the cost of equity, how much of that is generic to the industry as a result of regulation, and how much is it specifically a Swiss issue because of tougher capital requirements?

And it sounds like what you're saying is you're expecting because of your natural growth for your business mix to evolve more towards asset gathering going forwards and that will lift the ROE. Is that right? And are you looking to take any specific additional measures to rebalance your business mix towards higher ROE activities?

The second question is just on capital. Do we take your new dividend guidance to be that you're targeting more on absolute dividend and an increase in an absolute figure as opposed to the 30% payout that you illustrated with your Basel 3 guidance last quarter?

Thanks.

Well, I'm taking the last question first. Our objective with this dividend level is this is a level that we think is sustainable, consistent with us also accruing capital as we need to given the new guidelines. and one that we would hope to therefore maintain and gradually increase over time as we do accrete more capital. So that's how we look at it.

On the business mix issue, I think it's actually more of just a natural rotation, which is just that the Private Banking business, while being a very solid performer, has clearly had some subdued performance characteristics because of the activities of clients, the interest rate environment, etc. Our hope is that that will actually over some period of time will correct. And Asset Management is a business that we've worked very hard on in terms of strategically re-orientating and re-focusing it, and so our belief is there we hope we will see additional contributions from those.

So in terms of -- we think and hope both those businesses will be bigger contributors going forward. Obviously, what the percentages are depend also upon what IB actually produces.

And just to be clear, the Investment Banking business actually, as it's currently configured and on a forward-looking basis as we believe we can continue to evolve it, is a profitable business. It makes -- I don't think we said it makes less than its return on capital.

Derek said that he'd [postulated] the 10%, we think it's actually a profitable business. It certainly makes more than its cost of capital, and we believe that we can continue to have it earn that over time.

But just -- I think it's probably worth spending [a little time] -- we talked about the Swiss issue in terms of the capital structure, etc., so let's just go back and review that.

So our understanding of the proposal on the [tapes] in Switzerland is that there is ultimately a 10% CET1 equity requirement, and then on top of that, there is a buffer of 9%, which has made up these contingent convertibles, a third of which is in a high trigger convertible and two-thirds of which are in are in low trigger convertibles.

Our belief is that if you start first with that 9% on top, if you believe what we have said before, which is that the market will accommodate issuance, and that issuance will be able to be done at levels that are similar to or even similar to the cost of our current non-equity capital structure, then you're really able to trade that out without any additional cost, and certainly no additional dilution in equity to the common shareholder. So returns there are not really affected by that.

Then you're left with the question of a 10% CET1 and how that compares to others, and by the way how our current level of capitalization versus the rest of the industry compares on that going forward. We obviously are ready at a 17.25 Tier 1 ratio under the current measurements; seem to have more capital than many other players in the market.

So the question I think does then come down to, how does the 10% CET1 requirement in Switzerland compare to where other countries settle out? Do they settle out at 7%? Do they settle out above that for the large financial institutions? And that's the question that's still -- I think remains to be seen.

So just to be clear, I'm not sure that if it plays out the way I just described, if the contingent convertibles are raisable, etc., and depending upon how other countries treat their large global financial institutions, whether it's at 7% or if there's something additional surcharge, they go to 8.5%, 9%, whatever the number is, that's what's going to determine the relative competitiveness of the capital situation in Switzerland versus the rest of the world.

So there is -- there's certainly a chance that actually the regulator if the contingent convertible market develops the way that I have described, and if other countries actually also require surcharges for their large banks, there's a chance that you end up with something that is not so uncompetitive. On the other hand if others do add no additional surcharge to BIS or don't adopt different elements of the capital, the capital development, then that obviously could end up with more of a playing field issue.

But in terms of the way we look at it right now, clearly, there are some mitigations that we have to put in place. We do have to continue to evolve the business because, clearly, some of these capital impacts impact some businesses more than others. We will continue to have to look at the rotation of those businesses. But we continue to believe that it is actually manageable and we can produce the returns that we've mentioned in excess of the 15% ROE for our business overall.

I guess that's one of the things that we're trying to get across, is we think that some of the power of these reiterated targets, and some people say, well, it used to be 18%; now it's 15%; now it's in excess of 15%.

The point is that actually incorporates what we view as the capital requirements over the next three years to five years in the environment that's out there. So our view is that that's probably -- if we can actually make a 15% ROE over the next three to five years that's going to represent a pretty good ROE for the industry globally, and we think we can.

Thanks, that's very helpful. So you think you'll be able to operate with a core Tier 1 pretty close to 10%? You're not going to need another common equity buffer on top of that?

