Credit Suisse Group AG (CS) 2020 Q1 法說會逐字稿

Good morning.

This is the conference operator.

Welcome, and thank you for joining the Crédit Suisse First Quarter 2020 Results Media Conference Call.

(Operator Instructions)

And the conference is recorded.

(Operator Instructions)

I will now turn the conference over to Dominique Gerster, Head of Corporate Communications, Switzerland.

Please go ahead, Dominique.

Thank you, operator, and thank you, everybody, for joining us today.

Before we begin, let me remind you of the important cautionary statements on Slides 2 and 3, including in relation to forward-looking statements, non-GAAP financial measures and Basel III disclosures.

For a detailed discussion of our results, I refer you to the Crédit Suisse First quarter 2020 earnings release and remind you that our first quarter 2020 financial report and the accompanying financial statements for the period will be published on or around May 7. We would also like to remind that our annual general meeting of shareholders will be taking place next week on April 30.

On the line with me today are Thomas Gottstein, Group CEO; and David Mathers, our Group CFO.

Thomas will give you an overview of our first quarter performance.

And after his remarks, you will have the opportunity to ask questions.

I will now hand over to Thomas.

Thank you, Dominique.

Good morning, everyone, and thank you for joining our call this morning to discuss our first quarter 2020 results, my first as Group Chief Executive.

Before I start with the slide presentation, allow me to make a few personal comments.

As you know, I took office on the 14th of February.

Little did I know then how the world would change within less than a month.

During my first 3 weeks I had the opportunity to meet with many colleagues in meetings and town halls, with key clients, investors, including most of our top 30 shareholders, analysts, regulators and journalists.

These meeting took place in Switzerland, in London and in the U.S. and were very valuable for me personally to exchange views and discuss the strategic priorities and prospects of Crédit Suisse with key stakeholders.

Unfortunately, the global COVID-19 pandemic then became a reality which changed circumstances completely.

Suddenly, traveling was not possible, and my priorities shifted to the safety of our employees, ensuring business continuity and being there for our clients in the face of a crisis.

I'm incredibly proud of how our organization has reacted to the challenge and demonstrated the strength of the Crédit Suisse culture based on its can-do attitude, teamwork, entrepreneurship and solidarity.

I want to thank all of our 48,000 employees for what they have done and achieved over the last few weeks in very difficult circumstances.

I also want to thank my colleagues on the Executive Board and on the Board of Directors for their leadership and partnership, which allowed us to quickly react to the recent events in a coordinated fashion.

Let me now take you through the slide presentation.

I will take you through some of the highlights of the numbers this morning as well as detail our response to COVID-19 and the impact that it is having on our business.

Next slide, please.

In the first quarter, we generated CHF 1.2 billion of pretax income, up 13% year-on-year.

This was supported by a 9% increase in revenue across our private banking franchises, excluding the gain from the final closing of the InvestLab transfer in the quarter and a 25% increase in our sales and trading revenues.

I would note that the increase in pretax income for the group was achieved despite an over CHF 1 billion reserve build.

We reduced total operating expenses by 6% year-on-year to CHF 4 billion and are expecting around CHF 16 billion of adjusted operating expenses for the full year 2020.

Excluding the provision for credit losses, mark-to-market losses and gain from the InvestLab transfer, our pretax income for the quarter would have been CHF 1.9 billion, a 66% increase year-on-year.

This shows how much we have further improved the operating leverage of our business model.

At CHF 1.3 billion, we delivered the highest quarterly net income in the last 5 years and the return on tangible equity of 13.1%, in part benefiting from the closing of the InvestLab transfer and the negative tax rate.

At the revised tax guidance of 20% to 25% for the full year 2020, our return on tangible equity for the quarter would have been around 9% to 9.5%.

I would also add that the 13.1% return on tangible equity achieved in the first quarter was the highest in the last 5 years.

In the current market turmoil, we also benefit from our strong capital and liquidity position.

In terms of capital, our CET1 ratio stood at 12.1%, and our Tier 1 leverage ratio was 5.8% at the end of the first quarter.

We also maintained a strong liquidity position with one of the highest liquidity coverage ratios among international peers at an average LCR of 182% for the first quarter.

And to further protect our capital base, we have suspended our share buyback program and delayed the decision on the second half of our 2019 dividend until later in the year as previously communicated.

