Credit Suisse Group AG (CS) 2013 Q1 法說會逐字稿

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group first quarter 2013 results conference call. As a reminder, all participants are in a listen-only mode, and the conference is recorded. You will have the opportunity to ask questions directly after the presentation. (Operator Instructions).

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

Welcome, everybody. Thanks for joining us for our first quarter earnings call. Obviously, joined by David Mathers, our CFO, who's going to deliver the results portion of today's discussion.

Before I begin, I'd just like you to take note of the cautionary statement.

We had a very good start to 2013. We posted strong operating results that demonstrate the effectiveness of the strategic measures that we've taken over the past few years; we believe confirms the potential of our high returning business model.

As of January 1, this year, we're successfully transitioned to the Basel III capital and risk-weighted asset regulation. We're among the first of the global banks to achieve Basel III compliance; well ahead most industry peers.

We said very early on that most of the proposed regulatory changes would be unavoidable. Switzerland's role as an early mover in defining regulatory requirements required us to accelerate our transformation to a more client-focused and capital efficient business at an early stage. While this initially led to an unlevel playing field with competitors in other countries, this disadvantage has now abated.

Our peers in other regions are now forced to make hard strategic decisions about their business models as governments around the world have continuing debates on regulatory frameworks.

We now operate from a position of strength, able to spend more of our time and effort focused on advancing our Basel III compliant business, rather than implementing changes to our business model. We've already made our changes, and the strategy is in place. We view this as a significant competitive advantage.

The decisive actions we've already taken position Credit Suisse to do well in the new regulatory environment, to deliver value to our clients, and to generate solid, consistent results across our businesses.

This morning, I'll provide a brief overview of our financial performance in the quarter, including an update on our delivery against capital and cost targets; then I'll give a brief divisional strategy update, before turning it over to David.

First, we achieved strong results in the quarter, demonstrating continued consistency in our performance. On an underlying basis, Credit Suisse Group delivered pre-tax income of CHF2 billion; net income of CHF1.5 billion; and an after-tax return on equity of 16%, which is well within our target range.

On a reported basis, we achieved a pre-tax income of CHF1.8 billion; net income of CHF1.3 billion; and a 14% after-tax return.

Our reported results reflect fair value charges on our own debt due to an improvement in credit spreads, as well as other significant non-operating items.

Second, we continued to deliver on our capital and expense targets. We further strengthened our capital base, and achieve a pro forma look-through Swiss core capital ratio of 9.8% as of the end of the first quarter. That assumes the completion of the remaining measures that were announced in July 2012. Note that this ratio includes a cash dividend accrual for 2013, which would be paid in 2014.

Our capital program remains on track. We're set to exceed the Swiss 2018 year end look-through capital ratio requirement of 10% during the middle of the year. As previously stated, once we exceed the 10% level, we're committed to making significant cash distributions to shareholders from capital generation.

During the first quarter, we also continued to reduce our cost base. By the end of the quarter, we achieved accumulative expense reduction of CHF2.5 billion. Today, we are also reaffirming our target of CHF3.2 billion of expense reductions in 2013, and CHF4.4 billion of reductions by the end of 2015.

Briefly looking at our divisions, in Private Banking & Wealth Management we achieved solid profitability during the first quarter with pre-tax income of CHF881 million; down slightly from CHF951 million in the first quarter of 2012. We had an improvement in transaction activity in the quarter, although this improvement was offset by lower interest income, driven by the ongoing low interest rate environment in which we operate.

For the quarter, we recorded net new assets of CHF12 billion. This pick up in inflows reflected growth in our Wealth Management's Client business, particularly in emerging markets, and the ultra-high net worth client segment, which was partly offset by continued client outflows in Western Europe. In addition, we benefited from strong inflows from our Asset Management and Corporate & Institutional Clients businesses.

The organizational realignment of our Private Banking & Wealth Management business is well on track. We are confident that the new structure will deliver strong returns as we further improve our capabilities, expand our market share, and enhance our efficiency. Although several measures have already been implemented, we expect the benefits from this integration to begin to materialize in the second half of this year, and into 2014.

In Investment Banking, we delivered strong first quarter results driven by stable revenue levels, broadly sustained market share positions, a reduced cost base, and lower capital usage from a year ago. We also significantly reduced the balance sheet in the past year.

Investment Banking posted pre-tax income of CHF1.3 billion for the quarter, reflecting broad-based strength across our fixed income, equities, and underwriting businesses. We continue to improve our operating efficiency, while remaining focused on our clients.

In this seasonally strong first quarter, we achieved a return on Basel III capital of 23%, compared to 13% in the first quarter last year. We ended the quarter with Basel III RWA of $182 billion in the Investment Bank, well within reach of our year-end target of less than $175 billion.

Turning now to slide 5, I'll briefly touch on our forward-looking strategy in Private Banking & Wealth Management. As you're aware, last November we integrated our Private Banking and Asset Management divisions into the new Private Banking & Wealth Management division. The realigned business and streamlined organizational structure enables us to better serve our clients through enhanced product development, advice, and distribution and will improve our efficiency and position us for sustainable growth.

We had a solid first quarter result, and we expect to begin to feel the benefits of the integration in the second half of this year. Moving forward, we expect Private Banking & Wealth Management to deliver disciplined growth, with significantly improved operating efficiency.

As part of our core strategy, one, we will improve the efficiency and effectiveness of our product manufacturing capabilities and delivery channels to create a more focused offering for our clients. In doing so, we seek to increase collaboration between Private Banking & Wealth Management and the Investment Bank. Continued collaboration between our businesses will enable us to better serve our client needs, and will drive further operational efficiencies.

Two, we will continue to sharpen our focus on our core businesses as we invest in select markets, products, and client segments, for example, expanding our ultra-high net worth client and emerging markets franchises; as well as investing in our core platform, for example, through the announced acquisition of Morgan Stanley's private wealth management business in EMEA last quarter.

To add to that effort, we are also divesting our non-core franchises, for example, with the announced sale of JO Hambro last quarter.

Three, we will continue to rationalize our organization into a more effective and leaner structure. We will simplify platforms and reduce complexity in our business, which is instrumental to improving collaboration, reducing costs, and enhancing our client service.

Four, finally, we're committed to delivering our target cost-to-income ratio of 65%, assuming a continuation of current market conditions. However, when conditions improve, we remain positioned to benefit from the market share gains we've realized over the past few years.

Now let's turn to slide 6 to discuss our strategy in Investment Banking. We've spent the last two years transforming our Investment Bank and we now have a client-focused, capital efficient business that is among the first of our peers to be compliant with Basel III.

Today, we have a highly targeted business model with the majority of our capital and resources focused on market leading, high returning franchises.

Our strategy is not to build scale in all businesses, but rather we will continue to invest, deliver value to our clients, and drive market share momentum in targeted business areas where the returns on capital are attractive. We will also further invest in high-growth regions where we have expertise, including our emerging markets franchise.

At the same time, we'll continue to further improve operating efficiency and drive increased profitability. We are committed to achieving our CHF1.8 billion expense reduction target by the end of 2015.

As we have transformed our Investment Bank, we have also significantly lowered our risk. We've reduced risk-weighted assets by nearly $140 billion, or roughly 44%, from peak levels in 2011, and we're well on track to reach our target level of less than $175 billion by year end.

Going forward, we will continue to benefit from our efficient operating model. Our transformed Basel III compliant Investment Bank is built to achieve strong and sustainable returns to support our through-the-cycle target return of above 15% for the Group.

With that, I'll turn it over to David to review the results in more detail.

Thank you, Brady. Good morning to everyone. I'd like to start on slide 8, please, with an overview of the financial results.

In the first quarter, we achieved underlying revenues of CHF7.2 billion, pre-tax income of CHF2 billion, and net income of CHF1.5 billion. Diluted earnings per share were CHF0.86, the underlying cost-to-income ratio 72%, and the underlying after-tax return on equity 16%.

Net new asset inflows of CHF12 billion for the quarter improved significantly compared to CHF6.8 billion last quarter, and the net outflow that we saw in the first quarter of 2012.

On a reported basis, pre-tax income was CHF1.8 billion in the first quarter.

And within our financial release, we include a reconciliation to the underlying result, which adjusts the fair value charge on own debt due to improvements in our credit spreads, as well as certain other significant non-operating items; but very much in line with our prior practice.

So let's turn to slide 9. The Private Banking & Wealth Management division reported solid profitability in the first quarter, driven by stable revenues and reduced operating expenses year on year. The division delivered underlying pre-tax income of CHF839 million, or CHF881 million on a reported basis.

The division's underlying revenues of CHF3.3 billion roughly flat year on year, as an improvement in transaction activity, as well as the benefit from increased asset base, were offset by the adverse impact of a continued low interest rate environment.

The division's reported revenues, though, were lower compared to the first quarter of last year as this quarter's results included gains of CHF47 million from the sale of JO Hambro, as well as certain private equity investments; whereas, if you look back a year ago, in the first quarter of 2012 we generated CHF178 million from the sale of part of our stake in Aberdeen Asset Management.

Operating expenses declined 4% year on year due to a combination of non-repetition of the PAF2 charge in the first quarter of 2012, as well as the benefit from our cost saving initiatives; albeit, this was partly offset by IT impairment costs and higher commission expenses, reflecting increased activity this quarter.

The underlying cost-to-income ratio improved to 73%, compared to 75% in the first quarter of last year.

