Credit Suisse Group AG (CS) 2018 Q3 法說會逐字稿

Good morning. This is the conference operator. Welcome, and thank you for joining the Crédit Suisse Group's Third Quarter 2018 Results Conference Call for Media. (Operator Instructions) And the conference is recorded. (Operator Instructions) At this time, I would like to turn the conference over to Adam Gishen, Group Head of Investor Relations and Corporate Communications. Please go ahead, Adam.

Good morning, everyone, and welcome to Q3 presentation, media presentation in Zurich and for those on the phone. The format here is that David will set things off, will walk you through a few slides just to talk a little bit more detail around quarter. It should be sort of 10-minutes-ish, and then we'll open it up for Q&A, and hopefully, address all your questions. I'll pass on to David.

Thank you very much, Adam. And I'd like to wish everybody here good morning to those who are joining us in Zürich and to those who are joining us on the call. Thank you very much for coming to our media conference to discuss our third quarter results. As Adam said, I'm going to talk through just a short presentation before moving to questions. It's a summary of the deck that Tidjane and I gave this morning to analysts, investors, which by now many of you have already listened to. And as usual, we provide a copy of the full presentation on the Crédit Suisse website and you should go to the results page.

So let's just start on Slide 3 please, which has the most important takeaways from our third quarter results. The third quarter was the eighth consecutive quarter of year-on-year profit growth, and we delivered adjusted pretax income of CHF 856 million and that's an increase of 38% year-on-year. These higher profits were primarily driven by our Wealth Management franchises and by further improvement in our operating leverage. We brought down adjusted operating expenses to the lowest quarterly level in the last 5 years.

That means we've delivered CHF 4 billion of cumulative net cost savings by the end of the third quarter. And that means we achieved 96% of our total targeted cost savings and that's measured in constant 2015 FX rates and using a consistent accounting base. And I think as important you'll have seen that we've also strengthened our capital position further. And our CET1 ratio was at 12.9% and our Tier 1 leverage ratio was at 5.1%. And I'd go into some more details on the over the next few minutes.

Just go turn to the numbers please. Now as usual, I'm just going to summarize here our group numbers on a reported annual adjusted basis. And just to be clear, this has been prepared on the same definition that we've used in prior quarters. Now for the third quarter of 2018, Crédit Suisse delivered a pretax income of CHF 671 million on net revenues of CHF 4.9 billion. On an adjusted basis, we achieved a pretax income of CHF 856 million on CHF 4.9 billion revenues, and that's an increase in profits of 38% year-on-year.

Now year-to-date, we've made an adjusted pretax profit of CHF 3.3 billion and that's an increase of 53% compared to last year.

Net income terms, we've made income attributable to the shareholders of CHF 424 million. That takes our total for the 9 months to CHF 1.8 billion of profit and that's a 54% increase compared to last year and equates to return on tangible equity of 6.3% for the first 9 months.

Now as with the analysts who I've have just spoken to, we're going to focus on the adjusted numbers, as we continue to believe that they more accurately reflect the operating performance of our businesses.

Let's please turn to Slide 5, please. As I've already said, Crédit Suisse delivered the eighth consecutive quarter of year-on-year profit growth during the 3 months of September. Pretax income was up by 38% from CHF 620 million to CHF 856 million in this third quarter. Now that result, which echoes the similar step changes that we achieved in the first and the second quarter of the year, reflects the strength of the strategy that we announced back in 2015 with a clearer focus on Wealth Management. And let's just go into a bit more detail on this please on the next slide.

You can see our Wealth Management businesses have become an even greater contributor to results this quarter. In the first 9 months, they've delivered CHF 3.7 billion of pretax income, an increase of CHF 1.4 billion and that's a 60% increase compared to the first 9 months of 2015. Now I think the full extent of this performance change becomes visible when you look at the Wealth Management-related full year figures of 2015 with those we've made in the first 9 months of 2018. In only in the first 9 months of this year, we delivered a pretax income that's 26% higher than we achieved in the whole of 2015.

Now I think additionally, the Wealth Management reported pretax income of CHF 3.7 billion is broadly diversified. You can see that increases were achieved in Swiss Universal Bank and International Wealth Management and Asia Pacific Wealth Management and Connected. All 3 components of our Wealth Management related businesses have grown profit significantly over the last 3 years.

