Credit Suisse Group AG (CS) 2014 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 results conference call. The conference is recorded. (Operator Instructions). At this time, I would like to turn the conference over to Mr. Christian Stark, Head of Investor Relations of Credit Suisse. Please go ahead, Mr. Stark.

Good morning, and welcome to our fourth-quarter results call.

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

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

Thanks very much, Christian. Welcome, everybody. Thanks for joining our fourth-quarter and our full-year 2014 earnings call. I'm joined by David Mathers, our CFO, who will deliver the results portion of today's discussion.

Today, I'm going to briefly walk you through the key points of our financial performance for the fourth quarter and the full year. I'm then going to update you on our positive capital and leverage developments, and also spend a few minutes outlining the implications of the changing currency and interest rate environment on our business and outline the measures that we are taking to fully offset that impact. David is then going to then provide you with more detailed information on our results and on the impact of the SNB actions later in the presentation.

So, turning to slide 4, we delivered a solid performance in the fourth quarter. Our results demonstrate the consistency of our business model amid a more challenging market environment with increased volatility.

For the fourth quarter, we reported core pre-tax income of CHF1.2b and a return on equity of 8%. In our strategic businesses, excluding the drag from our non-strategic units, core pre-tax income was CHF1.4b and the return on equity was 11%. For the full year 2014, our reported core pre-tax income was CHF3.5b, stable compared to 2013, despite the impact of the US cross-border settlement in May.

During the year, we made further progress towards our goal of achieving a more balanced allocation of capital between private banking, wealth management and investment banking. We launched a number of revenue growth initiatives in private banking and wealth management during the year, including our lending program for ultra-high net worth individuals which grew substantially in 2014.

Additionally, in light of the evolving digital landscape, we are making progress towards creating a state of the art digital private banking platform for our clients, allowing them to gain more efficient access to our global capabilities, enabling them to network with other clients.

In investment banking, we continued to implement our client-focused and capital efficient strategy with a clear emphasis on our market leading franchises such as equities, securitized products and credit. The close collaboration between these two divisions as an integrated bank enabled us to offer clients decades of experience in wealth management, combined with global capital markets access and expertise.

Now, turning to the specific performance of our two divisions in the fourth quarter, the strategic businesses of private banking and wealth management generated pre-tax income of CHF1b. We reported lower net interest income in the quarter, as well as lower performance fees compared to the very high levels in the year ago quarter.

That said, we made good progress on the revenue growth initiatives we launched in 2014, saw continued growth in net new lending to ultra-high net worth individuals across all regions, and continued strong collaboration between our divisions.

Notwithstanding our investments in these growth initiatives, we reported a continued high return on regulatory capital of 30% for private banking and wealth management for the quarter, driven by significant efficiency improvements.

In wealth management clients, we sustained our net margin of 27 basis points for both the fourth quarter and the full year 2014 against a challenging macro backdrop. In our wealth management clients business, we generated net new assets of CHF4.4b in the quarter, mainly reflecting strong inflows from emerging markets, particularly in EMEA and Asia Pacific.

In asset management, we saw outflows resulting from the change of management of funds from Hedging Griffo to a new venture in Brazil, Verde Asset Management, in which we have a significant investment. This resulted in strategic net asset outflows of CHF0.2b for private banking and wealth management in the quarter. Before taking into account the outflows due to this new venture, strategic net new assets would have been CHF9b.

For the full year, strategic net new assets remained solid at CHF36.4b, compared to CHF38b for 2013.

Looking now at the investment bank, in the fourth quarter of 2014, the profitability of our strategic businesses improved compared to the previous year, and we further increased capital efficiency and significantly reduced leverage exposure. Our investment bank generated pre-tax income of CHF579m, up 20% compared to the fourth quarter of 2013. Our strategic pre-tax income increased 43% year-on-year when excluding funding valuation adjustments which we introduced in the fourth quarter, in line with the industry. And our return on regulatory capital was 12%.

Revenues were stable amid a more volatile market environment, which generally benefited our trading businesses while adversely impacting underwriting activity. This revenue consistency highlights the stability of our diversified franchise.

Equities' results were higher year on year, driven by strong performance in Asia, robust trading results due to more favorable trading conditions and increased client activity across products. Our well diversified fixed income franchise delivered consistent revenues compared to the fourth quarter of 2013 in the more volatile market environment.

In particular, we saw improved performance from our macro businesses, as well as continued momentum in our high returning securitized products business, which offset the reduced client activity in credit. And in our underwriting and advisory franchise, our continued momentum in M&A was offset by a slowdown in debt and equity underwriting activity.

This brings me to capital. At the end of the fourth quarter, our look-through CET1 ratio stood at 10.2%, exceeding our 10% yearend target, as the mitigating actions we announced in May offset the impact of the US cross-border settlement. Additionally, we significantly lowered our Group-wide leverage exposure, reducing it by CHF51b during the fourth quarter. At yearend 2014, our look-through Swiss total capital leverage ratio including high and low trigger instruments was 3.9%.

In view of the continued regulatory developments and the SNB's actions, we've revised our Group BCBS leverage exposure target for end 2015 to a new target range of CHF930b to CHF950b on a foreign exchange adjusted basis. This represents an additional reduction of approximately CHF230b compared to the end of 2014, driven in equal parts by business reductions and foreign exchange movements. These reductions are expected to bring our look-through Swiss total capital leverage ratio to approximately 4.5% by the end of 2015.

Turning to the dividend, for 2014 the Board of Directors is proposing a cash distribution of CHF0.70 per share, unchanged from last year's payout. We will offer an optional scrip alternative to our shareholders, allowing them to choose to receive the distribution in the form of new shares if they wish.

Going forward, we remain committed to returning half our earnings to shareholders, provided our look-through CET1 capital ratio continues to exceed 10% and we meet our leverage ratio targets.

Moving now to slide 5 and the impact of the changed currency and interest rate environment on our results. As you all know, in January 2015, the Swiss National Bank announced that it was discontinuing the minimum exchange rate for the Swiss franc against the euro and lowering short-term interest rates. These actions dramatically altered the market environment for a number of Swiss companies, which typically generate a large proportion of the revenues in currencies other than Swiss francs, while the majority of their expenses are incurred in Swiss francs.

The SNB's announcement came after the end of 2004 (sic) financial year and therefore had no impact on the results we are presenting today. However, we wanted to give you some guidance on the implications for our results going forward.

In order to demonstrate the estimated pre-tax impact, we are applying in January FX rates to our reported 2014 results. However, this is obviously not a forecast, but just intended as an illustration based on 2014 pre-tax income.

Assuming we did not take any mitigating actions to offset the FX effects, the negative impact on pre-tax income would have been approximately CHF300m. In order to moderate this negative impact, we are today announcing a number of mitigating actions, including a combination of incremental expense measures and revenue growth initiatives.

With these in place, we estimate the net adverse impact on our profit to be approximately CHF125m to CHF175m, or 3%, based on 2014 earnings. However, we expect to more than offset the impact of the changed conditions by the end of 2017, while also continuing to drive growth in private banking and wealth management.

The measures we are implementing include, first, in addition to the expense measures we've announced in previous quarters, we are now planning incremental cost reductions of CHF200m, which we expect to be achieved by the end of 2017. We also expect the cost of future deferred compensation to decrease by CHF75m over the next three years, due to FX movements.

Additionally, due to the expected higher client trading volumes and additional hedging needs from the floating euro, we expect foreign exchange transaction revenues to increase by approximately CHF50m to CHF100m. These actions totaling CHF375m will be complemented by the remaining CHF950m of cost savings from the ongoing Group-wide cost savings program that are scheduled to be achieved by end 2015.

In terms of an update on the first quarter of 2015 so far, year to date profitability of the Group is in line with last year. Our private banking and sales and trading businesses have shown an improving trend in recent weeks. Underwriting and advisory activities have started the year more slowly, due to market volatility, but we have a strong pipeline with execution dependent on market conditions.

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

Thank you very much, Brady. Good morning, everybody. So I'd just like to start on slide 7, with a summary of the financial results.

If you look at the fourth quarter, we achieved revenues of CHF6b and pre-tax income of CHF1.4b from our strategic business lines, with a cost to income ratio of 75%. The after-tax return on equity was 11% in the strategic business lines.

In terms of net new assets, we saw outflows of CHF0.2b. This was primarily driven by CHF9.2b of outflows resulting from the change of management funds from Hedging Griffo to a new venture in Brazil, Verde Asset Management, in which we have a significant investment.

