Credit Suisse Group AG (CS) 2012 Q1 法說會逐字稿

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group first quarter 2012 results conference call. As a reminder, all participants are in listen-only mode and the conference is recorded. You will have the opportunity to ask questions directly after the presentation. (Operator Instructions).

At this time I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead, Mr. Dougan.

Thank you. Welcome, everybody. Thanks for joining the first quarter results call. I'm joined by our CFO, David Mathers. I'm going to make a short introduction, and David's going to take you through the detail of the results, and then we'll take your questions.

We did have a good start to 2012. We posted solid operating results and made good progress towards establishing a business model which is sustainable in the new environment.

The steps we took during the second half of last year to transition Credit Suisse to the new market and regulatory environment have already begun to deliver positive results. On a normalized basis we made CHF1.4 billion of net income and a return on equity of 16% in the first quarter.

We exceeded our annualized cost reduction target. We exceeded our end of first quarter risk reduction target. We transformed our Investment Bank compared to last year's first quarter. We cut costs, cut capital usage and significantly increased the return on capital.

We're making good progress on measures to improve profitability in our Private Bank, and in all of our businesses we continue to have strong client momentum with increasing market shares.

We acted early and proactively to improve profitability and capital efficiency across the Group, and we're now recognizing the early benefits of these strategic measures.

Now I'm just going to spend a few minutes providing some detail on the measures I just outlined.

First, we did reduce our annualized cost run rate by CHF1.5 billion compared to the annualized run rate during the first half of 2011, exceeding our previously announced cost reduction target of CHF1.2 billion.

Second, we further reduced Basel III risk weighted assets to CHF294 billion during the first quarter. This represents a reduction of over CHF100 billion, or one-third, of our risk weighted assets over the past year. We're now close to our previously announced end of 2012 risk weighted asset target of CHF280 billion.

Third, our Investment Bank made significant progress in executing the strategy we outlined in November to increase capital efficiency and reduce costs, while, at the same time, maintaining market share momentum. The Investment Bank has substantially changed since last year, with a more balanced risk and revenue mix, and higher returns on capital.

Our normalized after-tax return on Basel III allocated capital improved to 19%, up from a 15% return in a better market environment in last year's first quarter. This was achieved through a reduction in capital allocated to the business, as well as a reduction in the cost base.

Most of our risk weighted asset reductions occurred in the Investment Bank, where we reduced risk weighted assets by $102 billion, or 33% compared to the first quarter last year. And we reduced our expense run rate in the Investment Bank by CHF1.3 billion from the first half of last year. We believe these measures will lead to more sustainable returns and lower revenue volatility going forward.

Fourth, in Private Banking we continued to make good progress on the strategic realignment we announced in November to optimize the business portfolio and enhance profitability. The merger of Clariden Leu into Credit Suisse took place on April 2, and the integration is progressing well.

In the first quarter we attracted net new assets of CHF8.4 billion, we saw higher transaction-based revenues compared to the previous quarter, and reduced operating expenses, reflecting the efficiency measures we've taken. We remain confident that we will substantially improve profitability in the Private Bank.

And, finally, in our Asset Management division we recorded higher net revenues compared with the previous quarter, including a gain from the partial sale of our stake in Aberdeen Asset Management. Overall, profitability was good, although we saw significant asset outflows, resulting primarily from a single low-margin mandate.

In line with our Asset Management strategy, we continue to focus on achieving growth in fee-based revenues and on investing in multi-asset class solutions, alternative investments and our Swiss platform.

In the first quarter we also further strengthened key financial ratios and continued to maintain a strong capital and funding position. We took further steps to align our capital structure to the Swiss and proposed Basel III regulations.

In March we issued CHF750 million of Tier 2 buffer capital notes, completing our Swiss high-trigger contingent capital requirement. Also during the quarter we repurchased CHF4.7 billion of capital instruments which, under the proposed Basel III framework, will no longer qualify for regulatory capital treatment. Both measures contributed further strength to our regulatory capital.

As a result of the actions we've taken, our core Tier 1 capital ratio improved to 11.8%, up from 10.7% in the fourth quarter under Basel 2.5.

On a Basel III basis we expect our year-end 2012 CET1 ratio to be at 13%, well in excess of the 6% FINMA requirement, and, on a look-through basis, we expect our CET1 ratio to be 7% by the end of 2012 and to increase to 10% by the end of 2013.

The balance sheet remains highly liquid, and Credit Suisse continues to have an industry-leading Basel III net stable funding ratio that is well ahead of requirements. We further improved our ratio to 100% in the first quarter.

All told, our first quarter performance underscores the strength of our client-focused capital-efficient franchise, and it indicates what our business model is capable of. And the steps we've taken to adapt our business model are already demonstrating their potential to deliver improved profitability and sustainable returns in the new environment.

Despite continued challenging global macroeconomic conditions, our business has delivered a solid performance.

With that, I'll now let David walk us through the details.

Thank you, Brady, and good morning. I'll start my presentation on slide 6 with an overview of the financial results.

In the first quarter we achieved underlying revenues of CHF7.3 billion, pre-tax income of CHF1.5 million and net income of CHF1.1 million. Diluted earnings per share were CHF0.79, the pre-tax income margin 20% and the post-tax return on equity was 12%.

This quarter, in order to present a better like-for-like comparison of our year-on-year performance, we have normalized our first quarter 2012 results, adjusting for the PAF2 award. And we show these numbers alongside the underlying results in the grey box you see on the slide. And I'll explain these changes in more detail on slide 7 in a minute.

On a normalized basis, pre-tax income was CHF1.9 billion, net income CHF1.4 billion and the post-tax return on equity 16%.

Finally, at the bottom of the slide, as is our usual practice, we've included our reported results.

So let's turn now to slide 7 where we highlight the significant items that affect our reported numbers.

Let's focus on pre-tax income, which is highlighted on the blue column on the left-hand side of the slide. And we start at the top with reported pre-tax income of CHF40 million.

This includes CHF1.6 million fair value (technical difficulty) losses and CHF68 million of severance costs, both of which are booked in (technical difficulty), and CHF178 million gain on the partial sale of our stake in Aberdeen, which is shown in Asset Management's results. These items were excluded from underlying pre-tax income of CHF1.484 billion.

You may recall that after 2011, variable compensation was awarded as PAF2, which was fully invested in the first quarter of 2012, which means that the entire P&L charge in relation to that compensation award was recognized in our first quarter results.

However, if, as is normally the case, and was the case last year, we had made this award in shares rather than in PAF, then vesting would take place over the usual three years, resulting in a corresponding amortization of the P&L expense.

The normalized first quarter '12 results adjust for the difference between the full CHF534 million PAF2 charge and CHF100 million of amortization, which is a charge we would have taken had we awarded shares instead of PAF2 for this component of our compensation.

For completeness, we've also included the tax and the non-controlling interest impacts (technical difficulty) for each of these adjustments to reconcile for the equivalent net income and return on equity calculations.

Slide 8. We changed our divisional reporting from this quarter onwards, such that all funding-related DVA gains and losses are reported in the Corporate Center. Previously, the DVA adjustments on our own structured note liabilities were reported in the Investment Banking division.

Also you may recall that a small portion of DVA on our long-term vanilla debt was being amortized to all three divisions, but mainly to the Investment Bank.

We think this new approach is more meaningful, given these revenue impacts are driven by the funding and perceived credit worthiness of the entire Group and not individual divisions.

We have reconciled the previously-reported division revenues to this new approach for 2010 and for the four quarters of 2011 on slide 37 in the appendix to these slides.

I'd also like to give you a heads up that, following the full integration of Clariden Leu, which happened on April 2, this business will report its results across all three divisions, with effect from the second quarter onwards. And we will also restate the comparative results [at this stage].

Let's move to expenses on slide 9. We achieved annualized expense reductions of CHF1.5 billion going into 2012, exceeding the target we set of CHF1.2 billion by 25%.

This was partly driven by CHF2.1 billion of lower unamortized deferred compensation coming into 2012 compared to last year. Our actual headcount is down by 2,000 from the second quarter of '11, in line with our targeted reduction. CHF0.3 billion reduction was in non-compensation expense, and that's not withstanding increased regulatory costs, including the UK bank levy.

We're also making good progress towards our end-2013 target of CHF2 billion in total cost savings. And measures for this include the streamlining of our operations and our support infrastructure, a focused vendor management initiative, as well as the benefits from the integration of Clariden Leu, which we'll discuss in more detail later in the presentation.

Slide 10. You may recall that last year we set an expense-reduction target for our expenses in this quarter to be CHF1.2 billion lower than the annualized expense base in the first half of 2011.

If you look at the left-hand side of the slide, we have adjusted the first quarter of 2012 forecast of CHF5.804 billion to exclude PAF2 net of amortization as per the previous description, realignment costs, as well as the (technical difficulty).