Let's look at net new assets please, Slide 7. So I think another confirmation of the strength of our Wealth Management business is the level of continuous asset inflows we've seen. So we saw Wealth Management NNA inflows totaling CHF 10.3 billion in the third quarter of 2018 and that's notwithstanding challenging market conditions and some deleveraging. All the 3 reporting units in our Wealth Management business, that's Swiss Universal Bank's product client business, IWM's Private Banking and APAC Private Banking contributed to this result, which actually was 45% higher than in terms of inflows than we saw in the third quarter of 2015.

Now not shown on the slide, but I think it's equally impressive. If you look at the first 9 months of the period across Wealth Management, our total was CHF 33.8 billion and that's the highest level of net new assets we've seen since 2013.

Let's look at the AUM please on Slide 8. I think the cumulative total from its work in Wealth Management can be seen here. We've record Wealth Management assets under management of CHF 785 billion at the end of the third quarter, with a further CHF 404 billion from asset management business. That combined figure of CHF 1.2 trillion is 28% higher than the combined figure at the end of the third quarter of 2015.

Let's talk about operating leverage. I think you're very familiar with this. We've used it before. And you can see, we've continued to progress. We've continued to consistently deliver higher revenues and lower costs, increasing our pretax income. If you look at the 9-month period, we increased net revenues by 8% and reduced operating expenses by 12% compared to the first 9 months of 2016. And that means our pretax income grew from CHF 0.4 billion in the first 9 months of 2016 to CHF 3.3 billion in the first 9 months of 2018. That shows that I think the effectiveness of our restructuring program and the strategic repositioning.

Let's just turn to capital. Whilst we've delivered on profits, we've also delivered on strength of the capital base. The third quarter, we completed the CET1 capital ratio of 12.9%. That compares to a target of 12.5% and it's an increase compared to 12.8%, where we were at the end of the second quarter. I think the second point is that CET1 leverage ratio improved to 4.0% at the end of the third quarter. That compares to CHF 3.9% at the end of the second quarter, and it's well above the Swiss "too big to fail" going concern requirement of 3.5%, which the Swiss G50s are required to operate at until 2020.

As you look at our overall Tier 1 leverage ratio, that was 5.1% at the end of third quarter.

Now let me just say a few words on the strategic resolution unit, one more quarter to go. The third quarter saw further progress on the strategic resolution unit. We've already achieved 2 of the 3 end-2018 targets and that's for RWA, excluding operational risk, and for leverage exposure. If you look back over the last 3 years, you can see that we've reduced the RWA, excluding operational risk for to -- to USD 9 billion by the end of the third quarter. That's USD 2 billion less than the target we set for the end of 2018, but more importantly, that's 84% lower than the third quarter of 2015 when we started. If you look at leverage exposure, it was USD 34 billion at the end of the third quarter. That's USD 6 billion less than our end year target for this year. But equally, it is 83% lower than the start point in 2015.

In terms of losses. We've reduced the pretax drag to USD 275 million and that compares to drag of USD 484 million a year ago. So I think if you just look forward to remainder of this year, the target with the SRU remains to continue to sell off as much as possible of the remaining assets and bring the division in still further below the targets we've set.

So the pretax losses. I think you can see we're very much on track to beat that guidance to be below USD 1.4 billion this year, and I think that clearly positions us well for 2019. And as you know, we've a target for the residual drag for these assets to reduce to USD 500 million, excluding litigation next year.

So let me just conclude -- before I conclude, actually. I'd just like to go back to the objectives of the restructuring program that we laid out at the end of 2015. I think as you can see from this table, we've either already achieved the targets that we set or we're on track to actually meet them. We're in excess of our capital and our leverage targets, and we passed our first public CCAR test earlier in the year. We're 96% the way to hitting our cost target with 1 quarter to go. We've set ambitious PTI targets for our main operation divisions, and we're clearly on track to actually meet those. The SRU, I've talked about already, but just to put that in context, when we started the restructuring, that was the largest unit in the bank by risk-weighted assets, but we've hit our RWA reduction target well ahead of schedule for that division. I think we remain very confident of successfully ending the restructuring by the end of this year, and we'll be outlining more of our plans 2019 and beyond at Investor Day, which we're holding on December 12.

So I'll now be delighted to take your questions both here and on the line, and I'll pass over to Adam, please.

Why don't we take some questions in the room? (Operator Instructions)

Brian Blackstone with Wall Street Journal. Just a question on your share price. Not today's reaction, which has been negative, but just over the last 3 years, given that you're in the final stages of this 3-year restructuring, your share price is still quite a bit lower from when it started. I know you had the capital increase, the share issuance, but is there something that investors that they're not understanding in terms of what you're doing or that you're not communicating to them? Is there a disconnect between what you're doing and how the financial markets seem to be responding to it?