So let's turn now to slide 10, discuss the trends in net new assets. As you can see, we saw solid inflows of nearly [CHF21 billion] in the quarter. Adjusting for certain items I'll come to in a minute, we achieved net new assets of CHF12 billion in the quarter.

We saw continued momentum across all the businesses and the regions, with particularly strong inflows in Switzerland, and close to 10% annualized M&A growth in Asia Pacific. In addition, we continue to benefit from the growth in the ultra-high net worth client segment, as well as strong inflows in Asset Management from both our traditional core investments, as well as our Alternatives business.

To adjust for double accounting, that is where we have assets managed by Asset Management on behalf of Wealth Management Clients, our CHF12 billion net figure excludes CHF4.4 billion of inflows.

We're very encouraged by the strong growth in collaboration between these businesses in the first quarter, evidenced by these new discretionary asset management mandates. We view this is an indication of the continued and future collaboration potential between the combined Private Banking and Asset Management businesses.

The CHF12 billion inflow is also been net of CHF2.1 billion of outflows from businesses that we decided to sell in Asset Management, as well as CHF2.1 billion of outflows of Western European cross-border assets, which I think is broadly in line with the guidance we gave a couple of months ago.

Now let's look at the financial results in more detail, and let's look at Wealth Management clients, please, on slide 11. For the first quarter, both revenues and total operating expenses are broadly stable year on year, with underlying pre-tax income for the Wealth Management clients at CHF477 million; up slightly from CHF441 million last year.

As I've mentioned already, we saw a continued improvement in transaction activity, offset by the adverse impact of the continued low interest rate environment.

On the expense side, the benefits from our efficiency management exercise, coupled with non-recurrence of the PAF2 charge, CHF63 million in the first quarter of last year, were somewhat offset by IT impairments, the higher commission expenses I mentioned before, as well as certain increased costs from regulatory [driven initiatives].

The business delivered solid inflows of CHF7.6 billion, driven by continued growth in emerging markets, and ultra high net-worth clients.

Net of the CHF2.1 billion outflows from Western European cross-border clients, the business saw net new assets of CHF5.5 billion for the quarter. As we mentioned in prior quarters, we expect further moderate outflows in Western Europe.

Reported net new asset growth was 2.8% for the quarter, which is at the low end of our previously disclosed 3% to 4% growth rate expectation for this business between 2013 and 2015.

Let's look at Wealth Management revenue trends in more detail on slide 12. If you look at the chart, you can see that on a sequential basis our gross margin remained stable at 110 basis points. Year over year, the gross margin has been impacted by both our shift in our client focus towards segments with a higher pre-tax contribution, i.e., ultra high net-worth and some emerging market clients, as well as by continually depressed interest rates.

Note that driving cost reductions remain a critical part of our strategy in the division as we continue to shift our focus towards those segments with a lower gross margin, but a higher pre-tax margin. And that's evidenced by the growth you can see in ultra high net-worth client share, from 37% of assets under management in the first quarter 2012 to 42% this year.

During the quarter, we saw different trends between our revenue categories. You can see from the chart that the continuing adverse impact from low interest rates on our net interest income has been offset by improvements in transactional revenues, as well as by relatively stable commissions and fees.

Looking forward, we could see a further dilution of 2 basis points to 3 basis points on the gross margin from the adverse impact of low interest rates in 2013. We would hope to partly mitigate this through further loan growth this year, but I would note the scope for deposit repricing is more limited than in prior quarters.

That said, this effect should come to an end in 2014. And clearly, thereafter, we remain very positively leveraged, if and when interest rates rise.

Let's turn now to Corporate & Institutional Clients, slide 13. Pre-tax income remained stable, despite lower revenues, again reflecting the adverse impact of low interest rates.

First quarter pre-tax income benefited from reduced operating expenses, reflecting the PAF2 charges in the same quarter last year. Consequently, cost-to-income ratio was 50%; in line with the first quarter of 2012. In addition, we posted lower provisions for credit losses, reflecting the continued high quality of our loan portfolio and the resilience and stability of the Swiss economy.

So let's turn now to Asset Management results, on slide 14. During the first quarter, Asset Management delivered strong net new assets and higher underlying pre-tax income. The business saw net new assets of CHF6.4 billion, including CHF8.5 billion of inflows across both traditional core investments and our Alternatives business, offset by CHF2.1 billion of outflows from those businesses we decided to sell.

In terms of profits, the division delivered underlying pre-tax income of CHF112 million first quarter; up from CHF85 million in the same quarter last year. The year-on-year increase was driven by stable revenues and lower expenses.

The underlying cost-to-income ratio improved to 78%; down from 84% in the first quarter of last year.

Underlying revenues were driven by high performance in placement fees, but offset by lower investment-related gains and lower equity participations following the partial sale of our stake in Aberdeen Asset Management in the first quarter of last year.

Sequentially, underlying revenues declined slightly from a seasonally strong fourth quarter, given that we recognize the majority of our performance fees in the second and the fourth quarters of each year.

We saw benefits from our expense program, as well as the non-recurrence of PAF2 charges in the first quarter of 2012. But these reductions were partly offset in the first quarter by an increase in certain retirement costs, around CHF25 million this quarter.

Next slide, please. Slide 15 looks at our operating expenses for the entire division.

Back in 2011, we outlined a series of revenue and cost measures aimed at improving the pre-tax income of the former Private Banking division by CHF800 million by 2014. This program is referred to as Future PB, and it included cost saving measures totaling CHF360 million. Since then, we've executed on these initiatives, including the integration of Clariden Leu, as well as a further rationalization of our support areas.

If you look at this chart, you can see that the quarterly run rate reductions increased to CHF116 million in the first quarter of 2013, compared to the first quarter of 2012. Our annualized cost savings were just over CHF460 million for the entire division, compared to the Future PB target that, you may recall, was CHF360 million.

Net of certain expense increases, particularly revenue-related and regulatory expenses, the division achieved annualized savings of approximately CHF200 million during the first quarter of the year.

Including PAF2 expenses in the first quarter, and the negative impacts shown on the slide, including higher pension expenses, the revenue-related expenses given high improved transaction activity, and the costs from regulatory initiatives, reported operating expenses in the first quarter were CHF100 million lower than in the first quarter of last year.

Overall, we remain on track to deliver on our previously announced cost reduction targets, and we continue to make good progress in the Private Banking & Wealth Management division.

So let's now turn to the Investment Bank, on slide 16. The Investment Bank delivered a pre-tax income of CHF1.3 billion the first quarter on stable revenues, broadly sustained market share positions, a reduced cost base, and lower capital and balance sheet usage from a year ago.

Net revenues of CHF3.9 billion were flat year on year, reflecting broad-based strength across fixed income, equities, and underwriting, notwithstanding a somewhat less favorable trading environment in certain areas.

During the quarter, we continued to make progress on our cost reduction efforts. Total expenses declined by 13% on a reported basis.

If you exclude the PAF2 charge in the first quarter of last year, expenses were stable as the progress in underlying cost reductions were offset by a combined CHF115 million of certain litigation provisions, as well as accelerated accruals relating to the 2012 compensation program.

We also continued to conservatively manage capital and risk in the Investment Bank, and we've reduced Basel III risk-weighted assets by $25 billion since the first quarter of 2012. At the end of the first quarter this year, Basel III RWAs stood at $182 billion, which is within striking distance of our target to be under $175 billion by the end of 2013.

Furthermore, we reduced total assets by $73 billion, or 11% year on year, reducing leverage in the Investment Bank, and which we achieved with a limited impact on revenues.

Our after-tax return on Basel III allocated equity increased substantially to 23%; up from 13% in the first quarter of 2012.

First turn, first, to fixed income results, on slide 17. Our fixed income franchise delivered strong operating results, with sustained market share positions. We produced high revenues on substantially lower risk-weighted assets in the business. Revenues increased 3% year on year, whilst Basel III RWA declined by 22%.

The fixed income businesses achieved a solid return on capital, in line with that for the overall Investment Banking division.

From a revenue perspective, our market-leading businesses, such as emerging markets, credit, and securitized products, delivered resilient results in the first quarter. However, results in Rates were weaker year on year following a record first quarter in 2012, as well as the continued lower interest rate and low volatility environment that we've seen in the first quarter of 2013.

Though we still incurred a pre-tax loss on our wind-down portfolio in the first quarter of 2013, this was substantially reduced from the level that we saw last year. Specifically, we actually had a net revenue gain of CHF4 million from our wind-down portfolio, compared to revenue losses of CHF261 million in the first quarter last year. So though we still lose money at a pre-tax level in our wind-down portfolio, this has substantially reduced the drag on our overall pre-tax income results.

With that, let's move to equities, on slide 18. We reported solid results in equity sales and trading, with sustained market share positions across our products. Revenues were stable on a lower cost base, driving significantly improved profitability. We improved our operating efficiency, and we continue to benefit from our 2012 headcount and cost reductions.

Compared to the first quarter of last year, we delivered strong results in our cash equities business, driven by market share gains, and particularly stronger industry volumes in Asia, which offset softer markets in the US and Europe.

Derivative revenues also increased year on year, with improved performance in Asia, whilst our prime service revenues were resilient during the quarter with continued market share momentum.

So let's now turn to underwriting and advisory, on slide 19. We've seen significant improved profitability in our underwriting and advisory businesses as revenues were higher on a lower cost base following a material headcount reduction and resource realignment in 2012.

Year on year, our debt underwriting revenues increased, driven by strength in our high yield and leveraged loan franchises. We also had strong equity underwriting performance, reflecting higher issuance volumes.

