Credit Suisse Group AG
Q2 2015 Earnings Call Transcript

Published: 23 Jul 2015

Operator:

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group’s Second Quarter 2015 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 Mr. Christian Stark, Head of Investor Relations of Credit Suisse. Please go ahead, Mr. Stark.
Christian Stark:

Good morning and welcome to our second quarter results call. Before we begin, let me remind you to take note of the important disclaimer on slide two, including the statements on non-GAAP measures and Basel III disclosures. I now turn it over to our CEO, Tidjane Thiam.
Tidjane Thiam:

Thank you. Thank you, Christian. Welcome, and thank you for joining our second quarter 2015 analyst call, which is also my first call as CEO of Credit Suisse. I am delighted to be here. I have received a very warm welcome at Credit Suisse since I started three weeks ago almost today. In a moment, David Mathers, our CFO, will give you a detailed presentation about our quarterly performance. Before handing it over to him, I would like to say a few words about the quarter. And, of course, it goes without saying, but I cannot take credit or actually blame for the results achieved this quarter. After a few words on Q2, I will share a few impressions and thoughts on my first weeks at Credit Suisse and my approach as we move forward. So, first, a look at the second quarter. Credit Suisse reported improved profit overall. We saw a particularly strong year-on-year performance in Asia Pacific, where the collaboration between our Private Banking and Investment Banking franchises works particularly well and where we have been able to translate our strong market position in Private Banking into higher revenues for both of private bank and investment bank. In the Wealth Management business, we saw improved performance and generated a good return on regulatory capital as a few initiatives are bearing fruit. For instance during the quarter, we launched our new advisory offering, Credit Suisse Invest in Switzerland following the Asia Pacific launch of a digital and private banking platform in the first quarter. Profitability in our asset management business, although higher than in the first quarter, was lower than a year-ago due to the sale and restricting measures taken in the fourth quarter of 2014 in that business, and David will provide you shortly with more details on this. Moving on to net new assets, net new assets in the division remained strong driven by inflows in key growth regions and underscoring the trust our clients place in the bank. Investment banking revenues were driven by a higher performance in equities, which I’m sure you’ve noticed particularly in Asia Pacific and in advisory. And M&A market activity continue to increase along with our share of wallet. However, these good results of Investment Bank were offset by weaker fixed income performance and a higher expense base. Moving from investment bank to globally our capital and leverage, I am pleased to say that we saw continued progress on both. Regarding capital, our look-through CET1 ratio stood at 10.3% at the end of the quarter, up from, you will remember, 10.1% at the end of last year. In 2Q, we benefited from solid profitability and also a higher takeoff than assumed for the 2014 group dividend. Moving from the capital to leverage, we achieved over $80 billion in leverage reductions in Investment Banking, $81 billion exactly I think over the first half, and we remain on track to meet our year-end targets for Investment Banking of $620 billion to $600 billion. And with that, allow me to share first quick impressions with you. I believe Credit Suisse has a solid foundation on which to build. We have one of the oldest and best brands in banking. Our ability and the opportunity to comparing world-class Private Banking and Investment Banking capabilities for the benefit of clients remains a powerful differentiator. I have begun to work closely with the leadership team to evaluate how to best take the bank forward through an in-depth strategic review. During my first three weeks, I have had a number of meetings with investors, with our staff, with regulators and with customers, and it’s clear to me obviously that everyone is eager to hear about our new path. I can assure you that we are working diligently to make clear proposals to our board of directors and ensures that the necessary decisions are taken and that a clear and unambiguous direction is set. As we are still in this analysis and evaluation phase, it is too early for me to comment on specific strategic options. But I can give you an indication on our timing, and share the underlying principles of that are guiding us in this process. Before the end of the year, we will set out a strategy, but we’ll ensure that we can achieve profitable and sustainable growth for the long term, and deliver a significant value to our customers and to our shareholders. We will look to optimize our portfolio of businesses to generate excess capital and maximize value for our shareholders through an economic cycle. The clear area of focus will be choosing how and where to invest our capital and resources. I have said we would need to be ruthlessly selective about what we do and what we do not do and I stand by that statement. In addition, we will maintain a strong focus on costs. The way I’d look at cost as with my engineering background is that there are mainly two types of cost, variable and fixed and the main way to bring cost down sustainably is to take out fixed cost, vary by switching off or closing down activities allocations. We will be looking at various options to achieve that as part of the strategic review. Going forward, our focus should be on businesses that constantly exceed the cost of capital. Our business models should ultimately be capital light, be cash generative and produce less volatile resource than today. In terms of geographic footprint, we will continue to place a strong focus on Asia and other emerging markets, but without neglecting more developed markets of course. And we will invest where we see profitable growth potential. I know that the expectations on me, on the leadership team and the bank are high and that the road ahead will not always be straight or easy. However, be certain that we, our employees, our Board of Directors, the management team, and I are fully committed to devoting all of our energy to ensuring profitable and sustainable growth for Credit Suisse. Thank you for your attention. With that, I will hand it over to David who will now discuss the Q2 results in a little more detail and I’ll come back after that to wrap it. David?
