Credit Suisse Group AG (CS) 2013 Q4 法說會逐字稿

Good morning, this is the conference operator. Welcome, and thank you for joining the Credit Suisse Group, fourth quarter and full year 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. Please go ahead, Mr. Dougan.

Yes, good morning and welcome to our fourth quarter results call, my name is Christian Stark, head of investor relations.

Before we begin, let me remind you to take notice of the important disclaimer in slide 2, including the statements on non-GAAP measures and Basel 3 disclosures.

I now turn it over to Brady Dougan, our CEO.

Welcome, everybody. Thanks a lot for joining us for the fourth quarter and the full-year 2013 earnings call. I'm joined by David Mathers, our CFO, who will deliver the results portion of today's discussion.

Turning to slide 4 on some of the key messages, going into 2013, our priorities were to further improve our profitability, continue to strengthen our capital position, and reduce risk and leverage exposure while expanding market share in targeted markets.

We made strong progress on all these objectives, while at the same time, taking a number of strategic measures both at the Group level and in our two divisions to continue transforming our business for the changing environment.

First, I will provide a few key highlights on our financial performance. Fourth-quarter underlying pretax income was CHF1.3b, with an after-tax return on equity of 9%. We saw a strong profitability in private banking and wealth management, and a solid performance in the strategic businesses of investment banking, with particular strength in equities, credit, and underwriting, partly offset by a weak performance from our rates business.

For the full year, our underlying pretax income was CHF5.8b and we generated an after-tax return on equity of 10%.

Our strategic businesses, which are now clearly separated from the non-strategic operations under our new reporting structure, reported pretax income of CHF7.1b and an after-tax return on equity of 13% for the full year 2013, close to our 15% through-the-cycle target. This performance clearly demonstrates the strength of the core franchises within our two divisions.

In private banking and wealth management, we achieved strong profitability from our strategic businesses in the fourth quarter, with pretax income of CHF1.1b, and a continued high return on Basel 3 capital of 34%. For the full year, we improved the profitability of the strategic businesses in private banking and wealth management, driven by our restructured asset management business, growth in emerging markets and in our wealth management clients business.

In 2013, we recorded net new assets of CHF38b in the strategic business of private banking and wealth management. This includes strong growth from wealth management clients, in particular, from emerging markets and the ultra-high net worth individuals client segment, partly offset by Western European cross-border outflows. We also recorded significant inflows from higher margin asset management products and strong inflows in the corporate and institutional clients business.

In investment banking, we delivered a solid performance in our strategic businesses for the fourth quarter, with pretax income of CHF0.5b. This was driven by strong performance from our equities and underwriting franchises, as well as from our high returning business in fixed income, offset by lower results on our rates business. Total reported results for investment banking were impacted by the litigation provisions of CHF339m we took for ongoing mortgage litigation.

For the full year, investment banking reported pretax income of CHF3.9b for its strategic businesses. Continued robust market share positions across our high returning businesses, combined with a reduced cost base and lower leverage and capital usage, resulted in an after-tax return on Basel 3 capital of 19% for the year.

Collaboration revenues between our two divisions remain a significant contributor to our overall revenue base, we saw a strong performance in providing expertise to ultra-high net worth clients combining the expertise of our two divisions. In 2013, CHF4.5b of revenues were generated from the collaboration between private banking and wealth management and investment banking, or 18% of our overall net revenues for the Group, within our target range.

Now, let's turn to our continued progress on capital, leverage and cost. During the year, we largely completed the execution of the capital plan that we announced in July 2012. Additionally, we had two positive developments this quarter regarding regulatory requirements from FINMA and the Basel committee, that benefit us as we work towards meeting 2019 requirements. We ended the year with a look-through Basel 3 CET1 ration of 10.3%, and a look-through total capital ratio of 16.1%, including issued BCNs and contingent capital instruments.

Note that FINMA recently reduced the progressive capital component for the Credit Suisse Group, thereby reducing our 2019 total capital requirements from 17.4% to 16.7%. We also completed threshold exchange of CHF3.8b of hybrid Tier 1 notes, and the high-trigger capital instruments, successfully raised CHF6b of low-trigger capital notes, and are now just roughly CHF3b away from meeting the 2019 progressive capital requirement.

Furthermore, as part of our 2013 compensation structure, we introduced a similar instrument which aligns compensation incentives to the capital suite for the group, as well as providing additional Tier 1 benefits.

At the same time, we further reduced leverage exposure and reported a look-through total capital leverage ratio of 3.8% as of yearend. Based on our preliminary assessment, the Basel Committee on Banking Supervision's revised guidelines on the calculation of leverage exposure would provide us with the benefit of CHF40b to CHF50b, taking into account the planned mitigation measures and subject to interpretation of the final rules. This would increase our year-end 2013 leverage ratio to around 4%, effectively meeting the 2019 Swiss requirement.

In terms of Basel 3 risk-weighted assets, we ended the year at CHF266b, exceeding our end-2013 target and moving closer towards our long-term target of CHF250b.

Through the end of 2013, we delivered CHF3.1b of annualized run-rate cost savings versus the first half of 2011. As part of these measures, we reduced our 2013 compensation and benefits expense by 8% from 2012 for the Group and by 10% in investment banking. Given this progress in reducing our cost base, we remain on track to achieve our targeted cost savings in excess of CHF4.5b by the end of 2015.

Turning to slide 5, in 2013, we made significant progress in transforming our business to the changing environment through a number of strategic measures. I'd like to highlight some of our strategic achievements from 2013.

We created non-strategic units in line with our strategy of shifting resources to focus on growth in high returning businesses, particularly in private banking and wealth management, and to accelerate the run-off of positions and losses in non-strategic businesses. This represents an important step towards achieving a more balanced allocation of capital between our two divisions.

In November, we announced our program to evolve the Group's legal entity structure. The plans are designed to meet future requirements for recovery and resolution planning, including key steps to support FINMA's resolution strategy for single point of entry bail-in. It will also result in a substantially less complex and more efficient operating infrastructure for the bank.

In private banking and wealth management, we improved the profitability of our strategic businesses, and completed the integration of our former asset management division. I will speak about the progress we have made in private banking and wealth management in more detail on the next slide.

In investment banking, we continue to realize the benefits of our sustained market share positions across our high returning businesses, combined with a reduced cost base and lower leverage and capital usage. In a few minutes, I will give you an overview of how our transformed investment bank is well-positioned to deliver strong returns and profitability in 2014.

Turning to the dividend for the 2013 financial year, the progress we've made in executing our capital plan and in reducing leverage and risk-weighted asset usage while, at the same time, improving the operating efficiency of the bank, gives us confidence to begin to return significant amounts of capital to our shareholders. The Board of Directors will propose a cash distribution of CHF0.7 per share for the financial year 2013 at the annual general meeting of Credit Suisse Group on May 9, 2014.

This amount is intended to provide a basis for future progression in our dividend payments as we continue to execute on strategy and resolve legacy issues.

Results so far this year, have been largely consistent with the good starts we have seen in prior years with some variability across businesses. We are confident that the continued momentum we are seeing in our strategic businesses combined with the run-off of positions and losses in the non-strategic units, will allow us to achieve our targeted return on equity of over 15% and cost-to-income ratio of under 70% over the cycle.

Turning to slide six, let's review the progress we have made in private banking and wealth management in 2013 in more detail. As I mentioned earlier, we have significantly improved the profitability of all three businesses within private banking and wealth management. The pretax income of the strategic businesses of asset management increased 32% compared to 2012, underscoring the strength of the ongoing business and its importance in generating profits within our private banking and wealth management franchise.

We continue to reallocate resources to growth areas, and recorded a net new asset growth rate of 8% from emerging markets where we see additional strong growth potential.

We made continued progress in adapting our onshore client service model for Western Europe, and further leveraged our strong market position in Switzerland. We announced the sale of our domestic private banking business in Germany, while at the same time, remaining highly committed to serving the German wealth management market.

Going forward, we will remain focused on improving the profitability of private banking and wealth management by growing in emerging markets and continuing to adjust our capacity to meet client needs in mature markets.

Turning to slide 7, let's look at the progress in the investment bank where we achieved solid results on our strategic businesses in 2013, driven by our balanced business mix. We are confident that with our transformed business model in IB, we are well-positioned to deliver strong returns and profitability in 2014.

Our top three equities franchise will remain one of our key drivers of growth going forward, as we expect to continue to benefit from our strong platform across products and regions. Given favorable market conditions and continued investor rotation into equities, we are positioned to grow in these businesses, specifically cash equities, electronic trading and prime services.

We anticipate higher M&A activity, attractive valuation levels and an improved macro environment to support our strong and profitable underwriting and advisory business. In fixed income, we will continue to focus on our market-leading high returning businesses, especially leveraged finance, securitized products, and our emerging markets franchise.

Additionally, we expect increased profitability and returns from our newly-created global macro products group, which combines our rates, foreign exchange and commodities businesses into a single platform. This differentiated model offers clients a comprehensive approach across the macro asset classes, and allows us to focus our resources on those areas and products that matter most to them.

We believe that with this balanced business mix across equities, underwriting and advisory, and fixed income, our investment bank is well-positioned to continue to serve our client's needs and deliver strong return in profitability in 2014.

Turning to slide 8, let me end with a few words on how the performance of our strategic businesses will drive momentum towards reaching our financial targets. The results of our strategic businesses are indicative of what the Group's financial performance will look like once we eliminate the drag from our non-strategic units.

Looking at our strategic results for 2013, we are, already today, well within reach of our KPI. For instance, in looking at the slide, our group return on equity for the strategic businesses was 13% for the full year versus our target of above 15% and our cost/income ratio at 72%, is within reach of our target. In both private banking and wealth management and investment banking, we plan to deliver the remaining cost reductions to achieve our targeted cost-to-income ratios for the divisions. Additionally, we expect the shift in resources to high returning areas to lead the revenue growth in our strategic businesses.

To sum up, the runoff of positions and losses in our non-strategic units combined with targeted growth in our high returning businesses, will position us to achieve the key performance indicators we set out for the bank over the cycle.

And with that, I will hand it over to David who will discuss the results in more detail.

Thank you, Brady, and good morning, everyone.

I'd just like to start on slide 10 with an overview of the financial results. In the fourth quarter, we achieved revenues of CHF6.1b and pretax income of CHF1.5b from our strategic businesses and a cost-to=income ratio of 75%. The after-tax return on equity was 11% and net new asset inflows CHF5.4b.

For the full year, pretax income from our strategic results was CHF7.1b, equivalent to an after-tax return on equity of 13%. Please note that our fourth quarter results includes CHF339m relating to ongoing mortgage litigation taken with the investment banking division, and CHF175m in connection with the SEC-related aspect of the ongoing US tax matter, we are working towards a resolution, and that is taken within the private banking and wealth management division. These increases in provisions are all included in our non-strategic results.

You will note that for this quarter, we have continued to include our pretax income, return on equity and diluted earnings per share on an underlying basis. And we have done that given that the underlying results were the basis for our key performance measures under the previous reporting structure.