Advisory fees were lower in the first quarter following an acceleration of transaction closes in the fourth quarter 2012, resulting in lower book fees in the first quarter of this year.

Overall, our advisory business remains robust.

So let's now turn to slide 20 to review our capital allocation for the Investment Bank. On this slide we show you an analysis of how our capital is allocated across the Investment Banking businesses. We also show how the rolling four quarters return on capital performance relates to market share, and how our returns have changed for the last 12 months compared to the full year 2012.

We thought it would be useful to review returns on a rolling four quarters basis to better illustrate underlying business trends, free of distortion from the seasonality, which is inherent in some of the businesses.

Let me take just a moment then to review the graph, which you may recall from the results presentation we gave last quarter. Along the Y axis, we measure market share position for our businesses as of the first quarter. In the top segment, we include those businesses with top three market positions; in the middle, we include businesses, which are ranked between fourth and sixth; and in the bottom we show businesses that are ranked seventh, or below.

Now, along the X axis we measure the return on Basel III capital for the rolling four quarters ending March 2013, with returns increasing as you move to the right. The bubble size then reflects the relative capital usage of each business at the end of the first quarter.

And then finally what we show on the growth, you can see as added markers, which indicate the change in returns for the rolling four quarters ending March 2013, compared to the full-year 2012. The green arrow indicates where returns have improved, and the red arrow where returns have declined. And if there is no indicator, the returns in the business were broadly stable.

I think with the business transformation we've executed over the last couple of years we now have a differentiated and targeted Investment Bank. If you look at the top of the chart, you can see that almost 60% of the capital we have employed is allocated to market leading and generally very high return businesses in equities and fixed income, and that's an increase from 55% at the end of 2012.

Relative to the full-year 2012 results, returns in our top businesses have either improved or remained stable. I particularly note here the significant sequential improvement in our cash equities returns, driven by the cost savings program in 2012.

If we look at the middle section of this graph, you can see about one-third of our capital in Rates, IBD, and equity derivatives. IBD returns have improved significantly, as we continue to focus on improving the profitability of this franchise.

Whilst returns in global rates declined, reflecting lower -- less favorable trading conditions in the first quarter of this year, looking ahead, we intend to improve returns as we reduce the amount of capital which we have allocated to this business.

Finally then, we saw a significant improvement in the returns in our FX and commodities business compared to the full-year 2012, driven by the measures we took to reduce costs and capital allocated to these businesses, as well as a significant improvement in market conditions.

But I think the overall message from this slide is clear. Returns mostly increased or remained stable in our key businesses, highlighting our positive operating and market share momentum. Almost 60% of our capital is employed with businesses with strong returns and top three market shares, and 90% in businesses where we have a top six market position, or better.

Let's turn to slide 21. This slide shows the incremental impact on Investment Banking's year-to-date return from revenue changes, cost improvements, and RWA reductions. As you can see, we have slightly lower revenues in the quarter, which reduced our year-to-date return by 1%.

Our reduced cost base, which boosted returns by 7% from a combination of our efficiency measures, as well as the $455 million of PAF2 expenses that we incurred in the first quarter of 2012.

Finally, we have lower RWA usage, which provided a 4% uplift to our Basel III return. And our overall return improved to 23%; up from 13% in the first quarter of 2012.

We do expect our full-year 2013 returns to benefit from the lower cost base, and the cumulative reduction in risk-weighted assets that we've made.

Let's turn to the next section now to discuss our capital, funding, liquidity, and our expense program for the Group. On slide 23, we demonstrate the continued significant progress that we've made towards our Basel III risk-weighted asset target of less than CHF285 billion by the end of this year.

In the first quarter, our Basel III risk-weighted assets stood at CHF290 billion; down 22% since the third quarter of 2011.

In the Investment Bank, we're clearly on track to reduce RWAs by the residual $7 billion needed to achieve our target of less than $175 billion by the end of 2013.

And we've continued to rebalance RWAs towards Private Banking & Wealth Management division, which posted a significant -- sorry, a slight increase in RWAs during the quarter.

Slide 24, this slide shows the continuous strength of our capital position. Looking at our Basel III look-through ratios, on a reported basis our Swiss core capital ratio improved to 9.6%, from 9.0% at the end of 2012.

Assuming a successful completion of the actions that we announced last July, on a pro-forma basis we ended the quarter at 9.8%; within reach of our target to deliver a 10% ratio during the middle of this year.

Just to be clear, as Brady mentioned earlier, these figures include a deduction for a pro-rata cash dividend accrual for 2013, which will be paid in 2014.

I'd also note that in April we successfully completed the conversion of CHF3.8 billion of MACCS, which were issued as part of the capital plan that we announced last July.

In terms of the divestment program, of the capital benefit we intend to achieve, CHF0.6 billion has already been closed, and is reflected in the reported capital numbers you see here; CHF0.4 billion has been announced but not yet closed, and that includes the sale of Strategic Partners, our private equity business, to Blackstone, which we announced a couple of days ago, as well as the sale of the sale of the [ETS] business.

The remainder is fully on track for completion in 2013, and we would expect to meet, or exceed, our CHF1.1 billion original target.

Let me turn now to balance sheet and the Swiss leverage ratio, on slide 25. Briefly looking at our total on balance sheet assets, on a FX-neutral basis assets remain fairly constant quarter on quarter, notwithstanding the seasonal pick up in balance sheet usage that we tend to see in the first quarter of the year. And we're clearly within reach of our goal to reduce total assets to below CHF900 billion by the end of this year.

I will now review our Swiss capital leverage requirement, which, as you may know, is based on the proposed Basel III leverage ratio. Now we did discuss this in some detail last quarter but, just to review, the denominator of this ratio is very similar to that of the Basel III proposal, including both on balance sheet assets and also certain off balance sheet exposure add ons. The numerator includes both CET1 and high and low-strike CoCos.

The key items to note is in the first quarter 2013, on constant FX rates, our on and off balance sheet exposure declined by a further CHF18 billion to CHF1.26 trillion.

Assuming our goal of total firm-wide risk-weighted assets of CHF285 billion, we'll need to operate on and off balance sheet exposures around CHF1.19 billion by January 1, 2019, which, through further reductions, we intend to achieve this year.

Given the progress we've made to date, our planned reductions will not be a constraining factor to Credit Suisse, and we remain close to meeting the new long-term Swiss capital leverage requirement.

So let's turn to slide 26 to discuss our expense program. We continue to make progress on our expense program during the quarter. As you're well aware, we compare our operating expenses to our run rate cost base for the first half of 2011.

In the first quarter of 2013, our annualized savings increased to CHF2.5 billion; up from CHF2 billion at the end of 2012.

If you look at our year-on-year increase in savings, you'd see that our annualized savings increased by about CHF900 million since the first quarter of 2012. And that's split between the CHF200 million I mentioned before in the Private Banking & Wealth Management division, CHF600 million in the Investment Bank, and remaining CHF100 million in the Corporate Center. But we have included details of the year-on-year comparison on slide 36 in the appendix.

On slide 26 then, we outline the progress we've made towards our 2015 total goal of CHF4.4 billion. Just to recap, since the first half 2011 we've reduced our cost base by CHF2.5 billion; CHF1.7 billion from the direct expense of our Investment Banking division; CHF200 million from the Private Banking & Wealth Management division; and a further CHF600 million from infrastructure and shared service areas across the Bank.

If we look forward, we intend to achieve just over CHF1 billion of incremental savings from our infrastructure and shared service areas, largely through the consolidation of duplicate services and applications, as well as through continued efficiency across all the shared services and infrastructure functions.

Within Private Banking & Wealth Management, we'll deliver an additional CH750 million savings as a result of the integration of Private Banking and Asset Management, as well as other ongoing initiatives.

Within the Investment Bank, we expect to realize a further CHF100 million in savings as we continue to realize efficiencies across business lines and geographic regions.

Through the combination of these measures, we remain committed to achieving our 2015 expense saving goal of CHF4.4 billion, and we're on track to deliver our target of CHF3.2 billion for 2013.

So let's now turn to funding and liquidity, on slide 27. We continue to have one of the strongest funding and liquidity positions in the industry. At the end of the first quarter, our Basel III net stable funding ratio was over 100%, and we continue to remain comfortably in excess of the short-term liquidity requirement under Swiss regulation, which, as you know, uses a similar approach to the Basel III liquidity coverage ratio.

So, with that, I conclude the results portion of today's presentation. I'd like to pass back to Brady, please.

Yes, with that, we'll just open it up for Q&A. So, operator, I guess let's go through the different people in the queue.

We will now begin the question-and-answer. (Operator Instructions). Kinner Lakhani, Citi.

I wanted to start off by asking on the cost savings, particularly in relation to the Private Banking side. At this stage, it appears that progress is, let's say, frustratingly slow; savings only running around CHF100 million to CHF200 million. So what I was trying to get a sense of is what you think about timing in terms of the remaining CHF750 million that, I think, is yet to come. And I believe there's another CHF200 million from shared services, which includes Private Banking, so that's almost about CHF1 billion.

Certainly, looking at where consensus is in terms of your overall cost base, around CHF20.5 billion, it seems to be overshooting quite dramatically about CHF2 billion-odd what you're guiding over the next two years. So that was question one.

Question two was could you talk about the cost savings -- sorry, the savings that you could get in terms of interest expense via the deleveraging of the balance sheet, i.e., the funding costs? Could you possibly try and quantity, on a two-to-three year review, what you could see from that?

