Credit Suisse Group AG (CS) 2012 Q4 法說會逐字稿

Good morning; this is the conference operator. Welcome, and thank you for joining the Credit Suisse Group fourth quarter and full year 2012 results conference call. As a reminder, all participants are in listen-only mode, and the conference is recorded. You will have the opportunity to ask questions directly after the presentation. (Operator Instructions).

At this time, I would like to turn the conference over to Brady Dougan, Chief Executive Officer of Credit Suisse. Please go ahead, Mr. Dougan.

Thanks very much. Welcome, everybody, good morning. Thanks for joining us for our fourth quarter and our full year earnings call. I am joined by our CFO, David Mathers, and he will deliver the results portion of the discussion, and then, obviously, we'll open up for questions.

Before I start, I'd just ask you take note of the usual cautionary statement.

Credit Suisse enters 2013 as one of the few financial services firms to have completely reengineered its business to thrive in the new regulatory environment. Throughout 2012, we dramatically transformed all of our businesses, substantially lowered our cost base, significantly increased our capital base, and considerably reduced risk, risk-weighted assets and notional balance sheet. We are confident that the proactive and decisive actions that we've taken will enable us to achieve our goal of 15% return on equity, through the cycle.

And in an industry that still faces substantial restructuring to come, we have effectively completed the bulk of that restructuring. We now have a business model in place that is stable, that's high returning, and that fits within the new regulatory environment.

We have one of the leading Private Banking & Wealth Management businesses globally. In the last four years, we've generated more net new assets, at CHF162 billion, than any of our competitors.

We have assets under management of CHF1.25 trillion. Our Investment Banking business is one of the first that's Basel 3 compliant, and has global reach and critical mass in fixed incomes, equities and underwriting and advisory.

The consistency and sustainability of our model will allow us to better serve our clients, and to produce high and stable returns for our shareholders.

Before turning to slides, I will outline the four key areas that I'd like to highlight on the call now.

First, we achieved solid results in the fourth quarter, and more consistent performance throughout 2012, with an underlying after tax return on equity of 10% for the year, while continuing to drive strong client and market share momentum across our businesses.

Second, we delivered on our capital and balance sheet plans, resulting in a further strengthened capital base, improved leverage ratios, and a continued strong liquidity position.

Third, we made significant progress in transforming our business for the new environment. We reduced our overall cost base, and we improved our capital efficiency.

And fourth, we are on track to return significant cash to shareholders, once our look-through capital ratio exceeds 10%, which we target in mid 2013.

Let me spend a little more time on detail on each of those topics. So first of all, we achieved solid fourth quarter results, and stable earnings throughout 2012, demonstrating more consistency in our performance, as we executed a significant business transformation during the year.

We reported underlying pre-tax income of CHF1.2 billion, and an underlying after tax return on equity of 9% in the fourth quarter, and 10% for the full year.

In Private Banking & Wealth Management, we benefited from strategic and cost initiatives, maintaining client momentum and improving profitability, despite continued market headwinds. In an environment characterized by continued client risk aversion and year-end seasonality, we reported improved results driven by stronger transaction and performance based fees.

Fourth quarter pre-tax income of CHF900 million increased 71% from the year-ago quarter, primarily reflecting the higher performance fees in Asset Management, and lower operating expenses, as a result of our cost efficiency initiatives in Wealth Management.

And we had net new asset inflows of CHF6.8 billion, in the quarter, up from CHF5.3 billion in the third quarter, and CHF4.5 billion in the fourth quarter of 2011, but David will analyze that in more detail.

In Investment Banking, we delivered resilient fourth quarter results, with strong underwriting and advisory revenues, but reflecting a typical year-end slowdown in sales and trading revenues.

We reported fourth quarter pre-tax income of CHF300 million, compared to a loss in the year-ago quarter, driven by significantly higher fixed income results, reflecting the strength of our repositioned franchise, and more favorable market conditions.

Our Investment Bank produced higher revenues and profitability, with lower capital usage, lower risk and a reduced cost base, resulting in a substantially higher underlying after tax return on equity of 8% for the fourth quarter, and 14% for the full year, for our ongoing businesses.

And for the full year 2012, the Group's underlying pre-tax income was CHF5 billion, and this was achieved in a volatile operating environment with subdued levels of client activity, and risk aversion, amid continued political and economic uncertainty.

So we are confident that our transformed franchise is well positioned to achieve our previously stated target of a 15% return on equity, through the cycle. We also continued to build on strong market shares, across our businesses, throughout the year, even as we were adapting our business model and organization.

So second point, we strengthened our capital base by successfully executing on the actions that we announced last July, and we achieved our target pro forma look-through Swiss core capital ratio of 9.4%, as of the end of the fourth quarter.

We made further progress on previously announced strategic divestments, with the January announced sale of our exchange traded fund business in Asset Management. Our capital program is on track, and we target to exceed the Swiss 2018 year end look-through capital ratio requirement of 10% by mid 2013. And again, once we exceed the 10% level we are committed to making significant cash distributions to shareholders from capital generation.

Note also that we currently have an additional 2.8%, or CHF8.2 billion, of loss-absorbing capital in the form of high trigger contingent capital, a portion of which has already been issued and the remainder to be issued through an exchange in October of this year which will raise the pro forma look-through Swiss total capital ratio to 12.2%.

We also continued to conservatively manage our liquidity during the year with an estimated long-term net stable funding ratio in excess of 100%, and short-term liquidity under Swiss regulation, which is similar to the LCR, in excess of the requirement as of the end of the quarter.

Regarding balance sheet size, we made significant progress towards our previously announced target to reduce total balance sheet assets to below CHF900 billion by the end of 2013. In the fourth quarter, we reduced our overall balance sheet by CHF99 billion to CHF924 billion.

This balance sheet reduction has resulted in improvements in our leverage ratio under various calculation methodologies. And also note that the new FINMA Basel 3 leverage requirement, which some of you may be aware of, will not be a major issue for us; in fact, we're well on track to exceed the Swiss requirement.

Third point; we have taken decisive steps and made further substantial progress in transforming the business for the new environment.

We significantly reduced our cost base during the year; by the end of 2012 we achieved CHF2 billion of expense savings. We continue to seek further cost savings opportunities throughout our business and, as a result, we are today increasing our total cost run rate reduction target by CHF400 million to an annualized CHF4.4 billion by the end of 2015.

We remain disciplined on capital efficiency and made further significant progress in reducing risk-weighted assets throughout 2012. Since the third quarter of 2011, we reduced Group-wide Basel 3 risk-weighted assets by nearly CHF90 billion. Basel 3 risk-weighted assets stood at CHF284 billion for the Group at the end of 2012, and we're confident that we will achieve our target of less than CHF280 billion by the end of 2013.

In the Investment Bank, we further reduced risk-weighted assets by $13 billion in the fourth quarter to a total level of $187 billion at the end of the year. We're now within reach of our goal of less than $175 billion by year end 2013.

We have significantly adapted our business model in the Investment Bank; we have created what we believe to be the first Basel 3 compliant investment banking business focused on market leading, high returning franchises. Going forward, we expect to deliver a cost to income ratio of 70%, and a sustainable return on Basel 3 capital above 15% through the cycle.

The integration of our Private Banking & Wealth Management businesses, and changed organizational structure, enables us to better serve our clients, to enhance product development, advice and distribution, and will improve our efficiency. We've identified an additional CHF450 million in cost savings as of 2015, resulting from the integration plus other efficiency models we have taken. As a result of this streamlined business model, we seek to achieve a 65% cost to income ratio, as well as 6% annual net new asset growth.

And fourth, given the consistency of our earnings and our ability to generate excess capital, we are on track to return significant cash distributions to our shareholders, once our look-through capital ratio exceeds 10%, which we target to achieve by mid 2013.

For the 2012 financial year, the Board of Directors will propose a dividend of CHF0.75 per share, consisting of CHF0.10 cash and CHF0.65 of stock.

In summary, we enter 2013 well positioned to thrive in the new regulatory environment. We took proactive and decisive actions starting in 2011 to restructure our business in response to changed client demands, the current market environment and new regulatory requirements.

In 2012, we substantially strengthened our capital position by adding over CHF12 billion in pro forma look-through Swiss core capital, reduced Basel 3 risk-weighted assets by 16% across the Bank, lowered our annualized cost base by CHF2 billion, considerably reduced our notional balance sheet, and continued to invest in key markets.

During this substantial transformation we, nonetheless, achieved solid revenues and an underlying after tax return on equity of 10% for 2012, while continuing to build on strong market shares across our businesses.

Looking at the year ahead, so far in 2013 revenues have been consistent with the strong starts that we've seen in prior years. We're now additionally benefitting from the strategic measures we took in 2012, including the strengthened capital base and our significantly reduced risks and cost base.

So we believe that our business model will continue to deliver strong and consistent results, positioning us to better serve our clients and deliver superior returns to our shareholders.

And with that, let me turn it over to David.

Thank you Brady. Good morning, everybody. I'd like to start on slide 7 with an overview of the financial results. In the fourth quarter, we achieved underlying revenues of CHF6 billion, pre-tax income of CHF1.2 billion, and net income of CHF816 million.

Diluted earnings per share were CHF0.42, the underlying cost to income ratio 79%, and the underlying after tax return on equity 9%.

If we look at the full year, the underlying pre-tax income reached CHF5 billion, up from CHF2.4 billion in 2011.

For 2012, we achieved an 80% underlying cost to income ratio and a 10% underlying after tax return on equity.

Net new asset inflows of CHF6.8 billion for the quarter picked up significantly, compared to CHF4.5 billion in the fourth quarter last year. And throughout 2012, we did see good underlying inflows, albeit these were partly offset by a number of non-recurring items that I'll summarize later in the presentation.

Reported pre-tax income was CHF596 million the fourth quarter and CHF2.1 billion for the full year.

On slide 37, as per normal practice, we include a reconciliation to the underlying result. You can see in the full year that the primary difference between the reported and the underlying number is the CHF2.9 billion own debt move resulting from a substantial tightening in our own credit spreads.

We did also take total business realignment costs of CHF680 million, but this was offset by a CHF533 million of gains on real estate sales, a CHF384 million gain on the sale of Aberdeen within the Asset Management Division, as well as net impairment charges of CHF82 million relating to the sale of certain of our Private Equity and Trusts.

Let's turn now to slide 8. Following the announcement that we made last November, we've combined the former Private Banking and Asset Management Divisions to form the new Private Banking & Wealth Management Group. The restated figures and the detailed time series that we provided to you last week are also available on our website.