Well, all I can say is the -- my understanding of the proposal in Switzerland is 10% CET1, 3% of high trigger contingent convertibles, and 6% of low trigger. That's my understanding of the current proposal on the table. Now, obviously, that has to be discussed. It's obviously been I think supported by the regulators here and by many in the Federal Government. It's got to go through the parliamentary process, etc., so that has to happen. But if that's where it comes out, then that's a CET1 of 10%.

And frankly, if we have a 10% CET1 and 9% of contingent convertible capital on top, I think that's an extremely well capitalized bank. So I don't think there would be any need to have additional capital on top of that certainly.

That's very helpful, thanks.

Next question?

Huw Van Steenis, Morgan Stanley.

Good morning. Two questions, but can I say first I'm delighted you're going to be focusing on book value growth in the future as a target? And, obviously, it would be helpful to cut the dividend today.

So two questions; first we at Morgan Stanley and some of your banking peers think that banks should be at the new minimum ratios on a look-through basis by the end of 2012. On our estimates, if you take out the DTAs, you only just get to 10% by 2012, [or it's certainly very costly].

So question one is, do you also share with some of your banking peers that you should be getting to your new minimum on a look-through basis by 2012?

And then secondly, given your cut dividend and trajectory in terms of accreting equity, could you share your views about whether you'd issue the low trigger or high trigger CoCos first? Our sense is that policymakers would prefer the high trigger, but surely if you only issue the low trigger first, they're going to be more expensive than you're hoping for because people don't yet know that they got that extra buffer above them. And does that --? How does that --? Does that challenge your thinking about the actual all-in cost of CoCos?

Thanks.

I'll probably ask David to address the question on the pace at which we meet the capital targets, but I do think just generally obviously we think we're very well capitalized now and we will continue to be very well capitalized throughout. But I'll let David answer it in more detail.

But I think with regard to the question about contingent convertible and which we would raise first and how we would do it, I think it's a question of what the market offers in terms of opportunity as well. I think, in general, it seems that the market views the high trigger -- the consensus is the high trigger is a harder piece to raise, it seems like. At least, that's some of the feedback that I get.

And so I think certainly if an institution were able to do some high trigger CoCo, I think that would be viewed as maybe more credible or helpful, because I think that's a piece that people are a little bit more skeptical about being able to raise. So I think from that point of view, I'd argue that it might be helpful to raise some of that. You could argue maybe it's helpful to raise both.

But I don't know. I think probably getting the high trigger in place first gives you the most immediate capital support, etc. And, as you say, I do think the regulators are probably more in that place, which is they probably put more value on that.

But it will be a little bit, I think, of what opportunities are out in the markets as we continue to [survey] it.

David, do you want to just address the issue about pace and (inaudible)?

I think it's difficult for us to comment on what other banks are expecting in terms of end 2012 targets. Clearly, in setting our target of 15% minimum return on equity and in setting the policy of the cash distribution this year, we've clearly looked at the glide path in terms of the build-up of our common equity over the next few years as we move towards the start of the B3 regime.

And I think we've given some details in the past about how we see that in terms of equity reductions. And in terms of the RWA, number I don't think we change from the guidance we actually gave in the third quarter.

I think in terms of your specific point, clearly, it will depend partly on, for example, what the reductions are at the end of 2012. We did make some progress during 2010 in terms of reducing our DCM in the Wealth, which is the key element of the reduction, and we would expect to see further work through of that component over the next two years.

There's also other reductions and phasing requirements as we actually enter the Basel 3 regime in 2013, so it's difficult to specifically comment on numbers. Clearly, our glide path is intended to -- you can see at the moment we're seeing 17.2% under Basel 2 Tier 1 and 12.7% core Tier ratio in our intention to remain well capitalized both through this period and through the transition. And our plans are very much in keeping with that.

Okay, thank you. And just to clarify, what's the minimum core Tier 1 above 7% on a look-through basis you think you need before you can issue a high trigger CoCo? Because that's, I guess, the cart of -- that the [DCR] is trying to get at.

I think it's a little bit of a speculative question, and I think clearly we obviously will look at the [development] legislation through the Swiss Parliament, and I think clearly you'd be looking at the trigger both for the immediate period and through the Basel 3 period. I think on our projections, we have a reasonable comfort margin against that, and I don't think we see that as a particular obstacle.

Okay, thanks.

Next question?

Kinner Lakhani, Citi.

Yes, hi. Three questions, actually. Firstly, just coming back on the fixed debate, actually, just wanted to get your views of what if we do end up with an uneven playing field; i.e., Switzerland is out there and other countries or jurisdictions do not follow. Do you see any kind of mitigation, whether it's in the way you structure the business subsidiaries or branches, or whatever, in terms of trying to offset this potential issue?

And also, do you set yourself hurdles for individual businesses, so Rates business, or Credit business, or whatever, relative to your Group ROE target of 15%?