And thirdly, just coming back to the net interest margin component of Wealth Management, what I'm slightly struggling to understand is whereas over the last year or two we've had a more gradual compression in the margin, we've had a 4 basis point compression in Q1. And in your comments you guided to another 2 basis points to 3 basis points for the rest of the year, so it seems to be accelerating, so if you could possibly shed some color on that. Thank you.

Thanks for those questions. Maybe, I might just answer the first one in general terms, and then maybe David could speak a little more specifically.

But I think, in general, on the Private Banking & Wealth Management business I would say in general, as you say, the first quarter, I think the cost reduction that you see there is somewhat distorted by a few, what I would call, more special items in the first quarter; some of the IT write-offs, some of the other, I'd say, non -- little less operating-type expenses.

So I do think that, actually, the first quarter was probably somewhat distorted by those views. But, on the other hand, we do still, as you say, have a significantly higher aspiration for reducing costs in the division.

I think the integration between Private Banking and Asset Management has come together well, and I think we're making good progress on that. But there's no doubt that we're going to see acceleration of the cost reduction in the division as time goes on. And I think we feel very good about the progress that we're going to make on that.

So, overall, I'd say, just maybe more qualitatively, I think there's no question that we expect to see, and we believe we will see, acceleration in those cost reductions. I also do think the first quarter was a little bit impacted by some of these more extraordinary expenses. But, David, I don't know if you can answer it in more --

Just a few points, really, and I'll try and refer to both slide 15 and the other slides as we go through this. In the first quarter, in terms of PBWM, we actually had a CHF27 million write-off relating to IT impairments. So that's not adjusted for in [underlying items]; it's a direct cost charge.

It's not something we obviously expect to repeat. It actually reflected some of the changes that we made within IT last year. And we actually went through the book of work and we decided, I think, in light of that, to actually write off three programs, and that drove that. So that's a one-off in terms of that charge.

There was also CHF27 million -- sorry, CHF25 million in respect of pension early retirement costs, which also came through. That's not something we actually expect. So there's a number of small items like that.

Just also, I think there's some incremental regulatory costs relating to the withholding tax proposal, which, though it was not accepted in Germany, was accepted in Austria and the UK. So we need to continue to actually build the infrastructure towards that.

So those are just a few factors just to pull out in terms just to explain the progress. Then, clearly, I think we have things which we probably would like, which is higher commission expenses, which reflects the pickup in transactions. But that gives some context to that.

In terms of the timing of the savings, we would expect the bulk to be achieved in '14 and '15. So an aggregate number of around about, as you say, about CHF900 million, CHF950 million, including shared services. Somewhere between CHF100 million and CHF150 million this year, and then the rest split roughly evenly between '14 and '15 in terms of the savings from the plan.

I think then in answer to your question really about the gross margin within Wealth Management, I think, just to be clear, the 2 basis points to 3 basis points I'm talking about in terms of the gross margin impact there's probably two points to make.

Firstly, that's already in the first quarter. I think what I'm kind of saying is you'd expect that in 2013, compared to 2012. You've seen that already. It shouldn't step down further, but it will depress those numbers for the balance of this year.

Clearly, what we saw last year is we were very successful in terms of boosting deposits and deposit re-pricing, as well as boosting our loans, which actually offset the adverse impact of lower interest rates within the Private Banking & Wealth Management division.

Coming into this year, I think we're clearly very hopeful of good high quality loan growth, which would obviously improve that net interest income guidance. However, I would say that, given where interest rates are at the moment, there's not much scope for us really to actually reduce the interest any further we're actually paying on deposits. It's very close to zero. So there's a limit scope from what we can actually do in that sense.

So that's the two contexts. What I'm saying is 2 basis points and 3 basis points, you've seen it already in the first, but it will be a factor for '13. We would expect to have some offset from loan growth, and we'll see how successful we are. But I don't think, whereas in 2012 we were more than successful in offsetting it, we'll necessarily see that fully in 2013.

Now, the final point to make is this is an impact which on current interest rates and current interest rate structure does come to an end in early 2014. So there afterwards, you would not expect any further adverse impacts from the lower interest rates on today's rates. And, clearly, you don't have the upside as and when rates actually increase.

Just another question which you asked, really, which was around funding cost savings, I think we will probably -- I can't give you a specific forecast because there's a number of moving parts in here. But to give some guidance, as a consequence of the balance sheet and leverage deduction measures that we took last year, we probably expect to see the funding costs within the Investment Bank drop, and obviously a net in the revenues you see, by CHF100 million to CHF200 million.

Now that will increase further next year because, clearly, as you roll debt off and we can actually retire debt we won't need to refresh it. Therefore, the amount of senior debt we need to actually support it will decline, so that will increase more in 2014.

That said, clearly, we've said before that we do intend to raise low-strike CoCos as part of the Swiss capital regime, so that will then start to run the opposite direction. But net-net, I would expect to see our funding costs drop this year, and then more next year, notwithstanding the interest costs relating to low-strike CoCo issuance.

Clearly, we have our high-strike CoCos in place already. The first tranche is already issued and we'll complete the conversion of the balance, which is owned by investors, our Qatari investors, in October of this year. So it will be a low strike, I'm referring to, for next year.

I think I've answered most of the questions, but please come back, actually, if I've missed any of the points.

No, it's very clear. Thank you. That clarified a few things.

Kian Abouhossein, JPMorgan.

A few questions, again coming back to Private Banking. The 2 basis points to 3 basis points, just to put it in context, should we compare it to the 114 basis points of 2012 in terms of [declines] we should look at without -- ex any lending growth around 114 basis points in 2012 going to 112 basis points, 111 basis points for 2013?

And in that context, if I look at your clean margins top line, we were at about 108 basis points. And just putting that in context, how should we look at that? Why should it be 108 basis points, and going down further, considering normally we have the seasonality of slowdown?

The second question is related to your cost savings. If I compare your presentation February 7 and now, and you have this cost savings slide of CHF4.4 billion, you actually seem to have gone backwards on Private Banking & Wealth Management in terms of cost savings achieved by about CHF100 million. I'm just trying to understand why there are less cost savings than with the full-year results, and if you can just square those numbers.

And generally, in Private Banking, if I can be blunt, you don't seem to really ever generate operating leverage, positive operating leverage, and we clearly hear constantly that wait for the next quarter, wait for the next six months. I'm just wondering how much of the cost savings that you just mentioned, I think you just mentioned CHF950 million including infrastructure, how much of that is actually in Wealth Management clients, ex the other businesses, that you include there? How should we think about the run rate achievement there, considering that your track record is not particularly good?

Lastly, IB, you're already below your target of 70% cost-to-income, wondering is this just accrual? Should we dismiss the very excellent cost-to-income ratio in the IB and still focus on 70-plus-% post full restructuring, so 70-plus-% for this year, and post full restructuring probably to 70%? Or should we think that what you're seeing today in terms of cost-to-income is a good run rate for the year? Thanks.

So, perhaps, if I take the gross margin point first, I think what we were trying to indicate in our guidance is that, if we look at the balance of activity, we've obviously seen an improvement in transaction activity. We then see an offset in terms of net interest income.

The numbers will tend to oscillate a little bit over the quarters, but I guess what we're trying to indicate is that we would expect to see some gains but offset by lower net interest income. So 110 basis points plus/minus depending on a number of factors put way out this year, particularly our growth in deposit factors, also any other in net interest income that comes through. I think that's what we're trying to indicate really in terms of talking about the 2 basis points to 3 basis points of gross margin pressure.

In terms of the detail of cost savings within the Private Banking & Wealth Management division, I think you asked the question really about the IT impairments. Also, about those pension costs, are they actually in Wealth Management or are they elsewhere in the division.

Just to be clear, the CHF27 million of IT impairments is predominately within Wealth Management. There's some in CIC, but predominately Wealth Management.

The one-off pension costs I mentioned in the first quarter were predominately actually within Asset Management.

Clearly, if we look at the regulatory expenses, the Wealth Management, that's really withholding tax related so that's Wealth Management again; and commission expenses, mostly Wealth Management.

So I think it's certainly fair to say that the bulk of those items we identified and picked up before are in Wealth Management, with the exception really of that pension cost of CHF25 million, which was in the asset management component of the division.

I think your next question really was, I may not answer all your points but let's come back, was then really around the IB cost-to-income ratio. I think you know we have a KPI of 70% for this division. 67% is clearly good. Now, I think a couple of factors in that. We have made most progress within the IB; accumulated cost savings were up to CHF1.7 billion. We're talking about a further CHF100 million, or so, to come through in there, and maybe that's something we can actually beat.

But I would, obviously, point out that in the first quarter we have that normal January surge in terms of the revenue items. So whilst we are saying that conditions in April have been broadly in line with what we saw in February and March, excluding that [January] income, we shouldn't forget that January does tend to boost things in terms of the revenues and, therefore, depressed the cost income ratio.

Nonetheless, I think we're obviously encouraged to be through our 70% cost-to-income target in the first quarter. And that's clearly a target we obviously we want to look to work towards for the full year, but I think obviously a long way to go in terms of the balance of the year.

Kian, I would just say a couple of things to add. I think on the gross margin, obviously, we've been pretty flat at 110 basis points for the last three quarters. Obviously, that has been the continued interest rate headwinds, offset by better transactional environment. Obviously, it's anybody's guess how the rest of the year develops, but certainly our hope would be that we can continue to see decent transactional environment that can offset that interest rate decline that we've seen.