The new division reported fourth quarter pre-tax income of CHF911 million. On an underlying basis, pre-tax income was CHF978 million. Our underlying results reflect a number of adjustments, primarily related to the impact of exiting certain illiquid investment strategies within our Private Equity portfolio. For the quarter, the division reports a 69% underlying cost to income ratio.

Whilst we did see the normal seasonal slowdown in activity towards the end of the year, I would note this was much less marked than 2011. And we also saw the benefit of strong transaction and performance-based revenues as well as higher revenues from our Integrated Solutions [group].

The results also demonstrate the benefit of our efficiency and cost cutting initiatives. The year-end seasonal pickup in expenses was muted in the fourth quarter with total operating expenses up only 1%, compared to the third quarter, and down by 5%, compared to the fourth quarter in 2011.

For the full year, revenues were stable, and total underlying operating expenses, that is excluding the litigation provision we took in 2011, declined by CHF300 million, compared to the prior year, resulting in an underlying cost to income ratio of 72%.

Furthermore, in addition to the cost measures that we've already identified in the third quarter last year, we've now identified a further CHF450 million efficiencies to come from the merger, both from the two divisions, but also from some additional measures that we're going to take. This will enable us to achieve our target cost to income ratio of 65% for the division.

Now let's look at the performance of the businesses in more detail, and let's start with Wealth Management, please, on slide 9. For the fourth quarter, both revenues and total operating expenses were broadly stable, compared to the prior quarter. Whilst activity did decline towards the end of the year, we achieved higher levels of transaction revenues, compared to both the same quarter in 2011 and the third quarter in 2012.

If we look at the full year, revenues were broadly stable, compared to 2011, and I think our performance demonstrates both the successful mitigation of the adverse impacts from the operating environment, as well as the benefit from higher assets under management and from our various growth initiatives.

As a result of our efficiency measures, including the integration of Clariden Leu, our total underlying operating expenses decreased by nearly CHF300 million, or 4% for the full year, resulting in the underlying cost to income ratio marginally improving to 77%.

So let's turn to slide 10. If you look at fourth quarter Wealth Management revenue trends in some more detail, starting with the bottom segment in the columns on the slide, net interest income was slightly lower, compared to the fourth quarter of 2011, primarily due to the impact of continued low interest rates; albeit this was still mostly offset by higher loan and deposit volumes.

Recurring fees and commissions were also slightly lower, reflecting both the cyclical factors that we've alluded to before; that is the further switch in client portfolios towards cash, near cash and fixed income products during the year, as well as the structural shift in our business towards emerging markets and ultra high net worth clients.

Conversely, though, transaction and performance-based revenues increased year on year. The increase reflects three factors; first, the benefit from semiannual performance revenues from our Brazilian subsidiary, Hedging-Griffo; secondly, the revenues from our Integrated Solutions business, reflecting the benefits of the integrated cross-bank business model; and third, an encouraging pickup in client activity, albeit from very subdued levels.

If we look at gross margin, with revenues and assets under management up slightly versus the third quarter, the gross margin was broadly stable at 110 basis points.

Looking forward, despite the encouraging increase in client activity that we've seen so far in 2013, we do expect the gross margin to continue to be affected as we shift our business towards segments with a lower gross margin, but a lower pre-tax margin, so for example, our ultra high net worth clients. So driving cost reduction has to be a critical part of our strategy for this division to further strengthen the pre-tax income.

Let's look briefly at the 2012 Wealth Management pre-tax income drivers on slide 11. The chart on the left outlines the adverse impacts of market headwinds, including a conservative asset mix, subdued client activity, low interest rates, and higher regulatory costs. As you can see, the largest impact was recurring revenues with a CHF203 million decline.

The negative impact on net interest income from lower rates was offset by growth in both deposit and loan volumes, resulting in an increase of about CHF17 million in reported net interest income for 2012. On the right, the slide demonstrates the benefits of our strategic initiatives, which contributed a total of CHF300 million to pre-tax income, consistent with the plans that we communicated back in 2011.

Of the CHF300 million, CHF120 million relate to dedicated growth initiatives, such as improving profitability in several of our key onshore businesses. And CHF180 million relate to efficiency measures, such as the streamlining of our front office support platforms, and the simplification of our operating platform.

So let's turn now to Corporate & Institutional clients on slide 12. In our Corporate & Institutional client business revenues were up, driven by strong commissions against a resilient Swiss economy. Pre-tax income improved to CHF238 million in the fourth quarter, and we delivered a strong cost to income ratio of 51%; in fact even better than the 57% we recorded in the fourth quarter of 2011.

Credit provisions increased slightly but remained on a low level, given the strong quality of the loan portfolio and, as before, the continued resilience of the Swiss economy. For the full year, we delivered higher revenues, compared to 2011. Pre-tax income also increased year on year, notwithstanding the slightly higher credit provisions. And for 2012 as a whole, our cost to income ratio improves to 52% from 54% in 2011.

Let's turn to Asset Management results on slide 13. In Asset Management, reported fourth quarter net revenues were lower, compared to the third quarter. However, this quarterly comparison is distorted by the restructuring actions which resulted in investment-related losses, primarily relating to the private equity positions that we're currently in the process of selling.

Fourth quarter underlying pre-tax income of CHF250 million increased significantly, both from the prior quarter and the fourth quarter 2011. And I'll explain the drivers behind this increase in some more detail on the next slide.

We also achieved net new assets of CHF2.5 billion in the quarter, benefiting from inflows in credit and in emerging markets; albeit partially offset by outflows in fixed income and certain money market funds. During the quarter, the Asset Management division made some further progress, implementing our strategic agenda, as we'll show on the next slide; 14 please.

So starting with the chart on the left, underlying pre-tax income for the third quarter was CHF122 million. This underlying pre-tax income excludes all net gains relating to the disposal of Aberdeen, as well as an impairment charge in the prior quarter.

From that starting point, in the fourth quarter we delivered significantly higher transaction and performance-based fees of CHF200 million, which was partly offset by lower investment-related gains and other revenues of CHF71 million, resulting in increased underlying pre-tax income of CHF250 million. Our underlying cost to income ratio improved to 61% in the fourth quarter, down from 76% in the third quarter.

If you look at the full year on the right-hand side, starting with underlying pre-tax income of CHF579 million in 2011, we delivered higher fee-based revenues of CHF24 million in 2012, which were offset by lower investment-related gains and other revenues of CHF122 million. During the year, pre-tax income also benefited from a reduction in expenses of CHF50 million, resulting in full year 2012 underlying pre-tax income of CHF531 million. Consequently, the full year underlying cost to income ratio deteriorated slightly to 76%.

Let's move to net new assets on slide 15. I'd like to take just a few minutes to discuss the net new asset trends, first in Wealth Management during 2012. During the year, we achieved good inflows of CHF33.4 billion, which was driven by solid growth with ultra high net worth individuals across all regions, and by strong growth in emerging markets. The growth rate in Asia Pacific was 11.4% in 2012.

But Wealth Management inflows for the year were then adversely affected by CHF14.4 billion in significant outflows, CHF6.9 billion of which is in relation to Western European cross-border clients, and CHF7.5 billion in relation to the outflows we saw in the first half of the year following the Clariden Leu integration, which I think we've already discussed in the past.

Adjusting for these outflows, Wealth Management achieved net new assets of CHF19 billion for the year. This net new asset growth rate was 3.5%, excluding the Clariden Leu outflows, and 4.5% if you also adjust for the Western European outflows, but I'll come back to that later.

Next on slide 16, I'd like to discuss the net new asset trends for 2012 for the combined division, so that's including Wealth Management, Asset Management and CIC. So if we look at the total numbers, you can see we recorded strong adjusted inflows across PBWM of CHF40.6 billion for the year, driven by healthier inflows in emerging markets, [Brazil and] EMEA, and in Switzerland, as well as the continued growth in the Americas and Asia Pacific regions, also from emerging market inflows.

These were then offset by the CHF14.4 billion outflow that I mentioned on the previous slide, relating both to the Western European cross-border business, and to the Clariden Leu integration. Further, you can see on the chart we had the loss of a single low margin fixed income client in Italy in the first quarter of 2012 which, as you may recall, led to a CHF14.7 billion outflow in the former Asset Management division.

Finally, on net new assets, I wanted to point out that for the fourth quarter we saw gross inflows of CHF11.2 billion in the new division. However, on a net level we achieved inflows of CHF6.8 billion, and that's net of CHF4.4 billion of Western European outflows in the final quarter.

Let's turn to slide 17. During 2012, you may recall we announced that the future Private Banking & Wealth Management division would achieve a total of CHF500 million of cost savings, now CHF300 million of which has already been booked now in the 2012 numbers. In addition, and based on the synergies that we expect to achieve following the integration of the Private Banking & Asset Management division, as well as certain other measures, we will now target an additional CHF450 million of cost savings to be achieved by the end of 2015. So that will bring our total expense reduction program to CHF950 million for the new combined division.

Let's turn to 18 to look at our KPIs for the division. So as I've just mentioned, we're targeting future or further cost reductions of another CHF650 million for the new division. Now that's equivalent to a 500 basis point improvement to our 2012 underlying cost to income ratio of 72%.

Furthermore, Private Banking & Wealth Management will also benefit from the share of the infrastructure and shared service savings, which will improve the cost to income ratio by a further 200 basis points, putting the division very close to the target cost to income ratio of 65%.

So let's turn now to net new asset growth rate, which we continue to target at 6%. We expect continued strong net new asset generation within the Wealth Management business in emerging markets, as well as continued, but slower, growth in our mature market operations.

However, in Western Europe, we would expect to see continued outflows at a level similar to that which we've experienced in the last year or two, until the Western European cross-border business stabilizes.

So over the next couple of years, allowing for this continued outflow, we would expect an overall net new asset growth rate of around 3% to 4% for Wealth Management, below our through the cycle target of 6%. However, as the Western European cross-border business stabilizes, we will then expect achieve our 6% target; albeit that will still be very much driven by growth in our emerging market businesses.

So let's now turn to the Investment Bank on slide 19. The Investment Bank posted net revenues of CHF12.6 billion, and pre-tax income of CHF2 billion for the full year 2012. These results demonstrate both further improvements in our operating capital franchises, as well as the continued strength of the franchises.

In 2012, our Investment Bank produced higher revenues and profitability, with lower capital usage, less risk, and a reduced cost base, resulting a substantially higher after-tax return on B 3 allocated capital, 9% on an underlying basis. Clearly, that's after the losses which we take in the division from our wind-down portfolio. If you exclude that, the underlying after-tax return on equity would have been 14% last year.