Finally, and as you may have seen from our announcement last week, we received regulatory approval to become a majority shareholder in our securities joint venture, Crédit Suisse Founder Securities Limited, marking a significant milestone in the bank's China strategy.

Let's turn to the next slide, please.

As I mentioned at the start of my presentation, the impact of the COVID-19 pandemic has had on markets, economies and our society is profound.

At Crédit Suisse, we have adopted a 3-pronged approach in response to the pandemic.

First, my focus and that of the Executive Board has been on the well-being of our employees.

We have established numerous support measures for our employees to overcome the challenge of the pandemic, including early engagement of medical advisers in Switzerland and globally; paid family leave in all markets in which schools are closed for those colleagues who are unable to work; and thirdly, honoring the contracts of future hires and pushing forward with remote on-boarding.

As a result of detailed business continuity management, we were able to move quickly to remote working and now approximately 90% of our employees can work remotely with approximately 70% to 90%, depending on the location, actually working from home.

Second, we have continued to serve our clients through these challenging times.

We continue to provide bespoke client solutions given the market dislocation, whether that's to our private banking clients across regions or to our wholesale clients in investment banking.

We have leveraged our digital banking model to ensure business continuity, for example, by on-boarding clients digitally.

And in Switzerland, we continue to serve our retail clients through branches, 2/3 of which remain open and are following social distancing rules and increased hygiene measures.

We also have played an active role from the beginning in the development of the CHF 40 billion bridging loan program to small and medium-sized enterprises sponsored by the Swiss government, of which more in a moment.

Third, we are working in our communities to provide support where we can.

We have launched a bank-wide donor-advised matching program to encourage employee donations to charities working to alleviate the impact of the pandemic.

As part of that, myself and every member of the Executive Board has committed to donating at least 20% of 6 months' base salary or equivalent.

The Chairman of the Board of Directors has also committed to donate to a similar extent.

We have also made local donations of masks to hospitals and health care providers in a range of locations and made donations through our regional foundations to a range of charities.

Next slide, please.

Here in Switzerland, I'm proud to say that we have been able to play an active role from an early stage in the development of a highly effective and innovative CHF 40 billion bridging loan solution for Swiss SMEs, and we have done so in conjunction with the Finance Ministry, the Swiss National Bank, FINMA and the Swiss Bankers Association.

The details of the 2 programs are referenced here, targeting small and medium-sized companies, providing access to funds quickly and without onerous paperwork requirements.

The programs were modeled on an idea originally from Crédit Suisse using the trade export guarantee system as a basis and involve significant government guarantees at 85%.

As you can see from the slide, from the original idea to the program being implemented on March 26, was a matter of days.

Eligible customers were able to access funds within 0.5 hour of completing a simple 1-page form.

The success of the program overall is reflected in the decision on April 3 to increase the overall lending guarantee from the original amount of CHF 20 billion to CHF 40 billion.

To date, Crédit Suisse has granted approximately 14,000 loans with a total volume of CHF 2.4 billion under both the SME and the corporate facility.

Where we make a profit on these loans, we have said from the outset, we will donate it to organizations focused on helping the Swiss economy.

The program is a testament to the strength of the Swiss financial center, working together for a common cause at a time of great need.

Next page, please.

As I mentioned earlier, our results for the first quarter contained a gain from the second and final closing of the transfer of InvestLab to all funds.

Including this transfer, pretax income rose 13% to CHF 1.2 billion.

Excluding the gains from that transfer, but including the over CHF 1 billion reserve build, which we will cover later, pretax income was down 12% on the same quarter last year.

Next, please.

As mentioned at the outset of my presentation, we have delivered the highest quarterly net income in the last 5 years at CHF 1.3 billion.

In part, this was supported by a negative tax rate that we can cover later if you have any questions.

This brings us to return on tangible equity on the next slide.

Despite credit provisioning and mark-to-market losses, we achieved a return on tangible equity of 13.1%, a significant increase from the 7.8% reported in the first quarter of 2019.

Here again, we see the benefit from the earlier mentioned gains from the InvestLab transaction and the negative tax rate.

Based on the tax rate, in line with our new guidance of 20% to 25% for the full year 2020, our return on tangible equity for the first quarter would have been around 9% to 9.5%.

Next slide, please.

Our private banking business are at the core of our strategy and continued to demonstrate their importance during the first quarter despite the COVID-19 pandemic.