I think as to your point about the operating leverage in the business, I think there is a lot of operating leverage in the business, but, as you say, we just haven't seen conditions really improve across whether it be the interest rate side, which has continued to be difficult.

I think there is still a lot of positive operating leverage if we see an improvement in the environment. In the meantime, we're clearly -- as you've pointed out, as we've all talked about, we continue to want to improve the performance of the business through reducing the cost base. So, hopefully, that will mean that it is -- that the benefits will be there down the road.

Sorry, just to be clear, so despite the fact that you made 108 basis points we shouldn't think about the normal seasonality in terms of top line margins? You believe you can improve that a bit to get to the implied run rate, which you indicate 110 basis points, plus/minus?

And secondly, on the cost savings, can you just say, out of the, I think, CHF750 million in Private Banking & Wealth Management that are remaining how much are actually in Wealth Management Clients?

Two points, really. I think we're not making a forecast. I think what we're trying to indicate is you've seen a pretty sharp drop in net interest income in the first quarter. We've given some guidance about how that might pan out during the year. Clearly, the adverse -- that's been offset to a substantial degree against the fourth quarter, as Brady said, by the higher net interest income. I think we'll see how the rest of the year pans out in that sense.

So your second question was, what, on the allocation between Wealth Management and?

The cost reduction, how much is Wealth Management versus --

Yes, how much of the CHF750 million, I think, that are remaining are actually Wealth Management? Because you clearly put it together with Private Banking, and clearly we're really not that interested in Private Banking cost savings, we're more interested in what's happening in Wealth Management, so wondering if you can give a bit of a split.

It's about CHF200 million in Asset Management, and the balance of that in the Wealth Management division.

Okay, great.

I think just finally, on the operating leverage point, it's really the measures we took in the Investment Bank, started almost 21 months ago, almost two years ago, in terms of that, whereas, we did the big integration really with the Private Banking & Wealth Management division in November of last year. So we're further behind in terms of timing. We have more to deliver in PBWM.

Certainly, this year is a year in which we're actually making a lot of progress. But you're also seeing the final leg of the interest rate fall coming through, and this is the final year in which you'd actually see it. Clearly, for '14, we would hope, basically, and we intend, that with that past, plus CHF400 million of cost savings to come through, then that should run more positively in terms of operating leverage, regardless of market conditions.

Great. Thank you, Brady and David, it's very helpful.

Matt Spick, Deutsche Bank.

I had a couple of questions on the Investment Bank, and apologies in advance that they're going to be a bit nit-picky in what is, overall, a pretty good Investment Banking result.

But just, firstly, on the Rates business, still a lot of capital tied up in there and declining [with funds] year over year. Can I just ask, is that mainly a US Rates business? Because I tend to think of the rest of your fixed income franchise is pretty US centric, so I was a bit surprised to see it so weak given that, perhaps, you didn't have quite such a bit LTRO gains as others.

And secondly on the Rates business, I wanted to ask if you had any comments on the next deadline in June for central clearing, and whether you expected that to have any impact on the Rates business.

And then a second question about commodities and FX. Quite low returns, areas you're de-emphasizing. How close are you, or could you get, to a point where you only offer commodities and FX really to your Private Banking clients? Could you completely de-emphasize those to the institutional clients, and maybe improve the returns that way? Thanks.

Okay, so just in terms of the balances, we actually do have quite a sizeable European Rates business, as well as a sizeable US Rates business, and a smaller business in Asia Pacific, so it is a generally global business in that.

You're actually correct, though, that the first quarter of last year did include a very strong benefit from the various macro measures at that time, and, in fact, was a record quarter for the business a year ago. So we're definitely seeing the drop away of that kind of comparison. I think since then, realistically, you've had a very low rates environment, flat yield curve; it's not a great rates environment. I think it's not surprising that it's been weaker since then. I think that's probably in line with what we're seeing across the industry, I think.

In terms of central clearing, I think we're on track for that. We don't really expect that much impact. Longer term, we would actually have some positive aspirations for central clearing that would reduce the amount of capital we actually have employed in the business because, obviously, it's lack of central clearing which is partly driving the capital usage in the Rates business.

Notwithstanding that, we would also intend to reduce the capital we have in Rates because clearly, at the moment, as you rightly say, we've had an unfavorable market environment, quite a lot of capital employed. This is a business where we would expect to release capital partly for redeployment for the rest of the Investment Bank, but also to meet the target of $175 billion.

On commodities and FX, I think certainly we've reduced substantially the costs and scale of both these businesses. It is more of a servicing operation for the Bank, and I think FX is an important part of what we actually offer across the entire Bank, both to our Institutional and our Private Banking clients.

It's clearly been a more favorable environment, so it's been -- I think what we've seen is better results, which reflect that fundamental improvement in our cost and operating environment, what we're actually doing with the business. And it's working well, I think, as a service center in that sense, and I think we're very encouraged by the results we've seen from it.

I think commodities, as you know, it is a business which is closely aligned already to what we want to do in Private Banking. Again, I think we've made a lot of progress in re-engineering that business, and we've seen some of that in these results.

Sorry, can I ask a quick follow up? Could Rates be turned into a pure service center in the medium term?

I would probably say not. I think that we actually have a very good Rates business. It's a (inaudible), and this is a serious business for the Bank. It is not, in market share terms, as strong as our emerging markets, credit, or securitized products business, let alone some of the equities franchises, but it is actually a very good business and we've seen good returns from this in the past.

I think if you're running -- if you're looking at the overall returns of the Investment Bank, it also tends to be counter-cyclical in terms of its response to macro conditions. So I think in terms of our overall returns, it's actually very useful to have part of that, as well as being a pretty fundamental part of an Investment Bank.

Thank you.

Christopher Wheeler, Mediobanca.

A few quick questions. First of all, on some net new money flows, the CHF2.9 billion of inflows against the CHF2.1 billion of outflows in Western Europe, could you just give us a flavor as to where those inflows were? Were they also in Europe, or was it Middle East? Perhaps, where was the strength there?

And then, perhaps, a question on the unsung hero of Asset Management. The inflows there, I just wonder where they came from, what geographies they came from, because, obviously, that was a very encouraging performance.

On the Investment Bank, you had, obviously, a compensation ratio of about 37.6% on reported numbers. I think it was 39.7% last year first quarter, and it rose in the end, excluding PAF to about 45%. Where would you like to see that settle this year? Are you looking for that to be closer to 40%, or back where it was last year?

And then final one, I'm sorry, I'm going to flog a dead horse here on these costs in Wealth Management. But I just look at your wonderful spreadsheets, and look at the pre-tax margin and how dull it's been since 2009, and I suppose my concern, it is a great business, but we're seeing a lot of cost cutting programs, and we're seeing, for example, US banks last week, Barclays today, they're accelerating those programs quite rapidly.

Is the issue you have in Wealth Management one of the Swiss issue, or the more difficult job of obviously moving staff? Or is it partly the fact you're still investing, particularly in Asia? And is that what's really slowing down your ability to, obviously, do what you want to do in 2014 and '15 and get these costs out the business? Thank you.

So just taking the questions in order, I think you referred, firstly, to the inflows on Western Europe, CHF2.9 billion, compared to, obviously, the outflows on cross-border of CHF2.1 billion. I don't think there's anything particularly to note there. It was broadly sourced across the businesses, and I don't think there's any particular trend.

Obviously, we saw strength in emerging market businesses related to that, Russia, but nothing particular to note. And, certainly, just to address any hidden question, nothing particular relating to the Cyprus events in the first quarter.

I think your next question then --

On Asset Management.

Was on the Asset Management. I think the mix, we can give you the mix actually, 50% of it was actually in Switzerland; 20% in Asia Pacific; and 30% in the Americas. So, again, led in Switzerland, but a pretty broad brush.

I think the point there also to note is that CHF4.4 billion of the inflows are actually essentially sold through our Wealth Management division very successfully, particularly some of the MACCS asset allocation products. So what you're seeing is a matching there between the Wealth Management and Asset Management. But anyway, 50% Switzerland; 30% Americas; 20% Asia Pacific.

I think the third question then was actually on the IB comp-to-revenue ratio. Actually, if you -- we actually did include, on page 36 in the appendix, a variable comp disclosure, which is for the Group and not necessarily for the Investment Bank.

You can see there comp is down slightly accrued in the first quarter. But actually, around half of that is actually in Wealth Management/Asset Management relating to some of timing of those. Obviously, the business has been through substantial transformation in the year.

The IB accrual is marginally lower, but not that different in terms of that, and does reflect, obviously, some of the cost measures we've pushed through.

So we don't specifically target a comp-to-revenue ratio; I think we look at the economic contribution through the year and we tend to accrue relatively evenly through the year against it. But, obviously the accrual we made in the first quarter isn't that different for the IB compared to the first quarter a year ago.

Okay. And then, obviously, just if you can give any flavor on this cost issue. Again, I'm sorry, I know we're rattling on about it, but it is pretty important given the strength of that business underlying.

Could you just repeat the question on --

Wealth Management.

It was on the Wealth Management. I was really asking, as I said, looking at the spreadsheets and seeing how anemic the pre-tax margin has been now since really Q1 '10, it's a matter of asking, with a lot of banks putting through cost cutting programs in the last 12 months, we've seen quite a bit of acceleration of those programs. But for you, it seems quite painful to get to 2014, '15 to really get where you want to get to, and I was asking why you think that might be.