Secondly, could we talk about the comp, actually, and particularly in relation to the deferred comp? What is the outstanding deferred comp versus a year ago? And what part of that outstanding do you expect to get charged in 2011 versus how much was charged in 2010? And I'm referred to deferred.

And final question, just in terms of the Wealth Management business, is it possible for you to maybe try and quantify perhaps what the impact on the revenue margin would be in your view if you had, let's say, a 50 basis point increase in Fed Funds rate, a 100 point increase in [S&P500]?

And also what's your outlook for One Bank revenues, actually, particularly as the IPO environment picks up?

Okay. I guess with regard to the, as you said, fixed income debate and question about uneven playing field, again, I would start out we already -- different countries and different banks already have different levels of capital. We think we've been quite well capitalized and have produced quite good returns; 18% in '09; 14.5% last year. And yet already we're quite well capitalized. So I'm not sure that small differentials are going to make a big difference.

And I do think that regardless of what others do, we think that this ROE target that we've laid out is an achievable target.

And so I think from our point of view, we've done a lot of restructuring in the business already. We continue to look at that. We will have to mitigate some of these issues as they come along, but I'm not sure they're influenced that much by what other countries do. So at the end of the day, I don't think there's that much influence from it.

I do think the question of overall return in the business could be a differential issue. If there is a jurisdiction that requires a lot less capital for the banks and they have business models that can make higher returns, I don't think that affects our 15%. Maybe that means some other bank can make 30% because they can leverage up, etc.

I don't really think -- from our point of view, we don't see -- this issue about somehow restructuring, our business is a global business. It's actually -- our capital requirements are global requirements. And so I don't really know how it works to somehow [subsidiarize] this business with that business. It's part of the global requirement. It's part of consolidated business, so I'm not really sure how that works. And, in any case, we don't think that's really necessary for us, but I'm also not entirely sure how that mechanism works.

With regard to the comp and deferred comp, I don't think we're going to go through the specific numbers today. It will be disclosed in compete detail in late March in the annual -- what we will -- you wanted to say, David?

I think one point which you should note is actually on page 106, the fourth quarter results. You'll see the deferred compensation was actually amortized through the P&L in 2010. You'll see it was CHF3.585 billion.

As Brady says, in the full results, we'll actually include -- which comes out at the end of March -- our full compensation report which I think will give considerable detail of the structures and the issues around it. But I would say, if it's helpful, if you're looking forward to 2011, we would expect the deferred compensation charge that will go through our P&L in 2011 to be broadly similar to that CHF3.585 billion number we did in 2010.

Great, thanks.

On the question of impact on revenue margin of increase in interest rate, or increase in the equity indexes, you want to take that, Walter?

First on the interest rates; so about 50 basis points increase in interest rates (inaudible) funds, because we are based in Swiss francs. It will have about a CHF250 million revenue impact after 12 months. So it has a delaying factor.

And when it comes to S&P, that's a little bit more complicated. We had about 30% in equities, so an increase in S&P or, in general, obviously, equity markets again linear, will probably about impact half of the fees; let's say 50 basis points to 60 basis points of the 120 basis points. And that will go up almost linear, because these are [six-yearly] account fees, so they go up with the volume, with the increase of equity markets.

And on the One Bank, within Private Banking or Wealth Management?

Yes, the One Bank. I guess your question was, where do we stand on One Bank and how it's developing?

I think we're going to finish the -- I think we finished the year just short of CHF5 billion, I think CHF4.5 billion, of collaboration revenues. I think that we think that was a reasonable performance. There's still a lot more we can do. We think we probably operate as well on an integrated basis as any of our competitors, but there's still a lot more we can do.

And what you'll see in the KPIs is that we've actually modified this KPI to be a percentage of total revenues, because that seems to make more sense. Obviously, if you have revenues going up and down, so to add a percentage of that to your collaboration revenue seems to make more sense. I think it was about 15% in 2010 and our KPI is to get that to 18% to 20%.

Okay. Next question?

Kian Abouhossein, JPMorgan.

Yes, Brady, I wonder what are the three to four things that are key for you and for your Board to focus on on CS in terms of operational capital and any other issues? What are the three to four things that you feel are most important for your stock or for your stock price that you're focusing on?

And secondly, on Basel 3, if I look at your third quarter presentation, slide 27, you had a CHF6 billion regulatory deduction. And now that we have more details under Basel 3 in December, I was wondering how that CHF6 billion has changed.

Thanks.

And, sorry, if I can add one more thing. Just to ensure -- is the CHF6 billion a net or a gross number after the add-backs that you're allowed to do?

I would say on the first question, in terms of the things that we're most focused on, I think we're most focused on continued consistent implementation of our strategy, which means really making sure that we are continuing to drive the client focus and capital efficient strategy.

