Credit Suisse Group AG (CS) 2021 Q3 法說會逐字稿

Good morning. This is the conference operator. Welcome, and thank you for joining Credit Suisse Group's Third Quarter 2021 Results Conference Call for Analysts and Investors. (Operator Instructions) And the conference is recorded. (Operator Instructions).

I will now turn the conference over to Kinner Lakhani, Head of Investor Relations and Group Strategy and Development. Please go ahead, Kinner.

Thank you, Sharon. Good morning, everyone, and thank you for joining us. We have a busy schedule ahead of us with our third quarter earnings presentation, followed by our Investor Day 2021 presentation, which begins at 8:45 GMT.

So please note that this call will only focus on earnings, and I kindly ask you to respect that in the Q&A that follows.

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 more detail on our results, we refer you to the Credit Suisse third quarter 2021 financial report, which we published this morning.

I will now hand over to our Group CEO, Thomas Gottstein; and our Group CFO, David Mathers, who will then run through our numbers. Thank you.

Thank you, Kinner, and good morning from London. I am pleased to present our third quarter results alongside David. This is the first of several presentations you will hear from the 2 of us, other Executive Board members and our Chairman today as we will present later the conclusions of our comprehensive strategy review.

Our strong third quarter results reflect 4 important factors that put us in excellent position to further our growth strategy: robust underlying performance, good net new asset inflows, strong capital and progress in addressing legacy issues. They reflect progress in achieving our clear objectives to become an even stronger, more client-centric bank that puts risk management at our core and to deliver sustainable growth for investors, clients and colleagues.

This is an important day for us at Credit Suisse. I would like to focus our attention for this presentation and our Q&A on third quarter results, as Kinner just said. We have a packed agenda, and we look forward to engaging with you later on our strategy. With that, let me turn to the slides.

On this summary slide, Page 4, I would like to highlight the following. We are reporting a pretax income of CHF 1 billion for the third quarter, up 26% year-on-year. This included gains related to Archegos, mainly pertaining to the future recovery of receivables as well as further gain on our residual stake in all funds. We have taken a further CHF 0.1 billion impairment on our York interest and major litigation charges of around CHF 0.6 billion, including CHF 0.2 billion in respect of our recent settlements on the Mozambique matter as well as provisions in respect of legacy mortgage-related matters and the supply chain finance funds matter.

On an adjusted basis, excluding significant items in Archegos, pretax income was CHF 1.4 billion, up 25% year-on-year. Please note that we will describe the adjusted divisional figures on this basis throughout the presentation.

We were very pleased to see, after the outflows of the second quarter, positive net inflows across each of our 3 Wealth Management businesses totaling CHF 6.2 billion, representing a 3% annualized growth rate. And we achieved this despite further outflows related to the supply chain finance fund matter as well as deleveraging and market-related client outflows in APAC as other competitors have also seen it.

We saw a record third quarter performance within our Swiss Universal Bank, where a 5% year-on-year increase in revenues underpinned a 24% increase in pretax income. Pretax income was down 25% year-on-year in IWM, impacted by lower net interest income, albeit stabilizing on a sequential basis and lower transactional revenues. This was offset by higher recurring fees with positive net new assets.

Our APAC division achieved a 5% year-on-year growth in pretax income with higher recurring fees, partially offset by a step-up in investments with relationship managers, which were up to 670 from 600 at the start of 2021. The Investment Bank delivered a strong performance with PTI up 25% year-on-year despite a roughly 10% decline in allocated capital from scaling back our prime services business. We saw notable strength in capital markets and advisory, securitized products and equity derivatives.

We saw a solid performance in adjusted results in our Asset Management division with a substantial, increase in pretax income year-on-year, supported by growth across all revenue lines. Our CET1 ratio stood at 14.4%, up from 13.7% at the end of the second quarter. This is the highest CET1 ratio Credit Suisse has ever reported.

Clearly, it has been another important quarter for the bank in terms of settling legacy issues. I would also note that FINMA, our Swiss regulator, has also concluded its enforcement action in respect of historic observation activities, and I would reiterate that we -- what we have said previously which is that we condemn any unjustified observations. We can now draw a line under this matter.