Thank you very much. Thank you, Brian, for your question. I mean, Tidjane and I do spend a lot of time together with Adam with our major investors. We have a very stable shareholder register. And I think we laid out the goals very consistently back in 2015, and since then, we actually generally tightened the targets over that period. So I think our investors certainly understand what we're trying to achieve, they understand the goals, and I think we've been very transparent in every quarter, including this quarter, about the progress we've actually made towards achieving this goal. So I don't think there's any lack of understanding from our investors about what we're trying to achieve, nor for that matter, the progress that we're actually making towards it. I think, in terms of the stock price, I think, the management team here, I think, our focus is to deliver on what we're trying to achieve, better products for our clients, better services to our clients. I think if look at the level of net new assets we've achieved so far this year, CHF 33 billion just in the Private Banking business. I think that shows the testament to the confidence they show in us. And I think the profitability tends to flow from that. That's where we're focused on. I think stock price and market will comment, and we'll respond to that. All I'd really say is if we step back and look at the economies in which we operate, most of the major economies we see at this point are pretty strong. Obviously, the U.S. and to a lesser extent elsewhere, but it's not unfavorable economic backdrop. Nonetheless, given some of the other macro indicators, there's clearly some nervousness about the cycle and how long it will continue for. To be candid, I think we're pursuing a strategy, which moves us towards a much more resilient, much more stable level of profits. A level of profits, which I'd remind you, in Wealth Management is 26% higher in the first 9 months of this year than it was in the whole of 2015. And I think, as Tidjane pointed out in the previous meeting, the stability in terms of recurring and NII, I think, are the testament to just how resilient that performance is.

Okay, we'll go with Ralph over there, question down here, sorry, and then we'll take Jan-Henrik at the back.

Ralph Atkins from the Financial Times. Can I ask about the loss in global markets, but also the poor performance of markets in the Asia Pacific region as well? What's going wrong there?

I think -- 2 questions there. I think, first thing to step back. I mean, as we -- we have the slide up, if you look at the slide, I think we lay out roughly 17 different goals and that -- by the way that includes the investments we've made in risk and compliance, which we've also achieved. I think to have achieved 16 of those in the course of the last just under 3 years, the last 11 quarters, I think, is quite an achievement. And I think it's demonstrated by the growth in the profits in the Wealth Management business.

I think if we look at global markets first, then I think what we said back in 2015 is that we did want to restructure that business. We wanted to align it more closely to our Wealth Management businesses. We wanted to limit the amount of capital we had exposed there. You can see USD 59 billion of RWA, USD 255 billion leverage, we've achieved that goal.

I think the second thing that we said is that we wanted to reduce the operating costs and particularly the fixed cost of our business. And I think despite some skepticism from analysts over the last course of last 2 or 3 years, the actual run rate of expenses in the third quarter was actually below the target we set there. So it is a much more resilient business that we're actually operating in. If we look at the small loss, we had a USD 21 million. I think there's couple of things to think about in that. Firstly, in the second quarter, we did restructure certain of our fixed income and equity businesses, which I think was the right thing to do. It helps us to drive us towards our cost levels and that -- but that did cost us some revenues. I think secondly, if we look at the business management, we really only started that restructuring in 2016 when Brian was actually appointed. So it probably cost us about a year in terms of progress. And thirdly, we talked before about the IPS business, which I think is a joint venture we're very proud of between the SUB, IWM and GM. I think we've seen a lot of momentum there during the course of 2018, but we're not going to see the full benefit for that in 2019. I think last, but not least, I think you should be aware that we obviously completed the 81 refinancing program in the third quarter. That will generate about CHF 700 million of funding cost savings in 2019 compared to 2018. As Tidjane in his remarks and in our release, about CHF 250 million actually flows to Global Markets division. So you'll see that.

So I think we've laid out a clear strategy for the bank. Global Markets is an integral and a key part of that. It supports what we're doing. It helps us to service our clients better, give us better products. And, yes, I think we would like to have a 4.3 on this and the revenues from this restructuring as well as everything else we've actually achieved, but I think there's a lot of momentum in terms of what we're doing now. And I think a lot of reasons as to why we'll get to these goals in 2019.