So one of the things we look at very closely is all the client market shares, and that's one of the reasons why we feel good about the progress over the past of years. We've had, I think, best in class net new asset generation. We've had very strong moves up in almost all of the categories on our market shares in our different businesses.

And so that, we think -- the market will be what it is, but if we're actually garnering a much larger share of our clients' business, that's going to drive a better performance for the business overall. And we do think that because of that we're actually at a point where the business is poised to perform quite well. So we look very closely at those aspects of it.

I think certainly though we are also focused on how we do manage the capital and put these different elements in place. Clearly, it's a dynamic time for capital. We've talked about the contingent capital component. We've talked about how we've tried to balance the dividends so that we can continue to accrete capital as we need to but also provide returns to our shareholders and try to balance that out. So that's something that we also are continuing to look at and manage quite closely.

And I do think the one thing that, and I think Hugh mentioned it earlier, but I do think this question of -- we want to have a business model where there is very material and consistent book value accretion in the model, because, obviously, price of book's an important element. And trying to drive that on a consistent basis is something that we want to pay a lot more attention to going forward.

We've got a business model that should drive very good accretion there, but we want to pay more attention to it going forward. And I think we can actually drive that as a more consistent way of increasing the value.

David, do you want to address the Basel issue?

So on the Basel 3 question, I think just for reference, if you look at slide 27 in the third quarter deck, as you say, what we said there, we said there would be regulatory deductions to capital of approximately CHF6 billion phased in from 2014 to 2018. And the footnote then basically refers to residual deferred tax assets, pension plan adjustments and participations in financial institutions.

So I think that's separate from securitization deductions which we were asked about earlier, which relate to the B2.5 regime, the 2.5 we've given before, which are then grossed up on B3. So that's separate. That will be grossed up. It's not actually included in the deductions and it will not be deducted under B3 because the gross RWA increases to actually reflect that.

In terms of our estimate of CHF6 billion for these deductions, clearly, the components are residual deferred tax, pension plans, and the [interested] financial institutions. I actually don't think our estimates for these combined items has really changed materially since the announcement we made in the third quarter. I think that CHF6 billion is still a good estimate as we stand here today. But I would just emphasize that that's a separate thing from securitization deductions.

That I understand. But the CHF6 billion does include the add-backs that you can do, for example, on the limit on deferred tax assets; that you can include or exclude for example these things.

That's right, because I think you're aware the deferred tax NOLs and deferred tax is subject to a limit. So what we're talking about here is the phase back of residual deferred tax in excess of that limit in terms of common equity during this period.

In reality, I think we clearly look at our deferred tax usage over time. That hasn't changed in the calculations that we did in the third quarter.

Yes. So it's a net number, okay. And just to come -- one more question to Brady. You talk about market share gains, and clearly, you have a different business model, especially in the IB, which is more client driven. One of the competitors globally breaks down client revenues versus investments/prop. If you're such a client-driven business and not so focused on GAAP analysis of revenues, can you discuss with us how the client revenues would look like in terms of percentages?

What we have, one of clients specifically details the actual numbers for 2010, and we will be continuing to disclose that on an ongoing basis what we've done. We think it's some of the most transparent -- obviously, a lot of people talk about client revenues and nobody knows really what that means.

We've had this slide 20 which specifically details what's included in client revenue. So it's commissions, it's matching client trades. So there's no clean risk P&L in that. So 91% is from those categories; those categories which I think you could argue that's clearly -- none of that has to do with trading.

Another 9% then we have said is what we call indirect client revenues. Now there it gets a little bit fuzzier. But we divide that 7% we view is actually clean P&L from moves in the market, but it's based on positions that are against client business. And then 2% we're saying you could argue is not client related. So we have a fairly scientific way of saying 98% of our revenues are client revenues. So this is a more analytical way of trying to answer that question.

And that's what we get on a quarterly basis going forward.

Yes. I think we showed it at the end of the third quarter. We're showing it now in the fourth quarter. So we will continue to do that.

Great. Thank you very much.

Next question?

Peter Thorne, Helvea.

Two questions, please. Firstly, on the Private Bank, you said that investments made in your international platform's going to benefit you in the coming years. What sort of benefits would that be? Would it be from revenue enhancement? Or are you going to shift some of the costs over to the international platforms in Switzerland?

And secondly, on the Investment Bank, can you tell us what your cost of capital is in that business, and make some comment about meeting it over the next two or three years?

Well, I think on the IB thing, I don't know whether we want to get into a debate of how cost of capital, etc. We do view that it is actually well in excess of -- probably, we could have an argument about our cost of capital, but the returns that we see on it are well in excess of that. And again, we think that we will be able to continue to drive those returns in excess of our cost of capital over time.

