Credit Suisse Group AG (CS) 2013 Q3 法說會逐字稿

Good morning, this is the conference operator. Welcome, and thank you for joining the Credit Suisse Group third-quarter 2013 results conference call. (Operator Instructions). At this time I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead, Mr. Dougan.

Thank you very much. Welcome, everybody. Thanks for joining us for our third-quarter earnings call. I'm joined by David Mathers, our CFO, who will deliver the results portion of today's discussion. Before we begin, if you could just note the cautionary statement in the slides.

Two key points that I want to cover this morning, first of all just summarizing third-quarter performance, and then I'd like to explain how the strong progress we've made on capital leverage and cost positions us to shift our focus to growth opportunities in our high-returning businesses and to reinforce our commitment to returns significant capital to shareholders.

First, let's briefly review our financial performance. In the third quarter, resilient profitability in private banking and wealth management and strong revenues in our equities and debt origination businesses were partly offset by weaker client activity, particularly in fixed income. Third-quarter underlying pre-tax income was CHF930m, with a return on equity of 7%.

For the first nine months of this year our underlying pre-tax income was CHF4.5b, an 18% increase from the first nine months of 2012. We generated a stable return on equity of 11%, despite the continued low interest rate environment and macroeconomic uncertainty.

In private banking and wealth management we achieved solid profitability in the third quarter, with an underlying pre-tax income of CHF836m. We had net asset flows of CHF8.1b in the quarter, driven by emerging markets and ultra-high-net-worth client franchises, as well as by high-margin asset management products.

We made strong progress in the third quarter towards our previously announced cost savings target of CHF950m by the end of 2015. For the first nine months, private banking and wealth management generated a return on Basel III capital of 26%.

In investment banking we reported pre-tax income of CHF229m. Our performance reflected challenging fixed income conditions as market uncertainty resulted in low client volumes. This weakness was partly offset by strong and consistent performance from our market-leading equities franchise and robust debt origination activity.

Driven by a shift in the capital to high-returning businesses, combined with strong cost discipline, the investment bank reported pre-tax income of CHF2.3b for the first nine months of 2013, a 34% increase from a year ago; and a return on Basel III capital of 13%, up from 9% for the first nine months of 2012.

Now let's turn to costs. Driven by strong progress on cost reductions in private banking and wealth management in the third quarter, we delivered CHF3b of annualized run rate cost savings versus the first half of 2011. Given this progress, we're on track to achieve our target of CHF3.2b by the end of this year; and we'll target cost savings in excess of CHF4.5b by the end of 2015.

Next is capital and leverage. We further strengthened our capital base during the third quarter. And as of the end of the quarter we met the 13% CET1 plus high-trigger capital required in Switzerland by 2019, with 13.2% on a pro-forma basis. Note that these capital ratios include an accrual for our resumed cash dividend for 2013, assumed to be paid in 2014.

We also made further progress on leverage. Since the third quarter of 2012 we've reduced our leverage exposure by 16% or CHF221b and have already exceeded our year-end target. Our Swiss look-through total capital leverage ratio improved from 2.7% last quarter to 3.5% on a pro-forma basis, including the conversion of the hybrid Tier 1 notes into BCNs on October 23. With this, we are on track to exceed the Basel III leverage requirement of 4.2%, well ahead of the 2019 deadline.

To summarize the quarter, our continued expense discipline and effective capital management mitigated the impact of challenging market conditions and low client activity across many of our businesses. In addition, accelerated achievement of cost, capital and leverage targets reinforces our commitment to deliver significant cash returns to shareholders.

Before handing it over to David, I'll give you a brief update on how an increased focus on our high-returning businesses will position us for further growth.

We have taken significant steps to evolve our business model in response to the changing market and regulatory environment, and we've operated under the Basel III framework since January of this year. We have met all the capital and expense goals that we've set out, as David will take you through in a few minutes.

We will continue to deliver against our strategic objectives, which include, first, to refocus and drive growth in high-returning businesses, particularly in private banking and wealth management; second, to release and reallocate resources from non-strategic operations to fund shareholder returns and growth; and third, to achieve a more balanced capital allocation between our two divisions.

To advance all three of these objectives, we are formalizing our existing wind-down strategy and enhancing our disclosure through the creation of non-strategic units within each of our two divisions. These units, which will have separate management within each division, will serve to accelerate the reduction of capital and cost tied up in non-strategic assets and drive higher returns. At the same time, this clear separation of non-strategic operations will free up management time and resources to focus on our ongoing businesses and growth opportunities.

Let me say a few words about the composition of these non-strategic units, and then David will provide much more detail later in the presentation.

In investment banking, we're expanding our existing fixed income wind-down effort to include a restructuring of our rates business. We will add to our existing wind-down portfolio parts of our rates franchise, including legacy non-Basel-III-compliant positions, capital-intensive structured positions and related litigation costs. What remains will be a simplified and more capital-efficient rates business with a focus on meeting client liquidity needs.

In private banking and wealth management we're establishing a similar function. The private banking and wealth management non-strategic unit will include positions relating to the restructuring of our former asset management division, litigation and run-off costs relating to select legacy cross-border businesses, the previously communicated small markets initiative and the impact from the restructuring of the German onshore operation. This approach will drive further reductions in leverage, risk-weighted assets and expenses and is a significant step towards achieving a more balanced capital allocation between our two divisions.

As part of this effort we are revising our long-term cost and capital targets. We will reduce leverage exposure to CHF1,070b, risk-weighted assets to approximately CHF250b, and we will now target expense reductions of more than CHF4.5b by the end of 2015.

These planned reductions will free up resources for future growth in investment and private banking and wealth management. In particular, we expect to increase our presence in key emerging markets in Asia and Latin America, but also in parts of the Middle East and Eastern Europe. Additionally we will strive to further strengthen our market share with the ultra-high-net-worth clients, including a substantial increase in lending. We will also invest in expanding our digital client interface, particularly in Asia, and remain positioned to take advantage of market consolidation.

In investment banking we will focus on opportunities to strengthen our leading franchises in key markets. This strategy to refocus our business towards growth will position Credit Suisse to achieve one of the highest returns in the industry and deliver sustained and substantial cash returns to shareholders.

With that, I'll hand it over to David, who'll discuss the results in more detail. David?

Thank you, Brady. Good morning. I'd like to start on slide 7 with an overview of the financial results.

In the third quarter we achieved underlying revenues of CHF5.6b, pre-tax income of CHF0.9b and net income of CHF0.7b. Diluted earnings per share of CHF0.4, the cost/income ratio 83%, and we achieved after-tax return on equity of 7%.

Net new asset inflows of CHF8.5b from continuing operations improved significantly compared to the CHF5.4b that we achieved in the third quarter of 2012. And for the nine-month period, underlying pre-tax income was CHF4.5b, equivalent to an after-tax return on equity of 11%.

There are two points I'd like to make. First, our tax charges in the third quarter were abnormally high due to changes in the UK corporation tax regime. If we adjust for the impact of the tax reduction, our effective corporate tax rate would have been 28% for the third quarter, in line with our existing guidance.

Second, in the third quarter we also completed sales of several assets under the capital program from the asset management business. As they are classified as discontinued operations, the CHF237m of sales gains and the related costs are not included in either underlying nor reported pre-tax income. However, our reported net income for the third quarter does include the after-tax income of CHF150m relating to these discontinued operations.

Let's turn to slide 8. The private banking and wealth management division reported pre-tax income of CHF1b in the third quarter and underlying pre-tax income of CHF836m, excluding the aforementioned business sale gains.

Net revenues at CHF3.3b in the third quarter were stable compared to the previous year as higher return on commission and fees and other revenues were offset by lower net interest income. The decrease in revenues compared to the previous quarter reflected seasonally lower client activity as well as reduced performance fees following a strong second quarter.

We have made further good progress towards our previously announced savings target of CHF950m by the end of 2015. Compared to the first half of 2011, when we initiated the program across the Bank, we've achieved annualized run rate savings of CHF350m by the end of third quarter. So that's up by CHF150m on an annualized basis since we reported our second-quarter numbers.

Our underlying cost/income ratio for the first nine months of this year, when adjusted for the UK withholding tax charge of CHF100m that we took in the second quarter, decreased to 71% from 74% for the same period.

We continued to see strong net new asset inflows of CHF8.1b in the third quarter. Now this takes into account CHF0.4b of movements relating to the announced sale of our customized fund investment group, or CFIG, which is now classified as discontinued operations, and the sale of which will close in the fourth quarter of this year.

Let's turn to slide 9 to discuss net new assets in some more detail. Our wealth management client business saw inflows of CHF5.5b in the third quarter, with continued strong contributions from Asia and Latin America and a high share of inflows from our ultra-high-net-worth segment. The eliminating double-count adjustment was positive in the third quarter due to the outflow of certain assets managed by asset management on behalf of other private banking businesses.

We continue to see cross-border outflows in Western Europe, mainly from our retail affluent client segment relating to the ongoing normalization of tax regimes.

For the nine-month period as a whole, net new assets are stable compared to last year, with emerging markets growing by 8% on an annualized basis and Western European cross-border outflows within our guidance of the 5% to 10% per annum that we've given previously.

Within asset management we achieved strong inflows of CHF3.8b in the third quarter, mainly in higher-margin emerging markets and credit-alternative products.

And finally, corporate institutional clients contributed positive net new assets of CHF0.5b in the third quarter.

Let's look at the financial results of the division in more detail, and we'll start with wealth management clients on slide 10. Wealth management clients delivered solid underling pre-tax income of CHF516m, slightly higher than the prior year and driven by lower expenses from the continued efficiency measures we're implementing. Revenues of CHF2.1b in the third quarter were relatively stable compared to the prior year, with higher recurring commissions and fees partly offsetting the impact from the continued low interest rate environment.