David Mathers:

Thank you, Tidjane. Good morning. I’d also like to thank you for joining our second quarter 2Q 2015 earnings call. I will go into further detail around the results later in the presentation. But overall, as Tidjane has summarized, we delivered improved profits year-on-year with continued progress on our strategic initiatives across both of our divisions. In the quarter, we achieved group pre-tax income of CHF 1.6 billion, driven by continued momentum across our Private Banking & Wealth Management division, and our Equities franchise. The group’s pre-tax income includes CHF 0.4 billion of profits from the Asia Pacific region, an area of focus, where we’ve seen sustained growth as evidenced by the quarterly pre-tax income increasing by 150% year-on-year. If we look briefly at the Private Banking & Wealth Management division, our strategic pre-tax income improved by 13% from the year-ago period, primarily driven by strong net interest income and increased client activity during the quarter. A particular note, our mandate penetration increased to 20%, up from 17% for 2014, following the launch of Credit Suisse Invest at the end of the 1st of April this year. Our Corporate & Institutional Clients business also delivered improve profitability, with pre-tax income up by 16% compared to the second quarter of last year. Within Asset Management, our pre-tax income was higher compared to the first quarter, but 14% lower than the year-ago period, reflecting the sale of private equity interests and restructuring measures taken in the fourth quarter of 2014. If we look at strategic net new assets, we achieved CHF 15.4 billion in the quarter, equivalent to a 4.2% annualized growth rate within the Wealth Management Client businesses. The strongest performance was in Asia Pacific, which generated CHF 6.3 billion of this total. In terms of the impact of regularization on our net new assets, we have seen a slowdown in outflows, which totaled CHF 1.5 billion in the quarter, of which CHF 0.6 billion relates to our strategic business lines. The regularization of assets remains an important area of focus for Credit Suisse. However, given the progress we’ve achieved over the last few years particularly in Western Europe, we are now revising down our estimate for outflows from regularization to below CHF 10 billion for the full year 2015 compared to our previous guidance of CHF 10 billion to CHF 15 billion for the full year. In terms of costs, we continue to demonstrate discipline, with a cost-to-income ratio of 67% for the quarter. Overall, we achieved strategic return on regulatory capital of 26% in the Private Banking & Wealth Management division in the second quarter. So, if I turn to the Investment Bank, our strategic revenues declined by 1% year-on-year in U.S. dollar terms. Equity revenues increased by 12%, driven by significant growth in Asia Pacific, particularly in equities derivates, as well as by momentum in prime services. We also saw a rebound in advisory performance, with revenues increasing by 22% compared to the second quarter of 2014. However, our fixed income results declined as a weaker environment for our credit and emerging market businesses offset sustained growth in securitized products and increased client activity in our macro businesses. Strategic Investment Bank expenses increased by 6% in U.S. dollar terms due to continued investment in our risk, regulatory and compliance infrastructure, litigation and revenue-related expenses, as well as some increase in indirect taxes. As a result, our strategic investment banking pre-tax income declined by 18% in U.S. dollars from the year ago period. And we delivered our strategic return on regulatory capital of 16% this quarter. In terms of the group’s capital position, as Tidjane mentioned, we achieved a look-through CET1 ratio of 10.3% at the end of the second quarter, up from 10.1% at the end of 2014. The investment bank made continued progress towards its year-end leverage exposure target and has achieved $81 billion of reduction so far this year. The group’s leverage exposure stood at CHF 1.06 trillion, and that results in a Swiss total capital leverage ratio of 4.3% and a BIS Tier 1 leverage ratio of 3.7%. And I think that means we’re exactly on track to achieve our year-end targets. Next slide, please. In the second quarter, we continue to deliver on the key initiatives across our businesses. We’ve made further progress in wealth management clients in the quarter as evidenced by growth in pre-tax income of 14% for the first half of 2015 compared to the year-ago period. This was driven by a number of factors including the increased momentum in net interest income year on year and increased focus on our ultra-high net worth individuals, and the successful mitigation of the change in the Swiss interest rate environment in response to the SNB’s announcement in January to remove the minimum exchange rate between the Swiss franc and the euro. We’ve continued to expand our lending program to ultra-high net worth individuals and we’ve extended CHF 7.7 billion of net new lending in this segment since the start of 2014. Furthermore, as we mentioned last quarter, we’ve launched our new advisory offering, Credit Suisse Invest, which is focused on improving flexibility and transparency for our customers. Since the launch, we’ve gathered momentum, we’ve mandate penetration, increasing to 20% concerning the positive reception for our efforts. In addition, our cost measures have resulted in a reduction in the cost-to-income ratio from 71% in the first half of 2014 to 69% in the first half of this year. If we turn to the Investment Bank, the reduction of leverage exposure remains a key objective for the division, and we’ve reduced the exposure by $81 billion in the Investment Bank or 11% since the end of last year. So far, we’ve achieved this with only a limited adverse