With regards to the independent investigation into the supply chain finance fund matter, this continues to be a focus for the bank and work is ongoing, as we can see on the next slide. Here, we provide some more detail on the current status of the supply chain finance fund matter. Eight months after we took the decision to gate the funds, CS AM's priority remains recovery of cash for investors. We made a fifth cash distribution at the end of September, taking the total returns to approximately USD 6.3 billion. Including current cash and cash equivalents, total recovery stands at approximately USD 7 billion or 70% of the fund's NAV as at the end of February.

We have recovered about 86% of the exposure in the so-called non-focus areas with approximately USD 600 million outstanding, and there is approximately USD 2.2 billion outstanding in the focus areas, where we continue to pursue all available recovery options open to us, including insurance.

And as at the end of October, we have filed several claims. CS AM was last month able to sign a debt restructuring arrangement with GFG Alliance Australia as part of which we have received an initial payment of approximately USD 96 million with approximately USD 178 million, including interest to be paid to us in installments by the middle of 2023 at the latest. While that process continues, we have also been actively engaging with clients to explore ways in which we can support them, and we have put in place a fee waiver program for eligible clients as a gesture of goodwill and a sign of the importance we put on these relationships.

On this Slide 8 -- 6, you see our underlying performance has been very strong, both in a year-on-year comparison, but also in a multiyear comparison. As I previously stated, in the third quarter of our current year, our adjusted pretax income, excluding significant items in Archegos, was CHF 1.4 billion, by far the best third quarter in the last 5 years, as you see in the top chart. Even if market conditions were exceptionally strong at the start of the year, our 9-month revenue performance over the past 2 years highlights the core strength of our business. We have a great foundation to invest in and grow.

With that short presentation, let me now turn it over to David to go through our third quarter results in more detail. We look forward to your questions and to our engagement throughout the day. Thank you.

Thank you very much, Thomas. I'd just like to take a few minutes first to go through the key financials before outlining the performance for each of the divisions in more detail. And after that, we will move to take questions, although, as Thomas has already said, at this point, only in respect to the financial results for the third quarter, and we reserve questions relating to the [strategy review] for later today.

Now let me just start with a look at the reported results. Our revenues increased by 5% year-on-year to CHF 5.4 billion, whilst our operating expenses were 6% higher at CHF 4.6 billion. We released a net total of CHF 144 million in provisions for credit losses, CHF 188 million of which was in respect of Archegos. You'll note that we did see an increase, though, in our CECL-related revision, reflecting a degree of uncertainty around the pace and the nature of the economic recovery. Overall, we delivered a reported pretax income of CHF 1 billion, 26% higher than the same period last year.

I think you know our tax rate continues to be adversely inflated due to the net Archegos loss in the first quarter and stands at 57% for the quarter, resulting in a net income attributable to shareholders of CHF 434 million, 21% lower year-on-year. This equates to a return on tangible equity for the group of 4.5%.

Next slide, please. As you have seen from the media release, we have recorded a number of adjusted and significant items this quarter, both credits and debits, and I wanted to be clear about the effect that they've had on the reported numbers compared to the same period last year.

Now first, we have taken a total of CHF 564 million with respect to major litigation provisions. A significant component of this is in respect to the Mozambique matter, which we announced 2 weeks ago. As you know, we reached a combined settlement of USD 475 million with respect -- with regulators in the U.S., the U.K. and in Switzerland, together with a commitment to forgive USD 200 million of Mozambican debt. As we said at the time, this has required a further charge of CHF 214 million in the quarter, and that's in addition to the provisions that we've already taken in previous quarters.

The balance of the litigation provisions was taken primarily in connection with legacy mortgage-related matters, although I can confirm that we have taken a provision with respect to litigation risk resulting from the supply chain finance funds matter.

Now separate to litigation provisions, you can also see on the chart that we took an impairment of CHF 113 million with regard to our stake in York Capital Management, which reduces the outstanding total on the balance sheet to CHF 187 million.

Now against these negatives, we have 2 significant gains in the third quarter.

With regard to Archegos, I said earlier in the year, that we are very focused on recovering as much as possible our loss from the Archegos estate, and we intend to pursue our claims regarding this matter with vigor. Following the initial work on this claim, the immediate assessment of the future recoverability of receivables at this stage, together with an expense recovery due to the clawbacks of the previously granted compensation awards, has resulted in a gain this quarter of CHF 235 million, which are taken in the Investment Bank.