Compared to the previous quarter, the decline in revenues mainly reflected seasonally lower client activity after a strong second quarter. Cost efficiencies have helped to improve the cost/income ratio from 77% previous year to 75% on adjusted basis for the first nine months of this year.

Let's look at wealth management revenue trends in more detail on slide 11. As you can see from the chart, our gross margin of 105 basis points in the third quarter was down from 110 basis points last year. The main driver of this decrease year on year was net interest income, which continued to be negatively affected by the low interest rate environment and only partly offset by higher loan volumes.

Compared to the previous quarter, transaction volumes were slower after a seasonally strong second quarter. The share of gross margins that we earned on recurring commissions and fees and on net interest income was stable compared to the second quarter.

Pursuant to our strategy, we continued to increase our ultra-high-net-worth penetration, which now constitutes 44% of assets under management compared to 40% a year ago.

Let's turn to corporate institutional clients on slide 12. We continued to see a strong contribution from corporate institutional clients in the third quarter. Pre-tax income of CHF240m was up 12% from the prior year, mainly driven by lower expenses. Compared to the second quarter, decrease in revenues reflected seasonally lower client activity. Credit provisions reverted to low levels after the isolated credit cases that were reported last quarter.

Let's turn to asset management on slide 13. Asset management reported pre-tax income of CHF268m in the quarter. This includes -- included CHF185m net gains from the sale of our ETF and secondary private equity business after deducting related costs for these businesses and also for the announced sale of CFIG. The businesses that we've divested or are being sold also contributed CHF27m operating profit to pre-tax income in the third quarter.

When comparing the underlying pre-tax income to the previous year, we need to keep in mind that last year's third-quarter result included CHF101m of investment-related gains. And adjusting for this, our third-quarter pre-tax income of CHF80m improved year on year.

Compared to the previous quarter, the second quarter, the decrease in underlying pre-tax income reflects the semiannual performance fees and the strong carried interest on private equity gains that were reported in the second quarter.

Total assets under management in the third quarter were negatively impacted by CHF21m as a result of the business divestments previously mentioned. Net new assets, however, more than doubled compared to the second quarter, driven by strong inflows in alternatives, primarily emerging markets and credit products.

Let's turn to slide 14. Last quarter I provided an overview of the transformation strategy for the private banking and wealth management division. And in the next two slides I'd like to address in some more detail our three key areas of focus.

First, we're reallocating resources and capital to capture growth, predominantly in emerging markets and the ultra-high-net-worth segment. Going forward, the expansion of our lending initiatives to ultra-high-net-worth individuals, particularly in emerging markets, together with other initiatives, will gradually increase the risk-weighted assets that we dedicate to the private banking and wealth management division.

In Switzerland we will further increase our market share in cross-segments -- for example, with an increased focus on offering a full range of advice to entrepreneurs. We will leverage our platform to reach out to new clients and exploit the digital space, as exemplified by eamXchange, our innovative and collaborative social media tool that's used to link and interact with the external asset management community.

In emerging markets, we continue our strong growth momentum in key areas such as Brazil, China, the Middle East, Indonesia and Russia. We continue to enhance our on- and offshore offering in Singapore and Hong Kong. And we will expand our digital client interface, particularly in the Asia Pacific region, including a wider product range, portfolio analytics, research and transaction services.

In mature markets, we will reposition select onshore markets, such as Germany, and further grow in profitable onshore markets, such as Italy and Spain, where we focus on high wealth financiers and a successful increase in the penetration of managed investment products.

Let's continue on slide 15. Our second area of focus is to address the gross margin challenge, which is mainly influenced by cyclical factors and by our business mix. We continue to mitigate the impact of a low interest rate environment with higher loan volumes and margin expansion. Given the current interest rate structure we would anticipate seeing an increase in our net interest income within wealth management clients in the second half of 2014.

Further, as we said before, a parallel upward shift to interest rates by 100 basis points would boost gross margins by 5 basis points in a full year.

We also plan to increase our average ultra-high-net-growth gross margin with higher lending and investment product penetration, as well as continuing to leverage our integrated bank card collaboration.

Finally, we're on track to realize our targeted cost savings for this division of CHF950m by 2015. In going forward we will further realign our expense base away from non-strategic mature markets towards faster-growing regions. We'll also focus on rationalization of support functions and increasing automation.

Let's now turn to the investment bank on slide 16. We delivered revenues of CHF2.6b and pre-tax income of CHF229m in the third quarter. Revenues declined from the previous year, driven by a decline in fixed income, where market uncertainty around the timing of US monetary policy changes resulted in significantly lower client trading volumes. The lower fixed income sales and trading revenues were partly offset by continued strength in our market-leading equities franchise and by higher debt underwriting activity.

We continued to improve capital efficiency in the quarter, and we reduced our risk-weighted asset usage to less than the target of $175b that we'd set for the end of this year. Our third-quarter risk-weighted asset total of $169b represents a reduction of $31b compared to a year ago and $8b lower than the prior quarter. And importantly, we also reduced leverage exposure by $137b or 14% compared to the total a year ago.

We remain very focused on cost efficiency and our total reported expenses declined by 14% compared to the third quarter of last year, particularly driven by cost discipline in compensation and benefits, which declined by 24%. Please note that other operating expenses in the third quarter this year included mortgage-related litigation, totaling CHF128m.

Finally, for the first nine months of 2013 we achieved a 13% after-tax return on Basel III allocated capital compared to 9% in the same period last year.

Let's now turn to fixed income results on slide 17. Revenues declined by 31% compared to the previous year, due to a significant decline in client trading activity resulting from rising rates and a widening of spreads due to the expectations of Fed tapering throughout the third quarter.

Credit results, however, were resilient, with strong leveraged finance origination and secondary trading activity. Securitized products benefited from strong asset finance performance, driven by high origination volumes, but notwithstanding lower client trading activity in both agency and non-agency RMBS.

Emerging market results reflected volatile trading conditions that more than offset the strength in new financing activity in the third quarter.

Rates, FX and commodity revenues were all affected by a significant decline in trading and client activity this quarter.

With that, let's turn to equities on slide 18. Equities continued to perform well in the quarter across all products compared to the prior year, with particular strength in Asia Pacific. This reflects continued market leadership, high global equity prices and increased flows into equity funds. Revenues were 3% higher than the previous year and are up 10% compared to the prior-year nine-month period. This combination of higher revenues and reduced cost has led to higher franchise profitability in the quarter.

If we look at our equity results in more detail, we had substantially higher results in derivatives, driven by improved trading conditions. We also benefited from solid results in cash equities, where we increased market share; and prime services, where we increased client balances.

Lastly, our lower equity underwriting result was driven by improved revenues from IPOs but offset by lower revenues from convertible and follow-on offerings in the quarter.

Let's now turn to underwriting and advisory results on slide 19. Overall we posted lower results in underwriting and advisory, with stronger debt underwriting performance offset by weaker equity underwriting and advisory results.

Now, debt underwriting results were higher year on year, driven by investment-grade market share gains and continued strong performance of our leveraged finance franchise. The lower result in equity underwriting reflected improved revenues from IPOs, but as mentioned before, offset by reduced revenues from convertibles and follow-on offerings. In advisory, revenues were lower, consistent with a general decline in the total industry fee pool.

Let's turn to slide 20. Given the increasing focus of regulators on leverage exposure and the fundamental change in the rates market structure towards electronic trading and clearing, we're restructuring our rates business to anticipate these changes in the market environment whilst continuing to meet client liquidity needs.

As a result of this restructuring we will substantially strengthen the performance of our rates business. We will reduce leverage exposure by a further $60b, of which $45b is targeted to be achieved by the end of 2015. And we will reduce risk-weighted assets again further in this business by 40%, from $16b at the end of the third quarter to a target of $9b by the end of 2015.

We'll revisit the rates restructure in some more detail when we discuss our non-strategic units later in this presentation.

But first, let's turn to slide 21 to review the capital allocation in the investment bank. We include here our usual chart showing the market share in our major businesses compared to their return on capital. As you may recall, the size of the bubble illustrates the amount of capital we have employed in each business area.

The key point of this slide is that we continue to allocate the majority of our capital to market-leading high-returning businesses. For the third quarter of 2013 our overall capital allocation, as seen in the blue boxes on the right-hand side, to our top three businesses was consistent with the prior quarter. However, with significant improved returns in cash equities affecting both increased activity and reduced costs, prime service and derivatives produced solid but stable returns with continued market share leadership.

Credit continues to benefit from our strength in origination, producing significant returns, which are amongst the highest in investment banking. Our securitized products in the emerging market businesses were resilient, notwithstanding the lower client flows in the quarter.

Lastly, the return on our rates business remained challenged. And, as discussed, we intend to substantially improve the profitability and returns from the restructuring measures we've announced. This improvement is represented by the pro-forma rates bubble based on the indicative pre-tax income and Basel III risk-weighted assets at year end 2015.

Slide 22. The waterfall chart on this slide highlights the returns on our core investment banking business when we exclude the legacy and non-strategic drag from our existing wind-down program and from the measures that we're announcing in this restructuring. For the first nine months of 2013, the overall investment banking division achieved an after-tax return on Basel III allocated capital of 13%, up from 9% in the prior year. And this increase was driven by a reduced cost base and by lower capital usage.

If we exclude the wind-down and the incremental impact of the creation of the non-strategic unit, we can see that the core investment banking business delivered an after-tax return of 24% for the first nine months of this year. Please note the litigation provisions we've taken so far contributed 2% to this uplift in returns.

Let's turn now to the next section to discuss the non-strategic units in some more detail. Slide 24. In his introduction, Brady gave you an overview of the evolution of our wind-down strategy and the establishment of non-strategic units within the investment banking and private banking wealth management divisions in the fourth quarter of this year. In the next few slides I'd like to address this topic in some more detail. But I would emphasize, though, that we're still in the process of finalizing the portfolio of non-strategic positions, and we'll only have final numbers for the non-strategic units once they've been established and implemented in the fourth quarter of this year.

