Credit Suisse Group AG (CS) 2016 Q4 法說會逐字稿

Welcome and thank you for joining the Credit Suisse Group's full year and fourth-quarter 2016 results conference call. (Operator Instructions). And the conference is recorded. (Operator Instructions).

At this time I would like to turn the conference over to Mr. Adam Gishen, Head of Investor Relations in Credit Suisse. Please go ahead, Mr. Gishen.

Yes. Good morning and welcome to our fourth-quarter 2016 results call. Before we begin, let me remind you of the important precautionary statements on slide 2, including the statements on non-US GAAP measures and Basel III disclosures.

In this presentation, when we give our segment reports, we focus on adjusted results as it is the way we manage the operating performance of our businesses. For a detailed discussion on our reported segment results we refer you to the Credit Suisse Q4, 2016, earnings release.

With that, I will turn over to Tidjane Thiam, our CEO.

Thank you, Adam, and good morning everyone. And thank you all for joining this call. With me today is David Mathers, our Chief Financial Officer. This morning we will present our fourth quarter and full-year 2016 results for Credit Suisse. David and I both look forward to taking your questions at the end of the session as usual.

2016 was a year of considerable change for Credit Suisse. It was the first full year of implementation of our strategy, to be a leading wealth manager with strong investment-banking capabilities, which we announced in October 2015. It coincided with a period of considerable strain in financial markets particularly during the first half of 2016.

These conditions were further heightened by a number of significant geopolitical developments. Against this backdrop we have been able to make good progress on executing our three-year strategic plan. And we are building, in Q4 2016 and Q1 2017, considerable momentum.

Progress is being made on many fronts. It is clear that these achievements are due to the support of our clients and the dedication and hard work of our teams. I would like to thank here our clients for their trust, but also all our employees at Credit Suisse, for their hard work during 2016.

We are, of course, well aware that a significant amount of work remains in order to achieve our ambitions and deliver value for our shareholders. So, with that, I will focus my comments this morning on our strategy and its implementation in 2016. I will also give you our outlook for 2017, which although, of course, market dependent, is positive.

So, turning to slide 5, we show here the Group reported and adjusted PTI, as well as key capital metrics. David will come after me to walk you through all our financials at Group level and by division. And we will then take your questions.

So, for me, let's start with our key messages this morning. You will be familiar with the format of this slide. Firstly, on cost, we have significantly increased operating leverage across our businesses, realizing net cost savings of CHF1.9 billion for 2016. We will not relent on the pace of cost reductions, going forward.

As you are aware, our objective is to achieve a Group cost base of below CHF17 billion for 2018, having started above CHF21 billion in 2015.

So, moving on from cost to growth, profitable growth, we have achieved CHF28.5 billion of net asset inflows, an increase of 58% compared to 2015. And this was not achieved at the expense of profitability. Both our gross and net margins increased.

Our global advisory and underwriting franchise had a good year, with particular strength in Q4 across all key products, and good momentum in 2017. In global markets we have substantially completed our right-sizing, with the benefits of that restructuring starting to emerge.

Thirdly, we are dealing proactively with our remaining legacy issues. In December, 2016, we reached a settlement with the US DOJ relating to our legacy RMBS business. This was a key objective for me to put this matter behind us. And this removes a major source of uncertainty for our bank as we look forward.

In addition, we have continued to make progress in deleveraging our strategic resolution unit. Finally, at end Q4, our look-through CET1 ratio stood at 11.6% and our CET1 leverage ratio was 3.3%. Pre-DOJ RMBS settlement these ratios would have been respectively 12.5% and 3.5%.

So, after this overview, let's look at the quarter in a bit more detail, starting with our cost-reduction efforts. We have reduced operating expenses, as I said earlier, by CHF1.9 billion in 2016. This is more than 30% above our initial target of CHF1.4 billion. Within these reductions our 2016 non-comp expenses, at constant exchange rates, are down 9%. This is a very important KPI for us.

So, non-comp expenses down 9% year-on-year. And down 16% in the fourth quarter compared to the same quarter a year ago, showing an acceleration within 2016 in the pace of our cost-cutting efforts, so that the run rate at the exit of 2016 is 16% below the run rate at the exit of 2015.

We measure our progress on cost reduction on an FX-neutralized basis with end-2015 exchange rates. You will note that this leads to an operating cost base on this slide of CHF19.4 billion at end 2016. With current exchange rates, and it showed to you here on the right, our actual cost base is CHF300 million lower at CHF19.1 billion. So, from CHF21 billion, at the end of 2015.

Let's turn now to our second objective; profitable growth. We produced, as you can see here, strong net new-asset inflows of CHF28.5 billion, an increase of 58% compared to prior year, and with higher gross and net margins.

We have been able to recruit experienced, quality, relationship managers, RMs, particularly in IWM and APAC. And this, combined with the quality of our existing RMs and their close interactions with clients, has allowed us to produce this performance.

In the year where the environment was challenging with low or negative interest rates, lower levels of client activity, significant geopolitical uncertainty leading to a wait-and-see attitude for some clients, the geographic diversification and the scale of our platform have shown their value.

This growth has not been achieved at the expense of profitability. Both our gross and net margins have increased year-on-year. We believe that we are seeing here the benefits of our integrated approach for ultra-high net worth and entrepreneur clients combining our traditional wealth management with also advisory, so IBCM and capital-market expertise, and financing capabilities. More on this later.

Let me take a minute to focus on our NNA in Q4, which will be a point of interest, and provide you some color on what actually happened. The first point I would like to emphasize is that in a typically slower quarter we saw continued positive flows in Q4 in APAC and across emerging Europe, Middle East and Africa, as you see here.

I would also like to highlight our performance in Western Europe where we attracted inflows. We believe that we have achieved relative outperformance in these markets for our industry. That said, we have been taking a number of proactive actions, which we wanted to describe to you here and which have led to new outflows.

As we have highlighted in earlier calls we have what we call [Clients Tax] Programs. Our regularization program has now moved to Latin America where it was launched in 2016. And this, clearly, has resulted in outflows that you can see, about CHF1.5 billion, in Q4.

Also in Switzerland we have accelerated the exit of certain external asset managers, what we call EAMs, to protect our profitability and de-risk our portfolio. This is deliberate, discretionary, and proactive. And it contributed CHF1.1 billion of outflows in the quarter.

We have continued our regularization effort in Switzerland too. This contributed CHF0.8 billion of outflows in Q4. And we experienced the usual Q4 seasonal outflows well known in Switzerland.

So, overall, out of the CHF5 billion of outflows you see here CHF1.6 billion can be attributed to seasonal effects. And CHF3.4 billion, so majority, to our own proactive management actions which we consider as an investment in the future to ensure that we have clean and compliant growth.

So, we are confident that we will continue to generate strong positive NNA in the next 12 months. And, as we say at the top of the slide, in Q1 to-date all regions have had positive NNA. So, we've come back to normal, and with an acceleration and quite strongly.

Now, if you step back and look at our total asset flows by region for 2016, we have seen CHF14.6 billion of net inflows in APAC representing a growth rate of 10%. So, double-digit growth rate.

And in Middle East, Africa and Eastern Europe, we attracted NNA of CHF14.3 billion, a 13% growth rate. In Europe, a more mature market, we attracted NNA of CHF4.2 billion, a 4% growth rate.

So, let us now turn to the next slide that shows another important metric, our total wealth-management AuM, assets under management. At year end we had CHF734 billion of AuM in wealth management; an increase of 8% over the year.

This is a key driver of our medium-term earnings potential. And the strength we have here is due to a combination of strong asset inflows and favorable market movements due, in part, to the strengthening of the US dollar to which we are exposed.

Our strong NNA growth validates, we believe, our balanced approach between mature markets and emerging markets.

So, let me now (inaudible) move to a quick review of our divisions, division by division. Let's start with APAC.

2016 saw a stark contrast between the excellent results of our wealth management and connected activities at the heart of our long-term strategy in Asia and, to be honest, the challenging market conditions that our global markets teams faced.