I think many of you joined us on January 7, and as we said then, our financial disclosures were focused on the strategic and the non-strategic results going forward. We'll retire the underlying measures during 2014.

So let us turn to slide 11. We provide here an overview of the private banking wealth management results under the new reporting structure. In the fourth quarter, total pretax income from the strategic businesses was higher both year on year and quarter on quarter. And the results reflected higher transaction and performance fees, as well as increased management fees from hedge funds and alternative products within the asset management group.

Operating expenses in the fourth quarter were higher, primarily driven by the aforementioned litigation revisions in the non-strategic unit.

If we look at our full-year strategic results, our pretax income improved compared to the prior year, driven by a number of developments, that includes the significant progress in restructuring the asset management business, I think demonstrates the strength of the ongoing and current franchise. In addition, we saw growth -- in markets activity across wealth management, stronger recurring commissions and fees, and we increased our penetration further in the ultra-high net worth client segment.

We continue to improve the efficiency of our strategic businesses, reducing our cost/income ratio to 70%, down from 72% in 2012.

Let's turn to slide 12 now to review the net new asset performance. For the full year 2013, our net new asset inflows are solid particularly driven by strong growth in assets related to our clients in emerging markets.

The wealth management client business saw inflows of CHF28.9b and net new assets of CHF18.9b for the full year. Inflows from emerging markets grew at 8% per annum with particularly strong growth in Asia Pacific at 11% per annum. The Western European onshore segment continued to see good inflows, particularly in Italy and in Spain. For the Western European cross border business, we are focused on the regularization of clients. We saw further outflows of CHF10b in line with the guidance we gave a year ago to expect outflows of CHF6b to CHF10b of net new assets per annum.

Within the asset management business, we saw inflows of CHF15b in 2013, including CHF11b into higher margin alternative products, particularly credit and emerging market funds.

Finally, corporate and institutional clients contributed positive net new assets of CHF8.8b during 2013, a significant improvement from 2012, with an especially strong fourth quarter.

Let's now look at the financial results in more detail. I will start with the wealth management clients on slide 13. The wealth management client business delivered solid results in the fourth quarter with pretax income of CHF475m. Revenues declined slightly compared to prior year quarter due to the adverse impact on net interest income from the continued low interest rate environment as well as lower revenues from integrated solutions. This was partly mitigated by higher recurring commissions and fees reflecting the increase in assets under management.

Operating expense increased in the fourth quarter, partly relating to integration costs related to the private wealth management business that we acquired from Morgan Stanley in EMEA. Net new assets of CHF1.7b in the fourth quarter reflected, and was after continued cross border outflows in West Europe for CHF3.4b, also in the fourth quarter.

For full year 2013, pretax income of CHF2.1b increased compared to the prior year, primarily driven by higher fee-based revenues and improved operational efficiency.

Net new assets of CHF18.9b for full year, reflect continued strong growth in emerging markets, partly offset, as I have mentioned already, by Western European cross border outflows of CHF10b.

Let's look at the revenue trends in some more detail on slide 14. In the past, our disclosures have focused on the gross margin, but as we've noted before, the shift in our business mix means that we think it is a better view and more complete view to focus on the net margins generated by our wealth management businesses.

I think you can see at the top of the slide, our net margin was stable at 26 basis points for the full year compared to 2012, and we achieved this while growing the ultra-high net worth client segment from 41% at the end of 2012, to 45% by the end of 2013.

In terms of price margin, the full-year result of 107 basis points is in line with the guidance that I gave, I think at the third quarter last year, when we indicated that the continued low interest rate environment would have a dilutive impact on margins, albeit we worked hard to and have generally succeeded in offsetting this through growth in loan volumes.

For the full year, we maintained relatively stable margins on transaction and performance-based revenues, and on recurring commissions and fees. And going forward, we'd expect our margins in 2014 to remain broadly in line with our 2013 levels.

However, as we have mentioned before, our main focus remains on the ultra-high net worth client segment. So as a consequence, whilst we expect the gross margin outlook to be broadly stable, we would anticipate an upward progression on our net margin in 2014.

Transaction revenues for the full year increased by 4% compared to 2012, reflecting overall increased levels of client activity.

Turn now to corporate and institutional clients on slide 15. Net revenues in the quarter were lower compared to the prior year quarter, reflecting the one-off recovery gain of CHF25m that we took in the fourth quarter of 2012, as well as the continued impact of low interest rates.

For the full year, we increased pretax income compared to 2012 with lower credit provisions reflecting a well-diversified portfolio, strong risk management, and there is no doubt that cost efficiency measures also drove the reduction in operating expenses.

Just looking at 2014, with the NSFR rules now approaching finalization -- I think you may know that the final rules have been put out for consultation recently -- we anticipate some dilution of net interest income from the corporate institutional clients business, albeit this will be partly offset by an increase in net interest income in wealth management clients, reflecting the more favorable treatment of retail and private banking deposits under the NSFR consultation document.

Let's turn to asset management results in slide 16. Asset management reported a pretax income of CHF369m in the fourth quarter. That reflected significant performance fees from strong investment returns and higher placement fees from client activity. In addition, management fees increased on the higher asset base, with the robust inflows into alternative investment products during the year.

Operating expenses increased in the quarter in line with the growth in fee-based revenues.

For the full year, reported pretax income was up by 32% to CHF612m, and this strong improvement in profitability was driven by fee-based revenue growth, as well as by the benefits from the restructuring measures. Our fee-based margin improved to 58 basis points, up from 52 basis points in 2012.

As part of the successful restructuring of the asset management businesses, this operation has become significantly less dependent on investment-related gains. The combination of stronger revenue performance and efficiency benefits has enabled us to improve our cost/income ratio by 5 percentage points to 69% for the year.

Let's turn to slide 17. So this slide, I think there's probably two key points that I would like to make. First, just to be clear because I know that there have been questions over the course of the last six months, under our new presentation of the strategic or ongoing business, the results that you see here are a realistic assessment of the ongoing results of our strategic asset management business. And clearly, therefore, exclude the contributions from the businesses that you know we've sold over the last 18 months.

The strategic business, which you see here and the previous slide, excluding the asset sales, has delivered strong and sustainable profitability with pretax income increasing by 32% from 2012 to 2013.

And then the second point, which I think, perhaps is also not fully understood is that there is significant pronounced seasonality within our asset management businesses. We typically deliver strong contributions in the second and the fourth quarters from the fees generated by our hedge fund businesses in Brazil, which are actually recognized on a semiannual basis, and also, from our other holdings, including York, which are recognized on an annual basis.

So let's now look at the non-strategic unit for the private banking and wealth management division, slide 18. On this slide, we present an overview of the non-strategic results within the private banking and wealth management division, but I have also included some further details on this in the appendix of the presentation.

In the fourth quarter, we completed the sale of several private equity assets, and I'd note please here that the operating expenses in the non-strategic unit include and reflect the CHF175m relating to the SEC-related aspect of the ongoing US tax matter that both Brady and I referenced earlier.

For the full year, pretax income of CHF50m primarily reflects sales gains from business disposals and related expenses as well as reduced management fees and equity participation income resulting from the sale of these interests.

Compensation expenses were lower, but I would also note here that operating expenses include the CHF100m relating to the UK withholding tax charge that we announced in the second quarter as you may recall, as well as the litigation provisions that we have mentioned before.

Let's turn to the investment bank now, please, on slide 19. In the fourth quarter, our strategic businesses reported revenues of CHF2.8b, pretax income of CHF485m. This performance reflects the strength of our equities, credit and underwriting franchises, but this was partly offset by lower revenues from rates and not just within the strategic areas.

Full year 2013, we reported total revenues of CHF12.6b and pretax income of CHF2.2b. The increased pretax drag from our non-strategic units reflected the IB-related share of the high litigation revisions that we discussed before.

We remain obviously focused on our cost efficiency program. We reduced our total reported expenses significantly compared to 2012 with comp and benefits down by 10% year on year.

We continued to improve capital efficiency during the year. You can see that our leverage exposure has been reduced by $149b. This reduction in our balance sheet leverage exposure also has the benefit of reducing our risk-weighted assets by CHF27b last year.

But just to be clear, offsetting the benefit of these reduced assets, we had an operational risk add-on of CHF6b just relating to the investment bank in the fourth quarter. And I'd also note that there was about $10b for add-ons relating to methodology and parameter changes that were taken during 2013.

So net-net, with a gross reduction of CHF27b, offset by the increase that I mentioned, risk-weighted assets reduced by $11b between the end of 2012 and the end of 2013.

Finally, and we'll give some more details of this in a minute, the strategic businesses in the investment bank contributed 19% after-tax return on Basel 3 capital, up from 16% in the prior year.

Let's turn now to fixed income, slide 20 please. In the fourth quarter, revenues from the business (inaudible) yield including our market-leading credit and securitized products franchise, was solid, driven in particular by momentum in the leveraged finance trading and by asset finance respectively. And emerging market revenues were adversely impacted by weaker trading activity in the quarter, albeit the new financing activity was dropped.

I think overall, the resilience in our fixed income business, which is credit and mortgages, were offset by significantly lower rates results which reflects subdued client activity in both the residual non-cleared business as well as the cleared businesses.

Let's turn to equities on slide 21. Our strong equity results in the fourth quarter reflect a continued market leadership across products and regions, strong client franchise, a balanced risk profile, but also a favorable market conditions in most of our markets during 2013. Equity underwriting revenues were significantly higher and actually, more than double in the fourth quarter what we achieved in the first quarter, and up by 64% compared to the prior-year quarter, and that was driven by substantially higher IPO volumes.

Solid performance in cash equities was driven by further market share gains in both the US and in Europe, as well as by increased client activity and favorable market conditions.

Our prime services results was resilient, and we saw increase in client balances in the fourth quarter. And we substantially improved the performance in our equity derivates business, again, reflecting the robust client activity and strong performance and particularly in Asia Pacific.

Our full-year 2013 revenues were 16% higher compared to 2012, and combined with improved operating efficiency and cost reductions, we delivered significantly higher franchise profitability.

Let's now turn to underwriting and advisory on slide 23. In underwriting and advisory, we received strong revenues of CHF951m in the quarter. The strong underwriting performance was partly offset by lower advisory revenues, reflecting a decline in total industry-wide M&A fee pool, but also lower market franchise fees. But I would note that advisory results were up from the third quarter, reflecting the increased momentum that we saw towards the end of last year.

So let's just conclude the investment bank and look at the non-strategic unit please on slide 23. So we obviously completed the setup of the non-strategic unit during the fourth quarter, and we've included here a financial summary of performance, and again, we have included some further details in the appendices.

So I think as you know, the investment banking non-strategic unit is a further development of the fixed income wind-down group we have operated for several years with a number of additions to the portfolio. These additions including the -- obviously, the restructured components of the rate business, as well as some of the capital-intensive structured product positions.

In the fourth quarter and the full year, we reduced our non-strategic revenue losses compared to prior periods, and that reflects benefits in valuations gain partly in that legacy fixed income wind-down portfolio, and in our legacy rates portfolio as well as some reduction in funding costs.