Within private banking, we saw growing net interest income, stable recurring revenues and strong transaction activity, up 31% in the first quarter of 2020 compared to the same period a year ago.

Overall, private banking net revenues rose 9% and this excludes the gain from InvestLab, showing continued strong momentum in these businesses.

Next slide, please.

Our Integrated International Trading Solutions business called ITS, a collaboration between the Swiss Universal Bank, International Wealth Management and Global Markets, continues to be an important differentiating factor in our model, providing trading solutions to private clients.

During periods of market dislocation, as we are currently in, private clients are often seeking innovative solutions in order to protect their positions and best-in-class trading execution across all asset classes including equities, bonds, FX, OTC derivatives and structured products.

ITS is also at the heart of our Lombard and share-backed lending effort to our private clients and once again proved its worth as reflected in the 64% increase in revenues between the first quarter '18 and the quarter just ended.

Next slide, please.

Here we are showing the makeup of our total investment banking net revenues across advisory and underwriting, equity sales and trading, and fixed income sales and trading.

Both equity and fixed income sales and trading had strong first quarters, up 24% and 16%, respectively.

Those strengths in our diversified investment banking portfolio, however, were offset by weakness in advisory and underwriting in March, resulting in 38% lower revenues from this business in the first quarter compared to the first quarter of 2019.

Excluding the mark-to-market losses of USD 459 million incurred in the first quarter, overall investment banking net revenues stood at USD 2.9 billion, up 23% on the same quarter a year ago.

Next slide, please.

This is probably one of the most important charts to explain our reserve build.

The slide provides an overview of our comprehensive reserve build during the first quarter as a response to the challenging environment and continued pressures on oil prices.

As a U.S. GAAP reporting bank, we also incorporated appropriate CECL provisioning -- CECL stands for current expected credit losses -- taking into account updated and relevant macroeconomic forecasts.

For the first quarter, we saw an increase in allowance for loan losses of CHF 585 million, as you can see from the bar in the center of this chart.

On top of that, we took CHF 284 million of mark-to-market losses in leveraged finance, unrealized mark-to-market losses I might add, and a further CHF 160 million of unrealized losses for the APAC financing group.

Together, that gives a total reserve build of just over CHF 1 billion.

CHF 376 million of this amount relates to CECL, which, as you may or may not know, reflects general credit risks and not specific client exposures.

So in Swiss terms, the analogy would be (foreign language) as we call it in German.

I would like to provide you with some context for this reserve build with regards to CECL which is based on substantially more conservative views than IFRS 9. We do use a range of scenarios which our business is exposed to in order to calculate this.

We include a downturn of 20% to 30% in U.S. GDP in the second quarter and a double-digit level of U.S. unemployment.

We also assume a recession in Europe and to a lesser extent in Switzerland for the full year.

To help you make comparisons with the numbers from U.S. peers, who you have already seen having reported, I would make the additional 2 points.

One, we don't have large exposures to U.S. consumer lending that the major U.S. banks have, we are exposed to our more resilient Swiss home market in terms of consumer lending.

Secondly, if I look at global markets and IBCM lending, our reserves represent 0.88% of lending exposure, which is comparable to the marks taken by U.S. peers for their respective wholesale client segment.

Next page, please.

I just wanted to take a moment to reinforce the importance of our home market in the current environment.

From the start of 2017 until the end of 2019, on average the Swiss Universal Bank contributed 38% to group profits.

The Swiss Universal Bank accounts for 58% of the group net loans, as shown in the pie chart on the lower left of this slide.

Swiss loan quality has proven to be particularly resilient when compared to other countries.

This is displayed on the right side of this page showing provisions for credit losses and nonperforming loans, respectively, as a percentage of total loans across some of the biggest banks in each of these markets.

When looking at our balance sheet, the strength of our home market and its strategic importance should not be underestimated nor forgotten.

Next page, please.

Here in the right-hand bar, we show the net revenues for the group in the quarter, excluding the gains from the InvestLab transfer but also the aforementioned mark-to-market losses.

The light-blue section of the bar shows the total operating expenses, which we have incurred to deliver these revenues.

And the dark-blue section depicts the pre-provision profit for the quarter, if it weren't for the appropriate credit provisions reflecting current market conditions.