impact on revenues. Since our mitigation efforts have focused mainly on non-strategic reductions, as well as clearing and compression initiatives. We remain very much on track, therefore, to reach our leverage exposure target of $600 billion to $620 billion by the end of this year. However, I’ve warned, as I have said in the last two quarters, that we may see some adverse revenue impact as we implement the remaining initiatives in the balance of the year. I’d like now to turn to the Asia Pacific region, please, on the next slide. Asia Pacific remains a primary driver of growth for both of our divisions. We saw our pre-tax income double since the first half of 2014. This increase in APAC profitability has been driven by integrated coverage model, price collaboration between divisions and businesses, and strong client franchises across our key markets. In investor bank in Asia, our pre-tax income benefited from the strong performance of our equities franchise across multiple products, which we distribute through the private bank, as well as through a number of external third parties. Initiatives such as share-backed lending have also continued to drive growth in the region. Just turning to the private banking and wealth management business in Asia, we’ve also seen a substantial growth in profits, reflecting the sustained benefits from the various initiatives we have underway. Our focus on entrepreneurs has continued to generate momentum in net new asset growth in Asia Pacific, and we saw a 13% increase in net new assets in the first half of the year. We’ve continued to expand ultra-high net worth lending in Asia, and this has increased by CHF 2.8 billion from the start of 2014. And this has clearly contributed to the segment’s shares of assets under management in the ultra-high net worth space increasing to 65%. And that also reflects the close collaboration between the investment and the private bank in this region. I’d also note that we’ve made significant efforts to increase our footprint and our coverage in the region by relationship management recruitment. And we’ve seen fee-based revenue per average manager, so we’ll try and see growing by 21% during that same period. So we’ve invested to expand the number of managers, and we’ve also seen a significant improvement in productivity in the region. As a consequence, we received numerous industry awards in the past year. Notably, the Outstanding Private Bank for Ultra-High-Net-Worth Individuals from Private Banker International, and Best Asia Pacific Investment Bank from Asset Asian Awards. So I’d now like to move to slide 8, please, for a more detailed summary of the financial results. In the second quarter, our strategic businesses delivered revenues of CHF 6.8 billion, with a pre-tax income of CHF 1.8 billion. Our strategic cost-to-income ratio was 73% for the quarter and our after-tax return on equity, 14%. In the first half of the year, our strategic revenues reached CHF 13.3 billion. Our strategic pre-tax income in the first half was CHF 3.6 billion, with a cost-to-income ratio of 72% and an after-tax return of 13%. In terms of net new assets, we saw continued growth with strategic inflows of CHF 15.4 billion. In the first half, we achieved total inflows of CHF 33.8 billion in our strategic business lines, and this is primarily driven by Wealth Management clients and Asset Management. On a total reported basis, we achieved pre-tax income of CHF 1.6 billion in the quarter and CHF 3.2 billion for the first half of the year. Our reported net income was stable at CHF 1.1 billion, equivalent to an after-tax return on equity of 10%. For the first half, our reported net income was CHF 2.1 billion, which also resulted in an after-tax to return on equity of 10%. So I’d now like to review the Private Banking & Wealth Management results in more detail, please, on the next slide. We look at the results of the division, you can see that the strategic businesses achieved a pre-tax income of CHF 1 billion in the quarter, 13% up year-on-year and 7% ahead quarter-on-quarter. This quarterly result is largely driven by 5% growth in revenues year-on-year as we benefited from improved net interest income. We also saw continued momentum in client activity in both the Wealth Management Client and Corporate & Institutional Client businesses, or CIC. And together, this has offset a weaker performance in asset management, which results from the sale and restructuring measures that we undertook in the fourth quarter of 2014. Operating expenses in the strategic business increased by 2% compared to the second quarter of last year, reflecting higher variable compensation accruals and higher head count, including particularly an increase in our number of relationship managers in Asia Pacific. Return on regulatory capital for the strategic businesses were 26% in the second quarter, and that’s applying a 3% common equity Tier 1 leverage ratio. And that compares to 25% in the prior year quarter on an equivalent and consistent basis. Let me now turn to Wealth Management Clients, please, on slide 10. Our Wealth Management Client business had a good start to the year, and that momentum continued in the second quarter. The business delivered a pre-tax income of CHF 669 million the second quarter, an increase of 18% year-on-year. The return on regulatory capital of the business in the second quarter of 29% and that compares to an equivalent return of 27% in the second quarter of last year. Our net revenues increased by 9% year on year with net interest income growing nearly 20% reflecting the cumulative benefit of our ongoing lending initiatives, increased volumes and loan margins. Our transaction activity increased by 10% reflecting the uptick in client activities so far this year. And the improved performance in net interest income and transaction revenues fairly more than offset lower income from our