Just to be clear, this is an ongoing process. This remains a key priority for us, and we continue to expect that we should realize further gains over the course of the coming quarters, though it is, of course, difficult at this point to estimate the timing or the size of such recoveries.

Now the second positive significant item is the gain from our 8.6% interest in Allfunds, which was successfully listed back in April. The rise in the stock price in the third quarter has resulted in a gain in pretax income of CHF 129 million. Now including other adjustments related to real estate and business sales, our adjusted pretax income, therefore, excluding significant items, totaled CHF 1.36 billion, CHF 354 million higher than the reported figure. By comparison, in the third quarter of last year, our adjusting for significant items contributed CHF 284 million to reported pretax income, taking the adjusted total to CHF 1.09 billion.

Let me turn now to capital ratios on the next slide. Our CET1 ratio for the third quarter stood at 14.4%, and that's an increase from 13.7% at the end of the previous quarter. Now if you move from left to right on the chart, you can see that 23 basis points of that 70 basis point increase is the result of organic pretax income. That's excluding the moves in Archegos and in the equity stake in Allfunds, which then contributed 8 and 5 basis points, respectively.

Now whilst our tax rate continues to be elevated when applied to our pretax income, this only results in a reduction of the CET1 ratio of 4 basis points as we've continued to earn out deferred tax assets resulting from the first quarter charge.

Then just completing this, RWA reductions contributed a further 28 basis points of uplift, and these occurred across the bank.

Now on the bottom chart, as you can see here, the same factors broadly resulted in an improvement in our CET1 leverage ratio totaling 10 basis points, which increased the ratio from 4.2% at the end of the second quarter to 4.3% at the end of the third quarter. Our leverage exposure actually increased by CHF 6 billion in the third quarter compared to the second quarter, including an increase in HQLA balances of CHF 8 billion, mainly driven by increased funding and higher customer deposits in Wealth Management. But this was more than offset by the leverage reductions that we've instigated over the last 6 months, together, clearly, with the increase to capital from our organic capital generation.

Now as I'm sure you've seen from the strategy documents that we published this morning, we intend to operate at a CET1 ratio in excess of 14%, that's pre the Basel III reforms; and equity leverage ratio of around 4.5%, but we'll cover this in more detail during our strategy review later this morning.

Let me turn to expenses, please. Cost discipline remains a key area of focus for us. In the first 9 months of the year, costs were 3% lower at CHF 12 billion on an adjusted basis, that's excluding significant items and Archegos. This primarily reflects lower compensation expenses. And during the period, continued to invest in a number of strategic initiatives, including hiring relationship managers and strengthening our risk and our control processes. For the year as a whole, we would currently estimate adjusted operating expenses to be between CHF 6.2 billion and CHF 16.5 billion.

Next slide, please. Now what we show here is that whilst our overall allowance for credit losses has fallen from CHF 6.1 billion at the end of the second quarter to CHF 5.9 billion at the end of the third, we have seen a small increase in our CECL-related provision totaling CHF 20 million. This reflects a conservative view on potentially adverse economic developments, including uncertainty around the timing and the pace of the withdrawal of the various measures introduced by central banks in response to the COVID-19 pandemic as well as the related shocks of which are a consequence of the recovery.

Now let me turn now to the divisional overviews, where, unless I state otherwise, I'll refer to the adjusted numbers, that is excluding significant items and excluding Archegos. Before doing so, I'd like everyone to note please that the divisional return on regulatory capital calculation has been updated to align more closely with the targets for group capital and leverage ratios. We are now applying a definition for allocated capital based on 13.5% of RWA and 4.25% of leverage exposure. We've applied this consistently across all of the third quarter documents that you will see this morning, and this will also be the basis of the allocated metrics that we will see in the strategy review presentations later on.

Now let me start just as usual with the Swiss Universal Bank. The Swiss Universal Bank has continued its strong performance so far this year, delivering a record third quarter, driven by higher revenues, which increased by 5% year-on-year to CHF 1.36 billion. We saw increases in all major revenue categories, and I'd highlight, in particular, the 11% year-on-year increase in recurring commissions and fees, supported by record assets under management as well as higher revenues from our investment in the Swisscard partnership.

