Credit Suisse Group AG (CS) 2017 Q2 法說會逐字稿

Good morning, this is the conference operator. Welcome, and thank you for joining the Credit Suisse Group's Second Quarter 2017 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. Christoph Meier, Corporate Communications. Please go ahead.

Thank you, ladies and gentlemen, for joining us today, and it's holiday season, that you came to the forum in Zurich. Here today are Tidjane Thiam, CEO; and David Mathers, CFO, as well as other members of the group executive board here in Zurich. Tidjane Thiam will provide an overview of Credit Suisse's performance in the first half of 2017 and also give a presentation about the midway of our transformation program. After the presentation, you will have the opportunity to ask questions. We will start with the questions here in the room in Zurich.

I will now hand over to Tidjane Thiam. Thank you.

Yes, thank you. Thank you, Christoph, and good morning to all. Thank you for joining me on this call. We've tried different formulas for this session but considering that it's a very busy day and there are lots of banks presenting, I suggested that I'm going to run you through what we did this morning. So I'm not sure you were available (inaudible) if you had the chance to see it. So probably the most constructive thing to do is to take you through most of the material from this morning maybe a bit faster.

So this is a summary basically of the quarter. We were end of half year, this was half year. We generated CHF 1.6 billion of adjusted profit in the first half. Wealth have kind of the same themes, profitable growth and execution, if you wish, with discipline, profitable growth was there. We generated or attracted CHF 22.8 million of net new assets across our Wealth Management division, and that's just Private Banking, okay? And we collected CHF 17.8 billion in Asset Management, so that's additional. This was done really with group profitability. As I always say, it's easy to grow, but it's hardest to grow profitably, as we can always grow. And so profit went up 21%, revenue is up 9%. And then if you move to kind of IBCM market activities, IBCM is revenue up 19%, profit up 143%. And Global Markets has really given more evidence of its successful turnaround with revenues of USD 3.2 billion. So -- and cost down to generate a profit of USD 638 million. So really good performance from the private division.

Expenses have continued to go down, 6%. And then the SRU, remember that we took out -- the SRU had a lot of leverage and a lot of RWA. In '16, we reduced very much the RWA and we told you that in '17 it will be the leverage going down. And that's what happened, we took out USD 8 billion of leverage in Q2, which is a good progress and we're on track to hit the targets we gave for '17 and '18. And finally, the goal of all these is to get to a better return on capital because the reality of the story is that the core businesses have a good return on capital, but this is still being consumed by the losses from the SRU, and a big part of the story is to reduce the size of the SRU so that the power of that franchise can really be visible.

So now if we run a little bit for the slides. This is really the -- if I only -- if I was only allowed one slide, that's the one I would use. It shows you the operating leverage. So at the top, you've got the revenue; at the bottom, you have the cost, okay? So revenue is up 9%, cost is down 6%. That's almost all you need to know, and that's how we're driving the profits up, and that's what we call operating leverage. So if you compare to a year ago, we've added 1.2 -- sorry, CHF 900 million of revenue and it's about half in the Wealth Management and half in the Investment Bank. But really, that's the story we're driving. And I would claim that, that's challenging to do, growing revenue -- absolute revenue and reducing absolute cost, and that's where I think that the teams deserve a lot of credit because everybody aspires to do that, and it's hard to do.

So moving on, the revenue up 9%, that's we've already seen. Then we get into the what are the drivers of the revenue. Clearly in Wealth Management, how much assets you collect is a key driver. So you can see here in PB, CHF 9.8 billion for the first half. In APAC, almost CHF 10 billion, CHF 9.3 billion, for IWM, International Wealth Management, which is Central and Eastern Europe, Middle East, Latin America and Western Europe. And then the Swiss Universal Bank, really -- that's really a good result because their result was 0 last year. So being in positive flows there is good news. So CHF 22.8 billion is for a bank of our size a really strong performance.

And then the growth in AUM. The Swiss franc is strong so it's been a bit held back by the strength of the Swiss franc in gross terms, which is really the actual money you collect, we should not translate with FX, it's an 8% growth. After that, currencies vary -- and sorry, can we stay on the -- currencies vary and if you take into account the Swiss franc, it's only 5% -- and only 5% is the -- 5% annualized or 8% annualized is a very good growth. But those 2 are very important because they drive future revenue. If your asset base is higher over fees, you get also higher and forever, okay? Because these assets stay. So these are very powerful revenue drivers.

Moving on to the Investment Banking, 19% growth in revenue in IBCM, 15% growth in revenue in Global Markets, that's all good.

And so we continue. Cost, it is obviously a big part of the story. Year-on-year, down 6%, but there's noncompensation, which is also very important in terms of intensity of restructuring, is down 14%.

