Credit Suisse Group AG (CS) 2012 Q2 法說會逐字稿

Thank you. Welcome, everybody. Thanks for joining the call. Before I begin, please take note of the customary cautionary statement.

Today we've announced robust earnings, cost reduction progress and plans, and a series of capital measures designed to solidify Credit Suisse's position as one of the best capitalized and funded banks in the world.

There are five key points that I'd like to cover this morning. One, we're reporting a solid second quarter result with pre-tax income of CHF1.1 billion, evidencing the strength of our business model, which has been adapted to the new regulatory environment.

Two, we achieved our CHF2 billion cost savings target 18 months early and are now targeting an additional CHF1 billion in cost savings by the end of 2013.

Three, we are adding CHF15.3 billion of capital through various measures. These capital actions will further strengthen our capital base in preparation for Basel III regulatory requirements, and take any question of the strength of our capitalization off the table. We will, effectively, raise our look-through Swiss core capital ratio to 9.4%, from 7%, by the end of 2012.

Four, we are reconfirming our previously announced at or about 15% through-the-cycle ROE target, even with the significantly strengthened capital base. Higher cost reductions offset the impact of higher capital levels, resulting in a comparable pro forma ROE of 12% for the first half of 2012.

And five, we're committing to distributing substantial cash to shareholders from capital generation once the look-through capital ratio exceeds 10%.

Why are we taking these measures now? We felt it was prudent, and in our shareholders' best interests, to eliminate any question about the adequacy of our look-through Swiss core capital.

Credit Suisse has benefited substantially from its strong capitalization and conservative funding position over the past four years. We've continued to maintain a best-in-class total capital and funding position, and this is corroborated by our superior ratings and CDS spreads. However, over the past several months the market has focused more on our common equity position. We had a clear plan to build common equity and we're on a glide path where we were already double the level of capital required by our regulator, FINMA.

In June, the Swiss National Bank, our central bank in Switzerland, published a report which questioned our overall capital position. While we disagreed with this report, both in substance and its communication style, and we still do today, we felt it was prudent, and in fact necessary, to respond decisively to these questions and ensure that we are in an unquestioned capital position from any point of view. And the Swiss National Bank's public statement today in support of these measures corroborates this.

These measures represent acceleration of our capital plans and take us to the top of the industry from every point of view on capital.

Close to 80% of the improvement in the capital ratio to 9.4% does not dilute shareholders' percentage ownership. And those investors who take up their rights in this issue will end up being only about 8% diluted. So the measures are well balanced.

But, most importantly, these capital measures underscore that Credit Suisse is one of the safest banks in the world.

I'll now spend a few minutes providing some detail on each of the five points I just outlined.

First, our second quarter result underscores the strength of our business model and the positive impact of the changes we've made to adapt the model to the new environment. The first quarter showed that we can produce high returns in moderate markets; and the second quarter provides evidence that the business model is resilient under more challenging conditions.

For the second quarter, we reported pre-tax income of CHF1.1 billion, net income of CHF800 million, and an after-tax return on equity of 9%.

For the first half of 2012, we reported normalized net income of CHF2.1 billion, with an after-tax return on equity of 12%.

Improved profitability in Private Banking, resilient results in Investment Banking, and solid profitable in Asset Management demonstrate the balance and strength of the evolved business model.

Second quarter and first half performance demonstrate that the business model is working and delivering good results, even under challenging market conditions.

The measures we announced last year to adapt to the changed environment are proving very effective and we see continued progress towards the best-in-class business model, designed to perform well in the new regulatory environment.

Second, expense reductions ensure the effectiveness and resiliency of the business model going forward. We exceeded our first quarter target of CHF1.2 billion and normalized expense reductions by delivering CHF1.5 billion in reductions.

We bettered that performance in the second quarter and have now achieved our CHF2 billion cost reduction target 18 months ahead of schedule.

We've now identified an additional CHF1 billion in cost savings, roughly half of which will come from the shared services functions.

With this additional saving, we've increased our 2013 expense reduction target to CHF3 billion. We're extremely confident that we'll be able to achieve this.

Our significantly reduced cost base provides us with real current and ongoing operating flexibility.

Third, today we've also announced a series of measures to ensure Credit Suisse continues to be at the top of the industry with regards to capital. In summary, we're effectively raising our look-through capital ratio to 9.4% by the end of 2012; up from 7%. This ratio includes a class of capital Tier 1 participation securities, which are loss absorbing and which FINMA has deemed will qualify as part of the Swiss capital requirement.

As you can see on the slide, we started 7% as per our first quarter simulation for the end of 2012. We then add 2.4% from immediate capital actions, including the mandatory convertible issuance during July, and add a further 80 basis points from additional capital actions to occur by the end of the year, including strategic divestments. We then make some adjustments, which bring it down by 80 basis points, which brings us to 9.4% at the end of 2012.

David's going to speak more in detail about the specific measures outlined on the slides, but I did want to spend a moment now on changes to the dividend in 2012 and strategic divestments in Asset Management.

For the 2012 dividend, we are accruing for an unchanged distribution amount of CHF0.75 per share. But we have changed the dividend accrual to 100% scrip, or payment in new shares.

The 2011 dividend was accrued for a 50% scrip and 50% cash and registered holders had the option to elect the former payment. In the end, shareholders elected for a 48% of the payment in new shares, allowing us to retain regulatory capital. This year there will be not be an election option; 100% will be paid in shares.

On strategic divestments in Asset Management, in line with our strategy towards a more liquid alternatives business, we intend to sell certain illiquid private equity businesses. This is compatible with our capital efficient strategy, addresses residual uncertainties around the Volcker Rule, and applies the businesses that have limited synergies with other Group businesses.

At the same time, we intend to grow our liquid alternative strategies, as they are more capital efficient, consistent with regulatory developments, and more synergistic with our Investment Banking and Private Banking businesses.

These capital measures take any question of the strength of our capitalization off the table. With this ratio at 9.4% at the end of this year, we'll be at the high end of our peers globally. And this, combined with our industry leading total capital ratio, best-in-class funding and liquidity structure with an NSFR in excess of 100%, and extremely high quality asset side of the balance sheet, clearly confirms our position as one of, if not the, most capitalized banks in the world.

The next slide presents the numbers in a different way; calculated using broadly the same methodology employed by the Swiss National Bank in their financial stability report published in June. The measures we've announced today should eliminate any of the doubts raised by this report.

Our look-through total capital ratio, by their calculation methodology, will rise immediately to 8.5% and will reach 10.8% by the end of the year; almost double the 5.9% stated in the SNB report, and clearly a leader in the industry.

In October 2013, this ratio will rise to 12.2%, or more than double this level stated in the report, when the remaining hybrid Tier 1 instruments convert into Buffer Capital Notes.

We were very well capitalized before. We're at the forefront of the industry now. These measures accelerate the build of our common equity and should completely put any capital question to rest.

As part of our immediate capital actions, we are issuing CHF3.8 billion of mandatory convertible securities at a fixed conversion price of CHF16.29 per share for a total of 233.5 million shares.

The issues consists of two tranches. The first tranche of CHF1.9 billion will be bought by a group of high quality existing and new strategic investors. These securities will not have subscription rights for existing shareholders. The second tranche of CHF1.9 billion will have preferential subscription rights for existing holders, which can be exercised over a 5.5 day period.

Strategic investors have entered into definitive agreements to purchase any securities not taken up by shareholders, thereby ensuring placement of the entire offering. So if any investors do not take up their rights, their shares will be placed in firm strategic hands.

The strategic shareholder group for the first tranche of CHF1.9 billion is an extremely high quality group, including some of our existing investors, Qatar Holding LLC, the Olayan Group, BlackRock, Capital, the Norges Bank Investment Management, and Wellington; and some new investors, including Temasek, and a group of Southeast Asian strategic investors. Their vote of confidence in the strategy, the Bank, and this transaction is a very significant statement.

Fourth, we continue to believe that our business model will generate a best-in-class ROE at or above 15% over the cycle, even with the significant strengthening of our capital base.

Incremental cost reductions will serve to offset the impact of higher capital levels. In calculating pro forma ROE for the first six months of 2012, as I mentioned, the resulting ROE remains comparable at about 12%.

This is a robust and balanced set of capital initiatives. Close to 80% of the improvement in the capital ratio to 9.4% does not dilute shareholders' percentage ownership.

Over the past five years, we've maintained one of the strongest capital levels with minimal dilution. The immediate capital actions we're taking now, including share issuance for the mandatory convertibles, will result in an 18% increase in share count. But those investors who participate in the rights offering will experience only about 8% dilution.

And fifth, we expect the consistent earnings capacity of our business model to generate substantial levels of excess capital. And, therefore, we are committed to distributing substantial cash to shareholders once we exceed the 10% look-through capital ratio. We expect to achieve this 10% target during 2013.

Our business model is uniquely forward looking, as most of the work has already been completed to evolve the model to the changing regulatory environment.

We have reduced capital allocated to the Investment Bank, and fixed income in particular, as we transition to Basel III. The resulting targets split across -- consist of a very attractive mix of businesses, with greater than 40% of our capital allocated to Private Banking and Asset Management, and less than 60% to the Investment Bank.

We expect capital usage in the Investment Bank to remain at or below current levels.

With a business that has industry leading returns and capital strength, and which has virtually completed its transition to the new regulatory environment, this is a model which will be very attractive to our clients and employees, and will provide best-in-class returns to our shareholders.

With that, I'll now turn it over to David to walk us through the details.