Is it partly because of the big Swiss component, which means it's difficult to take out costs? Or are you investing as well in that business in Asia and that's obviously offsetting the work you're doing on costs? Because it just does seem to take a long time here.

Well, I think there's probably three points there, and I think you're right on all three of them. We clearly have continued to invest in the core business in Asia, particularly in Singapore and Hong Kong, and that remains a very important growth market for us.

I think I wouldn't underestimate, though, the factors I went through before in terms of the IT impairments, the regulatory costs, etc. That's certainly damped the trends you see in the first quarter.

I would say, though, that just making these changes, as you say, in terms of the environment, it does take about six months for these costs to roll over. We only announced the integration of the two businesses actually in November of last year, so it does tend to take a delayed impact to actually come through.

But I think then more fundamentally, if you look back over that period you've seen a very seen a very sharp drop off, obviously, in the interest rate environment and that does tend to depress the overall results, if you look back at your 2010 comparison.

Okay, sure. Thanks, gentlemen. Thank you.

Holger Alich, Handelsblatt.

I have a question on the German issue, if I may, quickly. The German tax authorities has bought another CD with data, apparently, from Credit Suisse. First of all, can you officially confirm that it's your bank that is hit by that new data leakage?

Secondly, have you identified yet where the data came from ?

And thirdly, I think that it's the third time in short time that data came to German tax authorities, so do you think you have to work that out, to protect better your data?

Well, I guess, in general, obviously, we have been for a number of years pursuing a compliant business strategy. That's something that's been an important priority for us, and we've been very focused on that, and I think we've made good progress on that. As you now, we entered into a settlement with the German authorities some time ago on these kinds of issues.

I think with regard to the specifics that you're talking about, we don't know anything more than what you read in the papers, or what the rumors are that are reported there, so we don't really have any facts around that, so I'm not sure there's too much more we can add to that.

Obviously, with regard to the issue of protecting the confidentiality of our client and data, it's something that's extremely important. It's something that we work very hard on, and it's something that we're going to continue to make a very high priority. It's something that clearly is very important to us, and to our customers, so we'll continue to focus on it.

So did I get that right, that you don't know really if it's your bank, or the data of your clients, that are on the CD which has recently caused some police action in Germany?

As I said, we don't know anything more about what the data is, whether there's data, what happened. We don't have any facts around that. All we know is what -- it's either the rumors, or the news that's reported in the media, is all that we know, so we can't confirm -- we can't tell you anything more about that, as I say.

Okay. But normally, clients call the bank when they have a visit from the police so there might be some information coming back from your client base, or from the tax advisors, that there's some feedback that there's an issue, so this is a little bit surprise for me.

As I say, we can't confirm anything more than what you've seen in the papers. We've seen the same thing. And other than that, we don't really -- we can't really give you any particular information about client data seized, whether there were CDs, what was on them, etc., so I'm sorry we can't add more.

Okay, thank you.

Huw Van Steenis, Morgan Stanley.

Thanks very much for a really clear presentation on your progress on your costs and capital. A quick question about the way you think about dividends, and I appreciate it's very early in the year.

So, a couple of questions. First, I see that about 1.5 billion of Claudius notes could be called December this year, and I'm just wondering how you factor that into your decision. Would you rather do an economic non-core and pay a divi, rather than actually retire those notes in December?

I think number two, also, how big a buffer do you feel appropriate above 10%, given there a number of outstanding litigation matters which may or may not get resolved this year? So if they won't get resolved this year, would you want to leave yourself a decent buffer, therefore, maybe constraining some of your potential to pay out your full cash dividend this year? Thank you.

Huw, I guess, in general, as we've said, the clearest statement, kind of one we've already made, which is, as we've said, as we exceed the 10%, which we hope to do during the middle of this year, we're clearly going to expect to accrue [forward], and return, significant capital to shareholders.

We have, we think, a very capital increased model, and so that's something that, hopefully, will play through, as you say, as we reach the levels that we've set.

On the buffer issue, I'm sure we'll want to keep some buffer. But, frankly, we've got -- we're going to have an awful lot of capital stacked up in the Bank with obviously 10% on the CET1 side, plus another 3% of high-strike CoCo, contingent capital, as David said, that's basically already in place; then too, there will be low-strike CoCos in place as well. So there's a lot of capital behind all that.

I'm not sure if we've come to a final decision, but I'm not sure that there is a need for a significant buffer on top of that. But, as you say, certainly, how things progress in the rest of the year, it's very early in the year, as you say. So what market conditions are like, what the earnings are, etc, as well as some of these more specific issues, will certainly have some bearing on that.

But I think looking through all that, our belief is, and our expectation is, that the business is going to be very capital accretive and we should be able to return significant cash returns back to shareholders as we move through those numbers. But I don't know, David, if you have anything to add.

Well, I think just a couple of points, really. We wanted to be clear that in the first quarter capital numbers we have made a pro rata accrual towards a resumed cash dividend in respect to 2013, that will be paid 2014, subject, obviously, to the Board of Directors review, and obviously our shareholders' approval, at the AGM next spring. So we have restarted that accrual process already, Huw.

I think the point on Claudius, as you say, Claudius actually sits in two tranches. The option to actually redeem begins right at the end of this year for about CHF1.4 billion of that; and then the balance, I think the option is actually in June of 2015.

I think we don't want to make a commitment one way or t'other. We'll clearly look at the Claudius redemption options as it falls due. It's not a one-off option; once the redemption is actually open it's then open continuously there afterwards. And we'll make a decision, I guess, in December, depending on how the capital position looks at that time, and balance these facts off. But it's clearly something we've factored in our thinking.

But just on -- and you would rather reward shareholders with a cash dividend and delay the repayment of Claudius than the other way round, if it came to that?

I think that's probably -- I don't think we could really comment on that at this point, Huw; I think that would be a decision for the board, and for the AGM subsequently, in terms of the different priorities at that point. But I would say simply, we're obviously aware that the option to redeem Claudius does fall due in December.

Technical redemption of Claudius would actually be enhancive to earnings per share, so that's a factor to keep in mind as well. But whether we do it in December or next year will clearly depend on how this year pans out. I think the point we want to make is we clearly looked at that. And by [the way], that was clearly something we considered when we actually thought about our first quarter results and what we should and should not accrue in terms of a pro rata cash dividend for this year.

Okay, thank you very much. A very helpful presentation today.

Thanks, Huw.

Daniele Brupbacher, UBS.

Just two questions; one, again, on Wealth Management and the CHF2.1 billion outflows related to Western European countries. Is it fair to assume that this is still skewed to Germany, and probably also UK? Or is it too early to see an impact from the new agreements with Austria, and in the UK?

And then the second question, coming back to slide 20, the various revenue streams within the IB, I always think it's quite helpful. I also think it's interesting to see that your highest capital consuming business, it seems to generate the most attractive ROEs, which is it could be related to your top three, or leading positions there, or certainly cyclical drivers within certain markets in the US, for example, securitized products or credit products. How do you think about it?

What is really the driver for your high ROE there? How much is related to the market cyclical elements there, and how much is related to your market position within that? And what's your outlook for the next couple of quarters there? Thank you.

Yes, I think on the first question, the outflows, they're broadly across the Western European markets. But, obviously, Germany is a big market within that, and certainly Austria and the UK as well.

As you say, some of those outflows could actually be clients that are, obviously, keeping their accounts with us but may be reducing paying some taxes in some of the programs, etc. But, as I said, broadly across Western Europe, but certainly Germany would be a big part of that, no question.

I think on the issue around the fixed income businesses, as you say, I think the most important issue there is that we have really completely transformed the business model in these areas. They are businesses that now generate very high returns on much less capital than they did in the past. And, frankly, the Basel III, in many of these cases, and additional capital required is very high in these businesses, so the restructuring was actually very heavy.

Our view is that, actually, as more and more banks go completely to Basel III many of them may have to exit some of these businesses, which will actually end up having a benefit to us of reduced competition in some of those areas.

If you look at securitized products, for instance, that's probably the business that has the heaviest surcharge from Basel III capital. Our view is that a number of the players in that market may find it difficult to restructure their businesses in ways that actually allow them to make competitive returns under the Basel III capital requirements.

So I actually think that, certainly, the environment has been a favorable one for those businesses, credit, emerging markets, and securitized products as you mentioned, there's no doubt. But I also think that the transformation that we've actually undertaken in those businesses to make them use significantly less risk, significantly less capital is something that makes those returns sustainable.

But will that be -- obviously, if markets turn down in any of those areas it will it have an impact; of course, it will have some impact. But we do think that the way that we've actually restructured those businesses make them much more resilient, and actually businesses that we think will be able to make good returns over various different market environment conditions.

So, David, I don't know if you want to add anything.

No, I wouldn't.

Okay. Thanks, Daniel. Any other -- anything else from you, Daniel? No?

No, that's fine. Thank you.

Fiona Swaffield, Royal Bank of Canada.

Just some quick questions on Basel III look-through. The regulatory deductions, or the CHF7.9 billion, seem to have gone up and I just wanted to ask, David, whether you still think they should go down in 2013, because I thought that they were related to as the capital grows they would reduce? And also, the same is true for like DVA burn offs. That was the first question.

The second question was on share-based compensation and this whole issue of the AGM. Firstly, am I right in thinking that in future if you issue shares to staff for compensation they will be offset in the market, so we shouldn't expect any increase in the number of shares?

And secondly, if the plan is voted against in the AGM, what would that mean to the capital ratio? Thanks.