For the investment banking division, the non-strategic unit will be an extension of the existing fixed income wind-down strategy, plus a number of additions to the portfolio. These include the impact of the rates restructuring which we've already discussed, which mainly relate to legacy non-Basel-III-compliant positions and capital incentive structure positions. We'll also include legacy litigation costs, and a small number of other non-strategic positions are in this portfolio.

In the private banking and wealth management division we will also establish a non-strategic unit. This will include some final positions relating to the restructuring of the asset management division, run-off operations related to the small markets initiative, select items relating to the legacy cross-border businesses, as well as the impact from the restructuring of our German onshore operations.

To give some additional color on our small market initiative, this program involves full exit of 83 countries, which in total have assets under management of about CHF3b. So the average assets under management is therefore around CHF40m to CHF45m per market. Given the heightened complexity in compliance costs associated with the numerous regulatory regimes in each country, we have reassessed the viability of doing business in these small markets and believe these resources would be better allocated to other growth areas with higher potential.

So we believe that establishing non-strategic units within divisions, with transparent disclosure, will enhance the management focus on the ongoing businesses and the growth initiatives as well as facilitating the accelerated reduction of these legacy positions and costs.

Let's look at the scope of non-strategic units on slide 25. This slide shows the preliminary pro-forma financial impact of separating the non-strategic operations from the rest of the businesses for the nine-month period to September 2013. The pre-tax income numbers presented include direct and indirect expenses associated with the non-strategic units. This provision analysis demonstrates that our businesses, excluding the non-strategic units, performed strongly in the first nine months this year, generating a return on Basel III capital of 23% compared to 15% for the total. Excluding the non-strategic units, our ongoing businesses are also more efficient, with a cost/income ratio of 70% compared to 77% for the total firm, including non-strategic units.

Let's turn to slide 26. As you're well aware, we have a number of existing strategic initiatives in our private banking and wealth management and our investment banking divisions that we've put in place in the last few years to reduce expenses and to realign the businesses to the changed regulatory environment. This slide shows the extent to which these initiatives are already encompassed by the non-strategic units, as well as highlighting the additional impact from the new initiatives, the rates restructuring forming the largest component of this change.

Clearly, the accelerated rundown of the non-strategic positions that we're planning will have the largest impact on our leverage exposure. From the left-hand pie chart you can see that we have already planned to run down a further CHF49b of exposure. This now increases by CHF74b with the new strategic measures. And again, this is primarily driven by the rates restructuring.

We also see a significant impact on risk-weighted assets. We've identified a further CHF11b in addition to the CHF14b that we're already targeting to achieve for reduction from our existing initiatives. And that's above and beyond the numbers we've actually announced today for risk-weighted assets.

In terms of expenses, the additional operations now classified as non-strategic incurred CHF228m of total direct and indirect operating expenses in the first nine months this year, or CHF304m on an annualized basis. And I'll discuss the impact of this on our cost reduction targets in a moment.

Let's turn to slide 27. We've mentioned before that one of the benefits of established non-strategic units within the division is the increased transparency and accountability for management, both in terms of focusing on the ongoing businesses and acceleration of run-off of non-strategic operations. So we intend to halve our non-strategic leverage exposure by the end of 2015. We also intend to target a reduction of 41% in risk-weighted assets within the non-strategic units by the end of 2015. And this will accelerate the rebalancing of risk-weighted assets towards our target of 50% of the Group allocation to the investment banking division.

We estimate that the cost of exiting our non-strategic positions by 2015 is likely to be in the range of 2% to 3% of risk-weighted assets, which is in line with the experience we've had with the runoff of our fixed income wind-down assets over the last two years. Just to remind you, we have reduced this portfolio from CHF56b of risk-weighted assets to CHF9b in 24 months.

Turning to the restructuring costs, you'll recall our previous guidance of CHF1.6b in restructuring costs between 2013 and 2015. With these new measures we estimate we will need to increase this guidance to CHF1.8b between 2013 and 2015.

Let's turn to slide 28. As you've seen already, we have now more than met our prior year-end Group Basel III risk-weighted asset target of CHF285b by the end of the second quarter, and we've further decreased risk-weighted assets to CHF261b by the end of the third quarter.

The completed exit of the non-strategic units will reduce risk-weighted assets by a further CHF25b. However, as part of the growth in the private banking wealth management division, we would expect to reinvest around CHF15b to CHF20b in incremental risk-weighted assets in this division, primarily related to the lending initiatives. And accordingly we're assessing a new long-term ex-non-strategic-unit target for risk-weighted assets of approximately CHF250b for the Group. Furthermore, this will accelerate our aforementioned goal of moving our capital allocation towards approximately 50% of Group risk-weighted assets in the investment banking division.

In terms of leverage exposure, having reduced our total leverage to CHF1,184b at the end of the third quarter, runoff from the non-strategic units, once complete, will reduce our target leverage exposure to around CHF1,070b in due course.

Slide 29. What we wanted to say on this slide is that the creation of the non-strategic units should be seen as part of our ongoing strategic goal to move towards a more balanced business mix. The new measures announced today allow us to accelerate this process and create more visibility on the planned rebalancing.

Let's start with the divisional charts on the left-hand side of the slide first. Whereas we had 29% of Group RWA allocated to the private banking and wealth management division and 63% to investment banking in 2011, this mix has already shifted significantly by the end of September 2013. And it's clear that non-strategic measures will further shift this towards our 50% goal.

On the right-hand side what we show is that the combination of our significant cost reduction measures, which total an annualized CHF3b so far, together with the reallocation of capital towards the higher return private banking franchise has led to an increase in Group Basel return on capital from 5% in 2011 to 15% for the first nine months of 2013. If you exclude the assets and expenses within the non-strategic units, the Group return on capital should improve further towards 22%.

So what we're announcing today should be seen as a continuation of the already communicated strategy of shifting risk-weighted assets towards the high return and capital-light private banking franchise, while at the same time improving the returns in the investment banking franchise. This will allow us to invest in growth areas within the private banking and wealth management division in addition to supporting cash distribution to our shareholders.

So let's turn to the next section to discuss our expense initiatives, capital, funding liquidity. We continued to make progress on our expense program this quarter. As you know, we compare our operating expenses to our run rate cost base for the first half of 2011, which is when we initiated our efficiency program. In the first nine months of this year we achieved annualized run rate savings that now total CHF3.0b per annum and are well on track to meeting our target of CHF3.2b per annum by the end of this year.

The implementation of the non-strategic units has two impacts on our cost targets. First, they provide a clear framework and oversight to deliver our existing savings. Second, they provide an opportunity to increase the total targets -- albeit that I'd caution that a significant proportion will be delivered beyond 2015.

Looking forward to 2015, although we're still finalizing the non-strategic units, we have increased our target to a minimum of at least CHF4.5b to be achieved by the end of 2015. With CHF1.7b annualized savings achieved in the first nine months of this year, the investment banking division had already achieved the bulk of the CHF1.8b savings we previously targeted. Through the combination of rates, restructuring program and other efficiency measures across the businesses, we would expect to achieve an additional CHF200m of cost savings in investment banking by the end of 2015.

The private banking and wealth management division achieved CHF350m annualized savings in the first nine months this year, making good progress towards their savings target of CHF950m for the end of 2015. We do expect to achieve additional savings from the creation of the non-strategic unit within the private banking and wealth management division as well as other measures, but we would expect to reinvest this in the growth initiatives that we've discussed already. So the target for the private banking division remains at CHF950m.

Our infrastructure savings of CHF0.9b on an annualized basis shows continued good progress towards the 2015 goal of CHF1.65b. Further consolidation of fragmented and duplicated support functions, including effective demand management, will help us to achieve the 2015 target, which you'd now raise by CHF50m with the implementation of the non-strategic units.

Let's now turn to the capital-related slides, starting on slide 32. As you can see from the chart, our Basel III risk-weighted assets stood at CHF261b at the end of the third quarter, down 29% since the third quarter of 2011. To reiterate what we've said before, we've revised our goal of risk-weighted assets to a target of around CHF250b for the Group, post implementation of the non-strategic units; and reinvestment of risk-weighted assets within the private banking and wealth management division.

Let's move to capital ratios on slide 33. We've continued to strengthen our capital position and are well above the target levels that we set a year ago when we announced our capital plan. Our Swiss core capital ratio reached 11.4%, 100-basis-point improvement from the last quarter. And, just as importantly, our CET1 ratio is now above 10% for the first time.

Furthermore, I'd like to confirm that yesterday we converted a portion of our hybrid Tier 1 notes into high-trigger buffer capital notes, which adds CHF3.8b to our high-trigger capital instruments. And these count as additional Tier 1 instruments under the Basel III legislation. As of yesterday that means that this increases our loss-absorbing capital, as defined as CET1 plus high-trigger buffer capital notes to 13.2%, which means that Credit Suisse exceeds the 13% required by the new Swiss banking legislations more than five years ahead of schedule.

Let me turn now to the balance sheet and the capital leverage slide, 34, please. At the end of the third quarter we achieved our prior year-end leverage exposure target to be at less than CHF1,190b, with total exposure falling to CHF1,184b at the end of the third quarter 2013. This represents a cumulative reduction of CHF221b or 16% since the position a year ago, when we announced our leverage reduction program. And, just to recollect, we're now announcing a new long-term leverage exposure target of CHF1,070b.

Let's turn to slide 35. So this table shows the key leverage ratios all on a look-through basis. That's mainly the Tier 1 ratio, the Swiss National Bank total loss-absorbing ratio and, most importantly, the Swiss total capital leverage ratio. Our total capital leverage ratio improved from 2.7% at the end of the last quarter to 3.2% at the end of the third quarter.

As I've mentioned before, yesterday we converted our hybrid notes into Tier 1 high-trigger capital instruments, which will increase the ratio to 35 -- sorry, to 3.5% as of today. And if we exclude the leverage exposure from the non-strategic units, our total capital leverage ratio increases to 3.9%.