For the full year, pre-tax income from our strategic results was CHF6.8b, equivalent to an after-tax return on equity of 12%. On a total reported basis, in the fourth quarter we achieved pre-tax income of CHF1.2b and net income of CHF0.9b, equivalent to an after-tax return on equity of 8%. For the full year, pre-tax income on our reported results was CHF3.5b, equivalent to an after-tax return of 5%, or 8% excluding the US cross-border assessment impact from the second quarter of last year.

Slide 8. On this slide, we show the year's results measured against the various Group and divisional KPIs we set. For the full year, our Group strategic return on equity of 12% compares to our target of 15%. The strategic cost to income ratio of 72% is on track to meet our target of 70%.

In the private banking and wealth management strategic business lines, we achieved a cost to income ratio of 68% in 2014, compared to 70% in 2013. Net new assets in the wealth management client business grew at 3.5%, within the range of guidance of 3% to 4% through to 2015. I'd remind you, though, that once our long-term target -- once we have completed our tax regularization program, our long-term target for net new asset growth remains at 6% per annum.

The investment bank achieved a strategic cost to income ratio of 71%, approaching the target of 70% for the division.

Let's turn now to the private banking and wealth management division in more detail on slide 9. In the fourth quarter, our strategic businesses achieved a pre-tax income of CHF1.1b, 4% lower than in the same quarter of 2013, primarily due to lower performance fees from Hedging Griffo and decreased net interest income as a result of the continued low interest rate environment.

This was partly offset by sales growth, loan growth, improved collaboration revenues and the appreciation of the US dollar in the quarter. In addition, as we note here, the quarter's results also included gains from the sale of our affluent business in Italy and the partial sale of an investment in Euroclear.

Operating expenses in the strategic businesses were down 1% compared to prior year quarter and up 6% compared to the third quarter. The quarter-on-quarter increase reflects again the appreciation of the US dollar in the final quarter and the higher full-year compensation accruals.

If we look at the full-year strategic results, pre-tax income improved by 3% compared to 2013, due to a lower cost base as we continue to focus on delivering significant efficiency improvements. The cost to income ratio improved to 68% for 2014, compared to 70% in 2013.

In terms of capital, risk-weighted assets and leverage exposure increased by CHF12b and CHF33b, respectively. The increase was driven by FX and methodology impacts in addition to loan growth, and is consistent with our strategy to increase the overall capital allocated to this division.

Slide 10. The wealth management client business has shown improved profitability, with pre-tax income for the quarter of CHF577m, 24% higher compared to the prior year quarter. Net revenues increased by 5% compared to the fourth quarter of 2013, despite the adverse impact of the low interest rate environment. We saw a good contribution from transaction and performance based fees and from the benefit from the appreciation of the US dollar, which offset the significant decrease in Hedging Griffo performance fees.

For the full year 2014, pre-tax income of CHF2.3b increased by 10% compared to the prior year, reflecting the successful restructuring of our onshore private banking operations in the US and significant efficiency gains achieved during the period, with expenses reduced by 6% compared to the prior year.

Return on regulatory capital for the businesses remained stable at 30%, supported by loan growth, particularly in the ultra-high net worth client segment where loan volumes grew by 39% compared to 2013.

Slide 11, please. Net new assets in the fourth quarter for our wealth management client business remained solid at CHF4.4b, despite this normally being a seasonally weak quarter, and after Western European outflows of CHF2.2b. Overall inflows of CHF6.6b were strong, reflecting continued growth in EMEA, particularly Eastern Europe and the Middle East.

For the full year 2014, we achieved net new assets of CHF27.5b with, as I said before, a growth rate of 3.5%. We saw a significant contribution in the ultra-high net worth client segment at CHF20.9b, at a growth rate of 6%.

In terms of our regional performance, as you know, there was continued robust momentum in Asia Pacific, with asset growth of 15% for the full year. Western European cross-border outflows in the strategic business lines was CHF7.4b. Including outflows in the non-strategic unit, total Western European cross-border outflows were CHF11.4b in 2014, marginally higher than the CHF10.5b we saw in 2013.

With that said, I'd like to confirm what we said before, i.e. that we expect to continue outflows of CHF10b to CHF15b per annum due to the impact of the continued regularization of client assets in 2015.

Slide 12. Our reported net margin on assets under management increased by 4 basis points from the same quarter in 2013, to 27 basis points. If we exclude the net gains on the sales of businesses, the net margin was stable at 24 basis points in the fourth quarter.

The full-year net margin improved by 1 basis point to 27 basis points, with the aforementioned net gains on the sales of businesses largely offset by certain litigation items. The gross margin of 99 basis points fell by 8 basis points for the full year compared to 2013, of which 5 basis points was in line -- was due to reduced net interest income.

As we've guided before, the adverse impact of low interest rates in the replication portfolio stabilized between the third and the fourth quarters.

Transaction and performance revenues was higher, with strong collaboration revenues and higher FX transaction and brokerage income. Recurring commissions were also higher, due to improved discretionary mandate fees. As you can see, our ultra-high net worth share of assets under management was stable at 48% in the fourth quarter, but increased for the year as a whole, from 45% in 2013 to 48% for 2014.

Slide 13. The corporate and institutional client business generated solid pre-tax income of CHF220m in the fourth quarter, 3% higher than in the same period last year. Compared to the prior year quarter, the fourth-quarter results reflected higher loan income and higher recurring revenues. Credit provisions for the quarter were higher at CHF29m, and included certain individual provisions related to structured trade finance and shipping exposures.

Operating expenses were stable compared to the prior quarter -- prior year quarter, but 13% higher than the third quarter, due to higher regulatory and infrastructure costs and also some pickup in compensation accruals.

Cost to income ratio was 52% in the fourth quarter, 51% for the year, and a slight improvement from the 52% we saw in the whole of 2013. Risk-weighted assets increased by CHF4b to CHF38b, reflecting both loan growth and the FX impact I mentioned before.

Slide 14, please. Our asset management business achieved pre-tax income of CHF210m in the fourth quarter. This is lower than the fourth quarter of 2013, primarily due to the significant decrease in Hedging Griffo performance fees, as well as lower fees from single manager hedge funds.

Net new assets were down this quarter, driven by the CHF9.2b of outflows resulting from the change of management of funds from Hedging Griffo to the new venture in Brazil, Verde Asset Management, in which we have a significant investment.

Our full year pre-tax income of CHF549m fell by 10% compared to last year, with lower revenues partly offset by lower expenses. Revenues were impacted by lower annual and semi-annual performance fees that are in part, as I mentioned before, due to the significant decrease in Hedging Griffo fees.

For the full year 2014, net new assets of CHF3.7b included strong inflows in both alternative and traditional products, in excess of the outflows relating to the Verde Asset Management transaction.

Slide 15. We've continued our progress of winding down the non-strategic portfolio within the private banking and wealth management division. In the fourth quarter, the results reflect lower revenues across our wind down businesses and investment related losses within the asset management divestitures.

For the full year, results included a CHF109m gain on the sale of our domestic private banking business booked in Germany and a CHF91m gain on the sale of CFIG, and also CHF1.6b settlement in respect of the US cross-border matter.

In terms of capital, we've continued to make significant progress in winding down our remaining non-strategic portfolio during the year, with risk-weighted assets reducing by 25% and leverage exposure by 50%. And we are on track to meet our yearend 2015 target.

Let's now turn to the investment bank on slide 16. As Brady mentioned at the past, and I think similar to what you've seen with some of our peers, we've adopted funding valuation adjustments, or FVA, this quarter. The charge to the investment banking division was CHF279m in the fourth quarter, split CHF108m in the strategic businesses and CHF171m in the non-strategic business lines.

In the fourth quarter, the investment bank reported income before taxes of CHF0.6b and net revenues of CHF2.7b in the strategic business lines. Excluding FVA, the pre-tax income for strategic businesses was CHF0.7b, up 43%.

We've continued to make further progress in reducing capital allocated to the business. Leverage exposure decreased by $62b and risk-weighted assets reduced by $10b.

Overall, for the full year 2014, the strategic businesses delivered a strong return on regulatory capital of 17%. Including losses from non-strategic lines, the total return was 9%.

Slide 17. In fixed income trading and underwriting, we had revenues of CHF1.3b in the quarter. Excluding the FVA charge of CHF96m in these businesses, revenues declined by 2% compared to the prior year quarter.

Sales and trading results, though, were strong. They increased by 19% compared to the fourth quarter of last year, excluding the FVA charge. We saw robust results in our high-returning securitized products franchise, driven by the continued strength in the number one ranked asset finance business. Credit results were lower, due to less favorable trading conditions and lower client activity.