So, just a couple of points then; a couple of things, really. In terms of the deductions, it's a pretty small effect. I think it was about CHF7.7 billion in our last projection, and CHF7.9 billion now. It's really reflecting FX movement in the period because, obviously, the dollar has strengthened by about 3.5% since the close.

I think it's also fair to say that, just in terms of where earnings were distributed this quarter, we didn't actually make as much progress as we'd like to have done in terms of our [DVL]. We would expect to make further progress in the balance this year as it was just relating to some of the tax planning around some of the hedging, essentially.

So just in terms of the seasonality, there was an adverse trend in the first quarter. But most of it is down to FX. We did clearly reduce [DVL], but not as much as we'd like to have done, but then the rest is FX.

Just in terms of the number of shares, just to give guidance there, I think obviously we have the MACCS in issue. Conversion's happened already. Our total share count, therefore, will go up to about 1,599 million, or just under 1.6 billion. That's assuming, obviously, with the script dividend, approved on this Friday's AGM in terms of the numbers.

So that would be the number of shares you'd expect between the MACCS conversion and the dividend. But there afterwards, you're absolutely correct, once we actually pass our 10% Swiss core capital threshold our intention is to essentially neutralize share issuance in respect of deferred comp through market purchases. So, at that point, the number of share count should definitely be stable in that sense.

I think your final question then was about resolution 4.2, which is up for discussion at this Friday's AGM as well. We're actually asking for, I think, 30 million of shares which could be issued, in effect, as share-based compensation.

Essentially, it's the tail of the capital plan; it's in respect of the APPA. Just how many of those we actually issue, clearly, will depend how quickly we actually get to 10%. So I think if you said -- you took a case that this was not approved and didn't have it, you shouldn't be deducting that from the capital ratio because, I think, it's unlikely, given the progress in the capital plan, wed' necessarily need to actually have all of that.

But I think let's just see how the AGM goes on Friday, just in terms of [about it]. I would point out that obviously Glass Lewis actually recommended four on that measure, and we'll see what the votes come out on Friday in terms of the final conclusion.

Thanks very much.

Jeremy Sigee, Barclays [Bank].

Three, I think quite quick, questions, actually, if I could. Firstly, on the Investment Bank revenue, the losses on the exit portfolio have obviously reduced a lot now in this quarter. Are those largely behind us, so we're done on that issue and the drag in future quarters should be minimal as well?

Second question, somewhat related. Expectation for Group RWAs at the end of the year, you're obviously getting very close to your year-end target, but then there's the kind of less than and I just wondered how we should read that. Are you viewing that process as largely done, or do you think a material undershoot could be realistic?

Then third, final question, your litigation note, I think it's note 29, shows unprovided litigation risks I think down, if I'm reading it correctly, from CHF2.9 billion to CHF1.8 billion. I just wondered if you could comment on that movement.

So just taking the last one first, I think the predominant driver in that is actually the NCFE settlement, which, you note, we actually -- we obviously concluded a few weeks ago. So there was obviously a provision, and we made a final settlement for that, so that's the primary driver in terms of that.

I think in terms of the Group RWA target, to be candid, we set a target to you last time; I think that's a good target to be at. Our focus essentially has been below that target, and also being below on the total leverage, so less than CHF900 billion in terms of on-balance sheet assets, less than CHF1.19 billion at current exchange rates on on-balance sheet, plus add-ons. It is our priority to hit both of those measures, really, to make sure that we optimize our capital structure in a complete sense. I don't think we really want to change those targets as we sit here today.

In terms of your first question, which was on the Fed wind-down losses, you'll see disclosed in the MD&A that we had a gain on one of the positions. I think it was just under [CHF80 million], which we took in the first quarter, so that was pretty good. We actually exited from one of the remaining European CMBS positions, and that clearly -- obviously, helps to report that revenue gain you saw of CHF4 million in terms of Fed wind-down portfolio.

That said, if you look back at the loss we suffered in Fed wind-down last year, which was over CHF800 million in the whole of 2012, I think a couple of months ago we guided that we'd expect that to be half, or less, in respect 2013. We're clearly tracking very well to that, and I think it will be significantly less than, perhaps, even half we had last year, so maybe in the few hundred million. Not, perhaps, as good as in the first quarter, but substantially reduced.

One final follow-on point to that, basically, you may note that the RWA Fed wind-down in one of the appendixes is actually flat at CHF13 billion. So given we sold something, what happened, there was actually a methodology increase of about CHF1.5 billion within that. And then obviously we had the position reduction, which get us back to that.

So we're still very much committed to seeing the amount of risk in RWA within the Fed wind-down portfolio down, but just wanted to explain why, not withstanding that sale, and the other measures we've taken, you haven't seen the headline total reduce in terms of Fed wind-down risk-weighted assets.

Great, thank you.

Jon Peace, Nomura.

I just wanted to clarify, quickly, on the dividend. Are you accruing it flat with prior year and absolute terms at CHF0.75, or are you working to some sort of payout ratio? And as we go forward from here, is pay out the right way to think about it? Thanks.

I think, probably, look back to what we said a couple of months ago. Obviously, we paid CHF0.75 with a scrip alternative in respect of 2011, and we obviously have a proposal to shareholders on this Friday for CHF0.75 dividend paid; CHF0.01 in cash, and CHF0.65 in scrip for this year.

So that's clearly what we've done for the last couple of years. I don't think I can really give guidance on what we might choose to do this year; I think there's too many uncertainties. All I'd really say is we've kind of accrued a cash dividend pro rata to what our expectations and plan is for '13 into '14.

Coverage-wise, I think we probably should -- we'll probably be able to give you better guidance as we actually go through this year, but I think that's all I can really say about the -- what have we done so far this year.

Okay, thank you.

Jernej Omahen, Goldman Sachs.

Thanks a lot for letting me ask the questions. They're very brief questions, because most of them have been answered. Firstly, just a question on your FX translation, or the FX effect. Credit Suisse gained roughly CHF800 million, I think, of tangible equity this quarter due to the reduction in this cumulative translation adjustment. I was just wondering, a very straightforward question, is this how we should think about this going forward as well? Is this what the current sensitivity is, so roughly a 1% move in the exchange rate is more or less CHF300 million positive or negative, obviously, on your tangible equity?

The second question I wanted to ask you is more a broader question related to the debate, which is now really gaining momentum, I guess, on the financial transaction tax in Europe. Obviously, you are a non-EU 11, you operate in a non-EU 11 country, but I guess the impact would still be quite significant. Are you able to provide some sort of a broad guidance as to what you think the effect could be, and what you could do to mitigate it?

And in that context, I was just wondering if you could actually highlight what you thought the biggest regulatory challenges for Credit Suisse are at this point.

Thirdly, I wasn't planning to ask this question but it got mentioned in so many different ways during the course of this call, the issue of capital return at some point. Do you have hard targets or hurdles in mind where you basically say, look, if we are above 11%, 12%, core equity Tier 1 we are willing to pay everything back; i.e., is there are a level where you just think to yourself, okay, this is the maximum amount of capital that we're willing to run with? That, I guess, would make it relatively straightforward for us to think about capital return in the future, at some point. Thanks a lot.

Let me take the second one; David could answer the first; and maybe I can -- or do you want to start with the first one, and then --?

I'll take the first one. So, in terms of the FX translation effects, I think approximately 60% of our BIII risk-weighted assets are US dollar denominated, or US dollar related. We would tend to hedge that exposure against sharp moves in currency. Not completely; typically, something in the 40s of our equity base we actually hedge into dollars. So, clearly, in an appreciating dollar environment you would expect to see a pick up or increase in the tangible book. That drives most, but not all, of that CTM, but it's certainly most of the factors we're actually identifying.

What we're trying to do is to match hedging our capital ratios, and also our leverage ratios for that matter, with the gains and losses to shareholders' equity in terms of that as well. So we try and balance that between those two. But I think the core point is a $1 appreciation against the CHF1 would lead to an increase in the shareholders' equity; and clearly vice versa in that sense.

I think on the second question, which was sort of a two part question, on the financial transaction tax, we've got -- our research people have spent a lot of time looking at the impact on markets of the financial transaction tax. There certainly is an impact in the markets where it's imposed when you have selective imposition on different markets, and obviously that does have an impact on volumes there, etc.

I think in general our view would be that we have a global client base, they're involved globally. And my guess is that probably people need to adjust portfolios, need to try to take advantage of opportunities, etc., sort of transcends any one particular market.

I suspect that there might be, to some extent, compensating volumes and flows in different markets and so I think the key there is, obviously, our presence in all the major markets worldwide, and a fairly, I'd say, balanced, and even strong capability particularly, for instance, in equities, where we have strong businesses all around the world.

Obviously, I think our general view would be that it won't be -- that, that will -- it will cause some distortions in markets to the extent that it is put in place.

In terms of our business, there'll probably some effect. But I think given the global nature of our business, global nature and the fact that it's across a lot of different product categories as well, our hope and our expectation would be that it wouldn't have a dramatic impact.

On terms of our regulatory challenges, as you say, we see them in a few different categories. The first category is really, if you will, the Basel III capital requirements, RWA measurements, liquidity, etc., leverage. And on those fronts, I think from our point view the landscape is pretty clearly defined. Now, obviously, that's somewhat unique to Switzerland, but is increasingly the case around the world.