I think it's evident that through the culmination of our capital efficiencies and the reductions in leverage, we have substantially strengthened our capital ratios and are already very close to meeting the 2019 Swiss total capital leverage ratio requirement.

With that, I'd like to conclude the results proportion of today's presentation and pass back to Brady.

Good. Thanks very much, David. I think with that we're ready to open up to Q&A.

Matt Spick, Deutsche Bank.

Good morning, thanks for taking my question. I had a couple of points on the rates and balance sheet issues, which are of course connected. Firstly, you did a good job again in reducing assets in Q3. But I noticed that a lot of the reduction came -- in total exposure came from the add-on. So I was wondering if you'd mostly reduced the repo add-on in Q3, or whether you'd been reducing the derivative add-on in Q3.

Second related question is whether you've seen any acceleration with your peers and competitors in talking to them about tear-ups on the derivatives book. So is that a theme that you've seen in Q3 at all? Or do you think that's still ahead of you?

And then thirdly, just on the futures, $60b of asset reduction. Again, is that mostly repo reduction, or is it derivatives reduction? And the fact that some of it is phased to after 2015 makes me think it might be Dodd-Frank and Method T, so might be derivatives reduction. So I'm wondering if it will also be reducing your level 3 assets as well? Thank you.

Thank you very much, Matt. So just taking those in order. In reality, I think you've obviously seen that we've reduced our total exposure to CHF1,184b and therefore exceeded our target. And clearly a lot of the early phase of that was actually in the repo book. And what we saw in the third quarter was primarily relating to the add-ons for the derivatives portion of this, not the repo portion.

In terms of tear-ups, I think it is a consistent thing for us out of the banks. I think we've done quite a lot already. We would anticipate, though, that I think as everyone looks towards the new cleared environment for rates, which is really where the industry's going, it's -- 95% of our business in the United States, for example, is actually cleared -- we would anticipate a very substantial incentive to accelerate that across the industry. And that's something we're obviously keen to encourage.

I think your final question was actually on the further $60b we've discussed already. I think, to be candid, there's only a very limited further input -- impact we can achieve from reducing our repo portfolio further, because that was one of the early targets for our leverage reduction program. So the bulk of this will actually come from eliminating the bilateral swaps trades, which we're actually moving into the non-strategic unit in the fourth quarter.

So I think we've very little actually to come from repos, really coming now from this derivatives and structured positions, which we're announcing today.

I think also, Matt, maybe just worth adding, as you can see, and as David mentioned, this is obviously a business that has been already -- we've already been improving the capital efficiency of obviously these measures, really adapt much more rapidly to the changes in market conditions. And I think, as David said, I think the whole industry is seeing very rapid migration to this whole cleared environment. So frankly, I think the whole industry is experiencing that more rapidly than I think people expected.

Thank you.

Thanks, Matt. Next question?

Huw van Steenis, Morgan Stanley.

Morning. Two questions. First, thanks for all the detail on the non-strategic unit. Could you give us some sense of how quickly the phasing will come through, of getting the CHF1.4b of drag out of the P&L, given some of the positions are well beyond 2015? I was just wondering if you could give some stepping stones over the next few years?

And then number two, in terms of putting more risk-weighted assets into the wealth management unit, what's your expectation of the returns, whether it will actually really be used, or whether this is a plug from needing to be -- as you're constrained by leverage, you need to actually put some risk-weighted assets to work. And whether -- how realistically we are going to see all those risk-weighted assets being stoked up by wealth management over time? Thanks.

Maybe I can take the second part, and then David can answer the first. I think, with regard to our perspective on increasing the risk-weighted assets -- and particularly, one of the targets there is increasing the lending, particularly to the ultra-high and the high net worth segment. And I think, Huw, our view is actually that there are -- that's a very real prospect that can actually -- there's actually good demand, and we can actually ramp that up relatively quickly.

And I would say that returns on them -- obviously, the average returns within private banking wealth management are in the high 20s, hopefully going into the low 30s as we continue to improve the dynamic. I think this particular -- the particular use of these risk-weighted assets is very productive, because it tends to be -- you clearly have the returns on the lending, but it also gives rise to assets that come in; and also, those tend to be transactions or clients where we can do more business across the integrated bank, with the ability to do a lot of different transactions. So I think certainly those would be -- those incremental assets would be being deployed at returns that were well in excess of and certainly in the 30% plus range in terms of returns.

And I think our view is -- it's been a -- it has been something we've already been focused on, but we are very focused on actually increasing that part of the business. So I think it's actually pretty realistic that over the next quarters we will see those -- an impact from that. David?

Okay. So in terms of the run-off for the non-strategic units. So firstly, as you know, Huw, just in terms of the leverage in RWAs -- we discussed that already on page 27, but the reality essentially is to get the leverage down by about 52% over the next few years, RWA rate down by about 41%. Please just note on the PBWM RWA reduction, we've actually factored in adverse model change in private equity, which we're anticipating next year. So that's why you see it doesn't drop too much over those periods, because otherwise it would drop in position terms by roughly 50%.

Okay, so then in terms of the expenses, which I think is the core of your question, really -- clearly within the non-strategic units is a mixture of expenses. And we try to give some indication of that on page 26, which was the pie charts. So within that, of course, there's operating expenses, which is the one we analyzed actually on the right-hand side. There's also litigation costs within that too. So I think -- let me just take that into two chunks, really.

I think clearly litigation costs will be lumpy and would depend on how things are settled. Clearly we'd like to see that settlement as quickly as possible over the next two, three years. But I think that probably will depend on the pace of both external and internal events to actually drive that forward.

In terms of operating expenses, what we're saying is that there's about $300m of incremental expenses that we can't track and are not addressed by our existing expense program. So you might say, so why do we not increase the target from CHF4.4b to CHF4.7b? But I think there's probably two reasons for that. The first is, there clearly will be a tail of expense of infrastructure which has to be maintained beyond 2015 as we actually manage that run-off of positions, some tail of FID PM, the assets under management (technical difficulty). So as long as those assets are there, there will be some infrastructure costs associated with that.

Second reason, so the second reason essentially is that if you look carefully, we're probably looking for about CHF50m of additional expense savings within the private banking wealth management division. But I did want to warn that we will be looking to reinvest that in the growth initiatives.

So that's really -- so eventually when we're looking at this, we think probably an extra CHF100m would be in the investment bank by 2015, an extra CHF50m would be in the infrastructure functions, an extra CHF50m in private banking but reinvesting, which leaves about a further CHF100m which we will need to basically manage the run-off there afterwards.

And I think that probably will be a grossly slow tail, because as you know, we'd looked at the FID PM, reduced that from CHF56b to CHF9b. But we are left with a relatively sticky collection of assets.

Now I think, Huw -- maybe it was Matt, actually, asked a question around level 3 assets, which I didn't answer. I think it's certainly true that there is a disproportionate weighting towards level 3 assets within the non-strategic unit run-off, because the FID PM assets are clear, very modeled assets. It's not all of our level 3 assets, because there are some others. But clearly the reduction in non-strategic units will actually reduce that total materially. They are disproportionately represented in this group.

Yes. Okay, thank you very much, that's really helpful.

Thank you.

Next question?

Kinner Lakhani, Citigroup.

Yes, hi. Good morning. So just coming back to slide 25, I just wanted to focus a bit more on the revenue line of non-strategic unit, the minus CHF600m. Essentially just wanted to check if the performance is largely being driven by the wind-down portfolio, which I suspect is about CHF500m of that, if you could confirm. And then does that suggest the rest of the rate business has been contributing negative revenue on that?

And as we go through the wind-down, do you expect any costs to come through in terms of impairment costs, through the revenue line?

Okay. Focusing on the IB non-strategic unit, minus CHF595m of negative revenues. But I think to give some rough order of magnitude of that, the negative revenues for nine months -- and you may recall, we had a gain in the first quarter of [INFIP] wind-down was just under about CHF100m, a negative -- minus CHF100m for fixed income wind-down. The rates business was, or at least the bilateral trades relating with where we're actually putting non-strategic units, did have negative revenues in the nine months; not huge, about minus CHF30m.

And that then leaves about another CHF450m, the bulk of which actually represents a collection of instruments which we issued which are no longer Basel III relevant, and which we've not yet managed to actually redeem or run off. So it's basically obsolete -- it's the tail of obsolete capital instruments which would have worked under -- which would have been eligible for capital under Basel II but which are not eligible under Basel III. I think you know we've had a very active program to actually redeem -- to purchase back those instruments. But there is a tail which may not be publicly traded, for example, or very liquid, which is still basically incurring costs. So that's the kind of composition.

I would just caution -- nine months is not necessarily illustrative. We do, obviously, for example, have a gain in the FID wind-down portfolio in the first quarter. So that's like the trend a little bit.

But yes, I think to your point, we did have negative revenues within the nine-month period relating to the bilateral trades we've moved into the NSU for rates.

Okay. And do you expect the wind-down of the $60b rates portfolio to lead to further accelerated, maybe, negative revenue?

I think -- so obviously for FID wind-down PM, we basically reduced that from CHF56b to CHF9b. Now, including the funding costs associated with holding that portfolio, that cost is about 2.4% of risk-weighted assets. So I guess we recovered about 75% and had to give up 2.4% in terms of negative revenues to actually exit that portfolio.

But I think the guidance we're giving today is that we'd expect the run-off to probably be in the 2% to 3% going forward. The bilateral rates component of that is probably a bit lighter, somewhere in the 1% to 2% space. But remember, we've still got those FIP PM assets, about $9b in this too.

Understood. And just a separate question on litigation. We've had clearly a number of further updates coming through from other banks in terms of litigation, particularly in relation to FHSA. Is that something that you're focused on in terms of increasing your buffer reserve at this point in time?