During 2012, we reduced our Basel 3 risk-weighted assets in the Investment Bank from $242 billion, at the end of 2011, to $187 billion at the end of 2012. This $55 billion reduction puts us very much in reach of our target to bring the level of risk-weighted assets within IB down to less than $175 billion by the end of 2013.

Perhaps as importantly, I'd also like to point out that this $55 billion was entirely achieved, in fact, more than entirely achieved, through reduced risk exposures in hedging, not through model changes.

Net revenues in the quarter increased substantially, compared to the fourth quarter of 2011, when we both faced challenging and volatile trading conditions, and were also prioritizing an accelerated reduction in risk-weighted assets as part of the planning for our Basel 3 transition.

However, compared to the third quarter, revenues declined by 16% as continued strength in underwriting and advisory was offset by low sales and trading activity, as well as an increase in losses from the wind-down portfolio.

If you look at slide 20, you can see the significant improvement in pretax income from 2011 to 2012 from a different perspective. What we show here are the components of the year-on-year pre-tax income progression in US dollars to illustrate a better like-for-like comparison, free of distortion from the foreign exchange translation impact.

So if we move from left to right, you can see the significant increase of over $2 billion in our fixed income, underwriting and advisory revenues. This improvement was then slightly offset by lower revenues in equity sales and trading.

We also had lower provisions for credit losses, but also, more importantly, a very significant reduction in the cost base across all of our businesses within the Investment Bank. If you compare to 2011, the full year, we reduced expenses by over $1 billion. Now that combined impact of higher revenues, lower provisions and expenses results in a dramatic improvement in pre-tax income.

Slide 21. So Fixed income trading revenues were lower, compared to the third quarter, due to higher losses in our wind-down areas, our year-end seasonality and also, a weak close to the year in our global rates businesses. That said, we've continued to see a strong performance in our core businesses, including securitized products, credit, and our Brazilian operations.

As you can see from the chart, we've significantly improved our operating performance in fixed income during 2012. Revenues increased by 60% the full year on lower expenses, and we have a 31% reduction in Basel 3 risk-weighted assets, compared to the end of 2011.

And as a result, our fixed income business is now delivering a return on capital that has improved to that of our overall Investment Banking division average return.

So with that, let's move to equities on slide 22. 2012 was a challenging year for equities as trading volumes remained depressed and client activity was subdued, compared to 2011. Nonetheless, I think we delivered resilient revenues for the full year, and for the fourth quarter, supported by the strong franchise and our market-leading positions.

Compared to the third quarter, prime service revenues were higher, due to increased client balances; that's notwithstanding lower hedge fund activity and reduced leverage.

Cash equities and derivative revenues also increased sequentially, reflecting some improvement in volumes relative to the third quarter. But these increases were then offset by lower results in fund-linked products and convertibles.

So let's turn to underwriting and advisory now on slide 23. Within our underwriting and advisory businesses, our revenues increased by 8% from 2011, with increasing momentum in the second half of the year. That was particularly evident in our stronger debt underwriting, M&A and advisory results.

In fact, if you look at the fourth quarter, it was the strongest quarter we've seen in the last two years. Revenues increased by more than CHF100 million, compared to the third quarter, and by 93%, compared to the fourth quarter of 2011.

We were not only to benefit from a strong performance in debt underwriting, but we also saw a marked pickup in M&A fees.

So slide 24. We thought it would be useful, given the discussions around fixed income businesses in particular, but also Investment Banking in general to show you an analysis of how our capital is allocated across the businesses within our Investment Bank, and how this year's return on capital performance relates to market share.

But first, let me just take a moment just to explain the graph. So along the Y-axis, we measure the 2012 market share positions for our businesses. So in the top segment, we include those businesses with top three market positions; in the middle, those businesses that are ranked between fourth and sixth; and at the bottom, those businesses that are ranked seventh or below.

Now along the X-axis, we show the 2012 return on Basel 3 capital of the businesses, with returns increasing as you move to the right.

Finally, the bubble size reflects the relative capital usage of each business at the end of 2012. Now just to be clear, this does not include the losses, nor the remaining CHF13 billion of risk-weighted assets in the FID wind-down portfolio.

What you see on the top of the chart is that over half the capital we have employed is actually assigned to market-leading and, generally, very high-return businesses in equities and fixed income, particularly global credit, prime services, emerging markets, securitized products and cash equities.

If you look at the middle section of this graph, you can see about one-third of our capital in rates, IBD and equity derivatives.

Looking forward, we clearly expect and target to see these businesses shift to the right on the graph as we continue to enhance operating leverage, reduce expenses and optimize returns in these businesses.

Finally, in our FX and commodities businesses, whilst we will continue to ensure a full suite of products for our Investment Banking and Private Banking clients, we will also look to continue to reduce the cost and capital allocated to these areas during the course of 2013 to improve returns.

Well, let's look at the graph as a whole. Over half of our capital is employed in businesses with strong returns, top three market shares and actually, over 90% of our capital is in businesses where we have a top six market position or better.

Slide 25. So slide 25 shows the incremental impact on the Investment Banking division's year-to-date normalized return from cost improvements and RWA reductions, compared to 2011.

As you can see from the chart, higher revenues, paired with the impact from efficiency improvements and cost savings and lower RWA usage, provided significant uplift to our Basel 3 return. It improved from negative 2% in 2011 to a positive 9% in 2012 on a normalized basis.

Now note this is after the losses on the wind-down portfolio. Without these, the underlying after-tax return for the ongoing business would have been 14% last year.

Also, just to be clear, this legacy wind-down book is much smaller than it was a year ago. We reduced risk-weighted assets from $48 billion, at the end of 2011, to $13 billion by the end of 2012.

Going forward, we'd expect to see a further improvement in after-tax return in this business in 2013 and beyond, primarily due to the planned cost savings, as well as a substantial reduction in drag from the wind-down portfolio.

Let me turn now to the key performance target for the Investment Bank on slide 26.

Now 2012 was clearly an important transition year for the Investment Bank, reducing costs, meeting the regulatory goals, and achieving a sharp reduction in the capital intensity of the business.

Looking forward, as the rest of the industry still faces substantial restructuring, we've effectively completed the bulk of this transition and will focus on achieving a 70% cost to income target.

Now driving that improvement of 70% will be continued cost reductions to bring the ratio down by about 8%; a reduction but no elimination of the losses in the wind-down business, about 3%; and various growth and business initiatives that we have across the division, which should reduce the ratio by a further 3%.

Let me now turn to the Group's costs savings [now] for the Group as a whole on slide 27.

I'm sure you'll recall in the third quarter of 2011, we set a target of CHF2 billion of cost savings to be achieved in 2012 for the Group as a whole. And as you can see on slide 27, we achieved this target last year. And that represented a 10% reduction from our six-month annualized 2011 cost base, which is when we started this program.

Further, at the end of the third quarter last year, we announced target expense reductions of CHF3 billion for 2013, rising to a total of CHF4 billion for 2015. [That is now aligned] to the discussion we had about the PBWM division that we would be able to increase that target to CHF4.4 billion in 2015, with an intermediate goal for 2013 of around CHF3.2 billion, compared to the CHF3 billion we mentioned before.

But let's look at this in more detail on slide 28, just to recap what we delivered since the first half of 2011.

Last year, we achieved savings of CHF1.3 billion in direct expenses in the Investment Banking division; CHF0.3 billion in PBWM; and a further CHF0.4 billion in the underlying infrastructure and shared services across the Bank. If we look forward, as already announced, we intend to achieve CHF1.1 billion of incremental savings across infrastructure and shared service functions.

Within PBWM, we will deliver an additional CHF650 million of savings, as a result of integration of the two former divisions, as well as certain other initiatives. This will also drive some further infrastructure and shared service expenses, which are in this total.

Let's talk about capital please, slide 29. Slide 29 shows the significant progress we've made towards our 2013 year-end Basel 3 risk-weighted assets to be at less than CHF280 billion.

Our Basel 3 risk-weighted assets at the end of the fourth quarter stood at CHF284 billion. Since the third quarter 2011, we've now reduced Basel 3 risk-weighted assets by nearly CHF90 billion, and that includes the CHF12 billion I mentioned before in the Investment Bank in the fourth quarter of last year.

Slide 30; this slide demonstrates the continued strength of the capital ratios. As you can see, our Basel 2.5 Tier 1 capital ratio improved to 19.5% to 18.5% in the third quarter, whilst our Basel 2.5 core Tier 1 ratio increased to 15.6% from 14.7% at the third quarter time.

Now if you look at our Basel 3 look-through ratios, our reported Swiss core capital ratio improved to 9.1% from 8.2% at the end of the third quarter.

You may recall, when we spoke back in July and then in the third quarter, we gave a pro-forma target, which allowed for the completion of the sale of a number of the asset management businesses, which take time for regulatory approval, which will be closed in the course of the first half of this year.

On that pro-forma basis, we ended the year at 9.4%, which exceeds the 9.3% guidance we gave on the same basis in the third quarter.

So let's move to the balance sheet on slide 31. We made significant progress towards our goal of reducing the total balance sheet assets to below CHF900 billion by year end 2013.

In fact, total assets were CHF924 billion at the end of the year, down significantly from CHF1,023 billion in the third quarter. During the fourth quarter, we cut total assets by CHF99 billion, CHF69 billion of which was in the Investment Bank, and CHF20 billion in PBWM. So I think, given that, I think we are confident we will achieve our 2013 year-end goal.

Unsurprisingly, our leverage ratio has improved as a result of this balance sheet reduction, and the old FINMA leverage ratio, that is as per the 2008 decree, stood 5.8% at the end of last year.

But let me turn now to the new Swiss leverage ratio that came into force a month ago, at the beginning of 2013. I think most of you are aware of the requirements for leverage under the new Swiss capital laws. That's based on the proposed Basel 3 leverage ratio, and is phased in under the Swiss capital laws between 2013 and 2019.

Now the denominator of this ratio is similar to the Basel 3 proposal. That is, it includes both on balance sheet assets and a number of add-ons relating to off balance sheet exposures.

The numerator includes both CET1, and also high and low strike CoCos. I've included some detailed slides based on the summary of the Swiss capital law in the appendix for those of you who'd like some more details.

However, I think the key point on this slide is that our on and off balance sheet exposure has declined by CHF129 billion during the fourth quarter. If you sold the mass in the appendix and assume that our target for firm-wide risk-weighted assets of CHF280 billion, we will need to operate with on and off balance sheet exposure of about CHF1.17 trillion by January 1, 2019.

So just to put that in context, after the CHF129 billion reduction in the fourth quarter, we'll need to cut our exposure size by an additional CHF100 billion of the next course of the next few years. But I think, given the progress we've made so far, I don't think this is going to be a particularly constraining factor for Credit Suisse.