Our provision for credit losses remains low with a net provision of CHF 4 million for the quarter, whilst operating expenses were slightly lower year-on-year at CHF 764 million. Our adjusted pretax income for the division, excluding significant items, was 24% higher year-on-year at CHF 586 million, resulting in a return on regulatory capital of 15% compared to 12% in the third quarter of last year.

Now in terms of net new assets, although we did see approximately CHF 400 million of net outflows in our Corporate & Institutional Clients business, this was more than offset by CHF 1.9 billion of net inflows in our Private Clients business reversing the outflows that we saw in the second quarter.

Let me turn now to International Wealth Management, please. Net revenues were 3% lower year-on-year at CHF 812 million. Whilst recurring commissions and fees grew by 13%, in line with the increase in client business volumes, our net interest income was affected by the impact of lower interest rates on deposits, albeit partly offset by the impact from higher loan volumes, which increased by 4% compared to the same quarter of last year. However, the less volatile market conditions in 2021 compared to last year meant that we also saw reduced client activity and, therefore, reduced transaction-based revenues, including those from GTS.

Now operating expenses were 5% higher year-on-year at CHF 624 million with lower deferred and discretionary compensation expenses more than offset by our investment in IT infrastructure and digitalization along with increased costs related to our sustainability initiatives. Provision for credit losses was CHF 12 million compared to CHF 8 million in the same quarter of last year.

Adjusted pretax income for the division, excluding significant items, was CHF 176 million, 25% lower year-on-year. However, IWM did see a reversal of the net outflows of the second quarter with positive net new assets totaling CHF 1.4 billion, notwithstanding CHF 1.5 billion relating to the supply chain finance funds matter this quarter.

Let me now turn to the Asia Pacific division. Asia Pacific revenues were broadly stable year-on-year at USD 795 million. Revenues from recurring commissions and fees were 90% higher, reflecting strong mandate and fund volumes with mandate penetration again improving to 15%. Our transaction-based revenues were 4% higher with higher fees from increased M&A activity, albeit offset by weaker client -- private client activity and lower GTS revenues.

However, offsetting these gains, our net interest income was 14% lower at USD 242 million, adversely impacted by 2 factors. First, as part of our ongoing and overall strategy and risk review, we have continued to derisk certain lending positions, and we have reduced certain exposures. Second, from the client side, there's no doubt that the turbulence in the Greater China market has caused some clients to reduce leverage in response to these adverse conditions.

Provisions for credit losses decreased significantly year-on-year. A total of USD 7 million was well below the USD 49 million that we took in the third quarter of last year and similar to the level we took in the second quarter.

Now we've talked before on a number of occasions about the investments that we're making in the Asia Pacific region, and I'd just like to make a couple of points. We now have 670 relationship managers in the region compared to 600 at the start of the year, and we've continued to make strategic investments, including in our China franchise. This is the primary reason for the 5% year-on-year increase in operating expenses, which stood at USD 582 million for the quarter.

Overall, our adjusted pretax income, excluding significant items, was 5% higher year-on-year at USD 206 million. As with SUB and with IWM, the asset outflows that we saw in the second quarter were reversed with net new assets totaling USD 3.2 billion in the quarter, notwithstanding the deleveraging that I mentioned before.

Let me turn now to the Investment Bank, please. Our Investment Bank delivered another robust performance despite continued constraints on capital usage with RWA 13% lower year-on-year at USD 78 billion, the strength of our client franchise and favorable conditions for our capital markets and advisory businesses enabled the investment bank to achieve revenues that were 9% higher than in the strong third quarter that we reported last year at USD 2.44 billion. And the main driver for this was increased client activity across our capital markets, M&A and equity derivative businesses.

The pipeline of new transaction in both ECM and advisory remains strong, which should enable us to sustain this momentum into the coming quarters.

As we've seen across the industry, fixed income revenues were lower. And whilst we've had continued outperformance in securitized products, this was offset by a reversion to more normal conditions in emerging markets, macro and global credit. If we look at equities. Whilst we saw a robust performance in both derivatives and in cash, the overall performance was adversely affected by the reduction in the size of prime services, which we commenced in the second quarter and which has continued in the third quarter.