At CHF 1.9 billion, this represents a CHF 773 million increase compared to the same quarter of last year and shows that we further strengthened our combined private banking and investment banking franchise, our profitability, and delivered substantial operating leverage.

I would now like to close the formal part of today's call with 2 final slides.

The next chart, with the title Key Capital and Valuation Metrics, shows how we have managed to increase the tangible book value per share over the last 9 quarters as well as our profitability measured by return on tangible equity.

And as you can see in the table below, we achieved this profitability increase while maintaining strong capital ratios and further increasing our risk density towards 35%.

Risk density is the result of dividing risk-weighted assets by total leverage exposure.

And this 35% is the level commensurate with the expectations of FINMA and the Swiss National Bank when they calibrated the Too Big To Fail capital requirements as part of the Swiss approach to adopting the Basel III capital rules.

Final slide, please.

Let me reiterate one message that is of particular importance for me during this challenging time.

We understand our responsibility towards our employees, clients and the communities we operate in.

We will continue to do what is in our power to limit the impact the severe crisis has on all of our stakeholder groups.

Amid this profound market dislocation and despite significant reserve building, we delivered solid first quarter financial results and saw good revenue momentum in private banking as well as in our sales and trading businesses.

However, the scale of the adverse economic impact of the COVID-19 crisis is still difficult to assess, and we would caution that we might see a further reserve build in the coming quarters, particularly affecting our non-Swiss lending book.

We might also record further impairments relating to our asset management investments.

Additionally, we would caution that the recovery in underwriting and advisory fees might be limited at least in the short-term until the COVID-19 pandemic eases and the global economy begins to recover.

Crédit Suisse, however, has entered this crisis with a number of key advantages, which are depicted on the right side of this slide.

First, we have a high dependency on the strong and resilient Swiss economy.

Second, we have a very stable and growing private banking franchise, contributing significantly to our revenues and pretax income of the group.

Thirdly, over the past years and through our restructuring, we have significantly reduced our cost base and risk exposure in our markets businesses.

Fourthly, we have a robust capital and liquidity position.

We are well prepared to continue to serve our clients, and we believe we can maintain a resilient financial performance through this crisis.

Thank you all for your attention.

I will now hand back to Dominique and David Mathers who is here with me and are happy now to take your questions.

We will now begin the Q&A part of the conference.

Operator, let's open the line, please.

(Operator Instructions)

And your first question comes from Stephen Morris from Financial Times.

Could you just tell us a little bit more about the 9% fall in assets under management?

What kind of behavior are you seeing from clients?

What is motivating that?

And where are they taking this money out of Crédit Suisse?

And what are they doing with it on the other side?

And secondly, to Thomas, you've been sort of unexpectedly promoted to Chief Executive of one of the world's largest banks during one of the biggest crisis in more than a decade.

Can you just sort of describe and tell us what your experience at the role has been like so far?

Okay.

Well, first of all, we had the positive net new assets as a group and the AUM decline, which is what you will see from other European reporters and also will have seen from U.S. reporters is entirely related to market performance, be it in equities or in other asset classes.

And it's something that you would typically expect in a market which has been down in some areas 30%, 40%.

So I think that's the simple answer.

And maybe, David, you want to add something?

I'll just refer you to Page 38, please, of the earnings release, which confirms exactly what Thomas just said.

The -- it is due to market moves.

But you should also remember that we actually report in Swiss francs and the Swiss franc has appreciated against most major currencies -- all major currencies over the course of the quarter.

So therefore the number also reflects the fact that our clients are holding their assets in currencies other than Swiss francs and therefore you see a translation impact.

But you'll see we also note net new assets of CHF 5.8 billion.

So I think we positively refute any suggestion that clients have been taking money away from Crédit Suisse on at least on a net basis.

That's not the case.

The value of the holdings have decreased along with markets rather than just holding it in cash somewhere else?

Well, they're not -- net-net, they've not transferred to other banks.

We have actually had inflows of CHF 5.8 billion, that's the point.

And the second point is we report in Swiss francs.

Obviously, many of our clients are global clients.

And they will be operating in dollars or sterling or yen.

And when you report that number in Swiss franc, you deflate the AUM accordingly, Stephen.

And Thomas, your experience so far as CEO?

Well, as I mentioned at the beginning of my introductory remarks, I had the first 3 weeks which were very valuable and helpful for me as I could visit colleagues in not only Switzerland but also in London and in the U.S., visiting investors.