Revenues in our macro business improved from the subdued levels in the prior year quarter, driven by higher client activity and improved trading volumes in both rates and FX. For the full year, our well diversified yield franchises within the fixed income business has continued to generate strong revenue growth and returns, above the average for the division.

Slide 18, please. We had a strong fourth quarter in our market leading equity franchise, with continued revenue momentum in Asia and more favorable trading environments and increased client activity in all regions. As in fixed income, we took a charge of CHF13m in respect of FVA in equity trading in this quarter.

Equity sales and trading revenues were up 16%, excluding the FVA charge, and compared to the prior year quarter. And that reflected higher equity prices and higher trading volumes, as well as a rebound in volatility.

Prime services results were strong, driven by continued progress on client portfolio optimization and increased trading and clearing activity, as well as sustaining a strong market share. Derivative revenues also improved compared to the prior year period, reflecting the expansion into growth markets in Asia. Our cash equity business saw stable results, benefiting from higher commission revenue across all regions due to higher market volumes.

Overall, for 2014, the equities business delivered strong and consistent results, with strength in prime services, derivatives and equity underwriting offset by lower cash equity results.

Let's turn to underwriting and advisory on slide 19. Revenues of CHF750m were 21% lower compared to the fourth quarter of 2013, reflecting strong M&A results that were more than offset by the slowdown in underwriting activity.

The robust advisory results were driven by continued franchise momentum and favorable market conditions, M&A revenues increasing by 23% compared to the fourth quarter of 2013 and 40% compared to the third quarter of 2014. Our market share for announced transactions also increased during the quarter.

Equity underwriting results decreased by 25% compared to the strong fourth quarter of last year, due to lower IPO and follow-on revenues, in line with the decline in overall market issuances. We also saw a decline in debt underwriting results, reflecting reductions in high-yield activity in the US and EMEA, driven by the unfavorable market environment.

Let's turn to the non-strategic unit on slide 20. In the non-strategic unit, the investment banking division, we had pre-tax losses of CHF567m in the fourth quarter. Revenue losses were in line with the losses in the prior quarter, after excluding the FVA charge of CHF171m. We also had lower RWA exit costs and reduced litigation expenses this quarter.

During the quarter, we sold the commodities trading portfolio, and as that sale is executed during 2015, we expect RWA and leverage exposure positions to be further reduced during the year. And we remain on track to reach the capital targets we've set for the non-strategic unit by the end of 2015.

Slide 21. As I mentioned before, for the full year our strategic after-tax return on regulatory capital for the division remained high at 17% and stable compared to 2013. The total return of 9%, or 10% excluding the impact of FVA, reflects the continued drag from the non-strategic unit. Our focus is on reducing the remainder of the non-strategic portfolio and minimizing the adverse effects of these positions on our results.

Similar to the last quarter, we have three factors driving the year to date movement on costs. Firstly, our cost base reflects the increase in deferred compensation from prior year awards. Second, we had higher variable compensation expenses, reflecting higher results in US dollar terms, but also some reduction in our deferral, as we've mentioned before. And thirdly, we saw an increase in litigation expenses in 2014 compared to the prior year. And these factors partly offset the cost reductions that we achieved from our infrastructure initiatives.

Let's turn to leverage, on slide 22. At the end of the third quarter, our leverage exposure for the investment banking division was $856b. At that time, we also announced a number of measures to reduce the leverage exposure for the division.

In the fourth quarter, we made significant progress in executing these measures. We reduced our exposure by $62b, or 7%, to $794b. Furthermore, as we've mentioned before, the applicable leverage exposure definition in Switzerland will be aligned to the full BCBS approach, and that will be effective from January this year.

Whilst we only formally report our leverage on the BCBS definition in the first quarter of 2015, our estimate for the end of 2014 (sic) net of litigation effects is a further reduction of $21b from our reported levels. In other words, we started this year with a leverage on BCBS terms of $773b.

So, in line with the Group leverage target of CHF930b to CHF950b, which I'll discuss in some more detail shortly, we're setting a target for the investment bank to be at $600b to $620b by the end of 2015. This implies a reduction of $150b to $170b from our estimated BCBS yearend exposure during the course of the year. This reduction encompasses the measures we've discussed before, as well as further reductions we're now implementing.

There are four areas that we're looking to drive these reductions from. First, we're looking at a number of clearing and compression initiatives which should contribute between $35b and $45b in reductions. Second, we intend to achieve a further reduction of $50b, $55b from the combination of the non-strategic reductions that we've just discussed, and also better alignment of the liquidity portfolio of our businesses in the course of 2015.

Third, we expect to deliver $30b to $35b in reductions from client optimization, as we better align our asset utilization to our clients' needs. Finally, we expect business optimization measures, including planned further reductions in macro, to drive the remaining reduction of $35b.

I'd also point out that we intend to achieve these aforementioned reductions steadily during the course of 2015.

Let me turn now to discuss first the illustrative impact of the SNB decision to remove the cap on the Swiss franc in January. Slide 24, please.

So I think, as everyone knows, on January 15 the Swiss National Bank decided to remove the cap on the euro and simultaneously lowered the interest rate on deposit balances by 50 basis points to a negative 0.75%. Just to be clear, this happened after the yearend and therefore will have no impact on our 2014 results. However, as Brady said earlier, the SNB actions will clearly impact us going forward, and what we want to illustrate here is the impact on our 2014 results if this interest rate and FX environment had prevailed last year.

We expect to have a CHF300m gross adverse impact on our pre-tax income, equal to 3% of our 2014 results. To fully offset this, though, we've a number of mitigating actions under way, which I'll go into in the next slide. In order to be transparent, though, and as a supplement to our previous disclosure on the sensitivity of currency movements in our financial results, we've taken our 2014 numbers and illustrated what would have happened as a consequence of the changed FX and interest rate environment had it prevailed.

Just to be clear, for the base of this analysis, we've taken exchange rate as at the end of January. That was CHF0.92 against the US dollar and CHF1.04 against the euro, which isn't that dissimilar, by the way, to yesterday's rates.

So if we start from the left-hand bar on the slide, you can see our 2014 pre-tax income of CHF5.1b, and that's clearly excluding the impact from the $1.6b cross-border settlement. If you move to the right, we've broken down the currency impact on both revenues and expenses by division.

In the private banking and wealth management division, we estimate a CHF260m negative impact on revenues. This mostly reflects the euro to Swiss franc rate, which moved from CHF1.22 weighted average in 2014 to the CHF1.04 I mentioned before. The impact from the US dollar/Swiss franc is largely unchanged. At CHF0.92, that compares to the weighted average for last year of CHF0.93.

This adverse impact on revenues is then offset by the benefit in terms of lower expenses. This was worth about CHF140m at January month end exchange rates.

Now, the impact to the investment bank and the corporate center is obviously much less, given that the current US dollar to Swiss franc rate is very similar to last year's. What we estimate is a negative impact on revenues of CHF160m, offset by a CHF10m benefit on expenses.

So if you look across the bank, the overall FX translation impact on pre-tax income is a negative CHF270m pre-mitigation.

Separate to the FX translation impact, the change in interest rates will also negatively impact the net interest income in the private banking and wealth management division. Following the implementation of a number of mitigating actions which we've already put in place, this negative impact is estimated to be in the range of CHF20m to CHF40m. And this reflects lower Swiss interest rates on non-maturing products and fixed term deposits, partly offset by rate adjustments aimed at maintaining our interest rate margins.

So if we add the impact of the FX to the net interest income effect, the adverse impact in our 2014 results would be approximately CHF300m before any further mitigation steps. To put this in context, that net impact of CHF300m is about 6% of the Group's 2014 pre-tax income.

Let me turn now to slide 25 and look at the net impact, though. First, just to be clear, what we're talking about here is separate and additional to our ongoing cost program. Just to remind everyone what that is, we announced a cost saving target of CHF4.5b back in 2011, and by the end of 2014 we'd achieved CHF3.5b of this. A significant component of these cost saves were achieved in Switzerland, and have contributed to a significant improvement in the alignment of our Swiss franc revenues to our Swiss franc expenses over the last three years.

So let's talk about the additional steps above and beyond those measures. So if we start on the left-hand side, we have the pre-tax loss of approximately CHF300m that I mentioned in the previous slide. If we move to the right, the first bar shows an incremental cost saving of CHF75m, which reflects the benefit from reduced deferred compensation costs reflecting the lower value of awards due to the FX moves. This incremental cost saving of CHF75m per annum is fully effective in 2015 and will continue through 2016 and 2017.