Reflecting the CHF0.75b of litigation provisions that we took within the investment bank during 2013 and that includes the number we mentioned today, our non-strategic expenses increased significantly in the year. However, our leverage exposure decreased by $34b year on year and our Basel 3 risk-weighted assets decreased by a net $3b for the period.

With the implementation of the non-strategic units, we substantially increased the focus on driving to exit these positions and to support our progress towards our long-term capital targets. Just to reiterate these targets, for Basel 3 risk-weighted assets, our targets for end 2015 are CHF6b in RWA terms and CHF24b in leverage terms.

Slide 24. So a key point to highlight on this slide is that we allocate the majority of our capital to the market leading and high return businesses. We made significant progress in 2013 in shifting capital to the businesses where we have the top three market shares and you can see that increase from 57% to 62%.

We improved the returns in cash equities and equity derivatives, reflecting both increased activity levels and lower cost bases. Prime services produced solid but slightly lower returns, adversely impacted by an increase in the capital it consumes due to the methodology changes during the year.

Returns in emerging market businesses were also lower, and that reflects lower finance origination activity but also less favorable market conditions for the year as a whole.

Credit benefited from strength in origination trading and by higher revenues in leveraged finance, producing significantly increased returns which were amongst the highest in the investment bank.

Our securitized products business was resilient, driven as I mentioned before by strength in our finance business. But the returns in our global macro products business remain challenged driven by subdued client activity, particularly in the rates business during 2013. We've already reduced the capital in this business materially, and we are obviously increasing our electronic trading operations in this area.

Slide 25. The waterfall chart in this slide highlights the strong return that are being generated by the strategic businesses within the investment bank. For the full year, our strategic businesses achieved an after-tax return on Basel 3 capital of 19%, up from 16% in the prior year, reflecting reductions in cost and in capital usage. And clearly, looking at 2014, our focus has to be the improvement by the strategic businesses whilst running off the non-strategic access.

So let's look at the combined non-strategic units in more detail on slide 27, please. So as you may recall, from the presentation that we gave on January 7 this year, our non-strategic results also include non-strategic items within the corporate center.

In the fourth quarter, the negative revenue earned on strategic units were significantly lower at CHF78m compared to CHF243m in the previous quarter. As we mentioned before in the divisional sections, this reduction in drag was achieved primarily as a result of valuation gains in the legacy fixed income wind-down portfolio in investment banking and higher investment-related gains in private banking and wealth management.

Pretax income losses of CHF1b also improved compared to the fourth quarter of 2012, as a result of reduced operating expenses driven by lower comp and benefits, and notwithstanding the pickup in litigation.

In addition, losses from movements in credit spreads in our own liabilities were significantly lower in 2013 amounting to CHF296m compared to CHF2.9b in 2012.

Let's turn to slide 28 now to talk about balance sheet and the RWA runoff profile. As previously announced, I would like to reiterate the non-strategic leverage and risk-weighted asset targets. We intend to reduce our non-strategic leverage exposure by 74% by the end of 2015, and risk-weighted assets by 57%.

Let's turn to slide 29. So you may recall that on January 7, we gave you a similar slide albeit that that version was for the first three quarters of 2013 and this one is for full year 2013. And again, I'd just like to walk you through the major components that comprised the non-strategic units and how we move from the pretax loss of CHF2.7b for 2013 shown on the left-hand side of the waterfall chart, to a pretax run rate of around CHF100m excluding litigation on the right-hand side.

The bars show the key drivers of how we intend to reduce the impact of non-strategic units on our pretax income in the next couple of years, which I think, may also be helpful in structuring the metrics in your forecast for Credit Suisse.

Let's start on the left and go with adjustments that we have made to get from reported to underlying non-strategic results going from left to right.

So if you start with the portfolio debt carried at fair value, in 2013, our credit spreads were roughly stable compared to the movements we saw in 2012, but we still saw losses of about CHF315m. Looking forward, the effect of these moments will be eliminated with the anticipated changes under US GAAP incidentally, but incidentally also under IFRS that are expected from January 1, 2016 If we move then to the right, we saw CHF522m of realignment and restructuring costs. These are costs we incurred primarily to achieve the cost reduction program established several years ago, and they will continue in 2014 as implementation of this program continues to the end of 2015.

We maintain the guidance that we gave back in October that our total cost to achieve is around CHF1.8b between 2013 and 2015.

The next column represents the significant litigation provisions that I mentioned earlier, the ones we've actually just taken and incurred in the fourth quarter in both the private banking and the investment banking division.

Then there are these two columns here you see, entitled CC underlying adjustments and PB&WM underlying adjustments, these are really net off each other and they comprise the gains and losses from business sales associated and now completed 2012 capital plan. Going forward, the bulk of those disposals have now been achieved, I think you know -- we did note there's been one more sale booked in January, but these items should not be clearly therefore be a prominent feature in this area.

So that brings us to the underlying non-strategic pretax loss of CHF1.4b for 2013. So let's continue moving right.

The negative impact on the business results from discontinued operations will, I think, by their nature, clearly not continue in 2014. We then look at the legacy funding costs and particularly the high funding cost associated with non-Basel 3 compliant legacy debt instruments in both the investment banking division and the corporate center. I think as we said before, you should assume that this would decline by more than 50% this year reflecting the maturity of these instruments.

Just looking beyond that, we expect this portfolio to be fully run off by the end of 2018 and clearly will not be replaced.

And then the CHF100m relating to the UK withholding tax charge, that was also a one-off item.

I think you know then from our third quarter, we increased our cost saving target from CHF4.4b to a minimum of CHF4.5b by the end of 2015 and the 2015 pretax income should benefit therefore from the incremental CHF150m cost saved.

So I think, what we are trying to give here, as you can see, that the items are either non-recurring nature by their nature or would have an expected roll-off profile over the next few years.

So let's just look at the final component. This remaining non-strategic drag is primarily driven by legacy litigation costs, together with the losses on the fixed income wind-down portfolio and the legacy rates in investment banking. We've shown here the CHF555m of litigation provisions and fees, comprising three mortgage litigation revenue losses of CHF98m in 2013 and approximately CHF100m of legacy litigation fees. That leaves CHF99m primarily driven by the losses on fixed income wind-down portfolio and legacy rates in investment banking.

As already mentioned, it's clearly our intent to work through the latest litigation matters and to accelerate the wind-down of these remaining positions.

Let's turn now to our overall cost and capital program. Slide 31. We continued to make progress in our expense program this quarter, and I think as you know, we have been consistent about this and we compared the operating expenses to the run rate cost rate for the first half of 2011 when we initiated the efficiency program.

In 2013, we achieved total cost saves for the year of CHF3.1b; that increased from CHF2b at the end of 2012. But in fairness, it is also slightly below our targeted CHF3.2b that we set for 2013. And that is predominantly due to a pickup in commission and revenue-related expenses that we saw in the private banking wealth management division, as well as by certain legal fees in non-strategic units, partly relating to some of the litigation issues we mentioned before. And I think we remain committed very much to the annualized run rate savings target of a minimum of CHF4.5b for the end of 2015.

Just on the divisions, the investment banking division achieved CHF1.8b annualized savings for full year 2013 and I think through a combination of rates restructuring program and the continued realignment of resources across businesses, we'd expect to achieve the additional CHF100m in the investment bank.

Private banking and wealth management achieved CHF400m in savings for full year 2013. We continue to see savings from the ongoing implementation of the previously-announced exit of small non-strategic markets and the reposition of select onshore operations and we are clearly making progress towards the savings target we intend we achieve of CHF950m for the end of 2015.

Finally, we achieved infrastructure savings of CHF950m in 2013, so we are just over halfway towards our 2015 target of CHF1.65b.

Let me turn now to capital, slide 32. So as you can see from the chart our look-through Basel 3 risk-weighted assets stood at CHF266b at the end of 2013. And that was down by 28% from the third quarter 2011. And that beat the goal that we set a year ago for end 2013 which was to be below CHF285b.

For the quarter, you can see there was an increase of CHF5b in risk-weighted assets compared to the end of the third quarter. And I think we've now included a breakout box in the top right-hand side where you can see that's primarily driven by CHF6.9b add-on in respect of operational risk that we took in the fourth quarter. And I think that's similar to what you'd now see elsewhere.

As announced -- as already announced in our third quarter earnings presentation we have set a new long-term goal for risk-weighted assets to reduce to approximately CHF250b for the Group, and that's not a number or target we are changing, that's very much our intent.

So let's move to capital ratios on slide 33. So just the first point really is, as you may be aware, under the Swiss [BCBS] capital rules, the FINMA provides an annual requirement each year to the progressive capital component. That's capitalized on the base of the size of the balance sheet, our market share in the Swiss domestic derivative functions as well as an assessment of the resolvability.

The 2014 requirement for Credit Suisse, which is calculated on the 2019 basis, was 3.7%, down from 4.4% which implies that our 2019 total capital requirement is 16.7% compared to 17.4% last year. At the end of the year, our total capital ratio stood at 16.1% which is clearly very close to the 2019 requirement. We've made further substantial progress towards these goals during 2013, and in the fourth quarter.

And BIS CET1 ratio was 10.3% at the end of 2013. And clearly that is after litigation provisions and it's after the accrual for the dividend. And just to be absolutely clear, that is a look-through number and it does not include any benefit from the remaining Claudius preference shares.

If we then look at the next ratio, which I think as you know the Swiss National Bank has referred to on various occasions as a loss-absorbing ratio; that is now 13.2% post the exchange of the hybrid Tier 1 notes into high-trigger buffer capital notes in October 2013. So both our CET1 ratio and our loss-absorbing ratio now exceed the 2019 Swiss requirements.

Just finally, I think obviously I think you know that we redeemed the first tranche of the Claudius notes in December of 2013, and I would like to note that we are currently reviewing options to potentially call the second and the final tranche at some point during 2014.

Just finally in terms of dividend, as I've said already, our fourth quarter capital ratios include a pro-rata cash dividend accrual for 2013 of CHF0.70 to be paid out of reserves from capital contributions in 2014, and clearly subject to shareholder approval at our AGM in May. Our Board aims to recommend and maintain a prudent dividend policy that will allow a suitable progression as we continue to execute our strategy and resolve legacy issues.

Let's turn now to leverage on slide 34. So I think you can see here that we have further reduced our leverage exposure to CHF1,130b at the end of the fourth quarter. I think just to put that in context we've shown here where we started this program in the third quarter of 2012, and you can see that our leverage exposure is reduced by CHF275b or 20% since that starting point.

We've also completed an initial high-level estimate on the basis of the revised guidance published by the BCBS last month, which indicate a potential reduction to this leverage exposure of approximately CHF40b to CHF50b including our planned mitigation measures. But I would caution that while the leverage rules are final, it is subject to the final interpretation and implementation of those rules by the FINMA in due course.

But I would like you to be clear though that this is separate from and in addition to the non-strategic run off. We had CHF99b of leverage in the non-strategic units, and we are targeting to reduce that CHF73b by -- of that by 2015. But I think you can see between these different measures that that, positions us very well to beat the target we've set before for our long-term leverage exposure to be below CHF1,070b.