reputation portfolio. Now if we look at the recurring revenues compared to the first quarter, recurring revenues increased following the launch of Credit Suisse Invest. This improvement benefited from the increase of our mandate penetration to 20% and that’s up from 17% at the end of 2014. If we compare this to the same period last year, recurring revenues headline terms declined, that reflects an estimated CHF 15 million impact adverse from regularization and client mix shift and CHF 10 million from the change of management of funds from Hedging Griffo to Verde Asset Management in the fourth quarter last year and which we’ve discussed in prior quarters. So, if we adjust with these two impacts, our recurring revenues improved by CHF 14 million year on year, and that reflects the aforementioned improvement from mandates that we’ve talked about already in the second quarter. Our operating expenses increased compared to the second quarter of 2014 and as we said before, that primarily reflects high variable compensation cost in line with the improvement in the first half performance. Now I’d just like to alert everybody to a technical note relating to a structural change in our wealth management business which will impact our disclosure from the next quarter onward. Will effect from July the 1st, the Swisscard Credit and charge card issuing business will be deconsolidated from Wealth Management Clients. Now this deconsolidation does not impact or reflect Credit Suisse’s economic interest in this business, which remains at 50%. And as a result, there will be no impact from this change on the net income at the group level. However, you will see from the third quarter onwards, that there will be a reduction in pre-tax income in Wealth Management Clients which is matched by an equal and offsetting reduction in the minority interest charge at the group level below the line. For further details, I’ve included a slide, slide 38, which outlines this. Let me turn now to slide 11 and look at margin trends. In the second quarter, the Wealth Management Client business achieved a net margin of 31 basis points, up by 3 basis points from the second quarter of last year, and up by 1 basis point from the first quarter 2015. The gross margin was 102 basis points, up by 3 basis points year-on-year and up by 2 basis points from the last quarter. And I think as we discussed already, this increase was driven by the significant improvement in net interest income. Transaction and performance-based revenues were also higher year-on-year largely due to the increase that we’ve mentioned already in client activity in the first half of 2015. We also benefited from the annual dividend payments from our equity participation in the fixed group which contributed CHF 20 million. Quarter-on-quarter, we saw some decrease in transaction and performance-based revenues returning to more normalized levels but clearly higher, following the impact, the immediate increase post the SMB actions in the first quarter. As I’ve discussed already, our recurring commissions and fees have improved, reflecting the success of the Credit Suisse Invest Initiative. But as I said already, recurring commissions compared to last year was slightly lower, and that reflects the management issue - management fee issue from Hedging-Griffo to Verde and the regularization effect, which I’ve discussed already. Let’s look at net new assets, please, slide 12. So as you can see from the chart, in the second quarter, net new assets totaled CHF 9 billion, equivalent to a growth rate of 4.2% for the Wealth Management Client business. Asia Pacific continues to be the primary driver of our net inflow, contributing CHF 6.3 billion to the total. And that corresponds to an annualized growth rate of 17% in the quarter. Switzerland also made a meaningful contribution of CHF 2.6 billion this quarter. We also saw inflows of CHF 1 billion in EMEA, with a positive contribution in Western Europe. If we look at the Americas, positive net new assets in the U.S. were adversely impacted by outflows from a small number of large clients in Latin America. Lastly, as we’ve mentioned already, total outflows relating to regularization amounted to CHF 1.5 billion in the quarter, of which CHF 0.6 billion corresponded to the strategic unit. Let’s turn to slide 13, please. What we summarized here is an update on the different strategic initiatives that we’ve implemented across the Private Banking and the Wealth Management Division. First, we’ve continue to grow our mandate penetration with strong sales driven by a launch of Credit Suisse Invest in April. As we mentioned already, penetration has increased to 20% up from 17% at the end of last year. Given the success that this initiative had with our clients and the reception from our customers, we would expect to see a further increase in our mandates from solid sales momentum over time. Secondly, we continue to see encouraging results from our lending initiative to ultra-high net-worth customers. Loan growth in the segment has increased by 43% since 2013 with strong growth in all regions. And loan interest margins continue to be accretive to our overall results. Third, as we mentioned last quarter, we have developed and launched a state-of-the-art digital private banking platform. With this platform, we aim to upgrade our service offering to make our products and our relationship managers even more accessible for our customers. So far, we’ve successfully launched this platform in Singapore. And separate from this, we’ve also updated our mobile banking service here in Switzerland. And we would expect to launch additional features in Asia Pacific and Switzerland during the second half of this year as well as going live with these offers in the United States and additional European locations during 2016. Just finally, I’d like to give an update on the impact that we’ve seen from