So, I would like to focus here first on our wealth-management performance, before talking about global markets. As you know, having set up APAC, Asia Pacific, as a division we have ensured that our private banking, our financing, and our underwriting and advisory teams work ever more closely together to provide integrated coverage to our target ultra-high net worth and entrepreneurs client. That's a very important point for us.

This has proven to be very popular with clients leading to significant increases in share of wallet. Let me give you a few numbers here. In our private-banking activity 2016 revenues were up 17%, one seven, year-on-year confirming our regular, continuous, progress in this core activity.

For underwriting and advisory, so equity and debt underwriting and advisory [M&A], net revenues increased 34% year-on-year. And Credit Suisse was ranked number one in terms of share of wallet in APAC, ex-Japan, among international peers; something we are very pleased with.

Our financing platform catering to the needs of ultra-high net worth clients was set up in early 2016 and expanded in the second half of 2016, so that in 2016 its revenues were up 32% year-on-year, with a marked increase in deal activity.

So, taken together, these teams [have had] a very strong year with revenues up 24% and estimated PTI, as shown on the slide here, up 65%; well on track to achieve our 2018 target presented at our recent investor day. And you can see at the bottom of the slide that return on capital has increased in the past 12 months from 16% to 23%.

Moving now to global markets in Asia, our global-markets operations had a more challenging year. Equity sales and trading revenues decreased 31% for the full year of 2016, as they were adversely impacted by lower client activity, particularly in China and in Hong Kong.

Fixed income, while resilient for the full year, was impacted by significant market headwinds in the fourth quarter. Importantly, and as we mentioned at the investor day, we have launched a CHF300 million cost-reduction program in APAC in order to protect our existing and planned investments in people and technology in the region and improve returns over time.

We will do so by driving greater operational efficiencies across our platform and removing duplications.

The wealth-management opportunity in Asia remains highly attractive, with the number of billionaires and ultra-high net worth individuals more than doubling over the past 10 years. We are well positioned to continue to capture this opportunity.

Let's move now to IWM, international wealth management. IWM had a very strong year in 2016. We have generated a significant increase in asset inflows with CHF15.6 billion of net inflows versus CHF3 billion of outflows in 2015.

Our success has been driven through hiring quality RMs, through improved productivity, and through a more focused approach to strategic-client coverage. These are the ultra-high net worth client that we prioritize in our coverage.

We have grown our lending volumes across our (inaudible). And followed a disciplined model, utilizing our balance sheet, to provide financing and lending solutions for our target ultra-high net worth clients at attractive margins.

As we discussed at the investor day, IWM is executing on its plan consistently, funding business growth and improving our control framework through effective reductions in cost. We also delivered a much improved performance in asset management and David will give you more color in his section.

Overall, IWM adjusted PTI increased by 9% to CHF1.1 billion, with a return on capital increasing from 22% to 23%.

Let's move now to our home market, Switzerland. Our Swiss teams have produced a strong performance during 2016, with four consecutive quarters of profit growth when compared to 2015, accelerating their progression in the fourth quarter with a 13% year-on-year increase.

In 2016 adjusted PTI pretax income was CHF1.7 billion, 9% up from 2015, if we exclude the Swisscard impact. So, if we look at the full year of performance over three years, profits increased from CHF1.5 billion in 2014 to CHF1.6 billion in 2015 and CHF1.7 billion in 2016; an increase of 15% in two years in what is considered traditionally a mature and challenging market.

This was achieved in the year in which we made continued investment to further improve controls and enhance our digitalization and technology platform. Our management team in Switzerland are executing very well on their plan with discipline and producing excellent results.

So, let me pause here for a moment, and address the topic of our Swiss IPO. When we started this restructuring we were clear, in October 2015, that we needed between CHF9 billion and CHF11 billion of capital. We took the opportunity then to raise CHF6 billion by way of [replacing an] rights issue. And raised about CHF1 billion through various disposals.

That's CHF7 billion. We then [CHF2 billion, CHF2 billion, CHF4 billion] to get to CHF9 billion to CHF11 billion to the CHF4 billion to be raised from a partial IPO of Credit Suisse [with rights again].

The range of our capital needs was, frankly, uncomfortably wide at the time. But that was due to the uncertainty linked then to a potential outcome of our RMBS case with the DOJ.

In 2016 we set up and created a distinct and visible Swiss universal bank division within the Group with 1.6 million clients and more than 13,000 employees which, as I have just highlighted, has been making considerable financial and operational progress ahead of our planned IPO in the second half of 2017.

We have had a number of additional positive developments in the last 12 months regarding our capital. First, by resolving the RMBS case, we have removed one of the main uncertainties in our capital planning. Two, thanks to the hard work and progress made by our teams during 2016, we ended the year with a CET1 ratio of 1.6% and a pre-DOJ settlement ratio of 12.5%.

All in all, this means that we are now in a more comfortable position from which to assess our capital options, going forward. The IPO has provided an effective capital backstop during a period of peak restructuring in 2016. We want to preserve this optionality, given the uncertain geopolitical environment, in which we currently operate.

So, we will continue, as planned, our preparations towards an IPO, in the second half of 2017. That said, we will also continue to analyze the evolution of our regulatory environment, which is key in this. And, as we always do, continuously examine a broad range of options to determine if there are ways to reach a more attractive risk-reward outcome for our shareholders.

Moving back to our business performance now, let's look specifically at our global advisory and underwriting franchise. In terms of our global advisory and underwriting activities, shown on slide 17 here, we delivered revenue growth of 9% year-over-year outperforming the market.

DCM was up 16% for us compared to a market up 5%. Advisory was up 20% for us compared to a market down 2%. ECM was down 14% compared to a market down 25%. So, this means we increased share of wallet, in each major product category.

So, focusing now beyond our global franchise to the IBCM division in our internal structure, our teams delivered what I can only describe as an excellent performance. In Q4, 2016, net revenues rose 36% year-over-year to CHF569 million. This represents our strongest fourth quarter since 2012.

Regarding current trading let me comment on January. We continued to see strong momentum in our advisory and underwriting activities with revenues up more than 90%. I think 92% exactly, year-over-year, as of end January. This progression has been driven by a busy pipeline of transactions which we have priced across both debt and equity capital markets.

Our M&A pipeline remains strong looking forward. And, to highlight continued success in cross-border announced transactions, we are advisor to Actelion in their $30 billion agreed sale to J&J. David will run you through the details later in his presentation.

So, let's move now to global markets. In a year of significant restructuring, global markets remained profitable, with an adjusted PTI of $204 million in 2016. The right-sizing of GM in terms of RWA is substantially complete. And the division has been able to protect its strong client franchise.

We have made good progress in reducing the cost base, with annualized 4Q 2016 operating expenses below $5.2 billion at year end, a reduction of more than 13% versus 2015. We remain on track to reach our ambition of less than $4.8 billion by 2018. And are well positioned to benefit from the operating leverage we have created.

We started to see here the early results of the deep restructuring and (inaudible) in Q4. Absolute revenues in global markets for Q4 were up 8% year-over-year in absolute term in a division, I would like to remind you, that consumed 20% less RWA.

So, always when you measure the performance of global markets, it is good to keep in mind that we have [put] 20% less RWA at work in that division, [which may] explain some of the differences between (inaudible).

So, turning to the next slide, you can see the improved performance in our core businesses. The momentum in the division is strong, with a 66% year-over-year increase in net revenues across our credit businesses, in 4Q. This underscores the strength of our US-leveraged finance trading and underwriting, of our securitized products, and our US high yield.

In equities our Americas cash and prime businesses were resilient, powerfully offset by continued muted client activity in [EMG]. And, if we exclude the effect of SMG on which we commented at Q3 and we look at the sequential Q3 to Q4, equities net revenues in Q4 improved by 34% sequentially, even if one has [delivered] below Q4 2015. [But we are] pretty pleased with this trend and the improvement we achieved in equities.