So what does this mean in terms of our leverage ratios, let's look at slide 35. So our Swiss total capital leverage ratio improved from 3.2% at the end of the last quarter to 3.8% at the end of the fourth quarter. And that's all calculated, to be absolutely clear, on a look-through basis. If you exclude the remaining tranche of Claudius, then the number is 3.6%.

As I've already mentioned, we have a revised target for the progressive capital components, which thereby reduces the amount of low-trigger contingent capital that we need to issue. That means essentially that Swiss total capital leverage requirement is now 4.0% compared to 4.2% you may recall that we discussed during last year.

So I think in sum, the combination of non-strategic run-off and I think clearly some expected benefit from the BCBS rules should increase our Swiss total capital leverage ratio to 4.0% in line with 2019.

Now just for the clarity I've not included on this slide the transitional leverage ratios, but they are included in our financial report and that was 5.1% at the end of last year.

Slide 36, so I think obviously since we spoke on the third quarter we've announced our legal entity program, and I want to just discuss briefly here the proposed changes to the legal entity structure. And what we are showing here is a preview of the structure on a simplified basis.

We are making progress on this program albeit that many elements are still subject to a number of different and regulatory approvals. We decided to implement this program for two main reasons.

First, the new structure will more closely align the booking of the investment banking business to the region from which it originates. This will help to simplify our organization from the client, regulatory and (technical difficulty) perspective and will also provide a more efficient operating infrastructure.

Second, the new model is designed to meet the future requirements for global recovery and resolution planning. For example, it moves the funding up to the holding company level, which I think helps to support FINMA's preferred resolution strategy of a single point of entry bail-in resolution.

Resources created at this level can be used to protect clients and counterparties in all our regions. And furthermore, as we improve this resolvability it gives us potential for further capital reductions under Swiss banking law. And we remain committed, as we noted in November, towards moving to issuing our debt with contractual bail-in clauses in due course.

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

Thanks very much, David. I think at this point we'll just open it up for Q&A, operator.

Kian Abouhossein, JPMorgan.

Yes, hi, thanks for taking my questions. The first question is relating to private banking and wealth management. If I look at the cost savings slide and your target of 65% cost/income ratio, you could imply that assuming revenues are flat the costs would have to be reduced by about CHF600m, CHF700m that kind of range. Is that how you're thinking about moving to that 65% cost/income target or is it more revenue based? If you could just maybe discuss that?

The second question is a very short one on Morgan Stanley wealth management business, what was the cost of that integration cost in the P&L?

And one more on private banking as related to the margins, you're indicating topline margins being flat and just trying to understand what are the underlying assumptions to get to that conclusion.

If I may two more questions. One is on fixed income, if you could discuss how emerging market volatility has impacted you this quarter so far in your fixed income revenues.

And lastly, you indicate on Basel CHF40b to CHF50b of capital reduction under Basel 3 leverage rules, and I am surprised you have asset reductions under Basel 3 leverage rules relative to your current rules. Just trying to understand where the asset reductions are coming from. Thank you.

Thanks, Kian, thanks very much. Maybe I can start with the fixed income question and then maybe we can move onto the, as you say, the Basel leverage questions and then maybe David could address a number of the cost and margin issues on private banking.

I think on fixed income I think we've made the general statement, as you know, that the start for this year so far has been largely consistent with what we've seen in previous years, but that there have been obviously varying impacts across the different businesses.

So we've seen a pretty strong start on things like credit and structured products, certainly emerging markets has been impacted by the challenging conditions there. But again as you know it's been a little bit more intense this year, but we already had some -- fair amount of disruption last year in the third and particularly fourth quarter in the emerging markets business. And actually our business performed pretty well even across the -- in the fourth quarter on the emerging side.

So it certainly has been impacted so far this quarter, but we'll see. Obviously it's led to certainly reductions in some of the trading volumes but also some interesting opportunities on the origination side. But it certainly has been impacted. We'll see how the rest of the quarter actually plays out.

I think on the Basel, the CHF40b to CHF50b David you want to --?

Thanks very much. I think there's a couple of points, I think you know is that both Credit Suisse and UBS as the two Swiss SIFIs have been required by the FINMA to report total exposure numbers which is based on the, I guess, the original BCBS rules for leverage since the beginning of last year, so we've obviously had to operate in a total exposure regime for about a year now. And clearly as you can see from the leverage program that's something we've been working to really now for about 15 or 16 months.

Why do you get a change? Well, when we actually got the rule set there are a number of changes in the BCBS final rules, although I would caution just to be clear that their implementation will clearly be subject to the FINMA's new template to actually install those rules. Even though they've been published finally of course there is now I think a chance for some further comment and then it will actually get converted into practice during 2014.

But to help you more specifically, there is clearly a number of changes in the [BAR] rules, but the two things that have most impact is firstly I think we had hither too being assuming that unfunded commitments both within the investment bank and within the private bank for corporate for example counted 100% towards the leverage exposure. I think you may now under the proposed rules there is now a tiering of that between 20%, 50% and 100% depending on certain criteria, which I think is by the way very logical 100% for an [unfunded] commitment. I think any kind of draw-down analysis was extremely harsh, so I think this is a much more logical rule. But we have been previously assuming and still do in these numbers 100%.

The second thing is that some of the treatment of derivatives is more favorable because you are allowed to net off for cash collateral you actually hold. And hither too we had not, not basically taken that into account and we don't at this point.

So those -- there are a lot of other changes but if you wanted to say what are the two biggest changes that we see in the BCBS rules compared to the existing rules we've been operating under, then those would be -- those would be the things I'd actually point to.

Moving onto the other points then I think actually on page 8 I think you're absolutely correct because what we've actually given there is the path to our targets. I think you can see that for the investment bank then simply running off the non-strategic loss will take you from 77% down to 72% of cost/income, leaving not too far to go in terms of the -- sorry that's for the Group the 70%, so for the investment bank then we are at 71% against 70%. So you might say that the investment bank, the primary target has to be to eliminate the non-strategic unit.

For the private banks that's not true, the strategic number is 70% so slightly better than 71% we show, and therefore you need about a further 5% reduction to get there, Kian, which I think is the number your referring too. And I think in terms of our planning it splits roughly equally 50/50 between further cost saves in the strategic business and revenue growth that we expect to achieve in the strategic business.

Moving on then in terms of the Morgan Stanley integration costs, there I think I would refer to the wealth management page, the wealth management page in the presentation which is on page 13. Just in terms of the operating expenses there you can see it's gone from CHF1,554m to CHF1,572m. There is clearly -- Morgan Stanley is clearly not the only component of that but that was about CHF21m in the fourth quarter. And we actually also give that number on page 47 in the breakdown of the cost moves in the detailed appendices.

I think -- have we now -- there was a gross margin, a margin point?

Yes, margin, gross margin.

Gross margin, yes, I think obviously one change we wanted to do this year, because I think we obviously talked about for a long time is that the shift towards ultra-high net worth clients and ultra-high net worth clients in emerging markets in particular is that those -- the profitability of those clients would be lower in gross margin terms but higher in net margin terms, obviously just purely reflecting the type and scale of the deals that we are actually conducting on their behalf. So it is logical therefore to focus much on -- in fact more on the net margin as a percentage of gross assets at the gross margin.

So if we look then at the performance last year you can see that the gross margin at least was stable on recurring and stable on transaction but was obviously diluted by the reduction in interest income that we've obviously warned about and is rather predictable.

If we look for 2014 we would probably expect both the recurring and the transactional elements to be stable, but we are still seeing some volatility in the net interest number. We probably will see the final run off of that in the first half of this year, but then looking at the shape of the curve which [we run] our replication portfolio a pick up towards the second half.

So I think that's really what we meant in terms of gross margin being broadly stable and those are the kind of trends. But we would expect the net margin to actually improve from the number we actually showed on the slide here. And I think -- I would encourage you -- I think we'll obviously -- as a business we are much more focused on net margin and that's really what we are driving towards.

Okay, thanks, Kian, next question.

Matt Spick, Deutsche Bank.

Good morning. Thanks for taking my questions. I had three if that was okay. The first question was there was some commentary that in Q4 in the private bank this year the contribution from some of your sharing revenues was a little bit more evenly spread over the year and less concentrated in Q4. I just wondered if there was a smaller than usual contribution in terms of performance fees in Q4 in the private bank from some of your other operations like Hedging-Griffo. If you can give us any sense of whether or not that was something that affected Q4 differently than it affected Q4s in previous years.

The second question was on the CHF175m of SEC-related issues with the tax matter. I know previously you've said that you don't want to talk about that until it's finalized but now you're providing that, presumably because you've got a bit more visibility.

I just wanted to ask if the CHF175m to the SEC was for disgorgement of profits and that that would imply that you still have the DOJ disgorgement of profits to go and the Federal backup withholding tax to go. So if you could just clarify if that's the right understanding of the SEC provision this quarter.

And then the third question was on the compensation and the investment bank which obviously picked up quite a bit in Q4. I was just curious whether that was purely a mechanical true-up of your compensation because mechanical accruals earlier in the year had come in low or whether you'd seen any cost pressures within your business maybe related to the equities mix or something in the fourth quarter. Thank you.

Thanks, Matt, thanks for those questions. I may start with the second one on the SEC provision that we made. So as you say we -- obviously this has been a long-running issue we've been working towards resolution on it. There are several aspects to it and obviously there has been a lot of focus on the DOJ piece of it, but there also is and has been with others.

If you look at historical settlements on this there has also been the SEC element which is a securities or a licensing type issue. And so as you say we are clearly working towards resolution on both of those sides. The DOJ matter is still outstanding. As you know, we took some original provisions a couple of years ago. That matter is still outstanding.

The provision we've taken today is with regard to the overall SEC, so rather than getting into the issues of, as you say, specific issues around disgorgement or other there are a number of technical definitions around aspects of that. And we've basically just taken a provision which we are hoping will represent the cost of resolving that issue.

Obviously, we are taking that provision because we think we have made some progress towards resolution, but exactly when and exactly what the form of the resolution will be we'll keep you informed. But basically this would be the cost of resolving that aspect of the issue, and then as you say when we get the other aspect of the issue resolved with the DOJ that will be a separate issue for which we obviously do have some provisions but we'll see how that develops.

I think on compensation and the IB maybe I could start and David could jump in, we are obviously -- I think we have mentioned that the total cost number for the year is down 10% versus 2012. Our comp to revenue number is down from, on an underlying basis, from 48% to 43% in 2013.

So we have -- we believe we have -- we've driven I think some -- in some pretty disciplined processes around that. Not to mention of course the fact that we always try to make sure that the form, the structure of the compensation is very well aligned so as you know we actually have a component of compensation for our directors and managing directors in the form of a CCA or a contingent convertible bond this year so that's helpful.

So, yes, the fourth quarter really is more of a true-up, we more look at the annual approach which as we say is on an absolutely basis down about 10% in total comp and benefit, and on a comp to revenue down from 48% to 43%. I don't know if you want to add to that.

Yes, truth is that clearly certain of our business is in equities and some of the underwriting businesses actually closed stronger than we perhaps expected in the third quarter, and the increased (technical difficulty) in the fourth quarter compared to third quarter obviously had to reflect that stronger close. So I think you described it, Matt, as a mechanical, that was exactly the case.