Now as we said before, in addition to our strong adjusted pretax income, we also had a gain of USD 252 million relating to Archegos, $202 million of which was released from our provision for credit losses. As I already noted, this reflects an initial assessment of recoverability from receivables in the Archegos matter.

Operating expenses was 2% higher year-on-year at USD 1.84 billion, resulting -- meaning that our adjusted pretax income, excluding Archegos, was 25% higher at USD 582 million. On a reported basis, including the Archegos-related gain that I just mentioned, pretax income was 105% higher at USD 832 million.

So let me just conclude then with a few words on asset management. Overall, as you can see from this slide, we had a mixed performance in our Asset Management business in the quarter. First, as I've remarked already, we decided to impair our investment in York Capital by a further CHF 113 million this quarter. Second, primarily due to a delay in new fund launches previously scheduled for the third quarter, we saw net outflows of CHF 1.7 billion, primarily in respect to our index business.

However, against these negatives, if we look at the adjusted performance, excluding significant items, our revenues was higher across all 3 business lines and a well-managed approach to expenses, and that's notwithstanding additional costs in respect to the supply chain finance fund matter, means that on this basis, our pretax income improved to CHF 115 million.

And with that, I'd like to conclude, and Thomas and I will now take your questions, although just to remind you, at this moment, this will just be in respect of our third quarter earnings. We're very happy to take questions on the strategy review later on this morning after the presentations. But thank you.

(Operator Instructions) Your first question comes from the line of Daniele Brupbacher from UBS.

Yes. Can I ask 2 things? One, on just your visibility and expectation with regards to regulatory changes on the RWA side, capital requirement side on the back of recent matters and how that could additionally now impact multipliers, add-ons and what have you. I'm still struggling to get my arms around all of the moving parts there, whether you could give us some visibility.

And then on capital, I mean, capital ratio, you said it, record-high level at the group level 14.4%. Can you tell us how the parent bank looks like? I think it was at [13.3] on a phase-in basis at Q2 or [10.6] on the fully loaded, which feels a bit tied to me. And I was just wondering how you think about that ratio, how relevant it is and how you could basically improve that, what the optionalities around that, that would be super helpful.

Thank you, Daniele. Thank you for your questions. So let me just kick off with -- on the point around regulatory changes, regulatory inflation. I think at this point, all I can really say is I think what you know already, which is that we have a Pillar 2 charge totaling USD 2 billion in respect of the Greensill supply chain finance funds matters, which was something that we agreed with FINMA during the first quarter, and that remains unchanged from now.

And in respect of the litigation provisions, which I've taken this morning, totaling CHF 564 million, I would expect an increase in op risk RWA as it works its way through the system over the next couple of quarters of around CHF 1 billion in terms of op risk increases.

I think in terms of other matters, just to anticipate the follow-on question, I don't have any more visibility at this point in terms of any other operational risk charges or moderated charges relating to the Archegos matter or, indeed, to the Greensill matter. So I can't update you on that basically, and nothing much I can really add. It's clearly a situation we're looking at very closely, but certainly the situation hasn't changed since I spoke at the end of the second quarter or indeed, for that matter, at the end of the first quarter.

Now I think Daniele, you asked a good question around the parent bank. And I just recognize that although this is in respect to the FINMA decree, which goes back to 2017, I think there have been a couple of good research notes written on this, including by yourself earlier this year. So let me just give you a few numbers.

So the group CET1 ratio, as you say, was 14.4%. The parent at the end of the third quarter was 13.4% on a transitional basis because I think you need to know that the decree from 2017 phases in over this decade up until 2028. And on a look-through basis, increased slightly to 10.7%. So just in terms of -- so those are the parent numbers.

Just in terms of capital requirements, the impairment looking forward because just to address the points which have been raised before, I think you know, we've said this morning, we're looking to maintain our CET1 ratio for the group in excess of 14% pre B3R in 2024. For the parent, I'm targeting a look-through ratio of around 12%, so that's the equivalent to that, which is slightly lower than the group number, really, for 2 reasons.

Firstly, the parent is clearly a subset of the group, and it reflects capital requirements that reflects the mix of activities actually in the parent, which are different from those in our subsidiaries, point one; and point two, which point -- I think you understand, which is the B3R impact, there is no B3R impact on the parent. In fact, B3R will actually slightly reduce the capital requirements of the parent because there's no FRTB impact actually on the parent. So the RWA for the parent actually goes down under B3R, whereas it goes up for the group as a whole. So that's why we set a stress-based target for the parent of 12%.