Next, just to be clear, we saw an immediate increase in our transactional FX volumes in the weeks following the SNB action. Going forward, we think it's very likely we will see a continued improvement in transactional revenues from increased hedging activity by our Swiss clients, as well as higher FX volumes due to the volatility in the markets. And on the basis of historic trading patterns, this should be worth between CHF50m and CHF100m per annum.

So combining this revenue increase and the incremental cost savings from the deferred compensation I mentioned before, the adverse impact on pre-tax income is reduced from CHF300m to between CHF125m and CHF175m, or approximately 3% of the Group's 2014 pre-tax income.

Now, clearly, on top of that and in addition, we're also putting in place a number of additional measures with benefits that will only be fully seen in 2016 and 2017. These total a further CHF200m and, just to be clear, are incremental to the savings from our existing plan. They are clearly targeted at improving the alignment from the Swiss franc revenue base to the Swiss franc cost base.

I'd caution, though, in order to achieve these incremental annual savings, we'd expect a further CHF200m in total in costs to achieve over the next three years. As a consequence of this, whilst our realignment expenses in 2015 for the Group as a whole will be lower than they were in 2014, they will not fall off as sharply as we previously indicated.

Finally, I'd like to make a point about the Swiss pension plan. Just to be clear, it's a very well-funded plan, particularly under Swiss pension fund rules. There's a significant surplus. Even under US GAAP, where the plan is treated as a defined benefit scheme, the plan was materially fully funded as of the yearend.

However, if the discount rate at the end of this year was adjusted to reflect today's interest rate structure, then this would create a funding deficit. The impact on CET1 capital, but not profits, would be approximately CHF500m at today's interest rates. Just to be clear, though, we intend to work with the pension fund Board of Trustees during 2015 in order to mitigate this potential impact by the end of the year.

So let me now turn to capital ratios on slide 27. So what we're showing here is the move in our risk-weighted assets and our CET1 ratio during the fourth quarter. If we look at the investment bank division, the fourth-quarter risk-weighted assets of $161b reflected a reduction of $10b compared to the third quarter, reductions across both our strategic and our non-strategic business lines.

Within the private bank and the wealth management division, and including the corporate center, risk-weighted assets increased by CHF1b to CHF124b. And at the end of the fourth quarter, we had 56% risk-weighted assets in the investment banking division. And going forward, we clearly plan to continue to be disciplined in our approach to risk-weighted asset usage and to increase the capital allocation in the private banking business over the coming years at the expense of investment banking.

At the Group level, risk-weighted assets reduced to CHF284b at the end of the fourth quarter, primarily driven by the reduction in investment banking that I mentioned before, and that more than offset the CHF5b of FX impact due to the appreciation of the US dollar during the quarter. And as you can see, the CET1 ratio was 10.2% at the end of the year.

If we look at our long-term target for risk-weighted assets, with CHF16b of further reductions to come from the non-strategic unit, we would still expect to operate between CHF250b to CHF260b of risk-weighted assets at current FX rates, excluding the NSU, over the next couple of years.

If we look beyond that time, I'd caution that in the longer term we will see some uncertainty in our RWA calculations due to potential inflation from the different Basel BCBS reviews that are planned over the next few years.

Slide 27. First I'll turn now to our leverage exposure and our leverage ratio. At the end of the fourth quarter, our leverage exposure stood at CHF1.198 trillion. During the quarter, we achieved a reduction of CHF51b in our leverage exposure, albeit this was offset by an increase of CHF24b due to the appreciation of the US dollar in the final quarter of the year. Swiss total capital leverage ratio was 3.9%, our Tier 1 leverage ratio was 3.3% and our CET1 leverage ratio was 2.4%.

So just continuing the analysis that we showed before for the investment bank, you can see that a full transition to the BCBS definition for leverage will reduce our exposure to CHF1.167 trillion for the fourth quarter, and that includes a net BCBS definition of CHF31b from this transition. And just to be clear, as I said before, the BCBS definition was the basis of our leverage reporting in the first quarter of 2015.

So let me now apply the same analysis to the Group as we did to the investment bank before. In the third quarter, we had total leverage exposure of CHF1.225 trillion. We reduced this amount by CHF51b of business reductions, which was then offset by CHF24b of adverse impact from the appreciation of the US dollar in the same period, which left reported leverage at CHF1.198 trillion at the end of the fourth quarter.

Our goal is to reduce our leverage to CHF930b to CHF950b by the end of 2015. CHF31b of this reduction comes from the shift to the BCBS basis, and a further CHF230b will be achieved through a combination of business reductions and FX moves through the course of the year. And to be clear, approximately CHF80b to CHF100b comes from the move to the current exchange rates. Furthermore, as I said before, we intend to achieve these reductions evenly through the course of 2015.

So if we look at our leverage target of CHF930b to CHF950b, this equates to an end 2015 Swiss total leverage ratio of approximately 4.5%, implying a BCBS Tier 1 leverage ratio of approximately 4.0% and a CET1 leverage ratio of approximately 3.0%.

In terms of our dividend policy, as Brady's mentioned already, we're proposing a dividend of CHF0.70 per share for 2014, with an optional scrip dividend alternative for those who'd like to increase their holdings in Credit Suisse. Going forward, we're committed to returning 50% of net income to shareholders, provided that both the CET1 ratio is above 10% and the CET1 leverage ratio is above 3%.

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

Thanks very much, David. Let me just briefly sum up before we go to Q&A.

We did deliver consistent performance in the fourth quarter, amid challenging and volatile market conditions. We further strengthened our capital ratios. With a look-through CET1 ratio of 10.2% we exceeded our yearend target.

We further reduced leverage exposure during the fourth quarter. We're now targeting additional BCBS leverage reductions of approximately CHF230b by the end of 2015, and this is expected to bring our look-through CET1 leverage ratio to approximately 3% by the end of 2015.

We're continuing to execute on our CHF4.5b cost savings plan and have made continued progress in winding down our non-strategic units.

In terms of the impact of the changed currency and interest rate environment on our results, we've announced mitigation measures to more than offset the impact of the SNB actions.

And finally, we plan to continue to execute on our strategy. Specifically, we'll concentrate on growing our private banking and wealth management franchise and focus on the high-returning businesses in investment banking.

For 2014, the Board of Directors is proposing a cash distribution of CHF0.70 per share, unchanged from last year's payout level, with an optional scrip alternative. Going forward, we remain committed to returning half our earnings to shareholders, provided our look-through CET1 capital ratio continues to exceed 10% and we meet our leverage ratio targets.

And with that, I'll open it up for questions now.

(Operator Instructions). Huw van Steenis, Morgan Stanley.

Good morning. Thanks ever so much for a very helpful presentation. I think everyone's going to welcome your change in strategy on the leverage exposure. Could you just share a bit more color of the potential impact on revenues from the client optimization and business optimizations, and in particular which business areas are going to be most impacted? I assume macro businesses, potentially prime services. That's question one.

And then question two, if you -- on the slide you just went through on page 27, it looks like with your CHF930b to CHF950b leverage denominated by the end of this year, you could actually hit 3% on the current equity level you had at Q4. So at one level the question is why did you choose to offer a scrip? Is it because of your -- just the uncertainty of the glide path, or is it because of concerns about elevated litigation for this year? Thanks very much.

So it's David here. Hi, Huw. It's David here. I think just taking the question first, I'd probably refer to slide 22, which is the investment bank leverage exposure walk-through, to try and address that question. I think obviously we have the definitional change from BCBS which gives the $21b, so I think that should be clear. And then we have the four components from the $150b to $170b.

I think in terms of initiatives around clearing trades, moving trades to central clearing, and obviously looking at compression, the revenue impact from that is very, very limited. And I think it's an achievable rate. In fact, we actually saw about $10b of benefit from compression trades in the fourth quarter. So I think that's a relatively achievable projection supported by that.

I think clearly, in terms of the next component, non-strategic lines and the liquidity optimization trades, not really revenue affecting. You've seen, obviously, our plans to get rid of the non-strategic units anyway, so I think pretty straightforward.

So I think your question therefore probably then focuses on the final two components really, which is from client optimization and business optimization, so between the two of them you've got between $65b to $70b of leverage reductions. I think it's certainly clear, as you said, that a significant component of this will come from the reductions in macro that we actually talked about already.

I think there afterwards it's certainly true that we'll be looking to reduce our securities lending activity generally, which is clearly part of the macro reduction, because those tend to be at the lower ROA. But I think we do see that there's significant potential in terms of better aligning our balance sheet and leverage reduction more closely to our clients' needs, which should mitigate the adverse revenue impact of that.

So I think that was the first question, Huw.

Yes.

