Credit Suisse Group AG (CS) 2015 Q4 法說會逐字稿

Good morning and welcome to the Q4 2015 and full-year 2015 results call. Before we begin, let me remind you of the important precautionary statement on slide 2, including the statement on non-GAAP measures and Basel III disclosures. I now turn it over to Tidjane Thiam, our CEO.

Good morning everyone. Welcome, and thank you for joining our 2015 full-year and Q4 results call. As I start this presentation, I would like to highlight three key points.

First, we have made a good start in implementing our strategy. Our three geographic businesses, APAC, Asia Pacific, the Swiss Universal Bank, SUB, and International Wealth Management, IWM, have all delivered profitable growth in the fourth quarter of 2015, which we all know was challenging. Our key financial ratios are stronger. We ended the year with a CET1 ratio at 11.4% and a CET1 leveraged ratio of 3.3%. Clearly within these global markets have been facing pressure and I will update you in more details on the actions we are taking to address this later on.

Second, we are addressing a number of legacy issues. Their impact on our reported results is visible today, notably with the upfront financial and accounting costs associated with the restructuring of a bank, as communicated to you last October, and the write-off of a goodwill.

Third and last, given the environment, which has become much more challenging, we are accelerating the pace of our restructuring. In this context we have been taking actions over the past few weeks to bring forward the number of cost-savings initiatives as it is even more important now to lower our breakeven point as revenues are under pressure.

So, with that, let me take you through more details on these results.

Looking first at full-year 2015, you can see here in the first column that we reported a pre-tax loss of CHF2.4b, reflective of the CHF3.8b goodwill impairment that I just mentioned earlier, litigation and restructuring charges, and fair value on own-debt movements. On an adjusted basis, which I will define in a minute, we had a pre-tax gain of CHF2.1b for the Group.

So going forward and throughout this presentation, we will be -- so I and David later, the CFO -- will be discussing the results on this adjusted basis, which we believe better reflects the underlying performance of our business in a period of vast restructurings. We will report quarterly on this same adjusted basis at both Group and business division level until 2018 to allow you to have a better picture of the progress we are making in implementing our strategy.

You will see the reconciliation on the next slide and we have provided you with separate restatement tables which contain both the reported numbers and the adjusted numbers. This probably doesn't require much comment, but if you look at the biggest items, it's goodwill at CHF3.797b, FVoD at CHF697m, litigation at CHF564 -- I'm talking about the quarter here, 4Q -- and restructuring at CHF355m. So you see a total for 4Q of CHF1.1b and a total for 2015 of CHF2.124b for the adjusted pre-tax income, loss or income versus the CHF6.4b and the CHF2.4b you have at the top.

So on this basis, that's the next slide, our full-year 2015 results reflect, first of all, the positive contribution of our three new geographically focused divisions. APAC, Asia Pacific delivered CHF1.1b, SUB, the Swiss Universal Bank, delivered CHF1.6b and IWM delivered CHF1b for PTI. And on a full-year basis in spite of a difficult fourth quarter global markets delivered CHF1.1b of PTI, and IBCM was negatively impacted by the slowdown of client activity and is basically a wash for the year.

Corporate center, which is the next block on this slide, contributed a pre-tax loss of CHF700m, mostly due to expenses incurred in connection with the ongoing legal entity program, which is very important for the bank and you will see that later when we talk about Switzerland.

So as a result of all these elements, adjusted core pre-tax income was CHF4.2b for 2015.

You have then to look at the SRU, strategic resolution unit, which we announced in October. Its wind-down is progressing, as it is very important to the delivery of all our objectives. We expect from the wind-down of the SRU a PTI drag, which we think will peak over the next 12 to 18 months, as we're targeting to reduce the RWA and the leveraged exposure of the SRU by approximately three quarters over this period. By 2018 we expect the SRU PTI drag to come down from an elevated level of CHF2b in 2015 to between CHF700m and CHF900m, CHF700m to CHF900m, and David will give you much more color on this in his presentation.

So let me now come back to one highlight of these results, which is the performance of our new geographically focused divisions. They've all delivered profitable growth.

So starting with APAC at the top here, Asia, we announced record adjusted PTI of CHF1.1b, up 27% from last year, or previous year, and very importantly net new assets of CHF17.8b. So the integration of a private bank and investment bank is working well for our franchise in Asia, as these numbers show. Return on regulatory capital was strong at 20%, with gross margins for APAC private banking improving by three basis points to 79 basis points on a 14%, one, four, revenue growth, and flat net margins of 23 basis points, as revenue growth was matched by associated costs, mainly driven by strategic hires to support our growth plans.

Moving to the second division here, international wealth management, IWM, looking at our private banking. So you remember that we put in IWM private banking and asset management, so here we're looking at the private banking activity. We have announced adjusted PTI of 6% from the year before to CHF813m. You can see on the last column on the right here. And we have announced return on regulatory capital of 20%, which is satisfactory, with gross margins up by 1 basis point to 102 basis points, and net margin at 17%, down from 26% as the cost in 2015 included some significant litigation charges.

Moving on to Switzerland, the Swiss Universal Bank has delivered 4% increase in profit with CHF1.6b of adjusted PTI, and importantly net asset inflows for the year of CHF13.8b. The business is on track for a partial IPO we target for end 2017 and has demonstrated a real stability in results in what has been a turbulent market environment in the fourth quarter. Return on regulatory capital for the Swiss Universal Bank was 13% in a negative interest rate environment, negative nominal interest rate environment in Switzerland.

So these results give us confidence that we are investing resources and capital in the right areas.

If we look at the next slide, this is a slide we showed you, it's identical, at the Investor Day in October. We are committed to the targets on this slide and we will continue to report quarterly on our progress as we go through the next 11 quarters -- the next 12 quarters until end 2008 -- 2018, sorry. I won't read them back again. I think you're familiar with them. Let me just say that we have hit a number of them. You remember that we had of target of CHF83b to CHF85b of RWA for global markets, which we have achieved, and for leverage CHF380b, which we have achieved as well. So we've operated with discipline.

So let's focus now on the fourth quarter of 2015. What happened in the last quarter of the year? Well, our three regionally focused business units, APAC, Swiss and international, have made good progress. And I remind you they are the ones for which we have explicitly targeted a profit number for 2018.

In Asia Pacific, starting with that, we have enjoyed a record year of profitability, with strong net new asset inflows across each quarter, including the fourth quarter, where we had CHF3b of inflows. We have delivered on our strategy to attract new relationship managers. We have recruited 70 relationship managers in total in 2015 and, pleasingly, 40 of them alone in the fourth quarter, so more than half in the fourth quarter since we announced the new strategy. And we have a very healthy pipeline of future hiring to convert into 2016. The integrated model between private banking and investment banking remains an attractive proposition for our new and existing clients.

In IWM the performance was driven by a successful execution of key strategic initiatives and I'm pleased to say that mandate penetration increased from 23% to 30% last year, which is always for us a very positive indicator.

In the Swiss Universal Bank we delivered solid results with strong net new asset inflows, CHF13.8b, in particular in corporate and institutional banking. We also saw a significant increase of mandate penetration from 15% to 26%.

We are pleased to see that those divisions where we have set PTI targets are on track to deliver profitable growth and we are confident to achieve our 2018 targets.

In IBCM and in asset management the financial results reflect a challenging market backdrop. We continued to invest in building our advisory capabilities in IBCM and a rebound in equity underwriting volumes in the quarter was offset by weaker DCM volumes, given market uncertainties.

In asset management we had resilient core operating results, but they were offset by lower performance fees. Given the market in 2015, that shouldn't be a surprise, particularly from alternative funds. Still, asset management made a good contribution to the bank with CHF26.5b in net new assets in 2015.

Finally, global markets experienced difficult operating conditions, particularly in fixed income, with the widening of credit spreads, a sharp decline in energy prices in the fourth quarter, and a general lack of liquidity. This resulted in inventory markdowns. In addition, we have a high cost base, which is why we have a cost-saving program. So a decline in revenues combined with a high cost base have accelerated the need, we feel, to lower our breakeven point with specific action, which I will highlight shortly.

So overall the relative performances of these businesses have confirmed the importance of disciplined capital allocation, which we show you on the next slide. And we have taken steps to continue to improve our capital allocation, moving capital towards the highest returning business. So we have on the left the average adjusted return on regulatory capital between 2015 and 2014. You see IWM and APAC at the top, the Swiss SUB then IBCM, then GM, and you see that we have allocated -- you see the movement in capital allocation from nine months 2015 through 2018 that we plan, which is to increase basically the capital allocation to those divisions returning -- offering a better return on capital.

I'm now going to go through the divisions in turn, Asia Pacific, Switzerland and IWM, starting with APAC. Emerging economies, we know that, are intrinsically volatile. And one of the most effective ways to mitigate that volatility is diversification. What this slide shows is how well diversified our business platform in Asia is.

And the reason why you don't have a country names is that Helman, our CEO in Asia, didn't really want to share that information. But the message is the same; we have a well-balanced portfolio across developed economies, OECD countries like Japan and Korea, and emerging economies like Indonesia, or China and India. That's a real, real source of strength and we cannot overemphasize it, and it will explain some of the difference between our performance and that of some other players in the region, which appears in the next slide.

APAC is generating strong and resilient performance in a very challenging year. This diversified mix of business is a key driver of our continued performance in 2015. In 2015 PTI in APAC grew 27% year on year and now 50%, 52% exactly, versus 2013. And if you focus on the last quarter 4Q alone, we had 12% revenue growth and 21% PTI growth over the fourth quarter of the previous year, showing the momentum we have in this business.

So 2015 was the second year in a row when Asia Pacific reported very strong net new assets. You can see here CHF17.6b and CHF17.9b in 2015. To put that in context, this is over two years as much as some of the properties on sale in the region. That's the strength of the organic growth we generate in the region. And if you go to the fourth quarter, it was I think the object of much curiosity, CHF3.1b of net new assets flow, 82% above our previous fourth quarter in 2014, so again a great performance by our teams in Asia.

Recruiting and client relationships are a key part of our model in Asia, and we're showing you here how after a period of stability we've been growing our relationship managers in APAC. We recruited 50 in 2014 and I was telling you earlier 70 in 2015, which we're very pleased by, and they're making a material contribution to our growth by enlarging our footprint and our ability to deepen our relationships with clients and have more clients.