So let's just turn to funding and liquidity on slide 33. Our funding and liquidity positions remain strong, and we're well prepared for the Basel 3 liquidity requirements.

At the end of 2012, our Basel 3 net stable funding ratio continued to be in excess of 100%. And we also continued to surpass the short-term liquidity requirements under Swiss regulation, which is a similar approach to the Basel 3 LCR ratio.

Clearly, I'd also not that our funding and CDS spreads continued down in the fourth quarter, both on an absolute basis and relative to peers.

Finally, we continue to have a highly unencumbered balance sheet, with limited use of cover bonds, and we use about 14% of the Swiss mortgage book for such secured long-term funding.

So on that point, I'd like to conclude the financial results section of today's announcement and pass back to Brady, please.

Yes, thanks, David. I think, at this point, we'll just open it up for questions. Operator?

We will begin the question and answer. (Operator Instructions). Derek De Vries, Merrill Lynch.

I've got a few questions, if I might? I guess, I'll start with some of the detailed questions, and then work back to the more strategic stuff.

Firstly, the Investment Bank, you had legacy asset writedowns; they were about 25% higher in 2012 versus 2011. And I was, I guess, surprised just generally, every risk asset class rallied last year. So how should I think about that, going forward, in 2013, 2014?

And then, still on the Investment Bank. I guess I was surprised you didn't give any color on the awarded versus expensed compensation. So can you just tell us how much deferred comp is outstanding at the end of 2012, and compare that to 2011, just so we know what the run rate is for the investing schedule?

And then, maybe sort of more bigger picture. Just on your cost guidance, I guess that's based on flat revenues-ish. Do you have an estimate of the marginal cost income ratio? So for every incremental dollar, presumably that marginal cost income ratio is much lower than your actual cost income ratio.

And then, a last question. You talked about significant capital return. How should we think about that, in light of your old 30% payout ratio? Does that potentially change, once you hit your capital targets?

David, do you want to (inaudible)?

So on the fixed income wind-down portfolio, I think it is a collection of somewhat idiosyncratic assets. Some of them date back to 2009, such as the remaining European CMBS assets and, therefore, not really that correlated to the market recovery you saw at the end of the year.

So in the fourth quarter, as you saw, we took about CHF130 million write down, and that's within the fixed income results relating to that portfolio. And the loss from the fourth quarter was about CHF180 million.

I think, looking forward at our plans, clearly, the risk-weighted assets we have in the FID wind-down portfolio, down about three-quarters from the end of 2011, from CHF48 billion to CHF13 billion.

I think it's probably fair to say that we expect the drag to drop by about half in 2013, compared to 2012. But I think there will still be a long tail. I think you note, in the KPI guidance, that we're still assuming some drag from this there afterwards. But about half would be a good view for next year.

Great. Thanks.

On the awarded and expensed, well, we will be giving full details in the annual report, which comes out middle, late March. I think a couple of numbers just to think about, though.

The unrecognized deferred compensation balance is likely to drop by about CHF550 million in the numbers you actually see, when that comes out. And I think you should still look to see the deferred comp balance, through the P&L, to drop by about CHF700 million in '13, compared to '12, if that's helpful.

That's exactly what I needed. Thanks.

In terms of the assumption for costs, you're right. Essentially, what we're assuming is flat revenues, and no change in FX in our cost numbers.

And there's also a pro forma analysis we've included in the back, as to where we think that would put the total cost for the Group on that basis. But that is on the basis of flat revenues, flat variable comp, and flat FX, basically, just to complete the picture.

On the marginal cost income ratio, I would probably want to get to, but I think it's probably something like 50% in the equities business, and probably 40% to 45% within the fixed income business. But that's probably -- that's a slightly back of the envelope calculation. So we can probably give you a better estimate, if you give us an hour or two.

And just on the Private Bank, I think you've given in the past numbers there, and I think it's probably lower than even the fixed income number. Is that right?

It should be lower, because the pre-tax margin is actually higher. But let us get back to you, Derek, on that.

And then, just on dividend payout policy?

Well, I think really, in respect of 2012, I think we said last year, as part of the capital measures, we intended to pay the dividend entirely in scrip. What we're doing essentially, clearly, is paying CHF0.75 in total, or recommending we pay CHF0.75 in total, CHF0.10 of which would be in cash, and CHF0.65 would be in stock.

If we look forward to the current year, I think we stand by what we said before, that we would expect to make significant cash distributions, once we passed 10% on the Swiss core capital ratio. And I think, as we've said before, we would expect that to happen sometime around the middle of the year.

I think it's probably a little bit early to be giving dividend forecasts thereafterwards. But what we try to do, obviously, by paying CHF0.75 last year and CHF0.75 this year, I think it gives some indication of our thinking. But I think a little bit early, but I think no real difference, in terms of our plans, going forward.

I'd also say, and this point I was actually asked earlier this morning, what does that mean for asset distribution. Clearly, we are targeting the Investment Bank RWA to be $175 billion or less. Clearly, going forward, therefore, RWA growth, such as it is, would probably be in the PBWM divisions. But it's not a business that's capital led.

So there should be a capital generative model that should generate significant free cash flow for shareholders, whilst growing the Wealth Management & Private Banking businesses.

Good. Thanks very much.

Kian Abouhossein, JPMorgan.

Two questions. First of all, slide 24, your bubble chart, just trying to understand the $122 billion of risk-weighted assets. Should we expect that, overall, $122 billion could decline further, as some of the areas you're indicating, there's a decline? Or is it just a rebalancing act that you're seeing?

In that context, you also talk about some kind of cost reduction programs. I look at your IB staff, and it's now 19,800, down about 4% since 2007. Just wondering -- you've reduced them quite a bit this year, 4% roughly, but wondering is it a continuous trend that we should expect the staff reductions to go on?

The second question is regarding slide 45, which is a good slide, and referring also to Derek's question. If I do a back of the envelope calculation, assuming flat revenues and your cost savings, are we looking at a cost income of around 67%? Am I doing the math right?

And in that context, your IB cost income of 70% target, you indicate some revenue pickup in the slide. Wondering, will you reach 70% assuming no revenue pickup by 2015? I'll leave it at that for now.

Thank you. But by all means, Kian, we will take more questions going through.

But I think on the first point, clearly, for the IB, we were $187 billion of risk-weighted assets. And that was after about a $3.6 billion transfer with the Swiss trading and sales business to PBWM, the $187 billion.

The target we're actually looking for, for the IB, is to actually get them below $175 billion. So that's about another $12 billion of reductions for the IB as a whole. Clearly, within that, you have the $122 billion of fixed income you're referring to. That also includes the $13 billion of FID wind-down.

Now, we would expect, clearly, the priority has to be to reduce further the FID wind-down RWA. And we will make substantial progress against it, but we still think there's going to be a tail. So that will obviously generate, hopefully, the bulk of the further reductions, and that will come through in the FID side.

Thereafterwards, we'll be looking for a further trimming of RWA across the entire Bank, to actually meet and exceed that $175 billion goal. But clearly, first target is FID wind-down, and that is actually in FID, so that will target the $122 billion number.

I think your second question was around the headcount numbers within the Investment Bank. Now, just to recall, I think we disclosed numbers down, as you say. Let me just get the page; numbers for headcount was down from 20,100 to 19,800, or from 20,700 at the end of last year to 19,800.

Now just to be clear, that includes both direct and infrastructure headcount. If you look at our cost plan, going forward over '13, '14 and '15, we're actually targeting about CHF1.2 billion in total of infrastructure and shared service reductions. That obviously will involve some staff changes, so I think you would expect to see the headcount drop further. Certainly, in terms of what's allocated to the Investment Bank in total, the number you see here on page 23, that will actually also drop further.

In terms of the Group cost to income ratio, I think there was probably two questions there; the first one really in terms of slide 45. I think we calculated that we came out about 71% for the cost income ratio. I think we were dividing by the revenues before fair value and debt of [CHF2.9 billion]. That may give you the difference between your 67% and the 71%. So that's what we're expecting to achieve on that basis.

Then I think your next question was would we achieve the KPI for the Investment Banking division of 70% without that 3%. Clearly, what we've said there is we expect 8% from the existing efficiency initiatives, a further 3% or a rough halving of the FID wind-down, 3% from growth.

So the answer is, no, I think we'd fall short unless we can be more successful in actually eliminating the FID wind-down, which would clearly close that gap.

But I think it's important for us to target 70%. That's what we're working to get to for the IB division.

Okay. And if I may, just two more very quick ones? Can you just say the duration of the wind-down business?

And secondly, on Wealth Management performance, semiannual performance fees, could you tell us roughly how much that was? Thanks.

I think on the first point, it's somewhat difficult to answer that question because that is the duration of the FID wind-down portfolio, because it is a mixture of very different assets. It includes some of the long-dated rate transactions which we've been working hard on to novate during 2012. Some of those can actually stretch out 8 to 10 years, if it was a run off. But obviously, we'd be hoping to actually novate and reduce that further, particularly as other banks actually move into the Basel 3 regime at a similar incentive to us to actually reduce the CVA relating to that.

I'll tell you what; summarizing. Clearly, some of the CMBS assets will drift on longer than that, so I think, to be candid, it's not really run off because I think some of the run off assets will take a number of years to do it. We want to be faster at selling and actually novating that.

I think, in terms of the Hedging-Griffo fees that we actually had last year, it was about CHF107 million we took in the fourth quarter, of which about CHF28 million was actually in the Wealth Management division.

Thank you.

Matt Spick, Deutsche Bank.

I had three questions this morning. The first was on the Private Bank and the issue of retrocessions, and I noticed you seem a lot more relaxed than some of your competitors around that. Is that a fair assessment? And I wondered if you could remind us roughly what percentage of your AUM in the Private Bank were in discretionary mandates.

The second question I had was deleveraging, where obviously you're making very good progress there. But relatively, you've still got more to do with the off balance sheet items. That's quite a big bit of work for 2013. I wondered if that would mainly be facilities, or mainly the derivatives book was the current exposure method. Anything you can tell us about that.

And then the third question was on slide 24, where I'm just curious how you compiled it because I'm not sure that you're globally top three in credit, and I'm not sure you're top six in rates either. So is that a revenue market share position, or are you using a survey-based approach? Thanks.

Thanks, Matt. Maybe I can address the retrocessions issue. I guess in general, obviously, we are very focused on delivering good products to clients and having a lot of transparency around those products. And we think we've done a pretty good job of that. On the retrocessions issue, we have had disclosure on discretionary mandates in terms of the retrocession issue since 2008, and we've also had waivers as part of that. So we feel like we've had quite a significant amount of disclosure and so as you say, I guess that makes us feel more comfortable around it.