And we give you also the quarterly, which is really interesting, on the next chart. There you go. So what you have is per year from the light blue, '14, '15, '16 '17, each quarter, and you can see the trend. You can see Q1 going down, so Q1 '17 is the lowest Q1 we've had and Q2 '17 is the lowest Q2 we've had. And you can draw your conclusions for the rest. But fundamentally, we said we did -- we'll do -- we'd do CHF 18.5 billion at constant FX. Because we want to be very transparent on the target, so we give them a constant FX. For instance, the British pounds has collapsed since we said was target, so we could take that as a saving, we don't. So we've kept everything at the original FX, not taking any benefit from currency movements. So in gross terms, it was CHF 18.5 billion, and we did, what, CHF 19.1 billion -- CHF 9.1 billion in the first half? So clearly, we're well on track to do CHF 18.5 billion or better this year plus the target next year, which we're also confident to achieve whilst increasing revenue.

So that's the story at a global level. Now if we get into the divisions, I'll make a few comments. Swiss Universal Bank, really very, very strong performance, CHF 504 million, it's the first-time. I'm looking at Thomas here when we have a quarter over CHF 500 million, that's what I asked for and this is what you delivered. So -- but it's a combination of cost efficiency but also revenue. You can't really see the cost because we're investing, and I always said we would invest in Switzerland. We're investing in digitalization. I think you talked about it, Thomas, quite a bit. We're investing in upgrading our brand, the quality of our service in Switzerland, because that's really the future of our franchise. We have to do a better job of satisfying customers and we're looking at the statistics on customer satisfaction and we have to drive that forward. For that, we have to invest.

But we also are driving revenue initiatives. We talked about the Bank for Entrepreneurs. We went from 35 relationship managers to 90 in Switzerland in 1 year and we're driving that forward. We're recruiting and doing more and more. And we're doing that profitably, you see profit is up. We were told that we couldn't grow profit in Switzerland because it's a mature market. If you look at how much profit has been added, that's like CHF 120 million for a half year, that's very sizable. So really a good job. And return on capital, 15%, so it's been a really good story.

Moving on to International Wealth Management, which I keep repeating as 40% of the world GDP. So it's not a small division. People only always talk about Asia, I keep repeating, "Well, IWM is very important and has a very big field and is doing very well." You see profit up 24%, return on capital up. And interestingly with the next page, which is really goes into income in the -- sorry, we took it out? We took the revenue -- okay, fine. They cut one page to try to save time. But that page talks about the increase in revenue and the fact the net interest income, the recurring fees and the transaction-based revenue are all up significantly in IWM in H1 and actually in Q2, were up double digit. So there's really an acceleration within the year. And the pleasing thing there is the recurring income, which is very important because that's really the -- in the end, you run a Wealth Management business for recurring income and the market should put a very high multiple on those receipts coming back. Recurring income is moving forward very well and with 30% penetration of mandates, we like mandates because people pay fee for mandates and we can also control the performance we deliver in return of those fees. And it's a big part of the strategy, and that's working.

So APAC Wealth Management, profit doubled in 2 years. That's a very strong performance. And we believe that the organization we adopted in Asia was unique and that it was going to deliver, putting the financing, the IBCM and the private bank under one roof and working very closely together. And I could give you many examples of the kind of transactions they do and the clients tell us over time how much they like that because we can really make a unique offering and it's something they appreciate and they give us more and more business.

One word about APAC markets. You've seen that we had a loss there in Q1. We came back to breakeven in Q2. But to keep it again in perspective, APAC markets is CHF 12 billion of RWA. Global Markets is USD 54 billion, so it's not even 25% of Global Markets and -- so it's a -- ever since I've run companies, there's always something that needs to be turned around, okay? And right now, it's APAC markets in -- at Credit Suisse. But we know how to do it, we've done it in Global Markets, it's actually the same people who went to Asia to turn it around. We've cut the cost already, it depends how you count, 11% or 18% of costs we've cut, and it's coming back, it's coming back. Revenue sequentially is up. Revenue in Q2, I think, was 2% up, 2% up over Q1. So we're on a good trend, cut cost down, revenue up. I think it's going to be fine.

IBCM, kind of self-explanatory, very strong first half. A bit weak in Q2 but very good pipeline. The beauty with IBCM, I mean, is that we have good visibility on the pipeline. It takes time. So we kind of see, probably a bit under pressure in Q3, but that's seasonal, it's every year. But we're confident that Q4 is a good quarter.

And Global Markets, really very, very good performance. When we started saying that ultimately we want USD 6 billion of revenue, USD 4.8 billion of cost in 2018, frankly, nobody believed it. And Brian and his team have delivered USD 3.2 billion in '17 during the first half in depressed market with no volatility, with depressed equities performance and plenty of upside. And really, on the cost, delivered superbly, USD 2.5 billion, and the run rate is much better on that. So that's really a big success. And on the next one, just to clarify -- oh, we took out the credit, okay -- credit is up 22% within that and equity is up 5%. And that's really an important point because we had an activity there called SMG. If you remember Q3 '16, we took it out. We have basically externalized that activity. We've raised external capital to -- from it, because it's outside our risk appetite, it's too volatile.