David?

I think I would simply point out that if we look at the returns for 2010, the term economic capital, which is certainly a good proxy for equity in the current regime, was 19%, and it was [36%] in 2009. So I think I'm not sure -- I think the cost of capital and cost of equity is an interesting subject, but I think anyone would be [happy] that's comfortably in excess of likely estimates of cost of equity.

I think the conversation then is that once we get into the Basel 3 regime, we're back to the questions Mr. de Vries asked earlier on. As I said, I think we are reasonably confident we will see that cost of equity assumptions in the Investment Bank on our plans. But clearly, that's part of the KPI (inaudible).

Do you want to address the issue of international platforms?

Well, obviously, it's from both sides. One is revenues, because we're adding new services, new products; so revenues should go up. And the other one is clearly on the synergies side. Just to give you an example, we have [Euron] the project to unify all the platforms we have in Europe. We started to roll this out three years ago. We're now taking Germany on, and that clearly will then play the synergy side.

Thanks. Next question?

Jernej Omahen, Goldman Sachs.

I just have a couple of broadly, I think, numbers questions first, and then a couple of slightly bigger picture questions.

Firstly, I just want to ask you very simply if you can tell us what the Basel 3 core Tier 1 ratio was at the end of 2010 if you fully phase in all the effects. I don't think I've heard that during the presentation. I think it would be very useful to know.

The second question I have is on your ambition to grow tangible book value per share as per your slide, I think it's 39. And I understand all these one-offs that are illustrated here, but I just wonder, given that a large proportion of the headwind is coming from the Swiss franc strength versus the US dollar, are you hoping that that reverses? Are you hoping that the currency stabilizes? Or have you actually put some active hedging in place for essentially this effect to be neutralized?

Because otherwise, I guess it's just very difficult to take a view to what extent we can take your 15% return on equity target and strip out the dividend payment. I guess that's how you get to 10% which, I guess, assumes no headwinds from here onwards over the course of the next couple of years.

And on the bigger picture questions, I just want to ask the following. I think when analysts look at Credit Suisse, and I understand the perception of your own capital position is one of strength, but I guess when we look at it, it is somewhat behind your closest peers, particularly in Switzerland. And I was just wondering, does the debate at the Board level ever proceed along the lines of, you know what? We're a bit behind on capital. Let's just swallow this. Let's raise capital, recapitalize and get it over with. I guess that would be question number one.

And question number two, within this broader context, is the following. It seems very clear that the regulator is pushing up the overall capital requirements but, in particular, the capital requirement for your Investment Banking businesses. You yourself acknowledged that the playing field is not level. Have you ever thought differently at what point does Credit Suisse say, you know what? Certain businesses no longer make sense for us to compete in. Or let's downsize our Investment Banking businesses quite substantially in those areas that consume the most amounts of capital.

Thanks a lot.

Do you want to answer the question on the Basel 3 Core Tier 1 ratio?

So I think, in our results disclosure, we've given two numbers. One is the Basel 2 Tier 1 ratio, which was 17.2%. And second, the Core Tier 1 ratio, which was 12.7%.

I think your question then is about the common equity Tier 1 ratio, which takes effect from the beginning of 2013 under the Basel 3 proposals. And I think there's two factors there.

Clearly, we do have more guidance from the Basel procedures in terms of how this will be calculated. But I would caution that some of those assumptions are still very much in flux, and there's still a number of things that need to be actually tied down.

I think the second point, of course is, clearly, there is very substantial phasing requirements for a number of [these deductions]. And we've talked about I think a question earlier in terms of some of the deductions, so the equity deductions. There's actually a lot of assumptions around that.

So I think -- and then finally, of course, you have the (inaudible) number, but I think we've given a reasonably clear view as to how we actually see that under B3 at that time. But you are projecting both the risk-weighted assets and the equity under a slightly moving set of assumptions. So that's why we've not given at this point a CET1 ratio, because it will only come in effect from 2013.

I think without being too precise, in terms of our current understanding of the transitions, where we -- and our current risk-weighted assets, we probably see that CET1 ratio being slightly in excess of the Core Tier 1 ratio which we've given today. But I think that's probably as far as they go, given the number of moving parts we have around the transitions for the components of this.

Perhaps if I move on to the issue around book value per share. I think -- we thought it was useful in the slide, in the appendix slide 39, just to detail the background to the book value per share. The 16% growth that we saw in 2009 compared to 2008, and then the 11% decline that we saw in 2010 compared to 2009. As you say, FX impact is a significant component of that; CHF2.8 billon in fact in the last year.