I will continue to update you on this, but we think that -- we're confident that we will hit the objective of 800 that we set for 2018, with quality hires because in this context actually people are knocking on our door in Asia. Helman spends a lot of time interviewing people. So it's a very, very positive environment for our growth.

Moving on now to international wealth management. Looking at our private banking, so not just in [merchant], but the private banking. Private banking has made steady progress with underlying PTI growth of 6% for the year and 4% during Q4. On an adjusted basis IWM private banking maintained stable revenues year on year in a really challenging environment. And there were two main drivers for this. Firstly, the expansion of average loan volumes and, secondly, higher asset margins in a negative -- due to the negative interest rate environment in Switzerland.

So we also saw good progress in our underlying net new asset inflows and mandate penetration, which I address in the next slide. Excluding regularization, which is continuing, IWM private banking recorded positive NNA during 2015 of CHF2.2b. And those CHF2.2b appear in our international location, which are really our growth markets, and were offset by the continued restructuring of our Western European franchise, as well as deposit repricing, which I explained the negative evolutions here.

So despite a relatively muted net new asset generation, which was flat in the end on a net basis, mandate penetration, and it is always pressing for us, increased by one third from 23% in 2014 to 30% in 2015, through successful sales of MACS, and Credit Suisse Invest -- for those who live in Switzerland, you will have seen the advertising everywhere -- very successful with CHF4.9b of net new assets going into that mandate proposition.

So moving now to the Swiss Universal Bank. In 2015 the Swiss Universal Bank was simply the largest contributor to our Group pre-tax results, with both private bank and corporate and institutional banking contributing to this operating performance. For the full year the Swiss Universal Bank reported a pre-tax income of CHF1.6b, up from CHF1.5b in 2014. This strong performance was driven by a 3% revenue growth, a good result in a market considered as mature.

The Swiss Universal Bank demonstrated again in the fourth quarter that it is a reliable and important earnings contributor to the Group. Adjusting for one-offs, pre-tax income improved by 25% to CHF336m on strong net interest income driven by loan margins improvements. The growth in profit achieved is even more impressive at 33% if one takes out the impact from the Swisscard deconsolidation, as you will see later in David's presentation.

So let's look at the flows now. The Swiss Universal Bank delivered a strong performance in that respect as well, with net new asset generations that total CHF13.8b in 2015 -- looks like there's a mistake on this slide -- I'm certain that the total is CHF13.8b, not CHF14.9b, and with CHF1.7b of net inflows in the fourth quarter. So CHF13.8b, yes.

We continued also in Switzerland to improve the mandate penetration. I talked earlier about Credit Suisse Invest. It played a role here too in our private banking business, which is up by more than two thirds or 9 percentage points from 15% to 26%, driven again by Credit Suisse Invest.

So let's move now to global markets. The global market division reported underlying full-year pre-tax income of CHF1.1b, a significant drop from CHF3b for previous year, and in Q4 generated an adjusted pre-tax loss of CHF0.7b for our fourth quarter.

Equities had a resilient performance despite a slowdown in market activity and a challenging macro environment in Latin America in Q4. And in fixed income GM has a legacy of material positions in segments of the markets where spreads significantly increased in the fourth quarter and liquidity became limited. Both positions are not consistent with our new strategy and therefore have been reduced aggressively since we started implementing the strategy announced in October. Nevertheless, they were still significant at the end of the fourth quarter, resulting in the inventory markdowns that you see in our results today.

Declining revenue and a high cost base have emphasized the need to lower further our breakeven point through specific actions that I will again highlight later. Our focus fundamentally will be on making the fixed income business model less volatile and less inventory dependent, similarly to our successfully transformed equities business.

During Q4, as I was saying earlier, we have actively reduced our legacy inventory positions, taking the total down over the quarter as part of our risk management. You can see it on this slide and it will be in the pack. We are determined to reduce further our inventory in these vulnerable areas, which are not aligned with our strategy, and you can see the actions taken further in January in this slide. I want to be clear that there will be no rebuilding of positions in fixed income areas which are not aligned with our strategy going forward.

Our fixed-income franchise will be transformed, with our equities franchise on the right here as a template. Given the macro and credit-cycle related factors mentioned earlier, we will accelerate our move to a more capital efficient model and less volatile model -- you can see the difference in standard deviation here -- enough that replicating the successful transformation made in equities.

The end-state for our global market will be a business that is smaller, less volatile and more profitable through the cycle. Through right-sizing our global market activity we will increase our connectivity to our wealth management franchise, reducing capital usage and increasing profitability over time. This is absolutely crucial for our successful long-term future.

Moving now to IBCM, we have continued to rebuild our IBCM business, which has suffered from under-investment, through incremental targeted investments, shifting our model more towards advisory and equity underwriting, and more towards investment-grade corporates, in order to reduce the volatility of our earnings in this attractive capital-light activity.

Our Q4 2015 backlog ended -- or on deals announced in M&A -- ended 128% higher against the same period in 2014, with market share increasing to 14%. Historically, looking back over the past five years, 72% of deal volume announced in 4Q was completed the following year. We are therefore optimistic about this healthy pipeline and expect the conversion of recent transactions once markets normalize.

So let me now cover a few legacy issues in addition to those already highlighted for global markets. The first one I'll talk about is goodwill. On this slide you can see that our 2015 results include the impact of a number of these issues, with goodwill being CHF3.8b on the right here, the biggest component. Other drivers are losses from the strategic resolution unit of CHF2.1b, litigation and restructuring charges of CHF0.8b and CHF0.4b respectively, as well as fair value and other adjustments, leading to a reported pre-tax loss of CHF2.4b for the full year.

Part of what we're trying to do is to continuously look for ways to lower our breakeven point. A big part of this is remuneration. To this end we have reduced variable remuneration by 11% in 2015 and we now look to reduce the impact of past variable remuneration decisions on future years in order to give us more flexibility.

So we have therefore lowered the deferral rate, so the proportion of our staff pay that is deferred to future years, and that will lead to 26% reduction in unrecognized variable compensation by year-end 2015, resulting in a lower compensation burden in the following years. If you wish -- every year we are pushing some compensation forward. What we're doing through that structural change is to reduce the level of compensation we're pushing forward every year, and therefore strengthening our flexibility. And David will give you more details on this.

Finally, we are increasing the pace of the cost-savings program. We have done this largely also because of the deterioration in the environment, because we need, as revenues are under pressure, to cut costs even faster. Therefore, we've worked hard in December and January to identify and action initiatives that will permanently reduce further our fixed cost base, resulting in cost savings of CHF500m per annum on a full-year run rate basis, and we are implementing a reduction of approximately 4,000 positions.

These measures come in addition to those already implemented in the fourth quarter of 2015, particularly the transition of our US private banking business, which, to be frank, generated sub-par shareholder returns as it is a distribution model where most of the benefits go to a relationship manager. So the measures already actioned by end of January amount to CHF1.2b per annum on a run-rate basis representing one-third of the announced 2018 cost-savings target of CHF3.5b, or more than half the net cost target of CHF2b announced for 2018.

We will of course beyond 2018 aim to continue to deliver continued productivity and completing this improvement, and we will provide you with quarterly updates on our progress in our cost-saving program.

So let me now summarize. We have made a good start in implementing our new strategy, with substantial progress on a number of fronts. Our new geographic divisions have delivered profitable growth throughout the year. A strong pipeline in IBCM gives us confidence that we will see transaction and mandates when markets allow. The new organization that we have put in place will allow for better allocation of resource and capital. And with the completion of last year our capital raise, our ratios are stronger and give us the ability to restructure the Bank and deliver profitable growth from our core businesses in the long term.

The execution of our strategy requires, as we see, the continued restructuring of our global markets division. We remain committed to addressing legacy issues and have outlined to you our plan to permanently reduce our legacy exposures, lower and amortize deferrals going forward, and address outstanding litigation. Finally, as a result and in reaction to the challenging current environment, we are accelerating the pace of restructuring, bringing forward cost savings through our cost reductions.

With that, I will now hand over to David, who will take you through the financial results in more detail.

Thank you, Tidjane. Good morning. I'd like to thank you for joining our fourth quarter 2015 earnings call.

So I'm going to start today on slide 31 with a summary of the financial results. For the full year we had a Group pre-tax loss of CHF2.4b on revenues of CHF23.8b.

However, as Tidjane's already noted, our reported results include a number of significant items which are not reflective of our underlying business performance. These include certain major litigation costs, goodwill impairment, restructuring charges related to the accelerated implementation of our strategy, fair-value movements of our own debt, as well as a number of smaller components. Therefore, alongside the reported numbers, we provide adjusted numbers that are consistent with our underlying business performance. We provide a full breakout of these adjustments for the Group and for each of our divisions in slides 69 to 75 of the appendix.

In relation to the goodwill impairment, we took a charge of CHF3.8b in the fourth quarter, all of which was in respect of our former investment banking activities primarily following on from the DOJ acquisition in 2000. This charge is allocated across the new global markets, Asia Pacific and IBCM divisions. And it's important to note that the impairment charge does not impact our look-through CET1 capital or leverage ratios.

I'd also note this is the last time that FVoD movements will feature in our headline results as we've elected to adopt new accounting standards from January 1, 2016. Going forward, these valuation movements will be reflected directly in equity as a component of other comprehensive income.

Now if you exclude the adjustment items I've listed, we achieved a full-year adjusted pre-tax profit of CHF2.1b for the Group. If we look at the fourth quarter, we reported a pre-tax loss of CHF6.4b, reflective of the CHF3.8b goodwill impairment litigation restructuring charges and FVoD movements. On an adjusted basis we had a pre-tax loss in the fourth quarter of CHF1.1b for the Group.

If we look briefly at net new assets, we achieved core inflows of CHF4.4b in the quarter and the full year we generated net new asset inflows of CHF50.9b. That reflects solid business generated inflows across the divisions, notwithstanding the adverse impact from regularization that I will discuss later.

So let's review the core results on slide 32, please. So we look at our core results, which I'd remind you exclude the strategic resolution unit. For the full year we achieved an adjusted profit of CHF4.2b. What we show here is how the adjusted result reconciles to the reported Group figure of a CHF2.4b loss for the year.