You want to take the Q4 PB.

Yes. Just in terms of [SGC] or collaboration revenues it's -- the overall collaboration revenues for the year as a whole were the same in 2013 as in 2012. But in 2012 I do recall that we had a particularly strong fourth quarter in terms of SGC bookings and it was rather more even in 2013 as a whole. So I think more a flattening out of what was rather pronounced seasonality in 2012 than anything else really.

Okay Matt, thanks very much.

Thank you.

Next question.

Huw van Steenis, Morgan Stanley.

Good morning. Actually two questions. First obviously you did a great job in reducing your leverage exposure in the quarter, and I noticed in the core investment bank it was down by about 6%. Any clues you could point us to between tear-ups and rate shrinkage versus prime broker shrinkage and to what extent there is further potential opportunity?

And then secondly in wealth management, I'm struck with obviously your strong emerging market growth. Is there any chance you could also give us disclosure of then what your assets are in Asia Pacific, Eastern Europe and Latin America because obviously you still structure it in the overall geographic buckets but you're now starting to talk about EM versus mature.

And also what sort of cost budget you think you need to try and sustain and grow that net new money back to the targets you're aspiring to. Thanks ever so much.

Let me see, David, do you want to try to take the question on the reduction and leverage how -- give some more detail on (multiple speakers) that.

Well, good question really because I think as you know, Huw, we have moved a large component of the non-cleared business within the rates portfolio into the non-strategic unit. But I think your question was right it was actually on the strategic unit.

And I would imagine, as you'd recall, that we obviously do have a number of non-cleared businesses still in the strategic unit which will be transferred over the next two years as those businesses are getting cleared. And clearly ahead of that we will also be looking to reduce the leverage exposure. So you will see reductions in the strategic unit relating to that clearing as well as obviously the -- what we've talked about already in terms of the non-strategic units.

I don't think I'd give you numbers but what I would say in terms of the contribution to the balance sheet reduction it was really in three components. The largest would be in repo and in terms of the reduction in our repo balance sheet. The second really during the year was in our general rates balance sheet. And the third really would be prime services in terms of the three contributors to that. There were some small reductions elsewhere but those would be the businesses that were most affected by that.

I think in terms of the add-on number, and we've actually given the add-on number in one of the slides, that does primarily reflect compression and tear-ups and moving things onto exchanges, so that's where we've seen the bulk of the benefit in terms of the reduction of the add-ons over the last 15 months.

Does that answer your question though, Huw?

No, that's very helpful I was just struck it was in the core business where you'd actually made more progress and I was just -- I was impressed so I was just -- thanks, that's helpful.

Well, I think message for us really is very much the focus for us now [we are setting] those two units up has to be -- to basically really work very hard to grind those down over the next two years as fast as we possibly can, but it's a fair point.

You want to address the M&S issue, emerging markets and any further detail we can give on either assets outstanding.

I can give those numbers in terms of the net new assets. I think what you're also looking for, Huw, was basically the actual -- start -- the actual total which I don't have in front of me at this point, we'd have to think about that, we've not really disclosed it before.

But basically in total terms our net new assets full year it was about CHF0.9b in Switzerland, about CHF7.4b in the emerging markets EMEA minus CHF5.7b pure in Western Europe and then the Americas about CHF4.7b and then the balance would be Asian Pacific CHF11.6b.

Okay. And just on the last bit of to what sort of extra cost budget you might need to try and hit the net new money target. Do you think there will be quite a bit more layering on of cost or you've got broadly what you need?

It's entirely within the plans we've committed. I think it does obviously require resource rebalancing across the bank towards the emerging markets. I think it's fair to say that obviously with the outflows in Western Europe and the regulization there you are going to see obviously pure assets will result in less costs.

You know as well basically we've actually announced the sale of our German business. But equally against that there will be a regional shift towards the emerging markets in terms of our investments.

I also think, Huw, as you know one of the things that we announced last quarter and which we've continued to make good progress on is this targeted ultra-high lending initiative, and a lot of that actually will also be in the emerging side of things which will also -- that also generates good asset flow and client retention growth and attraction. So that will also help, which is not necessarily increasing our costs but it will increase actually our capital and our allocation to that part of the business.

Okay, thank you very much for your help.

Thank you. Next question.

Kinner Lakhani, Citigroup.

Good morning. A couple of questions, firstly just on the wealth management side. Just wanted to get some sense of the progress that you're making in turning around the US wealth management franchise. And maybe if you could be a bit more specific about how you would expect us to think about the lending book in 2014 and then going into 2015?

And the secondly just on the investment bank where you talked about an improved performance in the strategic business in 2014, just wanted to better understand what that is predicated on. And then I guess the remaining cost save potential is very limited, so does that suggest that you expect an improved revenue performance particularly in the fixed income there?

Thanks, Kinner. I think with regard to the private banking wealth management question and I guess you're talking about basically the US private banking business, we've mentioned before that that has been a business that has not been consistently profitable for us.

As you know, we are taking a different approach to that business. We've put new management in place. We are increasing the balance sheet around that and really very much focusing on improving or bringing that business to profitability, improving the overall profitability performance there.

I think as you mention I guess your lending question is really -- I guess that's specifically with regard to the US business and certainly it's one of the things that we've noted is that our business in the US has been actually a reasonable performer on transactional and recurring cost but we really have not had -- we've had very little balance sheet really allocated to that business, and so that certainly is a big focus of ours, we'll be increasing the balance sheet there.

I'm not sure that we've been public about any specific metrics around increasing that but we do -- we certainly will be increasing our risk-weighted assets and our capital allocated to that in the US I'd say reasonably materially in the course of 2014.

David, do you want to take the --?

Yes, on the cost point I think you're right in terms of direct expense. I think there is about another CHF100m to go, but clearly I think in terms of the infrastructure side to it CHF950m of savings now target to get to CHF1.65b so about CHF700m to go. Just over half of that would actually go to the investment bank numbers you see reported even though the cost savings are actually driven out of the shared services infrastructure side.

I think also some of the business, clearly with the restructuring of the rates business our objective and our expectation is that that business will perform better in 2014, so -- and that certainly is our expectation.

Thank you.

Thanks, Kinner, next question.

Daniele Brupbacher, UBS.

Good morning, thank you. Can I just briefly come back to the exposure number in the strategic IB business? Obviously that's down by quite an impressive CHF150b within nine months. Just wondering whether you could somehow quantify the revenue impact of that reduction just as a follow up there.

And in that context in slide 34 the CHF1,130b leverage exposure and then the longer term target, if I add the CHF40b to CHF50b relief you're basically almost there. How should we think about that target in terms of that you're going to reduce it further or that you're just going to recycle probably some of the high -- lower return businesses into higher return businesses? This is question one.

And then a follow up on the compensation question, the same question for the private banking business, it feels as if Q4 was a bit higher than expectations is that just a true-up in your opinion. And on the IB side the CHF600m comp reduction during the year, how much of that is due to lower amortization of deferred comps from the 2011 and 2012 bonus years, assuming that bonuses were down back then.

Then very lastly the CHF1.5b cost cutting to come how should I think about the year's when that will show up in terms of 2014 and 2015, the split of that. Thank you very much.

Thanks, Daniele. Maybe I can start with the third part of your question on the PB compensation, although David is going to have to help me on the deferred aspect of it, but -- and then we can go onto the overall cost and then back to your other -- the other first part of your question.

Yes, I think the PB was similar. It's basically a catch-up somewhat performance related. Again the underlying comp to revenue ratio year on year is down for the private bank, so I think it's down from 42 to 40 from 2012 to 2013. And so clearly the fourth quarter was a bit of a just a true-up, but also as you could see the asset management performance in the fourth quarter was very strong, and there is as you can imagine a fair amount of performance-related compensation associated with that, so that was a required true-up in the fourth quarter as a result of that.

In terms of the IB number and the amount of the reduction in comp that was deferral related, I don't know if I have that number.

I think -- well no, I think we'll have to get back to you on that one actually it's one of the more detailed calculations, but we'll get back to you. I think it's certainly true that the IB numbers do benefit from a significant reduction in deferred compensation, as I think we alluded to last year. But we'll get back to you with the specific number.

Do you want to address this question of the CHF1.5b cost savings remaining and how they tier out between 2014 and 2015?

Yes. For the sake of tidiness we didn't include all the previous targets, but what we said before is that we intended to increase our savings to about CHF3.8b in respect of 2014 and then CHF4.5b by 2015. That -- we -- those targets for this year have not changed in terms of what we intend to achieve for this year.

I think you also asked a question really in terms of the exposure and the revenue impact.

Yes.

I wouldn't want to quantify it because I think there's different ins and outs. I think if you look at the reductions in the add-ons from the tear-ups then you can see that's come down across the bank. I don't think it would be fair to say that there was any revenue impact from that. Those are positions we are happy to tear up quite clearly across the industry.

And as everybody now begins to focus on their leverage exposure, there is increased pressure on all banks to actually join in and actually reduce their both mutual exposure but also such [tri-partite] exposure. So that's won't have -- that wouldn't have had any particular impact on revenues.

But if we actually think about CHF50b reduction across our rates business, yes, it is a business that is facing fundamental [civic] change as it moves from being OTC to being cleared. Yes, the environment with a flat curve is extremely tough and difficult as I think you are well aware. But I think that kind of reduction in the balance sheet must have had a significant impact on the revenue as well.

The decrease in prime is much smaller, but I think as you note from the bubble chart the competitive position of the prime business has been broadly stable in 2013 compared to 2012, in what, let's be realistic, was a favorable market environment.

So I think it is probably true to say that the focus in terms of optimizing the balance sheet and the leverage utilization within the prime service business will have some impact on our ability to actually exploit that.

Now I think that was mostly in the first half, as we've said already the prime business certainly closed 2013 very well so I think we are kind of through that. So I think in terms of real revenue impact it certainly contributed to it but it's not the prime driver of the weakness in the global macro product area. I think the flat curve and the fundamental change is at least as important, but it would be wrong for me to suggest that didn't have a negative revenue impact.

In terms of the forward-looking plan, as you know, we are at CHF1,130b now. We intend to strip CHF73b over the next two years out of the NSU so that will obviously bring you down to the CHF1,150b -- sorry CHF1,050b, CHF1,060b level so less than our CHF1,070b target. If the BCBS rules go through as currently scheduled that would obviously bring us down very close to around the CHF1 trillion mark or CHF70b less than our target.

I think that probably is a good target though. I think -- but I think -- I'm not sure I'd necessarily want to go further from that or necessarily to fall back from that kind of CHF1 trillion number plus/minus assuming the BCBS changes.

I think the consequences there for the business is I don't think you really should expect us to see as you might say the strategic leverage exposure actually going up for the investment bank. I think it is perfectly possible that you may see the capital allocation to the private bank going up both in RWA leverage terms. I think at the third quarter we talked a lot about this in terms of our lending activity and moving closer towards a 50/50 capital allocation.

Now the NSU doesn't quite get you there; it gets you down about 55%. So that's probably where if anything I would expect to see RWA and leverage growth over time. But clearly that has to be matched to the appropriate risk adjusted return that we actually have the right investments to actually make.