I think total discretionary mandates as a percentage of the Wealth Management, I guess assets under management are a little over 10%. So that's been in terms of the assets under management in Wealth Management around that number.

Do you want to talk about the deleveraging issue?

Yes. In terms of the off balance sheet add-ons, I think it's actually going to be a number of factors that actually drive the reduction thereafterwards. Clearly, what the Basel 3 leverage ratio does, and the Swiss leverage ratio is simply a variant to that, is it makes you focus on the off balance sheet [exposure]. And so you do think about, for example, [Evergreen] overdraft facilities for corporate, because whilst they don't affect the risk-weighted assets, the on balance sheet leverage, or really the risk-weighted assets, they have a marked impact on the off balance sheet exposure.

So what we're looking at is a mixture of things, some of which will have some short-term impact; others will require those sorts of commitments to actually roll off over time in order to actually reduce it.

Candidly, I think the mixture of measures we have will probably exceed the goal we've put here, and I think that's probably a conservative way of proceeding, just in case any of those things prove more difficult to achieve than we expect.

I guess the third question was on the market share positions. I think obviously, taken from a number of different measures, as you say, we could probably have a debate about some of it. We feel pretty comfortable with where we're positioned, mainly based on external surveys and Dealogic and more market share, not so much league table. And it's a little hard to get revenue numbers, obviously, but more what we view as -- whatever we can determine from market share, what's publicly available.

Obviously, I guess we're not so much trying to split hairs over where it's number three or number four or number -- but the basic point was simply that in those areas where we feel, and I think we could probably agree, we have better market shares, obviously, that's where more of our capital is, and that's where the higher returns are.

But also, I think, importantly was the message about the directional aspect of this which is, we do think across particularly our businesses in that middle group, which is -- it's one-third of our capital, it's a fair amount of capital, we have plans in place that we think will materially increase the returns on those businesses while maintaining and maybe somewhat improving market shares in them as well.

But it also does raise other questions about where your optimal return comes; what market share does your optimal return come in all those various business. And those questions will be different for different organizations. But we're very much focused on optimizing the returns on those businesses, and so I guess it's a little bit of a window into our thinking about how we look at it. It's not revenue market share; it's not -- it's really about trying to optimize those returns.

I think specifically on the global credit product, I think it's clearly a split between our leverage finance and high yield penetration at investment grade. I think I can look at any survey or any external analysis which would say we're very strongly and definitely a top three leverage finance house, and a top three high yield house for that matter. And I think, if anything, that position strengthened in 2012.

I think an investment grade, I don't think we would say we are in the top three, although actually, our market share has improved in that business as well. What we're trying to show here is, clearly, the combined business, but certainly, Matt, we completely agree. This is a business certainly for global credit, which is more driven by the leverage finance end of the spectrum than the investment grade.

Thanks. That's very helpful. Thank you.

Fiona Swaffield, RBC.

I had three questions. The first was slide 45, trying to reconcile it with the slide you gave in Q3, where you gave a CHF16.5 billion cost base. I know there is -- obviously, it's not comparable because of variable compensation, but I wondered if you could give us what the comparative would have been then, because it doesn't look like it's changed much in spite of CHF400 million incremental cost saves, but I don't know if I'm doing something wrong. That's the first question.

The second question is on gross margin; just trying to understand the moving parts for the next couple of years. You mentioned ultra -- well, the mix issue, but could you talk also about net interest margin? So if we look at the base of CHF114 million for the full year, there's a few one-offs in there, but do you think that the two better transaction could offset the drag from net interest income and the recurring? If you could comment on that.

And the third issue is the fixed income number and securitized products being particularly strong in 2012 and whether you could comment on what you think the outlook is for 2013 for that revenue line, and whether you think it's sustainable at the current level. Thanks.

Fiona, that's great. Maybe I can start with the gross margin question and talk to that a little bit, and maybe prospects for securitized products as well, and then we can get back to your reconciliation question on slide 45.

I think on the gross margin issue, as you say, there are a lot of -- I would say there are, what I would call, some cyclical factors and there are some more secular trends in terms of that. Obviously, included in the secular factors are things like, as you said, certainly net interest margin is a very important part of that, as well as the mix of business and the degree of opportunism of our clients, how active they're being, etc.

On the other hand, there are some secular trends, as you know, which, in my view, clearly are more use of ETFs rather than more structured products, so there probably are some elements that do structurally move that down.

And then in addition, there are a number of initiatives that we have on our side to try to, obviously, increase gross margin by increasing the number of products that we sell and lots of different initiatives that we have to try to do that.

I think we were happy to see a stable gross margin third to fourth quarter, even though there were a lot of headwinds and you've obviously seen that from a lot of the other industry participants where the gross margin has taken much more of a beating across the industry. So we were happy to see a stable performance on that.

I do think that we have seen, and you saw in the numbers in the fourth quarter, a little bit of an increase on the transactional side; stable and/or constructive markets will help towards that. And I think that January so far has continued that trend.

Our Private Banking clients probably take -- they react to things in longer term, but I do think that that is something that hopefully will be a positive.

The net interest margin, on the other hand, also has a tail on it, so it will take some time. Even if rates stabilize or start to go back up, it will take some time for those benefits to flow through, but they will eventually flow through.

And then you also have the mix question in terms of our clients, which is we clearly have an increasing composition of ultra high net worths and emerging markets clients, which tend to be slightly lower gross margin. As you know, we actually think we can drive better pre-tax margin out of them, but it is a little bit lower.

So on those I think you're probably aware; I'm probably not telling you anything you don't know. Those were a lot of the factors that are in there, and I think a lot of it will depend on the market-based factors and how they continue to develop through the rest of the year.

I think transactional volume could continue to improve, as we saw in the fourth quarter. We'll see; it depends a lot upon the environment. Obviously, if interest rates start to go back up, that will eventually filter through and that would be helpful. But we are still going to have the composition issues and some of the more secular issues around product mix that will probably moderate that.

So those are a selection of issues there; I'm not sure how much that helps you, but --

On your third question on the structured products outlook, generally, as you know, we think we have an excellent business there with very good market shares, and we think it's actually been restructured into a business that works very well on a capital-efficient basis.

I think our outlook is pretty strong for that business. The US housing market is improving; we'll benefit from that. That's clearly a significant portion of the business, but we're also growing the business not just in the US, but in Europe as well.

Clients continue to look for yield and this is a segment that benefits from that. So I think, again, we'll be somewhat influenced by the macro [environment], but I'd say we're fairly bullish on our outlook for that business.

Just on the reconciliation then between slide 45 in the fourth quarter deck and slide 21 of the third quarter deck. So in the third quarter is shown, I think, the number excluding variable costs, also excluding realignment costs. So in other words, the underlying (inaudible) of the costs, and I'm not sure we really got the message across.

So what we wanted to (inaudible) and I think in our subsequent meetings and also in this was to give the total costs estimate on the basis of revenues, flat variable comp and flat FX.

So you've got a difference of between CHF18.3 billion and CHF16.5 billion. As you say, the increase in the target for 2015 from (inaudible) to reduce the expenses by CHF0.4 billion. However, what we're actually also doing is we've also got CHF0.4 billion of realignment costs in that year as well.

So to reconcile between the two numbers, you start at CHF16.5 billion. CHF1.4 billion of variable costs, because we're assuming variable comp, and CHF0.4 billion of restructuring costs, so that's the reconciliation.

But essentially, it's variable comp and realignment, and that's the difference.

Thanks very much.

Huw Van Steenis, Morgan Stanley.

I found your presentation on the costs extremely helpful, so probably can I ask a slightly different question? How will your targets be tied into management incentives? And in particular, will the new KPI of 70% cost income from the Investment Bank, will that get hardwired into executive compensation? Will there be any incentives if the management can actually hit that target a year or two earlier, clean of restructuring or exit costs?

And then secondly, as you debate with the Board dividend policy, and I appreciate you won't be able to give us some hard numbers here, but have you thought that, in years to come, how your dividend policy may adjust and have a much higher payout once you get beyond, obviously, the new ratios? Thank you.

Thanks, Huw. Yes, I guess I'd say in general in terms of the tie in to the management and Executive Board level comp, there will definitely be -- that is obviously an important aspect of our overall strategy.

It will be an important part of compensation, and my guess is it will be fairly hard wired into that, so there'll be a fairly direct involvement. And obviously, those comps targets relate clearly to the 70% cost income, which relates clearly to the 15% return on equity, which is clearly where we need to get to.

In terms of dividend policy, again, I think our view is, as you know, our overall strategy is we feel this is a sustainable business at these kinds of levels. We'd like to grow our Private Banking Wealth Management business over time. But, as David said before, that's not a particularly capital intensive business to grow, but we'd like to grow it. It's a very cash generative model, overall, so our belief is that that's going to lead to significant potential to pay out those dividends over time.

Obviously, we'll have to look at it in the context of how the business is performing, and market conditions, etc. But I think that's our -- I guess it's just consistent with what we've said all along; I'm not sure we can get any more specific, but--

The only point I'd just add is more a technical point. What we said is not only that we returned significant cash distributions, but also once we pass the 10%, we will seize the dilutive measures we've taken in the past, in other words, issuing new shares for deferred employee compensation. So once we actually hit that 10% point, we will be looking to buy shares in the market to deliver to our employees in that sense, so that's just a small codicil to what Brady mentioned.

Thanks a lot.

Kinner Lakhani, Citi.

A few questions. Firstly, I wanted to start off with deleveraging, and just wanted to get a better feel for where the CHF69 billion of asset deleveraging at the Investment Bank is coming from. If you can maybe give us some more color in terms of asset classes?

On capital, my next question, in terms of how you think about the end state of capital ratios for CS, would you be running with a buffer over 10%, over time?

Just related to that, I saw the benefit from the Tier 1 participation securities increase from CHF2.3 billion to CHF3.1 billion; just wanted to understand the increase, wasn't sure about that.

Then also, if you could give us an update on the disposals, particularly in relation to the private equity funds. I did see the announcement on the ETF, but haven't seen anything on the private equity funds.

Finally, just on the macro business, slide 42, it seems like the revenue pull from macro has dropped from CHF2.2 billion in 2011 to CHF1.8 billion in 2012. Clearly, this is a business that, over time, you have invested in, and you have had some aspiration to bring it up to CHF3 billion of revenue. So just trying to get a feel for where you think you are in terms of macro.