So, moving on to January regarding current trading, the momentum we see here in Q4 has continued. And we have a significant rebound in client-activity levels across capital markets and trading. [We've] credit and securitized products revenues up over 100% year-on-year, somewhat offset by lower trading volumes, and volatility level in equities.

Let me now turn to the third priority on our initial page, resolving legacy issues, starting with the SRU on the slide 20 here.

In the SRU our team has continued to make significant progress in disposing of legacy positions and de-risking. With a 39% reduction in RWA or a 53% reduction, if you exclude operating risk, which is a better measure I think of our progress made. So, on the RWA we can actually tackle, 53% reduction. And also 39% decrease in leverage exposure.

(Inaudible) the SRU remains central to restructuring of the Group and David will come back to that.

As I said in my opening remarks, in December 2016 we reached a settlement with the US Department of Justice, related to our legacy RMBS business. We estimate the total cost, the total all-in cost of this agreement for us, consumer relief included, at about $2.550 billion, as stated in our accounts. So, that's the total cost.

We believe that in resolving this matter related to business activities happening between 2005 and 2007 we have been able to agree a settlement which safeguards interests of our clients, employees, and other stakeholders.

So, let us look now at the capital position. If we look at our core capital ratios, the look-through CET1 ratio stood at 11.6% at end of the fourth quarter, compared to a CET1 ratio of 12.5% pre-RMBS settlement. In terms of leverage we ended the year with a 3.3% leverage ratio compared to 3.5% pre-DOJ RMBS settlement.

Finally, before handing over to David, I want to provide you with an update on current trading and an outlook for the quarter. Our businesses across both wealth management and investment banking have made a strong start to 2017. In January 2017, and so far in February, we have seen significant positive inflows across each of our wealth-management businesses.

In global markets we have seen a significant rebound in client activity levels across capital markets and trading, with credit and securitized products revenues up over 100% year-on-year, somewhat offset by lower trading volumes and volatility levels in equities.

Deal activity in IBCM is off to a strong start across all products, in particular ECM and DCM, in the Americas. The IPO market in the Americas and EMEA in January 2017 has been busier than both in January 2015 and in January 2016. We have been extremely active pricing 19 deals, one nine, for a total of over $5 billion. In [leveraged] finance we have launched 63 (inaudible) US deals for a total of $37 billion.

Going forward, we believe that we are well positioned to capture profitable growth opportunities, and benefit from this improved market conditions.

And, with this, I will hand over to David.

Thank you very much, Tidjane. Good morning, everybody, and thank you again for joining our fourth quarter and our full-year earnings call for 2016.

So, I'll start on slide 24, with a summary of our financial results. As per usual, here we show the Group numbers, on a reported and an adjusted basis. And these have been prepared under the same definition that we've used in prior quarters.

Furthermore, we've also provided a full reconciliation of the adjusted and the reported results for the Group and for each of our divisions, in the appendix.

You'll see that the most significant adjustment item in the fourth quarter was the major litigation expenses of CHF2.1 billion, of which CHF2 billion relates to the settlement with the US Department of Justice regarding legacy RMBS matters, on which we announced a final settlement on January 18 of this year.

So, I'd note that this is treated as a fine. And, therefore, there is an immaterial tax offset in respect of this charge. Furthermore, under US GAAP, we're required to assess the lifetime cost of the provision for the consumer-relief portion of the settlement. And this amount has been included in our fourth-quarter charge.

So, if we look at the results for the fourth quarter, we reported a pretax loss of CHF1.9 million on revenues of CHF5.2 billion. On an adjusted basis, we achieved a pretax income of CHF171 million on CHF5.1 billion of revenues.

For full-year 2016 we achieved an adjusted pretax profit of CHF615 million. And that compares to the reported pretax loss just under CHF2 billion. Now, in net terms given the immaterial tax offset from the DOJ settlement, our reported net income was a loss of CHF2.4 billion for the whole of last year.

Now, as in prior quarters, for the balance of this presentation I will focus entirely on the adjusted numbers, as we believe these more accurately reflect the operating performance of our businesses.

So, let's turn to slide 25, and review our capital and leverage positions. Throughout last year a key focus of our strategy has been to reallocate capital to our growth businesses. And we've made both significant and consistent progress on this front. Risk-weighted assets stood at CHF268 billion at the end of the fourth quarter.

And that's a reduction of CHF22 billion from the CHF290 billion at the end of the fourth-quarter 2015.

Compared to a year ago, we've reduced risk-weighted assets in the strategic resolution unit by CHF28 billion and by a further CHF12 billion in global markets. And I note these are business reductions, that's net of the impact from FX, and major external-methodology changes.

Now, with the capital released from these areas, we've reinvested CHF9 billion of risk-weighted assets into our growth businesses in Asia Pacific, international wealth management, the Swiss universal bank and investment banking and capital markets.

We've made similar progress in terms of our leverage exposure, which stood at CHF951 billion at the end of the fourth quarter. That's down by CHF37 billion from CHF988 billion at the end of 2015. This has primarily been driven by a year-on-year reduction of CHF63 billion within the SRU.

[As] risk-weighted assets we've then reinvested our capital resources, increasing leverage exposure by CHF30 billion, in our growth businesses.

Now, if we look at our capital and leverage ratios, we ended the year then with a look-through CET1 ratio of 11.6% which compares to 11.4% at the end of 2015. [I'd note] that if we'd excluded the impact from the DOJ settlement in the fourth quarter the CET1 ratio would have ended the year at 12.5%. That's 110 basis points higher than the 11.4% that we reported at the end of 2015.

Our CET1 leverage ratio was 3.3% at the end of the quarter and that's stable from a year ago. If, though, we again exclude the impact from the DOJ settlement the CET1 leverage ratio would have increased to 3.5%, meeting our Swiss too-big-to-fail going-concern requirement for 2020.

Our Tier 1 leverage ratio stood at 4.4% at the end of the [first] quarter and that compares to 4.5% at the end of 2015.

So, let me turn now to discuss how we mitigated the impact of the RMBS settlement on our capital ratios, on slide 26. So, we show here the CET1 ratio development over the last year. As I mentioned in the previous slide, we achieved a year-end CET1 ratio 11.6%. And that's a 20 basis point improvement from 11.4% at the end of the last year.

And you can see that the settlement with the DOJ reduced our ratio by approximately 90 basis points in the fourth quarter. And, adjusting for this, the pre-settlement CET1 ratio would have been 12.5%.

Now, I'd remind you that our previous guidance was to operate between 11% and 12% CET1 ratio for the duration of 2016, subject to major litigation events. And this is clearly a target that we have met both on a pre- and a post-settlement basis.

Now, in terms of our guidance for our CET1 ratio, with the RMBS settlement now behind us we will now expect to operate between 11% and 12% pre-IPO during the course of 2017.

Just briefly on dividends, we've continued our prior-year practice and we intend to recommend to our shareholders at the General Assembly a payment of CHF0.7 per share in cash, with a scrip alternative, as in prior years.

So, let's turn to slide 27, to review our cost-reduction program. I'm pleased to report that our [cost] program remains very much on track and that we surpassed our target for 2016, with our full-year cost base being reduced to under CHF19.4 billion, compared to the CHF19.8 billion target that we set for 2016.

Now, as Tidjane's mentioned, I'd reiterate these amounts are stated on FX-neutral basis from the full-year 2015 baseline of CHFR21.2 billion. In fact, factoring in currency moves, which is particularly the depreciation of sterling in the course of last year, our adjusted cost base was CHF19.1 billion for 2016.

So, if we look at our net cost savings in the year, in FX-neutral terms we achieved net cost saves of CHF1.9 billion, well in excess of the target of CHF1.4 billion that we set originally.

In 2016 we benefited from the previously announced headcount reductions across the bank. We exceeded our original target of 6,000 net reductions, reducing our net headcount by more than 7,250, of which the vast bulk represents departed and notified contractors and consultants.

Now, if we look forward, as we said at the investor day in December we had target our costs to be at or below CHF17 billion by the end of 2018. And I note this, again, is measured on an FX-neutral basis. And just to put that in context, if we did that at today's exchange rate that would equate to a target that's about CHF300 million lower than the FX-neutral target.