I think there's two factors there. I think, firstly, one, there was a particularly sharp move in the Swiss franc against both the US dollar and the euro last year. And the question is, do we expect that to be repeated? Maybe; maybe not. But I don't think we're expecting it to be reversed.

We have looked carefully at the composition of our equity hedging strategy. And I think, therefore, we have made some amendments to that strategy in this basically.

But, no, I think setting this KPI -- certainly, KPIs which were raised from a 15% return on equity to drive book value does not require an assumption for some reverse from the Swiss franc strength in our planning.

I think, with regard to your question about capital and what we think about it, our view is that we're obviously -- you can imagine, we've spent a fair amount of time on it, and we look at it pretty carefully. And our view is that we're going to be in excess of the capital requirements that are necessary at basically every point that we need to be over the next years to come.

In fact, I think we'll end up meeting a number of those requirements. And so I don't think we have any thought that we need to raise any other -- I guess you're talking about going out and actually raising equity. And I don't think we have any thought that that will be something that will be necessary. We have a very capital generative business. And we are, actually -- we do -- if you say -- you're talking about composition of capital, whatever, we have, we think, a good starting point on that.

So our view is, since we'll be we think in excess of whatever requirements there are over that whole period of time, that's not going to be necessary. So, no, we don't talk about that.

You talk about it in terms of at what point would certain businesses no longer make sense. We've been actually doing this for the last two years. We exited a bunch of our prop businesses in 2008, etc. So it's -- the question about when might we wake up and see, gee, there are more capital requirements, should we do something about it? We've been doing something about it. We've been evolving the business. We've been actually, I think, doing a pretty good job of dynamically moving our business mix. And so as a result, we believe we're at a point now, if you look at our businesses that we've exited, things that we've gotten out of over that period, they've been things that are actually -- are heavier capital users.

So it's something I think that we've already made a lot of progress on. I think we have a fair amount of transparency now. As David said, there's some -- I guess there's some, still some uncertainty, but we've got a fair amount of transparency on how we think our businesses are going to be impacted. And it is going to require some continued adjustments to the business, but we don't see any wholesale changes that need to be made.

So I guess it's -- I don't know. To me, I don't think we're going to wake up one day and say, gee, there are some regulatory capital requirements out there, maybe we should re-evaluate our business. We've been doing that I think pretty consistently. And as a result, we feel like we're in a pretty good place and are going to be able to work through that.

May I just ask a short follow-on? Sorry for this. Just on the first question, on the Basel 3 Core Tier 1 ratio, I was just hoping that we could get the Core Tier 1 ratio and the Basel 3, which has the fully phased effect in there. I think we've seen that from most of your competitors. If you don't disclose it, that's fine. I just wonder if we could have that.

And just, Mr. Dougan, just on the final question. I guess the question was more to -- in relation to one of the previous questions. So I believe that with a 15% blended return on equity target, one has to assume that selective investment banking businesses are probably, I don't know, 9%/10% ROE businesses. And I was just thinking, at what stage, what kind of an ROE do you have in mind to keep operating the business in the shape and form it is today, in a sense?

In other words, is 10% ROE a good enough return for your Investment Bank? And I guess these are the type of returns we're talking about, if we fully phase in what the regulator's asking you to do; on your Investment Banking side, obviously.

Yes, but your question assumes a static approach to the business. We're going to be continuing -- we already have plans to mitigate a number of the changes. We will continue to be shaping those businesses as we go forward.

So it's not a -- so I think what a business makes today is not what a business is going to make in a year's time, partly because some of the changes in the capital treatment, but also, because we will change the way we do some of those businesses. We've already outlined a number of mitigating measures.

So, obviously, if there are -- we believe that we've got our businesses situated, and the plans that keep them earning what we think is a reasonable level that contributes to an ROE which is in excess of 15%. We may be wrong on some of that. Obviously, some things may change in terms of market conditions, or whatever, and we will adjust to that. But as of right now, we think we've got a fairly well thought through plan and strategy around those businesses.

I think with regard to your reiteration, your first question, I think David gave you some dimensions on it and I would think that's as far as we're going to go. So I think he told you that it's between 12.7% [Poor] number, and 17.2% Tier 1. So that, at least, gives you some dimensions, but we're not going to give a specific number.

Okay, thanks a lot. Thank you.

Next question?

Christopher Wheeler, Mediobanca.

Yes, good morning, everybody. It's a long one, obviously. That's the morning, not the question. The first question is on Hybrids and CoCos. Brady, you're suggesting I think in your comments that any thought of converting hybrids into CoCos was probably something you weren't considering, given that you're hoping to come in at a lower cost. Perhaps you'd just confirm that that's a mechanism you're choosing not to follow.

Secondly, David, on your famous bubbles chart, could you just confirm how you actually calculate your market shares? Is it Greenwich or Freeman, or is it something you do internally?