Thank you, Brady. Good morning. I'll start my presentation on slide 13, with a summary of the financial results. In the second quarter we achieved underlying revenues of CHF6.1 billion; pre-tax income of CHF1.1 billion; and net income of CHF815 million. The pre-tax income margin was 19%; the post-tax return on equity 9%.

If we look at the numbers for the half year, we achieved a return on equity 11%, compared to 15% in the same period in 2011. On a normalized basis though, adjusting PAF2 but adding in an equivalent amount of deferred share compensation, the post-tax return on equity in the first half was 12%.

Reported second quarter pre-tax income was also CHF1.1 billion. And that includes CHF183 million of realignment costs related to the expense reduction initiative; CHF39 million of fair value and debt gains, all of which were booked in the corporate center; and CHF107 million of gains on divestments, including a partial sale of our remaining Aberdeen stake.

Before presenting the divisional overview of the results, I would point out that the legal merger of Clariden Leu into the Bank took place at the beginning of the second quarter. And whilst the majority of Clariden Leu's activities were integrated into Wealth Management, some businesses are now managed by the Investment Bank and by Asset Management.

Our Swiss Advisory business, previously part of Asset Management, is also now managed by the Corporate & Institutional Clients group within the Private Banking division.

We've reviewed the definition on the basis on which we recognize AUMs and I've adopted a new definition in these numbers. Although these changes are not that substantial at divisional level in terms of either pre-tax income or AUMs, we have restated all prior year divisional results and included a reconciliation in the appendix.

I'd also note that the full second quarter financial release will be available on Tuesday next week; that is July 24.

Slide 14, please. The Private Bank's second quarter pre-tax income was CHF775 million, with a quarter-on-quarter pre-tax margin improvement from 23% to 29%.

There was a strong improvement in Wealth Management's pre-tax income compared to the first quarter of 2012.

Revenues increased by 4%, compared to the first quarter, due to higher net interest income and increased recurring revenues.

If we look at the first half performance for 2012, operating efficiencies improved with a CHF214 million reduction in the expense run rate on an annualized basis compared to the first half of 2011. And as we said before, we would expect to achieve further cost savings from our efficiency measures in the second half of 2012.

Slide 15. Net new assets were CHF5.5 billion, with particularly good inflows in the Americas, Asia Pacific, and Switzerland.

Excluding the outflow from Clariden Leu, the Wealth Management annualized net new asset growth was 4.6% in the second quarter of 2012.

Net new asset outflows resulting from the Clariden Leu integration were CHF3.4 billion in the second quarter; in line with the levels that we expected when we announced the merger.

I'd also point out that Clariden Leu's net outflows have consistently declined during the second quarter, with June net outflows at only CHF0.2 billion; the lowest monthly level since the integration was announced.

I'd also note that in Corporate & Institutional Clients, where assets under managements do tend to be more volatile, we did experience some outflows from a small number of clients.

Let's look at Wealth Management's revenues in more detail on slide 16 and start with net interest income, the bottom segment in the columns on the slide.

Net interest income increased 4% quarter on quarter to CHF860 million, with higher volumes more than offsetting the impact of the low interest rate environment.

Recurring fees and commissions also increased by 4% from the first quarter, driven by semi-annual performance fees.

Transaction-based revenues, though, remained at subdued levels. And I note that these transaction revenues do include a CHF41 million gain from the sale of a non-core business; and also, in the same quarter a year ago, the result in the second quarter included a CHF72 million gain on the sale of some real estate.

The gross margin, driven by the improvement in net interest income recurring fees, increased from 111 basis points to 115 basis points. If you exclude the divestment that I mentioned before then a like-for-like comparison is an increase from 111 basis points in the first quarter to 113 basis points in the second quarter.

Slide 17. The Investment Bank recorded pre-tax income of CHF383 million, and net revenues of CHF2.9 billion.

The reduction in both our risk positions and our expenses saw a more consistent performance than a year ago, with continued market share momentum. I'll go through the revenue trends in more detail on the next few slides, but if you look at operating expenses, in Swiss franc terms the annualized expense run rate improved by CHF1.6 billion, compared to the first half of last year.

Risk-weighted assets in Investment Bank fell by $4 billion in the quarter, reflecting a $10 billion reduction in the [FID] wind-down positions that we've discussed before, partly offset by increase in other business lines, particularly rates.

In Swiss franc terms, risk-weighted assets increased due to the appreciation of the US dollar against the Swiss franc, particularly over the last three months.

Slide 18. Fixed income revenues were significantly higher than the second quarter of 2011, driven by a more balanced business mix and lower inventory levels, which reduced the hedge volatility that we suffered in the same period in 2011.

The over improvement in fixed income revenues against the second quarter a year ago primarily attributable to, one, securitized products, which had a very difficult quarter in 2011 but was much more resilient this quarter, albeit not at the levels that we saw in the first quarter of 2012. We saw a well balanced contribution from non-agency, government guarantee, and asset finance.

Second, we had a robust performance in emerging markets, compared to both the first quarter and the second quarter of 2011, with continued growth in local market lending activity.

And thirdly, we saw increased market share in credit, despite weaker market conditions and sustained lower levels of inventory.

However, if we look at our rates and FX business, whilst we had a very good first quarter, the second quarter was adversely affected by challenging trading conditions, with much reduced client flow.

In terms of the fixed income revenue losses from the businesses that we're in the process of exiting, the wind-down portfolio that we've mentioned before, the charge this quarter was CHF139 million.

Slide 19. In equities, trading revenues were solid year on year, with the 8% decline in revenues reflecting reduced client activity, although we maintained our overall market share.

Prime services continued to perform well, driven by market share gains, and not withstanding reduced industry activity and lower client balances.

Derivative revenues, though, were down compared to the first quarter, reflecting sustained macro concerns and conservative risk positioning.

Slide 20. Underwriting and advisory results reflected continued lower industry transaction volumes, although our market shares remained at or above previous quarter levels.

Slide 21. We showed this slide in the first quarter results. What it shows is the incremental impact on the normalized return from Investment Bank's reduction in revenues, cost improvement, and RWA reduction measures, first half of 2012 compared to the first half of 2011. The point here is the impact of the efficiency improvements and the lower risk-weighted asset usage more than offset the reduced revenues, with the result that the annualized after-tax return on equity improved to 12%, from 8% in the first half of this year.

And in terms of capital efficiency, defined as revenue per average Basel III RWA usage, this improved by 28% for the first half of 2012, compared to the first half of last year.

Let's turn now to Asset Management on slide 22. Pre-tax income was CHF133 million in the second quarter.

Fee-based revenues increased quarter on quarter, mainly due to semi-annual performance fees, as well as higher placement fees. However, investment gains were lower than in the first quarter, at CHF27 million, due to the timing of realizations in what are challenging market conditions. And I'd note that the second quarter last year also included some substantial one-off investment-related gains, which we mentioned at that time.

If we look at the first half cost trends, and adjusting for the PAF2, as per the other divisions, the annualized expense run rate was down CHF134 million, compared to last year.

So slide 20, let's look more at the expense performance so far this year. You may recall that a year ago we set an expense run rate target of CHF1.2 billion going into 2012, with a further CHF0.8 billion planned to be achieved during 2013; or combined, CHF2 billion of cost savings in total by 2013.

As you'll remember, we achieved CHF1.5 billion of run rate reductions in the first quarter. And in the second quarter of the year, we've now achieved the CHF2 billion annualized cost saving target 18 months early. And the charts here show the annualized CHF2 billion of cost savings achieved in the six months of this year, as compared to the six months of 2011.

On the left-hand chart, the six months '11 reported costs of CHF11.5 billion have been adjusted in the second column to exclude variable incentive compensation and realignment costs. So the third column gives you the six months 2012 adjusted operating expenses of CHF10.3 billion -- sorry, the six months 2011 adjusted operating expenses of CHF10.3 billion.

Then let's look at 2012, on the right-hand side of the chart, and adjusting the six months '12 expenses on the same basis. So we start with CHF10.9 billion. But then adjusting for PAF2 and FX moves, particularly the US dollar against the Swiss franc, you get underlying expenses of CHF9.3 billion.

So comparing the first half to the first half, it's year-on-year savings of CHF1 billion, or CHF2 billion on an annualized basis.

We've now increased our year-end 2013 target by CHF1 billion to a total of CHF3 billion against our starting point. Savings of CHF450 million are targeted in the Private Banking division, and CHF550 million in the Investment Bank. Although I would point out, as Brady mentioned, that approximately half of these savings are generated from the shared infrastructure and support services that support both these divisions across the Bank.

We do expect some further realignment expenses in connection with this of around CHF525 million. Roughly CHF225 million of that are likely in the second half of this year; and about CHF300 million, the balance, in 2013.

So let's talk a little bit more about these incremental expense reduction measures, slide 24. So let's go into the details. As you know, we've already commenced the integration of the operations and assessment functions across Credit Suisse. This activity, which was previously run separately in each division, is now being managed centrally within shared services, with a single operations function for the whole Group.

We now expect further substantial savings following the integration of technology into this, which means that we can run operations and IT end to end, removing duplicate change in management processes. We're also reassessing our outsourcing strategy in light of these changes.

And the realignment of operations, IT, and deployment means that we can look at our cost base holistically and rebalance our onshore/offshore outsourced services. And this, together with further alignment of cost reduction measures across the rest of shared services, will deliver the bulk of the CHF0.5 billion reduction in spending in this area.

There are also a number of measures, that we list on this slide, within the Investment Bank and the Private Bank to contribute the balance of these savings.