If you follow the annual arrow across the right-hand side of the chart, an annualized quarterly adjusted expense figure, this shows that, coming into 2012, our expense run rate was just over CHF21 billion compared to annualized first half 2011 costs, excluding restructuring, of just over CHF22.5 billion, resulting in annualized savings of CHF1.5 billion.

But perhaps more simply, if you just compare the first quarter 2012 total reported expenses to reported expenses in the first quarter of last year, the total cost reduction was 6%, or CHF391 million. So, on a more direct comparison, on annualized basis, this cost reduction also shows a CHF1.6 billion cut in our expenses.

Slide 11 shows a substantial reduction in our overall Basel III risk weighted assets since the third quarter of last year, resulting from the strategic realignment of the Investment Bank. Risk weighted assets are now at CHF294 billion, a further CHF45 billion, or 13%, lower than in the fourth quarter of 2011, exceeding that 1Q 2012 goal of CHF312 billion.

We are making strong progress in achieving our end-state risk weighted asset target of CHF280 billion by the end of the year.

Slide 12. Private Banking's quarterly pre-tax income was CHF625 million, with increased revenues reflecting a moderate increase in transaction volumes.

Applying the same approach to cost savings as we showed before, the expense run rate is down CHF230 million from the first half of 2011. And I point out that these results don't yet fully reflect savings from the different headcount reduction measures.

We continued to achieve good net new asset inflows in the first quarter of 2012. The headline number of CHF8.4 billion includes some attrition resulting from the integration of Clariden Leu.

If we look at Wealth Management revenues in more detail on slide 13, and starting with net interest income, the lower segment in the columns on the slide, net interest income was, again, stable this quarter at CHF868 million, but with a year-on-year decline that reflects continued low interest rates.

Recurring fees and commissions decreased slightly from the fourth quarter, despite a 4% growth in average assets under management.

This AUM growth was primarily from ultra high net worth clients, who do tend to be more transactional based. And, in addition, we did see clients move towards a more conservative risk profile within their asset allocation, resulting in lower investment product and discretionary mandate fees.

As a result, the gross recurring margin fell from 43 to 40 basis points, although I point out, as we said before, the overall pre-tax margin for the ultra high net worth is significantly higher than that for Wealth Management overall.

Transaction-based revenues recovered somewhat from the fourth quarter to CHF518 million, resulting from higher brokerage and product issuance fees and a higher contribution from ultra high net worth clients. This reduction does reflect continued low client activity compared to the first quarter of 2011, albeit above the fourth quarter levels.

Slide 14. Private Banking achieved net new asset inflows of CHF8.4 billion in the first quarter. Wealth Management continued to achieve solid contributions from ultra high net worth clients and most emerging markets.

Total net new assets were CHF5.8 billion. Solid inflows in Switzerland were offset by asset attrition, resulting from the Clariden Leu integration of CHF4.1 billion, or 4% of the Clariden Leu AUMs.

In EMEA, net outflows of CHF0.9 billion continued to reflect modest outflows in Western Europe, but we've also seen limited inflows in Eastern European markets so far in 2012.

Slide 15. The initiatives that we announced last November, rebalancing the Private Bank towards growth areas and enhancing profitability, are on track.

Already our ultra high net worth initiative is showing strong momentum, as we shift resources towards emerging markets. We hired 13 new ultra high net worth dedicated relationship managers this quarter as part of our upgrade initiative, and we also strengthened the leadership team. More than two-thirds of Wealth Management's net new asset inflows are now currently coming from ultra high net worth clients.

Second, we're creating a much more cost-efficient infrastructure in our onshore business. We'll adopt a much more focused approach in Italy, based around eight hubs and resulting in the closure of 16 branches. We'll also improve the efficiency in Western Europe more generally, with the first market implementation from the middle of this year.

The integration of the Japanese business that we acquired is also on track. This would double our AUMs to around CHF5 billion, helping us to achieve the necessary scale in this region and positioning us as one of the largest foreign-owned private banks.

Third, we're restructuring our cross-border business through segmentation to better serve our international affluent clients. In July, we will implement a much more focused service model and product offering.

Finally, the integration of Clariden Leu is well on track to deliver the financial and operational benefits that we'd planned. The legal merger was completed on April 2. The large majority of the key relationship managers have been retained, and we've already sold the insurance-linked securities business.

The expected net synergies from this integration will deliver a steady pre-tax profit improvement of CHF110 million per annum. And, just to put that into context, that would lead to a total contribution from Clariden Leu that almost doubles their pre-merger pre-tax income contribution for 2011.

Let me turn now to Corporate & Institutional clients on slide 16. Pre-tax income was CHF219 million in the first quarter, with a continued strong pre-tax margin of 47%.

Net new asset inflows were particularly strong again this quarter. Credit provisions decreased quarter on quarter, with the loan quality remaining high.

Let's turn to slide 17. The Investment Bank recorded a pre-tax income of CHF993 million and net revenues of CHF4.1 billion.

During the quarter, we made significant progress in executing our strategy to increase capital efficiency and operating leverage.

Our results reflect a much more diversified and balanced risk and revenue contribution across our major businesses, and we have maintained market share momentum.

We've reduced Basel III RWAs by $38 billion in the quarter and down by more than $100 billion from the level of a year ago.

The 1Q '12 annualized expense reduction was CHF1.3 billion lower, compared to that run rate in the first half of last year. And, as a result, we delivered a 19% normalized after-tax return on Basel III allocated capital in the quarter, up from 15% in the first quarter of 2011.

Let's look at the numbers in more detail on slide 18.

Fixed Income revenues were significantly higher than the fourth quarter of 2011, driven by the momentum in our client franchise, execution of our strategy and higher client trading volumes.

Our Rates and FX businesses continued to perform well, reflecting higher client activity. Emerging markets also benefited from improved client flow and a better operating environment. Credit recovered from the weak fourth quarter performance, driven by higher new issue activity and renewed risk appetite.

If we look at the overall decline in Fixed Income revenues year on year, this is primarily attributable to, first, lower revenues from securitized products compared to the record result we had in the first quarter of 2011, which benefited from significantly higher levels of inventory and consequently RWA usage; and, second, revenue losses of CHF261 million from the businesses that we're in the process of exiting, and compared to a positive contribution from these businesses of CHF10 million in the first quarter of 2011.

On slide 19 you can see how, by further reallocating capital and resources to support our clients, we've improved the quality of our Fixed Income performance compared to the first quarter of last year.

As you can see on the left-hand chart, although revenues in dollar terms fell by 19% year on year, this revenue contribution is more diversified across the major product areas.

On the right-hand chart you can see that the Fixed Income revenue performance was achieved while operating with 45% lower Basel III RWAs.

So if we look at this in terms of capital efficiency, defined as revenue per average Basel III RWA, this improved by 33% year on year.

Let's turn to slide 20. Equity trading revenues were solid year on year and recovered from a weak fourth quarter in 2011.

Prime Services performance was solid, with increased client balances, underscoring our established top 3 global rating.

Derivative revenues were down slightly on the first quarter of last year, but improved significantly compared to the fourth quarter, due to improved market conditions and higher volumes.

Cash Equities market share remained stable, despite continued weak market volumes.

Let's turn to slide 21. Underwriting and advisory results increased from a weak fourth quarter level, driven by strong results in debt underwriting and by market share momentum.

The strong debt underwriting revenues you see here reflect an increase in new issue activity, in high yield and investment grade issuance, as well as an improved market share level compared to the fourth quarter of 2011.

Improved advisory results also benefited from higher market share, compared to the fourth quarter, whilst equity underwriting results remained subdued, due to weak market volumes.

Slide 22. This updates our progress in reducing Basel III risk weighted assets in the Investment Bank.

BIII RWAs fell by $38 billion, or 15%, in the quarter at a minimal cost. As we progress towards the $190 billion target, we would expect to see some further RWA reduction costs in the balance of the year, although clearly the amount of that cost will remain dependent on the market conditions in the remainder of the year.

Slide 23. In our fourth quarter '11 results presentation, we showed a detailed breakdown of progress in reducing our Fixed Income risk weighted assets, and slide 23 shows this quarter's progress on the same basis.

You can see that, in the first quarter of this year, we mitigated $34 billion of the remaining $55 billion target.

We reduced RWAs for the ongoing business by $10 billion in the quarter. But we also made very good progress within the wind-down business, with $24 billion of RWA reduction in these areas. And we have firm plans in place to achieve the remaining reductions necessary to meet our $125 billion target for the Fixed Income division.

Slide 24. So, in summary, we've made substantial progress executing in the strategy we outlined last November. And we have achieved a more balanced and diversified business mix. We still have market share momentum. We've exceeded our first quarter 2012 Basel III risk-reduction targets, and we've also exceeded our goal for operating efficiency by rationalizing our expense base.