So slightly long answer but I hope I've covered the issues there, Daniele.

Absolutely, thanks very much.

Okay, thanks, Daniele, next question.

Fiona Swaffield, RBC.

Hi, can I ask -- come back to this net margin issue. I think you said in answer to an earlier question net margins should be up in 2014. Could you talk us through where we could see some of the incremental cost savings for the whole private bank? Would we expect some in WMC, so if revenues were to pick would you expect significant operating leverage for example in that division?

And then secondly on the Western European cross-border outflows which were relatively high, and I think cumulative might be somewhat higher than your total number, could you update us on where we stand there versus the original, I think it was 25 to 35? Thanks.

Thank you. Well, I think in terms of the cost numbers I think in answer to an earlier question I think we intimated that we would be looking for approximately CHF300m or so of additional savings within the strategic wealth management -- private banking business.

I think clearly a lot has been done within the asset management business, so I think that does imply we will be seeing that in the wealth management client business. And that really is going to come in the Western European business and it will come to a degree in the Americas restructuring. So, yes, I think you will see a lower cost in the wealth management business even as we actually reorient the business.

I think in terms of the Western European cross-border outflows I think I would probably agree with you and disagree in a sense. And certainly if you go back three or four years I think we talked at that point about potential in the sort of CHF25b to CHF35b level. I think if you add up what's been out flowed since that today it would be north of CHF35b.

In terms of the outflows we saw last year then it was in -- it was CHF10b I think against a range of CHF6b to CHF10b. So it's definitely at the top end of what we actually guided to a year ago. I wouldn't say it's beyond that.

As I said I think it's a good thing and it's a bad thing. Clearly it's not good to see asset outflow although on the other hand, I think it does indicate I think the progress that's been made towards the regularization of those assets across Western Europe, which I think is a good thing.

I would, just to be clear, I think suggest to you that we could -- there might -- if you asked for the guidance I'd give for 2014, it's probably the same as it was in 2013, something in the CHF6b to CHF10b and potentially towards the top end of that range. Hopefully there afterwards will start some stability, but I think this regularization effort now is very much at full flow.

Thank you.

Thanks Fiona, next question.

Jon Peace, Nomura.

Yes, thanks, I have two questions please. The first one is, is there any more color you could give us on the dividend outlook your desire for a progressive dividend. Should we be thinking in terms of absolute increases or do you have a payout target in mind for 2014?

And then the second question is around the fixed income performance. Despite having hived off the rates business, your growth rates in the strategic [FIC] were a little less than your peers. Is that mix related or does it cause you at all to reconsider just how far you may go in that business in terms of downsizing? Thanks.

Thanks, Jon. I think on the dividend side I think as we've said we are -- we have said all along that we felt that we, with the reorienting of the business, the progress we've made on the capital and our confidence in working through some of the legacy issues, we felt we would like to start returning significant capital to shareholders. And that progressively over time we'd clearly like to and feel and hope the business will allow us to see a reasonable progression in that over time.

So as you say, this year we are going to recommend to the shareholders the CHF0.7 of cash, full cash dividend and obviously our hope and our outlook is that we are -- we believe that, that's hopefully a number which we can continue to grow over time in terms of returning increasing amounts of cash to our shareholders over time.

I don't think at this point we are going to make any definitive statements about percentages or specific numbers or anything like that, but it certainly is something where we are committed to returning material amounts of cash to the shareholders and hopefully to increasing that overtime, and that's certainly our hope and expectation.

On the fixed income side, and maybe David can add to this as well, I'm not sure -- I don't know how you're looking at it. I think our view is actually that the growth rates in many of our strategic businesses are actually quite strong. So if you look at our credit our structured products and our emerging markets business last year I think actually the performance of those businesses was very, very strong including competitively versus other players in the industry. So we feel very good about those not only in terms of overall revenue progression but particularly returns in this business as we feel very good about.

There is no doubt that we were probably one of the first movers in terms of restructuring the rates business. I think that all the things you've seen and moves that other firms have taken since then I believe vindicate that decision in terms of the direction that that business has to go in. But there is no doubt that that in terms of the timing on that, I think that will put us in a good place eventually but there is no doubt that the fourth quarter that probably had some impact on the revenue outlook.

But I think our view is overall we point to the strategic businesses and the investment bank made a 19% return on Basel 3 capital in 2013. That's -- our view is that's a really high performing investment banking business.

And so I think as David said, the quicker we can get the non-strategic piece down and continue to focus on optimizing and growing those strategic parts of the business a 19% return is actually I think a very good if not best-in-class return in those businesses.

So that's our view I think, but I want David to add to that.

No, I agree with Brady's comment. I think that I'd also refer back to the discussion we obviously had about leverage before. I think CHF275b reduction in leverage exposure over 15 months is a very substantial program. And whilst we can point to the reduction in add-ons as being of minimal or no revenue impact I think clearly the drive to bring leverage down and I think to report the leverage ratio numbers we report today did have an impact on the macro business in terms of the rates side.

[I don't know] it was the right decision. I think you have to look at all our business lines in terms of the return on assets. And I think that's what drives the 19% return that Brady talked about. But if you're talking about terrible headline revenue then that is -- there is going to be an impact from that.

I think, but I'd also say that realistically by setting up strategic and non-strategic, the BCBS changes, you can now look at strategic and say, well, that's it, that's the game plan going forward. We obviously have some transfers within the credit and rates as things get cleared, but you know roughly what the leverage exposure you're going to be -- actually work with.

Likewise I think we would obviously like to see some expansion of our lending in the private banking business in that sense. And then the focus for me then is on driving down the non-strategic unit now, because that will obviously enable us to complete the progress to our target.

So I think you now have stability in terms of the resource allocation to the strategic investment banking business, and to your FIC business going forward in terms of that, with the pressure now very much on the NSU side which I think is probably a much better way of running things.

Right, thank you.

Thanks Jon, next question.

Jernej Omahen, Goldman Sachs.

Yes, good morning from my side as well. I have four questions left and one is more of a strategic nature and aimed at you Brady and the other three are, I think, more shorter-term numbers questions.

So the first question I have is the following. The last time -- on the last conference call I asked you the question on the too-big-to-fail issue, and the probability of that debate being reopened. And by coincidence the Swiss Finance Minister made a statement I think a couple of weeks later basically saying look you know what we might as well double the leverage ratios here because that debate hasn't been resolved yet.

So on that point I wanted to ask you the following. On slide 34 you show us that your long-term target for leverage exposure is just above CHF1 trillion, which is roughly 175% of Swiss GDP today. So I was just wondering from a perspective of a policymaker in Switzerland who is going to have to debate a too big to fail issue again in 2015, where do you think that debate is likely to end?

And on that point I wanted to ask you on the dividend payment did you require -- did Credit Suisse require supervisory approval for this dividend payment increase or not, or do you see the level of dividend at this point purely as a management decision without any interference from the policymaker?

And I think then finally on this point I wanted to ask you, you are now at a 10.3% fully phased Basel 3 and you tell us kindly that you are at 3.1% leverage ratio, it's roughly a quarter less capital than your competitor across the road. So, what makes you feel comfortable or confident that hiking the dividend now can stop -- essentially accruing capital at the lower pace is the right thing to do?

And then three very quick questions, so the first one is on page 36 where you give us the new legal structure for the -- essentially how you're going to set up Credit Suisse. And I have two questions on this slide.

Question number one the way it looks here is that you will still be funding centrally from the holding company. And I was just wondering from a resolution perspective how does that make things better? Because I thought that the whole point of subsdiarizing is to essentially ring-fence more or less ring-fence capital and make sure that the legal entities are self-funded but that doesn't seem to be the case here.

And the second question on this slide is when you transfer funding from the holding company to the subsidiary I am assuming that if it's in different legal entities now it's going to have to be done on an arm's length basis, i.e. will you be charging market rates plus a spread when you provide liquidity from the holding company to say your US investment bank or not. And how does that affect the profitability of these various entities?

And finally on collaboration revenues, and I was asking this UBS on their results day, they've cut the investment bank much more than Credit Suisse but their overall revenue dynamic is very similar to that of Credit Suisse.

And I was just wondering how does one explain this, because if these collaboration revenues are really there then the logic would have to go whoever keeps most of the investment banking is going to show better than [annexing] collaboration revenues and in overall revenues, but that doesn't seem to be the case here.

Thank you very much.

Thank you. I guess on the first question obviously the questions around, as you say, the forward-looking prospects for the global regulatory and as you say the various different countries within that, obviously continue to be an important element.

I think our view is again not withstanding as you say some remarks that were made in the meantime, I think Switzerland was very early in putting in place a very tough regime. We have now at this point, I think as I mentioned and David mentioned we've basically gotten to the point where we've virtually met or just about met all of the requirements under that regime.

So whether it's the common equity requirement as you said, the contingent capital element within that where we basically are within CHF2b or CHF3b of completing that requirement. And also importantly the legal entity structuring, we've made a tremendous amount of progress against that original requirement of the law, the too-big-to-fail law which has been put in place here in Switzerland.

So, I think we've actually made a tremendous amount of progress against that. So I think that in and of itself I think is obviously a good achievement and puts us I think in a good place.

The question about further elements from here, obviously there is actually a provision in the law for a reassessment of whether or not the measures are sufficient that have been put in place. I think that's to be undertaken at the end of 2015, so it's a couple of years from now but there is a provision to continue to look at that.

And I guess on that point you asked the question about from the perspective of a policymaker I think our view is that the important thing is how much capital is available for loss absorption and how does the legal entity structure also help to facilitate that.

And I think all the measures that we've taken, when you look at our capital, when you look at the contingent capital we've put in place, the fact that we are going to be actually issuing bail-in-able debt going forward, the legal entity structure where I think what we've laid out in December and in more detail in January, I think is pretty much state-of-the-art in terms of having a legal entity structure that really, I think, helps the resolvability of the overall structure significantly.

I think all that leads to a structure which is dramatically improving the safety and soundness of the financial system here in Switzerland and the global financial system.

So the way I look at it, as I say, if you look a couple of years out we'll have CHF30b or CHF40b of common equity, we'll have another CHF20b or so of contingent capital on top of that, we'll have some amount over time of senior debt, that'll be bail-in-able, so from a policymaker's perspective, you end up with a bank that's got, I don't know say CHF80b plus minus capital available in case there were any issues. Now that's about 10% of the notional balance sheet, of the nominal balance sheet that's out there. And if you look back at past crises which I guess, as you say in Switzerland, probably what people would look back is 2008 and look at UBS's experience then, and I think their losses were less than 2% of their notional balance sheet.

So I think from a policy perspective and from the debate, I hope that what people will look at is say, gee, Credit Suisse, for instance, has 10% of capital available against its balance sheet, which is five times more than what we saw in past crises as being necessary. And so certainly my hope is that that is -- that that will be a persuasive argument, but obviously it's a debate that will happen here, just like it will I think happen probably all around the world. But my view is that that's a pretty strong argument and one that I hope will have resonance.