I met with on a one-on-one basis with almost all of our top 30 shareholders, with analysts, with regulators and with journalists, and discussed our strategy, discussed our positioning, and that was very helpful.

So that was in the period -- in the 3 weeks after my formal start on the 14th of February.

But then the world changed clearly with the pandemic becoming this reality.

And then the focus was really on the well-being of our employees, on having the right operational setup, ensure business continuity and be there for clients.

And ever since, obviously, I did not travel anymore, I was here, but we had a great team here to coordinate all our efforts around the world.

And it has been, in my view, a very positive operational performance during this crisis by all our 48,000 employees.

Could I just make one addendum?

I noticed there's some misapprehensions in certain of the media stories this morning around the tax rate.

Just to be clear, just to repeat what I said on the Analyst call, the negative tax rate reflects 3 main factors: firstly, the result, the conclusion of the discussions between Crédit Suisse, the Swiss tax authorities, and most importantly the U.S. tax authorities around achieving a deduction for the term structure of our funding.

Up until this agreement in March, we did not receive a tax credit in respect to the term funding we provide to our U.S. operations and we've now agreed to that.

That generates both a credit but also a write-back gain for prior periods.

The second issue is we received the final BEAT rules very late in December, and it reflects a reassessment of our BEAT exposure together again of a write-back.

So the third is you actually get interest -- increased interest carryback in the United States.

So a bit of a technical point, but I just wanted to just make that clear to everyone on the call.

And your next question comes from Angelika Gruber from Tamedia.

I've got 3 questions.

The first one would be on the U.S. lawsuit on corporate bonds that came in recently.

I was wondering what you expect from it and whether you will have to book any provisions.

Then I would want to ask about the costs.

You mentioned the focus on costs for this year.

I was wondering what it means for the workforce; will there be any job cuts?

And then a question about the Swiss scheme on SMEs.

So I understand most of it is guaranteed from the government but I was wondering about the part that is not guaranteed?

Do you expect to get the money back?

Okay.

What was the first question?

On the U.S. lawsuit relating to corporate bonds.

I would just really say, look, we never comment as a matter of policy on any such investigation.

So nothing to add at this point.

And on the costs, clearly, we have stopped any redundancies or any reduction of forces.

And we are not planning as long as the pandemic is in the stage it is now to let any people go.

So this is clearly a responsibility we take very seriously.

I cannot make any forecast how long this will last.

But it's certainly, at the moment, our policy not to let any people go.

And on the last question, the SME scheme, it is the case that in the first few days, and actually still up to today, the vast majority of the loans were in facility 1 and only now facility 2 starts to come in.

As you can imagine, if these are the larger loans above CHF 500,000, up to CHF 20 million, and here we do proper credit checking, we look at the balance sheet, and the profit and loss statement of last year and go through a proper credit analysis, but we expect actually that to grow much faster now in terms of volumes, not the number of requests but in volumes over the next couple of weeks.

And this will be done in a very responsible way.

And whether or not we will ultimately have losses on this book, we will only see in a few years.

And obviously we will make appropriate provisioning.

But generally our experience with Swiss SMEs is very positive, and we think this should be a positive experience at the end of the day.

But you warned that there might be more provisions in coming months.

Does it relate to the Swiss SME scheme or is it somewhere else in the bank?

No.

I mean it's just a general remark because you never know how overall economy will further develop.

But if you look -- we don't have it in the slides here, but if you look at our Analyst presentation and you see the provisioning we had in Switzerland of CHF 124 million, that is more than we ever had for the full year in any of the years I was running the Swiss Universal Bank.

And just under CHF 100 million, I think CHF 96 million, relates to CECL, which again is not client-specific but it's general credit provisioning and assumes a significant deterioration in the second quarter in the high single digits in Switzerland compared to the first quarter, and for the full year assumes a recession between 1% and 2%.

So it's a relatively conservative assumption in my view.

But we never know whether it will become even worse.

But I think it's in line with our house view and the view of several other institutions I have been consulting with.

Your next question comes from Brenna Hughes from Reuters.

I was just hoping you might be able to give a little bit of -- more of an outlook related to your wealth businesses and what you're seeing since the end of the first quarter.

You've discussed a little bit the fall in assets under management related to market performance.