Slide 25. Slide 25 shows the substantial reduction in our overall Basel III RWAs since the third quarter of last year, resulting from the strategic realignment within the Investment Bank.

Our estimated Basel III risk-weighted assets are at CHF305 billion at the end of the second quarter; close to our advised CHF300 billion end 2012 target.

The increase in the second quarter of CHF10 billion is primarily due to FX movements, with the [$4 billion] reduction in the Investment Bank offset by underlying increases, primarily in the Private Bank.

You'll note that we've increased our end 2012 risk-weighted asset goal to both reflect the FX rate moves, and also an update to underlying estimates for the new Basel III regulatory regime, to give an end year target of CHF300 billion for the Group.

And I'd note in this context that, clearly, Basel III is an entirely new regulatory regime. Although we are now in the final six-month run up to implementation, a lot of the rules are still in the process of being finalized; not just in Switzerland, but by regulators around the world. So even though Switzerland is more advanced in this process than many other countries, there are still a number of uncertainties to be finalized.

Clearly, we're continuing to actively evolve our business model as we adapt to these changes. And just to be clear, the intention is for the US dollar Basel III RWA usage by the Investment Bank to be at or below the [end 2Q] levels of $206 billion.

Slide 26. So Brady summarized this. What we show here, though, is how the capital actions announced today will improve the look-through Swiss core capital ratio. I'll spend some more time on the details in a minute, but let's look at the ratios first.

On the left-hand side of the chart, the first column shows our current shareholders' equity of CHF34.8 billion. In the next column, we adjust for those capital items that on a fully transitioned or look-through basis are deducted in the regulatory capital calculation. This includes own debt gains, goodwill, and regulatory reductions on the 2018 definition.

So in the third column you can see our look-through Swiss core and total capital at CHF14.5 billion and CHF17.1 billion, respectively. That's at the end of the second quarter.

Just to be clear, under the Swiss definition, total loss-absorbing capital includes the issued CHF2.6 billion buffer capital notes, but not the forward exchange CoCos of another CHF5.8 billion. And this is the ratio that the Swiss National Bank referred to in the financial stability report.

So moving right, the next column shows the immediate capital actions that will be effected by the end of July, adding a further CHF7 billion of core capital, as well as a further CHF1.7 billion of capital in the form of buffer capital notes.

And that arrives at CHF21.5 billion and CHF4.3 billion of Swiss look-through core and total capital, respectively. So on a pro forma basis, that puts us at 7% look-through Swiss loss-absorbing capital, and 8.5% for the total capital ratio.

If we then add the benefit, an additional CHF6.6 billion, from the further capital actions that will take place in the second half of the year, as well as the consensus earnings expectations for the balance of the year in the next column, this would increase these same ratios to 9.4% and 10.8% by the end of the year, with our look-through core capital at CHF28.1 billion; nearly twice the level at the end of the second quarter, and close to our target of 10%.

Okay, so let's go through the major elements of the capital plan, slide 27. So if we start at the top here, one, we've accelerated the conversion of some of our hybrids into buffer capital notes; pulling forward the pre-agreed exchange that would otherwise take place in October of 2013. This increases our issued contingent convertible capital, or BCNs, by CHF1.7 billion to a current total of CHF4.3 billion.

Second, we're issuing CHF3.8 billion of mandatory convertibles at a fixed conversion price of CHF16.29 per share, converting into 233.5 million of ordinary shares.

Mandatories converting into 117 million shares have already been placed with strategic investors and, therefore, are effectively already bought. Mandatories to convert into the remaining 116.5 million shares are subject to take-up by current shareholders, but their purchase has already been fully underwritten by the strategic investors.

And just to be clear, you may recall, in the first quarter we mentioned that we were intending to place 33.5 million shares in respect of the minority stake in Hedging-Griffo. This is now incorporated and included in this placing.

Just to be clear on these mandatories, they will actually convert in March 2013 into ordinary equity.

Third, in respect of the Tier 1 participation securities, you are aware that we already have $3 billion in these instruments that were issued back in two tranches in 2008 and 2010. The FINMA has decreed that these will count at a 20% haircut, or an 80% effective rate, towards the 150 basis point premium between the Basel III requirement for a G-SIB bank at 8.5% and the Swiss requirement at 10%.

So you can think of this in two different ways. The Swiss core capital ratio includes this and adds 80 basis points to our loss-absorbing capital; or alternatively, the required rate that we have to get to under the Basel III rules, in conjunction with the Swiss regime, is now 9.2%, rather than 10%.

Fourthly, I think you maybe already aware from market announcements that we sold our remaining 7% stake in Aberdeen Asset Management for a further capital benefit of just under CHF0.2 billion.

Slide 28. The measures that I've just discussed on the preceding slide will all be effected by the end of July and are included, as such, in the ratios. But let me now turn to the measures that will take effect in the balance of 2012.

First, in terms of APPA, which, you may recall, is a deferred cash compensation award, we will offer to our employees a one-time irrevocable option to exchange their deferred cash instruments into shares. And that will be at the same price as the mandatory convertible issuance.

Now, clearly, this is a voluntary exchange and we don't know what the take-up will be. But what I would say is we'll have a total liability of this around CHF1.3 billion by the end of 2012. And we're assuming CHF750 million against this CHF1.3 billion liability, so a take-up of just over 50%.

The subscription period for this option is planned for July 18, through to July 27, 2012, which will benefit capital immediately.

Two, strategic divestments. We've decided to divest a number of businesses, of which the most important is the large bulk of our illiquid private equity businesses are in the Asset Management division. This releases capital and risk-weighted assets, but also accelerates the alignment of this business to a new regulatory regime in the United States, otherwise known as the Volcker Rule.

Three, real estate sales. We initiated a substantial review of our real estate portfolio a year ago. This is already now well advanced, and we would expect to have about CHF0.5 billion of capital benefit from a number of major disposals that will be finalized in the next few months.

And then fourth here, there is a normal change in equity that we'd assume in this projection, which total about CHF1.95 billion. This includes consensus earnings, but adjusted for the additional realignment restructuring expenses I mentioned before, and also the transaction fees associated with the capital plan; second, the capital benefit you get from the delivery of shares in respect of share-based compensation; and third, the benefit we get from a reduction in deferred tax and other deduction measures under Basel III.

Slide 29. Just in conclusion, we've provided you with a lot of different capital ratios this morning. And there's no doubt the transitioning from B2.5 to BIII is a complex process, with a number of different measures that we're going to look at.

So let's just summarize. On this slide, on the left-hand chart we show the capital ratios under the B2.5 regime, both Tier 1 and core Tier 1, the latter being the ratio currently used to determine the BCN trigger on the CoCos.

At the end of the second quarter of 2012, our core Tier 1 ratio under B2.5 was 12.5%; [pretty well] in excess of the BCN trigger at 7%. If we look at the measures that will be completed by the end of July, our B2.5 core Tier 1 ratio increases to 14.2%. If you then include the additional actions and the earnings-related impact over the balance for this year, the ratio would rise to 16.2% on a pro forma basis by the end of 2012.

I know there's been some discussion around the EBA's stress test. Although we're not a bank regulated by the EBA, this is the ratio you'd compare to the 9%.

Now on the right-hand side we show the look-through simulated Basel III and Swiss capital ratios, including immediate capital actions, and assuming the completion of the capital plan by the end of this year.

If we look at the simulation for the end of 2012 in the right-hand column, you see 8.6%, which is the Basel III common equity Tier 1 ratio on a full look-through basis.

The ratio we're most focused on is the Swiss core capital ratio, which is the Basel III common equity Tier 1 look-through ratio plus the Tier 1 participations of 76 basis points that I mentioned before, which, you can see, the simulation shows us pro forma basis at 9.4%. And that compares to our target of 10%.

Finally, 10.8%; that's our simulated Swiss total capital ratio, which also includes the BCNs, and is the one that the SNB referred to in their financial stability report.

So, on that note, I'd like to conclude my presentation. Thank you very much for your time this morning at short notice. I'd like to pass back to Brady.

Thanks very much, David. I think with that we'd like to open it up for questions, so, operator, can you open up the line for questions?

Thank you. We will now begin the question and answer session. (Operator Instructions). Kian Abouhossein, JPMorgan.

First of all, just some technical questions. The deferred cash into [CS] payment for employees, is there going to be -- what is the assumption that you take that there will be roughly 50-plus-% take-up? That's the first question.

The second question is related to your cost savings. You've done a great job of achieving them. If I look at the comp ratio or the cost-to-income ratio, though, one could argue, especially in the IB, there is more to be done. Can you maybe also talk a little bit about how you think about IB cost-to-income ratio on a longer term basis, going forward, rather than just the absolute target?

And the third one is more strategic. I'm sure there were a lot of options discussed of how to deal with the capital situation. And one could have argued that maybe the fixed income business should be reduced further from roughly CHF150 billion of risk-weighted assets. And one of your competitors in your own country operates with less risk-weighted assets. Why didn't you choose that option, rather than raising equity?

Thanks, Kian; I appreciate the questions. I think on the first point, as you say, basically, the program that we're offering is, as you know, we've had this APPA program out there, which is a deferred cash instrument. It earns the ROE of the firm. And there are also our clawback provisions for the employees based on the performance of their business. So it's a fairly, I think, well aligned instrument for shareholders.

What we're basically offering people is the ability to receive all the payments under that program, including any ROE, any clawbacks, etc., all factored into that in the form of shares set at a conversion price at the same as the mandatory convertible conversion price that's been set, or CHF16.29.