Yes, Kinner, obviously, in general obviously the litigation docket is something that we look at very carefully every quarter, and we obviously make sure that from an accounting point of view we're properly reserved against that. I think, as you know, probably the two -- we probably don't have quite as long a list as others in the industry have issues out there. But we do have -- we have our cross-border US issue, which is still obviously out there. And as you mentioned, mortgages is primarily the FHSA issue.

We have on the quarter, as you can see, we have taken some additional reserves for in general, for our litigation matters and, which we obviously think are adequate. But clearly we'll continue to work towards resolving those issues over time. I think on the FSHA matter, largely nothing has changed very much in that. I think the performance of portfolio is similar to what we talked about before, with -- in terms of actual losses on portfolio and so those matters obviously continue to be a focus over a longer period of time in terms of resolving. But in terms of litigation reserves, we've obviously taken additional reserves this quarter and continue to track these things.

And finally, if I could, with your capital ratios growing at a much faster rate than you may have previously indicated, does that change your view in terms of capital return, for this year?

It's David here. I think up until now we've obviously said that we obviously want to redeem the Claudius instrument. And that becomes eligible for redemption from December of this year. And clearly we would like to target cash returns to shareholders. I'd say clearly on these capital ratios that that obviously does support increased likelihood of redeeming Claudius. And I think Brady can comment in terms of cash returns. I think it is still very much our intention to resume cash returns next year, subject to Board approvals and the shareholders.

Yes, but I think -- I guess, Kinner, your question was on the returns as a result of the capital. I think we've said all along that we think we'll probably need to live in a range of 10.5%, 11%, something in terms of the capital ratios. I think, as you can see, and particularly, I guess, one of the things that we're trying to highlight with the whole non-strategic units setup, as you can see, is the ongoing businesses have very, very healthy returns on capital, and so I think with regards to our goal, ultimately of the 15% return on capital over the cycle, etc., we still think that that's something that's should be achievable.

And obviously if you look at, as we continue to make progress on the cost reduction elements as we make even accelerated progress on reducing the capital and leverage resources in the NSUs, you can see obviously that's going to -- that should clearly enhance the returns on capital. So I think in general we still feel good about the capital returns over time that we've targeted.

Just to make one follow-on point, really, going back to your first question around negative revenue drag. If you think about the run-off of the non-strategic units, so where does the benefit come from? It comes in terms of reduced total exposure, it comes from reduced risk-weighted assets, it also comes from reduced operating costs, which I think the -- it's very clear in our slide.

What is also clear is we will also get a benefit from the reduction of that negative revenue drag. In other words, the negative revenues on FID PM, negative revenues on FID rates, but also we've given an indication of magnitude of that, the drag actually on our investment banking earnings from those obsolete funding instruments. Now that is incremental. We don't count that as an expense saving, because our expense definition is clear, it's around the operating expenses. But you can see that in terms of the runoff it's quite material in terms of the total numbers. And just recall, the numbers I gave you obviously are for nine months, so you need to annualize those for a full year.

That's great, thank you very much.

Thanks, Kinner. And next question?

Kian Abouhossein, JP Morgan.

Morning, Brady and David. A few questions. First of all, wealth management, can we discuss a top line margin decline quarter on quarter and particularly transaction margins of 6 basis points? I'm trying to understand what the drivers, geographically client base. And also if the weakness in September has continued into what we've seen so far over the last few weeks in October?

The second question is relating to fixed income. Just trying to understand going forward how we should think about the fixed income business considering that you very -- you don't have a lot of macro any more in the business, which is generally more stable. And just trying to understand how we should think about the cyclicality of that business, and how you think about that within the Executive Board and the stability of, as a result of cost income ratios that you're thinking about over the cycle of 70%? And also how October has panned out?

And the third question is related to the underlying business again, or the non-core. You're talking about 2% to 3% impact on the unwind. I was wondering what does that mean in terms of capital release? Should we think about over the next two years, are you going to pay out CHF800m of free-up of capital? And that could be available for shareholders?

And in that context, on the unwind as well, how many people you have actually in the unwind division or non-core division? Thanks.

Okay. Thanks, Kian, good questions. Maybe to start on the second part of the question, fixed income, and then I can ask David to address the other two parts of the question in turn.

As you say, basically what we -- our view is that the changes that we're making in the rates business are very much a response to changes in the environment both for both the regulatory requirements around leverage, which we think are going to impact the whole industry as well as changes in market structure with the rapid change in the percentage of that business that's clear, particularly in the US.

And so our view is that there is -- those are pretty necessary. They will lead us with the business which we think will be a successful business in the rates and macro space. It'll be much more client-focused. It will be leveraging off our AS capability and our electronic capabilities which are quite good. And we think that'll actually be -- that's actually the way that this business will need to be positioned going forward.

So I wouldn't -- our view is that it's actually going to be a better PTI business. It'll actually be a more stable business at that, and it'll be one that will still contribute a stabilizing influence to the overall business.

I think, as you know, we also feel that the other parts of our business are actually pretty complementary as well. We have -- our credit business is quite strong, is actually -- has a low cost to income. It's actually a very good business with a strong origination component as well as a secondary side.

I think our view is also the emerging markets capability that we have is quite -- it is quite complementary and is in many respects not pro-cyclical with the other businesses, so tends to actually run a little bit contrary to that, and is a business where again we think that that helps to add to stability as well.

And the structured products business as well has performed actually pretty well. Even if you look at the third quarter where you had subdued client flows in general but the origination side was actually pretty good. And if you look at our businesses, credit was actually pretty strong on both. I'd say the structured products business had a good origination component, a little more subdued on the client piece of it.

Emerging markets was more -- I think more impacted by market conditions but still at least in origination, particularly in the part of the business that we're very focused on, a lot of the more private financing aspects of it were actually quite good. And then rates were clearly the most affected of all these businesses.

So I actually think that that still stacks up as the reconfigured rates business will stack up pretty well in the context of the rest of these businesses.

I would say in terms of October, it hasn't been that much different from where we ended up in September. I think clearly we're starting to see some hints of a recovery from a little more certainly in the market once we've gotten through the dead ceiling debate, etc. So we're starting to see some of that. Whether that will continue or not obviously is an open question. But we have -- we've seen probably some slight improvement to that. So we'll see how it goes the rest of the quarter.

So then I think on the private banking wealth management gross margin or more accurately, sorry, wealth management client gross margin of 105 basis points, I think there's probably two or three points to make.

I think firstly, when we spoke on the first -- when we spoke at the beginning of this year and we gave guidance on that point in terms of the outlook for 2013's gross margin, I think we did warn that as a consequence of lowering net interest income, we'd expect to reduce the gross margin by 2 to 3 basis points from the 110 basis points at that level. And I think for the year as a whole of 2013, I think that's still guidance we very much stand by. So hopefully that's some help.

In terms of the 2Q/3Q volatility in transaction gross margin, I think clearly you can see the gross margin on both recurring income and net interest income were rock solid between the second and third quarter.

I think we definitely see still two things. Firstly, in the second quarter you have the performance fees which come through. And that will also be true in the fourth quarter. Also, realistically July and August are pretty slow months in private banking. Many of our clients are actually on vacation. So we normally see a dip in activity at that point.

I think it's probably fair to say that maybe the trends Brady mentioned too in terms of fixed income tapering probably did exacerbate that a little bit through the third quarter. And I think if we're talking about the trading in PBWM in October, I think that probably is better, what Brady said, in terms of the fixed income side. I think it was -- the shutdown and tapering is clearly not helpful, but there has been some muted pickup, but it's very recent. And I think we're speaking very early in the quarter. So we'll see how it goes.

I think in terms of the capital release, I think we've probably given you most of the numbers. I think obviously if we're thinking around Swiss core capital at 11.4%, thinking about Basel III, we're at 10.2%, I think generally we'd like to move up on that CET1 ratio towards the 10.5%, 11% ratio, that I think -- which seems to be a good, long-term target. But in terms of capital release, clearly we will be reducing risk-weighted assets by a minimum of CHF10b in the two NSUs over the course of the next two years. If we -- I think we're advising that the cost of that in RWA terms is -- well, FIB wind-down was 2.4, the rates wind-down -- the bilateral credit is probably more in the 1 to 2. So let's call it 2 point -- let's call it the same as if FIB wind-down 2.4. And I think implicitly that means that about 24% of the capital it locked up in that portfolio is used to exit. And that releases about three-quarters then for other uses.

Now clearly that does support our existing cash goals. But quite clearly, given what we've achieved already in terms of our capital ratios, I think we're already in a stronger position than perhaps we'd anticipated before. And the NSUs will merely accentuate that. But as I said, we will be looking to basically boost the net new assets -- sorry, boost the lending assets in private banking which will boost net new assets. It will also be helpful to the gross margin as well. So it will be a balance of those things. And I think you should see that essentially we have essentially achieved the goals we laid out in our capital program in July last year. We've actually exceeded them. The NSUs will give us more flexibility around that, but I think it does put us in a relatively good position.

Can you just tell us how many staff members are in that division?

I'm sorry, I'd rather not answer that at the moment, because we're announcing the non-strategic units today, they'll be formalized over the course of the next four to five weeks, and clearly that will have a number of impacts in terms of restructuring measures and various people measures, basically. So I think I'd rather we basically went through that process and we can give you a proper update in 4Q, once we've actually put the units fully in place.

So the third quarter IB staff numbers still include the non-core people?

Yes, they do. They also include a significant number, from memory currently I think 500 in terms of our graduate intake, which come on board in the third quarter. So that's why it may pick up a bit in the third quarter.

And if I may, one more question very briefly on -- again on WMC. Net new money on page 29 in the big report, you outlined the net new money flows. And clearly Europe has turned negative. But more importantly, Switzerland has turned negative again. Is there anything we should read into this?

No. I think first of all, obviously we have continued to see in line with what we had I think given you guidance on, we've continued to see obviously outflows in the cross-border Western European business. So you can see that as pretty much in line with what we've talked about, obviously in response to some of the regulatory changes.