I think your second question was on APAC market. I mean -- I think just a couple of points to make. I mean, the markets business in Asia Pacific is particularly small, particularly in fixed income side of that. And you do get to see a sort of law of small numbers and volatility that tends to flow from that. So I just step back a bit. I mean, firstly, I think you might have seen the slide in our previous presentation, which just showed the weakness we've seen in capital markets, particularly equity markets in the Asia Pacific region this year. I think -- I know the U.S. has been strong. But if you look at Asia Pacific, it's seen the other side in terms of that. It's a difficult market environment to which to operate. The APAC Markets business itself was actually at breakeven, notwithstanding that difficulty. And actually if you step back and look at the 9 months, you can see that revenues in both our equity business and our fixed income business in the first 9 months are broadly similar, in fact slightly about 1% higher than where there were in the first 9 months of last year. So I think if you look at the market conditions, we're actually operating against that. I think it's a pretty good performance.

Okay. Jan-Henrik and then we'll take Daniel, we'd go to you afterwards, yes.

I'm Jan-Henrik from Bloomberg News. Please don't take this question the wrong way. It's a follow-up on Global Markets. The results are still pretty weak, and over the last 3 years, the narrative was about scaling down this business. But now it seems that the market is still very sensitive to the results here and in this case, the loss. Are there any measures you're considering additionally on what you've been doing on the revenue side to boost income here? That's the first question.

And then, the second question, could you talk a bit about ITS flows? How is that developing? I saw it's down in the SUB. You mentioned that in the reports, but how is the business doing overall of this joint venture?

Thank you for the question on Global Markets. I think, I mean, there's 3 or 4 points to consider. I think firstly -- I think we should put this in context. If we think about our profits, we're up 54% in net income for the first 9 months of this year, 53% in terms of adjusted profits. So I think you can see we're obviously doing something right, and I think we're executing very clearly against what we laid out to actually do. I think secondly, as I've said already, I think the restructuring and reengineering of our Global Markets business really only kicked off in 2016. So it's about a year behind in terms of what we're doing there. And I think thirdly, if we actually look at the businesses that we have in Global Markets, is a strong combination of businesses that have very strong standalone positions, but also of our ITF equity derivatives, very closely aligned to our Wealth Management businesses. And as we move into perhaps a more uncertain market and economic environment, having the ability to actually produce those products, more customized to our clients is going to be absolutely critical for us as the bank. I mean, really you cannot underestimate that. So I think in terms of things we're doing to improve the performance of our Global Markets business, I mean, you know what they are. I think you've seen the strengthening that Brian's done in terms of equity derivatives and equities overall in terms of the recruitment there. I think you've seen -- we've talked about the investments we've made in ITS and the steps we're taking to address relatively low levels of internalization that Credit Suisse has between our markets and our Wealth Management business. These were exactly the right steps we made. And I think bringing the cost base down to run rate, which is below what we need to hit our target, gives us more operational flexibility in what is perhaps a more uncertain world. So I think we're making all the right steps. And as I said before, purely mathematically just the flow through of the funding cost savings to GM would mean we'd actually be at a profit this quarter if we were in 2019. But I think there's a lot more things we're actually doing at the moment that should actually strengthen the performance and we'll the sort of progression that we've seen elsewhere in the bank over the course of the last 3 years.

Question, over here. Daniel, yes.

Daniel Zulauf I just would like to come back to my colleague's question about share price. I mean the answer to this question clearly is the very poor -- still very poor return on equity of your bank. And the Crédit Suisse in this sense is not the only bank in Europe showing poor return on equity. According to studies, 90% of the big banks in Europe are very poor in this sense. And now the ECB is advocating more merger trends, national mergers in order to improve the situation. I would like to listen you talking about your opinion on if -- are mergers a solution to the inherent profitability problem of the banking industry in Europe? And what is the position of Crédit Suisse in that sense?