So you might ask a question. So you're at 10.7% now, how are you going to get to 12%? That requires retained capital between now and the end of 2027, beginning of '28 of about CHF 6 billion. Just to put that in context, since '17, we have repatriated, with appropriate regulatory approval, CHF 12 billion of capital, largely from the U.K. to Switzerland. In addition to that, we have received dividends, obviously, primarily from Credit Suisse Schweiz, but just recently from the U.S., totaling further CHF 12 billion. So obviously, we obviously substantially improved the parent capital position since 2017 when the decree was enacted.

Looking forward, a couple of things just to be aware of. I think you're aware of this and it's been discussed before, but we've always, in the past, operated from 2 entities here in the U.K., Credit Suisse International and Credit Suisse Securities Limited, CSSL. CSSL is actually now decommissioned as a material legal entity, which means that there's about CHF 8 billion of capital in there, a large proportion of which, again, subject to regulatory approval, we would seek to return to the parent in the near future. And then I think with regard to the United States, we actually passed the CCAR qualitatively, having passed it quantitatively as well, and that means we would be expecting to receive a dividend in excess of USD 2 billion from the U.S. subsidiary to the parent in the near future as well.

So I think you can see there's a number of measures in train to actually close that gap and essentially rebalance capital between the subsidiaries and the parent. So I hope that's helpful to that, and happy to take anything else on that point.

Your next question comes from the line of Magdalena Stoklosa from Morgan Stanley.

So I will concentrate on the 3Q and 2 questions. One, still on net interest income within the International Wealth Management and another one on the advisory side of the Investment Bank. So on the NII, of course, we have seen it -- we've seen it coming down. You talked to us about the kind of impact on deposit income and, of course, kind of some offset on the lending side. But could you kind of give us maybe a little bit more steering on where to from here on a kind of quarterly basis? Because I have to say, I think that we've been kind of -- we've been looking out for a kind of more of a stabilization in that number kind of quarter-on-quarter. Should we assume that you're also attracting tremendous amounts of liquidity, i.e., additional deposits, that are kind of dragging that number down as well? So there's one -- question number one.

And question number two, within the investment bank because, of course, you beat consensus numbers quite nicely and, of course, particularly within the advisory and capital markets arena. And I have to say, over the last couple of quarters, we have seen quite a lot of people bleed in that business kind of for you. Should we kind of assume it turned the corner? Because, of course, your revenue performance was actually very decent within a relative context as well.

Okay. I suggest, David, you take the first question, and I will take the second one.

Okay. Let me just kick off then. I think just in terms of net interest income, I mean, I think, Magdalena, you can see that sequentially, it is stabilizing. It was CHF 264 million in the third quarter of '21 compared CHF 269 million in the second quarter.

I think I'd just make a couple of points. I think absent any other changes, I would actually expect net interest income to stabilize sequentially in the fourth quarter. But I would just caution, I think you're aware that we have launched a goodwill program with respect to the supply chain finance fund matters, and that may adversely impact the net interest income, although I don't think the impact would be particularly material in the fourth quarter. But I would expect to stabilize, subject to that particular caveat, would be my guidance on that.

Clearly, as we move forward to the GSR movers and the expansion of lending implied then that, obviously, we'd start to expect it to increase, but that probably goes forward then into '22.

And with respect to the investment banking pipeline, I think we have a decent pipeline for the fourth quarter, both across M&A and capital markets. We are fully focused on also the hiring side of the equation. And even though we are not talking now about strategy, but as you will have seen, we will move to a global investment bank organization, which will include also our Asian and Swiss IBCM teams who have very strong capital markets and M&A positions in their respective markets. Just as an example, today, we are a lead adviser in Switzerland of this relatively large health care situation.

So I think we have a very decent pipeline, but it's very clear we are focused on this business. It's a capital-light business. It's a business where we have traditionally had very strong positions, and we are focused on hiring. Thank you.

Your next question comes from the line of Jeremy Sigee from Exane.