On the dividend payment, of course we are in very close dialogue with our regulators about all these issues about capital and capital planning and obviously dividend is an important part of that so I think you can assume that. That's certainly something that we work very closely with them on and so I think that's a fair assumption.

I think your question about the -- I think you were talking about sort of comparative levels of capital. To be honest with you, I think we feel really good about our comparative levels of capital. I think it's 16.1% total capital. If you include the contingent capital as well as the common equity, I think we're probably one of the best capitalized banks in the world. And again if you look at the high-trigger plus common equity, which is one of the things that the central bank here in Switzerland looks at, they have this level of 13% requirement, we're above that level. I think if you look at the transitional leverage ratio -- which is what a lot of other banks quote, there aren't a lot that are looking at pure Basel 3 as we have been able to do -- but I think we're at 5.1%, so actually over 5% on that measure.

So actually I think we feel like the capital resources that are there, the progress that we've made against the 2019 requirement, yes, make us feel actually quite good about the strength that we have there and, frankly, we'll probably stack that up against any institution, because I think it's actually a very strong set of capital there.

David, you want to?

Yes, I think just a few supplementary points. I think, clearly just in terms of the policy agenda, I think, I'm sure you're aware of the FSB document which came out in September last year, which refers to the G LAC concept or otherwise known as the overall loss absorbing capacity of a g-SIFI, and I think G LAC is something which is widely supported and is very much on the regulatory agenda for all banks and all regulators at this point. And it's quite clear what G LAC stands for. You're talking about CET1, contingent capital and bail-in debt.

So I think, to the numbers Brady talked about, you can see CHF27.5b of CET1, you can see that we have CHF14b of contingent capital in place already, which puts you just over the CHF41b mark, CHF41.5b. We've probably got another CHF2b or CHF3b contingent capital issue; we're talking mid-40s. If you said say 4% or 5% of your balance sheet had to be in the form of bail-in debt, and that is something we've both committed to and it's something we're very supportive of, then you can actually get to G-LAC ratios which are in the 8% to 9% overall really. And that's very much where -- I think, the global regulatory conversation is actually going towards that concept.

Not much to add really on the capital ratios. I think 10.3, 13.2, 16.1, I'm not sure there's a g-SIFI in the world which has a higher contingent capital plus CET1 ratio in excess of that.

If we turn to the legal entity point, I think -- this is obviously on page 36. It was intended as a model of future structure. I'm sure most of you are aware that Credit Suisse already operates [partly] in the sense in that the majority of our investment banking activities actually sit already in three legal entities, Credit Suisse International, Credit Suisse Europe Limited and Credit Suisse USA, United States. So we are already obviously somewhat subsidiarized in our operating model and this simply takes us to a further step to that.

I think you asked a number of questions, really, about the global funding model. So I think at the moment the US banks are normally structured as a holding company from which they actually issue debt. And that is, I think, in many ways a preferred resolution structure because if you're issuing out of the holding company then generally the FTSE approach to resolution, at that point you take out the holding company and you basically get implicit bail-in because of haircut on the debt that's issued, the senior debt. Many other banks around the world actually are issued more -- structured more as a branch network and the issue at the bank branch. So obviously at that point it's difficult to disentangle the bank funding that's issued by the bank from the actual holding company structure.

So clearly I think it's no particular surprise that most of the regulators around the world are moving towards recommending and requiring a holding co structure more akin to a US holding co structure. And if you look at this, this is very much in that kind of -- you have a holding co structure and you actually fund out of that at that point. Clearly if you're issuing bail-ins out of the HoldCo structure that means, from an operational point of view, the operational entities that actually sit beneath the holding co can actually continue, in a resolution event, with the bail-in. They're essentially taking any losses that have not been absorbed by the CET1 and the contingent capital.

I think you asked a question then about funding. Credit Suisse does operate a central treasury. I think most banks tend to operate with central treasury model. There's many good reasons for that. It's why must regulators prefer single point of entry bail-in structures because once you have a fragmented treasury you end up with potential for rapid sell-offs in the prices between different components. And we've obviously seen that in real examples over the last 20 years, which is why people prefer a central treasury model but hold out of a holding co in a sense.

So I'm not sure that we would regard our legal entity model here as anything particularly different or original in that sense. It's very much a best-practice legal entity model and I think we'll see it being quite common across the world over the next five to ten years.

You asked a question then in terms of transfer pricing. We already do fund the investment bank on arm's-length transfer pricing. So the funding for the investment bank is charged at market price. It does include a spread. The results and the financial results that you see reported today is after deduction of that spread already. So that would be no change from how we actually really operate Credit Suisse at the moment.

And then you asked a question about collaboration revenues. Can't really comment on anybody else. I think, for us, it's a very important aspect of our business is trying to serve our clients on an integrated basis. We see it day in and day out, how effective it is. We think when we do that we have -- we're more effective than our competition in terms of attracting and servicing our clients. And so it's something that we find very important. So, for us, we think that's actually a really important aspect to the business. Hard to comment on how that matches up to others, so I'm not sure we can really help on that part.

Yes.

Okay.

Thanks very much. Can we have the next question.

Michael Helsby, Bank of America.

Michael.

Sorry. Good morning, everyone..

Hi, Michael.

I've got a couple of questions. Firstly, just on slide 29, I know you walked through this, but I just want to double check I'm not missing some things. So you've got your underlying loss of CHF1.4b on your non-strategic pretax loss. And that walks you forward to a CHF654m. Now you've got CHF436m of legacy funding costs so that's going to halve. So you've got a remaining after litigation of CHF99m. So if we just add CHF200m to that, you're talking about a CHF300m drag that remains in 2015. I think, when I look at consensus, consensus has got about CHF1b drag. I'm just wondering am I missing something there or is -- can you help explain where consensus is when you look at consensus relative to what you guys are thinking about.

That's an interesting question. I don't think I want to give explicit guidance for the overall NSU losses. But what I probably can do is try and give some help in terms of individual components a little bit. I think, just going from left to right. (inaudible) as I said, it will be what it will be until the accounting rules change which we sincerely hope and expect on January 1, 2016. The restructuring costs of CHF522m, I would warn that we would expect restructuring costs probably at a similar level in 2014 at least, before tailing off more sharply in 2015, 2016, because obviously that's, if you look at the timing we need to achieve in the cost program, that's a prudent expectation.

Litigation, I think I wouldn't want to give you a forecast. We've clearly spent, you can see here the CHF473m. You can also see the CHF555m. So you're talking CHF1b basically of litigation costs in 2013. I would sincerely hope that by 2015, 2016 that that number is going to be markedly low, but I would encourage you to make your own forecast there.

The funding cost, yes, you're right. We certainly expect it to at least halve and a majority of the benefit from the lower funding cost does come through in the NSU. Discontinued it's clearly euro. The UK withholding tax should be zero. The cost savings are a 2015 event and then you get back to that litigation, essentially that CHF654m is CHF100m of, as you might say, fundamental losses and CHF555m in litigation.

So the CHF100m is a good number. Actually CHF100m to lose I think does reflect the progress we've made at FID wind-down. I would hope that we can improve on that in 2015, but I think it's quite possible, given the focus actually on getting rid of these assets in 2014 that we could see those losses pick up a bit in 2014.

So I hope I'm answering your question. I think the NSU losses will be significant in 2014, but we would hope to see them tail off significantly in 2015 and then even more substantially in 2016. So we'll see where we get to.

Okay --

I would caution a little bit that the PB numbers that we saw last year were a bit extraordinary for two reasons. One, they actually included gains on the businesses we actually sold and secondly they included businesses we're regularizing. They weren't necessarily loss-making business that we regularized, some of them were actually profitable. And as basically the assets are regularized and moved off the platform, then you're left with the costs which we have to run down. So I would be not too optimistic on the PB NSU. The IB NSU I think you know the components now as well as I do.

Okay, thank you. Brady, you gave some color on FIC in the -- when you were talking about this variability of products at the start of the year. I was wondering if you could extend that to the bigger piece of your business which is clearly equities and banking as well.

And just finally, I think, David, you mentioned there's some capital methodology changes that you made to prime services. Could you just expand on that? Was that due to the leverage ratio becoming more of an issue or can you just expand on that please?

Yes. I think in terms of equities and banking, as you said, in the fourth quarter obviously the business has performed pretty strongly. Our expectation is we've got some good backlogs there. Businesses have, I think, started off the year pretty well. We'll see how the rest of the quarter finishes out. But I think our expectation is those parts of the business will continue to be pretty active. M&A, the M&A backlog has grown, the financing background -- back -- financing pipeline is actually quite good. So we'll see. Obviously markets have to cooperate in terms of execution, but I think in general we're -- we see those businesses as in a pretty good position.

That's right. The equity business did close last year very strongly actually. Good pipeline there, I think a good performance, I think particularly once we'd got past the leverage ratio pressure on prime in the first half of the year.

So you want to talk about this capital methodology on prime services?

Yes. Nothing to comment. It was really relating to CCP so clearing changes around the RWA methodology. That boosted the RWA we allocated to prime a little bit. Also when we took the operational risk add-on relating to our litigation exposure of CHF6.9b across the Group, $6b -- CHF6.9b, $6b, for the investment bank, a decent chunk of that actually flowed to the prime business because it is obviously an operationally complex business. So therefore under the allocation [mores] you'd expect it to attract a component of that op risk charge.

Good. Thanks, Michael. Next question?

Christopher Wheeler, Mediobanca.

Yes. Good morning, gentlemen. A few quickies if I may. First of all, it's nice to say something nice about Bob Shafir, your Asset Management (inaudible) but obviously he helped with some nice numbers. But can you give us a color on what you think the ongoing fee-based margin might be? The 6 basis point leap in the year was obviously very positive, but I just wondered where you think it might go, given the uncertainty or the unpredictability, should I say, of that business. First question.

Second question, the move to the 65% PBWM cost income, if you break even in the US wealth management business, could you tell us what that might do to the 71% underlying that you gave us?

Thirdly on the IB comp, Jeremy's question earlier, what confuses me a little bit is if we look at the annual comp ratio looks absolutely fine, good progress. I don't understand why we get a 22% uplift in comp and a 2% uplift in revenue in the quarter. [It's not] that I don't understand it, I'm just confused about your methodology because most of your competitors try and keep things pretty level in Q1 (inaudible), and then level out, normally on the downside or slightly on the upside in Q4. I just wondered what we should look for next year. Was this just somewhat unusual because of a surge in investment banking fees at the end?

Final two, the capital uplift you had, the CHF6.9b, when did you actually find out about that, because obviously -- I'm just intrigued about the process given that your competitor said they got the letter on October 1.

And then finally on the dividend, great to see the cash dividend reinstated. I'm just -- it's a bit eccentric that you've gone down to CHF0.70 from the last two years at CHF0.75. I know you've gone back to cash, but I'm just trying to get my head around why you would do that because it just seems weird. So anyway, there are my questions. Thanks.

Okay. I think on asset management you're right, actually the business has -- the business did perform well and we think it has actually developed well. I think certainly in terms of the fee and the recurring revenues from the business, you can see that that has improved and that's something that obviously we see as hopefully an ongoing feature of the business. The net new assets actually that we've attracted are high quality and you could see that that was actually a strong number for the year at CHF15b, but more importantly they were actually high quality assets. We think that probably bodes pretty well for the future.