The chart here shows the incremental year-on-year impact on the normalized return from Investment Banking's revenue decline, cost improvement and RWA reduction.

On balance, the impact of the lower costs and the reduced RWA usage offset the effect of lower revenues, with the result that the after-tax return improved from 15% in the first quarter of last year to 19% in the first quarter of this year.

So let's now turn to Asset Management on slide 25. Pre-tax income was CHF250 million in the first quarter, which benefited from the partial sale of our stake in Aberdeen Asset Management.

Fee-based revenues declined quarter on quarter, mainly as a result of lower placement and performance fees, which are seasonally biased towards the second and the fourth quarters.

Investment gains of CHF101 million were also lower compared to the first quarter of last year, primarily due to lower private equity returns.

So let's turn now to net new asset performance on slide 26. In the first quarter of 2012, Asset Management experienced inflows of CHF3.7 billion in its targeted growth areas, primarily higher margin alternative investments.

This was offset by outflows from low-margin mandates; a CHF2.7 million from our pension fund advisory business, where you may recall that there was an outflow in the fourth quarter of last year; and a CHF14.7 million outflow from a single client mandate, where the client has decided to move the mandates, which are predominately on a fixed income portfolio, in house.

Just to put these relative moves in context, it's worth noting that the anticipated annual management fees from the CHF3.7 billion of higher margin inflows this quarter will exceed the fees that we will lose on these other two low-margin outflows.

Let's now turn to capital liquidity on slide 27. We continue to maintain a strong position with our Basel 2.5 core Tier 1 ratio increasing from 10.7% to 11.8% in the first quarter.

The bottom graph shows the major factors contributing to this increase in core Tier 1 capital in the first quarter. Clearly, underlying net income represents the bulk of the B2.5 capital generation, but the debt repurchase also benefited capital by about CHF0.5 billion. This was offset by FX and a pro rata dividend accrual of CHF0.75 per share in respect of the first quarter.

Slide 28. Slide 28 shows the usual update of how the Basel III CET1 ratio could develop, based on our capital progression expectations through to the end of 2013.

On the left-hand chart, the first column shows our current shareholders' equity. We've adjusted for regulatory deductions and analysts' expectations for future retained earnings. I'd remind you this does not, therefore, represent forward-looking statements being made by Credit Suisse management.

And we assume a benefit of CHF1.9 billion from shares issued out of conditional capital for share-based compensation awards, as well as other movements in capital and deductions.

So, by the end of 2012, our CET1 capital grows to CHF36.5 billion, to give a Basel III CET1 ratio of 13.1% based on the transitional definition in the proposed FINMA capital ordinances, which is in excess of the 6% requirement they've set for the end of 2012.

So, in addition to our CET1 position, we've also issued and forward exchanged loss absorbing contingent capital, which is worth another 2.9% to this ratio. And that clearly includes the CHF750 million of Swiss franc denominated BCNs that we issued in the first quarter of this year, which completed our high-strike requirement.

We've also included in the appendix the CET1 look-through ratio calculation. On this basis, which is shown on slide 42, we show ratios of 7% and 10% at the end of 2012 and the end of 2013 respectively.

So let's now turn to slide 29.

Our funding and liquidity positions remained strong at the end of the first quarter, with our Basel III net stable funding ratio at 100%, our Swiss regulatory leverage ratio at 4.7% under B2.5, which is towards the top of the required range, whilst our funding and CDS spreads remain amongst the lowest compared to our peers, lowering substantially in the first quarter.

We continue to have a highly unencumbered balance sheet with limited use of cover bonds; only about 15% of our Swiss mortgage book is so utilized. So we remain very well prepared for the Basel III liquidity and funding requirements.

So, on that note, I'd like to conclude my presentation and pass back to Brady.

Thanks, David. So I think with that, we're ready to open it up for Q&A. So, operator?

We will now begin the question and answer. (Operator Instructions). Matt Spick, Deutsche Bank.

I had three questions. The first was on Fixed Income sales from trading revenues. The improved disclosure on where you've generated the revenues from is very helpful, and I think it makes it clear that you didn't have the inventory gains in securitizations that distorted the Q1 2011 figures.

I just wondered if you wanted to take the opportunity to make any comment about other lumpy items in Q1, like basis risk reversals or Maiden Lane, or whether you think that Q1 and Fixed Income was a pretty clean client flow driven result.

The second question was on the Private Banking margin of 109 basis points. Obviously, the shift to ultra high net worth might have cost you a basis point. Lag charging might have cost you a basis point. But even at 111, it was still a relatively weak number.

Have you changed your view over the last couple of quarters on how much of the lower margins you've been experiencing recently is cyclical and how much is structural?

And then the third question I had, a little bit more technical. On the 2% of shares you'll be placing in June to buy out the minority stake in Hedging-Griffo, obviously, on the face of that, that's 2% EPS dilutive, but I was wondering if the reduced minority payments that you'll be having would roughly offset that and that should be overall in your view about EPS neutral.

And I'm also wondering if reversing the liability accrued for the put option of about CHF0.6 billion would mean that your common equity Tier 1 would go up by CHF0.6 billion. Thanks.

Maybe I can try to deal with the first two parts of that question and David could maybe address the third.

I think on the fixed income numbers in the first quarter, I think actually we're happy with them; that they're actually quite a clean result.

I think, as you can see and as we mentioned, we think the balance is actually quite good. We had a much better performance out of Rates and FX. That's an area that we've invested a lot in, and we're actually seeing -- obviously, you saw in the first quarter a good result there.

Structured products is down, as you say, and that's partly a result of just the restructuring in the business through the Basel III changes, etc. But there's just a much better balance. Emerging markets is a better contributor.

So, overall, it's actually a pretty clean result. No real lumpy items -- you mentioned basis unwinds, nothing really there, and the Maiden Lane transactions were obviously good transactions. We think they're actually a very good example of the kind of new model for us, which is we basically won the first and third tranches there and executed them quite well. That was done in a very capital-efficient way, with a lot of customer participation and relatively low risk. But they were not a particularly material item in the overall result in the first quarter.

So, yes, I would say generally, we are pleased with the result, and that it's a fairly clean result and consistent with our model overall.

I think, as you can see from the numbers, we think it's particularly notable that we actually generated those revenues on a significant reduction in RWA and risk in the business in the first quarter.

And, also, obviously related, but not necessarily quite the same thing, quite substantial reductions in inventory as well. So when structured products and (inaudible), we were down about 30% in inventories and actually in investment grade more like 60%. So that obviously also leads us to believe that these results should be more sustainable over time.

So good clean results, we think, and, overall, I think a nice indication of what the model should be able to do.

On the Private Banking question, as you say, obviously 109 basis points of gross margin that was stable to last quarter. It's still - we think still at the lower end of the cycle.

Obviously, we've given up on predicting when we might get some increase in interest rates or increase in transactional volume that would obviously benefit that overall gross margin.

But we think it's probably -- that it can be maintained even in the current environment. So that's sort of our working assumption is that we need to make the business work in the current environment.

Eventually, maybe, we'll get some tailwinds, but we don't know when. And so I think our belief is that we should be able to sustain that kind of a number and, obviously, when we get to more normalized environments, we will see higher gross margin numbers. So that's our hope.

We're also, obviously, working hard as well on the controllable factors to try to increase gross margin as well in terms of trying to get -- trying to improve our selling to some of the more managed products and some of the higher margin aspects of it. But again, in the current environment, that's not an easy thing to do, given the continuing conservative outlook of a lot of our clients on the Private Banking side.

So, I guess the short answer to your question is, we do still think this should be a cyclical low and we should see gross margins go higher. When that'll happen depends, I think, somewhat on the environment, both in terms of just pure tailwinds, but also in terms of when we see benefits from some of the initiatives that we have on that side.

In the meantime, as you know, we are making, I think, good progress on improving the pre-tax margin side of things, the net margin side of things, by reducing costs and making things more efficient overall.

You guys, can you address the Hedging-Griffo question?

Yes, just on the third point, I think we'll have to revert to you, Matt, just in terms of the profitability of Hedging-Griffo last year and the first quarter this year and, therefore, the Miras contribution, because it's actually clearly a spread predominately between Asset Management and Private Banking as opposed to being in a single division.

But, clearly, that will offset, at least in part, the dilution resulting from the 2% increase in the number of shares to actually fund the buyout.

I think it's fair to say that the Hedging-Griffo acquisition has been a considerable success for Credit Suisse and has rebuilt upon and added to what is already a very strong Brazilian business for us, and results have generally exceeded our expectations. But we'll come back to you in terms of the detailed contribution and how that relates to the 2% dilution.