Now if we reconcile to the reported figure, firstly we had a CHF2.1b lag from the strategic resolution unit, excluding the restructuring and litigation expenses. If we move then to the significant items in the year, our pre-tax income was further reduced by major litigation charges of around CHF820m, CHF355m restructuring costs, a number of small adjustments and a positive FVoD impact of CHF300m. And then lastly, as we've already mentioned, the CHF3.8b goodwill impairment charge clearly was the largest impact on our full-year numbers.

I won't go through this in detail, but if you look at the core result for the fourth quarter, we had an adjusted pre-tax loss of CHF420m, and that compares to the reported loss of CHF6.4b when we take into account the drag from the SRU and the adjustment items we've discussed.

Just to be clear, as Tidjane said, we will consistently report our adjusted earnings on this basis going forward and we've included a full reconciliation of the numbers in the appendix. And my comments throughout this presentation will refer to our adjusted results on a consistent basis.

Slide 33. So now I'd just like to remind you of the key financial elements of the strategy that we announced at Investor Day. The first component of our strategy is to increase the profitability of stable and high-returning cash flow businesses within Switzerland. The Swiss Universal Bank delivered an adjusted pre-tax income of CHF1.6b in 2015, up from CHF1.5b in 2014, and was the largest contributor to our Group pre-tax returns. And we remain committed to achieving the goal of CHF2.3b by 2018.

The second component of our strategy is to reallocate and optimize resources to our high-return and scale businesses. If you recall from the Investor Day that the old structure we had 57% of the Group's risk-weighted assets allocated to the strategic investment banking businesses. And, as you can see, we've made significant progress in realigning the divisional usage of RWA across the Group. Notably within global markets, we've begun to reduce the resources allocated to certain underperforming trading activities and the division is now at around one-third of total usage, more proportionate to the overall Group size.

The division has also overachieved the year-end capital targets it was set, which was for a ceiling of $83b to $85b of risk-weighted assets and $380b of leverage exposure.

Going forward, as Tidjane's mentioned, we'll continue to restructure the global markets division towards the end goal of a less volatile and more sustainable and profitable business through the cycle.

If we move to Asia Pacific, at the end of 2015 we achieved an adjusted pre-tax income of CHF1.1b and we will continue to allocate further resources to the growth businesses in the Asia Pacific division to support our pre-tax income target of CHF2.1b for the end of 2018.

On costs, as we mentioned at Investor Day, we intend to achieve a gross reduction of expenses of CHF3.5b by the end of 2018. At the end of January we'd already identified CHF1.2b of gross cost savings including the transfer of our US private banking business to the SRU as well as further planned headcount reductions. We remain committed to achieving the remaining CHF2.3b cost savings by the end of 2018 through the reductions in the SRU, the completion of our legal entity program and further efficiencies across our embedded support functions.

Finally, we'll continue to strengthen our capital base. We'll focus on maximizing free capital generation. At the end of 2015 our look-through CET1 ratio was 11.4%. Going forward we will build a buffer against the RWA calibration changes expected in 2018 and 2019, with the intention of targeting a CET1 ratio of 13%. Our look-through [BAS] Tier 1 ratio was 4.5% at the end of 2015, reflecting the successful completion of the leverage reduction program last year. And just as a reminder, that compares to a target of 5% to 6% for the end of 2018.

So let me now review the divisional results, starting with the Swiss Universal Bank on slide 34. As you can see, under the current reporting structure the Swiss Universal Bank comprises our Swiss private banking and corporate investment banking businesses. And just as a reference, on the left-hand side of the page we detail how the former business lines now map into the Swiss Universal Bank. For the full year the Swiss Universal Bank contributed CHF1.6b adjusted pre-tax income, more than any of the other divisions. The division also accounted for a 21% share of total RWA and 24% of leverage.

Slide 35. So here we show the results of the Swiss Universal Bank on both a reported and adjusted basis. As a reminder, the adjustment items include major litigation costs, goodwill, restructuring, a number of small components. And in the case of the Swiss Universal Bank, this does include an adjustment for the positive impact of real estate sales. And we provide a full reconciliation on page 70.

For the full year the Swiss Universal Bank reported a pre-tax income of CHF1.7b. Adjusting for the real estate disposals, full-year pre-tax income improved by 4% year on year. Compared to the fourth quarter, reported net revenues decreased by 14%, again reflecting the lower real estate disposals compared to a year before, as well as the impact of the deconsolidation of Swisscard.

If we look at our reported full-year operating expenses, they did increase by 9%, but that primarily reflects higher compensation expenses due to the recalibration of Swiss employee holiday benefits. We also saw an increase in restructuring and litigation provisions in the fourth quarter, but these are partly offset by the Swisscard deconsolidation, which, as you may recall, took place on July 1.

The Swiss Universal Bank delivered strong net new assets of CHF3.2b from private banking in 2015 and CHF10.6b from corporate and institutional banking. We also saw a significant increase in mandate penetration from 15% in 2014 to 26% in 2015, following a successful launch of Credit Suisse Invest in April 2015. I note we now exclude assets managed by external asset managers in our calculation of the mandates penetration in line with general industry standards.

Let me look then at the private banking results on slide 36. For the full year the private banking of the Swiss Universal Bank delivered a pre-tax income of CHF869m. On an adjusted basis the full-year pre-tax income improved by 4% year on year. If we look at the fourth quarter on an adjusted basis we saw a 40% increase in pre-tax income year-on-year and this was driven by strong growth in net interest income as well as the dividend from the SIX Group in the fourth quarter.

The adjusted net margin improved to 23 basis points, up 7 basis points from the fourth quarter of last year, primarily driven by the growth in net interest income.

So on slide 37 we give some more detail here around the private banking pre-tax income within the Swiss Universal Bank. I think the key point to note here from what we've said already is we've shown here the impact of the deconsolidation of Swisscard. As you may recall, we actually restructured our holdings there. We still own the same 50% interest, but we no longer have control, which means that in 2014 you have a full component, in 2015 only a six-month component. The impact for that was CHF74m in 2014, reducing to CHF26m in 2015. And if we exclude that, for the full year you can see our profits are up by 11% year on year.

Let's move to the corporate and institutional banking on slide 38. Within the Swiss Universal Bank, the corporate and institutional banking reported full-year pre-tax profits of CHF790m, up by 6% compared to 2014. On an adjusted basis the full-year result was up 5%.

Fourth-quarter revenues of CHF517m improved by 12% compared to the fourth quarter of last year, primarily driven by higher net interest income partly offset by lower replication flows. This growth in net interest income was largely attributable to the successful implementation of mitigating measures, which we communicated I think to you all following the SNB actions just over a year ago.

So let's look at net new assets, please, on slide 39. In private banking within the Swiss Universal Bank, we saw some seasonal slow-down in net new assets in the fourth quarter. The first nine months inflows were positive at CHF6.9b. In the fourth quarter we saw outflows of CHF2.9b. This was primarily driven by a CHF1.1b outlows from a small number of external asset manager exits as well as CHF0.3b of outflows relating to regularization and CHF0.3b from a number of cash deposit measures. Looking at the full year, we achieved net new assets of CHF3.2b compared to CHF3.8b in 2014.

Within the corporate and institutional banking business we saw strong inflows of CHF4.2b in the fourth quarter, driven by inflows from major pension funds. This resulted in annualized growth rate of 6%. And for the full year we achieved net new assets of CHF10.6b, significantly ahead of the CHF5.5b in 2014 and our strongest annual increase since 2011.

Let me turn now to slide 40. What we show here is the international wealth business, which comprises the international private banking and asset management businesses. These businesses contributed CHF1b to our adjusted pre-tax income and represented about 10% of our capital employed.

Slide 41. What we show here are the reported and the adjusted numbers for IWM. The adjustments we make are consistent with those we took at the Group level, and, as we said before, restructuring and litigation expenses. If you look at the results you can see our pre-tax income on a reported basis was CHF709m. On an adjusted basis we had a pre-tax profit of just under CHF1b, which is down about 16% year-on-year. And as I'll come to in a minute, the primary reason for the difference between adjusted and reported for the IWM business represents litigation charges taken in the year.

For the full year we saw a divergent performance between private banking and asset management. Overall the international private banking businesses had a better operating performance, with adjusted pre-tax income up by 6% compared to 2014. But on the other hand, asset management performance declined in a challenging environment. Given this divergence in performance I'd like to focus more on the individual components and start with private banking, please, on slide 42.

For the full-year 2015 the private banking businesses within IWM reported pre-tax income of CHF526m. If we adjust it for the specific items we identify here, the pre-tax income improved by 6% compared to 2014 and this improvement was driven by lower operating expenses, reflecting sustainable expenses out of the business as well as lower variable incentive compensation and reduced commission expenses.

On an adjusted basis the quarterly operating pre-tax income improved by 4% year on year, driven by lower operating expenses. Fourth-quarter adjusted revenues were slightly down year on year as growth in net interest income was offset by lower recurring and transaction-based fees.

If we look at the quarterly revenue items in more detail, we've seen continued growth in net interest income due to the expansion of loan volumes and higher margins whilst recurring revenues declined due to the lower AUM on the back of FX movements, tax regularization and the restructuring of Hedging-Griffo a year ago.

Lastly, I'd note that we saw an increase in mandates penetration from 23% in 2015 to 30% in 2015. This was largely due to the launch of Credit Suisse Invest, which contributed net new sales of CHF4.9b during the year.

Lastly, in terms of the net margin, the adjusted net margin improved to 26 basis points, up by 3 basis points from the fourth quarter of last year, again driven by the growth in net interest income.

Before I leave this slide, though, I would just point out this is where you see the litigation point that I mentioned before. As we say here, litigation expenses include a matter where several clients have claimed a former relationship manager in Switzerland had exceeded his investment authority.

Let me turn now to asset management on slide 43. Within IWM the asset management business reported full-year pre-tax income of CHF183m, down significantly compared to 2014. And that was notwithstanding a 5% reduction in operating expenses following the change in fund management from Hedging-Griffo to Verde Asset Management. Following the transfer of fund management to Verde, the recurring, respective recurring fees in Hedging-Griffo declined to zero by the end of 2015. And if you exclude the impact of this, the recurring revenues were actually flat for both full year and the fourth quarter.

Can we talk briefly about net new assets, please, on slide 44? What we show here is the progression between the two businesses within IWM.