If we look at 2017 we are, therefore, targeting costs to be at or below CHF18.5 billion, again, stated on that consistent FX-neutral base. And that's supported by additional net headcount reductions of between 5,500 and 6,500 across the bank.

With that, I'd now like to turn to each of the bank's divisions' performance, and let me start with the Swiss Universal Bank, on slide 28.

The Swiss Universal Bank delivered a strong performance in 2016. We've delivered four consecutive quarters of solid, year-on-year pre-tax income growth, which has been achieved notwithstanding the interest rate environment here in Switzerland.

For the fourth quarter, the Swiss Universal Bank delivered a pre-tax income of CHF378 million. That's an increase of 13% year-on-year. Net revenues were down slightly compared to the fourth quarter of 2015, but I'd remind you that those revenues included an extraordinary dividend from our ownership in the SIX Group in 2015. So excluding this, our revenues year-on-year were broadly flat.

Overall, in the fourth quarter, we saw strong net interest income and resilient recurring commissions and fees.

Our focus on cost efficiency has also helped to offset the investments that we've been making in regulatory, compliance and digitalization initiatives in the division. Overall, fourth quarter operating expenses declined by about 5% year-on-year, and the cost to income ratio improved to 70%.

Within wealth management, the continued success of Credit Suisse Invest resulted in our mandate penetration increasing to 30%, and that's up from about 26% at the end of 2015. This increase in mandates penetration has supported our recurring commissions and fees.

In the corporate institutional banking business, we delivered a pre-tax profit of CHF207 million in the fourth quarter. That's an increase of 6% year-on-year. We saw very good momentum here in the investment bank in Switzerland, with Euromoney and IFR naming us the best investment bank in Switzerland in 2016, and also the Swiss franc won house of the year.

So let me just conclude, then, with just a few words on net new asset flows for the division. So if we look at the whole of 2016, wealth management saw net new asset flows of CHF2.1 billion, before the impact of our regularization and the selected exits in our external asset management business.

The combined regularization and EAM-related outflows totaled CHF.08 billion for the whole of 2016, and the majority of these were actually taken in the fourth quarter.

Just looking at 2017, we would still expect to see outflows, from both regularization and selected EAM exits, and we guide you towards total outflows of roughly CHF3 billion in 2017, somewhat lower than in 2016.

Just concluding on corporate institutional banking, the full year had positive net new assets of CHF4.3 billion, of which CHF2.5 billion was received in the fourth quarter.

So, let me turn now to International Wealth Management, on slide 29. The International Wealth Management division had a strong finish to the year, contributing to a 9% growth in pre-tax income for 2016 as a whole. We achieved this growth notwithstanding difficult market conditions for most of last year.

In the fourth quarter, pre-tax income of CHF300 million was an increase of 31% year-on-year, and I'd also remind that this is also against the comparison to the fourth quarter of 2015, when we saw the extraordinary SIX dividend, which was split between SUB, as I'd mentioned already, and IWM.

We've remained very focused on cost efficiencies, mitigating the major investments in growth, and in our compliance and risk functions, and overall, the fourth quarter cost to income ratio improved to 75%, down from 81% a year ago. The return on regulatory capital improved to 24% from 19%.

Within wealth management, revenues increased by 8% compared to the fourth quarter last year, primarily driven by higher net interest income. Compare to the third quarter, we saw a marked uptick in transaction revenues, reflecting increased activity following the US election, and the benefit from certain measures we took to proactively focus on idea generation and client engagement.

Overall, fourth quarter pre-tax income, CHF192 million, was broadly stable, year-on-year, but excluding the extraordinary dividend from SIX that I mentioned before, pre-tax income increased by 15%.

If we look at assets from wealth management, AuM increased by 12% during 2016. In terms of net new assets, we saw a very substantial and critical turnaround from the outflow that we suffered in 2015.

We saw record full-year net new asset inflows of CHF15.6 billion across our businesses in emerging markets and in Europe. We also saw regularization-related outflows of CHF5.7 billion in 2016, which is in line with the guidance we've given before, for that to be around CHF5 billion, and these were incurred primarily in Latin American.

That means the annual net NNA growth rate was 5% for 2016, or 7% before the regularization-related outflows.

So looking forward to 2017, we would continue with our prior guidance, and we would expect further regularization outflows of around CHF5 billion in the current year.

Year-on-year, the gross margin improved by 3 basis points to 110 basis points for the full year, again primarily reflecting increased net interest income.

In asset management, the fourth quarter pre-tax income of CHF108 million improved significantly. In fact, it improved by over 175% year-on-year, and for the full year, pre-tax income of CHF287 million was up by 54% compared to 2015.

If we look at the fourth quarter, performance fees were much stronger than in the same period last year, reflecting strong returns within our credit funds -- mainly CLOs -- our commodities funds, and some of our hedge fund investments.

Recurring management fees were stable year-on-year, but I'd also point out that cost control was a key success for asset management, with fourth quarter expenses down by 16% year-on-year.

If we look at net new assets for asset management, we saw inflows for the whole of 2016 totaling CHF5.6 billion, but this did include outflows of CHF4.4 billion in the fourth quarter, primarily in respect of money market funds in our emerging markets joint venture.

With that, let's turn to Asia-Pacific, please, on slide 30.

Asia-Pacific delivered a pre-tax income of CHF122 million in the fourth quarter, and that compares to CHF148 million in the fourth quarter of 2015. As we indicated during the investor day in December, we think about our business in Asia in two sub-segments. First, our wealth management and connected activities, which encompasses wealth management, financing and our underwriting and advisory operations.

Separate to that, we have our Asia fixed income and equities trading business, which supports growth and wealth management activities, but also deals extensively with a broader range of institutional clients, and we'll be moving to reporting and divisional numbers on this basis, with effect from the first quarter of 2017.

In the interim, we provide here pro forma numbers on the slide based our preliminary estimates, which show the performance of Asia-Pacific on this basis.

So we first look at the wealth management and connected business. For the full year, we achieved a pro forma pre-tax income of CHF513 million, reflecting the continued focus on ultra-high net worth, entrepreneur and corporate clients

The number of net relationship managers increased by 10% year-on-year, reflecting both strategic hiring and also substantial performance discipline.

Although net new assets inflow did slow in the fourth quarter, our full-year net new asset inflows still totaled CHF14.6 billion, and I note that these net asset inflows are after regularization-related outflows of CHF1.4 billion in the fourth quarter, and CHF2.5 billion for the whole of 2016.

Going forward, in 2017 we continue to expect some further regularization-related outflows of approximately CHF1 billion in the course of the year, the majority of which we expect to be incurred in the first half.

If we then look at our trading businesses in Asia-Pacific, clearly the equity markets in which we operate were significantly weaker for the whole of 2016 compared to 2015, and that has impacted all of our businesses in the region.

In the fourth quarter, particularly in December, the market for our fixed income business deteriorated substantially, and we saw a significant reduction in client activity for our rates products.

And as a consequence, whilst for the full year we made a pro forma pre-tax income of around CHF265 million in our APAC trading business, on a pro forma basis these businesses recorded a net loss for the fourth quarter.

As Tidjane's already mentioned, and as we summarized on investor day, we're targeting a number of efficiency measures to improve our operational leverage and capital returns, should these challenging market conditions persist.

So let's turn to Investment Banking and Capital Markets, please, on slide 31.

The division reported a very strong result in the fourth quarter with net revenues of $569 million, and that's an increase of 36% year-on-year. We saw improved wallet share across all key products and covered client segments, and we ended the year with top-five market shares in equity capital markets and leverage finance, and were a leader in global cross-border announced M&A activity.

Now, if we look at this in terms of revenue, our equity underwriting revenues of roughly $100 million were largely flat year-on-year, but significantly better than the decline in industry-wide fees.

We also remained very active in advisory, with revenues of $265 million, but clearly our strongest performance was in debt underwriting, where we had a 63% increased year-on-year, with revenues totaling $225 million.