regularization. As you can see from the chart, over the past four years at a constant - the focus on regularizing client tax programs, we have seen outflows of nearly CHF 40 billion. And to-date, in 2015, these outflows have totaled CHF 2.9 billion. We’ve now completed the regularization of client tax programs across most of Western Europe particularly in France and Germany, and we expect to complete the program in Italy by the end of this year. Whilst we remain extremely focused on regularizing client assets around the world, as we now approach the end of the program in Western Europe, we’re now lowering our estimates to outflows for 2015 from the previous expectation of CHF 10 billion to CHF 15 billion to below CHF 10 billion for 2015. Let me now turn to corporate and seasonal clients, please, on slide 14. The Corporate & Institutional Client business generated pre-tax income of CHF 244 million in the second quarter, an increase of 16% year-on-year and up 6% from the last quarter. Net revenues increased from both the prior year and the prior quarter to CHF 508 million. And this increase was largely driven by high net interest income as improved loan margins and volumes offset the continued adverse impact from the replication portfolio. Sequentially, we’ve increased net interest income from CHF 240 million to CHF 275 million, as we further implemented measures in the Corporate & Institutional Client business and mitigate the impact from the SNB actions back in January on this business. Our operating expenses declined by 4% compared to the second quarter of 2014 resulting in a cost-to-income ratio improving to 47% compared to 53% in the prior year quarter. Let me now turn to Asset Management, please, on slide 15. Asset Management’s pre-tax income in the second quarter was CHF 88 million, and that compares to CHF 102 million in the second quarter of 2014. This decline, as you may recall, primarily reflects the Verde restructuring in the fourth quarter of last year. And the overall impact has been a reduction in our second quarter revenues by CHF 25 million. I think, as we said before, I’ve warned that this will also result in increased seasonality, as earnings from Verde will now be primarily recognized only in the fourth quarter of the year, as opposed to throughout the year under the previous structure. Clearly, if we were to exclude the fees in Hedging-Griffo in the second quarter for comparison purposes, recurring fees would have broadly in line year-on-year. Now, the change in the structure of Asset Management was accompanied by a reduction in expenses, which dropped from CHF 338 million to CHF 298 million year-on-year. CHF 15 million of this relates to - of this expense reduction relates to the change in fund management I’ve just discussed and the remainder is due to the ongoing cost measures within the Asset Management business. Now, if we compare it to the first quarter of 2015, pre-tax income increased by 22%, and that’s driven by increased placement fees, as well as the reduction in the cost base. Next slide, please. So we outlined here is the performance in the non-strategic unit within the Private Banking & Wealth Management division. We continue to make progress winding down this portfolio. As you can see from the charts, we’ve made significant headway, reducing both risk-weighted assets and leverage exposure in the last two quarters. And at the end of the second quarter, we remained below our year-end targets for both risk-weighted assets and leverage exposure. In the second quarter, the non-strategic unit within the Private Banking & Wealth Management division had a pre-tax loss of CHF 64 million, and that reflects revenues from discontinued operations and some investment-related gains. In addition, though, we saw continued regulatory-related costs including CHF 66 million of expenses related to the settlements with the U.S. authorities regarding the U.S. cross-border matters. Let me now turn to the investment bank, please, on slide 17. So, before I go into the details, I’d just like everyone to note that the Investment Banking results were impacted by the strengthening of the U.S. dollar against the Swiss franc by 6% compared to the year-ago period. Just focusing on the results in U.S. dollar terms, strategic revenues declined slightly year-on-year as high equity trading results particularly in Asia Pacific as well as an improvement in the advisory franchise was offset by lower fixed income results. Again, in U.S. dollar terms, our strategic investment bank expense base increased by 6% due to continued investment in our risk, regulatory and compliance infrastructure, high litigation and commission expenses, as well as some pickup in indirect taxes. Accounting for the FX effect I mentioned before, in Swiss franc terms, our strategic revenues are up by 5%, and our strategic expenses increased by 12%. But I would caution you to focus more on U.S. dollars as that is the primary base both for the revenues and the expenses of the Investment Banking businesses. Now, if you look at capital, compared to the second quarter of 2014, we continue to improve efficiency in both our strategic and our non-strategic businesses. We achieved a reduction leverage exposure up $178 billion, and in risk-weighted assets of $14 billion. Compared to the last quarter, though, we saw a $4 billion increase in risk-weighted assets. And this increase reflects uplifts from methodology, as well as the foreign exchange impact on the operational risk component of risk-weighted assets. So we look at the returns, we achieved a stable return in regulatory capital of 17% for the strategic business in the first half of 2015. And that’s calculated applying a 3% CET1 leverage ratio requirement. Now, let me go on to the next slide to discuss the businesses in more detail. And I’d like to start please with equities. Our equity revenues increased by 6% in