Private banking delivered net new asset inflows of CHF2.2b in our international locations, but this was negatively impacted by a number of outflows during the year.

First, we saw regularization-related outflows amounting to CHF3.1b in 2015, of which CHF2.3b was reported in the fourth quarter, predominantly in Italy relating to the tax regularization programs. Now that means that across all of our private banking activities, including those booked in the SRU, we saw regularization-related outflows of CHF8.4b in 2015. So that does fall within the guidance that we gave for outflows from regulation earlier this year to be less than CHF10b.

Now in addition to regularization, we saw inflows -- sorry, we saw outflows relating to deposit price repricing in the current interest rate environment and also relating to an ongoing litigation case.

If I turn to asset management, we saw strong net new assets of CHF26.5b in the year, up by 9% year on year, driven by a combination of both alternative and core investments. Within alternatives, we saw CHF7b of inflows, primarily from credit products. In core investments, we saw CHF19.5b of inflows, primarily into our JV in China and also index products.

So let me turn now to Asia Pacific, please, on slide 45. So we show here the snapshot of the region, which comprises the private banking and investment banking businesses across our businesses. You can see that for the full year Asia Pacific generated CHF1.1b of adjusted pre-tax income and represents about 10% of our capital employed.

Slide 46. So, as before, we show here the reported and the adjusted results for the Asia Pacific division. And the adjustments made are consistent with those at the Group level, and for Asia Pacific particularly relate to small restructuring charges, and most of all the goodwill impairment number, which I touched on before and which we'll talk more about in the context of GM and IBCM later in the presentation.

For the full year the Asia Pacific region on an adjusted basis made a profit of CHF1.142b, an increase of 27%. And this improvement in the full-year result was led by higher revenues from ultra-high net-worth clients and by a strong performance in our equities business. Adjusted full-year expenses did increase year on year, driven by investments in the business and in new hires.

If we look at the fourth quarter, we delivered an adjusted pre-tax profit of CHF148m, up by 21% year on year, driven by an increase in sales and trading revenues. And we saw this increase notwithstanding increased operating expenses, reflecting the investments that we're making to grow this region.

So let's move to private banking in Asia Pacific. We saw continued momentum in our private bank in APAC in 2015. For the full year the private bank demonstrated solid results, with pre-tax income of CHF344m, 11% up year on year. On an adjusted basis, the annual pre-tax income was up 13%. And this was driven by higher net interest income, transaction-based revenues and recurring fees, and partly offset by the increase in operating expenses that I mentioned before.

We did see some slowdown in the fourth quarter, with pre-tax income at CHF55m, down about 18% compared to the fourth quarter of last year. Although net interest income continued to strengthen, this was offset by lower transaction-based revenues and some increase in compensation expenses related to new RM hires.

Our net new asset position was strong. We saw solid inflows of CHF3b in Asia Pacific in the fourth quarter. And for the full year, net new assets were CHF17.8b, NNA growth of 12% from 2014. And I point out here that our net margin across the full year was stable at 23 basis points.

Within investment banking in APAC, the full-year pre-tax reported income was $65m, and that's primarily driven by the goodwill impairment charge I mentioned before of $765m. Adjusting for this, we delivered strong pre-tax income of $832m, up 29% year on year, notwithstanding the macroeconomic headwinds. Our full-year results were driven primarily by higher revenues and equity sales and trading, partly offset by lower revenues in underwriting, advisory and fixed income.

And for the quarter, the pre-tax income was up $92m, up 56% on a comparable basis, again reflecting high revenues from institutional clients and fixed income and equity sales.

So let me turn now to global markets on page 49. This business comprises our fixed income, equity sales and trading businesses, excluding those businesses in Switzerland and in the Asia Pacific region. For the full year the global markets business contributed CHF1.1b to our adjusted pre-tax income and represented 25% of our Group RWA and 32% of our total leverage.

As in each of our divisions, we show on page 50 our results on both a reported and an adjusted basis. The adjustments include major litigation costs, goodwill impairment and restructuring charges. But you can see that the largest impact in global markets was the $2.7b impairment charge relating to goodwill in the fourth quarter. And the reconciliation for this is provided on page 72 and 73.

If you look at the numbers on a reported basis, global markets had a pre-tax loss of $1.9b. But on an adjusted basis, excluding the goodwill charge, we had a yearly pre-tax profit of $1.1b, which was still significantly down year on year due to the challenging market conditions in the second half of 2015.

In the fourth quarter, on an adjusted basis, we had a pre-tax loss of $664m, down compared again to 2014. This was driven by the difficult trading conditions and also by the significant sell-off in our global credit businesses, corporate banking and within certain of our securitized products operations.

Before I leave this slide, though, I would like to point out the substantial progress that's been made in reducing our leverage exposure in the division. The leverage exposure has declined by over $100b from the prior-year level, including a $39b reduction from the third quarter to the fourth quarter.

Let's move to sales and trading on slide 51. In the fourth quarter we continued to optimize the equities franchise. This business is now better aligned with clients and we have capital capture upside and invest in our businesses in the coming year. Fourth-quarter equity sales and trading revenues were $709m, a decline by 22% compared to the fourth quarter of 2014, primarily reflecting a less favorable trading environment and a reduction in client activity. Nonetheless, notwithstanding this reduction in activity, we posted resilient equity results for the quarter and we maintained our market shares across all of the businesses.

If you look at the performance compared to the fourth quarter 2014, I would note that the weakness in cash equity revenues particularly reflected the difficult macro environment in Latin America, where we have a strong market position. Against that, the prime service business delivered a resilient performance, notwithstanding the material reductions in leverage exposure that we put through in this year. And this highlights the continued progress we're making in terms of optimizing our client strategy for this business.

In fixed income the fourth-quarter incomes were down 51% year on year and our franchise was significantly adversely impacted by the widening of US high-yield spreads in December, which reached 747 basis points, an increase of 212 basis points since the second quarter of 2015. We saw subdued client activity and reduced liquidity across the yield portfolio. And this market environment negatively impacted our credit businesses, where we incurred negative revenues and mark-to-market losses, particularly in distressed high-yield assets.

Our securitized products business was impacted by the widening of US high-yield spreads and the tightening in swap spreads, resulting in mark-to-market losses in CL agency, CMBS agency and non-agency trading. I would note though conversely that trends continued to be strong for asset finance franchise, resulting in a significant increase in revenues for the full year.

So, as Tidjane has outlined already, in order to reduce further volatility, we will continue to proactively manage the risk positions and inventory in both credit and securitized products through sales, hedging and further reducing our inventory levels.

Slide 52. As we mentioned, in the fourth quarter we saw significant mark-to-market losses of $632m across both global markets and IBCM. The losses were incurred across our securitized products, credit and corporate loan books, although the majority were incurred in our leveraged finance business in distressed trading, underwriting and [par].

Within the leveraged finance capital markets book, only 3% of the portfolio consists of oil and gas exposure, which was the most impacted sector in the quarter. In addition, I'd point out that about 62% of this portfolio was BB or better, highlighting the overall quality of the positions. So therefore we experienced the most write-downs within our distressed loans trading books. And within this portfolio, clearly both energy and metal and mining exposures were adversely impacted in the quarter. I would note though that only about 7% of the inventory is energy-related and 2% is metals and mining-related.

Slide 53. So we show here the investment banking and capital markets division, which comprises the advisory and underwriting businesses, excluding those businesses in Switzerland and Asia Pacific. I'd also note that the revenue from underwriting is split between investment banking and the capital markets business according to a JV between the two divisions. For the full year we broke even in adjusted pre-tax income in IBCM as declines in underwriting offset the gains in our advisory strategies.

Slide 54. So here we show the results for IBCM on both a reported and an adjusted basis. The largest adjustment item for IBCM was clearly the $384b goodwill impairment in the fourth quarter, but we also saw some small restructuring charges. The volatility-driven market challenges impacted some of our other businesses, also resulting in headwinds for the IBCM capital division in the second half of the year. For the full year IBCM net revenues of $1.8b was down 21% compared to 2014, with lower debt and underwriting equity revenues, which offset the increase that we achieved in advisory numbers.

Full-year operating expenses increased by 24% compared to 2014. And this was primarily driven by some salary increases and investment in strategic hires for the growth plan as well as restructuring charges and some investments in our risk, regulatory and compliance infrastructure. But this was offset by a decrease in discretionary compensation.

So for the fourth quarter IBCM reported net revenues of $402m, down 22% compared to the prior quarter. And as I've mentioned, this was primarily due to lower debt underwriting revenues, which offset improved advisory numbers. Fourth-quarter operating expenses were significantly higher both quarter on quarter due to the goodwill impairment numbers.

On the capital side, risk-weighted assets were $18b at the end of 2014, up by $4b compared to the year end 2014. And this increase reflected increased investment grade and non-investment-grade underwriting commitments, as well as the increase in credit-related multipliers that FINMA requires for Swiss banks.

So on slide 55 we show here the increased advisory revenues, which were $251m in the fourth quarter, up by 29% compared to the prior year, reflecting a significant increase in the number of completed M&A transactions. We saw continuing momentum in the M&A franchise, with announced volumes for the quarter more than double compared to the prior-year quarter.

If we look at equity underwriting, net revenues were $102m, down by 33% year on year. We did see some pick-up in equity underwriting revenues compared to the third quarter, primarily attributable to our strength in follow-ons.

Debt underwriting revenues, though, were down 22%, reflecting the industry-wide declines in leveraged finance activity and the results also reflected the division's share of the mark-to-market losses in the commitment portfolio, which is a joint venture with global markets.

If we look at the debt underwriting portfolio on slide 56, I think we're confident in the ability to navigate current market environment while supporting the financing needs of our clients. We took mark-to-market losses on underwriting commitments amounting to $86m in the fourth quarter, split equally between global markets and IBCM. This was about 1% of our total non-investment-grade commitments.

If you look at our non-investment-grade underwriting exposure in aggregate, $6.5b or 56% of the exposure is related to less risky BB credit. And of the underwriting commitments, about 3% of the portfolio is energy-related, about half the industry average.

Just from an execution point of view, the residual portfolio flex at year was still well above market clearing levels, particularly for BB commitments. And during the first few weeks of the year around 19 leverage loans and high-yield bonds had been priced or allocated, and Credit Suisse was involved in 12 of these transactions, 6 of which were underwritten, and all 6 cleared within our fees.