Operating expenses for the quarter fell by 14% year-on-year, reflecting lower compensation and G&A expenses, and overall the division delivered a pre-tax income of $142 million, equivalent to a return on capital of 22%.

Furthermore, as we said before, returns were particularly strong in the Americas, where the execution of our strategy began earlier and is more advanced, and we achieved a return on capital of 28% for the quarter.

If we just turn to the full year, IBCM's results reflected the continued implementation of our strategy, with revenue and profits up meaningfully compared with 2015. Net revenues of $2 billion was up 8% year-on-year, driven by stronger advisory and debt underwriting revenues, whilst (inaudible) operating revenues were down by 5%, reflecting both cost discipline and a focus on self-funding investments.

Overall, the full-year pre-tax income was $297 million, triple that of 2015.

So let me just conclude, then, on IBCM with a few words on the analysis at the bottom of the slide. As you may recall, we introduced this new disclosure in the third quarter to show the full breadth of our global advisory and underwriting franchise, including revenues booked in global markets, Asia Pacific and the Swiss Universal Bank in addition to IBCM.

Overall, across all of our divisions, our total global advisory and underwriting revenues are $1 billion, which is up by 32% year-on-year, significantly outperforming the industry-wide (inaudible).

So we now turn to Global Markets please, on slide 32.

The Global Markets division has clearly been through a substantial restructuring in the course of 2016, refocusing the business around our strongest product and client areas. We've also significantly reduced the amount of capital in the division, and I'm please, therefore, to say that the division delivered revenues of $5.6 billion for the full year, and a pre-tax profit, notwithstanding this restructuring, of $284 million.

For the fourth quarter, notwithstanding the significant reduction in our exposure to macro business lines, FX and rates, which we saw across the market had the most significant rebound in general activity in the fourth quarter, our Global Markets division still delivered revenues of $1.3 billion, an 8% increase year-on-year.

Furthermore, with the support of a 26% reduction in costs, we were profitable in the fourth quarter, with pre-tax income of $23 million, and that compares with a loss of $507 million that we suffered in the fourth quarter of 2015.

The credit franchise posted revenues of $608 million, and that's an increase of 66% year-on-year. We saw continuing momentum in global credit products, and particular strength in the Americas, in light of both substantially improved market conditions, and a higher underwriting share.

Securitized products revenues also increased. That reflects higher client activity across both agency and non-agency business lines.

If we turn to equities, as we mentioned at the investor day in December, we're moving our SMG business to a fund structure, and that process will be completed later this year. If we look at equities excluding SMG, revenues of $421 million declined by 6% year-on-year, and in the fourth quarter resilient cash equity and prime services results in the Americas was offset by weaker market activity in EMEA.

Compare to the third quarter of 2016, equity revenues -- again excluding SMG -- increased by 34% despite what's normally a seasonally slower quarter.

In solutions, fourth-quarter revenues of $259 million was down by 18% year-on-year. We delivered strong results in emerging markets, particularly Latin America, but this was offset by a weaker performance in equity derivatives, partly reflecting low levels of volatility in the quarter.

Going forward, it's clear that a core focus for 2017 will be the strengthening of our solutions franchise, particularly in equity derivatives with increased collaboration with the IWM division.

Lastly, if we look at capital, you can see that we've reduced our risk profile in 2016. At $51 billion in risk-weighted assets, we continue to operate well below our year-end RWA ceiling that we targeted at $60 billion.

In leverage, $278 million in leverage exposure compares to a ceiling of $290 million.

If I may just conclude, then, with a few words on the Strategic Resolution Unit on slide 33. So, as Tidjane's already summarized, we've continued to make substantial progress reducing risk-weighted assets, leverage exposure and operating expenses in the SRU.

In the fourth quarter, we reduced total risk-weighted assets by $11 billion, 20% compare to the third quarter; reduced the leverage exposure by $16 billion, or 13% quarter-on-quarter, and these reductions included the unwinds and (ovation) of macro derivatives, the sale, restructure and roll-off of emerging market corporate loans, and the sale of our entire European middle-market loan portfolio.

If we look over the last year, that means we've reduced total RWA by $29 billion, or 39%. Furthermore, if we look at the leverage exposure, we've reduced the total by $67 billion, also 39%.

A key contributor to this has clearly been the reduction in our external bilateral derivative trade count. We cut this by roughly 57%, eliminating 191,000 trades last year. So I think, all-in-all, these actions put us well on track to achieve the multi-year targets that we summarized at the investor day in December.

So let me now turn to operating expenses. Operating expenses were $1.6 billion for the full year, a reduction of $1.1 billion, or 41%, compared to 2015. In the fourth quarter, our operating expenses were $287 million, which was a reduction of $64 million from the previous quarter.

Now, in 2016, clearly the exit from our private banking businesses in the United States was a very significant driver of these savings, but I also point out the progress made reducing headcount and volume-related expenses through portfolio exits, as well as the reduction in the footprint of the former investment banking operations, which was the primary driver of savings in the fourth quarter.

So just lastly, before we conclude, I'd note that if we look at the cash generation of the SRU, before litigation, restructuring costs and legacy funding, we released about $1.1 billion last year.

In terms of exit costs, these were approximately 0.5% of our RWA in the fourth quarter, and 1% for the whole of 2016. I think, given the progress we're revising our guidance downward for exit costs to be at or below 3% of our RWA over the lifetime of the SRU.

This reflects both the potential volatility in the macro environment, and also the continued shift towards more leverage-intensive but RWA-light assets.

So that concludes the results proportion of today's presentation, and I'm now like to pass back to Tidjane, please.

Thank you. Thank you very much, David. In summary, 2016 was a year of progress for Credit Suisse. We have said that it is our ambition to be a leading wealth manager with strong investment banking capabilities, and the executive team and myself are fully mobilized to deliver on this.

We have made good progress against the subjective during the 12 months of 2016. We have increased our operating leverage, with CHF1.9 billion of net cost savings. We have achieved profitable growth, with a 58% increase in net new assets, and an 8% increase in assets under management, with higher margins.

This continued into 2017 with SUB led by Thomas Gottstein, IWM Iqbal Khan, and APAC, Helman Sitohang. We ended 2016 with strong positive momentum in our restructured Global Market business led by Brian Chin, and we have heard industry-leading performance in IBCM activities with James Amine, which has continued into 2017.

We've dealt with our key legacy issue by settling with the DoJ, and I'll mention here our General Counsel, Romeo Cerutti, did a great job. We ended the year with an 11.6% CET1 ratio after our settlement.

Our outlook for 2017, the second year in our three-year plan, is positive. With this, we'll be happy to take your questions.

We will now begin the question and answer part of the conference. (Operator instructions).

Andrew Coombs, Citigroup.

Good morning. If could ask three questions, please, two related to the private bank and then one on capital.

First question on private banking would just be a comment in your guidance in regularization flows. You guided to $5 billion for 2017, which I think would be less than half of what you booked in 2016. That's quite a different set of commentary compared to your largest peer, which is guiding towards similar regularization outflows.

I'd be grateful if you could just explain your rationale, and why you think they will fall so much in 2017.

Second question would be relating to the relationship managers. I noticed that both in IWM and in APAC, you've actually seen a decline in relationship managers in Q4. For IWM, that's been ongoing for a little while, but for APAC it demonstrates a reversal.

Just what your plans are in hiring in those two regions.

And then the final question on capital. 11.6% quarter one is clearly better than expected. Does that give you more flexibility on future capital decisions? With that in mind, in particular, could you just talk about your plans for (inaudible) bank given recent press commentary?

Okay, good morning Andrew and thank you. We'll do a double act here, between David and me. Maybe, on regularization to be clear -- maybe we were not clear enough in our commentary -- we gave our targets by division, so the $5 billion was for IWM only.

We gave $3 billion for Switzerland, and we gave $1 billion for APAC, so if you add all of that that's $9 billion, which frankly is in the ball-park of the numbers you were referencing for our peers, yeah?

Understood.