And I think our view is that -- obviously, we don't know, we'll need to go people. And, as you know, there certainly are pressures in the industry; people would rather have less deferral, have more cash, etc. But I think our hope is that people will be quite interested and bullish on participating in the stock and the upside there from this program. And so our assumption was that we would be able to get to those kind of numbers.

We already have, from our Executive Board, 100% participation and 100% of their APPA holdings. So actually that comes -- basically, the remainder is about 50% take-up from other employees who hold it. So we think it's probably a reasonable assumption, but it will obviously depend on various things, and we'll only find out when we find out, when we make the offer the employees. But we think people will feel good about that.

And just, once they get the shares, they can sell them right away? There is no vesting period involved?

Yes. Obviously, the shares will be delivered as they receive the payments on the APPA. So the first share delivery for someone who participates -- and it will be actually, I think, next April, so almost nine months from now. But as they receive the annual interest payment in the form of shares, should they opt for that, and principal payments over the next two or three years, that's when they will actually get the shares.

But, yes, once they get the shares, they will be able to sell them. But they will be in tranches, and the first one beginning not until April of 2013.

Okay.

On the third question, as you say, certainly, obviously we'd like to think that we thought hard around the business and the different options that we had here. And I think one of the things we hope is good is that we view this as a balanced set of measures in terms of trying to have the maximum non-dilutive impact, making the right choices around the businesses, consistent with our strategy.

I think your question on the fixed income business specifically is, probably, partly rooted in, if you look at the performance in the second quarter, I think that we feel that we've done a lot to diversify and balanced our fixed income business and very much de-risk the business.

And so we feel like we are now running a state-of-the-art Basel III compliant fixed income business. As such, it's actually been performing pretty well. The second quarter, I think, is a good example of that, if you look at the resilience of the revenues there.

Frankly, it's also an area where we think there probably is the biggest divergence in the industry between those who have adapted their models to Basel III and those who haven't. And so we think that there's going to be a lot of change in this portion of the industry, over time, and that change is going to lead others to have to really very significantly revamp their fixed income businesses, which will probably lead to opportunities for us.

So we think it's a -- we think we can make it a consistent earner in the meantime; second quarter is encouraging in that respect. But also, we do believe that this is probably the part of the Investment Banking business, as you know well, that is going to have the greatest impact from the capital regulation and the changes. And we think we are better positioned in that, given the measures that we've taken today.

David, I don't know if you want to talk about the (multiple speakers) a little bit?

Sure. So on the expense side, I think, clearly, second quarter cost-to-income ratio in the Investment Bank was about 87%. But for the first half, it's actually at 77% once you actually normalize the PAF2; so 79% without that normalization, 77% with.

We have a KPI for the Investment Bank to actually get that to a 25% pre-tax margin, so call it a 75% cost-to-income ratio. So we clearly think that we are making good progress towards that goal.

Clearly, we think there's further to go, and that's out intention and goal to do so, and that's one reason why we've actually stepped up the cost saving target for 2013. I would say, though, that is an ongoing and rolling cost reduction target, and that we will be looking for further measures above and beyond that as we implement some of the programs we've now initiated.

So I think we, clearly, would intend to push this further. As I said, I think our KPI is 25% for the Investment Bank, 75% cost-to-income ratio; not far off that in the first half. Clearly, a little bit more drift in the second quarter, with the more difficult operating environment we were in.

But I think also, Kian, I'd just like to emphasize that our focus is on return on equity in our businesses. And that's the most important focus. Frankly, I think that's going to be, going to have to be, the industry's focus going on given the cost of capital and given the amount of capital is assessed against these businesses. And so that's really the way that we look at and manage the businesses.

Frankly, if you have a lot leaner from a capital point of view in terms of the business, you're likely to have probably slightly higher costs and also costs, and to some extent compensation costs, in that business as well. As David said, we are targeting the 25% margin. We think we can make very good returns in the business, and consistent returns, but that's really what we're focused on.

And, if I may, one more follow up. As you said, you've done very well, relative to some of the peers in your fixed income, as well as equity, business. Can you just talk a little bit about how the market environment is shaping up in July, relative to what you have seen in the market in the second quarter, both in fixed income and, briefly, in equities?

Obviously, again, it's pretty early in the quarter. I think, broadly, it's consistent with what we saw in the second quarter.

Okay, thank you.

Kinner Lakhani, Citi.

I had a couple of questions, actually. Firstly, on the strategic divestment, which I believe may relate to private equity, is this included in Asset Management? Perhaps, could you give us some color on how advanced you think those disposals are, in terms of the process?

Number two, in terms of the APPA exchange, just wanted to make sure I understand, in terms of the share dilution that comes out of it, essentially thinking about the CHF750 million assumption, relative to the mandatory conversion price; if that's the correct way of looking at it.

And number three, if you could maybe give us a bit more color on the repurchase of debt instruments? And what really you're benefiting from, in terms of both capital and funding costs? Thank you.

Good. Thanks very much for those questions. On the first point, I guess I would just go back and stress that the measures that we're taking are consistent with the strategy that we've had in Asset Management, and really more of an acceleration, a continuation of those measures. Frankly, I think we've actually done a really good job in terms of our focused strategy there and how we've executed on it.

As you know, as I think David mentioned, we basically finished off the sale of our Aberdeen stake. I think that was a very successful, both strategically and financially. We sold our long-only business to Aberdeen, took a stake in exchange, and have now sold that stake out at good levels and so I think that's a good example of the focusing that we've had in the business. And I think we've actually shown in that business that we've done -- we've been very good at executing.

I think, as I said, we -- this is just a continuation of our focus on a more capital-efficient approach to the business. We're looking at focusing on some of the more liquid alternatives parts of the business. We have a lot of great aspects in our Asset Management business. But that does mean, as you say, that we will be looking at sales of some of the businesses on the private equity side, or the illiquid side of things.

We think that we -- I'd rather not comment on exactly where we are in the process. But we feel confident that these are the kinds of asset management businesses that are actually quite attractive, and that will be of interest to a pretty good group of potential buyers. And so we feel -- obviously, there have been some other asset management business approaches which have not been successful.

We think this is a very targeted set of businesses. It's not a large conglomeration business; it's a focused, targeted set of businesses. And we think that these are businesses that are actually -- clearly, will be attractive to a pretty decent group of buyers. So our view is that we feel pretty confident that we'll be able to get these done. And obviously we have done some work on it.

So, David, do you want to address APPA --?

Sure. On the APPA conversion, deferred cash conversion, at CHF750 million, you'd be talking about 46 million shares, which would come in three tranches; in 2013, '14, and then a small tranche in 2015, which is the delivery program for the APPA instrument. So the shares are actually delivered, following the election by the employee, over the same period as the APPA itself.

I think, quite clearly, just to make a small point, which is the actual dilution, obviously, will depend on our capital position at that time. Because clearly, if we -- as you know, we've said we're going to commit to make substantial cash returns to shareholders once we actually pass the 10% level.

So we may choose, obviously in latter years, to actually buy some of the market. But I think for the moment, why don't you see it's fully diluted; that's probably the most pessimistic and prudent case.

In terms of the share buyback -- sorry, in terms of the debt buyback, I think you may remember that in the first quarter we did a CHF4.7 billion debt buyback, which contributed about CHF0.5 billion to our CET1 base. Mostly, it's directly billed equity; some gains through the P&L as well.

In reality, what we're actually doing is we're retiring some of the non-equity instruments lower Tier 2/Tier 1 instruments, which were, and actually still are, required under the Swiss decree which came out in 2008 but is replaced by the Basel III regime at the beginning of next year.

So as essentially we've issued buffer capital notes, we're gradually retiring this stock of old capital instruments. And this new exercise really falls into that. The targeted size is somewhere between CHF3 billion and CHF4 billion.

We would not expect substantial gains for this buyback as the first, partly relating to price; and partly, I think, it depends how successfully we are actually in terms of buying this debt back. However, at that size, we're probably looking at something like CHF40 million of interest cost. And there will be a modest gain to capital, but not on the CHF500 million gain that we saw from the first tranche.

Is that helpful?

That's really helpful, actually. And if I could just follow up, just with the depreciation of the US dollar and the sensitivity to your earnings going into the second half of the year; this time last year exchange rate was in a very different place.

Yes, the exchange rates at -- if we look at the -- on average, in the second quarter it was 0.93, closed at 0.945 for the capital ratios. Clearly, in the second quarter a year ago it was 0.87; and I guess at the moment we're around the sort 0.97 to 0.98.

Now that benefits the Investment Bank's earnings on translation because I think you should assume that nearly all of the Investment Bank's earnings are actually dollar based. So, therefore I think if one looks at one's forecast, if you assume those are in dollars then you can get a fairly direct impact of the earnings benefit from a higher dollar against the Swiss franc.

Just in terms -- just to be clear, I think we've made this point before, but just to be clear, we essentially hedge shareholders' equity against the dollar, so approximately 65% or so of our risk-weighed assets are actually in dollars. And our shareholders' equity is essentially matched to that, both about 65% dollars too. We essentially do that to hedge the capital ratios.

Clearly, what that means, though of course there's an appreciating dollar, you get a benefit to shareholders' equity because, obviously, it rises on consolidation of Swiss francs. So that's the other impact from an appreciating dollar against the Swiss franc for Credit Suisse.

Jernej Omahen, Goldman Sachs.

I have a few questions. Some of them are clarification questions on some of the capital measures, and then I've got a couple of other questions as well. Firstly, can you explain to us why it makes sense to issue a mandatory convertible note that matures in eight months' time?