So let me conclude now with the SRU, which, as you know, is a standalone unit. And the rationale for establishing this was to right-size our core divisions, especially from a capital perspective. As a separate division, with an independent management team, this will help provide enhanced governance and transparency of the wind-down efforts. And over the past few months the focus has been to finalize and segregate the transfer portfolio before switching to the primary mandate of accelerating exit of capital and the reduction of costs.

Slide 58. If you look at the full year, we saw a pre-tax loss of CHF2.5b in the SRU compared to CHF3.6b in 2014. Clearly the comparison with 2015, we saw major litigation expenses significant lower compared to last year as last year included CHF1.6b for settlement with the US authorities over the outstanding US matters, and approximately CHF800m compared to the RMBS litigation charges.

Clearly full-year 2015 revenues were down year on year due to positive gains in 2014 from non-controlling interests and lower revenues from the restructuring of our former asset management businesses and from the restructuring of selected onshore businesses in 2015. And for the fourth quarter we saw a pre-tax loss of CHF1.1b, slightly larger compared to the fourth quarter of 2014. This reflects higher RMBS litigation expenses, restructuring charges from the transfer of the US private banking business and higher provision for credit losses, which impacted the private banking and asset management portfolio.

Let's look at slide 59. We thought it would be helpful here to give an update on the high-level guidance we gave at Investor Day around the SRU. This division is composed of four components. First, we have the previously existing non-strategic units, a mix of legacy investment banking performance, legacy private banking businesses and asset management divestitures. And next we have the businesses we're actually exiting, the European swaps into government bonds, as well as market-making in selected emerging market countries.

We also have some exposures relating to the resizing of the investment bank. For example, in the global markets division, additional transfer to the SRU in closed derivatives and loan portfolios from macro, global credit, securitized products, emerging markets, derivatives and prime services. From the former PWM division, key transfers includes the US private banking business, which we announced to exit from last quarter, as well as a selection of offshore and AM exposures.

Slide 60. Similar to the prior slide, where we showed the composition of RWA and leverage, here we show the components of pre-tax income. I think the key takeaway is that the new transfers represent about 40% of the pre-tax loss of the fourth quarter and 25% the full year. And a large component has clearly been the US private banking business exit.

So just as we said before, the primary objective is to facilitate the wind-down of capital and cost relating to business and exposures in this unit. From a Group pre-tax point of view, we will reduce the drag from CHF2.5b to less than CHF850m by the end of 2018. And from an RWA and leverage exposure, our aim is to reduce this by 70% over the next three years. I'd note the RWA reduction profile does not include reduction in the operational risk RWAs, for which we will need to seek approval in the future from our regulators.

So on slide 62, we give some more detail in terms of loss reduction for the SRU. And as I said before, we expect the drag from Group results to reduce to less than CHF850m by the end of 2018. But it is important to note that we will continue to expect some downward pressure in 2016, driven by firstly the loss of revenues from businesses that will have a lag in cost roll-off, and secondly the increase in exit costs, given that 2016 will be the peak in terms of outflows from this portfolio. And we may also see impact from the potential redemption of some of our legacy funding assets, as we've talked about before.

Let me turn now to the final section for costs and capital. So Tidjane has already mentioned the overall moves in our compensation pool and what I want to provide here is some more details around how these actions flow through into our future compensation costs. From 2013 you can see that awarded variable incentive compensation has been reduced steadily. Our overall variable comp declined by 19% since 2013 and by 11% between 2014 and 2015. You can see we've also reduced the deferral rate from 56% in 2013 to 41% in 2013.

Now from an accounting point of view, whilst the awarded variable compensation expense has gone down, this is not yet apparent in our income statement, which reflects the deferrals from prior years. Going forward, given the reductions we've made over the last few years and the changes in deferral policy this year, we will see a smaller portion of variable comp being recognized in the income statement. So in particular, I would point out that, as you can see on the slide, in 2016 we estimate there will be about CHF1.5b of unrecognized compensation cost to be amortized compared to CHF1.9b in 2015.

Let me just conclude now with capital leverage. So we show here the movements in Group capital and leverage positions last year. And as you can see, we've seen about a CHF6b increase in RWA since the end of 2014. And this was driven by a combination of CHF8b of business movements, a negative CHF4b related to FX movements, and CHF2b methodology uplifts. Compared to the third quarter, Group RWA increased by CHF5b, primarily due to businesses increases.

If we move to leverage, at the end of the quarter, Group leverage exposure stood at CHF988b. During the course of the year we achieved a reduction of CHF162b, which was driven by CHF140b of business movements and CHF22b from FX moves. As we said before, the majority of this was achieved within global markets and the SRU, in line with our overall strategy. Compared to the third quarter, leverage fell by CHF57b, again driven by global markets and SRU.

Slide 66. As I mentioned at Investor Day, a core component of our strategy is to maximize free capital generation. And we'll focus on the moves here that directly impact our capital base. During the course of 2015 you can see we utilized around CHF500m of free cash flow, primarily due to the reported pre-tax loss of CHF2.4b, the impact from the reg reversal for own credit and goodwill impairment, and further consumption for CET1 taxes and in particular our pension exposures.

Let me discuss the detail through 2015. You can see the end of 2014 we had CET1 capital CHF28.1b, with CET1 ratio of 10.1% and a leverage ratio of 2.5%. Of the reduction in CET1 from the operating free cash flow used in the year, we had a CHF6.4b capital benefit of the raise. If you net out the consumption for the cash dividend accrual and FX movements, you can see our CET1 balance increased by CHF4.3b to CHF32.9b in 2015. When calculating our ratios, this increase in CET1 capital was partly offset by the increase in RWA I mentioned before. But overall our year-end ratios improved to 11.4% and 3.3% respectively.

In the fourth quarter we used about CHF2.4b of operating free capital compared to the third quarter, leaving us with a net increase of CET1 of CHF3.9b. I would not here, by the way, one particular point around the Swiss pension fund. You can see that we have an adverse impact on our CET1 position of about CHF0.5b relating to the revaluation of the Swiss pension plan in light of the reduction in Swiss interest rates over the course of the last year.

So let me just conclude then with a few words on the TBTF requirements. We expect these rules to be finalized and effective in the second half of 2016 and then be phased in until the end of 2019. If we start with the leverage ratio, the requirement for Credit Suisse's going concern ratio is 5%, of which a minimum of 3.5% must be fulfilled with CET1 capital, and the remainder with high-trigger Tier 1 instruments. At the end of the year our going concern leverage ratio stood at 4.8% compared to the 2020 requirement of 5%. Just to be clear, that consists of 3.3% of common equity leverage ratio and 1.5%, including high-trigger Tier 1, high-trigger -- low-trigger Tier 1 and low-trigger Tier 2.

Based on the additional 5% gone concern leverage requirement and our target end exposure around CHF1 trillion, we'd expect we'll need about CHF50b to CHF60b of gone concern leverage, in line with our previous guidance.

Now if you look at the new requirements for the capital ratio, the going concern capital ratio is set at 14.3%. But you can see at the end of 2015 our going concern capital ratio was 16.2%. So we exceed both of the 2020 requirements.

Just lastly, I'd note that under the new draft TBTF rules, high-trigger Tier 2 and low-trigger Tier 1 and Tier 2 capital instruments remain eligible capital instruments, either with going concern cap under the grandfathering rules or as gone concern capital. Now the new rules are more strict than the current set of rules, and we would expect clearly to be fully compliant by 2020. And we will need to increase our further gone concern capital, particularly through the issue of further TLAC debt. But we do not currently anticipate looking at the implementation of the TBTF regime in Switzerland to need to trigger regulatory cause around this.

So that concludes the results portion of today's presentation. I'd like to hand back to Tidjane.

Thank you, David. As we know, the environment has deteriorated materially during the fourth quarter of 2015. A combination of uncertainty on Chinese growth, an abrupt drop in oil prices, large industry mutual fund redemptions of financial assets, asynchronous policies by leading central banks, lower liquidity, have all contributed to making the fourth quarter of 2015 challenging, with lower levels of current activity, lower levels of insurance and material shifts in the prices of some asset classes.

In this challenging context, the bank has delivered a resilient performance on the key aspects of our strategy. APAC has collected CHF17.8b of net new assets, Switzerland CHF13.8b. We have seen outflows in RWM, but that's for regularization continuing. It was in line with our guidance and decreasing. And finally, IBCM has had a very good quarter, with the best performance in deals announced since 2010. Global markets was challenging, but we're addressing this and reducing the inventory aggressively, transforming the model to make sure that it is less volatile going forward.

And finally, we have accelerated the pace of our cost savings, with CHF1.2b of our CHF3.5b already actioned at this point.

With that, I will close this session and open the call to Q&A. Thank you.

(Operator Instructions).

(Inaudible ? microphone inaccessible) to get to a 12.5% return in global markets through cost cutting alone. I was disappointed you said you're already accelerating cost cuts rather than actually more fundamentally looking to reconfigure that unit and I was just wondering what additional actions you think may be necessary.

And number two, on capital, you're obviously missing your RWA target. Do you think in retrospect you actually raised enough capital?

And thirdly, and maybe this is more a technicality, I'm just surprised you didn't preannounce given the scale of the miss versus consensus expectations. I was just wondering why you chose not to. But anyway, thank you very much indeed.

Okay. Good morning. Thank you, Huw. On global markets we really have a comprehensive plan. If you look at what's happening, we said that we would reduce the RWA allocation to global markets back in October. And we talked about it and we have hit that target. What we're doing now is looking under that, at the makeup of that RWA. And we found in there positions that are not consistent with that of the new strategy, particularly in distressed debt and in CLOs.

And from October, we started cutting those very aggressively. The CLOs are down [37%] by the end of the year. But when spreads went up, particularly in December, we got caught by that and that's what you're finding in the numbers. But those balances will be driven (technical difficulty). Tim O'Hara and his team are driving that very hard. So that comes in addition to the cost cuts, which are necessary. But the fundamental way to de-risk that stream income is to continue to cut those portfolios of activities.

But the key point in that is that it's relatively discrete, contained. We know what it is. We are dealing with it. It's unfortunate, but we're dealing with it and those inventories will be taken down, reducing our exposure.

Capital, RWA. Do you want to take that, David.