Obviously, we're Basel III effective from January 1, this year. We've talked about the fact that we're within reach of most of the targets we need to get to, so we feel like we're in very good shape on that front. Again, that's probably a somewhat different situation than you see in different parts of the industry around the world.

The second category I would say is almost more legislative; things like Vickers, or Liikanen, or Dodd-Frank, etc., which are more structural, more deeply structural. In many cases, those don't impact our home market in Switzerland; they do impact us in parts in our presence in different countries.

But still, that's probably an area that's a little bit less clear. Sometimes it's longer lead times 'til things happen. It's not exactly clear how they'll be implemented. Again, there I think we're probably in relatively better shape, partly because in any one of those markets we have less of concentration of our business; but also, I think the way we've actually transformed the business it probably puts us in better shape.

I'd say the third category that we think in that is probably more the local regulatory issues that are coming up; the USIHC proposals, and any other similar aspects in markets around the world. And there again, I think that is a challenge for the industry, and it's something that we're going to have to deal with as well.

We're blessed somewhat with having a structure that's already subsidiarized. We've got -- in most countries that's the structure that we deal out of, so we've already got capital, etc. It doesn't mean we won't have to make adjustments to our business model, but I think in general we'll have to see how these things develop. But in general, we feel like we're in pretty good shape against that.

So I actually think against the regulatory challenges around the world we're in pretty good shape. I think the most important thing within that is that we're dealing with a stable environment, particularly here in Switzerland, where obviously they move quick and -- with some pretty heavy capital requirements. But there's not a lot of debate about what direction it's going. That certainty is something that I think is very valuable to running a business, so I think that's something that's quite good.

The last question that you asked was about capital return, at some point. Obviously, as we've said, we think as we exceed the 10% number our view is we want to return a lot of that capital to shareholders. I'm not sure we've set any bright lines in terms of an amount. And we will -- I think as we see opportunities, particularly in our Private Banking & Wealth Management business, but in all of our businesses, if we see opportunities.

It's not that we won't take opportunities to potentially grow those businesses, but I think our view is there's going to be a lot of opportunity, a lot of capacity to return cash to shareholders. But I don't know if, David, you want [to add]?

I think we said last July with the capital rise that our intention would be to return [the most] significant cash distribution to shareholders. That very much remains our plan.

I think you can see with these results, with the capital ratios, we're absolutely on track with that, whether in terms of the cost measures for the Group, whether in terms of the disposals. We've actually completed what we've said we're going to do. So I think that would be our intention. And I think quite clearly, as Brady says, once we actually go through the 10% level we do start to move into significant cash generation.

Clearly, I think if you ask the question around Claudius, that would clearly be one goal at due course. But I think, clearly, we recognize the importance of cash dividends and a stable share count to our shareholders.

Excellent. Thanks a lot.

Andrew Stimpson, KBW.

We've been doing a lot of work into the compensation structures at different banks and one of the stats that jumped out for you guys, the big jump in pay for 2012 that you guys had for the key risk takers, even if I adjust for the currency and headcount changes. And the direction obviously makes more sense when you look at the rebound in the IB profitability in 2012. The key risk take-or-pay per head is now the highest out of any of the European investment banks, and we're still seeing some headlines, true or not, of some your staff being poached. So I guess there's two questions in there; one, why do you think the pay is the highest at CS in the peer group? And number two, how do I tally that up with some teams still being poached?

And then a second topic on the PAF2 structure. Obviously, that's been made slightly more complicated with the Basel Committee Paper from December that makes it ineligible for the counterparty credit spread hedging. And the annual report, when it came out, said you were evaluating what to do next. I'm just wondering if there's any update there, and, if you did have to cancel the transaction in its entirety, what the impact on risk-weighted assets would be, if indeed they do come back to you. Any deadlines and timings on that'd be helpful, too. Thanks.

Andrew, I guess on the first question, we've continued to -- we have a general view that we'd like to get to a business model where there's fair sharing between employees and shareholders, but obviously also where we can pay our employees competitively and well in that context. That's what -- if you look at the first quarter, 16% ROE, 23% ROE in our Investment Bank, I think those are the -- that's what we'd like to get to. But we are committed to a fair sharing, and it's something that we do believe that we should be able to get to.

I think in terms of structure on compensation, I think we've been fairly state-of-the-art in terms of a lot of the structures that we've used to make sure we're aligned with shareholders, to make sure that we're helping to accomplish some of the goals in terms of our strategies round risk reduction and RWA reduction, etc. So we've done, I think, quite a lot on that front.

So, in general, we're trying to be one of the leaders in responsible pay structure, and also, hopefully, in terms of the split of shareholder versus employee rewards; something that we certainly aspire to.

I think the specific thing that you are talking to, the 2012 to 2013 progression, and I guess pay for a relatively narrow group, I think basically we doubled our operating performance from 2012 to 2013. And we can talk about a lot of reasons around that. But that's a pretty hefty increase in profitability, and that obviously did lead to some increase in compensation across some of those levels.

I think, as you said, we're obviously trying to pay competitively. I think in general we pay competitively, but I don't think there are any particular outliers in that, so I wouldn't take any more from that. But it was, certainly year on year, actually a change based on the performance of the business.

So, David, do you want to talk about PAF?

On PAF2, as you rightly say, the BCBS did publish some revised guidelines back in November around such hedge structures, DVA hedge structures. And we did make some comments around this in the annual report, the revaluating, the impact on PAF2 of that.

Specifically, what the guidance actually said is it actually confirmed that index or asset-specific hedges, which is really what PAF2 actually is, are actually valid hedges and can be treated as such under the Basel III legislation, along with, obviously, index hedges, CDSs, and certain other instruments, like swaptions.

What they also said, though, they gave some guidance around the senior structure of PAF2. And in line with that guidance, we've obviously been negotiating with a number of people over the course of the last three months in terms of how we actually restructure that senior funding. Those discussions are progressing well. They're extremely advanced, and I think we would probably expect to conclude that in the next few months, frankly. So that's all I can really say at the moment. I think it has certainly been a pretty positive conversation so far.

In terms of the absolute amount, I think we, for various reasons, didn't give that a year ago when we actually did the PAF2. And I can't give that to you today either, and that's that. Sorry.

Okay, thanks.

Stefan Stalmann, Autonomous.

I have two questions regarding the Wealth Management business, please. The first one the issue of retrocessions. Could you give a bit of color around whether you are actually changing your contracts with clients, or whether you intend to do that, and what possibly the impact could be on your gross margin from that?

And the second question relates to slide 12 of the presentation, where you show the share of your ultra-high net worth business in total assets under management. It appears as if the non-ultra-high net part of your business has actually stagnated, in fact, it's slightly down year on year, at a time when your overall portfolio generated 6% returns and FX effects. So is there some shrinkage going on? Or are we talking about mix effects, or maybe people graduating into the ultra-high net worth clients? Maybe you could shed a bit of light on that as well. Thank you.

Yes, Stefan, I think on your first question on retrocessions, we were quite early in disclosure and information to our clients around the whole retrocession process, so we feel like we have, a, been transparent around that; and b, we feel like we've been acting in our clients' best interest in terms of providing the right kind of products and returns to them.

I think our general view is that we've had -- again, we addressed this issue years ago and we feel like we're -- so, therefore, reasonably well positioned with our clients on that. And so, as a result, I think we might offer some additional products. We might do some things [as a response]. But, in general, we feel like we've had a pretty -- our line up of products has been a pretty adequate one against those issues, so I don't think we're expecting any change in respect of the profit dynamic of the business as a result.

Just in terms of slide 12 and the mix of clients, so what you're referring to obviously is that a year ago we had CHF763 billion of assets under management, 37% of which were ultra-high -net worth, and now we have CHF820 billion, of which 42% is ultra-high net worth. So if one deducts the deduction, you can see that the non-ultra-high net worth absolute quantum, I think, must be, by deduction, around CHF3 billion to CHF4 billion lower than it was a year ago.

I think the answer to that really is, if we look at the cross-border outflows, that is really predominantly the high net worth, or the non-ultra-high net worth individuals. That's where you're seeing those outflows. You're not really seeing it as an ultra-high net worth effect. So that's what's driving that drop there.

It's certainly true, though, nonetheless, that whilst we have had growth in high net worth individuals outside of Western Europe, the bulk of our growth, and our emphasis, has actually been in ultra-high net worth clients over the last few years, and particularly in the last year. But it's really Western European outflows which is driving that dynamic.

David, maybe just as a follow up, I think the Western European outflows were probably about CHF8 billion during that year, give or take, so that would probably explain the drop. But then there would still be no performance and no FX effects on this part of the portfolio, which for the whole portfolio was plus 6%, so somewhere there seems to be around CHF25 billion to CHF30 billion of AUM missing, relative to what's going on in the overall business.

Let's get back to you on that in terms of the mix of that, but I think it's predominantly driven by those Western European outflows. But we can give you the breakdown in performance; we can give you that data.

Great. Thanks very much.

Good, okay. I think there are no more questions, so thanks everybody.

In summary, we had a strong start to the year. I think the first quarter results demonstrate the effectiveness of the strategic measures that we've taken over the past few years, and particularly the potential of our high returning business model. We have continued to focus on our clients, while delivering on our expense and capital targets.

As we mentioned, as of January 1, we do operate fully under Basel III; well ahead of most of our industry peers. And today, our integrated bank model generates strong returns, with substantially lower costs and risks. We are confident that our transformed operating model positions Credit Suisse to effectively serve our clients to drive further market share gains, and deliver superior returns to our shareholders.

Thank you very much.

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