So we keep saying that to compare now -- it's like if your company sells a division and then you compare the turnover when it had the division to when it doesn't have it and you say the activity has collapsed. This is what we're reading again and again and again, so we keep repeating. Well, we've sold it. So please when you want to assess our performance, even if you don't like us, be fair and take it out. So if you take it out, equities is up. It's Page 37 of our financial report. It's right there. So equities is up, and we are investing heavily to -- we brought in Mike Strobaek. I saw a headline that we've recruited the best expert in electronic trading in equities, what's his name? It ran yesterday. Anthony Abenante. What was it? Instinet? So we're investing in equities and upside and we're going to do better there. It's not a huge issue.

So this is SRU really. It is important. Because what it shows you is the profitability of the core. So Switzerland, International, Asia, IBCM and GM, CHF 2 billion in H1 '16, CHF 2.6 billion in H1 '17, so up 29%. So the core business is up 29%. SRU, CHF 1.9 billion, that's a lot of losses in the first half of '16, CHF 1 billion in the first half of '17, CHF 900 million improved. So that's driving the improvement in profitability. And take it from CHF 0.1 billion to CHF 1.6 billion, but it takes time, and we're still working in SRU, we said we've close it in -- end of 2018 wind it down, and that will be a great moment for this bank.

Moving on. I think I'm just going to skip that. I'm just going to go to the next page, which is really -- because we're at the halftime, we don't want to do this all the time. People always ask us, "Well, how do you think the strategy is doing now?" Luckily, we're really at halftime. It's 12 quarters, we've done 6. So it's a good time to say, "Okay, fine, what have we achieved?" And you cannot measure progress unless you start from the starting point. So we said, "Okay, what did we have? Who are we in 2015?" 2015, we had some strengths of the International Wealth Management footprint, we build on that. The #2 position in Switzerland, we build on that. The markets and the Investment Banking capabilities and our staff, above and before anything else, and a culture of entrepreneurship in the DNA of the bank, but we also had challenges. We had the capital position, which is important for a bank. Suddenly, the people we consider our peers, we were at the bottom. CET1 ratio in '15. We were also challenged, if you go to the next slide, cost, that was really a problem addressed, the fact that we could not reduce our absolute cost. In the same period, U.S. banks have reduced their cost by 12%, absolute cost. So that's a competitive disadvantage right there. And lower profitability. People often say that, "Yes, the market in the U.S. is more profitable, it's deeper, it charges more, but also if they are also more efficient, then it's an issue.

Group AUM. We said earlier, AUM is a key driver of revenue. If you take 2011 to 2014, before we started this, you take our peers, JPMorgan, you guys go inside that, we were growing -- we are not growing, we are not growing very much. Suddenly, we're growing less than all our peers. So I said, capital, cost, growth, really challenged. Growth, capital, cost, we also have challenge in risk, you'll see that later, and the legacy, the DOJ was a huge issue that we had to resolve, and we had this SRU. As I said in Q1 '16, the SRU was bigger than the Swiss Universal Bank. The SRU was CHF 77 billion of RWA, but Swiss Universal Bank was CHF 66 billion, and it took us 160 years to create the Swiss Universal Bank. So that was a big problem which we've been dealing with. So maybe that will make the strategy more understandable because we haven't really dwelled in the past on what the situation really was. But that's why we said priorities on the right; growth, strengthen the capital, derisk, reduce the cost and resolve legacy, it's not very complicated. That's what we've been doing for 18 months.

So what progress have we made? Capital, we're up at 13.3% now. If you look at the next one, which is risk, this is really interesting, this is basically market risk, our own internal statistics, you see that we had issues in there, then afterward we cut risk, but then the risk restarted increasing again. But if you start from 4Q '15, which is when we announced the new strategy, risk is down 47%. This is the number I keep referring to. Risk is down 47% in 18 months. And that's why we claim that the earnings are higher-quality earnings. Because if you -- if you keep comparing '17 versus '16 versus '15, well, fine, but you're taking half the risk to generate this PTI. So that's what we call higher-quality earnings because if you're generating similar earnings with half the risk, you're doing something right. So that's a big part of the story.

Then cost, we finally moved the absolute cost base, gone down. There's a lot of skepticism on that, too, and that's continuing. And we gave this morning some examples in the earnings call how many net cost parameters of cost with the new model we have for outsourcing, for cloud, and we can come back to that later. There's a lot there and there's more coming. So the cost is a good story. And the growth, we've talked about the return to growth, but also profitable growth because profit is up.