Great, thanks very much. Let me take your second and your fourth questions, and then I can ask David to answer the others.

I think with regard to, as you say, the end state on capital, I think our general view is that in terms of the common equity, we probably will want to run some kind of a margin to the 10%, but I don't think it would be very large. Just remember on top of this we're going to have another 3%, which we've already put in place with the high trigger convertibles, and we'll also have some amount of low trigger. We're still looking at that, first on the business model and some other measures that we're taking.

As you know, the original proposal was 3% of high trigger and 6% of low trigger; we're probably going to have mitigating measures that will allow us to have a lower amount of low trigger. In any case, there's going to be a significant amount of contingent capital behind that as well. I think our view is, while we may want to run some small buffer on that, I don't think it will be very large.

With regard to the disposals in relation to the Private Equity Funds, they're actually going very well. As you say, we've announced the ETF sale; we did not announce the price or the proceeds, but we think that was a great buyer where the business will do well with, and we think that was an appropriate price, so that was good.

All the other funds that we have actually indicated that we were in the process of selling are all in the process, and at various stages in the process, but they're all proceeding very well. I think our view is that we will meet or exceed the targets that we laid out in the capital plan for those over the course of the next months. I think we feel very comfortable with the outcome of that. David, I don't know if you want to talk about--

Let me take some of the other points then. In terms of deleveraging, the total balance sheet reduction was about CHF99 billion, of which, as you say, CHF69 billion was actually within the Investment Bank. Of that CHF99 billion, just under half was in respect of the repo and prime service businesses, which are very balance sheet intensive. The balance would relate to other position reductions we took, both across the PBWM, in our central treasury usage, and also in the Investment Bank itself.

I think we're obviously pleased with the initial results of the balance sheet exercise. I think what we've been focusing on is a much greater alignment of the allocation of balance sheet to our client needs, and to our major clients, particularly within the Investment Bank. That really applies to both the prime service and the repo business, as well as the Investment Bank as a whole. We've seen some benefits from that already.

I think looking forward, in the course of 2013, we'll probably see some seasonable pickup in the requirements for that, which will partly mitigate the underlying decline in the balance sheet as we optimize it. So I expect to see rough stability over the first quarter or two and then a continued decline. We took the first measures and I think got good results out of that. We would expect to see further credits thereafterwards from that.

I think on the second point then, on the Tier 1 securities, or the Claudius securities, as they seem to get called. As you say, the capital credit increased from CHF2.3 billion to CHF3.1 billion, so if you look at the difference between the Swiss core capital ratio at 9.4% and the Basel core capital ratio at 8.4%, that's gone up by about 20 basis points from the third quarter.

That is related to a discussion we had with the regulator about the fact we can actually use the Claudius securities to actually offset some of the other deductions you have under Basel 3, so I think you know there's a limit on the amount of deferred tax, on NOLs you can actually take on, some of the other minorities. You actually get roughly 20% credit from Claudius as a consequence of that. It was a more advanced treatment of Claudius than we actually agreed with the FINMA. It doesn't affect the Basel 3 ratio; clearly, it does affect the Swiss core capital, it increases it about 20 basis points.

On your point then moving back to macro, I think a few points. I think fundamentally the rates business is, and the FX business, are actually quite heavily impacted by B3, through counterparty credit risk, which is a somewhat punitive add-on. And a lot of the focus we've had this year has actually been on novating and restructuring that business.

We are very focused on profit on a B3 basis, and that's kind of where we're heading with this. I would, though, slightly caution that clearly, the market environment for a rates business with a very flat and low curve, isn't that easy, frankly. This is a sort of business that would benefit from a steepening rates environment, which we're not seeing that the moment.

I think I'd look at the year-on-year performance and say, this probably is where you've seen some of the consequences of a Basel 3 transition, and what this actually does to it. I think it's an important business in terms of its counter-cyclicality, but I'd also be slightly cautious in terms of just the shape of the curve at the moment.

Very helpful. Just a quick follow-up on that, just on the capital side. Do you see any risk-weight inflation in terms of the Swiss mortgage book? And also, could you remind us of what you think would be the impact of the counter-cyclical buffer?

Yes, I think this is in reference to the discussions from the FINMA in terms of an add-on for the Swiss mortgage book in response to concerns, obviously, about the Swiss mortgage market. I think the point we'd probably make is we have a very strong and high quality mortgage book, and we've been very careful to maintain that in recent years.

I'll just put that a little bit in context. There will be an add-on, probably of the order of about CHF1 billion to CHF2 billion per annum for the PBWM division, but we would expect to be able to absorb that within our total RWA target for the Bank.

That's great. Thanks.

Jon Peace, Nomura.

I've got two further questions, please. One was on Group risk-weighted assets; David, I think you hinted about beating the target in the Investment Bank. I know your group target to the end of 2013 is less than CHF280 billion, but could it be much less than CHF280 billion, or will things like the mortgage add-on mean that you expect to be at about that figure?

And the second question was just with regards to the CHF1.1 billion of strategic disposals you identified as part of the capital plan back in Q2. How much of that was booked in 2012, so how is still to come in 2013? Thanks.

I think the intention is to reduce, as I said, the IB's dollar RWA number to less than $175 billion, which is about $12 billion less than the position we were at the end of the year. So I guess in Swiss franc terms, you're talking about roughly CHF11 billion. So I think everything else being equal, I think that would take you down from CHF284 billion down to about CHF273 billion.

That said, I think there are some add-ons in the PBWM business. I think you probably should take the guidance as face value. We'd expect to be at $175 billion or below for the Investment Bank, and to be at CHF280 billion or below for the Group.

I don't think I'd expect to be radically beyond that. I think we are getting towards the end of our transition, in terms of the Basel 3 risk-weighted process.

I think the second question then really is -- let me answer it slightly -- it's really the difference between the reported number and the pro forma number. We're expecting, in terms of disposals both of within the Asset Management division, but also some residual real estate disposals, plus the deductions relating to that, because, as you know, the capital actually gives us around a 20% add-on, because we can use their deductions more effectively, about CHF800 million of capital will be received by the time we actually complete all these different disposals. But I would just caution, and we're being a bit careful here in a sense, it does take a while to get the regulatory approval when we announce something.

I think you've seen the ETF sale. It will take time to actually announce and close the other things, so it's something you probably expect to see coming in over the first two quarters of 2013.

I think it's likely that, by the time we get to the end of it, we will actually simply beat the CHF1.1 billion target, but it will take some time to realize.

That's great. Thank you.

Jeremy Sigee, Barclays.

Just a couple of follow-on questions, please. Firstly, could you just talk a little bit more about the US tax case; just where that process stands at the moment and what kind of timing you expect any resolution?

And then second question, some of your peers commented a bit about the recent BIS paper, comparing market risk-weightings, and I just wondered if you would also want to comment on where you fell in terms of comparison of the risk-weightings?

Yes, sure. Thanks. On the US tax issue, yes, unfortunately there's not a lot new to say. It continues to, obviously, be an outstanding issue. It's a pretty complex issue, which involves government and a number of different banks, etc. We still have a hope, and an expectation, that we'll get it resolved at some point.

As you know, we've already taken some provisions for it. We'll see how it develops, but our hope and our expectation is still that we will get it resolved, but it's hard to put a timetable on it, or get any more specific about the outcome.

Is it fair to say that after an understandable delay late last year, it's now being dealt with more -- it's moving forward?

Well, you know, we've been working pretty hard on it for a long time, even through last fall, etc., and, obviously, working together with the Swiss Government, the US Government. So I think it's certainly something that people are focused on and, hopefully, we'll get a resolution. But it's really hard to actually -- it's just hard to predict. Sorry.

Okay.

David here; just answering your other points. I think on the ECBS review; it's an interesting paper. Clearly, focus really is on the RWAs total asset bases and then the RWAs trading asset bases, both for us and our peers, and then some of the other tests they did.

I think I'd make a few points. Firstly, the paper clearly is a mixture of B 1 reporters and B 2 and B 2.5 reporters, so there's a lot of different environments that are actually included in that paper.

If we look at the Group's total balance sheet, clearly, there is a substantial block of very low risk assets within prime services and repro, which tends to sort the total (inaudible) share.

If we look at the trading asset ratio, which I think you may recall was shown at about CHF279 billion, and if you look at the fourth quarter numbers reported here, it's down to about CHF256 billion of assets. Within that CHF256 billion, there is also a substantial element of assets which are either government guaranteed mortgages within the Securitas product portfolio; it's about CHF30 billion. There's also a block of, how can I put it, investment grade governance; I think that's the best way of putting it. So US Treasury, for example, which we hold as part of our rates business, and there's a block of prime service assets, which are also included in that, relating to the hedge fund business.

So a large chunk of that CHF279 billion is also very low risk in terms of the numbers you see. So that would tend to result in a lower RWA to trading asset ratio, all things being equal.

I think two more points I want to make. The first one is the combination of PAF1 and PAF2, and then the Plus bond we've just initiated for our employees, plus certain other internal actions around this, actually generate quite substantial employee hedges for the trading portfolio. Around about 5% of the assets, the trading assets on a B 2.5 basis; probably twice that on a B 3 basis.

So that would also tend to offset the RWAs trading asset ratio, because you have those hedges in there which reduce the RWA, but don't reduce the actual trading assets.

I think then the final point is just a more general point, which is, how does one assess the risk of this portfolio? I think you'd probably have to look at the number of loss-making trading days you've had, and we had none the third quarter, two in the fourth quarter, at a very low level. So I think the riskiness of this portfolio is generally low.

I think it's [an issue being] study. I think we probably expect to see more on this. I think, as Brady mentioned this morning, probably the harmonization we're most focused on is everyone going to B 3 on a consistent basis, but that still seems a while a way.

I think that was your first question.

Actually, sorry, can I just -- did those last two factors, so the PAF hedge and the low loss experience, did those result in you coming out at the low end on the standard portfolio exercise that the BCBS did?

That's a good question. I think, to be honest, I don't know how the standard models would interact with the PAF from the top of my head. I think we'd have to get back to you on that one, I'm afraid.

Okay. No problem.

There was one point actually, just to clarify. I think it was Jon's question really on strategic disposals. Let me just be clear.

What we are still expecting to book from strategic disposals is about CHF550 million of sales still to be made. On top of that, there's between CHF50 million and CHF100 million of additional real estate, so that gets you into the CHF600 million/CHF650 million level. You may recall, as you generate CET1, you get a benefit from deductions, which is typically about a 17% to 20% add-on. That gives you a total capital benefit from the real estate and the [AM] disposal, of about CHF800 million.