Just one question, really, on net new money flows, which I thought were very welcome positive in the quarter and a lot very broad based across 3 regional units. But I just wondered if you could talk a little bit more about the dynamics behind the return of inflows, whether it's clients that had moved money out, moving it back in again or whether it's the impact of some of the new advisers that you've talked about. Just be interested to hear you talk about some of the dynamics there, please.

I would say, generally, it has been broad-based across regions but also within the regions across ultra-high net worth and high net worth. So I'm very pleased with this pattern, but I have to say we are still not, I would say, 100% in terms of impact and growth ammunition. In particular, we still have had, for example, deleveraging going on in Asia, which was more market-driven compared to the second quarter, where it was more our initiative, where, now in the third quarter, this was more market-driven. And we still have, I would say, significant upside in terms of lending, whether it's structured lending in IWM, whether it's more traditional Lombard lending in Switzerland to further fuel NNA growth going forward.

So I think the 3% annualized is okay result, but it's definitely still -- there is room for upside to have a higher annualized growth rate in NNA terms.

And is there a material impact from the new hires that you mentioned? Or is it too early to see those?

Jeremy, I'm really sorry, but you've actually got a bad line. Could you just try that again? Sorry.

And if you can speak a bit slower, then we might understand your questions. Sorry.

Sorry, Jeremy.

No problem. Simply asking whether the new hires had an impact on net new money.

Was that net hires' impact on net new money, I think, actually, Jeremy?

Yes. Yes.

Go ahead, Tom.

Well, I would say, generally, when we have net new hires, they always take 6 months to 12 months until you really see the benefit of it. So you will not see that immediately. And the net new hires we saw in Asia, in particular, China, they will not -- they would not have typically yet delivered the net new assets. But the -- so there's some delay there, but we are very focused on net new hires. We have also had net new hires in Premium Clients Switzerland, for example. So that's something we are focused on and will also be a topic in our strategy review this afternoon.

I'd just add, I think, I mean, I do think the net new asset numbers we saw in APAC were very good, plus CHF 3.2 billion. And just to be clear, we have continued a strategic risk review as part of the strategy review process throughout the summer. That did lead to us derisk -- deleveraging further APAC positions during the quarter. So that's actually in that number. And what's more, as I think you've seen from some of our peers, the turbulence in the Greater China market has led to clients deleveraging. So I think to have both of those headwinds and still to be at 3.2, I think, speaks well to the franchise.

Your next question comes from the line of Kian Abouhossein from JPMorgan.

Yes. The first question is regarding Investment Banking. Just to understand, considering that it looks like you're making a loss in the Investment Bank, I just wanted to see if you could remind me of how the deferral and accrual of bonus retention works in case you make a loss in the Investment Bank, i.e., are there clawbacks that come into force due to a potential loss having looked at the third quarter and your guidance for the fourth?

And then the second question is just coming back to the rebate discussion. Can you just confirm that you have, on the risk-weighted asset rebate discussion on the parent bank, a permanent structure that this rebate is in place? Or are there any clauses that would lead to some kind of unwinding of the rebate?

And in respect to the upstream numbers that you gave, which were very helpful, David, in terms of capital from the U.S., what is the determinating factor besides CCAR and qualitative test? Is there anything else that determines the U.S. allowing you to upstream? I think you mentioned CHF 2 billion.

Okay. I will take the first one, and then David, you can take the second one. So Kian, in terms of the compensation, be it bonuses or be it potential clawbacks, that's ultimately a decision by the Compensation Committee and will be taken during the fourth quarter as we approach year-end. So clearly, that is premature. It's also important to say with respect to the clawback that we've obviously had a change last year where we had global markets join IBCM. So there is a technical way also to look at this from a previous year's clawback perspective.

So I would say it's premature to talk about that, but we are very focused on paying competitively through a combination of bonuses but also in -- with respect to retention programs.

And I think the only point I'd add to that is just with regard to the goodwill write-down, which we've noted in our 3Q numbers. That definitely is excluded from any such calculation. You may recall we had a similar goodwill write-down, again, relating to DOJ back in 2015 as the precedent for that. But that's all I'd add to what Thomas has said.

I think your second question, well, I think you referred to as a rebate. I think you're returning to what's called the regulatory filter in the parent capital regime. I think that's a little bit misunderstood. It was a core part of the '17 decree. And what -- all it does basically is it converts Swiss GAAP accounting, which is on a cost less impairment basis, to a fair value basis for the subsidiary entities. So in other words, they're actually treated at the fair value of the position as opposed to cost less impairment.