So this is one way to tell the story. On the left, you get kind of what we do every day in the core business, which is to create operating leverage. Those 2 curves, increasing revenue, decreasing cost. And then on the right, you get, what, David, to give him credit, because the SRU reports to him and [Tim Blake] and all the team there, really, really, really working through, and that's hard work, working through the SRU, getting rid of the positions, closing them down, closing down businesses, decommissioning systems, that's hard work, and that's happening.

So I'll just close on the last page. Yes, those priorities, we've been really delivering profitable growth by focusing on our clients. And focusing on creating operating leverage, reducing the SRU drag, which in turn, in the end, will increase the return on capital, so that's our story.

And to close, I will say, really, we've been focused on doing those things. We've made progress. We're still far from where we need to be. I wrote to the staff a few weeks ago to say exactly that, and have been read that I was announcing the end of the restructuring? No. This is halftime. There's no game that has been won at halftime, we all understand that. So we need to win the second half. And we are not declaring victory. We're focused on delivering. We've done well in the first half, but nobody remembers the score at the halftime. So we're focused on the second half, and we will deliver on that.

So with that, I will open the floor to questions. Thank you.

We're now ready to take questions here in the room in Zürich. First one from Young-Sim, AWP.

One question on the strategic resolution. You're not -- you said you will wind it down until end of 2018. And can you please tell me how long you expect this unit to generate losses and also why -- explanation for the losses after 2018?

Okay. Well, good morning and thank you for the question. Now the SRU, I'll say a few words and David really should pick this one up. We've given guidance to the market, we said that the loss in 2018 will be CHF 1.4 billion, okay? And we've also given guidance saying that fundamentally, the exit cost would be about 3% of the RWA, okay, and we're running at 1.8%, 1.7%?

1.7% in (inaudible).

1.7%, yes, exactly. So we're running below the guidance that we have given. We've been very specific. We said, this is what we need to get rid of, this is what it's going to cost, and so far, we've been running below that. And we've also given guidance on the numbers post-'18, but I can let David cover, yes.

So as Tidjane said, at last year's Investor Day, we said that we would bring the loss down in 2018 to CHF 1.4 billion. And we've also said that we'd bring the lost down to CHF 800 million or less in 2019, of which about CHF 440 million would actually be the operating expenses and the balance would be funding plus residual exit losses. What we announced last quarter is that we're actually going to bring forward the end '19 goal to the end of '18, that means leverage of CHF 40 billion from the current CHF 75 billion level, and RWA, excluding op risk, of CHF 11 billion. So at that point, essentially, you have a very small SRU, as Tidjane said, when we -- when the SRU actually started, it was bigger than the Swiss Universal Bank, it had CHF 170 billion of leverage, which gives some idea of the size of this. Once we're down at CHF 40 billion and CHF 11 billion, that's essentially the economic completion of the SRU. There still are residual assets there. There are some assets where it's not a question of the price you could sell them at. It's the question of actually getting client consent to actually complete their sales. But at that level essentially, it's not really worth keeping a dedicated separate divisional structure. So we are very focused on ensuring that, that loss in '19, which is post the dissolution of the SRU is less than CHF 800 million, that the operating expenses are less than CHF 440 million, among the reasons we announced the accelerated closure last quarter is so we can actually put a very strong and combined effort across the team in terms of what do we need to do to accelerate that in terms of decommissioning systems, completing sales, et cetera, et cetera. And we'll update our guidance in due course on the 1st November. I think you can see from these numbers that we're actually ahead of that even accelerated schedule for the end of that period.

(inaudible) because at the beginning, it didn't get a lot of attention. But one of the key changes we made was to create an SRU division because previously, the SRU was managed within the operations. So you're saying I don't know these activities, and it was managed together the activities we wanted. So actually being very clear is one of the decisions that I made that's saying we're going to create a dedicated division and their job is to put themselves out of business. And with that, gave you focus, you get for the dedicated resources, and you can be sure that once you're done, those resources will go. If you mix that with the existing, it's very, very hard to manage. And that's been really one of the key reasons why we made so much progress on the SRU plus the quality of the management, David supervising it, and the people running it are really outstanding. We also put some really good resources on dealing with that.

(inaudible) 1.1% exit cost of RWA for all time, for all the...

Since the beginning.

Since beginning. And 1.7% in the second quarter?

So we originally guided, we're going to be -- we'll stop the SRU for the exit cost between 3% and 5%. Last December, we did the -- when we did the Investor Day, we, I think, in view of the experience and knowledge of the portfolio, we brought that down to 3% or less. So far, the lifetime exit cost have been 1.1%, and there was an uptick in the second quarter to 1.7%, which is what we'd expect given where we are in the portfolio and the focus on leverage reduction. Because reducing leverage is critical for Credit Suisse. Even at our leverage ratio now at 5.2%, that release of leverage essentially flows resources back into the operating divisions and help us drive growth. But clearly, at 1.1% against our guidance of less than 3%, we have CHF 19 billion to go over the course of the next 18 months, I would say we're in a good position against the guidance.