U.S. dollar terms compared to the second quarter of 2014. And this was primary driven by significant growth in client revenues in the Asia region. In Swiss franc terms, our revenue increased by 12% year-on-year. If you look across our business lines, we saw strength in equity derivatives especially in Asia, where we saw momentum in our fee-based products, which as I said before, were distributed both directly by our Private Banking businesses in Asia and indirectly to other channels. Our prime service business delivered high revenues, and that was achieved notwithstanding a significant reduction in the leverage exposure in this business. Our continued focus on client optimization drove a significantly high return on assets compared to both the year-ago period and the first quarter of 2015. In addition, and our continued focus on U.S. dollar results, we saw slightly lower cash equity revenues, and that was primarily due to market weakness in Latin America, as well as lower equity underwriting performance, which I think is consistent with overall industry activity. Let me turn now to Underwriting & Advisory, and talk in more detail at this point, slide 19. Our Underwriting & Advisory rebounded following the weak first quarter. Advisory revenues improved significantly compared to both the year-ago period and the first quarter 2015. The substantial increase in our announced share achieved in the quarter, as well as the healthy M&A pipeline in the Americas, signals positive momentum for the remainder of the year. Equity underwriting revenues declined by 16% in U.S. dollar terms year-on-year as share gains in the follow-on business in Asia Pacific was offset by lower IP underwriting activity. Compared to the first quarter, revenues improve by 59%, reflecting increased share of business from our corporate clients across all regions. Debt underwriting revenues were lower compared to the prior year quarter, reflecting reduced leverage finance industry activity. Overall activity levels have improved though since the start of this year, resulting in increased leverage loan performance in the Americas, partly offset by weaker performance in EMEA. Next slide, please. Our Fixed Income strategic revenues declined by 10% year-on-year in U.S. dollar terms. In Swiss franc terms, strategic revenues were down by 4% from the year-ago quarter. If we look at the Fixed Income division in more detail, we saw continued momentum in our securitized product franchise, driven by growth in the asset finance business where we saw both increased demand for our ability to securitize consumer receivables, as well as increased investor and client appetite to purchase these products. In macro, revenues improved significantly due to increased client activity across both rates and FX and that compares of course, to a very subdued period in the second quarter of 2014. These gains though were offset by low credit results largely due to the slowdown in U.S. leverage finance underwriting and trading activity, but also compared to a strong quarter in 2014. Lastly, our fixed income emerging market revenues declined and that reflects mutual client interest given recent - I don’t see current expectations around Federal Reserve tapering later in 2015. Let me turn now to the non-strategic unit, please, on slide 21. We show here the performance of the non-strategic unit of the investment bank. And as you can see from the chart, we’ve continued to make progress reducing our positions. If you compare it to the first quarter of 2015, we reduced our leverage exposure by a further $9 billion to the execution of a broad range of transactions. We also reduced our risk-weighted assets by $1 billion. In the second quarter, we had higher pre-tax losses compared to the first quarter and that reflects higher portfolio and other valuation adjustments with minimal offset from valuation gains on sales and that is, obviously, a change from the first quarter, which did benefit from significant portfolio valuation gains which offset trading losses. Just so to put that in context, I’ve note that the exit costs on our non-strategic portfolio have averaged around 1% risk-weighted assets since we established this unit in the fourth quarter of 2013, and that compares to the guidance we gave then of a long-term costs around 2% to 3%. Let me look now at leverage exposure, please, slide 22. So, you can see at the end of 2014, our BIS leverage exposure within the Investment Bank was $756 billion. And since then, we’ve achieved an $81 billion reduction, and that includes a $59 billion reduction in the first quarter and a $22 billion reduction in the second quarter. And overall, as we said already, these leverage adoptions have to date had a limited impact on our top line revenues. Of the reductions are achieved so far, approximately 50% comes from a client and business optimizations within the strategic lines. This includes the plan reductions macro as well as the client optimization strategy that we have implemented and are implementing within prime services. We also saw further leverage exposure reductions of $24 billion in the non-strategic businesses and $19 billion from our clearing and our compression activities. Looking forward, we continue to expect a further $55 billion to $75 billion reduction in exposure in the balance of 2015 and are very much in line with the previously stated target to achieve a divisional leverage exposure of $600 billion to $620 billion by the end of 2015. Let me then turn now to returns on capital, the next slide, please. What we show here is the usual walk across of the after tax returns on capital in the Investment Bank. If you start on the left, in the first half of this 2014, we achieved a total return on regulatory capital of one 13%. Adjusting last year’s calculate to apply 3% rather than a 2.4% CET1 leverage ratio requirement, the equivalent return would’ve 