The CHF800 million is the number you see on slide 49, which is the difference between the reported and the pro forma numbers for our both CET1 and Swiss core capital numbers. I just wanted to come back on that, Jon, sorry, I wasn't sure if I was clear enough.

Christopher Wheeler, Mediobanca.

Just some questions on Wealth Management. First of all, just looking at slide 18 and your new update of KPI for the combined businesses, can I assume you've now dropped any kind of gross margin target? Or are you still running with your previous target on the Wealth Management clients? That's the first question.

And perhaps related to that, and we saw obviously from your big competitor the marked decline in the gross margin in Asia after a bit of a spike in Q3. Can you confirm whereabouts your gross margin is sitting in Asia? Is it around about the 75 basis points at the moment?

And then just turning again to Wealth Management clients, I think it was 22.2% was the pre-tax margin. Now some 21% of your assets under management are in the Americas. If you strip that out, could you give us a clue as to what the pre-tax margin would look like if we never had the US business, so we can get a bit more of a comparison against UBS? Thanks very much.

I think on the first question it's a relatively easy answer which is, we actually never had a KPI which was gross margin. We had given some guidance in the past from time to time, but we didn't have a KPI that was gross margin, and we don't now.

I think maybe you gave one at the Private Banking Day back in '09, Brady. I think it was [110% to 120%] or something like that. But anyway, it doesn't matter too much.

Yes, just from a KPI point of view. We've obviously talked from time to time and I answered that sort of -- I don't know how good an answer you thought it was, but we obviously talked a bit about the different factors on gross margin which continue to affect it.

I think in terms of the gross margin from a regional point of view, we don't actually provide a lot of guidance on the differences between the regions. It is the case that, for us as well, Asia Pacific is a little bit -- is lower than the average in terms of gross margin. But we haven't really got into a lot of detail around that. And, again, our objective in all these markets is just to try to grab higher gross margin. So that's really our approach on it.

The question on -- I don't know, David, can we answer that question on the US, if you took the US out of -- ?

We can probably only -- all I would really say is that our US business is not profitable in its current shape. It's not substantially loss making, but it is not profitable in its current shape. And clearly, one of the goals of the PBWM division is to drive synergies and benefits from that division to improve it overall. But, at the moment, it would be dilutive to the overall numbers that you see.

Okay, thanks.

Robert Murphy, HSBC.

The first question, just on the Wealth Management and the cross-border assets. Can you remind us roughly the quantity that could be at risk of outflow there, where we stand right now? Because you seem to be implying something like -- anything between CHF10 billion per annum and CHF20 billion per annum outflow, given your change in guidance on the overall inflows.

And then on the slide 45, just a couple of quickies there. First of all, why are you including the CHF400 million of realignment costs in the '15 expense base? I thought you would have taken that out maybe.

And then, secondly, the infrastructure costs, should I assume that those are roughly apportioned pro forma between the Investment Bank and the Private Bank Wealth Management businesses? That was it, thanks.

Thanks very much. I think, on the first question, as you saw, we basically disclosed the Western European cross-border outflow is a little bit under CHF7 billion for 2012. I think it's obviously hard to project that. I think our view is that, if anything, it should be going down over the next couple of years, but there still will be outflows. So that's why we obviously had a fairly broad range of estimates when David talked about the net new asset target of 5% to 10% outflows for some time.

So in terms of that specific item, over the next two years to three years, hopefully, you're looking at numbers that are more like in total, CHF10 billion, CHF15 billion, something on that order. But obviously, it's a little hard to precisely estimate, but we certainly wouldn't expect that per year.

But I think for the total over the next two years or three years, as it hopefully works its way out, maybe a total number of CHF10 billion to CHF15 billion would probably be, maybe maximum CHF20 billion, over that period is something that we think could be in the range of expectations.

To be clear, the CHF6.9 billion we saw last year is about a 6% of the total cross West European assets. So as far as the 10% guidance is, I think it intends to say we'd expect (multiple speakers).

I think your second question then was actually on slide 45 in terms of total cost number. The answer is what we wanted to give here was the total costs, including variable comp and realignment. And we're assuming we'd have about CHF400 million of restructuring costs in 2015. And that would be a cost we'd actually take. When we reported at third quarter we tried to give the numbers cleaner there. And I think we found that, probably got feedback, that was a bit confusing.

So we just wanted to give you a total cost. But, yes, the CHF18.3 billion number would be the total, and then the CHF0.4 billion would be the restructuring cost we'd actually taken in that year. Just a caution though, that is assuming flat revenues, flat variable comp, and no change in FX. So the number assumption is there.

Does that actually -- ex the variable comp, have you allowed for underlying inflation in the cost base there? Or is that done on a today's money basis?

We're not seeing that much inflation. It's included in our -- we're not seeing much inflation. And I think you'd assume whatever we see is included in that. Clearly, part of what we're doing, obviously, is looking at purchasing synergies, and things like that. So there's deflation in some of our purchasing.

In terms of allocation of infrastructure, we've not really given it. It's somewhat biased in favor of the Investment Bank because they have a number of functions, such as product control, market risk, which are actually sitting in this function and actually support the Investment Bank, but don't have so much to do with PBWM. So if you think 60%, 70% Investment Bank, the balance of PBWM, you're in the right ball park.

Great. Thanks very much.

Stefan Stalmann, Autonomous.

Three quick questions, please. First slide 24, could you indicate whether FX and commodities are actually losing money?

Second question, if you look at the [thick] macro revenue line that you report, could you give a rough indication of how much of that is FX? And how much is other macro?

And the final question; you mentioned that the amortization of deferred compensation is going to drop off in 2013. Is that part of your CHF4.4 billion cost-cutting target? Thank you.

I think in terms of FX and commodities, no, they're not unprofitable. So this is obviously the question of the returns as opposed to profitability. So no, they aren't profitable but obviously, they are lower-returning than we would like them to be. So that's clearly part of the overall initiative is to increase those returns, either by increasing market share, or making the business more efficient and pushing it towards the right. In terms of the macro level, FX versus rates --?

Well, I guess last year FX revenues would be approximately 30% of the total and rates would be the balance, I think, to give you some help in that sense. And I think your final question was then on -- sorry, could you remind me, Stefan?

Sure, yes, the drop-off of amortization of deferred compensation. I think you mentioned CHF700 million for 2013. Is that part of your cost-cutting plans?

The answer is in the -- for example, the increase in the cost savings from CHF2 billion to CHF3.2 billion, the CHF1.2 billion, it does contribute to that, but I just recall that that was a normalized number adjusting for PAF2. So you see the PAF2 adjustments on 45. The PAF2 essentially reduces deferred comp, so you'd probably expect around about CHF400 million to be included in the cost, but about CHF300 million, basically, is the PAF2 reduction. Sorry, that's a bit arcane, but that's how it works.

That makes sense. Thank you very much.

Andrew Stimpson, KBW.

The first question would be on the US RMBS litigation. I was just wondering what -- there didn't seem to be any big tick up in the provisions you made against that in the fourth quarter; maybe I missed a bit. A lot of your competitors did tick up. So I'm just wondering if that's something that you see -- that we should expect to come through in 2013.

And then, secondly, I'm just wondering what your plans for the low trigger CoCo issuance are and whether you guys really need to build up that issuance quicker in order to not get any hassle from the regulator on paying your dividend, or whether we should think of those two as completely separate. Thanks.

I think with regard to the mortgage litigation in the US, we obviously do have some outstanding issues. Naturally, we feel like we're adequately provisioned for them, and we have a lower profile, I think, than many of the other players in the market. We didn't have any actual portfolio lending; we didn't have lending within the firm; we didn't have any exposure to a lot of the servicing or the robo signing issues, etc.

So we've actually had, I think, a generally lower footprint on those issues, but we do clearly have some issues outstanding. But I don't think that we saw anything that happened in the fourth quarter that made us feel that there was any dramatic need to change the provisioning. We still feel like we -- we continue to feel like we acted fairly responsibly through the crisis period.

We reduced our originations in 2006 while the market was going up dramatically, and so we hope that that's going to play out as higher-quality product was originated and we'll see. But, in any case, we obviously feel that we're adequately positioned on that. In terms of the plans for the low trigger, I think the good news is that we feel we could raise it whenever we want to and there'll be plenty of demand.

So we think we could easily raise that whenever we need to, so the market is certainly available. I think right now we -- I don't think -- clearly we believe we'll be at our 10% core ratio. We've got virtually the entire 3% of high trigger in place already. That puts us, I think, in a very strong position.

So I don't think that we view that as necessary for any of the other things that we talked about but, over time, we'll obviously think about it and look at the market conditions and whether we need it. But I don't think we see any immediate need to raise that.

Okay, great. Thanks. Just one other question. I know in the press conference call you guys said 6,000 staff have performance clawbacks in their contracts. I'm just wondering, are you guys able to quantify what proportion those 6,000 have as a percentage of total comp?

Well, it's our most senior people, so it's mostly managing directors, directors. So that would be a high proportion of -- what's that?

It's deferred comp.

Yes, it's deferred compensation, but it's a substantial proportion of the deferred compensation that's out there and it's a substantial proportion of our staff. So yes, we've probably had that in place for the last three years.

And, again, as was mentioned before, I think in terms of the compensation structure, we've actually continued to do what I think are good things for our employees, but also very good things for the Bank in terms of reducing risk, etc. David outlined some of that. But, again, this year we have the Plus bond which helps to offset some of the risk in some of our businesses and contribute to our RWA reduction goal. So I think it's a good way to do that.

Okay, great. Thank you.

Dirk Hoffmann-Becking, Societe Generale.

Three questions. First of all, over the last, I think, about eight quarters you've increased your cost reduction target [by] roughly CHF5 million each quarter. It's a nice tradition. Shall we think, going forward, that you're working hard to maintain that tradition, or is a 30% operating margin in IB and 35% in PB pretty much as good as it gets?

The second question is on cash to equity shift in the allocation of high net worth customers. You said cash allocations have gone up again. How shall we think about it, say, to put numbers on it? If we have another six months of buoyant equity markets, are you going to expect a material shift, or are you thinking this is more of a long-term multiyear event?

And the last point is foreign currency translation headwinds have gone up to, I think, CHF12.8 billion this quarter. If these abate, how shall we think about the windfall capital? Would you regard that as distributable capital? Does it go into your dividend decision, or would you regard this as money you should probably hold until the exchange rate has fully stabilized?

Okay, Dirk, thank you very much. I guess maybe I'll answer the middle question and David can address the cost question and the foreign currency question. I think with regard to the cash proportion, we haven't really seen it -- I couldn't tell whether you're saying it was going up or we were seeing a shift out of cash into equities.