But it's painstaking work. You have a lot -- we have thousands -- hundred of thousands of trades in there, with a counterparty very often. So if you want to sell it to somebody you need to go and negotiate with a counterparty to novate for contract, you're just somebody else, it's a lot of work, but it's been done really well.

Yes. As Tidjane said, that's very good results. We've actually novated or unwound 220,000 individual derivative contracts, that's 2/3 the balance. So 220,000 down, that's 2/3, 1/3 to go basically. But that is an awful lot of individual transactions.

And RWA objective is CHF 40 billion, right?

Yes, the leverage objective is CHF 40 billion. The RWA, excluding operational risk is CHF 11 billion, including operational risk was CHF 30 billion.

There's CHF 19 billion of operational risk in there, CHF 19 billion that we can't in the short term touch, but ones we can have impact RWA, CHF 11 billion. That is beyond target.

And so from 2020, there will be no more -- there won't be any more losses from the...

At the end of 2018, the SRU of economic complete and division won't exist anymore.

There'll be no more SRU.

That's right.

And then in 2019, there will be a loss of CHF 800 million or less, and afterwards, there won't be any more losses?

I think the guidance we've given, before we accelerated, it will be CHF 800 million less in 2019. And we're working very hard to make sure on that spec. Will there be a reduced stack in '19? Yes, but it's collapsing.

But it's not a new thing. It's in all of the models. It's in every analyst model. It's in our projections. These are not new numbers which you have to add to the existing. It's -- everybody knows about it. We've been very transparent. So it's in everybody's numbers.

Josh Franklin afterwards, and then Daniel Zulauf (inaudible). Josh Franklin from Thomson Reuters.

Josh Franklin from Reuters. I have 3 questions, if I may. The first was just on you mentioned your communications to stop at the start of this month and you mentioned that planning had got underway in July for the next phase of Credit Suisse's growth in 2020 plan. I'm just wondering if you can give us a sense of what the early discussions in that has been like? Second question on Brexit. We've seen a number of U.S. banks make a decision in recent months about what their planning for a location will be on the continent after Brexit. I'm just wondering if you can give us an update about your latest thinking here and when we might expect a decision and where the main contenders are for you as a location? And on the quarter itself, can you give us a sense of what happened to client cash holdings in the second quarter. Did you see these come down at all and what sort of figure we're looking at here?

Okay. Well, thank you, thank you, thank you, Josh. Yes, management is a permanent school of humility. All I can say is that next year, when I write my memo to the staff, I'm not going to say the new plan, I'm going to say the next plan. My pen slipped, and that's what I meant. Because every year, we do the next plan. So in June, July, I wrote to people, I say this is the planning season. Like in '16 we did the '17 to '19 plan, '17, '18 '19. And in 2017, (inaudible) plan. So it was my way to say, (inaudible) earlier so that you get clear input for the next plan -- I'll never going to say new again -- for the next plan, which is for '20. Nothing new, it's just the next plan. So I've learned, I don't blame the people who read that -- it's my fault, really. From now on, I promise you, I will always say, let's start working on our next plan. So there's nothing to announce about that. It's just the next plan. So it's '18, '19, '20, and so we had 1 year. In the first plan, we already had '18 and '19, so you addressed '18, you make it more precise, you fix '19 and you add a new year which is '20. And we do that every year. And that's about all there is to say to it. We like our strategy. We're not about to change. We like it. Especially after the wind down of the SRU, we think that the bank that we manage is extremely attractive. Very attractive, high return, very well performing, so we like it. Brexit. Brexit, look, we have not made a decision. As you know, it's a fluid situation. There's still quite a bit of uncertainty. So we are -- actually, David and (inaudible) are chairing a kind of a task force with a lot of people involved, a lot of work going on, looking at various options. But we are not yet at a point to announce anything there. And the last one, the third question, sorry? The cash, they remain elevated. But no material change. It's about the same as before. But yes, they remain elevated, which is something you get when -- environment like this where global activity, a lot of uncertainty, people are still hesitant to make commitments.

Just one on Brexit. Can you give a sense when we might have a decision from you on this? What's the level of urgency of it?

I mean, you should probably expect something towards the end of the year. But I'm saying that cautiously because it's dependent on other events, which I don't control. So if we don't announce by the end of the year, also don't hold us too that. But we have active conversations with parties. The reality is, is it really crucial for our medium- to long-term wealth management ambitions and the ambitions of Credit Suisse? It's not a deciding factor. And we will cope. Whichever way Brexit goes, we will cope with it. We've had bigger disruptions in the past that we've been able to handle. It does attract and generate a lot of comments, real interest, but for the strategy we're driving, it's not a huge factor.

And just on the cash flow. What number are you at now when it comes to cash flow. I understand, it hasn't been a material change?

I mean, we have that. We can give it to you. From memory, it's 30%.

It's 30%.