I think in terms of the second question, in terms of leverage, I don't particularly want to get into obviously forecasting for 2015. I think we think it's a relatively conservative set of targets which should be achievable. And I think putting the bank at a 4.5% Swiss total capital ratio, 4% Basel Tier 1 ratio and a 3.0% CET1 ratio I think is probably a good place for us to be, and I think clearly will prepare us well for any changes to the Swiss capital rules later on this year or in early 2016.

I think that having a scrip alternative, I think the Board felt that was a prudent thing to do. It's similar to what we did several years ago and I think was relatively popular with shareholders at that point. I think it represents -- it's a balanced set of measures, to ensure that we basically meet and move to a relatively conservative leverage basis.

Okay. Thanks ever so much.

Yes. Huw, just to add briefly to that, it's Brady. Obviously we're making good progress. In the fourth quarter we made good progress on balance sheet reduction. We think these new targets are achievable. So as you say, I think that actually -- I think that shows good progress there.

In addition, if you look at the capital generation capability, you know we went from basically 9.3% at the time of the settlement in May to 10.2% at the end of the year, so it's about 90 basis points of capital generation. So we feel like there's obviously good potential in the model overall.

So I think it was -- I think it's just a balance and, as David said, I think our view is it's just prudent to offer the option on the scrip side, and obviously a number of investors may take that up. So I think in general we just felt that was the right balance.

Great. Thanks so much.

Thank you. Next question.

Daniele Brupbacher, UBS.

Yes. Good morning. Thank you. Can I just -- a quick follow-up on this leverage exposure question. If I look at the new target of up to CHF950b, did I hear you correctly that you said about CHF80b to CHF100b is just driven by currency moves, i.e. the strong Swiss franc now this year? So that would probably then seem that probably on an underlying basis, constant currency, this is actually almost no reduction, or is that not a fair statement?

And then also, if a lot of the reduction is currency driven, how should I then look at slide 22 and the various components of the decrease there? Is some of that also almost automatically driven by the currency moves? This is just as a follow-up on the leverage exposure.

And then, you did mention I think in the context of slide 26, I think it was, these RWA reviews and potentially some inflation there. Is there any way you can -- is there a range in terms of your own expectations where this could end, a best/worst case type of outcome of this? And how do you think about it in terms of mitigating actions as well?

Thanks, Dan. So taking those two questions in turn, I guess if we just look at slide 27, let me just walk it through again. So the leverage at the end of the fourth quarter was CHF1.198 trillion. As Brady mentioned, that's about CHF51b less than it was at the end of the third quarter, so showing the progress we've made already.

You then have the CHF31b from the move to the BCBS definition of leverage, which brings down our estimated leverage to about CHF1.167 trillion by the end of the fourth quarter. If you then flow through the moves in the investment bank we've talked about already, that CHF1.167 trillion drops to between CHF930b and CHF950b, so that takes you down by about CHF220b to CHF240b.

Now, within that, the FX component is CHF80b to CHF100b. So you can see that whilst there is a significant rebasing from the move in FX rates, as I think is only fair, the other measures we're taking in terms of clearing, in terms of compression trades and other optimization measures do represent the bulk of that. And I think if you compare back to what we said at the third quarter, that's significantly higher than the number we actually gave in the third quarter on what we intended to achieve.

Very clear.

So I would certainly -- just to be clear, the majority is not FX related.

Yes, I see it now.

Sorry. Your second question, Daniele? Sorry.

Yes, it was just around those RWA reviews and potential RWA inflation, and how you think around also these papers published towards yearend last year from the Basel committee and what your first take would be on standardized approach reviews and floors and FRT and just at this point in time, and how you could think about potential mitigation as well.

I think -- I'm afraid it's too early to be able to give much guidance. I think you're aware that there is the fundamental review of the trading book, the FRTB. There is the SA-CCR. And then, as you mentioned, there's also floors under a proposed new set of standard rules. So it's a large compendium of potential BCBS reviews.

I think as you also know, there is a number of quantitative impact studies or quizzes which are actually due this year and probably next year, as the BCBS seeks to actually calibrate those measures. So, really, until we actually have some degree of calibration from that, it's almost impossible to figure out what the gross impact would be, let alone the net impact, once you actually start thinking about what you actually do to change your business model in response to that.

So I think what we wanted to say here is that ex-NSU we think -- and at today's exchange rates, because clearly the RWA comes down with the moving exchange rates too, we tend to operate somewhere in the CHF250b to CHF260b of risk-weighted assets. But I think we did want to warn that if you think ahead over more than a couple of years ahead, then there will be some uncertainly around these calculations from the potential inflation.

But I'm afraid I can't give you more specific guidance at this point, because realistically we're too early in the schedule. I think you may also know that the timetable from BCBS on some of this stuff has already been pushed back a year or two in some measures anyway, so I think it's going to be a lengthy process.

Thank you.

Thanks, Daniele. Next question.

Jon Peace, Nomura.

Yes, thank you. I've got two questions, please. The first one is what impact did the franc appreciation and the interest rate move have on your CHF28.9b of CET1? I think you said there was a pension impact in there. Just to help us with that capital roll forward.

And then the second question is what's your yearend estimate of possible unreserved litigation losses, the number that was CHF1.2b in the third quarter? And I wonder, is it too optimistic to try to read anything positive into your absence of litigation charge in Q4? Thank you.

Thank you. So I think good questions, three questions there. So firstly, just to be clear, the pension issue is that the Swiss pension fund is very well funded under Swiss GAAP, as you know, but under US GAAP, and actually also under IFRS, it would be treated as a defined benefit scheme because of the guaranteed minimum interest rate employed under Swiss law. However, even on a US GAAP basis, as I said, the scheme was materially fully funded at the end of last year.

If we think about what the potential impact of the interest rate moves might be on that pension fund which we'd have to then record at the end of 2015, if nothing else changed, then I think I said before we would expect a potential hit to capital of approximately CHF500m. Now, that is before any mitigation steps, and quite clearly one of our priorities in the course of 2015 will be work quite closely with the pension fund trustees to actually mitigate it. And I would point out before, it is a relatively well-funded scheme we're actually starting with here.

But to answer the question more fully, that's clearly no particular impact in terms of the end of the year, but if we're thinking about our CET1 position, I think we've made clear before that we do basically seek to match our RWA and our leverage exposures to our CET1 base. So there will be a reduction in our CET1 as a consequence of the move down in RWA and leverage. So it's quite important, obviously, that we've obviously moved down our leverage target for FX as well in that sense.

And I can't give you an exact number for that. We'll see where we get to at the end of the year. But it's probably in the order of about CHF2.5b on the basis of the disclosure you can see on the back of page 46. And then --

Yes. I think on the litigation question, I think the reasonably possible number I think went from CHF1.2b to CHF1.3b --

That's correct, yes.

-- in the quarter, so it went up slightly. As you say, we didn't have any major charges that were disclosed in the quarter. We do continue to accrue normal litigation accruals and we show some of that in some of the NSU disclosure, for instance, where I think we had about CHF115m of --

In the fourth quarter, yes.

-- in the fourth quarter of additional -- just additional general charges there. But I think, as you say, in terms of the overall outlook, we don't have any issues that we're aware of or any material issues on the FX side, any issues on the LIBOR side, so in general some of the bigger issues that the industry has been dealing with we have, thankfully, been -- not had issues in.

We obviously do continue to work through the mortgage issues in the US and continue to make progress on those. But we'll have to see obviously how things go from here, but we do feel like in general, hopefully, we're in relatively better shape on those issues. But we'll see how things develop.

Okay. Next question.

Jeremy Sigee.

Hi there. Good morning. Just a couple of questions, please, following up on a couple of the points. So firstly, wealth management, I just wondered if it's realistic to expect a kind of a continuation in what we're seeing at the minute, i.e. declining gross margin continuing going forward, but resilient to even slightly improving net margin. And if you could talk about some of the actions that in the course of the coming year could underpin that net margin improvement, that would be helpful.

And then the second question from me, your targets appear to be calibrated to a 3% equity leverage ratio, looking ahead to the new Swiss requirements, and I just wondered what your thoughts are if it turns out to be a higher requirement than that, how you would approach that.

I think just in terms of the wealth management gross and net margin going forward, I think, as you could see, the gross margin was 99 basis points. And if you look at the net margin, though, for the fourth quarter it was about 27 basis points, but then obviously we had the sale gains within that, so ex those it was about 24 basis points.

I think just a few points to notice in terms of the move in the net margin. The Hedging Griffo performance fees are recognized in both the asset management division and in the wealth management division. So, essentially, if you look compared to 2013, that absence essentially reduced the net margin by about 1 basis point.