If I understood you correctly, particularly yourself, Mr. Dougan, you expressed a view that you expect participation from your own employees to be reasonably high because the outlook for the shares is, in a sense, constructive. Yet, if I understand this correctly, you're offering the mandatory convert shareholders a 10% discount for eight months; so an annualized return of 12%/13% for, essentially, something that I think in normal circumstances one would expect to be done either through a rights issue, or through a placement -- accelerated book build, rather.

The second question that I have is, on the first capital measure, the CHF1.7 billion of Tier 1 capital notes which you are folding into BCNs, it's surprising to see that Qatar Holdings, your core shareholder, and definitely your core holder of hybrid capital, is not participating in this exchange.

Now if I understand this correctly, this is a hugely important development because their holding of hybrids is CHF4.1 billion, so it's actually larger than the mandatory convert issuance altogether. And I was just wondering if you could shed some light why is it that, if I recall correctly, it's probably for the first time since the beginning of the crisis that this core shareholder is not supporting a capital action of Credit Suisse.

The third question that I have is it is surprising to see that when you have CHF8.7 billion of capital measures that an EGM is not called. And I was just wondering whether part of the reason, and I'm assuming that's not the case, that there is a better explanation, but maybe part of the reason for doing this via a mandatory convert note which converts already in eight months' time is perhaps trying to -- I was just wondering whether, if you'd either a rights issue or a book build, you would need to call an EGM or not; and whether doing it via a mandatory convert note allows you not to do that.

And the final question I have is on the SNB recommendations. I think that you are right when you say that you are now fully, essentially, compliant, or with what the SNB asked Credit Suisse to do by the end of the year, but there seems to be two additional issues here.

So the first one is the SNB made an express reference to the simple average ratio and I was wondering if you can just update us on what the leverage ratio is on your calculations today, and what the simple average ratio will be after these capital actions.

And my final question is the SNB also called for an increase in transparency when it comes to risk-weighted asset calculations and has asked both UBS and Credit Suisse, or urged UBS and Credit Suisse, to report risk-weighted assets calculated on the standardized basis. I was just wondering whether we can get that number as well.

Sorry for the many questions, but thanks a lot.

Thanks very much for all those questions. Great questions. I guess maybe we can just work backwards from what you had mentioned.

I guess on the SNB recommendations, as you say, I think one of the most important things is that, obviously, with the measures that we've taken today, we've, I think, pretty much put to rest any of those concerns.

Actually, I assume most of you have probably seen that the SNB actually issued a statement, which is actually pretty strong in terms of what they said. If you haven't seen it, they welcome the capital measures; they said these measures lead to a rapid and insignificant increase in the loss-absorbing capital of Credit Suisse Group. And in an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse Group.

So I think a pretty supportive statement, and one that, hopefully, indicates their alignment with the measures that we've taken.

I think on your very last point about increase in transparency, I guess I would let everybody on this call judge that. I actually think that we have been about as transparent, if not more transparent, than virtually any other firm on all of these issues, whether it be earnings issues, capital issues. I don't know of any other bank that has disclosed as much about the RWA progression, the capital progression, and everything else.

So I think you all are probably in a better position, perhaps, than some others to judge about the transparency that we have offered. So I think that, actually, we have been extremely transparent, and continue to be, and we will continue to be, but, again, I'll let you judge that.

You want to answer the question about leverage ratio, and then we'll (multiples speakers).

Sure. I think what the SNB did in the financial stability report is they took the Swiss total capital, which they defined as the Basel III look-through common equity, and then added to that the issued CoCos as at the end of the first quarter.

So if you look at slide 26, actually, you'll see a number there, about CHF17 billion. I think we felt to get to that first quarter number it must have used about the same number. You may recall that the balance sheet at the end of the first quarter was exactly CHF1 trillion, so I think they quoted a ratio of about 1.7%.

So if we look at the second quarter numbers, you see that capital increases, this is on slide 26, to CHF25.8 billion, and then to CHF32.4 billion at the end of the year. Now the balance sheet was about [CHF104.3 billion], but essentially, therefore, you'd be seeing the leverage ratio on the SNB going from 1.7% to about 3.2% on a consistent definition basis.

I would just state, though, that clearly the Swiss leverage ratio is what we actually operate under; you'll see that in the appendix. It was about 4.7%, and increases to about 5.2% once these measures are actually complete.

So I think as to your questions around -- I probably lumped together a little bit your first question around the mandatory convertible form eight month, which is convertible in eight months, and the question around the capital that we're raising and the form.

From my point of view, actually, I think that one of the absolute best things about all these measures is that the capital that is being raised, first of all, a lot of it is from non-dilutive sources. So I don't know exactly what the CHF8 billion is that you're referring to.

Obviously, the mandatory convertible issue is about CHF4 billion, and there are some other measures as well. But really the only measures that are going out in terms of an actual more traditional capital raise are the CHF4 billion.

But second of all, I think that the structure of this is extremely decisive; is completely underwritten by strategic investors; still offers the opportunity to participate from the broader group of our investors. So, frankly, I'd have to say, in my opinion, I think it's a very well structured transaction from all those points of view.

Frankly, we obviously -- all of this is being executed within the authorities that we have from our shareholders, which we've received in our AGMs in terms of the authorized shares and the form that we can do it in.

So our view is that -- again, my view is that I think this is an extremely well structured transaction, and we can talk more about that. But having it fully underwritten by a group of extremely high quality strategic investors is, in my view, a pretty good place to be. So when I compare it to other capital raises that have been done by banks, I think it's a pretty good structure, but I guess I would.

In terms of your other question, on the question of the acceleration of the hybrid into contingent convertibles and Qatar's participation in that, first of all, I would just say Qatar has been a tremendously valuable investor and strategic partner for us. They continue to be. They have participated fully in this capital transaction; have been very supportive. And we have had a lot of dialog with them in how we've actually structured and done this. We believe they are fully supportive, completely supportive of it.

To be honest with you, on the issue of the actual acceleration of the conversion, their notes will still convert in October 2013, just as it was originally scheduled. To be honest, I think they have, I'm sure they have, ways they think about their portfolio and their investment; they certainly find that investment very attractive. It's got a high coupon on it. It's a very good instrument.

On the other hand, for us, the increase in the level of high trigger contingent convertibles is helpful. It does increase the loss-absorbing capital. It's helpful in getting an even higher number than what we're currently showing against the ratio that was shown in this SNB stability report.

But to be honest, I think when you all look at the capital -- and the issue of capital for us is not a total capital issue; it's really just around this common equity issue and so that's really what we're focused on.

So, frankly, they have been extremely supportive in the overall transaction, and we're actually very grateful for their support. And whether or not they accelerated this contingent convertible, we would have been happy to do it. We're okay with their considerations in not doing it, so I don't think there should be any view that there is anything but a very strong strategic relationship and a lot of support there.

Thanks a lot. Maybe, just two very, very short clarification questions. Did I understand you correctly that when it comes to SNB's recommendation that, quote, banks should already be reporting risk-weighted assets on a standardized basis to help market better assess the reduction in risk, end quote, do you plan to, essentially, take the SNB up on that recommendation and release standardized risk-weighted assets with your full Q3 results or later on in the year or not? Just yes or no.

And the second question, I was wondering, I still missed the rationale for issuing a mandatory convert which converts in eight months' time at a 10% discount to the current share price when the view clearly is, from the perspective of Credit Suisse Group, that you have a very constructive case for share price appreciation in the future.

I'm just trying to understand the rationale. Is there a legal rationale where you're trying to avoid complexities of calling the EGM? Is there an economic rationale? Because from an economic perspective, it's just very hard for us to understand why this part of the capital increase makes sense.

I think the point just to stress here is financing through a mandatory conversion issuance is a relatively standard approach in Switzerland, and it's been used by other Swiss financials for a number of years. So it's more or less the normal course approach which one would take here in Switzerland, and it's the way in which the authorization and the rules actually operate. And the lifetime of that is relatively standard, so there's nothing particularly out of the norm for that.

I recognize that's different from other regimes, but it's very common here in Switzerland. So that's the point I'd make on the first one.

On the issue of the standardized calculations, it's not a trivial thing to do because any bank's risk systems are actually built around the models that are in play today. So those, of course, are currently BII and B2.5 for us; and we're in the middle of the BIII build for all our systems to take place at the beginning of next year.

So if you actually wanted to re-cut all the systems so they operated on, essentially, a BI standardized-type basis, you'd have to rebuild a whole parallel set of models to actually do it. That would be extremely expensive for any market risk approach. It would be difficult for some of the credits, but easier than market risk. And then for off risk, it wouldn't be that difficult. But it's not, in fact, a trivial exercise that can be done that easily, and it would have substantial cost implications. So we'd have to then build, essentially, a BI system to run in parallel with BIII.

And I think, as we all know, I think you may recall, the BI regime didn't really reflect real risk. It was one of the reasons why, essentially, it was retired with BII in most places, and why, basically, people are moving to BIII, because of the limitations around BI were very standardized, on-balance sheet-type approach. But, clearly, it's something we'll see. It would not -- it's not a trivial exercise to do.

Yes, it's too bad because it would nice if we could go back to the systems we ran six years ago and avoid all the costs that we've had in the meantime, but that's hard to do at this point. So I guess that's our view is we don't -- it's complex.

So the answer is, no, you will not be providing standardized risk-weighted assets?

I think I just answered the question; that it would be extremely expensive, it does not provide a better measure of risk. I think -- that's what I said.

Okay, thanks a lot. Thank you very much.

Huw Van Steenis, Morgan Stanley.