And the practical for that essentially is it means that the Swiss Universal Bank or Credit Suisse Schweiz, to be more accurate, the legal entity, clearly is valued at a premium to book value because I think we all know that Credit Suisse Schweiz is worth more than book value, and I can see that in your sum-of-parts calculations. And that's really what the regulatory filter actually refers to. So that's what -- how it actually works. As to its status, it's a permanent part of the 2017 decree, basically. So that's what it stands for.

Oh, sorry, you asked a question around the U.S. To my understanding, I think we passed the CCAR test, both qualitatively and quantitatively. So the process from here is that the Board of Directors of CSH U.S.A., which is the intermediate holding company, has to meet shortly, actually, to review the dividend in light of the results for the year and to make -- and declare a dividend on the back of that. I'm not going to be drawing the exact number. I certainly know it, but I think in excess of CHF 2 billion will do for today.

Your next question comes from the line of Stefan Stalmann from Autonomous Research.

Yes. I wanted to quickly follow up on the decommissioning of Credit Suisse Europe, the plans to decommission the entity. Is that plan at all affected by the fact that the entity did plead guilty in regard to this Mozambique affair and regarding the fact that there's still a [Group DTA] associated with this whole complex? Or do you think this will go ahead without any impact from this?

And the second question, I wanted to clarify what you said about dividend. The press release says 25% of net income in 2022. Is that the distribution that you're planning to make in 2022 for '21? Or is it looking 1 year further out?

Thank you, Stefan. Thank you very much. And I mean I just would echo what I said before. I said there have been 2 good research notes written on the parent, and yours was certainly excellent, Stefan. But just in terms of the decommissioning of CSSEL, so we have been working in London now for 6 years on the decommissioning of CSSEL because prior to that point, essentially, you had 2 entities in London, and CSSEL was actually the employer of the bulk of people, and CSI was the, as you might say, the operating entity. And I'm sure you understand from a resolution recovery point of view, that's basically a nonstarter. In addition to the complexity and intercompany capital regimes and fragmentation that results for having 2 such large entities.

So it has been a huge project because we actually had to move everybody out of one entity and into the other, including the pension fund, and actually build an entire securities infrastructure within CSI at the same time as doing Brexit. But I'm very pleased to say that we actually dropped below the key thresholds in terms of the percentage of balance sheet, percentage of RWA and importance of the operating systems. Actually, back in the first quarter of this year, we've continued to actually reduce the positions further because this is the key switch every year, and we no longer accept any new business in CSSEL from October. So it's definitely decommissioned as a material legal entity.

With regard to the Mozambique matter, the reason that Credit Suisse Securities Europe Limited took the guilty plea because it was the employer of the 3 individuals who actually pled guilty in a U.S. court a couple of years ago, and that's why it took the guilty plea because that was clearly the precedent for this matter.

The deferred prosecution agreement actually relates to CSAG, not CSSEL. So whilst it's clearly very unfortunate, and we obviously very much regret the whole Mozambique exercise, it doesn't really pertain to the material legal entity status of CSSEL. So hopefully that's covered that point.

I think the -- I think -- thank you very much, Stefan. I think the second question, just in terms of dividend and payout guidance. I mean we're sort of crossing a bit on to the subject for later on this morning. But really, the Board's made 2 statements. Firstly, the dividend for 2021 payable following the approval by the AGM next April, that's a decision that the Board will calibrate once it actually has the full year 2021 results. The comment around the 25% of net income is a forward-looking statement relating to the Board's guidance for the expected percentage of net income that we paid out of 2022 in 2023, again, subject to the AGM or, at that point, basically, in the following year, Stefan.

There are no more questions at this time. I will hand back for closing remarks.

Well, thank you very much for joining this call, and I'm sure we will speak to you again later this afternoon. I think the third quarter was a very solid basis on which we can build in not easy circumstances with very strong operating results in -- on an underlying basis but also given the various impairments we took and legal provisions on a reported basis with also strong NNA and strong capital numbers.

So I'm looking forward to talking to you later this morning, and thank you for joining this call. Bye-bye.

Bye.