But it varies by region. But it's around 30%. And the movements are like 1 point, so there's nothing dramatic going on there. It's been elevated for a while and it stays at that level.

Next question from Daniel Zulauf.

I have 2 questions. One is when you showed us the history of the bank and its turnaround, you said the cost base was rigid and that was one of the problems. But then we learned from your present report that your staff consists of 22,000 contractors with limited -- by nature, limited contracts, and you have managed to reduce this number of contractors within 12 months by 4,000 people, which is a lot to me. So I see some sort of a contradiction between rigid cost base and this quite severe intervention with regards to these contractors. That's the first one. And I was wondering, actually, how sustainable this sort of cost reduction is really in the long run. And then there's another question, I'm wondering the -- in your Swiss division, I see the general administration costs are up and I was wondering whether these were the cost of your preparation for the IPO? Maybe you can elaborate a little bit on the these costs, and also, whether there is something that, like you can still benefit in the future from these costs -- or are these just money thrown out of the window. That's it. Thank you.

Okay, thank you. Thank you very much. I'm just trying to calibrate my answer because really, answering you on cost is probably would take the longest time. Cost is driven by your operating model, how you structure your own business, that drives your cost. This question about consultant, I can give you a point. (inaudible). If you look at the outsourced jobs, 80% of them are on basically kind of fixed contracts where we basically pay the same amount to the consultants, whatever work they do. And we've been shifting that to service contracts where we pay for the service they provide, not the hours or not the people, which is the better way to manage that. And that generates huge savings. So we've done that on 20%. On the rest, the over 80%, we think at least 30% to 40% of that can be moved from one model to another, and that work is underway, and that's going to generate a lot of savings. Number of buildings we had is down 10% to 487. Numbers of square meters we have is down 14%. Numbers of systems we have, I think on the cloud, which saves a lot of money, cloud technology is only 5% of our staff. We're going to go to 15% by the end of this year. It will be 18% soon after that. And I can go on and on, on the topics where we can save cost, which are sustainable. There are improvements in the way we run the bank and the buildings we left, we're not going to go back there. It's occupying space more efficiently. So really, we have those team and we do the front to back re-engineering. There are a lot of cases in business where you can, I know it sounds like too good to be true, but you can really win on every level. When you take a bad process, a process that is not great -- for instance, a lot of times you're taking a piece of paper from A to B and there's like 8 steps. Every time you measure that, you're going to find 99% of the time, nothing happens to the piece of paper. It's sitting in somebody's inbox or sitting in somebody's outbox, okay? I've done a lot of that when I was younger. First thing you do is you look at that process and say, "This doesn't make sense." And you do just in time. So you take the piece of -- you measure the work, it's 8 days, 8 days for this to be done. Generally, when you measure work, it's 40 minutes. How does 40 minutes of work take 8 days is your question. And you want to put in place systems so that, that piece of paper goes in, gets out 40 minutes later, okay? When you do that, you -- it's cheaper, it's faster and there are fewer mistakes. Because there's no misunderstanding, if it's Mr. A, B and C, when (inaudible), you do that. A gives it to B, there's no delay, there's confusion in the box and (inaudible) take the wrong piece of -- it's called -- these are very well-known -- manufacturing has been doing this for 40, 50 years. And when you bring that to financial services, the impact is huge. So that's what we call front to back re-engineering. We take all the processes and we drive them. This is how you take up -- we started in Global Markets at CHF 6.6 billion of cost. We're probably -- and this year at CHF 5.2 billion. We saved CHF 1.3 billion, and Global Markets is still working. You ask how do you do that. You do that by working properly. I don't have to -- it's just management being organized and being systematic and exhaustive and taking all their processes, redesigning them, making the decision, implementing them, and that's what we're doing. So yes, those changes, those cost savings are sustainable and they come from optimizing the business. We look at them every week. I'm very glad -- we're holding (inaudible) here. Every Tuesday we get together and we have the tables and we look at the progress we've made. And so collective responsibility. The other thing we've done in the reorganization is one of the firms in financial services, when I came in and interviewed all of them, everyone tell me the same thing, I don't control my P&L. Because we had the central functions with huge cost allocations. So if you have a P&L, you're running a business, 60% to 70% of your costs were coming from elsewhere. So the big change in the organization that we've put in place is that we've transferred to Swiss Universal Bank to Asia the responsibility for a lot of the support they were getting. And my experience of that is that when you do that, people do a better job. Because if the client was making the decision, there's an IT project, instead of all the IT project going into a big pipeline that goes to a central unit that's very far, okay, the person who owns the IT project, and I have specific examples in my head with APAC, they asked the central people. The central people said it cost CHF 10 million and 2 years. I have one example in my head where it was done in Asia for $200,000 in 3 months, same project. Because suddenly, head man was accountable for that and he said, "I don't want a budget for CHF 10 million, and this can be done by different resources at a lower price." So when you do that -- sorry, I'm going on above this but it's really important, when you do that on the scale of a bank, you get a lot of improvement. Everything goes faster, is done cheaper. So -- and that never stops. In 5 years, we're still -- it's continuous improvement, we'll never stop. We'll keep improving things, we'll keep looking at all those things, and it generates a lot of savings. That's what I can tell you. The sub -- no, the cost of the IPO are not material. It's a few -- it's a million, it's a few millions. You wouldn't see it in our accounts. So it's not at all the cause of any evolution in the cost. It's not very expensive.