We've obviously had that offset by continued reasonable inflows on, for instance, in EMEA and the ultra-high-net-worth, etc. So that's been -- that's continued to be offsetting that. Obviously in previous quarters it more than offset it. I think the third quarter's just -- I think there's nothing particular to note in that.

And with regard to Switzerland, it's really more we've actually had very healthy inflows, net inflows on an ongoing basis. I think it's actually there's just some more idiosyncratic issues in the third quarter. So I don't think there's anything you should take from it. I think in general we're happy. CHF8b, CHF8.5b in the third quarter is actually a pretty strong number. I think -- we think that we'll be able to continue it, to bring in that new money.

I think the regional split is a little bit idiosyncratic, I think. So no, we have no -- there are no particular issues with regard to Switzerland or EMEA, other than the structure ones that we've already mentioned in terms of the cross-border flows in EMEA which we think will continue and hopefully start to abate at some point, but will continue.

All right, thank you.

Bye, Kian.

Next question?

Michael Helsby, Bank of America.

Thank you. Morning, everyone. Just got a few questions, if I can. Firstly, I was interested, David, to hear that you grew your PB balances in the third quarter. I thought you were looking to shrink PB in terms of bringing down your gross exposure. Have you reemphasized PB now in light of the rates restructuring? So that's question one.

Just thinking about rates, just looking at slide 40, it looks like the incremental revenue in Q3 within your macro business was about $110b. I think the average run rate in the first half was about $381b. Could you give us an idea of the total costs within that macro business over the third quarter as well, please?

And then thirdly, in -- when I look at your slide 21 on your -- in your bubble chart, could you give us an idea of the target ROA and ROE that's implied by the shift in your macro business, your rates bubble over to the right?

And then finally, just homing in on these negative revenues within the investment bank, so I think, David, what you're telling us, that there's CHF100m gained, so the underlying is more like CHF700m negative for the first nine months? And it feels like the majority of that is in these redundant or extinct capital instruments. Can you give us a view on the timeline that you'd expect those either, A, run off naturally and B, what you can do to accelerate that runoff? Thank you.

Maybe I can start with the first question, and then I can turn it over to David for the other three. I think with regard to the prime brokers business, which I guess is what you're referring to, and the fact that we did have higher balances in the third quarter, that obviously continues to be a core business. We have in line with a lot of our other business obviously that uses a fair amount of balance sheet and leverage, we've obviously continued to work on making that more efficient. But we continue to have a very strong position there, and the client flows, client acquisition has continued to be pretty strong.

So I think -- I don't think it really reflects any change in our approach to the business. We're still -- we are still focused on making it as balance sheet efficient as we can. But it is a leadership position, and we think we're basically number two in the prime brokers business globally. And it continues to be an important and a business that's performing quite well. So I don't think there's any -- there's no change in message and direction on that.

Okay.

So taking the other points, then. So if we look at page 40, so we look at the overall macro numbers there, which you see, 20%, down 20% -- this obviously does include the bilateral rates positions that we're actually moving into the NSUs. So this is, as you might say, the overall investment bank.

I think it's -- I think all I'd really say is that the cost in that overall macro space, so that's all the rates business, the bilaterals and the ongoing clearing business, has actually commodities marginally exceeded the revenue for the nine-month period, although clearly with a significant negative in the bilateral business, given that I've already said that the negative revenues for those nine months are in the CHF30m space.

I think then in terms of the infamous bubble chart, I think what I'd really say is that we always target to achieve a post-tax return on equity of 15% in all of our businesses, and that that is the target we would -- we'll be assessing for the rates business in its new cleared format. So that's what we intend to achieve post the restructuring.

Okay.

In terms of this -- the negative drag, actually I think the number in the first quarter was actually positive CHF80m and not positive CHF100m, but I don't -- not the most material. But I think it was plus CHF80m. And it's certainly clear that you're talking around CHF450m in number of small positions, but most importantly, these non-Basel III compliant capital instruments.

I think all of those should be gone by the end of 2017. And we'll obviously look to reduce it as fast as possible. So you'll see some reduction, but probably a tail that could extend a year or two beyond that, depending on how successful we are.

Okay. Thank you.

Good, thanks very much. Next question?

Daniele Brupbacher, UBS.

Good morning, thank you. First question, just on slide 16, the exposure number for the IB, $864b, how should we think about this number in the context of the new CHF1,070b target? Should we just assume that you're going to reduce the rates business and that's probably then the implicit target for the IB business? If you could just be a bit more specific there.

And then on slide 29, the increase RWA in PBWM from CHF92b to CHF100b. So obviously that's the increase of CHF15b to CHF20b. But there seems to be also a reduction somewhere? Or did I just over -- just not hear a comment on this topic? Where should we expect some reductions probably?

And then just lastly, comp ratio showing the IB 44%. It looked a bit high to me. I was rather assuming a number in the low 40s for the whole year. Is there anything specific going on in the quarter? Or should we see this as a probably also run rate for the full year? How do you think about the compilation at this stage?

I think on the last question, maybe I can take that, and then David can take the other two. But on the comp ratio, I think we were in the third quarter in IB at 44%, which was down from 46% actually in the third quarter 2012. I think the year to date number is 41 basis points, down from 50 basis points -- actually, the year before. So the nine-month number is 41. So it's in the low 40s.

I think the other thing we would just point out is if you take out the non-strategic units you get to actually a number that's 37, which I think is probably -- it's obviously you can look at it both ways, but that may not be a bad way to look at it. And I think obviously where we ultimately end up with a little bit of bond market conditions and how the business performs and -- but I think that -- and hopefully if we get better markets and performance in the fourth quarter, obviously then maybe that number can improve. But that's -- I think that's where we are now.

Okay.

So just in terms of the leverage exposure, I think if you look at slide 27, what we show there is CHF100b of leverage exposure related to the IB, and then CHF23b related to the PBWM business.

I think you should assume that the bulk of that CHF100m (sic - see slide 27 - "CHF100b") will come off the IB, i.e. in other words, we're not really intending to actually re-expand our leverage at that point. So if you assume CHF90b to CHF100b of that, out of -- coming off the IB, I think that gives you our long-term target for the IB's total exposure.

Okay.

In terms of the -- that stacked bar chart we gave, I think the missing number is that there is of course CHF5b of risk-weighted assets within the private banking wealth management division which we're also running off. So the number basically is obviously minus 5 and then plus the 15 to 20. And I think that should square the arithmetic.

Okay. Yes, that's very clear. Thank you.

Daniele, thanks a lot. Next question?

[Holke Allie], Handelsblatt.

Yes, thank you for calling my question. Obviously I've a question about the German restructuring. You are now -- just to make it clear, you are not moving the whole onshore business in that non-strategic unit but just the restructuring cost that you may save due to the sell-off of part of the business? Can you just give an update when you think you might close that? Are you well advanced? Or is it just a little bit difficult to do so? And what will be the volume, perhaps, or what do you expect in terms of restructuring costs at all? Thank you.

Thanks very much for the question. Yes, I'd say with regard to Germany, obviously it's a very important market for us; it continues to be, will continue to be a very important market for us. It's really what we are continuing to do is to look at what is the best way to serve our customers there and also provide the most effective service but also efficient service in the context of obviously an environment that continues to evolve. So I think as of right now, as we've said, we're basically looking at and thinking about how we might restructure the business, and what the costs of that might be. So we've put some estimates in there. But I would say right now we're still in the process of finalizing our approach to how we do want to approach the markets.

So I'm not sure we can get a lot more specific around it. But that's still basically something that's in process.

Okay. And just -- do you think you might close that this year? Or will it take longer than?

Not really sure what you mean by close that. As I say, we're still evaluating the different potential directions that we can take there. I do think we obviously have -- it's something that we have been working on, we continue to look at, and we'll continue to evaluate. So whether or not we will have more to say on that in the fourth quarter or beyond that is really an open question. It's really around, for us, more repositioning the business there, making sure we have the right platform and the right resources to serve our clients well. So that is really the focus.

Okay, thank you.

Okay, next question.

Fiona Swaffield, RBC.

Hi, good morning. I have three questions. Firstly, the fact that you are focusing on lending in the private bank, lending hasn't grown much recently and I'm just wondering what is changing? Are you changing compensation models or how do you -- what is going to achieve the delta?

The second issue is on capital return, you never had a payout ratio target, but now that you've got to -- above your long-term targets, even -- obviously, there is a buffer issue as well but do you think that you could move to have a dividend payout target over time?

And the last one is on the sort of Claudius and just the hybrids in general, I think at a recent conference, you gave a number of a net of CHF100m positive from raising new low-trigger and redeeming instruments. Do you still stand by that or is that potentially going to increase? Thanks.

Yes. I think on lending in the private bank, I think our view is that -- particularly some of the more focused lending, particularly into the ultra-high-net-worth segment, we have actually been undertaking efforts to build out a platform there.

In addition, a lot of that ultra-high-net-worth lending activity can be stimulated by the integrated bank approach to that so, clearly, involvement from both the investment banking side, private banking side as well.

So part of it is around just a, increase in the focus on that area but also increasing the resources that are against it. We also think that there is a real opportunity in the emerging markets in that area so that is one of the things that we are, clearly focused on increasing lending in the emerging markets against the ultra-high-net-worth segment.

And obviously, part of it will be seasonal, so I'm sure, quarter to quarter, there may be some variations, but we do feel like this is an area where over the next two, three, four quarters, we will actually be able to see some material increases in our lending balances there.

And so you know, we do see good opportunities and for instance, it's one of the bright spots of the emerging markets, the volatility that you see in the markets there is that the public market financing have probably been less available and so some of them the more private financings have been things that's probably been more interesting to people. So that's, I think, a good example.

On the capital return side, as you say, we certainly, we have been very clear about our commitment to return capital to shareholders. We have talked about a material cash dividend for this year. We have obviously included that in our capital ratio so that obviously includes an accrual for a material dividend.