RMs, you are correct. A bit of a different situation in IWM and APAC, and that's true in many respects. IWM -- never forget that IWM is a mature business sitting in there, so they are quite different from APAC, which is quite a young business.

So the levels you can pull in terms of cost management in IWM are just more significant. So they have been able to recruit, looking at (inaudible) here, I think 2015 gross -- 2015 gross RMs, but you see how the net is a decrease, because there is very active -- to use a euphemism -- performance management underway in part of the portfolio.

So that's what you see, and in APAC it's different, because simply it's a much smaller population. We started with 540-something. When you see IWM hiring 200, you can see the difference in scale between the two businesses. So the scope for performance management there is less.

So there's been a bit of performance management, but compared to 161 gross hirings you won't see that impact in the numbers.

But going forward, you can expect IWM to continue to do what they've been doing, i.e. to invest and cull, if I may say so. I think we invested something like $130 million and saved $125 million, so it's more or less balanced between the two, and APAC is pacing its investments, because frankly the environment has been more difficult than we expected.

We are very pleased with the recruiting we've made. It's worked. I mean, you see the numbers for the wealth management activity, PTI of 65%. A lot of that is due to the new RMs, but we are posing and watching the environment, and we'll move depending on how the environment evolved there.

Capital. David, do you want to say a word?

Thank you. I mean, I think just in general terms, we're obviously pleased to close the year at 11.6%. I think just a few words of explanation. I think, you know, looking at some of the analyst questions and the commentary that's come in this morning, just to expand a bit on the impact of FX and US dollar moves.

Obviously, the US dollar actually ended the 2016 somewhat higher, just over $1.02. That actually means, because obviously just in recollection, just under half of our revenues, half of our leverage and half of our risk-weighted assets are actually in US dollars, so obviously as a consequence, the appreciation of that, that pushes up the reported balance.

If you look at the RWA numbers in FX-neutral terms, rather than the $268 billion number we shared on that slide, you'd be about $7 billion lower than that, so just over the $261 billion mark.

So clearly, we were, I think, rather more successful in reducing risk-weighted assets than perhaps was anticipated by the market. That was clearly led by the SRU. That was a significant outperformance against targets, but we also reduced in Global Markets and in some of the other areas as well.

So that's -- those are the primary drivers for us actually closing at 11.6%, and that clearly gives us a stronger position to start 2017 with.

So back to the other part of your question, how we look at the future. In preparing for this I actually went back to what we said in 2015 -- I think it's on slide 35. We said we needed $9 billion to $11 billion of capital, and you really have to go back to that number to understand how we think about capital.

Clearly at the time, the prospects of raising that much were non-existent. So what we did is -- we were transparent on the $9 billion to $11 billion. We raised $6 billion. We did a number of disposals. You saw our proactive capital management during 2016 for about $1 billion.

That's $7 billion, and $2 billion to $4 billion was always the back-stop which the IPO provided, and it's been an effective plan in terms of giving comfort to the market on our ability to strengthen our capital position.

Now, as you said, things have improved but we believe we're in a comfortable position, having a credible scenario on the table on which we are working, and Thomas Gottstein and his teams are working to prepare the IPO, and we have time to consider calmly all the elements of such a decision, and ultimately make the best decision for our shareholders.

Okay, thank you very much.

Thank you,

Andrew Stimpson, Bank of America.

Morning guys. You spoke very optimistically about your outlook here today, especially in markets and IBCM, and I remember at the investor day there were a few questions around operating leverage.

I just wanted to clarify if that's still the same today, in that your cost base is pretty fixed now, and we should expect a low cost-income ratio on that marginal revenue rebound, and maybe some level of magnitude around what that marginal cost-income ratio could be would be good.

And then secondly, you seem to have seen a very material increase in the liquidity coverage ratio to 202% in the quarter. I think that's an average number, so I'm just wondering what that finished the year at, and where you think that can come down to in the medium term, because it seems to be a material drag on your leverage ratio, and probably disproportionate to some of your peers. Thank you.

Well, thank you Andrew. Good morning, again. I think you raise two very interesting areas, which personally I see as upsides in our story. On the outlook and the operating leverage, what I can tell you is the $5.2 billion we gave you is effectively a cap, and we're going to go lower than that.

We think that we'll hit -- I'm talking about a cost for GM, sorry. Cost in GM, $5.2 billion. We can hit $4.8 billion, and the other thing I would say is that the most dynamic parts of our portfolio have very low cost-income ratios, okay? I don't want to break down all of P&L, but some of them have a 20% cost-income ratio.

So when you think about what's going to happen if a volume is flowing there, there is significant upside in terms of P&L impact.

So I think you will see that impact materialize in 2017, but I want to be very clear. We've been very clear that we're bullish on fixed income. We've been very clear that we're precious on equities, so take that into account, and keep in mind also that there is less capital working, but the return on capital are higher.

If you think about this as revenue per RWA, it's gone up a lot in the restructured unit. Anyway, we're driving higher absolute revenues with significantly lower RWA, so we believe it's a good setup.

David, you know, I always give him a hard time about his liquidity. 202%, where are we headed?

So, I think I we look at the LCR ratio -- so firstly, that is the end of the period number, just in terms of that, just to be clear on that, Andrew.

So I think in the course of the second half of last year, we made significant progress reducing our outflows, particularly our non-collateralized outflows, and you'll see that as you look at the denominator of the calculation.

I think in terms of our HQLA, so the numerator, two factors there. One, obviously, we had to set up the IEC last year, and that did require the establishment of greater liquidity, as we've discussed before. And then secondly, obviously, going into the fourth quarter, obviously aware of the discussions with the DoJ. Those were only settled -- you may remember the announcement on the 23rd of December.

Yes.

So I think, going into that, we felt it was prudent, given some of the market disruption we've seen elsewhere, to basically remain relatively liquid on the 23rd. We did make some liquidity reduction measures in the week afterwards, but clearly there's a limit to what one can do between the 23rd and the end of the year.

So looking forward, you were absolutely right and I echo what Tidjane just said. That's clearly a source of leverage efficiency for us, shall we say?

I think we should certainly be able to operate by 180% or below for the end of the first quarter, and I think we'd look to be more like about the 150% by the end of the year.

We're always going to be -- have a slightly higher LCR ratio than peers because of our legal entity setup, because you know we're basically run as an IHC in the States, like everyone else, but we also have significant subsidiaries elsewhere.

Thank you very much.

As we drive that down, that will improve the leverage significantly, so --

Exactly.

It's a good.

I think my estimate was -- if you do the numbers, Andrew, is I think it's worth at least 10 basis points on the leverage ratio.

Yeah, okay. Understood, thank you.

Okay, thank you.

Kinner Lakhani, Deutsche Bank.

Yes, hi. Good morning. I just wanted to take a step back on this CET1 guidance or target. You know, previously at the investor day you talked about a pre-litigation exit rate of 12% to 13% at the end of 2018.

Obviously, we've seen a 90 basis point impact from the material litigation, and unless you are changing your end-state guidance for the risk-weighted assets of the SRU, or the growth that you see in other division, then all things being equal this suggests that the capital ratio will end up more in the kind of 11% to 12% market, if you see what I mean.

So I'm trying to get a sense of that, and secondly, just to come back on this point on the legal entity structures, what do you see as the costs related to Brexit, and the subsidiarization implications of Brexit, and to what extent is that baked into your cost target for next year? Thank you.

Okay, thank you very much. David, do you want the target on CET1?

Thank you. So I think, as you said, when we spoke at the investor day in December we gave a range for 2017 and 2018 of between 12% and 13%, pre any major litigation events.

I clearly went out -- well, obviously post the settlement with the Department of Justice, and I think you can see that while the gross effect was about 90 basis points, we did mitigate that substantially in terms of the full-year outcome.

I think, when I spoke, I said that we expected to operate in the course of the current year at between 11% to 12% pre the IPO process, so I think that's the target operating range for this year, basically, and that's our guidance for 2017.

I think on -- shall I?

Go ahead.

On Brexit, I think at this point we've clearly had a substantial working group looking into this before the referendum last summer, and that's obviously been stepped up post that. I think it's probably premature to give any clear guidance on this.