And I think just to add something on the key driver in the G&A expense pick up in the second quarter was in the product client business. And that was driven by investment both in our control systems but as importantly, in our IT systems, particularly the digital client effort and obviously I think you know about the launch of some of our additional onboarding efforts, including the ability to actually open accounts remotely has been a very good investment for us. I think Thomas can talk more about it. But I think it's been a fantastic achievement. I think that's the right thing to be investing money, so it's very much -- not something, I think, giving away in G&A, that's a long-term investment for the future.

That's a great example of changes that's driven by compliance and now where are we? It's all better. Like the onboarding for clients, new clients, we have completely redesigned that process and now it's faster, it's cheaper, and it's safer because we do a better job controlling information that the clients provide before we open an account. And that's been a huge source of improvement. But initially, you have to invest something to get the benefits.

Sometimes (inaudible).

Yes, and if you go through, that's true. That's true.

There's time for a couple more questions. First, Daniel Hug of NZZ, and after, it's Jan-Henrik Foerster, Bloomberg.

I read something this morning about this female. She wants you to have more capital, because it is more capital, because of this RMBS case in the United States. And I thought it is over, and you had a solution last December, I think. So is this -- I mean, why this action by (inaudible)?

No, it was completely expected. Maybe we should have pointed that out. The way the operational risk models work is every time you have an incident like that, it's incorporated in your model and they're going to ask you to carry additional operational risk capital. So it's not news given the size of the settlement we had. And every bank that is going to go through RMBS, we're not the last one, will have the same discussion with regulator. So it's a Q1 event. We started discussing it in Q2. We're reaching now a conclusion. So we told you we think we'll take the charge in Q3. But it's 2 discussions. There's that discussion and separately, there's another discussion on the SRU. Remember, we told you that there's CHF 19 billion of risk in the SRU. So we have closed a lot those activities or sold them. So at some point, we can't carry capital for activities we don't have anymore. So at some point, the regulator will also give us some relief, and we gave an estimate -- I think we gave it, David, this morning, that it's about 20 basis points impact of that, which frankly is not material. But it's one of the problems of conduct issues is that you do have to carry capital for that, especially of that magnitude.

A question from Jan-Henrik Foerster, Bloomberg News.

I have 6 questions. The first one is a follow-up to the...

Is that allowed, Christoph?

Is that just -- is this discussion just around operational risks? Or is it also about credit risks with FINMA? That's the first question. Then the second question is on the markets unit in APAC. How comfortable do you feel that the loss situation will reverse in the near future, turnaround, and is also this unit kind of the focus of the restructuring going forward? And then about client activity. I saw a good pickup in IWM and I wanted to get some color on how does this square with kind of low volatility, which was kind of the situation we had in the last few months. And then about equities, you said in Global Markets you are investing heavily. I would like -- it will be great if you can give us some color on that. And I also took the other point on board you made about the equity -- equities revenues.

No, it wasn't directed at you, sorry.

I guess the results are (inaudible).

Okay. Thank you, thank you, Jan-Henrik. FINMA op risk or credit, your 2.

So essentially, I think -- I mean, Tidjane has obviously explained the add-on that FINMA has requested in respect primarily RMBS settlements, which will be a third quarter event and obviously, the discussions, which we initiated with the FINMA around the relief from the SRU, CHF 19 billion. So I won't add to that. I think your question, therefore, is more around the credit risk. I think -- well, let me speak more generally, but I understand there's obviously been some news in Switzerland around changes in the LGD, loss given default, and PD, potential of default, ratios relating to what's called IPRE or income-producing real estate here in Switzerland. I think I should just be clear on this point. We looked at this several years ago. The LGD and PD assumptions which are approved in our models are in-line with the West European average, they're not below average in that sense. So I would not expect those to change in the future. Nothing on the horizon for that. So please put that to one side. I think any changes to credit risk of our models relate more to the so-called (inaudible) or B3 reform process. But I don't think you should expect a change in the LGD or PD assumptions for us.