We also saw about 1 basis point from the move upwards in terms of the assets under management, because if you look back at the FX moves last year, you saw a strong appreciation of the US dollar, close to almost parity, and then it dropped back again. So that actually depreciated the net margin.

I think in terms of thinking about this going forward, I think you're probably correct in the sense we will see continued pressure on the gross margin. You've seen obviously that the ultra-high net worth move is broadly stable at 48% now, not really changed from the third quarter when it was also 48%, but it's still up from the 45% which it was in 2013.

So even if the balance between ultra-high net worth and high net worth doesn't shift too much, you've still some adverse impact on the gross margin from the lift upwards in terms of ultra-high net worth penetration. Just to be clear, though, that still remains a benefit for the profitability of the Group as a whole.

I think, looking forward, I think if we look at the various cost measures we have and if we look at our planning, then probably looking to maintain the net margin at or around these levels is probably a reasonable expectation, but I think subject to the volatility we'll actually see in the AUM from these FX moves and market moves which we saw last year. Unfortunately, you don't see an immediate impact in revenues from those moves, because transaction revenues don't always follow a market appreciation. But with that caveat, basically, that's probably logical.

And, sorry, before you move on to leverage, can I just say are you indicating then that the ultra-high net worth stabilizes around these levels, that that what we've seen, that fairly dramatic increase that we've seen in the last few years is kind of nearing its end and we're reaching some kind of stability?

I think generally I think we've been indicating around 50/50 is probably where we'd expect it to stabilize, and we're certainly pushing more initiatives now to grow our high net worth client base as well as our ultra-high net worth client base.

Okay. And then -- yes, sorry, the second question was around leverage. It looks like you're effectively targeting 3% equity leverage ratio, both in terms of where you're projecting for this year but also what's implied by your longer-term leverage exposure and RWA targets. And I just wondered, would you have to think about a further round of leverage exposure reduction if the requirement is higher than that?

Well, I think it's difficult to anticipate. Clearly, the current Swiss rules are based on an equity leverage ratio requirement of 2.4%, which we clearly now meet. Then an equity plus high trigger requirement of 3.1%, which we also meet, and then obviously a total Swiss capital requirement including low trigger CoCos.

I'm sure you're obviously read the Brunetti report, which basically does advocate a higher leverage requirement for the Swiss D-SIFIs, and I think also some redefinition around moving more I guess to a, what they call, going concern, or I guess it's not quite the same but the Tier 1 concept under BCBS. And I think in that context, it does seem prudent and appropriate to lay out the goals and targets we have today, which puts us at 3% equity, 4% Tier 1, 4.5% in total.

And I guess in a context of international standards, I guess if you look at the rules which came out late last year in the UK, my understanding of that pre the countercyclical buffer is it's an equity leverage ratio of somewhere between 2.75% and about 3.3%. So therefore that would be relatively in line with that.

I guess we'll see how the Swiss process goes from here. I think ideally we'd probably like to see the Swiss 'Too big to fail' rules essentially updated as quickly as possible to, I think, end the uncertainly around this. But it's perfectly possible -- equally, it could be an extended process and we may not know until much later in the year or even early in 2016 in terms of that context.

What we think is very, very likely, though, is that we would see an extended transition period, because after all the existing rules have to run through to January 1, 2019. So I think we can expect an extended transition period, as well as substantial grandfathering to some of the existing CoCo structures if the new rules tend to focus more on a going concern Tier 1 ratio or a BCBS Tier 1 type ratio, which I think remains to be seen, basically. So there'll be a lot of time to actually anticipate that.

But I think clearly, if you think about what we're saying on page 27, this puts us at a level of leverage which I think is pretty well founded, well in excess of the current Swiss rules and actually not dissimilar to, for example, where the UK has come out, which I think seems a good place to be by the end of 2015.

Thank you. That's very helpful. Thank you.

Thanks, Jeremy. Next question, please.

Kian Abouhossein, JPMorgan.

Yes. Thanks for taking my questions. The first one is regarding fixed income. I was wondering if you could give us some trends that you're seeing within the credit business and securitization business. Looking at league tables, it doesn't seem to have started well on a year-on-year basis in things like securitization. I was wondering what you are seeing and what you are seeing in terms of trends so far.

The second question is, historically, from what I recall, you used to talk about a Tier 1 target of -- Tier 1 Common Basel III fully loaded target of 11%. I don't find that 11% anymore anywhere in the presentation. So I was wondering, is that still a relevant number or is that number irrelevant at this point, and why?

And the third question is you mentioned the UK leverage ratio discussion, but the UK also limits how much Tier 1 capital you can include, i.e. CoCos or alternative. I was wondering, how do you think about that considering that you have the 3% and 4% target?

And lastly, on the scrip, what do you expect the take up will be on the scrip? Thanks.

Thanks, Kian. Maybe I can take the first one and, David, you can address the other three. I think in general on trends, as we've said, as we mentioned, overall profitability quarter to date, about where we were last year at this time so it's been a good start to the year. And we have seen better trends in our private banking and sales and trading businesses over the past couple of weeks, so things have been picking up.

And I think that also applies to fixed income, I would say, in general, Kian. The securitization business I think continues to be fundamentally a very active business, and so it tends to be less impacted by volatility in the market, interest rate moves. There's a lot of fundamental business there. As we mentioned, it's increasingly globalizing so there's more activity in Europe. So that business seems to be -- we think the prospects for that business are going to continue to be quite solid.

The credit business, on the other hand, as you know and you mentioned some of the league table results there, clearly the fourth quarter was a more difficult quarter for the credit business generally, and we've seen that continue in terms of the primary business into this year. You know there is this balance, though.

When you have the volatility, obviously the trading conditions are more favorable and we tend to see more volume and more opportunities there with clients. But it does -- with more volatility it obviously does then impact the capital market side of the business, so there's a bit of a balance.

But I would say that the secondary business there has continued to be pretty active. Clearly, the primary side, given the volatility in the market and the number of the issues out there, has been impacted and so we'll obviously have to see how that develops over time.

I think the other FICC businesses, emerging markets has continued to be, I think, a solid performer and the macro business has obviously been a positive, clearly, with the volatility we've seen in rates and FX, and I think for the whole industry that's probably been a positive. But overall, the fixed income business has performed pretty well into this year. So hopefully that gives you some insight.

David?

So I think on the question of capital targets, I think, as you know, the risk density assumed by the current Swiss rules is 24%, so in other words the Swiss requirements require you to be at 2.4% Common Equity Tier 1 for a 10% capital ratio, so in other words 24%.

Clearly, what we're saying here is that our primary focus now is actually on our total leverage ratio and within that the equity leverage component, where we're looking to be up to around the 3% level. And I think that does reflect the reality that leverage is likely to be more of a constraint, at least the next couple of years, as the Swiss TBTF rules are redrafted, and that's basically the predominant driver of that.

So quite clearly, as a consequence of setting a 3% leverage target for our equity ratio, you would expect the CET1 ratio to rise up above 10% in anticipation of that change. So that's really why the 11% is not mentioned, because in reality it will be the equity leverage target which will be the predominant measure.

I think once we see final revisions to the Swiss TBTF rules in due course, then we can look back at that and see what the CET1 ratio would say. But we felt it was prudent to basically make it very clear to people that we would expect to see a rise in the risk density and that the 3% equity leverage ratio, the 4.5% total leverage ratio, was going to be more of the predominant focus.

I think your second question really was around AT1s. Yes, I think the UK rules, as you say, cap the amount of AT1s at 75 basis points. Again, it's difficult to anticipate regulatory change, but I think generally speaking the Swiss rules have generally been very supportive of CoCos. It was very much a Swiss innovation. And I don't think at this point we'd expect to see that degree of capping under a new Swiss regime, but I think we'll clearly see how it develops over the course of this year.

Then, on the scrip, I think if you look back at the scrip dividend alternative which we offered a couple of years ago, the take up on that was about 48%. We've assumed a similar take up in our calculations for this year.

Great. Very helpful. Thanks.

Thanks, Kian. Next question.

Jernej Omahen, Goldman Sachs.

Good morning from my side as well. Before I ask the other questions, can I just ask a dry accounting question? So the impact on tangible book value per share in the first quarter from the FX move, just assuming all else equal, what do you expect that to be?

I think I did give an estimate before. I don't think I can give you a precise number.

I must have missed it. Sorry.

I think I indicated something around CHF2.5b in terms of CET1 impact. So that's (multiple speakers).

No, no, not CET1. Not CET1. Tangible book value per share. What does your tangible book value do? So all else equal, assume that no profits are made or no money is lost, am I right to say it's around 9%, 10% lower for the end of Q1?