Thanks for your question, Daniel. I mean, I think, there's a number of points there. Firstly, I think, you're asking about the return on tangible equity we have seen so far, I think the point would be is 6.3% is what we've achieved in the first 9 months of the year. So that's 50% higher -- 54% than where it was basically a year ago. So that's pretty hefty momentum in terms of the increase in return on tangible equity. I think second, at the Investor Day last year, and more recently in our quarterly announcements, we've given a number of clear walk across as to why we're going to hit our return on tangible equity target of 10% to 11% next year. But let me just summarize it. Firstly, you have the reduction in the funding costs of CHF 700 million. Secondly, the restructuring program, which we started in 2015, comes to an end at the end of 2018. That means we will not be restructuring costs going throughout as a separate adjusting item there afterwards. That's a significant improvement. Thirdly, think of the progress we've actually made on expenses. I think we're very confident in getting our expenses down below the CHF 17 billion mark. Fourthly, look at the momentum we've achieved in the Wealth Management businesses. Just to reiterate, our Wealth Management profits in the first 9 months only were 26% higher than they were in the whole of 2015. And we think this is a business that's got continued momentum in 2019, and we'll talk more about that at our Investor Day. And I -- we've obviously had a few questions on Global Markets, so I won't repeat what I said there already. But I think if you look at the momentum what's been led by Brian, you can see the improvements coming through. And by the way, we shouldn't ignore what's been achieved in IBCM. I don't know if you saw the slides we produced for the analysts, but I think you can see that in terms of banking capital markets revenues, we've outpaced our competitors, both in the United States and in Europe. We're actually now larger, and we have a greater growth rate than any other European bank.

You asked the question about share price. I mean, I think, we, as the management team, are very focused on making sure that we hit these goals. We get up to 10% to 11% and the market can be the judge on that. And I think one point, I would make is, we are Swiss bank. We just happen to be surrounded by the EU. And the trends that we see in Switzerland are vastly more positive than we see in the EU. And if we think about the revenues at risk with this whole Brexit business, we're only talking about 2% of our global revenues are actually in the EU 27 from the markets business. I think it's very important to keep that in context. But nonetheless, we are priced and valued as a European bank, notwithstanding the strength of our business elsewhere, particularly in emerging markets where you're seeing the benefit from again this quarter. So stock price is the stock price, and I just would say, the Swiss banks are not European banks, and I think they've got somewhat better growth planning.

And I think that probably therefore answers your next question, which was around bank consolidation. I don't think that's of particular interest to us. I think if you think about the momentum we're seeing in our Wealth Management business, the organic investments we've actually made there, I think we've got plenty of options to exercise to continue to drive our earnings growth over the next few years.

Jeff?

Jeffrey Voegeli with finews. I want to ask about client activity. The way I read it, that went down both in Switzerland and in Asia. But the IWM was quite resilient, and I just was wondering whether you could explain a little bit what the difference is between sentiments of those clients in different regions or maybe what you're doing in those regions to get the clients to trade more despite the uncertainties?

Thank you, Jeff. Well, I think there's few points there. I think the first and most important aspect is as we've built the businesses over the last 3 years, our focus has been on improving our recurring and our net interest income, you can see the levels of compound growth we've achieved in that, and you can see that even as we've created net new assets, just recall that was CHF 33 billion in the first 9 months of the period, the actual gross margin we achieved on those net new assets from recurring NI has been rock solid stable. So we're not deleting that return. You're seeing net new assets coming in and you're seeing us actually booking recurring growth on that. I think clients essentially clearly have different interest depending where you are in the market. A year or so ago, it was practical directional. This year, it's been more structured. And I think that's the whole point, Crédit Suisse has evolved over the last 3 years and has built product capability such as ITS to actually service those clients in that environment. So I think if we -- I mean that's the context in terms of which we're operating in. I think the strength in the recurring NII is a real tribute to what's been achieved in the last 3 years by Wealth Management businesses. If we think about it differentially, I think, there is just an important point, which is leaving aside markets, the summer is always a slower period of time. You know, people are on vacation indeed. But that affects all of our businesses in terms of what actually happens over the period. Clearly if we look at Asia Pacific, given the sell-off we've actually seen in Asia Pacific market, I don't think it's particularly surprising to see that clients are taking it conservative viewpoint. One thing, which came out in the previous analyst call, which you may not have seen, was when we talked about CHF 6.4 billion net new assets in Asia Pacific, that was after several billion of deleveraging that we actually saw, which I think just shows what the level of inflows in. I think it's certainly true that in terms of the SUB business against IWN, both franchises have had a very strong quarter, let's be clear. I think we have more strength in terms of some of the more complex products, which we have demand for outside of Switzerland, and I think that was something, which the IWN business I think rose to the challenge and actually did very well. It's a different business in terms of what we actually operate into.

Follow-up question over here.

Just very quickly. One part of your answer it's too fast for me. Your definition of Crédit Suisse. You said that Crédit Suisse is not a European back, but a Swiss bank or what is your definition of Crédit Suisse actually? That was a bit too quick for me.

And the second is about the stress test and the ECB stress test. Is Crédit Suisse following this test? I mean, understand -- or is that an issue for...