I think the question, you asked the question, you said did we actually raise enough capital? I think I would point out a couple of points really. Firstly, when we actually raised, did our capital raise last October, I think we did make it clear that part of the point of the capital raise was to actually fund restructuring and reengineering of the Group. And that clearly is coming through in terms of the restructuring costs that you actually see and some of the other measures we're doing in terms of the acceleration.

I think we did actually warn in October, you may recall our trading statement at that point, which did refer to the substantial weakness in client activity across all of our businesses, which was more than offsetting the strength in Asia Pacific and in our net interest income. And I think clearly the fourth-quarter numbers, market proved more difficult than we actually expected. But I would point out that the whole point of the plan was to reduce global markets and to resize the Group, and there's been an awful lot of progress over the last three months in terms of actually delivering that.

I think the second point I'd make is clearly we always make clear that the IPO of a minority stake in the Swiss Universal Bank is a core part of our strategy. And just to update you on that, the license application for this was actually filed at the end of January. And we're anticipating go-live of the new entity in the second half of this year, which will put us on track for the minority IPO that we'd always scheduled in the second half of 2017. So that's very much part of our core plan basically.

And I think last but not least, I think I do recall we did get some criticism back in October around our caution around dividends, particularly the fact we wanted to continue to provide a scrip alternative at that time, and also basically I think referring to a longer-term goal of around 40% payout in terms of our cash flows. I think there's a balance there. I think we were rightly cautious in terms of that and that's clearly a core part of our capital plan here.

You asked me a technical question about should we pre-announce. I think I would point out that, A, we did actually give a very cautious trading statement back in October. We've summarized that already. I think secondly, we actually referred to the [CFICC] restructuring costs. We actually said we were going to be taking about CHF1.2b of restructuring costs. And you can see there's about CHF355m of that already, as well as further CTAs at that point. And I think we were very clear that we did expect to see a substantial impairment in our goodwill position, which indeed has proved to be the case basically. So I think most of those factors actually were made pretty clear back in October.

Okay. Thanks.

Thank you. Your next question is from the line of Andrew Coombs from Citigroup.

Good morning. If I could, please, have a couple of follow-ups on global markets and then one on wealth management as well, please. With respect to global markets, just firstly looking at fixed income result down 60% year on year and global markets down 50% if you include global markets in AsiaPac. Clearly far, far worse than peers. You've talked about the mark-to-market losses there in CLO and RMBS. But to Huw's point, I guess firstly, is there any reason why this shouldn't continue in Q1 and given that conditions have only deteriorated since then?

Secondly, at the Investor Day you did suggest you were going to review areas that you didn't think could reach 12.5% return. I know you made some specific comments on the distressed portfolio there. But if we look, global markets RWAs were actually flat Q on Q. You're still talking about increasing that by 2018. How bad do these product areas need to get before you can reconsider the capital that you're allocating to them, particularly within global credit and structured products?

Second question on global markets would then be about -- you talk about high and flexible cost base. I appreciate the point about expensed variable comp versus awarded variable comp. Your awarded variable comp is only down 11% year on year. Global markets revenues are down 14% year on year, for example. Was there any reason why you couldn't cut the awarded variable comp further?

And then the final question on the outflows both in the Swiss private bank and in the international wealth management. You list a number of one-off factors, as it were, regarding deposit repricing, the external asset management exits, the litigation case and one-off outflow relating to that. How many of these items are now done and finished or how many of those do you think will drag into 2016? Thank you.

Okay. Thank you. Thank you, Andrew. I'm going to take the cost base and then I'll let David handle your GM question. On the cost base, the 11% was total for the Bank. In the case of global markets, the remuneration has gone down actually more than 30%, 36% to be precise, which is a very, very severe, I can assure you, level of remuneration cut. So if you add that plus the change in the deferral, we are making that part and showing that part of remuneration can be flexed, if you wish.

But clearly, given the level of drop in revenue that you have also intra-quarter, that mitigates the drop but it cannot fully absorb the decrease in profit. Therefore you also have to cover the cost base. And we have taken out, I think, roughly 7% of the cost base and we're going to continue doing more as the months come.

Do you want to take the markets?

Sorry, Andrew, what was -- can you just give me -- can you ask the question again on markets, sorry?

It was just given the market --

(Inaudible) going forward. Yes?

Yes. Exactly. Just that market conditions have probably only deteriorated since, given the sizeable mark-to-market losses you've booked, and you're talking you were trying to reduce inventory into this adverse environment, presumably some of these mark-to-market losses are recurring during the first quarter as well.

Thank you. Well, I think -- I don't think I would want to give specific figures. I think what Tidjane has said in the outlook statement is the market conditions that we saw in the fourth quarter have continued into the first quarter. I don't think that means we'd necessarily see marked write-downs in the scale we've seen in the fourth quarter. That would be unduly pessimistic. And I think certainly on the leverage finance commitments, as I've said before, we've actually priced a number of deals so far actually within the flex. So that's obviously a situation worth watching but has not been, at least so far, a cause for concern.

I think clearly we'll obviously watch the rest of the portfolio, particularly the distressed side, in the balance of the first quarter. Clearly if we were to see a further spike up in the yields on that portfolio and therefore on the value of those marks, then we would expect to see some further downward move on those marks. And it's clearly been a difficult January so far. So I think I would say we have seen some losses on these positions in January. I'm not going to quantify it, but not of the same order that we saw in the fourth quarter and particularly in December, where we saw a lot of distressed selling by a number of credit funds, which did result in a very sharp market disparity.

Then I think your next question on the outflows in IWM. I think the short answer is, yes, these are really one-offs and you shouldn't expect them going forward.

Thank you. All very clear. Just one quick follow-up. The plan is still to grow the RWAs in global markets to the CHF84b.

No, I think we've set a target of CHF83b to CHF85b. Clearly the out-turn for the fourth quarter was much lower than that, around the CHF74b level.

I think, as Tidjane said, we have done a very substantial resize in the global markets. I think the priority for global markets in 2016 is to reshape the business the way we've laid it out. I think we do want to see a more equities-like fixed income business. We do not want to see these trading books at the size they actually are. That will probably result more though in a redistribution of RWA within the existing limit and I don't think you should really look for us to see it going up to the ceiling of CHF83b to CHF85b in these market conditions.

Very clear. Thank you very much, guys.

Yes. Just to add to that, that would only happen if our profitability had improved very substantially. In one of my slides you saw the margin on RWA and where it's going. It's really going into RWA in APAC and you see it's actually decreasing in global markets. So until there is a clear improvement, given that we put the businesses in competition for capital, there'd be no additional investment in global markets.

Thank you.

Jon Peace, Nomura.

Yes. Thank you. Two questions, please. Firstly, on January trading, I know you're smaller in macro than your peers and that's an area you've reduced, but are you seeing any material offset to the weaker credit environment from macro?

And also some of your peers have talked about a reasonable January for margins in wealth management. I just wonder if you had any comment there.

And then just separately on oil and gas exposure, I can see you've given us numbers in various places, and thank you for that. But could you give us a total consolidated exposure to oil and gas, and how much of that is investment-grade versus non-investment-grade? Thanks.

Okay. David, you take the January trading and macro, I'll take the margin, and we'll come back to you on gas.

I think we can see some small improvement in our rates business, particularly actually in US rates and Asia rates basically, but not really in European rates. But I don't think that would -- it's clearly a relatively small business for us and I wouldn't take it out of context in terms of that.

Yes. And wealth management in January, look, what we're seeing is Asia a continuation of what we've seen in 2015 in Q4n and, frankly, in the other areas it's just too early to tell.

And oil and gas, do you want to talk about it?

Yes. So let's just -- let me take the oil and gas point. So within the appendix you will note basically we actually do give the oil and gas exposure, and you can see on page 80. And that was a total of a $9.1b within the corporate bank. So that's clearly the majority of our oil and gas exposure. If you add up what we've given elsewhere, you can see it's about a couple of billion elsewhere, so around about the $11b mark.

But let me focus on the corporate bank oil and gas number. You see here the number of $9.1b. Of that, as you can see, 58% is investment-grade. 42% is non-investment-grade. I think there's two points I'd make. Firstly, one, only about 22% of this actually is funded. 78% is actually unfunded. So I think I would not get this out of proportion in terms of this. And secondly, the lending is very heavily biased towards asset-backed lending in terms of this. So there's very good recovery rates against the types of exposure we actually have here.

So I think it's clearly very much worth watching, but I don't think I would be particularly concerned. I think I certainly wouldn't -- reality is if you look at the losses that we had within the global markets business, it was predominantly driven by the overall distressed loan book, not particularly by the oil and gas component, although clearly the oil and gas sell-off has actually driven the weakness in the distressed loan market.

Got it. Thank you.

Okay? Yes. No, I think that's correct. Next question?

Kinner Lakhani, Deutsche Bank.

Yes. Good morning, Tidjane. Good morning, David. Three questions. Firstly, I just wanted to revisit the capital point. Essentially at the time of the Investor Day, I think we got a pro forma CET1 ratio of 12.2% and obviously today the number is 11.4%. So the delta feels like about CHF2.5b, of which I think about CHF1.1b is the ex-goodwill loss, CHF0.6b in the Swiss pension, but I still feel I'm missing almost CHF1b in terms of the deviation on the CET1 capital.

Secondly, on cost, again I'm trying to get my head around the CHF1b miss in the underlying operating expense. How much of this is perhaps the change in the deferred comp methodology and the impact that would have had in terms of true-up in Q4?

And thirdly, just to talk about the credit or the FICC business. Obviously there seems to be a big drive now to de-risk the franchise, perhaps to a greater extent than we might have thought at the Investor Day. Now given that this is happening in areas that were previously considered at high ROE franchises, which we saw from the charts, how does that make you feel about the ROE target, the ambition you have for 2018, which looks relatively high? Thank you.

Okay. No, thank you. Very clear questions. We move on to the 12.2%, 12.3% level, 12.4%, David?

Let me just start on the capital on this. So if we could just refer then, please, to page 66, what you see there basically is a walk through basically from the 3Q to the 4Q numbers. So obviously you have the pre-tax loss of CHF6.4b, of which CHF3.8b is goodwill and is not relevant for the look-through CET1 numbers. You then have the [FEOD] move, which is also irrelevant for the CET1 numbers. So you're then left essentially with CHF0.1b of CET1 relevant taxes. There are some taxes which are payable even in a loss. And CHF0.6b for the Swiss pension of which CHF0.5b basically is the pension and that's the primary component.