We're obviously looking towards the likely exercise of Article 50 later on this quarter, and seeing how that actually pans out. Clearly, we'll look at, basically, options that preserve access to the EU 27 market, depending on how the final negotiations with the EU go.

But I think it's a bit premature at this point to give specific guidance around the costs of that.

Is that okay?

Thank you.

Okay, thank you.

Daniele Brupbacher, UBS.

Good morning, and thank you. I wanted to ask about more on the client behavior side in wealth management in the three regions. Can you talk a bit how that has probably evolved over the past couple of months, and what your best guess would be how that looks like going in to 2017?

In Gottstein's presentation at the investor day, I think it was slide 23, that was a very useful road map to planned IPO in terms of next step. Is there anything new you could tell us? Could you reiterate when you will first publish the financial statements of the AG and give more guidance? Is that going to be like a Q2 event? How should we think about it? Is it some sort of a mini Investor Day?

And also how you think about the conversations with the FINMA regarding the calibration of the RWA requirement, if you could just sort of give us a bit of an update there. And also probably whether SPS is included or not, whether -- which businesses of IWM are going to probably part of the Swiss legal entity. Just to have a bit of an update on some of these topics, that would be useful. Thank you.

Okay. No, thank you Daniele and good morning.

On clients, it's been an interesting year. Certainly for part of the year in Q3, you heard us say that -- just two things. High cash balances and lower levels of transactional and client activity and I think that was [then] across the board. Then you had the events of Q4 and the US election, which kind of reawakened the appetite.

And so, we see positive momentum towards the end of the year, an improvement in January in terms of levels of activity and trading. And also a lot of clients are looking to protect their portfolios.

There is nervousness around the levels in the markets today and that the markets possibly price a very, very optimistic scenario in terms of the evolution of the US, where basically you would get tax reform and no trade issues and a lot of growth and deregulation in the financial sector. So clients -- and I'm just expressing a personal view here, clients are concerned about those things and look for downside protection. But all that creates opportunities for us.

What we have found and that's been really very successful, both in IWM and Asia is really working for real ultra-high net worth clients and designing very complex solutions for them has proven really very effective and very rewarding. [And it is a very] lethal combination in that space. And we are really leveraging our market and investment banking capabilities to the max.

If you look at Asia now, there are quarters where more than 60%, 65% of revenue in IBCM is linked to ultras, either personally or for the corporations they own. And you can see a similar pattern -- you can see a similar pattern in the other regions too. So you know, more positive I would say than we've been before and I think we have more opportunities to learn and to advise our leading clients.

On the Swiss IPO, you are right. I don't remember that slide, whether I used it in my section as well, but there is no change to that. I think we're progressing what we planned, that the teams are working towards in the first half of this year.

Thank you.

Is that okay? Okay, thank you Daniele.

Kian Abouhossein, JP Morgan.

Yes, thanks for taking my questions. There are two, two of them.

First of all you gave a new cost guidance of below CHF18.5 billion for 2017. Can you talk a little bit about -- and clearly that's roughly a month, a month and a half after the Investor Day. Just wondering why you're giving it now rather than -- what's different from the time in December and in that context how you think about the revenue environment clearly, considering the view that you're taking on costs.

And the second question is related to the SRU which eats away most of your pretax core profits even post litigation. Can you talk a little bit how we should think about this number in respect to 2017, in terms of potential pretax losses or what are the deltas that we should take into context in order to get a better understanding?

Very good, thank you, Kian. David, do you want to take that one?

Thank you. So I think no change in that sense. So when we spoke in December, we wanted to give targets for 2018 and gave clear guidance around that. I think that was the core focus there.

And I think we always said that we'd come back in the first quarter with more detailed guidance for 2017 and that's what we're doing today. So essentially that we'd look to have our costs at or below CHF18.5 billion, in FX neutral terms.

And just to reiterate the point I made before, at today's exchange rates that would be about CHF300 million less than that just from a modeling point of view.

And we've also given guidance around the headcount reductions as well. That was obviously a key metric that I think people were looking to us for last year. We obviously exceeded that at just over the 7,250 mark against the 6,000 target and we're setting a target now of between 5,500 and 6,500 for 2017.

So I think it's more I think so people can actually see the glide path we're actually on towards our 2018 numbers.

I don't think we gave last year year-by-year guidance for the SRU and we're not going to do so now. I would merely say that we've obviously laid out targets for the SRU in both 2018 and 2019. The latter being when the legacy funding costs actually expire.

I would merely suggest that given that we want to be on a clear glide path from where we were last year to where we want to be in 2018, that's probably your best view in terms of the outlook for 2017.

In terms of any detailed comment, I do think that the emphasis in 2017 as we've said before will be increasingly around leverage [caps], so continuing the reduction in leverage exposure. I do think that will result in a slightly higher percentage of RWAs and [we actually saw] it was 0.5% in the fourth quarter of last year.

But nonetheless, I think given that we're obviously now, I guess 15 months through the SRU, last year it cost us in total 1%, it does seem appropriate to revise down our exit guide-outs to be at or below 3% for the lifetime of the SRU. I think it's quite possible the final tranche positions will cost us more than the initial tranches, but I think 2% to 5% seemed on the pessimistic side particularly in terms of our experience so far.

So I think that's all I'd say at this point. I think clearly it will be the same priorities as it was for 2016. Reduce RWAs, (inaudible) risk, reduce leverage exposure, but also very importantly reduce the operating expenses away from litigation and legal costs relating to the US PB settlement which is still running through the SRU.

And you were right to insist on that, just to build on what David has said because now that RMBS is gone -- the two big things in my mind certainly were RMBS and SRU. Now that RMBS is gone, SRU is absolutely weighing on a very strong earnings power, what I consider a very strong earnings power of a very strong franchise.

And (inaudible) to David, who has been great -- done a great job driving it down, but it is really crucial that we stay focused on that. It's certainly a swing factor in our story.

If I could just briefly follow up on SRU. I mean you've gone from adjusted CHF3 billion, CHF2.3 billion and your target in SRU in 2018 is CHF1.4 billion. Should we just think about a glide path towards just a normal, as we've seen the linear glide path towards that number, is not unreasonable.

I don't think we want to give specific targets year by year. But nonetheless I think you know we want to make sure that as we get to the end of 2017 you can see we're very well positioned for the 2018 goal. And then particularly for the 2019 goal because that's actually when that big chunk of costs in the SRU relating to the legacy binding -- binding rule actually drops away at the end of 2018.

And could you just comment on revenues, since you've givena cost guidance.

Look, nobody is jumping to answer that. I think we've stayed away from that honestly, Kian. We have -- we haven't even given NNA Group guidance. We talk about it ex-post once we deliver it. We've given you PTI guidance in a number of cases.

I think on revenue we'll just put it -- frankly, you just have to look the horizon and see all the potential discontinuities that we're facing from (inaudible) the French election and one has to be reasonably cautious. But on the basis of what we know today and if there were no major discontinuities, we'd be quite positive which is what we've said in our outlook.

But that's you know as I said, all the things being equal and on the basis of what it is today, we think there's an upside in global market and Brian has been clear about this kind of CHF6 billion revenue potential. We think that's achievable. Revenue (inaudible) is achievable. So we're cautiously positive, but I'm afraid we won't give you a number, but cautiously positive.

Thank you very much for the time.

Thank you.

Fiona Swaffield, RBC.

Morning. Thanks for taking my questions. Two.

The first one is on recurring commissions within the three private banking geographic divisions. They are very strong, particularly in APAC and I wondered if you could talk about the dynamics there and expectations going forward. I was just surprised given regularization and other drags.

The second is coming back to the moving parts on the capital ratios. And I think at the Investor Day you talked about a 200 to 300 basis point of drag, negative drag from RWA growth and that was excluding the SRU. I wondered if you thought that that number would be lower now given the achievements in Q4. Thanks.