And as we say, we certainly feel -- as David said, we really delivered on, I think, all the capital and in fact, out-delivered on the capital targets that we have set. So that continues to give us confidence in being able to do that. I'm not -- at this point, we are not at a point where we think it's appropriate to go to an actual payout ratio or something like that.

We would like to make sure that we are paying out a material amount and that we are able to sort of increase that over time and so I think that from our point of view, probably means that we are certainly going to stay with our current approach to that for now.

So, I think the conference last month, and I think, there, what we said is that we expected a reduction in our senior funding cost by CHF250m and a reduction in our capital funding cost of a further CHF100m.

And the question, obviously here is that why it needs to be surpassed given these various measures and I think the answer to that question is yes. I think it's looking likely that our senior debt costs will actually come down by significantly more than that CHF250m within the next year or so. And it will be -- so that really reflects, obviously, a significant reduction in the balance sheet usage and perhaps, more importantly, our funded balance sheet usage.

In terms of long-term capital, it was CHF100m, that is probably a good estimate for now but I would say, again, it does look to me -- it feels to me on the conservative side, just in terms of where we are and in terms of our (inaudible) program and our capital plan.

Right. Thanks so much.

Thanks, Fiona. Next question?

Jeremy Sigee, Barclays.

Hi there. Just going back on the capital, the topics, firstly, just in rates, are there client segments or product lines that you are effectively stopping now beyond things like long-dated rates that you have already stopped? Are there further areas that you are now stopping business in or is it more about just keeping everything but kind or reshaping it is my first question.

The second question, I just wanted to come on to -- the CHF450m funding cost of non-compliant instruments, non-Basel III compliant instruments, it's quite a big number in the adjustments that you make and I'm just wondering if you could give us a little bit more color on that in terms of what is the amount and the yield on the instruments that you are stripping out there. Also how should we think about those? I guess they are going to be replaced with a new cost of CoCos that take their place, etc., so how just how you thought about that.

And final third question from me, really just on -- in wealth management, I wanted to ask about whether you are seeing any rerisking from clients but your comments on sort of Fed tapering make it sound like it's still kind of watching and waiting from the clients. Is that a fair sort of view?

I think on the third -- let me start with the third and then we will come back to the other two pieces.

Yes, I think there is -- I guess what I would say is what we see is it is a more gradual, I'd say the movements in terms of clients are just more gradual generally and so it doesn't -- it's not very volatile, it doesn't move around a lot month to month. I would say over the past six to nine months, we certainly have seen the cash allocations come down so they probably have gone from the low 30s to more like the high 20s over that period roughly.

So we have seen certainly some more opportunistic behavior by clients, and, but that certainly does get -- you certainly do see sort of more localized impacts of that when you get periods of uncertainty like what we had for a period there with some of the debates over the debt ceiling, etc. So you do see, you probably do see some localized initiatives but in general, the longer term certainly, clients have gotten more opportunistic and they are certainly taking advantage of opportunities on the equity side that has been a rotation more into equities.

And as we say, I think we have -- we started to see some beginnings of some return to a little bit more opportunistic behavior, but again, whether that how long -- kind of late that will have and how long we will see that persist remains open.

But I would say in general, as a general trend, it has certainly gotten -- clients have certainly gotten more opportunistic and whether that continues from here or not, I would expect it would but that obviously can be thrown off track by events.

On the other two points, so just on the CHF400m in terms of non-strategic and there is about CHF50m other small position to get to CHF450m so that is the rough split.

And I think we will give some more details around the non-strategic unit, as I said in the fourth quarter. So I won't go into the detailed positions now. It is certainly true, some of the coupons on those instruments were relatively expensive and they were struck, obviously, some years ago in that sense. And that is a drag. Now, it has never been that apparent, obviously, because in accounting terms, that is actually treated as counter revenue so it's a net revenue item.

So the results you see from the investment bank are actually net of those costs. So I think, really back to Fiona's question, the savings from this, obviously will come through in the NSU and the savings from this, it comes through as an increase in revenues as opposed to a reduction in expenses just to be clear on that point.

Some of the coupons on these are relatively expensive and are very difficult to redeem and they may not be publicly held instruments per se.

In terms of the rates restructuring, I think it's certainly clear is that we will be exiting from a number of product lines particularly bilateral swaps in the space you mentioned, but also some of the more exotic very structured positions which may have a combination of rate and FX exposure. They are generally collateralized, and for the non-collateralized positions we exited in the FIP PM two years ago, but clearly, it's a block of trades which are now basically looking very liquid and which relate back to this pre-clearing arena.

I think it's also clear from a client side that our clients are actually moving away from these kind of very structured exposures for the same reason. The world basically -- rates is going to a [cleared run] and that will be around not higher volumes but a cleared, more standardized and simple instruments.

Okay. Thank you.

Thanks, Jeremy. Our next question?

Jernej Omahen, Goldman Sachs.

Good morning from my side as well. I've just got a couple of questions left. The first one relates to this announcement of the non-core assets and the way you have decided to separate them. The first question is purely of an operational nature, I guess. When your competitors announce non-core unit, they tend to move assets, capital, and people into separate divisions and report on that as well.

I was just wondering why you thought it makes more sense for Credit Suisse to actually keep the non-core assets and the related resources within divisions. I think that is question number one.

Question number two is every time Credit Suisse communicates a downsizing of the investment bank, particularly the FIG business, the underlying return on equity that you show us goes up. And I was just wondering what is holding you back in a sense, because if I understood Mr. Dougan correctly before, he mentioned that he saw that the private bank, even today, makes a return on equity in the high 20s.

You have made the group return on equity of 4 and 7 on an adjusted basis. When you have these strategic debates at the executive committee level, what is holding you back in just doing a more radical cut in your investment banking? The only logical answer that I get to and I don't know how you are thinking about this is that you must believe that a return on equity of the investment banking, the future of Credit Suisse's investment bank could rise dramatically but I just wanted a confirmation of that.

And the last question, I will be very brief here, there seems to be a resurgence of the too big to fail debate in Switzerland, at least, following the political statement. One never knows how accurate or how serious these are but I was just wondering do you -- from your perspective, believe that the too big to fail debate in Switzerland is finished and if not, what you think are the most likely outcomes? Thanks very much.

Okay, great. Thanks for those questions. I think your first question on the structure of the non-strategic units and the reason that we did -- that we want to organize it this way, obviously, the whole point is around focus, it's around focus on the existing businesses and so we can have management focused on those and growing them and the opportunities that we see there and we do think that we are at a point where having dealt with a lot of these, capital cost, leverage issues, we are able to really focus on growth.

But these -- continuing to work down -- aggressively work down those non-strategic ongoing businesses is something that is an important effort. And so making sure that our management can be focused on just the ongoing businesses and realizing the growth opportunities is important.

The reason that, as you say, we wanted them within the division is because there is a lot of expertise in the divisions that is necessary to actually efficiently and quickly work those down so like if you look at our fixed income legacy business so far, I think David mentioned the numbers, we started out at CHF56b of risk-weighted assets and two years later, we are at CHF9b. That is a very effective process in working that down and frankly, the team has been working on that which is within fixed income, we will also be working on these exposures and I think we will do -- our belief is we will do an equally good job on that.

So being able to retain that expertise, which is resident, obviously in those businesses is something that is actually very important. So I think the idea was to provide the focus for us internally to provide the clarity and transparency for you in terms of what those businesses are and so that it is clear that we are very committed to working those down, there is a lot of transparency around it, but to retain the capability, to actually operationally work those down very aggressively with something that we thought was the right mix.

And so that is why -- and if you think about it, if you look at these non-strategic units, for instance, -- what we need to do in the private banking wealth management initiative is quite different from what we need to do within the investment bank and so basically, I think that is something that -- keeping that capability and that expertise focused on these things is something that is really important.

Secondly, for us, I would say in terms of the ongoing thinking around the investment banking business, and how it fits into the overall Group, the most important thing is that we believe that we have an investment banking business that over the cycle can make returns that are significantly in excess of our cost to capital.

That is a most fundamental issue now, and I think I guess what we are hoping is we are showing for instance, today, what we are showing is that when we have a business that doesn't make the returns on resources, we do what we need to restructure to make sure that it does.

And so, I think actually, our first nine months, all the businesses making a 13% return on Basel III capital is actually a really good return for an investment banking business. Obviously, these additional steps that we take on the NSU side actually enhances that. Now, as you said, we've got to clearly execute on taking some of those additional costs out, taking the capital out of the business, but we think that actually will make the business a very high returning business and quite to the -- as you know, a lot of people thought investment banking businesses under Basel III are going to make single-digit returns.

Our belief is that we can get to an investment banking business that will make, as we said, as David said, more than a 15% return. And so we feel strongly that we can do that.

In addition by the way, there are a lot of synergies between the businesses and we talked a lot about the ultra-high-net-worth segment, we talked a bit about the lending in that segment and the linkages between that and our investment banking franchise and business and there are a lot of linkages there and so I think for all those reasons, actually, our belief is that we can significantly exceed our cost of equity and it is actually beneficial to the overall business as well.

So for us, that is not a hard decision but what we do have to do is continue to -- particularly as regulations and as the markets develop, we have to respond to that and we have to be dynamic about how we look at the businesses. And so our belief is -- the way you phrase it, you said, we announced another restructuring of the business. I'd have to say I think that that kind of dynamic response to what is happening in the market is something that actually is necessary and that again, we still believe that a lot of the industry will have to go that way and not embracing those kind of restructurings probably just puts you farther behind, because eventually, you will have to get there.

In terms of the too big to fail debate in Switzerland, I think we have been, as you know, this thing sort of ebbs and flows. When Switzerland was the first to announce all the regulatory requirements, I think most people around the world thought, well, those are very strict, and it's going to be very difficult to be competitive and not a level playing field. What we said at the time is what is actually played out which is the world has migrated to the much more level playing field. I think we have benefited though from the fact that, since Switzerland did move very early, there were very clear requirements, those that have been put into law, passed by parliament and they are being implemented.