It's a good question. I think -- I don't think I really want to comment. I've given you a CET1 guidance, basically, and I think if you think about our CET1 disclosure, then that's probably in that -- it's actually slightly less than that level, but it's in that ballpark I guess.

Okay. Let me ask it differently. Is there any reason to believe that the historic correlations between FX move and tangible book value per share would have changed in the first quarter?

Not materially, no. I think we've given the currency exposure.

All right. Okay. So then I have a couple of questions. So the first one is on the time lag of the cost initiatives to offset the FX headwind. Is it fair to say that we're probably going to see all of the revenue impacts from the FX starting in the first quarter, whereas I'm assuming that the cost initiatives will be phased in as the year progresses?

On slide 5, when you show us the negative effect and then you get the CHF200m uplift from your cost initiatives, I'm just wondering what the time lag is. Should we expect the [TVT] to suffer initially in the first nine months, before the cost cuts come in, or how should we think about that?

Just to be clear, what we've talked about so far is a net impact of between CHF125m to CHF175m for the Group as a whole, and that is the net impact in 2015. And if you think about the components of that, whether that is the pickup in the FX trading volumes, whether it's the drop in deferred compensation of CHF75m or the net interest effects, those all essentially extend more or less from I guess January 15, basically, going forward. So if you're thinking about that, that's kind of the immediate effect.

In terms of the benefit from the further CHF200m of cost savings, then I think we'll only see a small component in 2015, which is why I think we're guiding to a CHF125m to CHF175m adverse impact on the basis of the 2014 analysis. So therefore you would be correct that the majority of the CHF200m of incremental cost savings will come in 2016 and 2017.

So I think what we've said should be relatively clear. We expect an adverse impact of CHF125m to CHF175m in 2015, effective from January 15, which is about a 3% impact to profit. That is clearly, though, before anything else we do, so in particular the benefit from the various growth initiatives in the private bank or the incremental CHF950m of cost savings which are already actually in flight.

What we really wanted to say is above and beyond that CHF950m, you then have a further CHF200m of measures, the majority of which will be delivered in 2016 and 2017.

Yes, I get it. But can I just ask --?

Is that okay?

That's clearer, but can I ask something? This CHF200m of cost cuts, what are they? And given that you are reacting to an FX move, I guess the logical question would be how is it possible that you've identified CHF200m of cost saves so quickly and you haven't thought of these cost saves before?

Well, I think if you think about the consequence of a strength in the Swiss franc, it has two real effects. If you think about the investment banking business, its revenues and its expenses are predominantly in US dollars, so it's a straight translation impact. And that applies, and that's really why the hedging to capital works that way as well. So that's a straight translation impact.

But just to be clear, although the dollar appreciated towards the end of last year, the average of the US dollar against the Swiss franc was about CHF0.93 and we're currently at about CHF0.925, basically. So therefore the translation impact on the IB is not very material.

The impact on the private bank, though, as we've discussed before, relates to the fact that you have obviously a private banking cost base in Switzerland which services international customers. So if you look at the disclosures which we've given before but we've updated on pages 44 and 45, you can see that for the private banking and wealth management division approximately 40% of the revenues are actually earned in Swiss francs, but about 55% of the expenses are actually in Swiss francs, so that's the mismatch.

Now, if you look back to 2011, before we started our existing major cost program, that mismatch would have been worse at that point. So in other words, the cost measures have actually moved it down and improved it from where it was then.

So what we're really talking about in 2016 and 2017 is continuing those measures to further improve that alignment. So you might say it's almost an extension of what we decided to do back in 2011. And I think that continuation, that extension is very much justified by the appreciation of the Swiss franc. So it's not a revolution; it's an evolution in terms of our cost measures.

Probably -- you asked what the nature of the actions are, they are everything from more general cost reduction but certainly there'll be some people impact. Certainly, as you know, we've had a very -- an active program, as David just referenced, of actually moving jobs from higher cost locations to lower cost locations. And certainly, with the FX move, that certainly impacts. Switzerland becomes a more expensive place to have people and so that will probably just accelerate the continued view towards moving jobs out of higher cost places to lower costs, so that's part of the program as well. So it's those sorts of initiatives.

Before we move on from that point, I just wanted to give you some specific numbers. So if you look at the revenue/expense mismatch in 2012, it was basically 21%. If you look at it in 2013, it was 23%. And if you look at 2014, it was 15%. So in other words, we've improved our mismatch or reduced our mismatch by 6% over the course of the last three years, and what we're really proposing to do is to improve that further over 2016 and 2017. And that's for the PBWM division.

And two finally very short questions. So, number one on page 22, and I think this was asked before but I don't think the answer was given, what is the expected associate revenue loss given the new leverage reduction target? And can you also please tell us what the associated risk-weighted assets are that you plan to cut?

And the second one relates to page 40. You had a great quarter in equities in Q4, and well done on that, but page 40 suggests you've actually cut risk-weighted assets in equities by 15% during the quarter and I guess that's just a bit surprising. And, I don't know, is it because it's sub-divisional disclosure and jumps around the place, or if there's anything else? But that's it from me. Thanks a lot.

Okay. So taking the first point, I'm not sure I'll be able to add too much to what we actually said about the impact of the leverage ratio reductions. What we actually said, though, is we've broken it really into five components.

The first component, the $21b, is the move of the leverage disclosure from the existing Swiss definition, which was really based on an early version of the Basel literature, to the full BCBS definition which all banks, or all G-SIFIs at least, are expected to report from January 1. So that has no real revenue impact, so that's minus $21b.

There are then four other components. There is clearing and compression initiatives, the non-strategic and liquidity realignment which we've talked about before, and then two components which relate more directly to the businesses, which total together between $65b and $70b of leverage.

I think if you look at the first two of those components, such as non-strategic, clearing and compression, the actual ROA on that marginal is very small, in fact mostly zero, but very small. So I think in terms of what the adverse ROA impact would be, you really have to focus more on the final two components.

I don't want to give guidance on that, because we're clearly looking very closely at how we actually optimize that, how we realign very closely the leverage we have against our client needs. Clearly, we'll look to ensure it's as small as possible. I think, frankly, we didn't see that much adverse leverage impact in the fourth quarter, the measure we took there. I think we will see some adverse revenue impact in 2014, but it will really be just in relation to those final components, not the overall reduction.

I'm sorry. At this point I really wouldn't want to go any further.

The RWA impact on that, I think it's not -- these positions are not RWA heavy, by definition. They're leverage heavy positions. So we will see RWA benefits in 2015, but they're mostly going to come from the non-strategic side as opposed to the other components.

Technical question, really, in terms of the RWA move. It actually relates to a change in the op risk charge within the equity derivatives business, so it's an internal methodology change.

All right. Thank you very much.

Thank you. Next question.

Fiona Swaffield, RBC.

Hi. I just had two questions. Firstly, on the interest rate moving parts on the SNB actions, I just wanted to understand. I think you're implying that that's a number net of some other things that are going on. I'm just wondering how you've, on page 24 or slide 24, looked at the replication portfolio impact. And could there not be longer-term issues in terms of net interest income over and above what you've given on slide 24? If you could talk to that.

And secondly, I just wanted to understand a bit more about the moving parts on wealth management, or WMC, just in terms of the 27 net margin you were hoping to hold at that level. Could you run through what's going on in costs, whether we could see more cost cuts coming through there from the overall plan, and also the revenue outlook in terms of some of the new initiatives, because it's difficult to see them coming through yet but I can see the lending is growing? Thanks.

So I'll take the first point. Just in terms of the net interest income effect, so I think, to be clear, as a fully integrated bank in Switzerland we have a relatively matched loan/deposit position. So the measures we've taken really essentially protect our interest rate margins between those two positions.

In terms of does that mean we're charging people negative interest rates, the answer is no, we're not charging our retail or our wealth management clients negative interest rates, although clearly corporate deposits above a certain threshold will be charged negative interest rates, and I think very much in line with market practice in Switzerland since the SNB's original announcement back on December 18 last year.

I think, as you rightly say, Fiona, there is an adverse impact on the replication portfolio. However, that is somewhat mitigated by the fact that as some of the replication positions roll off and mature, we're obviously not going to roll them into negative interest rate positions, so they will simply be held in cash at that point at zero. So therefore the downside impact on the replication portfolio is somewhat protected by that as a consequence.

So if you think about those measures in combination, that's what gets us to our guidance of a minus CHF20m to a minus CHF40m type adverse impact from net interest income on our LIBOR loans.

Thanks.