And I'm curious to know how you see that affecting net interest income and recurring commissions and fees going forward.

And maybe if you could also give us a little bit more color on what you're seeing in terms of transaction volumes at the moment and how you foresee this to continue?

Yes.

So I continue to be very optimistic about our private banking businesses.

You saw the positive earnings momentum, driven mainly by transactional revenues and net interest revenues.

Recurring revenues were flat.

Clearly, the lower asset base in terms of assets under management, driven by the performance and by FX, stronger Swiss franc, will be somewhat a drag on our recurring revenues.

On the other hand, we've had some clear strengthening of the equity markets and other markets in the first weeks of April.

So we should see some improvement -- performance-related improvement of our assets under management base.

But there is always a certain delay.

So recurring will probably be less seeing a growth dynamic in the short term.

But we continue to see not as strongly as in the first quarter, but still on a year-on-year comparison, very decent volumes on the transactional revenue side.

And we also continue to be well positioned on our lending book with our net interest income.

So overall, I see a continued positive momentum in private banking.

And your next question comes from Valentin Ade from Finanz und Wirtschaft.

I have 2 questions concerning the Swiss loan scheme.

Do you think, Mr. Gottstein, the CHF 40 billion will be enough or could we see another enlargement there?

And the second question, there are already voices in Swiss politics who say maybe some of those loans have -- will be written off and transformed into kind of direct subsidies by the state.

What is your opinion on that?

Yes, Mr. Ade, thanks for the question.

Generally, I think that the growth has slowed down now a little bit, especially for facility 1. I think we are now at CHF 17 billion.

And Crédit Suisse is at CHF 2.4 billion.

So it's about 15% of that.

I think over the next few weeks, I see more growth on facility 2, which takes a bit longer and will be in number of requests much less, but bigger volumes per credit.

And I -- it's difficult to predict.

This is the first time for me as well to be involved in such a big scheme to get -- whether we get to the CHF 40 billion.

But it's -- clearly, it's going to go above the CHF 20 billion but whether it's going to go above the CHF 40 billion is difficult to assess at this point.

And as you know, we will start to see some opening now towards the end of April and May in Switzerland and hopefully, to some extent, a little bit of a normalization but it will be a slow normalization.

And sorry, what was the second question?

If we will see a significant portion of the loans that will be written off or will be transformed into direct subsidies by the state?

I -- look, these loans are 5-year loans.

It -- they are, from a size perspective, 10% -- maximum 10% of last year's turnover.

The average SME makes about 10% operational profit of -- in percentage of turnover.

So over 5 years, that should be relatively easy for them to pay back.

So the vast majority will pay it back.

And also, as long as they have the loans outstanding, they cannot pay any dividends or make any major investments, so they also have an incentive to pay back.

And your next question comes from Daniel Zulauf from Basler Zeitung.

I was a bit late this morning, so I might ask you a question that you have already to some extent answered.

But nevertheless, the increase of your reserves is interesting.

I -- generally asking -- I'm generally asking myself the question whether this CHF 1 billion is something to be glad, the fact that you have this CHF 1 billion to put aside?

Or should we worry about the fact you put CHF 1 billion inside because it could be well -- it could well be much more in the future?

I mean that's a question you might answer.

And secondly, I'm also curious to know a little bit more about your oil and gas exposure.

You have outlined it a little bit in your presentation.

As far as I can kind of find it now very quickly, I think it's about -- oh yeah, here it is, USD 7.7 billion of which USD 2.9 billion is this reserving related to this specific sector?

Mr. Zulauf, so 2 very good questions.

So first of all on the reserve build on Page 14, you have on the left side you have the provision for credit losses that we have in our P&L, in our (foreign language) as we say in German, and then that is translated in how we increase the allowance in our balance sheet, the CHF 585 million plus then the 2 blocks on fair value mark-to-market losses that we have booked in leveraged finance and in our Asia financing group.

Then that adds up to the total of CHF 1 billion.

And as I explained earlier, you see the shaded CHF 376 million related to CECL.

CECL is the U.S. GAAP measure for generally needed provisions for credit losses.

It stands for current expected credit losses.

And this is calculated on certain assumptions that I explained in my deliberations earlier.

For example, we assume a recession in Switzerland, we assume a recession in Europe, we assume a recession in the U.S. We assume high double-digit -- sorry, unemployment rates in the high teens in the U.S., et cetera.