I think Jernej's asked my questions on capital, so I just have two more. First, I'm surprised, in your release, that you've maintained your 15% return on equity target, given that it was set in a time when you were far more optimistic about the revenue environment, and also far more optimistic about your capital position. Could you maybe just talk through why you think this is actually -- a, when is this target realizable? Are we talking five to 10 years' time? And what is your realistic expectation for the next three years?

And related to that, you previously thought you wanted a core Tier 1 of 10 and 3 points of CoCos. In the light of being overoptimistic in these slightly harsher regulatory [tones], do you think that is still appropriate? Do you think that needs to be a significant buffer, over 10%?

And lastly, on dividends, given the Board's been over optimistic on dividends for the last two years, do you feel -- and you're going to scrip for this year, would it be a safe bet that for the next one to two years we should assume zero cash dividend because the Board are being much more cautious about capital build and regulations? And maybe that explains why you've chosen to do a rather generous mandatory, because for next year it's highly unlikely that you'll pay a dividend on the common equity. Thanks a lot.

Yes, Huw, thanks very much for those questions. I guess with regard to the ROE, again, we have reiterated our target of a 15% ROE over cycles. I think in the first six months of this year we posted a Basel 2.5 ROE of 12% in what I would view as not really great environment, particularly the second quarter. First quarter was okay; second quarter was pretty difficult. I think a 12% Basel 2.5 ROE on that basis is a -- I think that's a pretty credible performance.

We obviously have identified additional cost reductions that we can make. We're continuing, I think, to realize the benefits from the changes that we've made, both on the cost side and a number of the alterations that we've made to the business model as a result of getting quickly to a Basel III compliant model. And we think we're going to continue to benefit from that over time.

In addition, I think we do continue to believe that, and we're starting to see more signs of it now, the rest of the industry is going to have to make the transitions that we've made. And as they make that, that is going to probably create more opportunity for us to take market share and to do more.

And you're starting to see more -- starting to hear a little bit more about Basel III from a number of the banks that talk about, and you're starting to see a little bit more about what's happening with risk-weighted assets, etc., around the industry, and I think that's going to continue. So I think we're also going to benefit from that.

So I don't think -- we're certainly not talking five to 10 years as a target for a 15% ROE. I think under reasonable market conditions our business model can produce that now. We made, I think, 16% on a Basel 2.5 basis in the first quarter.

Again, you all can assess, but I don't think the first quarter was a blowout quarter in terms of industry conditions. It was okay, it was reasonable, but it wasn't a blowout quarter. So I think we'll continue to improve the model, which will help get us at or above that level more consistently. And, hopefully, we'll also have some conditions that'll make it a little bit better.

I think on the core Tier 1, 10%, and then with the high trigger on top, I think our view is -- as we've said, I think when we get to it a 10% Swiss core look-through ratio, and particularly with our total capital ratios, including 3% contingent capital in the form of our high trigger CoCos.

In addition, given the extremely conservative funding profile that we have, we have an NSFR over 100%, I'm not sure there are any other banks that have that, we think we have a very high quality asset side of the balance sheet as well.

I think all of those contribute to us believing that at a 10% look-through ratio, we may have some small buffer on top of that, but being around that 10% is going to be a pretty good place to be, I think. And so if your question is are we going to have to run significant cushions above that, I don't think that that's our belief right now.

And with regard to dividends, I think that our view is that we've got a stable business model from the point of view of consumption of capital. I think as David said, we expect the Investment Bank to be at or below these levels. We may see a little bit of growth in our Wealth Management businesses, but they're not very capital consumptive anyway.

So if we're at 10%, and we think -- and the business model performs in the range of how it can perform, I think there's going to be, clearly, an amount of capital that could be passed on.

But, David, do you want to add to that?

Huw, just a few points, just to supplement what Brady said. Firstly, I think it is worth recalling a couple of things. The ROE within the Private Bank was about 25% in the first quarter, that's on a post-tax basis; Basel III at 10%. It was about 29% in the second quarter.

And I think you may have seen in one of the slides, we reiterated and actually reinforced our RWA and capital allocation model; that we intended to see less than 60% of the RWA at the Bank within the Investment Bank, less than 40% in fixed income division, slide 11, and more than 40% within the Private Banking Wealth Management and Asset Management businesses.

So, clearly, for us, we are fortunate that we have a very, very strong market position in one of the highest return on equity businesses in the modern financial world.

I think you know, we've talked about this before, a number of things we could talk about at this meeting, some of the plans in the Private Bank in terms of what we're doing over expenses and growth in that business. So I think that's one thing, just to put it in context, when you look at the ROE for the Bank as a whole.

I think the second point, just in terms of capital discussions here in Switzerland, I think the point I'd really want to reiterate, the discussions really are, the 10% number, which we'd talked about, and which clearly, given we're getting pro forma 9.4% at the end of the year, one would have thought we would be at 10%, everything else being equal, not too long there afterwards, subject to market conditions. That's not a forecast. But we're obviously in good shape.

We obviously have about 2.8%/2.9% of our BIII capital based in high strike CoCos, and obviously the final tranche we convert next October. So we're at the 3% target under the Swiss regime so, in reality, I think the capital work that we will be doing will be around the retirement of the residual, the old Swiss finish, the lower Tier 2, and essentially the low strike CoCos which you're required to operate under the Swiss regime. And that's really where the focus of the discussions will be, actually, Huw.

Okay, thank you.

And that's clearly -- just to reiterate, that's why we've made this point about the commitment to return significant cash to shareholders once we're through the 10% mark.

Thanks.

Fiona Swaffield, RBC.

I had a number of things, sorry. The first issue is the discussion about the 9.4%, or the 10%, relative to absolute Basel III equity, because Brady did mention that it was the absolute level as well that was important.

And I'm looking at slide 26 and the CHF28.1 billion, which I think obviously includes the CHF2.3 billion, so it's closer to just under CHF26 billion. I'm just trying to understand what your thinking is on the absolute because it hasn't moved that much from a tangible point of view; it's just really the MCN. So I feel there's a push and pull between this leverage ratio issue versus the Swiss number of 10%. That's the first question.

The second question is could we spend a bit more time on the gross margin? And to what extent -- I'm trying to get my head around the net interest income part and the sustainability going forward.

And then the third issue is again on slide 26. The regulatory deductions are higher than they were, I think, as of the first quarter. I remember a number of just over CHF8 billion, now they're CHF10.1 billion, and then I wondered if you could tie that in.

In the past, you've told us moving parts for 2013, and obviously that's not in this slide pack, but when we're looking forward to 2013, has anything changed? You used to say there was a CHF3 billion reduction in regulatory deductions, is that still the case? So when we model out, should we be including retained profit plus the regulatory deduction? Thanks.

All right, David will take the first and the third; I'll talk a little bit about gross margins. So, David, do you want to start with the --?

So let me start with the regulatory deductions on page 26. Fiona, just a point of correction, in the first quarter, what we actually said in the look-through was that regulatory deductions would be CHF8.3 billion, as you said. However, that was the regulatory deduction projected for the end of the year, not the current time.

Okay.

So that's essentially -- because obviously you build equity in the period, under the 10% and 15% threshold, the deductions decline over that time, also you use up deferred tax. So that's where it happens. So the CHF8.3 billion, you saw before, was an end of year. This is -- obviously, CHF10.1 billion is the actual reductions we've given as of the end of June.

If you look at the slides that we actually show on 27 and 28, you will see we talk about a projection within this of a further CHF3 billion in deductions. So if you start at CHF10.1 billion, you would expect the number to be down to about CHF7.1 billion to CHF7.2 billion by the end of the year. And the reason deductions are actually lower, Fiona, is because obviously we've got more common equity as a consequence of these measures, so you have less deductions.

So that would explain those points, hopefully.

In terms of projections for next year, I must say, I haven't looked in detail at 2013. But I would say that CHF3 billion number is probably a pretty good estimate. We certainly would expect to burn through most of the -- the rest of the deferred tax and continue to build equity as we actually get to target. So that's, I would say, a pretty good estimate actually, Fiona.

On the first point, just to be clear, that really relates to the 9.4% Swiss core equity. I think, perhaps, I wasn't clear. The ratio that we're targeting to hit is 10% on that core equity, so that's 10% including the Tier 1 participation shares. That will be 9.24% on a look-through Basel ratio. And, as I said, the RWA we're targeting is around 300, so that would be the amount of, as you might say, look-through common equity we'd actually expect to have at that time. I'm not sure we really meant to imply anything else, actually.

So you're happy with the absolute even though because of the whole debate on equity to own on RWA to asset? So there's not an intention to build it aggressively from here?

I think we've been pretty clear. I think once we get to the 10% -- the Swiss rules are pretty clear, 10%/3% high strike. The capital discussions that I'd be expecting to have, and indeed started having, is really around the low strike CoCos; that's the focus next, [I'm afraid]. But, clearly, this will obviously push up the leverage ratio anyway, I think as we applied to a previous question.

Fiona, on the gross margin question, as you say, it was 115, as you know, this quarter. That was up nicely from 111 the last quarter. There are some -- there is an extraordinary item in there, sale of the ILS business, so it's actually on a normalized basis, I think, 113. But still, obviously, it's a nice tick-up in the gross margin so we're encouraged by that.

I think in terms of the net interest income, we had higher volumes, both on the lending side and the deposits. The loan margin was slightly better, but it was offset a little bit by lower deposit margins. But, overall, I think obviously a nice move.