Do you want to take the RWA first and then --

Sure. Fiona, I think that was a reference back to the original Investor Day back in October of 2015. I think we didn't update our guidance for RWA in December of last year and I don't think I'm going to now.

Clearly if we think about the strategy of the Group, then the reallocation of capital towards the growth businesses remains core to what we're actually doing and that's an absolute priority.

But I think obviously if you think about the numbers post (inaudible) there's been quite a lot of shifts since we actually spoke back in October of 2015. So I wouldn't give any specific guidance in terms of that 200 to 300 basis points at this point.

So yes, Fiona. On the revenue we -- as I said we are extremely focused on recurring for reasons you can imagine. So that's true from APAC. The mandate (inaudible) is still low, but we're driving it up with a degree of success and more generally the business is just very, very focused on that. We treat them as higher quality earnings and we use every opportunity to drive them up with customers.

And if you look at APAC, it's interesting, I think. We had seven times -- I said we had a 17% increase in revenue in the PB, private bank, so five year in a row that we do this. So over time, we're just finding that it's sort of a virtuous circle where we managed to really balance very well the sources of income from our clients.

And I think you would notice also that even net interest income has been very strong and you should expect it to grow with the increase of the loan penetration and what the AFG Group is doing. So we think it's a good story and we expect it to continue.

And in IWM we do the same thing, where the strategy may be more explicit because it's easier in these markets to sell mandates and to shift from transaction fees to mandate and commission and that's working.

And you see the same thing actually in Switzerland too. So CS investors continue to grow. I think we reached a high mark of 30% this year (inaudible) of CS Invest. So all that is -- I'm glad you underlined that because I think it's a real improvement in the quality of our innings.

And we will comment on that on the numerical evolution that there is a really a strategy to also drive the quality of the earnings higher.

So it's a bright spot in the results.

Can I just check there's a very, very significant step change in APAC. Is there kind of -- so that's just underlying growth of nearly 40%?

It's a one-off.

Let me just summarize. So for the --if you look at Asia for the full year, the biggest driver in the private bank was actually net interest income which was up about CHF157 million, then recurring was up about CHF42 million and transaction was up about CHF30 million.

In terms of the fourth quarter effect, if you read the -- some comments in the MDNA, we refer there was a [true up] basically relating to certain costs which actually came through in the fourth quarter which from memory basically were actually booked in recurring, so you saw a bit of a jump basically in the fourth quarter in the exact recurring number.

So the numbers I've just given there are the full year effect which were obviously cleaned for that because they were depressed in the first three quarters and then rebounded in the fourth quarter.

From memory (multiple speakers). But I think the jump was 27%. I think the underlying was 9% or something like that. So the underlying is strong but not as strong as what you (multiple speakers).

It's about CHF18 million one -- it's an CHF18 million one-off. Well, it's an CHF18 million reversal from the first three quarters into the fourth quarter. So if you think about Fiona for the full year as a whole, absolutely fine and your comparisons work. If you look at the fourth quarter against the previous quarters you'll see some distortion from that.

(inaudible). But it shouldn't detract from the very strong underlying. 9% or 10% is very strong.

Correct.

So you're correct on the conclusion that it's doing well. But it's a bit overstated in 4Q, correct.

Jernej Omahen, Goden Sachs.

Okay, good morning from my side as well. Actually I have two questions. One is more general and then one of a technical nature.

So the first question Tidjane, relates to the comment that you made early on this presentation in regards to the IPO. And I think you said something along the lines of we're continuing with the preparations, however, we will examine the regulatory environment to see if we can reach a more attractive solution. And I'd like to focus on this second part of your statement.

What exactly from a regulatory perspective is new that could affect your thought process on the IPO? And secondly, what would the alternatives be to a potential IPO? And we are aware that there is obviously a capital aspect to the IPO as well.

And I was just wondering whether one of the alternatives to an IPO would be a plain vanilla capital hike. If you could just clarify that.

And then on -- the second question I guess more for David. I'm referring to page 30 of the presentation. So all of this obviously is fine and encouraging to see growth and better numbers. But the question is the following.

So loans are now up from CHF36 to CHF40 billion, within a year. I was under the impression that essentially all of this is Lombard lending which by definition should have a very, very low risk weight.

And yet risk weighted asset growth keeps outpacing loan growth by a quite substantial margin and I was wondering what the reason for that is.

And then just secondly on this slide, so you say that the bulk of the margin improvement is due to a higher volume of lending. Given that loans were only up by CHF1 billion in the quarter and the margin are up 8 basis points, I was wondering what the reason for that is. Thanks a lot.

Okay, thanks. Good morning.

On the IPO, yes I think you listened carefully and the words were exactly as you said. That we think we have a good plan, that it's been an effective backstop and it's had other benefits such as the improvement that you've seen in the Swiss unit and the motivation (inaudible).

Frankly, on the rest at this stage, all we are willing to say is that of course you never stop scanning the horizon. You know that we are in a very (inaudible) environment particularly at this point in time.

If I look back two or three years, the point of maximum uncertainty. You've seen Basel IV announcements being expected and then not happening. So there is that source of uncertainty in the regulatory environment, but certainly one we are thinking of which has a material impact as you know on the outcome in terms of capital and there are other regulatory debates that are underway.

So we think it's fair from our perspective to say look, we continue to monitor the regulatory environment because ultimately what we want to do is optimize the risk-reward for our shareholders and we just want to be cautious by flagging that.

So we have a plan. The fact that we flagged, the fact that we always look at other options, does not diminish or dilute the fact that we have a plan and we are implementing it. But it's our job to look around. I think that's what I can say on that.

Can I just come back on that briefly? So I was just trying to understand whether the message is we see unfavorable reg -- potential for unfavorable regulatory treatment of the IPO and therefore we might consider other options. Or is the message the opposite of this, i.e. --

Oh I see, sorry.

-- regulation is getting better and we might not have to IPO.

Okay, it's my mistake. I misunderstood. No, it's not the former, it's the latter.

Right.

Absolutely not the former, no, no, no. It's broader. It's really the broader regulatory environment, Basel IV et cetera, are there more effective options out there. And really again we do feel that we have not changed what we've been saying about this from the start in every slide.

I know because we insisted, we always said the planned potential IPO. We've been very clear that this was an option. We wanted to be in a position to exercise it, which meant a lot of work to prepare it and put ourselves in that position.

But that we would never lock ourselves up in a unique scenario given the uncertainties in the environment. But we see that as an upside, but as a downside to be very clear.

Okay, thanks a lot.

Sorry I misunderstood. David.

So let's just take your points in terms of, Jernej, in term of the APAC numbers. So I'll start at the end. I think you mentioned, obviously the step-up in 4Q compared to the step-up in margin.

I think the point we actually wanted to make is the benefit from the lending initiatives is not seen just in one quarter, it actually comes through in the subsequent quarters as well.

So what we're talking about in terms of the fourth quarter step-up represents the [cumulative] lending exposure increases you've actually done over the last year or so. So that's what we mean by higher lending is the driver of that.

It also comes through not just directly in terms of net interest income but because the lending relationship is part of our broader relationship with the clients at that point. So you will see it in other lines as well.

But it's clearly lending that actually drives that.

I think in terms of the RWA numbers Q-on-Q, to make a -- one point basically is obviously the RWA numbers are actually for the division as a whole, so it includes both the wealth management businesses and that includes AFG and IBCM. It also includes the actual trading operations within the business.

There have been some methodology changes in the fourth quarter which did actually increase the fourth quarter numbers, but you'd be right to say the majority of the PB based lending is Lombard lending in its various forms and stuff.

So what you're seeing here, I guess in summary is firstly while from a margin point of view it reflects the cumulative impact of our relationship, in terms of the Q-on-Q trend, you're seeing that methodology coming through there. And in answer to your first question, it is Lombard lending in terms of that.

Thank you very much.

Very, very predominantly Lombard. Do we have more questions? No more questions?

Well, thank you all for attending the call and we're looking forward to seeing you at the next results call. Have a very good day. Thank you.

That does conclude today's conference. An email will be sent out shortly advising you on how to access the replay of this conference.