So these are assumptions and they can be compared under the traditional Swiss GAAP with general provisions for credit losses.

And that's basically how you should look at them.

And the lawyers would not allow me to say it's prudent because that's what the lawyers say, but it's appropriate.

But it's -- I told you about the basis on which we took those provisions and the macroeconomic assumptions we had.

We also ran various scenarios.

As far as the mark-to-market losses are concerned, we have seen some reversal of that in April.

So some of the leveraged loan positions that were marked at the end of March, we have seen now the high-yield bond market and the leveraged loan markets to improve in April.

So there we have seen so far a little bit of a reversal, but it's too early to say more about this, and we have to see how markets develop during the second quarter and beyond that.

If I can just say a few words, David here.

I mean I think you asked the question, is it good or is it bad?

Well, it is what it is.

I mean if you look at Thomas' Slide 16, what you see is that pre provisions and pre the MTM losses, we would otherwise have reported a profit of CHF 1.9 billion -- CHF 1.945 billion compared to CHF 1.172 billion, which I think demonstrates the strength of that businesses and the momentum in those businesses.

And clearly, I think Thomas and I would be much happier here reporting a profit of CHF 1.945 billion, and that gives us the base.

And I think that reflects what's been achieved over the last few years in terms of derisking, reduced costs, efficiency and rebalance of the book and the growth of the wealth management businesses and the growth, particularly here in Switzerland in Crédit Suisse twice.

So that's the good thing.

I think the level of provisioning, as Thomas said, I think it's an appropriate response to what is obviously a very extreme macroeconomic outlook.

I think there's enough been written about that, that I don't think there's much we can really add.

We are assuming in our CECL provisions, which basically we're the only European bank that actually reports under U.S. GAAP, which means we actually take a lifetime provision over the loss.

We don't take 1 year as the European banks do under IFRS, we take a lifetime.

So it is appropriate under U.S. GAAP, but it is clearly prudent and conservative compared to IFRS 9. So that's good in the sense, clearly, it means our numbers are stated on that basis.

But just to say the obvious thing, I think Thomas and I would be much happier sitting here reporting a CHF 1.9 billion profit and not having to deal with the COVID-19 crisis.

But I think we are dealing with it appropriately.

And I think all the points Thomas has made about financial gains and reversals, these are all true, but we are dealing with probably the most severe macroeconomic crisis the world has seen since the 1920s.

You want to take the oil and gas question?

Can I just come back to this Slide 36 where you expose -- your oil and gas exposure is USD 7.7 billion.

I mean that -- this minus 16% since 2015 is not as impressive as the other figure you showed, a minus 37% in leveraged finance, which says to me that, relatively speaking, you have increased your oil and gas exposure which is, looking at the current situation, not really a comforting idea, is it?

We haven't, relatively speaking, increased oil and gas exposure.

We have decreased leverage finance more but clearly oil and gas exposure is a small proportion of our balance sheet now than it was in 2015.

I think the second point I'd make is the risk is really clearly around the noninvestment-grade exposure, primarily the USD 2.9 billion number there, which is the important component.

And yes, I think it's fair to say that is a residual risk.

But I think you have to put back in context that Crédit Suisse had an earnings capability of making CHF 1.945 billion in profits in the first quarter, which I think is appropriate.

And our entire loan book for the group is over CHF 300 billion.

Your next question comes from Peter Hody from finews.

I have a question on your asset management and the losses you had there and your warning that there might be more losses.

You had those losses on your seed money you put into your own products.

Can you shed some light on how much seed money of Crédit Suisse is actually in those asset management products?

And how much is that risk of that money?

Thank you very much for the question.

No, I think, as we said, we took CHF 100 million of impairments, which may reverse -- may well reverse, in respect of the seed money both in funds we've directly invested in and in respect of coinvestments of the fund.

And I think stepping back a minute, though, it is worth remembering that our asset management really consists of 2 broad groups.

We have the equity, fixed income and real estate asset management business, which is very closely aligned with our businesses here in Switzerland.

And then we have the alternative business in America which is actually where these seed losses actually occurred.

Just to answer your question in terms of exposure, we have about just under CHF 2.5 billion invested in our asset management businesses of which about half is in respect of this type of seed investments in the business, and about half is actually invested in third-party fund managers.