In general, as you know, we have not been -- we have stopped trying to call the turn and interest rates, etc., so I just think the fact that it's obviously stable and it's ticked up this quarter is a good thing. I hope it can continue to tick up. But certainly the fact that it has moved up, at least that shows that it's clearly at a stable level, so in terms of net interest income.

But also, I think the recurring commissions and fees was also somewhat encouraging. There is some seasonality the second quarter. There is a little seasonality, very slight, but in general, again, I guess I would take it more as -- I would look at these numbers as stable to slightly up. And that's obviously encouraging, that they have stabilized.

Obviously, we hope we'll see -- third quarter is seasonally a little bit more difficult of a quarter with August, etc., but our hope is that we can continue to see some of these trends. But we're mostly focused on continuing to drive our gross margin in this business; make sure that we're hunkered down in case things continue to be difficult in terms of the environment.

We want this business to continue to increase its profitability on the bottom line, and we'll do our best to drive top line and gross margin, but we'll also continue to be prepared for it to be a challenging environment. But I think this quarter was certainly encouraging.

Thank you.

Christopher Wheeler, Mediobanca.

First of all, the Hedging-Griffo payment, the 33.5 million shares, are you effectively just giving convertible notes, or MCNs, to the people who are going to get the additional shares? And is that in the CHF1.9 billion you're already placed, or is it in the CHF1.9 billion you are opening up to shareholders? I assume it's the former.

Secondly, just confirm, I think the coupon on the MCN is 4%.

Thirdly, on the participation notes, have they been placed? And if so, where have they been placed, broadly? Is it with a few investors, or broadly? And what is the coupon that you will have on that?

What is the cost of the conversion of the part of the hybrid early into the CoCos, the CHF1.7 billion? Is there a cost? And what is that? And how will that be shown?

A question that Kinner raised on the private equity; I hate to say this for your employees, but is it something you would also think you might be able to use as compensation this year in terms of paying out some of your private equity participations?

Finally, Brady, you put out a couple of pretty strong statements after the Moody's downgrade and after the stability report about how strong your capital position is, and today obviously you've done some pretty major moves to boost it further. Can you just talk about how much of that was driven by regulator, and how much of that was driven by the Board's view and your view on the need to be more competitive on your capital position? Thanks very much.

Thanks, Chris. Thanks for all those questions. Just on the last one first, as I said in my speaking notes, we have benefited tremendously from being in a very strong capital position and being really unquestioned in a safe haven over the last four years.

As you know, we've taken a lot of market share. It's been very important for our Private Banking business certainly, but also our Investment Banking business, which is very client-oriented, our prime brokers business, etc. So that's been a very, very important part of the value proposition overall.

Again, it comes back to this question of our regulator, FINMA. We're double their requirements right now in terms of the capital glide path that they have, so this is why it's a little bit of a surreal discussion. As you say, is there pressure from (inaudible). We're double our regulator's requirement but where we need to be right now in terms of capital.

And so obviously the Swiss National Bank, an important player in the market is the Central Bank, their opinions matter. But they're not our regulator and so, just to make that clear, we felt and we were on a very good glide path now.

Obviously, the market has increased the pressure a bit more on the common equity side. And I think the Swiss National Bank report clearly did increase the pressure in terms of questions around the common equity capital position.

The interesting thing, as you know, is out of that whole episode was that -- I think that all told, after the SNB report and the changes in rating with Moody's, where, by the way, we ended up better rated than all but two banks in the global cohort, at the end of all that, our fixed income spreads were actually tighter. And we'd actually moved in, in terms of CDS spread, etc., and in fact benefited relatively in terms of business that we were seeing.

So, in a sense, it's a bit of an odd position to be in. But I think our view was just this is much better, to take the question off the table definitively; no question with our customers, with anyone out there, that there is any issue around our common equity capital. And that's basically what we've done.

We've tried to do it in a smart way, by taking non-dilutive measures, by structuring the capital we did raise with a complete strategic backdrop to it so we didn't end up with shares sloshing around the market, etc. But that's really -- and that's something that between management and the Board we're very much aligned on.

Obviously, we have liaised with our regulators on this. They've been very supportive. You've seen the Swiss National Bank's statement, which is very supportive. So I think all told, that it's really meant to just be a decisive way to take this issue off the table.

Working backwards around your question about private equity, we do not right now have any thoughts around that. As you know, last year we did this structure to PAF2, which helped to reduce RWA, etc.

And we'll obviously continue to try to -- we try to do the best we can around having very well aligned programs between our employees and shareholders and things that we think help further the strategy of the Bank. I'm not sure how much recognition we get for that, but we do try to do that. But right now, we don't have any thinking around that.

I don't know, David, do you want to start with the hedging?

Yes. So dealing with the more technical point, I think, Chris, you're exactly right. What we said in the first quarter is that we were going to place 33.5 million of shares in respect of the buyout of Hedging-Griffo minority, which, as you know, is a very successful business that we own in Brazil, and part of our very strong Private Banking, Asset Management, and Investment Bank franchise there.

We thought it was probably best to essentially incorporate that into these capital measures. So we've actually issued those as part of -- as you say, the first tranche, the firm placed no clawback tranche, and that actually has been completed and done now. I think it was good to get that issue off the market and not be a concern in terms of any future drag in terms of share issuance.

In terms of the Tier 1 participation securities, they're already actually issued. They were issued in two tranches, $1.5 billion each size; the first in 2008, and I think at a coupon of about 8.25%; and the second in June of 2010 at a coupon of 7.875%, and both size are [out] $1.5 billion. So they're already extant.

They were fully effective under Swiss law for the BII and the B2.5 regime. And, essentially, what FINMA has agreed is that they will be effective at an 80% effective rate for the Swiss/Finnish effectively above and beyond reducing buffer, as we've explained already. So there's no new instrument being issued; essentially, it's the existing ones.

Okay. And the cost of the bringing forward of the CHF1.7 billion of the hybrid into CoCo?

I would say, basically, it's pretty -- I don't know that we're going to get into all the details of it. It's pretty nominal. It was -- so, basically, pretty nominal.

And the coupon on the MCN is something 4%, is that right; [that] what I picked up on the Internet?

4%, yes.

Okay. Gentlemen, thank you very much for your patience. Thank you.

Jacob Kruse, Autonomous Research.

Just a few quick questions. Firstly, on the mandatory, is there a lockup for the shares after they convert in March next year?

Secondly, you gave a guidance for this capital progression where you included the dilutive effect in 2013 of 50% scrip dividends, as well as paying employees with shares; I think that was 1.2 billion. Is that guidance now off the table? Or should we just assume that that's still how you look at your capital progression?

And then just lastly, I just wanted to ask you if you have looked into your LIBOR positions. If you have any comments you can make about your own investigations, and also the state of regulatory debate? Thank you.

So just I'll take the first two. No, there is no lockup on the shares once the mandatory converts next March.

On the scrip dividend, I think you're probably referring to the first quarter presentation when we talked about paying scrip for sub-scrip periods. I think you're right, that the guidance that we gave at that time effectively is superseded now by what we've said today, which is that once we actually get through 10% on a Swiss core capital basis we will look to return substantial cash distribution to shareholders.

So subject to us achieving that, I think we would look to retire the scrip alternative once and for all. So that's all I'd say on that.

Yes, on the LIBOR issue, this has been, obviously, a long running issue. This has been out there for the last year, plus. Over that time, we've obviously had inquiries from regulators. We've done a lot of work.

We've done pretty extensive work; internally, been through lots and lots of emails, etc., particularly for the specific areas that would be involved. We have analyzed that information. We've also discussed that information with the relevant regulatory bodies, and we don't believe that we have any material issues in this area.

Now, obviously, these are -- these kinds of investigations, as you know, can take different turns, etc., but we don't believe that we have any material issues that we're aware of now.

Okay, great. Thank you.

Daniel Zulauf, Basler Zeitung.

I have just one question regarding your capital increase. I'm looking at the very positive share price reaction today, which certainly reflects, to a very large extent, the capital actions you have announced today.

As the market seems to welcome greatly your capital measures, I wonder why you have hesitated so long to actually take these measures. Can you, maybe, give your view on that question?

Well, again, I guess -- well, thanks, Daniel, first of all, for your question. I think that, as I said, we have benefited tremendously from being in a very strong capital position for the last four years. We continue to be in a very strong capital position, even before this.

But there was increasing, I think, focus in the market on the common equity portion of that, which doesn't necessarily affect our customers as much, but there was an increasing focus on that. Certainly, the Swiss National Bank report increased the focus on that. And so I think our view was that these are very decisive measures. They do completely put to rest this issue, and we think they're taken in a timely basis.

So I guess our view is that before we had basically been on a glide path where with our regulator we were double their requirements for capital so I'm not sure, given that, we felt that we were in the right place and continuing to progress on that. But, clearly, given some of the questions raised by the Central Bank, which is a -- those are -- obviously need to be taken seriously, we felt that this was the time to take the issue off the table.

Thank you.

I think there is one point, just to supplement what Brady said. I think if you look at the list of actions on slides 27 and 28, there's clearly a number of issues here, but what we're really doing is accelerating and augmenting an existing capital plan. So, obviously, the real estate plan; also, issues such as the debt buyback I mentioned before. As Brady said, I think there are very good reasons to do that, but it's more an acceleration of our glide path than anything else.

Thank you.

Andrew Lim, Espirito Santo.

I don't think you've talked about the revenue or profit impact from the divestments that form part of your capital plan. I was just wondering if you could give more color on that.