Yes, I think if you look at the strength of our businesses, in the course of this year, I think it'd probably be best to define that Crédit Suisse is a global bank because you've seeing that strength across all the businesses in which we actually operate. And if you look at our IBCM businesses, and just to reiterate, our IBCM revenues were actually up 7% from third quarter, whilst the Street was down 11%. So very substantial performance. That's been achieved across all the banking markets, in which we actually operate. The point I was making is when we think about our operations here, look at the strength of our Swiss bank, on the core is a very strong Swiss bank. I think it's very important to think about us as a global bank. We have a very strong Swiss core. When we get described as an European bank, with a very important stat, okay, that is which we think about the revenues that are affected by all this Brexit business, it's about 2% of our global revenues. I think that just puts the EU 27 markets into context, which is what we're dealing with. And it is what it is. I think I can make many cases for Crédit Suisse to be assessed as a very strong Swiss bank, as a global bank, we tend to get valued as a European bank and that's what it is.

I think your second question was around the ECB stress test. We're not regulated by the ECB. Our operations in EU 27 are not large enough to actually meet that threshold. We're clearly subject to stress test here in Switzerland by the FINMA. We're subject to stress test in the United States as part of CCAR process and we're subject to stress tests in the U.K. for entities there, but we're not part of the ECB. We clearly do look carefully at the ECB stress test in terms of that context, but just to be clear.

Perhaps there's a subtle distinction between a European bank and the Eurozone bank. Issues there.

Thank you Adam. Perfectly put.

I think where the disconnect it. Okay, any more questions? Yes, please? [Marko?]

[Marko for Handelszeitung]. There was a lot of talk that business in Asia might have become a little bit more difficult after a banker by UBS not allowed to leave the country. Has this affected you in any way? Can you give us an insight to what's happening in China?

I mean, I think, I don't think I could really comment on any of our competitors, I mean, that's not appropriate. And as we've said, we've invested substantially, in both the first and the second line of our compliance protocols over the course of last 3 years. That includes adding about 42% to our compliance staff over the last 3 years as well as increasing the seniority of that staff and, not least, we've obviously invest heavily having a single client view, and actually 99.6% of our client base was actually in that system. Now as part of that, we are very focused on assuring that our AMs follow very compliant behavior when they do travel. And that's a core part of our first-line and our second-line discipline and that's an important protocol to which to stick to. And we haven't seen anything particular in the country, which you addressed, which was, I think, China. So I can't really comment beyond that.

Okay, we're going to take a phone question, I believe it's from the FT.

(Operator Instructions) And your first question comes from the line of Stephen Morris from the Financial Times.

With your Strategy Day coming up on December 1, I mean going into this, I mean it looks like investors reacted pretty badly to the disappointing loss in the Investment Banking business, a few targets for income have been abandoned. Does this change the way that you're thinking about operating it? And are you going say anything different in December now? I mean, this has kind of been a bit of a shock?

Thank you, Stephen for the question. It -- just one small point, the Investor Day is actually on the 12th, not the 1st of December.

Sorry, the 12th.

That is to match. But I think if we look at the results that we've achieved for the third quarter and for the 9 months, I think we're very pleased with them. I think that's the most important point to have a 53% increase in our adjusted profit, 54% increase in net profit, to have CHF 33 billion of net new assets coming in, having a very positive performance in our asset management business as well in terms of flows there, to have a IBCM business outpacing all of our competitors in terms of quarter-on-quarter revenue growth. I think these are all things to be immensely proud of. If you look at the capital position we're in, 12.9% compared to 12.8%, a common equity leverage ratio of 4.0%, the highest of any major Swiss bank, 5.1% in terms of Tier 1 leverage ratio and, not least, I think bringing fixed cost down very substantially over the last 3 years, CHF 4 billion total, and we're clearly on target. And I think we're confident at bringing the numbers down below the CHF 17 billion target. I think these are all things where we have executed either in line or ahead of schedule in terms of our strategy. I think in terms of markets, as we said already, I think we're a year behind. And I think that reflects the timing what we've done. But I think let's step back, equities, a number of key hires, investments made, we're seeing the progress on that. Our equity derivative revenue is up 70%. If we think about ITS, that was set up a year ago to more closely align GM with our SUB and IWM businesses and to increase the amount of internalization. If you think about the funding cost moves, which we've done over the third quarter, to generate CHF 700 million of savings, I think this all flows through to a lot of confidence that we're executing across the bank well, and we're executing well in GM. And I don't think -- I think we're very happy with the structure and the organization of the bank.