And if I may, one follow-up question, maybe for Mr. Gottstein.

When you think -- or are you already starting to think about normalization in Crédit Suisse regarding on how you work on reopening your branches in Switzerland, and letting traders back to the workplaces?

Yes, we are thinking about it, but it's premature.

And we, first of all, want to be operating in line with all the recommendations by the government.

We are obviously also very cautious about bringing people back.

The fact is that 2/3 of our branches are still open, and we're not closed, and we're not planning to close them.

We have one of the benefits -- actually we are one of the only banks in Switzerland that have glass windows at the teller, which is actually helpful now in this virus crisis.

But we are very cautious, but we are slowly thinking about it.

We will never any -- force anybody to come to the office over the next few weeks, but people actually are slowly thinking about coming back.

We will keep our split operations, for example for the trading floor, working as it is now for a while.

And we will slowly observe how things develop over the next few weeks.

So we are certainly not going to rush into this, but slowly think about it.

The 2 geographies where we actually have more than 20%, 25% in the office is Switzerland and Hong Kong.

All the other areas, whether it's Singapore, whether it's the U.S., whether it's Brazil, Middle East, they are basically all at home.

95% -- between 90% and 95% are at home, so.

And we are not going to rush people into back into the office.

And your next question comes from Patrick Winters from Bloomberg News.

I know many things have already been answered.

I'd like to first go back to the asset management question, which I think my colleague at finews asked, about the seed investment.

You guys have said this happened in alternatives in the U.S. What kind of funds should we be thinking about here?

Is it funds which invest in oil-related products?

Is it hedge funds?

Could you just kind of break out a little bit more what -- where these losses came from within alternatives?

That's question one.

And question 2 is, what's your kind of gut feeling for the rest of the year on credit provisions?

I look back to the financial crisis and you had 2 or 3 quarters where they peaked, and then it kind of -- it trailed up again.

Do you feel like the worst is over for credit provisions?

Or that the worst might still be ahead of us?

Okay.

So taking both of those questions in order, of the CHF 100 million of impairments that we took in asset management, roughly 2/3 was in respect of either seed money in our own new funds in the alternatives business or in co-investments with JV partners.

And about 1/3 was in respect of the retention slice, which is required for European CLO issue but not U.S. CLO issues, where we have to retain risk on that.

So that's the breakdown between those components.

I think in terms of credit provisions, I think just stepping back and just answering -- breaking this into 3 blocks of answers really.

Firstly, in terms of the CECL exposures, those are based on the loans and over the lifetime of those loans, and based on our expectations for the key macroeconomic factors, i.e., GDP growth in the major economies we operate, et cetera, et cetera.

And they're over the lifetime of that loan.

So if those economic factors don't change, then you wouldn't see a change in the CECL numbers.

If they deteriorated, you would expect to see an increase in the CECL provisions.

And clearly, if the outlook improves, then you'd expect to see a release from those provisions, i.e.

write-back from what we would actually take already.

So that's the point.

It's a lifetime analysis.

And I did give the assumptions earlier on in terms of what assumptions we had actually made.

But just to summarize those, they are GDP reductions in the second quarter in the U.S. and in the Euro zone, in excess of 20%; a smaller reduction than that in Switzerland but still a significant reduction; double-digit unemployment in the United States; and a recession in the U.S., the Euro zone and in Switzerland for the whole of 2020 with recovery only in the first quarter of '21.

So clearly, to the extent that is overly pessimistic, you get write-back; otherwise, that's it.

So that's the CECL point.

I think in terms of the mark-to-market numbers, as Thomas has already said, we have begun to see some reversal in the leveraged finance mark-to-markets and in some -- for that matter in some of the XVA hedging numbers as well.

So -- but I mean let's be clear, I think it's a very volatile economic and market environment, and making firm predictions at this point with the rest of the quarter to go, I think, is dangerous to make.

But there clearly is potential for releases there.

Then in terms of the final tranche, which is actually credit provisions, those are specifics.

So to the extent we see losses which we've not provided because a company gets into trouble and has to basically go into some kind of recovery mode, then that would actually result in increase in provisions.

But obviously we have provided to the extent we knew and we know now basically of the losses we actually had on those specific names.

So a long answer, but that's what -- that's the full answer.

I think we'll have to leave it there as we're running a bit out of time.

Thank you all for your time today and for joining us over the phone.

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