And then, finally, this is rather churlish of me to criticize Asset Management, given they've put a very good top line, or bottom line number in. But if we look at the progress that's been made, obviously, it is very encouraging but, clearly, the big uplift is in the turnaround of the gains, the investment gains, and also obviously on the disappearance of, obviously, the Money Market restitution.

If we look at the underlying revenues, they were a little bit weak. You could say, a little bit up on the underlying Asset Management fees, but down on performance fees. How far is Bob along now with this business in getting it to being a sustainable earnings machine which, obviously, you want to try and create?

Thank you.

Thanks. And particularly, thanks for asking a question about Asset Management.

On the first point, I think we've said -- I think we talked before, as you're I think referring to, I certainly think that there's the EUR500 billion worth of bank hybrids and fixed income portfolios right now. I think most of those products yield pretty good levels. I think most of those are going to get called out or allowed to mature because they're no longer going to be capital affected.

In terms of results, I think some of the Fixed Income investors would probably be interested in an offer where they might do some kind of a swap or an exchange. So I still think that's certainly that would be -- I think it's something that investors would be interested in, and it's certainly something I think banks will think about.

David, do you want to answer the question about your bubbles chart?

I think in terms of the bubble chart, we clearly use a variety of market share data when we're actually constructing this, and we try and triangulate from different sources to focus our client market share.

A lot of it is actually included on page 41 in the appendix, where we actually -- we've consistently given our market share estimates for each of the different businesses. And I think if you look at that, we've disclosed various sources; Thomson Financial, Euromoney, Greenwich. So what we try and do is triangulate those to give the [essence] to the bubble.

Clearly, in some businesses like Cash Equities, there's actually much more visibility around the reporting flow, and it's very easy to actually quantify that. In other businesses such as Rates, one relies more on (inaudible) client surveys, such as the Greenwich survey. And I think you're aware there's a number of other providers that we can use as well.

So what we're trying to do is based on those surveys, but I think we try to give as much data behind that on slide 41 to support the analysis.

We gave a lot of detail, and we have our famous credible footnote based on Credit Suisse estimates (inaudible). But that's -- as David said, that's, we think, probably the best we can do.

Rob, do you want to answer the question on Asset Management?

Yes. Thank you. I think, in terms of where Asset Management is, I think we've done a pretty reasonable job of repositioning the business in terms of business lines that are consistent with leveraging the footprint of the firm, as Brady mentioned before.

You're right in saying that part of the financial result, the significant part has been the turnaround of the investment gains in the portfolio. And that will be a component of our earnings picture for some time to come.

But when you strip out all the investment related gains, performance fees, and look at the core profitability of the business, it is materially better year-over-year. And that is a function of the fact that I think we have been fairly disciplined about our expense base, as well as obviously adding new assets.

And I'm really confident that we can continue on those trends in terms of higher assets, better risk management, and better investment performance in our portfolios, and better underlying core profitability.

And that's really one of the big objectives in the business. Obviously, we want to try to manage the assets in such a way that they make good returns. But also, very fundamentally, building the fee base earnings model in the Asset Management business is a high priority. And that's -- as Rob says, that's where we've actually made some very good progress over the last year.

Okay, thank you very much. Thank you.

Next question?

Matt Clark, KBW. Please ask your question.

Good morning. Two questions, please. First one is on slide 20 and the daily revenue distribution, where obviously you had fewer loss days this year, but also fewer of the 100 million plus days. I'm just wondering, with respect to the 100 million plus days, do you think it's lower purely because of market environment? Or do you think it's partly because of your lower risk appetite client focus model, and that we shouldn't expect those more lucrative days to come back, and we should expect everything to be a bit more bunched in in the middle?

And then the next question I'm afraid is going back to capital and the Basel 3 look-through. Just so that I can understand the steps we should be taken when we calculate that, is it still a case that it's CHF115 billion of additional risk-weighted assets, net of mitigation, take off the CHF6 billion of deductions, and then add back the securitization gross [up] equivalent, which, at present, is CHF2.5 billion? Am I just right that those are still the same steps? And from your perspective, the eventual impact hasn't changed from that you gave last quarter, because I think the CHF2.5 billion deduction that you gave today for Basel 2.5 has spooked people a bit.

Thanks.

I think, on your first question on the daily revenue distribution, I think it's a combination of things. I think we clearly -- in 2009, we saw I think more exceptional market conditions. And I actually haven't looked at a lot of competitors' distribution; I haven't focused on the top end of the distribution. So -- but my guess is, it's probably down. I would think it's down across the street, but maybe someone knows the answer to that.

So I think part of it clearly is market related. But, clearly, we are trying to drive a model where there is less variability and [it's worth] lower volatility. So I think it's good to cut off the down days. And probably, if you carry a heavy asset base, then you're going to end up having more of the big up days, I would guess.