Market (inaudible), I think you're asking how comfortable. The first thing I should say about that is that is strategic markets in Asia and maybe we should come back to that argument. And we had seen that in the past. But there is an equitization of Asian economies. If you look at Asian economies today, most companies is like the U.S.A. in the second half of the 19th century are family-owned, (inaudible). So there's a huge wave of equitization, we'd call it, technically, that has to come. People will want to monetize it. It's going to be like at Silicon Valley, people creating great company and then they want to monetize that and they want to IPO it. And so the -- and if you look at equity markets as a percentage of GDP in Asia, you see a very low percentage. So that wave is going to come up. There's plenty of business to do there. It's fully aligned with what we do for our clients, because actually, even people who are going to IPO those company are our clients today. We have their Private Wealth, et cetera, et cetera. They're entrepreneurs. (inaudible) entrepreneurs. So yes, we don't quite get the concept of a private bank without market capabilities in Asia. That's one. Two, our clients love to trade, and they love to trade with us. And we provide that and a lot of very wealthy clients love access to our floor and getting the color from the sales teams and they would call every day to get input, and that's a service we provide that is very important. And in the end, it's part of our footprint. If we want tomorrow to do an IPO and execute well, we need to be an active market participant in the equity market, which means we need to be a credible counterparty for institutions in Asia, which means we have to have a proper equity business. Same logic for debt and fixed income. So really, we cannot have a long-term vision for Asia without having a market business in Asia. And also there are a connection between that market business and our other markets business around the world because people trade around the clock. So all these reasons -- I mean, we have to have an APAC markets business. I said earlier this morning, since I've been running companies, there's always been a problem somewhere on the companies, that's the way it is. Today at Credit Suisse, the spotlight is on APAC markets. Yes, it needs to be turned around. Turnaround is going well. We've lost, what, CHF 65 million in the first quarter or something like that, and we are more or less breakeven in the second quarter. We put through a lot of cost cuts and are going to produce their effect. And we also -- everything I was saying -- answering Mr. (inaudible) of the cost cuts, we're applying the same technology in APAC market with the same results, front to back reengineering, et cetera. So no, we're comfortable, it's strategic. Yes, it's disappointing but we have to do this work. But it's the real world. Global, that's easy, IWM. IWM did a fantastic job activating its clients. And this is something we used to discuss a few months ago, what can we do? At this low volatility trading, what can we do? So first thing is going to talk to them about that. And think about their objectives and how we can help them work differently in that environment and come up with ideas. So in the end, it's intellectual capital we sell, especially to those very demanding clients. So it's really -- we have a CIU who, every day, comes up with new ideas and he issues his house view, evals or organize a lot of training, he took his RMs and they've all been put through very, very sophisticated training on structured lending, on FX, on life insurance, so that they actually are better equipped to deal with the clients. And what we've seen is that when we do that, because with clients, the need is there. Often your challenge is to have people who can talk to the client about the need and have a product to propose and that's why it's so important to train the relationship managers. And in fact, I've seen those phenomenal job and I went to your fair where you do workshops and bring people from the outside, and what you find is that suddenly people go to the client with ideas, and you find that even with the low volatility, et cetera, the clients embrace those ideas and trade. So yes, that's really a lot of increasing activity has been proactively driven by how we run the business. Sorry, the next one, equities, investing some (inaudible). I mean, Brian has been very focused on that since he arrived. He got Mike Strobaek, who I'm sure many of you will know, he's an extremely highly regarded person in the equity space. We were thrilled that he agreed to join us a few months back, it was January, February? We had to wait 6 months to get him. He started July 3 and he's made a lot of changes. I said he hired Mr. Abenante, who -- yes, who is from -- was at Instinet, who's one of the best technology expert in equities. And we've recruited a gentleman from Barclays, Mike Di Iorio, who's joined us in London, is also a star. And it's going to take a while but we are confident that we are going to grow the very huge opportunities. One thing we -- many of us have mentioned this, this morning, that we have not really done -- Asia is the example, in bringing investment bank to the wealth -- to the Wealth Management clientele, Asia has been run best in the company. And what we're trying to do now is to get other parts of the company to do the same thing, bring all our capabilities, which are phenomenal, Brian and Jim, to those clients, any benefit from that is an upside. So one of the things that Mike and the new team are going to do, and we know when we measure that we're not doing as well as the competition, so it's a big upside there. We all had dinner with the new team, when was it, last week? Yes. And we launched that, we did a town hall last week in London and it's all happening. We're getting them to work together and over time, you're going to see that, I think, flowing through the numbers. You need to give it a bit of time. Don't ask me in 3 months. No. If they've done well the results of this. But over a year or 18 months, it's going to make a difference. We are confident. But in the end, it's all about clients, really. We can only win if we are close to our clients, serve our clients well, we come up with ideas that our clients will buy into and that they are willing to pay for. That's all there is, really.

We have a very tight schedule, so I think we will close the conference now. Thank you very much for coming.

Thank you very much for coming and see you probably at the next results, if not before. Thank you for your patience. Thank you.

That concludes today's conference. A recording of the presentation will be available about 2 hours after the event. The telephone replay function will be available for 10 days. Thank you for joining today's call. You may all disconnect.