If I could just have another one. There have been some reports in the U.K. media this morning about a tentative deal between the U.K. and European governments about the financial services here, as long as their regulatory systems remained aligned they'll basically be able to continue operating on a similar basis. I'm just wondering if you've kind of picked anything up and whether that will affect the way that you choose to reorganize your operations out of London?

I think, Stephen, it's probably a little bit early to comment. And I think for us as a bank priority is to ensure that our clients can continue to access the EU 27 markets, even in the events that the U.K. and the Eurozone don't reach a deal by the 29th of March. So that's what we're focused on. Insuring that we're ready against the so-called hard Brexit contingency. I think if a deal is reached, and if this is the part of the deal, then that obviously provides more time for that sort of transition. But frankly, our priority is make sure we're ready for 29th and make sure, that we can provide service that our clients need in that circumstance, and we'll see how the political situation develops.

We will take one more call and then we'll just come back to the room here.

Your next question comes from the line of Paul Davies from The Wall Street Journal.

So couple of quick things. So one on leverage finance. Obviously, there's been sort of a growing set of warnings about the risks in this market from various regulators. And you guys seem to have sort of slipped down the revenue rankings a bit this year compared to previous years that you typically lead in the U.S. until you've dropped a few places. I'm just kind of wondering what's going on here? Are you deliberately sort of being more cautious or have you got capacity issues? I mean, I've heard anecdotally, that you've stopped underwriting at sort of various points during the year.

And then the other question is just a simple one. So next year once the restructuring is done, can we expect adjusted and reported numbers to basically be pretty identical?

2 questions, really. One, which was I think a question around the league table position of our leveraged finance business, and I'd defer to Jim, but I think our league table position is pretty solid. I think it is much the same as it was a year ago. Jim, anything to add?

We don't focus on the volumes. We focus on the actual fee league table, and we've been -- sorry it's Jim Amine. We don't focus on the volume league tables. I'm not sure, which ones you're referring to.

I'm sorry it was the revenue table I was asking about.

And when I look at our fee progression versus the competitors, we are in line or exceeding their performance year-over-year.

I think on your second question, which was about whether the adjusted and reported measures will actually converge next year. I think there's 2 or 3 points to make. Firstly, our target for our return on tangible equity next year is a for the reported return on tangible equity tangible of 10% to 11%, so the reported number, that's a metric on which -- key metric, which we're actually looking to perform against next year. And I think when we talked about the walk across in terms of where we are this year to where we are next year, is to that reported return on tangible equity. Clearly part of it is the restructuring program will be complete at the end of 2018. So you should expect the reported and the adjusted numbers to converge very closely going forward from the first quarter of 2019.

Sorry, just a follow-up on leveraged finance. I mean, I was asking about the revenue league table, but regardless the question is really about has your appetite for risk changed in that market because of -- do you see it as becoming overheated at all?

It's Jim, again. No, listen, we haven't -- we've had a consistent risk appetite and we measure it a lot of different ways, everything from overall league tables to league tables for very highly levered transactions, et cetera. And if you look at the performance over the past 7 quarters, it's been very consistent. On our data, we haven't been chasing share. We've been disciplined. We're not doing every transaction that people have offered to us. And so from my perspective, I think, we are cautious about the market conditions, and we're watching them carefully. And so far, the business has been performing exceptionally well.

Okay. Thanks, Paul. We're going to take 2 more in the room. We're going to run out of time. We'll take Jan-Henrik and I guess Daniel has got more follow-up. May be the just microphone at the back for Jan-Henrik there.

For the net new assets in IWM, could you give the regional breakdowns, where's the money coming? From which region?

Iqbal.

Yes, this is Iqbal. Across all regions, we -- all regions were positive across emerging markets as well as Europe. That would include all regions.

That is correct. Everything is good. Very correct.

I think you can see that it's true, not just for IWM but for all 3 divisions, I mean I think you saw the CHF 6.4 billion Asia Pacific, you saw of the numbers in IWM. I think Iqbal is being polite, but I mean the asset management inflow has also been very strong, and I would point out that those have been achieved in our equity and our fixed income specialty products, so it's been good for their inflows. And I think obviously if you look across the asset management industry, which is obviously been suffering outflows not to be underestimating the performance of the asset management business. And last, but not least, the Swiss Investment Bank has another CHF 1 billion of inflows in the third quarter.