11% in the first half of 2014. On a CE basis, excluding the NSU drag the reported return was 20% in the first half of 2014 of 17% using a 3% CET1 leverage ratio. Now, if you move across to the right from the 17% strategic return, the decrease in revenues and the increase in cost that we spoke about before was offset by increased capital efficiency, which left the strategic return stable year-on-year. When we take into account the non-strategic drag of 5%, our total return on regulatory capital is 12% for the six months ending - for the first half of 2015. And that compares to 11% in 2014. Just let me turn now for the next section for an update on group costs and capital, please. So on slide 25, we outlined where we are in relation to our cost saving target. At the end of the second quarter, we achieved a cumulative expense reduction of CHF 3.5 billion since the beginning of the program back in 2011. Whilst the cost savings achieved with the Private Banking and Wealth Management division and across infrastructure and shared services, we’re on track to meet the year-end target. We have been impacted adversely by a number of additional costs within the Investment Bank. Direct cost of increase in investment bank compared to prior-year periods, reflecting higher indirect tax expenses such as the UK bank levy and VAT charges, as well as increased commission expenses relating to the high equity trading balance we see in the quarter. And some increase in direct litigation expenses taken in this area. We remain committed to delivering further savings in the balance of the year to achieve our $4 billion target with a particular focus on reducing the Investment Bank’s direct costs. Let me turn it now to leverage, please, on slide 26. As we’ve mentioned before, we’ve transitioned into the full BIS leverage framework since the start of the year. At the end of the second quarter, our leverage exposure was CHF 1.06 trillion, and that compares to an estimated BIS leverage exposure of CHF 1.15 trillion at the end of 2014. Net of the positive foreign exchange impact of CHF 60 billion since the fourth quarter of last year, the reduction in leverage reflects business reductions of CHF 79 billion in the Investment Bank, offset by a CHF 30 billion increase in the Private Banking & Wealth Management and a CHF 21 billion increase, primarily within our treasury function in the Corporate Center. One important point to note is our leverage exposure at the end of the second quarter includes a CHF 17 billion increase in our HQLA balances compared to the end of last year. So as a consequence of these reductions, as well as the earnings retained so far this year, our look-through Tier 1 leverage ratio increased to 3.7%, of which the CET1 component was 2.7%. And overall, our Swiss total capital leverage ratio improved to 4.3%. I think you can see though that given the progress so far, we remain very much on track to achieve our goal of a BIS Tier 1 leverage ratio of 4.0%, and a Swiss leverage ratio of 4.5% by the end of this year. Let me turn now to slide 27, please. As in prior quarters, we show you the movements in risk-weighted assets and our CET1 ratio since the end of last year. As you can see, we achieved a CHF 7 billion reduction in risk weighted assets since the end of 2014. This was driven by favorable FX movements of CHF 12 billion as well as business reductions of CHF 3 billion across the two divisions. These decreases were partly offset by a methodology related impact to CHF 8 billion in the first half, but which CHF 6 billion relates to the investment bank. Now looking forward, as we won last quarter, we continue to expect further increases in risk-weighted assets due to regulatory and related methodology changes. This increase will limit reductions in group risk-weighted assets from current levels even as we continue to wind down the capital positions in our non-strategic units. Now we turn to the CET1 ratio. This was 10.3% at the end of the second quarter, up from 10.1% at the end of 2014. Net of FX impacts, this reflects both the contribution of net income to CET1 capital together with a higher take up than we assumed for the scrip dividend partly offset by risk-weighted asset inflation from methodology uplift and policy changes that we’ve mentioned already. So, that concludes the results portion of today’s presentation. And with that, I’d like to pass back to Tidjane. Tidjane?
Tidjane Thiam:

Thank you very much, David, for this presentation. So, to close in summary, there are few things I would like to highlight. Credit Suisse delivered improved profits in the second quarter, and I am comfortable we will shape all those profit of geographically and by line of business. We had a significant contribution from Asia Pacific, strong performance in Private Banking & Wealth Management. We have a resilient IB performance. Asia Pacific’s performance was strong in both Private Banking and Investment Banking, and pre-tax income in the region more than doubled in the first half of 2015 compared to the same period of last year. Looking at our lines of business overall, in Private Banking & Wealth Management, we saw a good performance, and net new assets were driven by inflows in key growth regions. I would like here to mention Switzerland also, where we had CHF 2.6 billion of inflow, and that shouldn’t be neglected. Investment Banking showed resilience with higher revenues in equities and advisory, offset by weaker results in fixed income and an increase in expenses. Finally, we have continued to make good and important progress on capital, with our look-through CET1 ratio at 10.3%, and achieved further leverage reductions in Investment Banking. I have tremendous confidence in Credit Suisse and in the fact that we will create even greater value for our clients and shareholders. And with that, I will open it to your - for questions now. Thank you.