I think your other question really was on the capital impact. We've accrued CHF0.6 billion in respect of the buyout, which was based on the terms of the acquisition when we did it five years ago. Clearly, with the share issuance, that will then convert to equity at that point and become -- and it will add to our capital position.

Okay. Thank you very much.

Derek de Vries, Bank of America.

I have a few questions, if I might. First, in the Investment Bank, on the costs side, a good revenue figure and a good cost figure as well. If I take your guidance for adding CHF100 million and stripping out PAF2, that gets me to a 40% comp-to-income ratio.

And I'm wondering if we have the normal seasonal slowdown in revenues, if that 40% is the sustainable level? Or do we need to maintain revenues at this level to have a 40% comp to income? That's my first question.

Then on the -- just in light of what you said to Matt on the cyc side, and in light of your comments on reducing your capital associated, I was wondering if you wanted to update the guidance you gave in Q2, where you were talking about $1.5 billion to $2 billion, I believe, of flow revenues, and if you think that's still a sustainable run rate.

And then on the Private Banking side, you saw EMEA outflows, which, if I'm not mistaken, is the first time we've seen that since you've restated the division. And you talk about the difficult situation in the EMEA region, which is obvious, but also existed in the second half of last year when we actually saw decent inflows.

So I was wondering if you could give us some color if there's anything else going on there, if this relates to Germany or what?

And then a final fourth question, if I might. On your annual report, you quantified litigation risk as up to CHF2.3 billion over and above what you've accrued for from a provisioning perspective. I was wondering if you could give us just a broad breakdown of how much of that's in Investment Bank and how much of that's in the Private Banking side of the business.

And then on the Investing Banking side, if you could give us a little bit of an update on the RMBS repurchase demands and the CHF2 billion that you transferred to litigation. It's a lot of questions; appreciate it.

Yes, I think on the IB costs question, which is, I guess, primarily related to the comp-to-revenue calculation, which I think your numbers were -- I think our number's a little bit higher than 40%, but basically, similar kinds of numbers for --

Yes, just to be clear, they're actually included in the appendix on page 41. I think you may have added back all of PAF2, but just to recollect, PAF2 was an instrument that was actually applied across the Private Bank and Asset Management.

So, of the CHF534 million, which is the total number, and the CHF100 million offset, CHF418 million would be in respect of the Investment Bank and the share add-back then would be CHF74 million, so that would give you a comp-to-revenue ratio of 41.5%, just to complete the math. Sorry, Brady.

And I guess the answer to your question, though, yes, I think you put it accurately, which is if we saw revenues every quarter at these kinds of levels, then we think that the comp-to-revenue ratio would probably -- could be similar to this.

Obviously, as you say, if we see revenues that are lower than that over the next quarters, then probably the comp to revenue would be a bit higher. And if we saw revenues that were even higher than what we've seen, obviously you could see that even potentially come down a little bit from there.

So it's the typical kind of relationship, so I assume that's the answer you would have expected. So, yes, this would be sustainable if the performance was sustained at these levels.

In terms of the guidance on fixed income, as you said, I guess that was almost a year ago, but you can see from the performance in the first quarter, about CHF2 billion of revenues. We're obviously still -- we are still evolving some of the businesses. We're still completing the exit of some of the businesses, and there is some impact on that as well.

But I think that kind of a number across the cycle is probably a reasonable number to assume for a sustainable new model business and fixed income for us.

Obviously, the first quarter was a bit better than that. So maybe we'll see numbers that are a little more towards the high end, but we still think that's probably a reasonable expectation over the cycle.

On the EMEA outflows, as you say, in general, we have seen inflows across all of our regions, including EMEA, for most of the time period. A lot of that, I think, as we've highlighted for you before, was actually a lot of more the ultra high net worth inflows sometimes offsetting some of the high net worth and below outflows in the business, particularly in offshore Europe, Western Europe, as we've talked about before.

I would say actually that this quarter, I would say it was relatively unchanged in terms of the outflow characteristics of the business, in terms of the offshore Western European business. But we did not have the same level of inflows from the ultra high and particularly from the emerging EMEA that we had seen in previous quarters.

And I'd say I don't think we see anything particularly systematic about that. Those are obviously some of the larger flows, and they're a little more lumpy. We did see some deleveraging in the first quarter in some of those areas, which contributed to that. But, overall, I'd say that's the factual description. I don't think that we necessarily see that as a trend that's going to sustain, but that is what we saw in the first quarter.

I think the -- you mentioned the litigation footnote, which is the zero to CHF2.3 billion. I'm not sure that is accurately characterized as on top of what we've already accrued. I think that's -- I thought that was actually the -- on top -- that is on top, okay. So it is on top.

I don't think we do a breakdown, actually, between the different divisions, so I'm not sure that we're going to get to that level of detail at this point.

And then your last question, Derek, was on the RMBS repurchase. What was that again?

That is related to RMBS repurchase claims, and I think you transferred out CHF2 billion into litigation as -- in your terminology. I was just wondering if there was any update on that? Have you had some progress in terms of settling these things?

And then also, what were the new claims in Q1? They obviously accelerated in 2011. Have you seen a bit of a slowdown in 2012, or is it continuing at 2011 pace?

Actually, Derek, on the -- overall, I would say, again, our general view on the mortgage matters is that we believe that we took a fairly responsible approach to the business.

As you know, we actually cut back our originations in 2006. We think we actually had a very high quality process around that, so we feel like we're actually in pretty good shape on those. But, obviously, as you say, there certainly are a lot obviously generally for the industry, and we have some portion of that as well that clearly are these litigation claims out there.

I would say, in general, I don't think there were any particular notable developments in the first quarter. So I don't think there is actually anything really to comment on.

We still feel, as I said, that we -- we obviously look at the originations and the underwritings that we've done. We obviously try to resolve issues where we see things that we think should be resolved, and we're obviously going to continue to do that. But I don't think there was any particular update in the first quarter on that issue.

Okay. Thanks a lot. I appreciate it.

Kian Abouhossein, JPMorgan.

A few questions. First of all, if I look at the risk weighted asset reduction VaR, that's been done really well year on year. If I look at the position risk in the larger release that you had today, it seems to be up year on year. I just wanted to understand why a position risk would be up with VaR and risk weighted assets down.

The second question is if you could talk a little bit about April. We clearly know that there's a seasonal slowdown in April, but you're more credit geared in Fixed Income. Just trying to understand with the material movement that we have in spreads, if that has been any material impact, besides seasonality, and maybe because you're more credit geared than some of your peers in that context on a relative basis.

And the third question is what's next for CS? You've delivered more or less on the restructuring. I would assume that, going forward, one has to question how is it possible to do this restructuring so quickly without really losing any revenues or material revenue parts. And what I'm trying to understand is what other opportunities are there to further shrink or improve efficiencies around the Group.

Do you want to take the first question on the risk weighted assets versus the risk?

Yes. Firstly, Kian, obviously the two are not always that correlated and, particularly, obviously, most of our efforts are really focused on Basel III risk weighted assets, not even Basel 2.5 at that point. So one should always take that into consideration.

The position risk overall is actually slightly down. I think it was down on page 48 from CHF14.395 billion to CHF13.833 billion. So perhaps I was missing a point in the question, but what was the detailed question, Kian?

I think I looked at it on a year-on-year basis, and it was actually up on Fixed Income, I mean, sorry. I should have been more specific, Fixed Income in trading.

Yes. Fixed Income is actually down fourth quarter, and up on first quarter.

I think that when I looked at this for the fourth quarter, I think there were some specific position moves in the fourth quarter, which actually related to some of the end-year currency risks, which meant it going up at the fourth quarter, and it's dropped down from that. But I think, in reality, the Basel III calculations, particularly as they're around issues such as long-dated unstructured exposure, they're not very correlated to the position risk as we see it in ERC.

Now that probably does say that our position risk measures, we would say, probably the Basel III calibration is more aggressive by several orders than our position-risk calculations would be. But I don't think there's anything out of the normal in that.

And look at the RWA numbers, you see it's really coming down. About half of it is actually coming from the [FIB] wind down, as opposed to the ongoing trading positions, which will also contribute to this.

Okay.

I think, Kian, on your question on April, I guess you're just looking for more flavor. And, as you say, it's not a surprise to people that conditions have been less favorable so far; it's obviously just a few weeks. But I wouldn't say that we've seen anything particularly characteristic. I guess you're trying to get out in terms of the different business lines and how they're being differentially impacted.

To be honest, it's -- obviously customer flow has just been down, but it's been kind of down across the businesses. So I would say I don't think we see anything particularly characteristic, as you say, where one particular area continues to do extremely well, but others are suffering. It's actually just been a -- I think it's just been a bit slower across the piece. So nothing.

That may not be a satisfying answer for you, but we don't really see anything particularly characteristic in that.