One thing where do you see the strength in asset management, so the business is CHF 400 billion AUM, performance is good, but that's the consolidation also happens in the industry. Where do you see your strengths?

And so I think, we had a number of discussions around asset management as we're going through the strategy, and what was very clear for us is that we are specialized asset manager. We are not a large loan-only player. We're not materially large and passive. And the entire market shift is actually going more towards active and actually more towards specialized and what you've seen over the last 3 years and the fact that we've been able to consecutively grow management fees on a double-digit basis, again across all regions, be that Americas, Europe as well as Asia, has actually demonstrated the demand on the client side. And if you look at the collaboration between Wealth Management businesses and asset management, we've actually been able to increase our penetration vis-à-vis our clients in Wealth Management, which has a very, very good effect. 2 very important effects. One is you can position yourself as an investment manager vis-à-vis your clients. You can provide top quartile products to your clients, which make clients overall more stickier. So generally, I think, our strategy has fared very well in terms of turnaround in asset management. If you look today versus '15 and before, a large portion of our income in asset management was coming from performance fees, investment-related gains and passive investment and that have turned around completely, while now a big chunk of our earnings, as Tidjane showed today at the analyst call, is coming from management fees in our operating business and that was clearly the strategy. And that shift has actually been very successful over the last 3 years.

Can we take the last question? And then we'll have to wrap up.

Just one question about your growth prospects in Wealth Management, you've been talking about growth in this industry requires also a thought about risk and compliance issues. You have an issue this year in this respect, which looked not like very serious one, but in fact, looking at it closer it turned out that it could have been -- it could have had a lot more consequences than it actually had. Basically, I would like to invite you to give an assessment landscape. At the moment looking at cases like Danske, ING, unprecedented fines in Europe as well. ING paying EUR 700 million. Danske probably will probably pay a similar amount or even higher. I am -- I would like to listen your assessment of this situation which I presume is quite more riskier situation than few years ago.

Thank you, well firstly I'll say a few words and obviously ask Lara to speak a little since she's here. I think firstly, I think just in terms of the incident you referred to, there are a few points to make. Clearly, it's something we regret, and it's clearly part of a broader ongoing investigation in Switzerland and it related back to incidents that happened between 2006 and 2014. I think since then, obviously, we've appointed Lara a EXP member responsible for our compliance functions. And under her leadership, we've actually increased our compliance staff by 42%.

As I said already, we've developed some fairly innovative technology that gives us a single client view for 99.6% of what we actually do. We've increased the seniority against that. And indeed, I think as we look at both our notice but also the FINMA notice, I think that's been acknowledged in terms of what they've seen over the last 3 years. But I think your point stands, I think, I'll defer to Laura on this, but I think we sit and look very closely at all the operational risk which banks are exposed these days, which does include financial client. And this is an environment, in which I think you can have no tolerance for errors and it's very important to both a very strong first line, everybody here, but also very strong second line behind that. But Lara do you want to comment further.

Sure. So I would make a couple of points. One, as we said before, the expectations for banks on preventing money-laundering continue to rise. I do think what's interesting about both our enforcement order, but also some of the other industry orders are they are legacy in terms of the time frame that they represent, and I think most certainly I can speak for Crédit Suisse, as David has said, we've made significant improvements really in 2 areas. The first responsibility for any back is to prevent risk from entering the bank. We made some changes in early 2016 that every single Wealth Management client is not activated as a client until compliance has reviewed all of the paperwork and in effect evaluated whether the plausibility of what the client is telling us is true. And that's a major strengthening of the controls in terms of letting risk into the bank. The second big area of risk is to watch the behavior of clients once they're in the bank and frankly, detect quickly when that behavior starts to suggest there's something inappropriate going on. And that has really been significantly improved at Crédit Suisse with the adoption and use of the new tools, that I think some of you have actually seen us use single client view in particular where we have 99% -- over 99% of our clients in Wealth, where we can now see not only the full view of the client, but the activity they have. So look, I would say, we remain diligent. We continue to focus on improving our capabilities. The last point I would make is, we actually have received from regulators around the world more recently, quite positive results on our money-laundering capability, certainly out of the U.K. as well in the U.S., and we look forward to continuing to get those kind of results as we evidence these improvements, including here in Switzerland.

Okay, with that, we're going to wrap up the proceedings for today. Thank you again, everyone for coming in and for those on the phone, and we look forward to speaking to you soon.

Thank you very much.

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