So when we talk about the ratios and I think, we talked about our leverage ratios and we talk about our capital ratios and structure, those are actually a law in Switzerland that has been put in place and obviously, that can be revisited and there is actually a provision, I think, after a few years to revisit that.

But we are -- I think we are in a significantly better place than many other countries where it is still an open debate where it is not something that is actually been passed into law, etc.

Now, obviously, can things change on that? I guess they could. I would like to think that again we have been pretty aggressively pursuing the required changes and I would hope that that would lead people to believe that what has been done is clearly making the financial markets safer and sounder and puts us in a good position.

And so it's obviously hard to assess exactly as you say, where political debates go but I think our belief is Switzerland moves fast with a pretty strict set of rules, we are way down the line on actually complying with those rules and I would think all of that should put us in a good position in that overall debate but we will see where it goes.

But I think I'd just reiterate, I think clearly, the pressure has been for early compliance of these rules. And so as of today, we are at 10.2% against the 10% requirement 2019, and that excluding the Claudius preferred shares. And we are at 13.2% including the high-trigger CoCos and a total capital ratio of 15.9%. So I think you can see just how fast Credit Suisse has actually moved to be compliant with those rules.

And I think that just probably makes -- that probably advantages us in the debate but so I think we feel like it's a fairly stable regime but obviously, we will have to see where that goes over time.

Thank you very much.

Thank you. Next question?

Christopher Wheeler, Mediobanca.

Yes, good morning. You must be exhausted. A couple of questions I'm afraid. First of all, thanks very much for this new disclosure on the non-strategic units, but am I getting this right that if we can take away the rates initiative and possibly the large closures, these really aren't really new initiatives, these are things you are doing, you have been doing, you have been talking about, and all you are really doing is giving us a bit of a road map, if you want, to how they will get you to how they will get you to a better place. So perhaps just talk a little bit about that?

The second thing, related to that, is that the closure of the private banking wealth management branches, obviously, this had come into the market but I was given the impression that you are probably going to lose CHF3b of AuM out of a much larger number. I'm a bit shocked if it is CHF3b in those branches because an average of CHF45m or so suggests to me, you have been losing money in a lot of those regardless of the higher regulatory costs you are now bearing. So I would be interested in your view on that.

Thirdly, you now disclosed that you are losing money in the US wealth management business, we probably already knew that but you have been very kind in giving us that disclosure. That is obviously not in the non-strategic unit. How long have you now given that to the new management to actually get that into shape and to obviously boost your returns in that business?

And then finally, Brady, I heard you obviously speak on tapering this morning, and I have been speaking to the US investment banks about not just tapering but obviously, the reversal of tapering, which is the next step. And they seem to be sanguine about that and yet what I see is a massive amount of liquidity coming out of the market, not just out of the US but at the other central banks.

And I wonder, this is something that you've never had to deal with before, how are you thinking about the shrinkage of liquidity and then obviously, this mass of bonds that are going to come onto the market and that have to be acquired by somebody once the central banks start selling. Thank you.

Okay. Do you want to take the first one, and then I can take this...

Okay. So Chris, and just in terms of the non-strategic unit, it is certainly true that the single biggest initiative is the rates restructuring but it's not the only one. There are a number of other small ones in there.

But the single biggest one is the rates one. What we really wanted to -- I think it was two things, I think. Firstly, things such as the non-Basel III compliant instruments, I think we talked about but I think perhaps is now better appreciated in terms of the drag that that is actually having on returns.

That said, I think it is very clear and that is why we want to do those Venn charts in terms of where we go from here. In terms of total exposure, obviously, CHF1,184b, I think you can see what we are committing to you now is a further reduction of just over CHF100b in total exposure.

Equally, I think in terms of the targets to risk-weighted assets, we were originally talking CHF285b, we are now obviously targeting to get down to right about the CHF235b level and then we invest about CHF15b in the private banking business.

So I think, both of those things are clearly incremental to anything that we've said before.

And in terms of operating expense, as I have said before, there is about CHF300m of operating expense associated with this. Of that, essentially, we've increased the target by about CHF150m today, I think we said that there'll be incremental expense savings in the private banking division of a further CHF50m but we'll invest that in growth, which leaves about CHF100m in terms of the tail cost for actually managing this portfolio.

So I think, certainly, in terms of the capital and leverage impact, I think the NSUs are actually quite substantial. Clearly in terms of expenses, we already obviously had a very substantial expense program, which we are obviously bang on target for. I think we are obviously in a very good position to actually hit the CHF3.2b this year and then move up to CHF4.5b plus basically in 2015, which I think is a pretty long way to come, and I think, compares well with the assets across the industry.

I think your question on the closure of the PB Markets, just to be clear because there was actually some press on it that I'm not sure was all accurate. So basically what we are talking about in that initiative is we have, as David mentioned, a number of markets which are served, which are cross-border markets so that we don't actually have a branch in the country but we are serving them from a cross-border point of view, so they are booked in one of our offshore businesses whether it's in Switzerland or in Singapore, or one of the other offshore units.

And basically, it's just a matter of having only a few clients on average in each of those markets. So as you said the numbers, you heard the numbers that David mentioned, was something like an average of CHF40m per market.

The issue is actually, today, it's probably been profitable, probably, I mean, it's obviously not a -- it probably hasn't been a hugely profitable initiative but it has been profitable, but the issue is really around the increased compliance requirements. And we need to make sure that for every market that we do business in, that we are completely compliant with all the rules and regulations of that country, so notwithstanding the fact that we are not actually banking in the country but if we are banking a client from that country, we have to be 100% compliant with their regulations and all the tax requirements, all the rest of the issues.

And frankly, that is a pretty big undertaking and as you can imagine, it's as big an undertaking for a country where you have three clients with CHF20m of assets as it is for a country where you have 10,000 clients and CHF10b of assets.

So the issue for us was really one, which I think is a prudent approach, which is making sure that we are taking an approach which allows us to manage particularly our reputation and our regulatory risks in these countries in an area where it is probably marginally profitable but it is a relatively -- CHF3b in assets in the context of over CHF1 trillion in assets obviously is not that large, so it's really more a question of trying to manage a lot of the reputational and the compliance risk around those countries.

So your third question was on the US business and yes, as you say, we have been unprofitable in that business. We put new management in place, probably about six months ago now. As you know, we actually moved over Phil Vasan who was running our prime brokerage business and have basically grown that business from its position to sort of the number two spot in the industry.

And there are a lot of elements that we think are similar around that in terms of infrastructure platform, product aspects of it like lending for instance, and that is one of our biggest issues actually in the US is that we haven't had a complete product platform including particularly the lending product and so that is one that we are looking to build and build up.

I think our hope is actually -- and our expectation is that we can actually get it to profitability in a not-too-distant future and so that certainly is our expectation and we think some of the steps that we are taking will hopefully accelerate that, but, so that is our hope, certainly, that we will have a profitable business there in not too long.

On the tapering, and I completely agree with your comments and clearly, this is a new world in terms of as you say, as the tapering or either lack of tapering for a while or increased speed of tapering, as that actually happens, clearly it is something that we certainly need to be very focused on to make sure that we are managing our risks and that we are advising our clients well on how all that may roll out.

And I do think our people are of a view that it's not -- there seems to be a consensus around six or nine months until the tapering sort of kicks in again. I think some people have a view that may be a little sooner but as you say, we certainly have to be very focused on the impact of that on the markets and on our clients and it is certainly something that we are looking carefully at.

Gentlemen, thank you very much. Thanks guys.

Yes, next question.

Jon Peace, Nomura.

Yes, thanks. Two very last quick ones please. Firstly, on the net new money in wealth management, you are running a little bit below the 3% to 4% range you indicated from 2013 to 2015. So I just wondered if that was a trend we should expect to continue maybe during early 2014 being below the 3%.

And then the second question on slide 26 again, just to be really precise about the incremental things you are announcing today, the cost -- the additional cost cuts of CHF228m you're showing in that pie chart in the bottom right, what were the revenues associated with those? Thank you.

If you want to start, David, with that, please --

So this -- slide 26 essentially is operating cost measures which we have not encompassed in our previous measures already. And so it's CHF228m and that is obviously the nine months and so therefore -- amounting to about CHF304m.

The negative revenues, I think, I basically gave them in one of the earlier slides in terms of -- in the deck, I think it is slide 25 basically. So those are the -- you can see essentially, for the IB, you are talking about CHF595m and for the PB, it's a positive CHF395m. And just to point on that, by the way, that is because the PBWM NSU does in fact, include some run-off asset management positions which was significantly profitable in the first half this year but would gradually run off in that period.

And specifically on the IB, it's been minus CHF595m is the revenues. I think specifically on the rates number, I gave the year-to-date revenues on the bilateral rates business [moving across] was actually minus 30 for the nine-month period.

I think on the net new asset question, Jon, we are just slightly under the 3% year to date, as you say, we do expect to be within that guidance of 3% to 4%. And I would say ongoing as well, our hope is certainly that we will certainly be able to meet that. Emerging markets have been quite strong, I think, we are about at 8% growth which is obviously an encouraging trend and one which we hope, continues.

Okay. Thanks.

Thanks, Jon.

One more question?

I think we can have one more question.

Stefan Stalmann, Autonomous.

Stefan, are you there? Sounds like he ran off. So, okay, I think that is it on the questions. And thank you all for a lot of very good questions. Thanks for your time and your focus.

Just to sum up very briefly, our solid delivery and cost capital and leverage targets, we believe, mitigated the impact of what were very challenging market conditions, and low client activity across many of our businesses. And with the creation of these non-strategic units, we will accelerate our strategy to free up capital and resources for future growth and reinforce our commitment to return significant capital to shareholders.

So again, thank you very much.

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