And the fact that you're more credit geared rather than macro geared, and clearly one could argue credit might be a bit tougher, we shouldn't read much into your mix relative to your peers?

As I say, we haven't really seen much differential between the different areas. So you talk about, as you say, rates in FX, versus credit, versus structured product. It's interesting. I think slightly, if anything, yes, but -- he's talking about April. So if anything I'd say slightly -- we think we're probably seeing slightly better conditions in securitized products in credit than in the macro areas.

So that maybe a little bit different from what you were saying. But, frankly, it's not that big --- it's not that marked a difference, to be honest.

I think your last question, what's next for us. I guess I think what's next for us is continuing to deliver on this strategy and consistency in performance. I think the first quarter shows what the business model is capable of doing. And, frankly, I think what's next for us is, ideally, continuing to deliver this for a number of quarters. That's, I think, the most critical thing.

And one could argue, and I'm sure in the Board you discuss this, you have restructured more or less over two quarters. One could argue maybe there is more possibilities to be done. Just to put a cheeky question out there, you make CHF4.5 billion revenues clean, roughly in the IB with 20,700 people. And some players this quarter, reported roughly that just in fixed income; CHF4.5 billion to CHF5 billion in fixed income with a similar amount of people. Why can't you operate with 18,000 people, making less revenues?

Well, we're trying to get to the optimal set up to drive one of the highest-returning businesses in the industry. And so we think what was, in the first quarter, a Basel 2.5 16% return on capital, is a pretty good return, and obviously exceeds the targets that we'd set.

And I think that, obviously, for the rest of this year, and into the Basel III next year, if we think that we can return those kinds of returns that's going to be, presumably, a pretty good return on equity; probably among best in class. And that's also going to lead to book value accretion and all the other good things that come from that. And that's what we've tried to get to.

We obviously still have work to do in a number of businesses. We still have RWA reduction to do. We still think we can actually produce more efficiency. As you know, we originally set a target of CHF2 billion of reduction in costs, and we're still working on achieving that.

I think our hope is that we not only achieve that but exceed that, as we did the CHF1.2 billion. So we're going to continue to work towards that. So there's clearly more efficiency to be gotten there.

And I think we still are -- we think there still is a lot of optimization that we can get out of our businesses. And, again, the first quarter wasn't, from our point of view, wasn't even a particularly favorable. It was a decent environment but, particularly in things like equities and Investment Banking business. In Private Banking we still have a lot of headwinds with the low interest rate environment, etc.

So we think, actually, the potential for the business model is still quite good. But we still have a lot of work to do as well. So, again, our focus is on basically driving a consistent 15% plus return on equity under a Basel 2.5 and Basel III environment, which we think is going to be a -- if we can do that, that's going to be a pretty good result.

That's very helpful. Thanks, Brady, David.

Let me just come back on the first point, by the way. Just in detail, if you read 49 there's reference there to reductions in RMBS and real estate, in the first quarter, compares to the first quarter a year ago. But it's been slightly offset by increase in FX and Rates exposure.

And, actually, if you look at the detailed Basel III RWA slide, you'll see that our Basel III RWA, the ongoing Rates business was actually higher at the end of the first quarter than at the end of the year. And that's what you're seeing coming through on the ERC line.

And I think that's fair. I think we've clearly set an end-year target for our BIII RWA. Clearly, our priority is to get that out of FIB wind down, so I think we're pleased to see the bulk of it coming from FIB wind down. But, obviously, as we see client and market opportunities, if we have to expand our position slightly to accommodate that, then we will do so. And that clearly contributed to, obviously, the macro businesses being 42% of the Fixed Income revenues in the first quarter.

Great. Thank you very much, David.

Huw Van Steenis, Morgan Stanley.

Two questions. I think, firstly, congratulations on your acceleration of the deleveraging in the first quarter. I was just wondering, as a management team, how focused are you that your core Tier 1 at the end of the year will still be below the 8% to 10% mark for a number of your global peers? And is that something that is a focus for you, and that you're keen to close that gap if possible?

And then, secondly, on page 23, I thought the disclosure about the wind down was incredibly helpful. I also noticed that your macro RWAs are up. And I just wonder if that's just there were some good opportunities in the quarter you took advantage of. Or is there a slightly broader rethink of where is the opportunity set for Credit Suisse going forward in Fixed Income, and you're slightly evolving the plan? Thanks.

I think, obviously, the core Tier 1, we obviously have a lot of focus on the capital side. I think the core Tier 1 improvement, on a Basel 2.5 basis, that we showed in the first quarter was encouraging. Obviously we're happy to see that kind of improvement. And we obviously also -- I think we're going to continue to take measures to make sure that we're increasing the capital across the board.

I think the issue for us is that we do believe that we have a very capital-accretive model. And we're going to be, as we've said, even on a crash basis, the 7% at the end of this year, and then 10% at the end of 2013, and very quickly obviously in excess of that after that. And so we'll obviously continue to manage the business in a way that continues to build capital. And we'll do that in every way that we can.

But I think, in general, we are, in the longer run, we are very focused on -- we're focused on the fact that we're going to have a business that's very capital generative. And it's very quickly going to be in, we think, a surplus capital position.

In addition, as you know, we have 3% of contingent capital through our CoCo issuance behind this. And so I think that obviously, just from a substantive point of view, puts us in a very good place.

One of the things I think there's obviously, from an equity point of view, there's rightly a lot of focus on the CET1 and the core Tier 1. But I think, also, there is an element of the total capital number that is relevant to senior debt holders, depositors, counterparties, etc.

And, as you know, we have an extremely -- we probably have around 20% capital when you include all these different instruments, the hybrids that we have, the CoCos, etc., which is obviously a very significant level of capitalization, which is one of the reasons that our CDS trade as tight as they do, etc.

So I think you also have to -- it's a little bit of a -- I think you have to look at the different perspectives of the different stakeholders as well. And so, from that point of view, we do think we're in a very strong position.

And, again, I think liquidity is also, when you look at the overall -- when you look at the overall equation, being at 100% NSFR means that we're in an extremely conservative position on the funding side as well.

So, again, I think when you look at all those together, we think we actually have a very strong position, that we're going to build into this capital. And, obviously, in terms of the business, we'll continue to drive that. But we think we're actually in a good place.

I think in terms of the RWA in the macro side, basically, as David answered, we did go up in that area. I don't think it's necessarily a strategic or a fundamental change in view about what the distribution of our capital or activities we're getting in fixed income.

But we did see good conditions. We saw a lot of client opportunities in the first quarter, and we took advantage of those by taking -- by obviously putting more capital in that direction and accommodating those flows.

So I think it's less of a strategic rethink of where we're going to be putting our capital in the IB or in Fixed Income, and more just an indication of the flexibility that we'll have to be able to reallocate among the different areas as we see opportunities.

Yes, and, as Brady says, our rates positions were actually slightly bigger at the end of the quarter than at the start of the quarter, which just reflects, I think, the client demand we saw.

If you look at the FX Basel disclosure, you'll see that was actually up from [12] to [26] at the end of the first quarter. It's not always the best guide, but it is a measure that we obviously did have slightly bigger inventory in the macro books at the end of the first quarter, which I think just reflects the pattern of client demand that we had.

Okay. Thank you very much.

Jon Peace, Nomura.

Just a couple of quick follow-up questions. The first one is on net new money in the Private Bank. I just wondered if there's any further color you could give to us on potential outflows and the timing of outflows from the Clariden Leu integration.

And the second one is the on the Basel III look-through forecasts. Despite the improvement in the Basel 2.5 ratio this quarter, which was very strong, your look-through forecasts for the end of 2012 and 2013 haven't changed very much. And looking at some of the moving items, I can see a slightly higher regulatory deduction as being one of the reasons. I just wondered if you could walk us through why that hasn't changed so much. Thanks.

Yes, on the first question, on the net new money, as you say, I guess the overall picture, we think, was quite a strong one in the quarter. So, ex the Clariden issues we had, CHF12.5 billion of inflows in the Private Bank, which was actually a very strong first quarter performance. So we actually felt pretty good about that.

Obviously, the integration of the business, the Clariden business, with the overall business was one where normally when you do an integration like that, you obviously do have some fallout in terms of customers and RMs.

I think, frankly, the CHF4 billion outflow, which is about 4% of the assets of Clariden, was something that we thought was (inaudible). Obviously, we'd rather lose no assets and rather not lose a single customer, but I think in an integration like that, there has to be some expectation that there'll be some fallout. And, frankly, we thought that was actually a pretty good performance on an integration like that, if you look historically at other integrations.

And this, as we said, it is proceeding well but it continues to be a big focus and we're going to do everything we can to try to minimize any further outflows or any further fallout.