And then secondly, just one technical question on your lower capital deductions. It's about CHF3 billion in aggregate to the end of the year. I'm sure you've calculated it correctly but is that calculated off a Basel III common equity level? Or is that off a Swiss core capital level? I'm only asking because you've included it in your Swiss core ratio, so I just want to know whether we're talking on the same basis here.

Okay. Well, I think on the first question in terms of revenue and profit impacts of some of the -- I guess you're talking about the divestiture measures that we have announced. Is that right?

Yes, that's right.

I think, obviously, slide 10 actually shows in more aggregate some of those impacts. But I don't know, David, if you --

Yes. We're assuming a pre-tax profit impact of about CHF170 million. So deduct tax, and then it's six months, so that's where it's at, to what we've done there. But about CHF170 million would be our preliminary estimate for that.

I think, again, one of the things that -- obviously, I'm sure you get the point, but the slide 10 point is important to us, which is the -- we've obviously factored in the reductions in earnings versus the cost reductions, the additional capital too. And those are basically fairly not dilutive to earnings, so I think that's an important point.

The other question that was asked, David, I don't know if you caught it, was lower capital deductions of CHF3 billion. His question was is that being calculated off of Basel III or off a Swiss core Tier ratio basis.

That's a Basel III number, the deduction. So it's calculated off the Basel III look-through common equity, just to be clear.

Okay, thank you very much.

Dirk Hoffmann-Becking, Societe Generale.

There's actually just two questions left. One is can you just take us through the transition in Q1 to Q2 in terms of the CHF14.5 billion in Basel III look-through capital that you had; i.e. in particular, how much of the about CHF800 million in net profit did you actually translate into capital? How much was foreign exchange translation gains, etc.? And how do you see that going forward?

And the second question is on the Investment Bank. On slide 46, you assume an allocated capital of $22 billion, going forward; $10 billion less than in the past. So am I right in assuming that you are happy to run the Investment Bank at the current leverage level, which I estimate to be about 40 times, going forward, in order to preserve the return on equity in that division?

Thanks very much for your questions. With regard to the second question, I think you're largely right on the -- we basically said we would -- we're running, I think we ended up the quarter at about 206 billion, and obviously we've said that we think that we will be at or lower than that going forward. So I actually think the allocated capital will be more like 20 billion or something, on just assuming a 10% Basel III read-through. So a little bit less capital.

But I think our general view is that those levels, or around those levels, is about the right level that we believe we can drive an Investment Banking business that generates 15% return on equity. And that's really our target for that business. And we think, actually, that, that is a configuration that works and so we will continue to do that.

Overall, as you say, the whole leverage question, we are basically towards the top end of the leverage ratio requirement by FINMA, our regulator, at this point. They have a 3% to 5% ratio guideline, and we're actually at about the top end of that range, at 4.7%. So we are -- we feel like we're actually in a good place from a leverage point of view, certainly with regard to our regulator. So we're right at the top end of the range.

We do think, obviously, that the kind of gross leverage arguments are ones that we don't like that much because we think we have an extremely high quality and low risk Investment Bank. Half the balance sheet is either in prime brokers deposits or repo, which we view as extremely high quality.

Again, I think you have to put leverage and all those issues against things like funding profile as well. We think we run an extremely conservatively positioned Investment Bank in terms of all of those elements so, yes, I think our view is that we think that's sustainable and that we'll be able to continue to run it that way.

Do you, David, want to address the first and second (multiple speakers).

Yes. Just [and add on], the 4.7% was at the end of the second quarter. On a pro forma basis, adjusted for capital measures, the Swiss leverage ratio would be up at 5.2%.

In terms of the FX moves coming through the balance sheet, the full financial report will be ready next Tuesday. But what you'll see there is a currency translation adjustments of just under 1 billion, which come through from, I think, the equity heading strategy which I mentioned before; the fact that basically swap the equity to dollars to mitigate against any volatility on our capital ratios. So obviously the dollar is appreciating, closed about 0.945 at the end of the second quarter; clearly, it's appreciated more so far in July, so that's what you'll see going forward.

I don't think there's probably -- that would probably be the most important item. But, as I said, you'll see this in the report next week.

In terms of looking through to the end of the year, I think I wouldn't want to call an FX forecast, frankly. Given that about 65% of risk-weighted assets are in dollars, 65% of the equity's in that, if there was -- if the dollar rate stayed against the Swiss franc around 0.945, which it was in the second quarter, I'd expect neither the translation impact [not in any way] to increase, nor there to be much of a CTA effect.

Clearly, if the dollar continues to strengthen like this, we will see that coming through as CTA. That will boost the shareholders' equity. But, clearly, that will also basically boost the Swiss franc RWA on consolidation. But, as I said, we're trying to hedge to it essentially a neutral capital ratio there.

My question was more about the Q1 to Q2. So am I right in assuming that in Q1 you had 800 million profit -- retained earnings, less retained earnings, and about 1 billion less from FX translation in your Basel III capital? In other words, did you have about 12 billion in Basel III capital, of which 2.3 million was Tier 1 participation, no securities, that wouldn't have been otherwise recognized? Is that correct?

Ah, so what the 1Q number would have been, exactly?

Exactly.

So the equivalent of the CHF14.5 billion?

Yes.

And what was your estimate, Dirk? About 12, was it?

Well, I just -- I literally don't know because I don't know what your actual deductions were. I stupidly assumed that the numbers you had in the report were the actual (multiple speakers) so I don't know what the numbers.

The deduction effect obviously is also comes under the threshold impact too so that's not a trivial calculation. From recollection, I think it was around 12.8 billion, actually, Dirk.

12.8 billion, okay. Of which 2.3 billion are the participation securities, right?

No, the 12.8 billion would be the equivalent of CHF14.5 billion.

Okay. Okay, all right, thank you very much.

Robert Murphy, HSBC.

Just a couple of questions. The first one is regarding your capital return. You're focusing on the Swiss core capital ratio exceeding 10%, but clearly the participation securities are actually a temporary benefit.

And I think most peers are looking at the common equity Tier 1 ratio, and if you look at your common equity Tier 1 ratio under Basel III it's actually quite significantly below many peers, as of today. So the question is how aggressive can you actually be on capital return? And what ratio do you think the regulators are going to look at in terms of allowing you to be aggressive on capital return?

Well, I think, as you say, as you lay out the landscape, obviously, the BIS requirements are -- there are various different tiers; 9.5, 9, 8.5. We believe we're in the 8.5 tier, so that's what's required for us, or banks like us.

Obviously, we've got the Swiss/Finnish on top of that, which is the 1.5 points on top of that, to get to 10%. So I actually think that even if you take the year-end number, and even if you take out the Tier 1 participation notes which are eligible under the Swiss requirement, the getting 10%, and you're still at -- you're still in the high 8%. And so I think that's actually a pretty competitive ratio, compared to most others.

And also, what is relevant, as you say, if others in the market are getting to 9.5s, or 9s, or the numbers that need to get through on a pure Basel III look-through, for us to be -- if you add another 50 basis points/60 basis points on top of that for us to be in the low 9s as a result on a pure Basel III basis, I think that's going to position us very well.

Again, I would put on top of that extremely strong total capital position. We have 3% of contingent capital on top of that; that's sort of in the wings. We have, I think, the only bank with an NSFR on our funding over 100%. So all that adds up to a pretty strong positioning. And so I think that's -- so I think we believe we are there, or thereabouts, in terms of getting to the capital ratios that we need to get into, if that's your question.

I think just one point to make on the Tier 1 participation securities, this wasn't our reassessment or restructuring; it was actually a decree, or ordinance, from the FINMA, actually.

Yes, I understand that. I'm just wondering, historically, as you pointed out, you've always actually carried much stronger capital ratios under the old regime but, going forward, it looks like you're going to be more like the sort of more quality peers. It doesn't sound like you intend to be again another level higher than those peers, as you used to be (multiple speakers).

I would say that clearly, obviously, the Swiss regime is 10%, plus the 3% CoCos, and we've, hence, got about [2.85%] of that in issue already. And then obviously there's a requirement for the low strike CoCos to be on there. So I think as you look at the total ratios, that's going to be a relatively strong capital position against --

Just about anybody. Yes. I don't think we -- I think we believe we are, and will continue to be, among the best capitalized when you take all that into account.

And then just quickly one other follow up. In the Private Bank, can you say what the performance fee [earnout] was this quarter versus last quarter?

You mean in terms of an absolute amount, or you mean as a --

Either in the basis points contribution to margin, or in Swiss francs, whichever way you want to express it. I think you mentioned that part of the margin benefit was performance fees.

Yes, I think, basically, I guess you're talking about the Hedging-Griffo performance, which is around 23 million this quarter. That's the performance element of it.

So that would be in the recurring commissions and fees line [on basics then]?

Yes.

Okay, thanks very much.

Thank you. So are there any other questions?

There are no further questions at this time; please continue.

Okay. Well, thanks very much, everybody, for hanging on for a while. Maybe I'll just very quickly sum up. We do appreciate your attention, and all the questions.

We do view [unquestioned] capital strength as core to our franchise, and we believe the measures we announced today are designed to solidify Credit Suisse's position as one of the best capitalized banks in the world. At the same time, we announce robust second quarter earnings and cost reduction progress, including CHF1 billion of additional cost efficiencies to be achieved within the next 18 months.

And with a business that's been fully migrated to the new regulatory environment, that we believe can run ROEs at or above 15% over the cycle, and which will, therefore, have substantial capacity to return capital to shareholders, we think this is a best-in-class business model. And we're confident that the measures that we've announced will further enhance our ability to serve our clients and provide best-in-class returns to our shareholders.

So, thanks again for your time and for your attention. Have a good day.