So you have a usage of about CHF2.4b of which essentially about CHF1.8b is losses and CHF0.5b/CHF0.6b is the Swiss pension fund. And those are the two components. So if you look at the pro-forma ratio we actually gave of 12.2% dropping to 11.4%, that's 80 basis points. That CHF2.4b on a just short of CHF300b in RWA is essentially the reconciling item. So net-net basically you've got, as I said, CHF0.5b being used for the Swiss pension fund deficit, as I said, which I think we did refer to last year as well, and the balance basically being the operating losses.

I just would note basically on RWA, as you look through the slides, you can see there is about a CHF4b increase in ICBM's RWA usage, of which about CHF1b essentially was the credit (inaudible) and the other was the increase in funding commitments for leverage finance. So that's obviously the other part of the calculation there.

The next question on operating cost and --

Cost deferral. Yes. I think it's -- we can probably give you after, Kinner, a proper reconciliation of this in terms of the numbers. You can see that it's, back at nine months 2015, the annualized costs were about CHF20.5b and the number excluding goodwill impairment was about CHF22.1b for the full year.

Now within that, just to -- that's obviously the question, the major components here really is about CHF0.1b, which is the change in deferral that you're actually referring to. Obviously then the second point is you know that a substantial component of our expenses are actually in US dollars. So obviously as the US dollar has appreciated, and you are looking at the Swiss franc consolidated numbers, they will go up in FX terms. There is then obviously the restructuring provisions we mentioned before, just CHF355m. And then there's also litigation provisions, which are actually taken through expenses. And there's also some indirect taxes in this as well.

So those are the major components basically in terms of the walk across from where we were at nine months to where we are there. I think there's a clear point here, which is if you adjust for all these factors, our underlying expenses are still marginally up compared to where they were at nine months. So I think this underlines the importance of the cost program and what we need to achieve during 2016.

Yes. And the last question was really the FICC portfolio, how we look at profitability. I think you have two considerations there. As you rightly said, there is the absolute return you can get from a given activity. And then there is the volatility or, if you wish, the standard deviation in that return, and that can be outside risk appetite.

I think the issue with some of those activities is that they, the real issue is they become too big compared to the size of our investment bank. When you are running an investment bank with CHF200b of RWA, you could have a desk of that size. When you go down to CHF75b/CHF80b, you absolutely have to resize that. So that's the movement in which we are.

So I'm not so sure that the absolute return on capital you can hit moves. What you're doing is just really cutting the absolute exposure to those product lines so that they don't, if you wish, move your total profitability too much. They become a smaller part of a new profitability you have, if that make sense. So that is really what we are doing.

Daniele Brupbacher, UBS.

Yes. Good morning. Thank you. I had a numbers question and then one more on strategy. On the numbers, you now gave us a very useful additional disclosure on the divisional levels. And I saw that net interest income in the Swiss business in private banking was up almost 20%, I think, in 2015 or CHF300m. And also some increases in IWM and APAC private banking. I think you made some reference to the replication portfolio during your prepared remarks. Could you just elaborate a little bit on what happened there in terms of the results in 2015 and what you probably could expect going forward?

And then more generally on the environment in APAC specifically, you said the environment has deteriorated materially, but you at the same time reiterated your target. So do I understand you correctly that you consider this to be a temporary challenging situation and you are still as positive as you were before on the region?

And when you talked about lowering the breakeven point, I guess that was for the Group overall. How should we think about it? What is your revenue breakeven point? That would be very useful to get some thoughts around that as well. Thank you.

So, yes, I think you obviously saw the increase in net interest income. Obviously if you looked at our numbers before over the last couple of quarters then basically the primary driver of our net interest income has been the various repricing moves that we put in place back in January. So that includes obviously zeroing out in terms of deposits, although we obviously do not charge negative interest rates on our private banking or retail deposits, but we do pass on the negative interest rates through just our corporate and institutional clients I'm afraid, given the negative interest rate environment in Switzerland.

I think you also know basically that we've been working diligently to actually expand our loan portfolio across the businesses and that applies to all three businesses, which is clearly positively benefiting net interest income.

The impact from the replication portfolio was negative last year against that. But I think you have history with us basically so you know this has been in decline now for five years because clearly what you actually have is about an 18-month swap duration and those swap curves are actually really running out. There's basically not much left as interest rates, I'm afraid, have continued to actually fall.

So, yes, it's a marginal negative, but the really important thing was the moves that were taken by all three businesses in response to the interest rate environment, and what we actually did in the private banking operations there, which I think we've discussed before.

And is it fair to assume that this is now the full impact in the numbers or is there more to come, assuming you will not implement further measures on the repricing side?

Well, I think that's probably fair. It's clearly -- making forward-looking statements on interest rates is not the business to be in, I'm afraid. I think in the current interest rate environment we have, with negative Swiss interest rates as they stand today, no, I think we've completed the rollout of the measures. Clearly if that were to change at all this year, and, as I said, it would be difficult to predict how 2016 will actually break out, then we'd obviously look at that again in that context.

And I think, and you know, as Tidjane's mentioned it before, the continued expansion of our lending operations across our private banking businesses does remain a core part of our strategy. So that should boost net interest income.

And on APAC, thank you for the question because it's a really important point in our equity story. We fundamentally believe in the long-term prospects of Asia. That is rock solid. Therefore, we are driving long-term value creation and we think it's the right thing to do to invest in that part of the world. Yes, there will be volatility from one quarter to another, but we are committed.

And actually that commitment has a very direct upside, which is that currently we are picking up resources of better quality than we ever have and at a lower price than we ever have, because our commitment to putting capital in the region no matter what is attracting actually people who are in the region, believe in the region and want a career with a player that is unapologetic about growing in Asia.

We are absolutely convinced it's the right thing to do for our shareholders. And, frankly, when I look at the performance in 2015 CHF17.8b of net new assets, that is remarkable considering all the challenges we see in markets. And in Q4, which everybody was nervous about, CHF3b. For a business of that scale, we have exceeded in absolute terms players who are much larger than us in Asia. 12% of AUM growth in what's supposed to be a very challenging market.

So how do we continue to grow? We continue to recruit. But the good thing about recruiting top-quality people, we've said 40 in the fourth quarter out of the 70, so an acceleration in recruiting more people and of better quality. They strengthen our teams. Loan penetration is the lowest actually of all our regions in private banking in Asia. So we see a big upside there, both in the existing portfolio and in penetrating a new clientele. We have geographic expansion. We have been historically underweight China. We can invest and gain market share there.

And I will say also that the credit track record of Asia is one of the best in the banks. We have had a number of margin calls unsurprisingly in the fourth quarter and they've all gone well. They've all gone well. People have done what they are supposed to do. And there's been basically no credit incident and no issue in the Asian portfolio.

So not only is it growing, not only is it the highest returning part of the Group, but the downside is very, very limited, when we look at the Group and when we've been through the scenarios. So really absolutely we're going to continue doing that.

Regarding when we will breakeven, what it is about is about fixed costs. And we've talked earlier on about our philosophy of being quite binary because we think that's the only way you generate durable cost savings. You've seen that with the US PB. When we say CHF700m of savings, they are real. I visited the building, entire floors empty. We are not paying for rent anymore. The infrastructure is gone. The business is gone. So those are real, real savings. And the other CHF500m we've added has been a joint effort of all the team here. And we've moved the teams in the same spirit. And these are savings that are definitely basically done. That's why we say actioned.

And we're going to continue because the philosophy we're trying to put in place is a continuous improvement philosophy. And that's not unique to us. What we're doing is catching up with a number of savings that have not been made or could, but have not been made. And we hope that once we reached that point we can continue on a path of generating 2% to 3% productivity improvement every year. That's really where we'd like to get to.

Thank you very much.

Kian Abouhossein, JPMorgan.

Yes, thanks. And thanks for the disclosure on the energy side. That's very, very, very helpful. Three questions. It sounds to me that, and just I want to get this clarified, the end-game is 2018. All your targets are saying 2018. In the meantime, if the environment is more difficult, and you talked about challenging, you talked about fourth quarter being more difficult than expected, if the environment continues to be more challenging ultimately 2018 is the end-game and if operating leverage is negative, you're willing to take that operating leverage, as you're investing continuously. I just want to clarify this is how we should think about the strategy.

And in that context, the CHF9b to CHF10b on page 20 of your strategy slides, is that still a realistic outlook from what you're seeing in the business now, Tidjane, that you had even more time to look at it and in the current environment?

The second question is if you could explain me a bit more how you go from a cash equity -- how you create a fixed income cash-equity-like, because equities is a flow agency business, DLJ is not a flow agency business, and I just try to understand what your strategy here is.

And the last point is, just to clarify on cost deferral, how many years do you have now deferrals on cost bonuses and what did you have previously? Thanks.

Okay. Thank you. Thank you, Kian. On 2018 I think you are right to say that the difficult conditions challenge that. But what we are doing is really, really having a go at the cost, as you've seen, that is more aggressive to recreate a bit of room in terms of operating leverage, because you are starting from a relatively bad place.

The other area where we have some leeway, and David made that point, is around dividend and how prudent we've been in total payout ratio etc. during this period.

And the third level you have, frankly, is the investment, because the investments are of a very different nature. Hiring, our aim is of a different scale from some other systems etc, investments we had in mind, and we can also flex that.

So at this point I'm not willing to question the CHF9b to CHF10b yet because I feel we have quite a few levers that we can pull if we fall behind in terms of revenue to protect the PTI. And this is why we gave a PTI target, if you remember all the discussion. And I like PTI because you've got many levers you can pull to return a given profit target. So I would stick to CHF9b to CHF10b for the time being.

Fixed income and equity, it's a longer conversation. We are not saying that we're going to run fixed income like equity. The key point we're trying to make is about standard deviation and getting rid of the activities that basically increase your standard deviation and have an extremely wide standard deviation. That's really simply the idea. And we think that if you look at our portfolio, some activities are much more skewed in that sense than others and if we get rid of those we will through the cycle have a business that is much more, that is moving much more in the range.