But I would expect -- I think that you'd have to expect that there may be some further outflows in the next quarter or so. But hopefully, we will A, minimize those; and B, get through that point fairly quickly.

So I'm not sure how helpful that is, but we're obviously going to do everything we can to try and minimize those.

And, David, you want to --

Two factors, really. Firstly, there's actually a slight FX effect because we actually closed the year at -- sorry closed the year at CHF0.94 billion and we closed the quarter at CHF0.9 billion, so you get a small FX variance.

The second thing is I think we've assume slightly higher deferred tax on timing; not deferred tax and a little bit on timing. And you may recall you're allowed up to 10% of your CET1 to be accounted for by deferred tax on timing. So any excess beyond that, and we are in excess, comes through as a deduction on the so-called look-through basis.

So it's really small technical rounding changes, rather than anything else.

You may notice we haven't really adjusted the RWA targets for FX either, because, as we closed at CHF0.9 billion [4.9], technically the target should be a few billion lower, which is worth about 20 basis points on this.

I think the calculation is as much a guide as anything else. You're going to see these small changes coming through from FX every quarter. But I think the main thing you were looking for was probably just a slight change in terms of a slightly more -- a slightly higher deferred tax on timing assumption.

Great. Thank you.

Kinner Lakhani, Citigroup.

Three questions. Firstly, just coming back to the recurring margin on the Wealth Management, the 40 basis points, it really feels like a step change from the 43 basis points to 45 basis points that we had in the previous four quarters.

So I'm really trying to understand what has driven this step change? Did the asset mix change materially or meaningfully in Q4?

The second question is on the expense control and the CHF2 billion target, of which I understand the Investment Bank is about CHF1.4 billion. When I try and do some deferred comp analysis, it suggests to me that that CHF1.4 billion is achieved purely by the lower deferred comp expense going forward.

So, it does feel like the CHF2 billion target is either very conservative or you're looking to make some investments elsewhere. I'm just trying to get a better feel for the CHF2 billion.

And, thirdly, on the Investment Bank, I just wanted to go through some of the products. Prime Services, I just wanted to get a feel for whether you see a re-pricing trend.

And then if you could give us a bit more color on what you see as the client momentum in FX and Rates. I know you invested here second half of 2010, I believe. And perhaps we didn't get quite the payback last year, but what you see going forward on that.

And also maybe if you could say a few words on the agency finance bit of the Securitized Products business. That's something that I haven't really heard about before. Thank you.

I guess on the recurring margin, on the recurring fee portion of the Private Banking margin, as you say, it was a reduction, as we've said.

Maybe just to give a little bit more color on it, I think that there may be some elements which are more structural in nature and some which are more cyclical in nature. So I think there's probably a combination of things there.

On the one hand, as we've said, a lot of the net new assets that are coming in, and we have an increasing ultra high net worth composition of the assets that are coming in, that's actually good from a net margin point of view. It's not as good from a gross margin point of view.

But that also then flows through, I think, to some of the managed product as well, which is they would tend to be probably in some of the lower margin managed product. And so I think that has an impact there.

Furthermore, I do think there was a bit of an environmental issue, which was that I do think that our clients probably did have a more conservative approach in the first quarter. And I think that does, to some extent, map through to people investing in maybe some of the less opportunistic products, which may have a lower margin on them. So I think there may be some element of that. So that may be a little bit of a cyclical element.

But I think there is also a potential structural element, which is we are seeing a move into some of the lower fee type instruments, so ETFs, etc., which are obviously lower margin producing type instruments. And that obviously may be somewhat of a structural issue.

So, I wouldn't say the entire 3 point reduction is all a structural issue that we won't see come back; I think some of that probably is environmental. But some of it may be -- there may be some structural elements to it as well, and we'll just have to see how it plays out over time.

David, do you want to address the cost issue?

Sure. So I think you're referring back to the presentation we gave for the fourth quarter, when we talked about total expense savings of CHF1.4 billion.

That's right.

CHF1 billion basically in the first quarter and then a further CHF0.4 billion to be achieved by the end of 2013.

I think it's certainly true -- so I think that was the -- that's our end 2013 target. And I think if you look at what we've achieved so far, at CHF1.5 billion of cost savings, we're clearly well ahead towards that CHF2 billion target.

Now, I think, quite clearly, we will be looking to certainly meet and exceed that CHF2 billion target by the amount of overage. We'll see where we get to because the measures, which we put in place to go from CHF1.2 billion to CHF2 billion, are actually separate and beyond what we've achieved in the first quarter. So, obviously, we need to achieve the other CHF800 million anyway.

In terms of how much deferred comp has actually contributed to this, it's certainly true that if you look at the CHF1.3 billion reduction in the Investment Bank, around about half of that was in the first -- that's in the first quarter, was achieved by lower deferred comp. And then the rest comes through as a lower MCE and then, obviously, lower salaries and benefits, etc., etc.

And that's absorbing, of course, the UK Bank levy within that as an offset. So the gross non-comp is actually in excess of that.

As to how much of the CHF2 billion will come from deferred comp, I couldn't give you a number off the top of my head. You certainly -- unfortunately, you can't take the balance sheet numbers and match straight through, because the balance sheet simply refers to the unauthorized deferred comp balances.

There are certain components of deferred compensations such, as you may recall, that the [upper] clause has an ROE clause around it, which adds on to that, in excess of that, depending on what the ROE of the Bank actually is.

So I would say, I guess, bottom line, we clearly have achieved CHF1.5 billion rather than CHF1.2 billion. We are on target for CHF2 billion. There's clearly CHF800 million of extra measures we're actually looking to. I guess that does mean we'll be looking to exceed the CHF2 billion target. Within the Investment Bank, about half of it so far has come from deferred comp.

Thanks.

I think on your last question, it's a good question. I'd say in Prime Services, I'd say we continue to see what we view as sort of a stable environment in terms of the overall industry environment. And our belief is we continue to take share and we continue to take quality share in that business. We feel like we've got good momentum. We're taking good share.

But I would say leverage among our client base is still relatively unchanged from before, so there hasn't been a big expansion and leverage.

I wouldn't say there's a lot of margin pressure in the business, but there also hasn't been a great expansion in leverage and activity in that business, but I think we continue to take market share and we still have -- we have a very good market share and we have an increasing market share, so I think we're well positioned there. But I'd say in general, I'd say pricing and margin trends are largely stable.

Your question on the Rates and FX side is a really good one. We've actually made a lot of progress in that area. As you say, we've made a lot of investments. We've -- obviously, the first quarter demonstrated some good performance from that, so we're happy to see that.

We had, we think, significant market share increases in US swaps, treasuries, and really across the board. The e-trading platforms, as you know, we've been working hard to apply our equity electronic platforms to the Fixed Income side and we've seen some good progress on that, particularly in the first quarter, both in general on the securities and swaps side in the US, but also just generally on the foreign exchange side we see pretty strong momentum on the electronics side, so we think that's good.

We've also made some progress in areas like inflation, some of the option areas, European options, global inflation, some of the cross rates areas, which have actually incrementally done quite well over the past couple of quarters. So we're seeing actually good progress all around the world in a lot of different areas and rates.

You mentioned agency finance. The asset finance business, which I don't know if that's what you were referring to, but that --

Finance assets, yes.

Yes, so like credit cards, etc. We've actually been doing really well in that area. We've -- I think we've been a lead manager on 11 transactions. We've been co on a lot of things. We've been doing a lot of business there. And it's been an active area.

So that's been a big -- that's actually been a big positive for us, and we've got -- we actually put in place a team last year that has performed really well. So that's been a real bright spot as well from both a market share and from a revenue point of view. So a number of good things in that overall complex.

Great, thanks.

Fiona Swaffield, RBC.

Just to clarify on slide 28 on the CET1, I know you mentioned deferred tax assets when you were talking about the 7% look-through, but there does seem to be quite a lot of moving parts in some of the add-backs. I just wondered if you could explain why the other impacts are now on slide 28 at CHF1.9 billion where they were previously CHF2.6 billion.

And then just to come back to this ultra high net worth gross margin, but not pre-tax margin, I can't quite -- I see what you're saying, but in numbers terms, I don't know if there's anything else you can give us to help us a bit to show that, because, obviously, I think the costs are down 5% if I assume PAF's around CHF57 million, but the revenues are down 10%. I don't know how we can see that.

And then just the last one is on the risk aversion of the Private Banking clients. Again, is there anything, any color you can give us on whether -- the extent to how much they are in cash or low risk investments, and has that got even more so in the last quarter? Thanks.

Yes, maybe I can take the last two questions first, and then David can address the question on the CET1. Maybe you want to do that first, or --?

Yes. Mostly, it's that we've got one quarter less of compensation accrual, so the one at the end of last year had four quarters and this one has three quarters. So this drops from CHF2.6 billion to CHF1.9 billion as a consequence.