Just talking then about the -- in terms of some of the revenue initiatives, I think we're probably most pleased by the expansion in ulta-high net worth lending, which was up about CHF11b in 2014. Clearly, penetration in that customer base still remains relatively low. It's not quite at 10% yet, although it was only at 7% to 7.8% before that. So we've moved it up, but I think there is more potential there in terms of that.

Collaboration; STC was up about 44% in the final quarter, which was kind of good. I think in terms of the mandate process, I think our mandate penetration, as you know, is lower than some of our peers at around the 17% level. We have seen a small increase in the fourth quarter as a consequence of some of the sales excellence measures. And I think as part of our overall sales program, then we probably would expect that mandate penetration to actually increase, but I don't think we're going to set a target from that but that will benefit our numbers as we go forward.

I think I would just add to that, as well, we've had this -- our new program, Credit Suisse Invest, the advisory process which has kicked off which is actually going quite well, so we think that's encouraging. And I also think we continue to see expansion in the collaboration revenues with the investment bank, and so our expectation is that we'll continue to grow that side of the business as well. So I think all of that are all potential growth areas.

I think in terms of the net margin outlook, I think clearly the reduced mismatch -- although we've reduced the mismatch between our percentage of Swiss franc revenues and Swiss franc expenses, there still is a mismatch. So therefore I think, as you're suggesting, Fiona, everything else being equal, you would expect the currency appreciation to have an adverse impact.

Clearly, running against that, we've obviously given some guidance here about what we're actually doing to mitigate the overall effect, and equally you shouldn't ignore the fact that obviously we've still got CHF950m of cost savings to come through in 2015 separate from the extra CHF200m, of which a big chunk actually relates directly to the private banking business. So I think that obviously will help the net margin.

I think if I'm worried about the net margin, it probably would be the denominator effects; in other words, the volatility in assets under management from both markets and FX rates moves, which does tend to distort this ratio up and downwards on a quarter-by-quarter basis.

Thanks.

Thanks, Fiona. Next question.

Andrew Stimpson, Bank of America.

Hi, guys. So just to go back on what you just said there, you mentioned you'd reinvest the replication portfolio in cash. I guess that would be held at the Central Bank. So if that's correct, is there any limit on the size of the assets you can hold in cash at the Central Bank at 0%? I suppose it just seems a bit odd to me that the transmission mechanism in the Central Bank wouldn't therefore appear to work if you can just reinvest it at zero. Maybe I'm wrong on that, so if you could clarify that, please.

And then -- go on.

I'll answer that one first. I think that's not really the correct presumption. We actually run a Group treasury function in terms of our liquidity position, so that would actually go into our overall liquidity management options at that point.

I think, as you rightly say, the Swiss National Bank does have a zero-based facility for all banks in Switzerland related to the size of reserve requirements. And that, as I understand it, was designed by the Swiss National Bank because they do not wish to see zero rates being -- sorry, negative rates being charged to retail and wealth management clients, particularly retail clients here in Switzerland, and that's what it's designed for. But in terms of if we have cash, then it will simply go into our overall cash management needs at that point.

Okay.

Sorry, what was the second question?

And then the second question, and I might be laboring this point a bit too much, but you said there'll be almost no revenue impact on the deleveraging plan, which sounds very good, but I suppose I can't help wondering if that's the case then surely those assets would have already been allocated to non-strategic. Or is it just that there's a gross revenue impact, but then you more aggressively re-price the businesses you do keep in order to keep that the mitigated revenues stay flat? It just seems a bit odd that you can continue to cut balance sheet and not see any impact. And I understand the liquidity part and the non-strategic part, but just the business optimization side of the deleveraging.

I think just to clear up that point, what I actually said is we hadn't seen much adverse impact in our revenues in the fourth quarter from the deleveraging impact. That does not mean, and I don't think I did say, that we may not see some adverse impact from deleverage in 2015 as we move forward.

What I did say, though, that if you look at slide 22, of the three buckets, BCBS, clearing and compression initiatives and non-strategic reductions and liquidity optimization, there's very limited or virtually no revenue impact associated with those three. The impact of the revenue reduction would be -- sorry, the leverage reduction on revenues would be on the final two buckets, that is the client optimization and the business optimization.

So I think if you were thinking about putting an adverse ROA into your model as a consequence of that, I'd very much focus on those two buckets. But I think we will see some adverse impact from the leverage reduction, but it will be focused on those two areas.

Okay. Great. That was my mishearing. And then lastly, if I can sneak one in, is there any discount you'll be applying to the scrip dividend to incentivize shareholders to take up that scrip?

Well, I think we will have to obviously price the scrip once the -- assuming the shareholders approve that at the AGM, in the aftermath of the AGM. The price on that scrip is normally priced at a small discount to reflect expected volatility in the stock price over the election period. That's normal market practice and is exactly what we did several years ago, so we'll probably look to do that this year. I don't think I could really comment on the size of the discount. There always has to be something, because that's the nature of a scrip setting process.

Okay. Great. Thank you, guys.

It will not be significantly different from market value, otherwise that would be a different instrument.

Sure. Okay. Thank you.

Great. Thank you. Next question.

Stefan Stalmann, Autonomous Research.

Yes. Good morning. I have just a few smaller questions, please. Could you give an indication how much of your FICC revenue is actually related to credit trading? That's the first question.

A second question on your regularization flows, where you guide to expect CHF10b to CHF15b this year as well. Given that Germany is probably done, which geographies broadly are reflected here? And are you actually taking into account, for instance, geographies like Russia, where I understand the legal situation has tightened quite a bit towards the end of last year?

And maybe the final question, this Verde joint venture in Brazil. Is that fully consolidated? I guess not. But in which way will this joint venture be reflected in your asset management P&L going forward? Is it going to be an at equity stake? Thank you very much.

Yes. I think I'm maybe starting from the last question and working back. Yes, the Verde JV, so this is a business which was -- it was actually a fund that was part of our business for the last many years, last five years or so. So this has now been spun out. It's about a $10b fund. It's a fund run by Luis Stuhlberger, who is a great asset manager. He's done a great job for us.

And so it will be an independent fund which we will have an equity participation in, clearly, and it will also be closely affiliated with Credit Suisse in Brazil. So, for instance, in terms of distribution and access by our customers and everything else, it will be very closely affiliated. And so that's the idea with it, really.

So we will have -- we will participate through the equity participation that we have, and there will also be certainly distribution fees and things like that through the business. So it will be very closely affiliated. He's a great asset manager. He's done a great job for us. And we're really delighted that we can have this closely affiliated going forward as well.

But it is not -- as you say, it is not therefore consolidated into it, which is what gives rise to this net new asset, or this net asset outflow, effectively. So our view is we get -- we still get a lot of the benefits that we had. There'll certainly be some. There'll probably be some reduced economics from it. But we get a lot of the benefits that we had for the franchise, even though it is a separate fund going forward.

On the regularization flows, I think you're right. We feel like we've pretty much completed in Germany. We also have made substantial progress in France and are pretty much almost finished there. I think the remaining issue, as you know, is the recent establishment of the Italian VDP program, which our expectation is that that will obviously give rise to some more regularization flows.

And, again, we've actually done -- I think we've actually done quite well in terms of the speed at which and the percentage of funds that are regularized and stay with us, and so that would be our hope certainly going forward as well. But there certainly will be some impact from what we're getting to hopefully here, as you say, the sort of last innings of the regularization process across the different markets in Europe.

I don't know, David, if you want to address the credit (multiple speakers)?

What (inaudible) looking for credit, sorry?

Was the question of how much of FICC is the credit trading business, I guess revenue. I don't know if we actually give that.

I don't think we've ever been specific on that. It's obviously, as you can see from the bubble chart in the appendix, an important business for Credit Suisse. So clearly the weakness in issuance markets is adverse for us in that sense.

But I would basically pull back to the comments Brady actually made about trading, that essentially our profitability so far this year is actually in line with the period last year and that we have seen our sales and trading business on a generally improving trend. So that gives you, I think, an overall of that. But I think within that, clearly credit was relatively weak in the fourth quarter and I think has remained so, so far this quarter.

Great. Thank you very much.

The question about normalization? I think we've handled that.

I think I largely addressed that.

Okay. One question, one point I just wanted to come back to, to Andrew, just on the replication portfolio issue. Just to be clear, just to clarify that, the replication portfolio is predominantly a swaps and derivatives portfolios. So when I say we would not reinvest negatively, that really means we would not take out negative swaps. So the concept of cash reinvestment isn't really that relevant at that point. So, just to be clear on that point, because I felt I hadn't been before.

Okay. Any more questions then? No?

No further questions, sir.

Okay. Very good. Well, thank you all for your time and for your questions, very much appreciated. And have a good rest of the day.

Thank you. 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.