Clearly though, the performance fee part of the business was clearly a factor in the performance in 2013. And obviously it's hard to predict whether or not that kind of performance can be repeated in 2014. You'd have to think that that's probably a tough record in terms of the appreciation of all assets and everything. So we do see improvement in the margin there. I'd say half of it is probably from the fee -- ongoing fee, and maybe half was from what you'd have to consider as potentially less permanent investment performance benefits there. But, as you say, we certainly do see improvement in profitability there and we feel pretty good about it going forward.

I think maybe just picking up the dividend question, it's a balance. I think our view is that actually a CHF0.70 dividend is obviously a very healthy cash dividend. It's also, as you know, for a lot of Swiss investors it will be tax free, of the capital distribution. So that's a positive as well. So it's hard. As you say, we've had different forms. I think two years ago it was CHF0.75 of a pure stock dividend. Last year was CHF0.10 of cash and CHF0.65 of stock -- share -- scrip dividend.

So I'm sorry if you think it's odd. I think our view is that that's a good, healthy distribution. It represents a good base from which we can grow going forward and hopefully it will be appreciated as a cash return on the business. I'm not sure there's that much more logic to it. We're just trying to set a level at which we feel like we can grow progressively over time and which we feel is a decent return on -- of cash. I don't know if you want to make any --

Yes, I think the concept of having a CHF0.05 scrip and CHF0.70 cash we just thought would be unduly complex in terms of that. So we did want to set CHF0.70 as our base for the long term and that was the basis we went for.

I think in terms of the US side, I think you know the US PB is loss-making. I think we've given some range of numbers before. It would certainly drop the cost/income ratio, the big figure from 70% to a 69% number -- but not all the way to 69%, just to be clear, but it would certainly drop it if we didn't have those losses. But that -- and it would be useful in that sense but it's only part of what the plan has to be.

You asked on the uplift charge, (inaudible) the -- we have been in discussion with the FINMA I think over revisions to the operational risk model I think for most of 2013. I think the discussion started in the spring. And we basically concluded those discussions I think in sometime November, December basically. But there wasn't anything particularly rushed or -- about it, one way or the other frankly and it was what we'd expected. We didn't really see this as a surprise.

And I think your last question was just, Chris, on the IB comp, as you said fourth quarter versus full year. Again, we've tried to make it clear, and obviously you know that the quarterly accruals are just that. They're basically accruals. So what we really look at is the full year numbers where, as you said, I think we've got a good progression on that and appropriate progression so that's what we were move focused on. And, as you said, that does sometimes lead to quarterly variation.

Thanks for those questions. Next question.

Jeremy Sigee, Barclays.

Hi there, just two quick clarifications, I know it's late actually. Firstly on the leverage exposure I think you said that effectively pro forma you were at CHF1 trillion now with the BCBS and the non-strategic. Did I understand correctly that's effectively now a representative base level, you may get mix changes, you may get some slight growth but there's no real kind of downside trend below that trillion level. Is that correct?

And then the second clarification I had, I think you suggested that the growth of ultra-high net worth is positive for profit margin on AUM which surprised me. I know it's more profitable in terms of revenues but I thought it was neutral to lower profitability as percent of AUM, so I just wondered if you could clarify those two points please.

Yes, I think just on the leverage point, we're not formally changing the target of 1,070 because I think the BCBS rules came out, what three of four weeks ago and it clearly has to be subject to the final review of those and obviously the implementation of that by the FINMA here in Switzerland. So I think it would be premature for us to reset the target.

But I think your conclusion is probably not unfair which is strategic businesses in the IB have probably got about the leverage exposure we'd like to have. There's probably some reallocation there because, as you know, as I said before, there's still uncleared businesses within that that need to be reduced but in reality you're talking about smaller changes after the big shift we've achieved over the last 15 months.

And I think we would like to see expansion of lending activity in the private bank, particularly in the areas we've highlighted before but again that's not going to change things too much in terms of that.

But I guess, your conclusion would be correct but I think it would be premature for us to make that commitment and we'll see how that situation develops this year but I think your math is not wrong.

On the gross margin, on that point, I think you're actually correct but perhaps I'll just be a little clearer. If we think about the gross margin for ultra high net worth business it is going to be less than the 107 basis points that we achieved last year, I don't think that's a particular surprise. If we're thinking about the net margin, so the pretax margin then it generally is more favorable. So it's the difference between the gross and the net basically which explains our expectation for the net margin trend and as we move more towards ultra high net worth business then it is the net margin that is more important for us as a performance indicator than the gross margin.

But I think you're correct, Jeremy, but I'm just being clear there.

Okay, thanks, Jeremy. Any other questions?

Stefan Stalmann, Autonomous.

Yes, good morning, I have just one question left please and it relates to the legal entity structure. If I understand you correctly you have so far hardly funded out of the holding company, most of your funding is sitting somewhere in the AG and the branches. How are you looking at the transfer of these funding instruments over time? What is the timing of it? Do expect any side effects really from this? Thank you very much.

Thanks very much, Stefan. Mostly true. I think you may have noticed that we issued an AT1 instrument, low trigger, in December which was actually issued out of the HoldCo. So we have started issuance out of the HoldCo for the new instruments, certainly the Tier 1 instruments.

In terms of the senior unsecured debt exposures, we have already I think, I've already actually been talking to our debt investors, we will not be changing the security of the existing debt instruments. So if you have an instrument in Credit Suisse AG, so the bank essentially, and it's secured on that then you will remain to have that exposure. But as we move to issuing bail-in debt then the new instruments will be issued out of the Group.

So there's likely to be a transition phase over the next four to five years as the existing senior unsecured debt rolls off and the new instruments are basically issued out of the Group. But we do not think it would be a good idea, nor something that we would suggest, that we would change the security of the existing senior debt of the bank and we will not be doing so.

Right, thank you.

Good, thanks, Stefan. Next question.

Robert Murphy, HSBC.

Morning guys. Just quickly, on Slide 34, just coming back to the leverage exposure improving and you're saying that's post-mitigation. Can you actually say what it is as of the end of the year before the mitigation?

And then secondly, I also wanted to come back to the dividend again because I do think it seems strange that for the sake of CHF0.05 you would actually reduce that. And I was wondering, your competitor across the road looked at dividend distributions on the basis of a core equity Tier 1 and also a stressed capital ratio and I was wondering is that what the regulator is looking at for your guys as well or not? Thanks.

I think it's impossible to answer the first question because, all the primary impact of the BCBS measures are cash collateral and commitments, there is a whole collection of other changes within the BCBS rules which make the small number change. So I would simply say at the moment it's the number we actually report, which is the CHF1,130b, that's the number we would actually file with the regulators and it's our Basel 3 leverage exposure.

Yes, that's the actual end of year number so there's no --

That's right so --

Yes, but I was talking about the impact of the new rules. If you know what it is after mitigation you must know what it is before mitigation right?

Yes, but there's quite a number of small moving parts is the answer. The mitigation benefit isn't that huge frankly but I don't think I could give you a precise number now frankly. It's not, clearly things such as cash collateral you take into account and it flows straight through, things such as changes in the commitments it flows straight through as well so we don't actually have to do anything around that. There's certainly some positioning around CDS spreads and things like that we need to fix.

Okay.

But it's not that material I think mainly because we've actually been operating on a quasi-Basel 3 basis already so a lot of what we're doing around tear-ons and add-ons are things that we actually do already in that sense.

I think with regard to your dividend question, it sounds like, maybe I'm just interpreting your question, but it sounds a little bit like you're saying maybe there were some technical tests or aspects that drove us to the CHF0.7 and that's really not the case. I don't think there was anything technically keeping us from paying a CHF0.75 dividend it's just, you know, our best judgment and what we thought was the right level and that gave us a base on which we could build on with the CHF0.7.

So it's not that there was any particular stress capital ratio or any particular CT1 or anything like that that was driving us there. We could have, I guess just as easily done CHF0.75 but our determination and the Board's determination was that the right level to recommend to the AGM was the CHF0.7 so nothing more complex behind that.

I think the only complexity we wanted to avoid is we didn't really want to give out CHF0.05 as a scrip and CHF0.70 as a cash. So the cash component has gone from CHF0.10 to CHF0.70 but having a CHF0.05 as a scrip I think would have been operationally complex.

And I think, although there are many arguments pro and against scrips I think we wanted to send a clear message this year that we were paying cash in that sense and clearly that is as before obviously net of withholding tax so recipients in Switzerland at least will not suffer a further tax on the asset.

Your question around stress test, yes, the FINMA conducts regular stress tests for us, we also conduct our own stress tests for that and that is on the basis of all the capital ratios so not just the CT1 but also in terms of the high trigger and the low trigger components as well.

Good, thanks for that. Next question.

Andrew Lim, Societe Generale.

Hi, morning, thanks for taking my questions. I'm just querying about the risk-weighted assets for your businesses and they've actually increased by CHF1.4b over the quarter which I find quite surprising given how much leverage exposure in the assets have fallen of course. And I'm wondering whether there's some underlying risk-weighted inflation here or some negative credit migration, so perhaps you can give a bit of color on that.

And then secondly, your NII component for the wealth management gross margin has fallen again, I'm just wondering if you could give clarity to your guidance on this bottoming out again, do you still stick by what you've said?

And then just looking further beyond that to what extent can we expect that to pick up again? How sensitive is that to US rates versus European rates and also the short-end versus the long-end? Many thanks.

Thank you. So on the RWA point, the move isn't really that material but we certainly did see a pick-up in market-based activity for the end of 2013 compared to where it was at the end of the third quarter. You may recall at the end of the third quarter we were going into the [third] shutdown, levels of activity were actually extremely low. I think as we said, we did actually end 2013 quite strongly which I think did push up a little bit our market-based utilization. We clearly also has some small expansion obviously in our private banking lending activities, while not huge but those would be the two components in terms of that.

In terms of net interest income I think the answer is we still think if we look at the curve, obviously the curve is now starting to steepen further out so you're beginning to see in terms of the replication portfolio some pickup in the net interest income. However, overall, I think first half down but pickup in the second half basically in terms of that.

The typical duration, but it's not quite as simple as that because we operate really a sort of barbell type replication curve, is around the sort of 18-month level but it is more curve specific than that and it is generally a blended mix of all the curves and not just the Swiss franc curve in terms of that basically.

But I think bottom line is pressure in the first half beginning to pick-up in the second half. Clearly the more curves steepen the easier that actually gets.

Okay, any more questions.

No further questions.

Actually I'll just make one more point on that one actually. We have not shifted our replication curve so we are still at the 18 month on average, so to some extent we basically still have the same leverage to higher interest rates in the future that we have in the past basically. So we've not done anything like shifting out four or five years or anything like that which would take that exposure away. So everything we've said before about upward exposure to the curve is very much very intact.

Okay, thanks, Andrew, for those questions. I think that's it, everybody. So thanks very much for staying on the call if you're still on and we appreciate your interest. Thank you very much.

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