Thanks.

Yes. On the ultra high net worth side, I'm not sure we can actually -- we know that, basically, the business does tend to be a somewhat lower gross margin business but a higher net margin business, and that's obviously because you have obviously less people. It's less RMs, less resources per average assets, but they tend to be a bit more competitive in terms of the assets that they do deploy. So, obviously, that intuitively makes sense.

You're asking, can we see that anywhere in the numbers? It probably has meant that, as you know, in the past when we've been more like -- at the high point we're more like 130 basis points of gross margin. I think that some of these elements will mean that we may not see those levels again.

But, again, we do believe we're at a cyclical low, but I think that will have some, in terms of the end state, if and when we get back to markets which are much more favorable, I think the increased concentration on the ultra high probably does mean the gross margin is a little bit lower. But again, we think that will filter through to a better pre-tax.

As you say, it's not very satisfying, because you can't really demonstrate that in any of the numbers right now because of probably the more macro events, but we do think that that will be the case.

I guess more concretely on the risk aversion of the client base, they're about one-third in cash right now. That's, I think, at basically close to the all-time highs. So we think that's probably a good demonstration.

As you know, a lot of investors missed the rally in the equity markets and are now waiting for the pull back to presumably re-engage on that, so we'll see what happens. And we've also seen some shift into gold over the past quarters, which probably is somewhat of a hedge against tail events in the markets. So, in general, we do continue to see a fair degree of conservatism among the client base.

Thank you.

Jeremy Sigee, Barclays Capital.

I'll just keep it to two quick questions, please. One is could you talk a bit more about the Italian branch closures; to what extent this represents a change in your onshore European strategy and how much further outflows you expect around that?

And then second question, I was just going to try and push you for a more explicit answer than I think you gave on where you see Investment Banking headcount going from here. It fell 3% in 4Q, and I think 1% in the 1Q, and I just wondered how much more IB headcount decline we should expect.

On the Italian closures, that's really more of, I think, an example of where we believe that we're going to be able to achieve more efficiencies, but also even be more effective. So we've got actually a very strong franchise in Italy, but we're really looking at really concentrating our operations in a few mega centers within Italy. We're still going to have, I think, eight major branches throughout Italy, so we think we can actually serve the clients quite well. But, in fact, we think it will make us not only more efficient but actually more effective.

So I don't think we view that as reductions in capability that lead to reductions in clients or assets. We actually view that as a way to, in fact, concentrate our business more. Probably allows us to focus more on the ultra high and the high net worth segment, etc. So we think it actually probably ends up with us having more assets and better margins on it, so that would be the outcome.

I think on the -- sorry. Do you want to take it, David? Go ahead.

Yes. On the headcount projections, I think to be clear, when we spoke about this plan back in November, we said that there will be eventual cuts of around about 7% of the workforce, or 3,500 people. The Investment Bank reorganization was actually first. You may recall we actually started talking about that last June, actually, and it's been the most advanced.

I wouldn't say we're necessarily completely at the end of it, but we've clearly made the majority of the steps there. And the total [rests] we've done so far are about the 2,000 you see in the numbers.

Clearly, between 7%, which is 3,500, and 2,000, there's implied another 1,500. I would say that the bulk of that now relates to the measures we've talked about in the presentation around streamlining our support and infrastructure side. Some of the other initiatives we're actually making going forward, so they will affect the Group as a whole.

It's certainly true that a component of that, because remember that the numbers you see in the reports is the IB direct headcount plus their allocated supports costs, will come through in that, but it won't be disproportionate to the rest of the Group.

Okay. Thank you very much.

Holger Alich, Handelsblatt.

I would like to come back to the outflow in the Private Banking on slide 14, the CHF0.9 billion. Is it from Europe? Is that in --? Do we have to interpret that in relation to the tax agreement that Switzerland did with Germany and Great Britain? Is there a context you see?

And secondly, when you see the cost-to-income ratio in Wealth Management, is this rising? So maybe the next focus for cost reduction and staff reduction, it might be that the Wealth Management business? Thank you very much.

Well, on the flows in PB and in relation to, as you say, the cross-border issues, particularly with Germany, I guess we'd just make a couple of points. One is we do not -- as policy, we do not transfer accounts from, say, Switzerland to other branches.

So I know one of the things that's been, and I'm not sure that's exactly what you're asking, but, in general, we do not allow an account to transfer from Switzerland to another branch, because obviously that's -- in our view, that's not complaint with the spirit of what we're trying to do. So that's number one.

Second of all, though, I would say, in general, we haven't really seen any particularly uncharacteristic flows in our business. In general, we have, over the past years, and I think we've talked about this before, but it's probably been the last few years, we have had outflows in our cross-border Western European business, and that's been very consistent, and I'd say the first quarter was really no different in that respect.

We have generally, though, seen significant inflows from some of the ultra high net worth and from some of the emerging parts of Europe, and that was the piece that we actually saw less of in the first quarter. I think that was mainly just more market conditions in the eurozone or maybe a little bit of some lumpy flows with some of the ultra high net worths; nothing that's particularly characteristic from our point of view.

But, again, I would say that those flows that you're seeing are -- pretty much have been the standard flows that we've seen actually for the past, well, number of quarters actually, so.

With Wealth Management, and we actually have a plan in place which is to improve our pre-tax income in Private Banking by CHF300 million by the end of this year and, ultimately, to CHF800 million.

So, obviously, some of that comes from revenue-based initiatives like our ultra high net worth, but some of that does come from efficiency-based initiatives as well, so -- and that's something we've actually started and been engaged in for a while.

So, actually, one of the things that you'll see is that actually the Private Banking division headcount reduced by about 800 from the end of the fourth quarter to the end of the first quarter. So it's not a question of us getting focused on that; we've been focused on that. We're working to try to get as efficient as we can in the Private Banking business.

And, in fact, we've actually shown that, I think, in the first quarter of this year, we actually did achieve over CHF100 million of cost reductions in the Private Bank against our run rate a year ago. And, ultimately, we think we're going to achieve more than that on the cost side.

So all of those profitability improvement measures have actually been underway for many months now, and we're actually starting to see some of the benefits, but we should see more of those over time.

Okay. So just the rise in the cost-to-income ratio in the first quarter is, for you, the necessity to do more on that, on cost reduction. You say that the program implemented will reduce it in run rate.

Well, I don't know exactly what you're referring to because our pre-tax income margin was 24% in the first quarter versus 18% in the fourth quarter, so I don't know exactly how you're looking at it. But we think, particularly if you adjust for the PAF2, which we've talked about a bit, actually our expense base was actually substantially lower in the first quarter of this year.

So I don't know exactly what numbers you're referring to, but we clearly longer term are going to become more efficient. We've already begun to see some of those efficiencies carry through. So we think we're already seeing that actually in the first quarter.

Yes, I think, obviously, the pre-tax income margin in the first quarter a year ago was 30%, dropped to 18% the fourth quarter and is 24% headline. If you exclude PAF2, you obviously get 26.1%. You take off the amortization, you're going to come out somewhere around the 25.5% margin. So the margin is lower than it was in the first quarter a year ago, but higher than the fourth quarter.

As Brady says though, I think when we talked in the fourth quarter results, we talked about CHF400 million of cost savings out of the CHF800 million savings. We're clearly on track with that because we actually have about CHF230 million coming through in these numbers.

Additionally, we pointed out in the slide, the length of service notice around some of the risk means that the reductions in headcount, which we're actually booking through the Private Bank, you're not really seeing the full benefit of that yet in our costs. And, in fairness, you won't really begin to see that until late in the second quarter and into the third quarter, just in terms of the time it takes to roll off those compensation expenses.

Okay. Thank you.

Philipp Zieschang, UBS.

One question, if I may.

Just on the volatility of your Fixed Income sales and trading numbers, which has been pretty pronounced and which probably is the biggest swing factor for somebody modeling your earnings forecast, do you feel now with the steps you've taken that this should come down from the Q1 level for the next couple of quarters to a normal seasonal pattern? Or do you still think probably 2012 is a transition year, given that David also flagged some additional costs on RWA reduction?

Well, I guess, generally, Philipp, the -- we obviously are happier about the balance that we have in the business. We think that should help to reduce volatility. We're happier about a lower cost base in the business, which should help to give us more cushion on the pre-tax side and, obviously, less capital means that that should also allow us to -- again give us more flexibility in the business.

So I think, in general, we do feel like we've made some progress towards not only a more profitable, but hopefully a more consistently profitable and high returning business in Fixed Income. But we are still -- there still is going to be an element of the markets, as you know well, and so we'll obviously have to take that as it comes.

But I certainly think that our hope is that we'll have less volatile returns in that area than we did last year, but, obviously, how consistent it can be remains to be seen. But we do feel like we've made progress on a number of those elements, which should mean it's a more consistent result.