I think, if anything, we've seen it gone down slightly but, basically, it's been fairly stable the last couple of quarters at around the 30% level. So we haven't really seen it -- it hasn't gone up in terms of the proportion of cash, but it hasn't significantly come down either and so, as you say, our hope is that, over time, people will get more comfortable if the environment's more stable and we will see more of that coming out of cash. But I would say it's been fairly sticky, so maybe we'll see it, maybe we won't; that remains to be seen.

Okay.

Yes, the comment we made in the speech was really round the full year numbers, and you may recall we actually said this in the first couple of quarters, that we'd seen a shift towards fixed income instruments, at that point. So that's the comment in terms of the impact on recurring fees.

In terms of the cost reduction process, I think predominantly we're actually focused on making sure we achieve these goals, because I think there's a number of things we need to do to get there. I think we've made very good progress in 2012.

Clearly, the precipitating event really, in the last quarter, was the formation of the PBWM division, which triggered the bulk of the additional cost savings we're looking for here.

So I think it follows from that. Other than that, I think the total probably would be about that sort of level. So I think our focus will be, 70% cost income ratio for the Group, 70% for the IB, 65% for PBWM, and also, just for the record, reducing loss within the corporate center as well to contribute to the overall numbers. But I think at the moment, it's probably our best estimate, we see things as we see at the moment.

On the FX translation, in the past we've essentially run virtually neutral, on a dollar, Swiss franc basis, in terms of the equity, to match our distribution of risk-weighted assets across the Bank. And I think that's still likely to be the case, although we'll probably shift slightly more in favor of shareholders' equity distribution, now we've completed the Basel 3 transition.

But I guess mathematically, if we were to see, I don't know, a very sharp rise in the US dollar, then we would see an increase in the Swiss franc RWAs on consolidation. So therefore, the ratio would be approximately neutral, depending what the exact position we're actually running.

So given we're targeting a 10% Swiss core capital ratio, it shouldn't really change the mathematics for our distribution.

So that's the point I'd really make. Clearly, the other, just whilst we're actually on FX translation moves, there is a marginal benefit that we should get from a weakening of the Swiss franc against the euro, because as you may recall from a couple of years ago, we actually have less Swiss franc revenues than we had Swiss franc expenses, because there is essentially, obviously, the PB Wealth Management business has an awful lot of resource focused in Switzerland, and Swiss franc denominated, but actually works and books in both Swiss francs, euros, dollars and other currencies.

So the euro, Swiss franc is not unimportant in terms of the economics of the PBWM division.

Okay. Thanks a lot.

Andrew Lim, Espirito Santo.

Got three questions, please. Firstly on the hybrid equity, referring back to slide 50, I'm just trying to figure out what is the absolute amount of low trigger CoCos that this represents.

And then, just trying to gauge the impact from high interest costs. What can we think about that there, and to what extent could that be offset by interest costs being lower from [equity] hybrids, that run off, or other savings perhaps on the asset side. You've got obviously, interest that can offset that cost there.

And then secondly, just on the asset management side, you've obviously had a CHF200 million increase in your fee based revenues there. Could you give more color on how that's achieved exactly? To what extent is that sustainable, going forward? And just trying to figure out what the quarterly run rate there, on the asset management revenues.

And then lastly, on the Clariden Leu outflows. You've obviously had outflows this quarter again, whereas previously I thought you said that had come to an end. Could you give a bit more color there, and whether we should expect further outflows? Thanks a lot.

You take the hybrid equity, and --

So I think actually, probably the last point might be the easiest one. Just to be clear, the Clariden Leu outflows were in the first and second quarters of 2012. They slowed to a trickle I think, in June, it was CHF200 million, and likewise July, and there haven't been any outflows since.

The business is now fully integrated, so I wouldn't want you to get the impression there'd been any outflows from Clariden Leu in the fourth quarter, or anything like that. The outflows we saw in the fourth quarter were really related to the Western European cross-border flows.

I think on the issue of low trigger CoCos, and the FINMA glide path, I think really relates to slides 50 and 51. 50 actually lays out the requirements under the Swiss law for the total capital of the Bank, and then slide 51, which has probably too many equations on, is intended to actually show how that actually converts to the leverage ratio.

But let me just think about it in the components. So if we look at the total capital ratio, so we've been informed -- this is on page 51, I think you know that the Swiss law basically lays out a requirement for G-SIFI to be at 19%. But that is calibrated to both leverage the RWA, and also to certain other factors, such as the critical ongoing businesses in Switzerland, which actually relates to that.

So for example, so our initial conversation really, in terms of where that it, if we were fully in the 2019 regime, which we're obviously not, then we'd have to be at 17.9%, although with the balance sheet reduction has probably going to go up to 17.5%. Clearly, that's an ongoing issue because it relates to some of the recovery and resolution discussions.

But essentially, the relevant capital ratio for us today would be 17.9% under that. And that has to be satisfied through a mixture of, obviously, Swiss core capital, which you can see as the 10% number at the top. And clearly, on our pro forma basis we're at 9.4%.

Then the high strike, high trigger contingent capital, which between what we've issued already and what we'll convert in October, will be at around about the 2.7%/2.8% of that 3%. So very close to the kind of 3% requirement we need, because you've got about CHF8.2 billion of capital coming through.

That then leaves the low strike bucket, so therefore, at this point, in order to complete that, we have to issue, by 2019, 4.92% of low strike capital, which on a CHF280 billion of risk-weighted assets is about just under CHF14 billion of low trigger CoCos.

So that's, as the mass, as it stands today. Now that mass can change in the sense that the balance sheet and our reductions [for planning] should actually bring down the Swiss total capital requirement.

As I said, some of the [resolvability] arguments can also be given, discounts that. But that's where we are at the moment. So everything else being equal, we would need to complete our capital plan [of about] CHF13 billion of low trigger CoCos to be issued over the course of the next six years.

Now cost for that, I don't think -- you can see the numbers in the market. I think clearly, the low trigger CoCo market has continued to mature; it's become much more popular and widespread instrument in the last few months. And I think that's something we welcome and respect. It's obviously a couple of years now since we did the initial high trigger transactions, almost exactly two years ago.

We've actually repurchased about CHF10 billion of capital instruments, most of which are B 1, B 2 old capital instruments, plus a bit of senior debt. I think as you may recall that generated about CHF1 billion of capital towards the capital measures you see reported today. We do have some still to run off, and we'll look to retire that in due course. But I think there's probably some savings to come from that. I don't think we're going to be stuck with too much inefficiency between the two.

I'm not sure I can probably give an update on the low trigger cost. I think, in the past, we said we didn't expect to be that much different to the costs of our former capital regime -- [I think Brady] would be able to give you a better analysis of that, going forward.

But there's a number of technical points there relating to slide 50 and 51. Perhaps before we continue, is that helpful at all, Andrew? Sorry, is there anything else I could --?

Yes, that's helpful. Sorry, could you confirm the amount of ineligible hybrids that remain, that you could repurchase, going forward?

Not off the top of my head, no. It's not a large amount basically. Because clearly, a block of it is essentially about CHF4 billion, relates to the -- will be converted this October into the high strike CoCos anyway. But we can get you the number and revert.

All right. And then your glide path for the leverage ratio and so on; the denominator there is assuming CHF900 million on the asset side, or that the RWAs remain constant, that CHF280 million. Is that what you're using there?

Slide 50? Are you referring to slide 50?

That's right, yes.

That's actually just the requirements as laid down under the Swiss law, so it's the regulatory requirements.

In essence, the way it works is the mass are at about 17.9%. You need a total exposure about 1.17%; that's composed of the 10%. So if you take CHF280 million risk-weighted assets, CHF28 billion of equity, plus the high strike CoCos of CHF8 billion, plus about CHF13 billion for low strike, that gets you to a total of about CHF49 billion; that's how you get to the ratio.

Got you. Thanks a lot for that.

Then just to finish up your question on asset management, yes, there was a nice increase in fees in the fourth quarter; some of it's just seasonally related; Hedging-Griffo and York both contributed to that. Part of that's seasonal, but also they had good performances during the year. It also includes placement fees in that business, which was also strong in the fourth quarter; so all of those.

And I think all representative of the continuing focus towards performance fees, towards fees in general in the business, and increasing the proportion which I think was good in the fourth quarter. Okay?

Anton Burgard, Natixis.

I have only two small questions. Regarding Claudius notes, my understanding is that you authorized to include them in your core capital 'til 2018. Do you plan to replace them by common equity 'til 2018?

And second, you say that you expect to make significant cash returns after you look-through core capital exceeds 10%. In this 10%, do you include your Claudius notes or not? Thanks.

I think on both those points, Swiss core capital as defined includes the Claudius notes, and I think that was the securitization; that was the introduction question I think somebody asked before. So clearly, it's 10% including, i.e., the increase from 9.1% to 9.4% to 10% that covers that.

I think it's very likely that, over the course of the next five years, as Claudius becomes due for redemption, we will actually purchase that back and replace it through common equities we accrue over time. But I wouldn't see that as a particular constraint in terms of what we're talking about, in terms of our significant cash distributions.

Okay, that's clear. Thank you.

Okay, thanks very much. I think that was the last question; is that right operator?

Yes it is, sir.

Okay, well, maybe just thanks to everybody for all your questions. I know it's taken a little time, but just to leave you with our key points.

Again, 2012 was a year of transition for us at Credit Suisse. We do feel like we've done a lot of the heavy lifting to come into 2013 with a reengineered business that's going to be able to do very well in the new regulatory environment.

We've transformed our businesses in 2012, lowered the cost base, increased the capital base, reduced risk, reduced risk-weighted assets and notional balance sheet. And through all that we managed to maintain our market shares and actually drive additional momentum on that side, and achieved pretty good results in the fourth quarter and in the full year, with 9% return equity in the fourth quarter, 10% for the full year.

So we continue to feel that the actions we've taken and what we've done enable us to achieve our goal of 15% return on equity through the cycle.

We do think the industry still faces substantial restructuring to come. We feel like we're ahead of the curve on that, and we have a business model in place now that's stable, it's high returning, and well fit for the new regulatory environment.

So we're convinced that the capital efficient business model that we have is going to continue to deliver strong and consistent revenues across the businesses, operating on a lower cost base, bringing more to the bottom line; and that we're going to continue to be very well-served to be able to actually build our client franchise, drive further market share gains, and deliver very good returns to our shareholders.

So thanks very much for your time and your attention, and have a good rest of the day.

That does conclude today's conference. An email will be sent out shortly advising how to access the replay of this conference. Thank you for joining today's call. You may all disconnect.