So my guess is, we are going to see a more centered distribution, which I would think would be a good thing for quality of earnings over time.

David, do you want to answer that second question?

I don't think I'm going to comment particularly on the mathematics. I think in terms of the input assumptions, I think we very much stand by what we said before, that the gross RW impact would go up to about CHF400 million; the net to CHF330 million/CHF350 million. So I think that's not an expectation we'd change.

In terms of this point about the B2.5 deductions. As basically they're actually grossed up under B3, and therefore included in our RWA, it was very much factored in in our analysis for B2.5, and we actually talked about this back in October last year.

So it's very -- just to confirm, it's very much factored in in the gross assumption for CHF330 million to CHF350 million.

And I think one point I would just make, I think -- like we were asked before about the CHF6 billion of deductions, I think that is still our best estimate. But I would point out that, basically, we're not limiting our mitigation efforts just to the risk-weighted assets. We will also have mitigation targets against that as well. So we obviously hope to improve upon that as well. But let's stand by CHF6 billion as a fair estimate today, just as we do for the risk-weighted assets.

Great. Thanks very much.

I think the last question on the phone, then?

Robert Murphy, HSBC. Please ask your question.

Yes, good morning. I've got two quick things. First of all, in terms of the Private Banking and Asset Management businesses, can you just say why you've reduced the pre-tax margin target? Is that a revenue or a cost issue?

And then, the second question, just really focusing on your ROE target. If I mechanically take your 15% ROE and take out the dividend, and project that forward, then that implies you're going to make something like [5%] per share of US GAAP earnings in 2013. That looks a bit disappointing considering people think you're going to make that this year.

That's my questions.

David, do you want to address those?

Well, I think, on the second point, I think, clearly, the return on equity target of a minimum of 15%, in excess of 15% in 2013, quite clearly by that point, we will be formally under the B3 regime and in the glide path to our target. So part of the point about the book value per share target is we'll have accreted under our target significant shareholders' equity as we've moved towards the CET1 targets under the new regime.

So I think if you were to apply a minimum 15%, or whichever -- whatever forecast you want to make, you should remember, it should all be actually on that increased shareholders' equity base, not on today's shareholders' equity base.

Yes. And in terms of the pre-tax margins in PB and AM, I think it is a -- it's just the recognition of some of the change [environments]. Like in the Private Banking business, clearly, the compliance burden is a lot higher than it's been, and we think we have state-of-the-art compliance [everywhere]. When you look at a lot of the regulation things that are being put in place, that certainly increases the cost.

We still do, obviously, expect to see pre-tax margin move up from where it is now, but we think that's probably a better longer term margin, a more reasonable target for margin.

And I would say probably similar in the Asset Management business. Obviously, Asset Management is very dependent upon the mixture, the mix of business that you have in there. And I think, again for us, we think that's probably a more accurate pre-tax margin target, given our business mix, which is very focused on the alternative business, as well on our Asset Allocation business.

So I don't know if you guys want to add anything to that? Okay.

Okay, thanks. I am actually projecting the equity forward as well on that calculation, but I guess you're being conservative.

Thanks very much.

I think it's difficult for us to formally comment on analyst expectations. And certainly, in terms of our expectations for shareholders' equity, as we look towards the Basel 3 transition, and on the 15% ROE, the net income number would be, I think, higher than what you've said today. I think that's as far as we can really go within the context that (inaudible).

Thanks.

Okay. Well, thanks for all those questions. Let me just take one minute to reiterate some of the themes from our point of view, just so you can leave with those.

One, clearly, in terms of performance, we think it was a good fourth quarter; strong full year earnings; very good returns; one of the highest dividends in the industry. We think all that demonstrates the power of the business model.

We do think that a lot of what we have done has positioned us for even stronger future performance; the client assets that we've brought in; the market share increases; the fact we have a very high quality balance sheet; good capitalization. We think that all positions us very well for an upswing in activity.

And we do think as well that helps us to perform well in case there are market outturns out there.

And then, lastly, we do feel like we've done a lot to advance the business and put ourselves in a position to deal with the new environment; the regulations that are coming along; the capital requirements, etc. I think we're probably ahead of a lot of the industry in that respect. And as a result, we feel comfortable laying out these new KPIs which fully reflect the new environment.

And our view is that eventually, all of the business models will need to do that. We think we have a very strong business model. We think that it continues to be quite successful. We've actually earned really best in class industry ROEs over the last couple of years. And our view is that we hopefully believe that that will continue to be the case, going forward; and that we're strongly positioned for this year, and for years to come.

So thanks, everybody, for your time and for your interest. Thank you.

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.