Thank you.

Guido Hoymann, Metzler.

One single question. Did I understand you right that your Q1 figures comprise CHF500 million gain on the repurchase of Tier 1 and Tier 2 capital? And, if so, where did you book these CHF500 million, in the Investment Bank or Corporate Center?

And, if in the Investment Bank, in the Fixed Income segment or -- yes, or is this a misunderstanding and you booked it against the equity of something else? I'm referring actually to page 27 of your presentation where you mentioned the CHF500 million. Thank you.

As you say, we repurchased CHF4.7 billion of Tier 2, lower Tier 2 and some Tier 1 instruments which will no longer be effective for Basel III capital purchases from the beginning of next year simultaneously as we actually issued the CHF750 million of new CoCos to complete the high-strike requirement.

That led to a capital benefit, a CET1 benefit, of about CHF500 million, CHF540 million to be exact. But the actual profit gain on that was only CHF89 million, and that's actually taken within the overall treasury results in the Corporate Center.

The rest of it essentially is really the realization of the DVA moves we've had before, so they've just come straight through to the balance sheet.

Okay. All right. Thank you.

(Operator Instructions). Daniel Zulauf, Basler Zeitung.

Just one quick question. Can you give us a forecast on the -- for the General Assembly on Friday, you will vote about your compensation schedule -- the shareholders will vote on your compensation schedule.

And, as far as I remember, last year, ISS voted against that schedule, which resulted in an important number of opposition of 27%, if I remember well. I presume you are in position of the opinion ISS will express on your General Assembly?

Obviously, in general, before I get to answer your specific question, on the compensation front, as you know, we've tried to take a responsible approach. We've tried to work hard to align our employees with our shareholders and we've done a number of things towards that end.

So, for instance, this year, and I know it's somewhat complex and probably not everyone understands it completely, but the PAF2 structure that we've put in place, we think was an excellent alignment of employees with shareholders, helped to achieve some of our strategic risk reduction goals and really showed that the employees taking that in lieu of compensation were really well aligned in advancing that strategy. So that's just one example.

But we've tried, obviously, to, we think, take a responsible approach. And I also think across our management group, if you look at the pay reductions this year, in line with performance and in line with returns to shareholders, we think actually it's been -- certainly within the industry, it's a fairly responsible approach. So, obviously, our hope is that we're supported in that by our shareholders.

I don't think we can -- we can't really make any projection as to what might happen on Friday in the AGM. We obviously hope that our shareholders support all the measures that we put out, but we obviously -- that's part of the dialog we have with our shareholders. And we'll obviously see what they think and reflect on that over time.

I think, as you mentioned, there have been -- some of the different proxy agents have obviously their opinions on the different structures of compensation. Again, we feel like we've taken a pretty constructive approach.

And, obviously, this is an environment where shareholders are more -- seem to be more active in these debates. And so it will be -- as you say, we will certainly take on board whatever direction that we get from our shareholders on Friday. But I don't think we can really anticipate where that vote will come out.

Thank you.

Christopher Wheeler, Mediobanca.

First all, the PAF impact on risk weighted asset reduction. You've given us a clue on page 23, I think, but could David perhaps give us how much of the $38 billion reduction in the Investment Bank came from PAF?

Secondly, we've had a couple of questions on the EMEA business within Wealth Management. And I'd just be interested, your competitor told us at an investor day, they thought they were latent outflows between CHF12 billion and CHF13 billion as a result of the German settlement in particular. And you seem very relaxed about that, and I just wondered why you felt a little bit more relaxed or why you felt perhaps more upbeat than your competitor. Thank you.

So I think you'll see for the Investment Bank, we had about $38 billion of RWA reductions. And about half of that was actually achieved through external hedges and certain other mitigation measures.

I think we are not going to disclose the actual component for PAF2. I would say that PAF2 was within that half of the $38 billion, because it does count as one of the hedges we actually put in place. But it's by no means the only hedge, or even -- it's a component of that, basically.

Okay. And by the way, David, do you say the PAF impacts on Wealth Management net looks about CHF40 million, is that correct (inaudible)?

I think so, though I did give the detailed numbers actually in, I think, slide 41 I think it is, at the back.

Got it. Okay.

Chris, on your second question, I think -- well, I think in general, as you know, we've actually -- we feel like we've done a lot of preparation for a more compliant cross-border business environment. So we have, for many years now, been pursuing that as our strategy.

And so we are actually -- we're supportive of these measures to get clear agreements in place with these countries, and to have a very transparent and clean playing field in terms of the business. So we're very supportive of that.

Having said that -- and the reason we're supportive is because we think in the medium to longer term, it'll actually benefit our business. We think we can actually do quite well in that environment, and we're quite comfortable with that.

In the medium -- in the short term, though, obviously the impact on our business, we've talked before, you probably -- I'm sure you probably remember, we've talked before about the fact that Western Europe cross border, in total, the numbers that we have quoted is something like CHF25 billion to CHF35 billion of assets under management that might be impacted by the different potential approaches. So that's not just Germany, but generally across those countries.

And obviously, you can then use those numbers, and depending upon what the outcome is, whether you think those are going to be outflows versus some tax paid off the top, etc., then that will have an impact on it.

So if you map that out and said, well, there was, I don't know, 25% tax payment off the top of all those amounts, then obviously you get to whatever, CHF8 billion number or something that would come out of that, just notionally.

But, anyway, so I would say, are we happy about that? We would be happy to get to a compliant environment. We do think, in the medium term, that will be actually a positive thing for us. But there certainly could be some impact in the near term, in terms of as and when these agreements go in place on the assets under management.

Okay. Thank you very much, gentlemen, appreciate it.

Sebastien Lemaire, Societe Generale.

Just a very quick question. I was just focusing on slide 43. Basically, I'd just like -- the risk weighted asset reduction achieved this quarter, your targeted look-through common equity ratio for end 2012 actually slightly decreased, compared to your previous targets of Q4 '11.

It seems to be partially driven by higher regulatory deductions that came from minus CHF7.6 billion to minus CHF8.2 billion. And I just wanted to know if you could elaborate on that, please. Thanks.

So on slide 43, then. Well, there's two effects. First of all, it's a recalculation of the deferred tax on timing. You may recall that, under the look-through rules, all [DTNL] has to be deducted. And our calculations, they haven't really changed materially. But DTNL timing is allowed as part of the Basel III CET1, to the extent it doesn't exceed 10% of your total CET1.

We have a slightly higher assumption for deferred tax on timing in these numbers. And, therefore, as that's in excess of the 10% requirement, that results in an increase in the deductions. That's the first impact.

The second impact is that we haven't adjusted our full-year target for FX moves. It's a pretty small effect but, essentially, if we'd done that and done it at CHF0.9 billion, rather than the CHF0.94 billion rate we actually closed the end of the year, then the ratio would have probably been about 20 basis points higher; which reflects really the capital buyback we talked about before.

But I think those are the real factors in this. But, as I said before, I think the calculation is more a guide than anything else because clearly, it does also include people's forecasts, and those tend to vary as well, as one would expect. But it does give a general guide as to where we are.

Very clear. Thank you very much.

Thank you. There are no further questions. Back to you, sir.

Good, thanks. Well, maybe I'll just sum up quickly, and appreciate everybody's good questions and hanging on through the call. But, again, we had a good start to 2012; posted solid operating results. And, maybe most importantly, we feel we made good progress towards establishing a business model that's sustainable in the new environment.

So normalized basis CHF1.4 billion in net income; return on equity of 16% in the first quarter; exceeded our annualized cost reduction target of CHF1.2 billion, by reducing the cost base by CHF1.5 billion on an annualized basis; exceeded our end of first quarter risk reduction target, with a risk weighted asset level of CHF294 billion, which again, is not far from our original end of 2014 target of CHF280 billion.

And, importantly, transformed the Investment Bank, cut cost -- cut capital usage by one-third; increased the normalized return on Basel III allocated capital from 15% a year ago to 19% this past quarter; continue to make good progress on measures to improve profitability in the Private Bank; and really, in all the businesses, continue to have strong client momentum and increasing market share.

So, again, we feel we acted early, proactively, to improve our cost and capital efficiency. We're seeing the benefits of that. And we think by executing on this strategy consistently, we are confident that we'll position Credit Suisse to achieve improved profitability and generate superior returns.

So I think the results in the first quarter are indicative of what the business model can deliver. And our ability to implement these initiatives to evolve the strategy, while delivering good financial performance and maintaining an industry-leading capital position, really underscores the strength of the client-focus capital-efficient business model.

Obviously, we're aware that market and economic environment remains uncertain, but we're encouraged that the business is off to a good start with this first quarter result in 2012.

So thanks very much, everybody, for your time and attention.

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.