And the cost deferrals, David, do you --

Sure. I think the unrecognized compensation accrued at the end of 2014 was CHF3.1b and the unrecognized at the end of 2015 was actually CHF2.3b.

But how many -- what is the deferral timeframe? I'm sure you give that later at the employment reports, but just --

Three years. Three years. So you can actually see the walk-through on page 64. So you have CHF1.5b in 2016, CHF0.6b in 2017 and CHF0.2b in 2018. It's a three-year deferral. But under US GAAP essentially you have to basically take one third plus a third in the next year plus a third the year after that. So it's a three-year declining deferral. And the recognition is CHF1.5b, CHF0.6b and CHF0.2b.

So you can see it's going to work its way through.

Yes. And just on the environment, you mentioned that you could at one point potentially slow down -- investment can be flexed, I think you've said. If this environment continues, is that something -- is that the trigger potentially or does it have to get much worse? How do you think about the flex on investment? What are the trigger points really?

Look, it's a good question I think. In one of my previous answers you find part of giving such regard, which is that really the place where we would be the most resolute is certainly Asia because for all the fundamental reasons I gave we would continue. There are other areas where we plan to invest where the result is less obvious. I don't want at this point to go into too much detail. But we have flexibility should the environment not improve, but I think, frankly, that's a quarter-by-quarter discussion that we will have in the coming quarters.

Okay. Thank you very much.

To summarize how I feel about it, I think the CHF3.5b, I think we can exceed the CHF3.5b of cost savings. I think what we've achieved in two or three months shows you that. I'm quite confident we'll hit that early, i.e. before the end of 2018. And there's more to come from there, so that's one lever. We can save more costs and we can also slow down or obtain differently the investments.

Thank you.

Fiona Swaffield, RBC.

Hi. Good morning. I had questions in a couple of areas. Firstly, on the Swiss Universal Bank potential IPO, could you update us on basically how that differs from the numbers we see, because obviously I think it's legal entity, whether there is a difference in numbers?

And also whether you are still sticking to your CHF2b to CHF4b as an indication of the capital release.

The second area was just the absolute -- because the starting cost base underlying, as you mentioned, is higher. So does that -- are you still looking for CHF18.5b to CHF19b of absolute cost base in 2018 or has that gone up or are there other offsets? If you could discuss that.

And then lastly on RWAs, 2018 is some time off. How do you think -- should we still be expecting the RWAs to grow in 2016/2017 or do you think we'll have some offsetting impacts? And where are we on model changes and the Swiss multipliers coming in? If you could help us a bit on the shorter-term RWA outlook. Thank you.

Okay. Thank you. Sorry, I just want to make sure we understand your last question. I missed the beginning of what you said on RWA.

Just on RWAs, obviously we're expecting them to grow towards 2018, but shorter term could the reduction in the SRU come in before the RWAs grow? So what's shorter-term outlook?

Okay. Very good. So I think they are all for you, David, really.

Thank you, Fiona. So just on the Swiss Universal Bank, yes, you are absolutely right. What we're reporting here is an MIS construct. So it's the management reporting numbers for the Suisse Universal Bank, whereas the actual entity that will be IPO-ed is Credit Suisse (inaudible) and that will be a separate legal entity.

I don't think today I actually have an update for you on the exact financials or what the entity will look like. I think that is somewhat premature. As I said, the license actually went in actually on January 31 and the entity is expected to start operation in the second half. So I think by the time we get to the end of the year we'll probably be in a position to start to give you the LE numbers, but they will probably be slightly different from the MIS numbers, just as we actually work through a completely separate legal entity at that point.

I think on the second question, I believe it was on the cost base, I think what we said back in October was that we would set a target for the cost base excluding restructuring and litigation but including everything else. And we also said that that would obviously would be dependent on the exchange rates prevailing at that time because, given we have a large portion of our costs outside the Swiss franc, you will see moves upwards and downwards. And that was one reason why I gave that reconciliation for. And clearly with the strength f the US dollar, that's something we'd expect to continue.

I think at this point basically if you ex out that numbers, you end up with a target toward the top end of that range around the CHF19b mark, but it's clearly going to be a bit dependent on where the dollar moves. If it went to CHF1.10 that would have an impact on this, and clearly if it went back to CHF0.90 it would have a different impact on this.

I think the point to take away here though is twofold. One, that we did see some cost inflation, but nothing like as much as you saw from the overall numbers. It's a couple of hundred million which, as I said before, underlines the need for discipline and underlines the reason for the acceleration we're actually pushing through now. And two, we are committed to at least that CHF2b net number. As Tidjane said, the investment will be phased to offset that depending on the market environment.

I think, three, on RWAs, that quite a long question. I would say at this point basically you obviously have seen the implementation of the FRTB proposals has actually pushed back a year and revised proposals have actually been published. I think we gave guidance at that time we'd expect about a CHF20b adverse effect from FRTB. That does look still likely to be the case.

But you are now talking something that's probably going to happen a year later in terms of this. So the actual, as you might say, the implementation of the changes is being pushed out. I think before we actually said end-2018, starting 2019. It's now looking at least a year later from that. If FRTB is pushed back a year I think it's very likely we will see further delays and remodification around the other stuff too. Nonetheless, I think this capital strategy which we actually laid out in October is very much the right one. We need to build our CET1 ratio to 13% in anticipation of these moves.

In terms of intervening model and methodology effects, we did see methodology effects. Those numbers are actually broken out on the slides. I think we will see a further in 2016. Two specific ones tend to be the credit and the Swiss mortgage and multiplier effects, which together are normally worth around about CHF4b basically. But we will probably see some other small model changes above and beyond that, Fiona.

Okay.

It's okay. Thank you. We have time for one or two more questions.

Jernej Omahen, Goldman Sachs.

Yes. Good morning from my side as well. I have a question on page 52 where you discuss the mark-to-market losses in your investment banks. And if I understand correctly, this was the driver of the bulk of the loss. What are you marking these things to? And the reason why I'm asking is I'm assuming that the liquidity in securitized products in distress, i.e. securitizations and credit is virtually evaporated at this point. So how much does it take for these spreads to blow out another 100 basis points or come in another basis point -- another 100 basis points?

And just the next question I wanted to ask you, and also I understand that you are reiterating the strategy you announced late last year, from the perspective of this basic hurdle that you discussed in assessing the businesses previously, which is on a fully allocated cost basis over the long term these businesses need to cover their cost of capital, can you just give us a refresher for why securitized products, particularly under the new regulatory regime, still clears that hurdle in your mind?

Okay. Very good. David, do you want to take the mark --

Sure. I think it's a good question. I think clearly -- but not a new question. I think there's always this question about how you actually mark these positions in declining liquidity. But I would just point out there is no option around this. You don't mark to some index or some proxy like that. You have to mark to the prices you actually see and observe at the end of the year. And that, in a distressed market -- we are seeing forced sales by redeeming hedge funds and credit funds in these positions -- does result in some quite sharp losses, which is what you've actually seen reported in their numbers.

There's no doubt that the thinness of that market may basically give you some concern that essentially perhaps it's a distressed market you're actually pricing to. But we don't have any particular option to do anything different to that and the marks do actually reflect that. So I think to that extent therefore they are conservative, but they do reflect the pricing at that time.

The liquidity event we saw, it's not a -- it was a flight to quality; it was not a severe flight to quality. So it's nothing on the level of, I'm afraid to say, what obviously I've seen in prior years. So there was sufficient evidence there, but it certainly was a very stressed market towards the end of December, is all I'd say there.

Okay. Now on the second question, it's a really important question. If you look again at page 52, you see that distressed block has an absolutely disproportionate size in this. So we still think that fundamentally the conclusion that securitized product is a good activity is correct. If you look at -- and it's generated a reasonable level of losses here.

If you look where the disproportionate losses come out, it's in the credit activities. So I think the question should be more directed at credit. And there I said very clearly that distressed didn't belong into the new strategy, in our current strategy, and is something we simply are going to take to zero basically. That's one. And the other (inaudible) was CLOs, which have also created enough trouble.

So I don't think it fundamentally changes the conclusion. If spreads had not gone out they way they did in November/December we would have run down those positions and never talked about it again. We're pulling on with a legacy issue because we're really dealing with something that is a reflection of a past strategy of the bank, not of the strategy we have going forward. But I think that those businesses run the way we want them run are able to pay and create value for our shareholders.

All right. Thank you. So, sorry, just, David, a follow up on the way this is marked. So the products that you hold in your obviously held-for-trading portfolio, the securitized products, so how liquid are these marks? What does it take to move the spreads out another 100 basis points?

Well, I think that's a big question. I think I guess if we saw a similar collection of distressed outflows from a number of hedge funds then you could see that type of event actually happening.

But I will just correct you on one point. The majority of the marks was actually not in the securitized products portfolio. It was actually in the credit portfolio. That's on page 52. So the number there was the corporate bank was about 21%. You can see the leverage finance underwriting was about 17%. So in overall basically it's 56%. It's really credit. It's not really the securitized products business. We did see some stress there in terms of some of the agency and non-agency positions, but it was not the primary driver of this.

Okay. Thank you very much.

We should go and take the last question because we are at the end.

Jeremy Sigee, Barclays.

Hi there. Thank you. Just two follow ups really. The first one is on the subject we were just discussing there, the inventory in credit and securitized product. You talked about distressed basically heading to zero. You also said more broadly that you're reducing inventory. Could you give us the scale of reduction for credit and securitization, securitized products in total, what scale of inventory reduction you have achieved since 4Q in the light of that bad experience and how much further that goes? That's the first question.

The second question, just very briefly, I don't know if you've given us the number for possible but not probable litigation exposure. I wonder if you have that number.

Okay. Thank you, Jeremy. David, do you want to --

Yes. I think we've achieved reductions of about 20%, 25%. Clearly it varies a little bit by trading book. Some of them have actually been very liquid and we've achieved a great deal more than that. Some of them have been less liquid and we've achieved less. But we've made good progress in that sense.

The reasonably possible number is actually CHF2.2b.

Okay. Thank you very much.

Okay. Well, thank you very much for joining our call. As we said, we have a clear strategy. Clearly we're implementing it in difficult markets and outlook for Q1 remains very cautious. These are very unique market conditions and they are challenging. But fundamentally we are maintaining the objectives and the targets we have presented, we are working hard to achieve them and we'll update you in the coming quarters on our progress. So thank you very much.

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