Operator:

We will now begin the question-and-answer part of the conference. [Operator Instructions] And your first question today comes from the line of Huw van Steenis from Morgan Stanley. Please go ahead.
Huw van Steenis:

Good morning, Tidjane, David. Thanks very much for a very helpful presentation. I have two questions. Tidjane, perhaps could you - could I pick up on your comments about costs? In your sort of early observations about Credit Suisse, have you found your approach to cost management? On the structure, David, that you’re taking over where CS has missed all of it, key performance indicators on cost-to-income ratios and ROEs, do you think it’s because CS was too optimistic on revenues they didn’t execute as ambitiously as they should have done, or is it maybe not being selective on businesses? Why do you think the costs have been consistently missing their targets? And then number two, maybe as you think about capital, again, think about your principles, how - obviously, there’s new Swiss regulations coming. There’s obviously industry-wide litigation to resolve. What’s your approach to capital? Do you want to get ahead and be an early adopter of new standards? Or do you want to work your way through these issues over a period of time? Thank you very much.
Tidjane Thiam:

Okay. So, we’ll take this question. Good morning, Huw. Thanks for your questions. On costs, you’re asking my view on the approach here. I think, really, the central point I want to make on that, I made in my comments - it’s really a discussion about fixed and variable cost. I think that the cost-to-income ratio is a very blunt instrument and you can get to a same cost-to-income ratio for very different scenarios. The makeup, obviously, can be very different in terms of a variable and fixed. And the eye is also a function of your commercial success. So, cost/income ratio can be high because of [indiscernible] or possibly because you don’t have enough income going for a given infrastructure. So, it’s just a tricky thing to interpret. I think really - and earlier, I said it’s my engineering background, I think it’s relevant here, [indiscernible] fixed cost. It’s easy when you’re measuring to focus on variable because that’s more controllable. To make a bad joke, you ask the staff to pay for your coffee. But the infrastructure in financial services and the IT drives a lot of the cost. And the thing you want to avoid is the - how do you say that, the cost creeping up again, which is a constant feature of many cost reduction programs. The recent comment about Credit Suisse, general comment and really makes - I’ve done a lot of cost cutting in my career. If you take out activities or lines of activities or locations. If we take out the infrastructure, that is durable and sustainable. So, I’ve said that we have a strategic review, we’re looking at all that. As you can imagine, there’s only one thing I found that Credit Suisse has a lot of talent, a lot of very, very good brains looking at technology, looking at costs, and we’re trying to get all of them together to come up with innovative solutions that would take out cost for good if I can say so. On capital, look, part of the channels, we all know, is the denominator. Many, many views on how to compute capital required for any given economic activity. My own view is to take a margin of error if you wish. And this is why I keep talking about businesses that comfortably exceeded our cost of capital. I think the uncertainty on the denominator is such that you don’t want to be operating as a margin of error, i.e., barely above your cost of capital because that can be eliminated by a changing regulation as you pointed out. So, really I think our report will be to be quite conservative, if you wish, and to really prioritize businesses again, that are comfortably above the cost of capital for an economic cycle. That’s how we’re looking at it. I think the good news about Credit Suisse is we have a lot of businesses which is a nice one to have. David, I don’t know if you want to add.
David Mathers:

I think I completely support Tidjane’s comments. And I think if we look at the various cost trading [ph] line, I agree, I think the cost-to-income ratio is a very crude measure. We did actually include in the appendix just where they actually stand, I think you can see that the private bank, for example, in the second quarter as it did improve its cost-to-income ratios at 67%. So it’s marginally off its target. And you can see that on the total cost number that we’ve actually exceeded the target for Private Banking costs at CHF 1 billion compared to CHF 950 million before, and also the shared service side is actually in line with CHF 1 billion. I think as we said already though and I think as we warned last quarter, we are seeing an increase in regulatory and risk compliance, and we’re also seeing some impact from both direct embedded costs of investment bank and some costs which are one-off but that’s how it was a past excuse, but there’s always one-off costs relating to indirect tax and some litigation expenses. And I think also to the good side, and this is I think to Tidjane’s point about variable costs, whilst it’s important to keep down the cost of increased equity volumes, it is a positive reflection of higher increased equity volumes. So, I think, I completely agree with Tidjane. I think we have met a number of these costs but I think we need to take the approach that these outlined in order to take us forward. When we announced this plan back in 2011 and updated in 2012, it was to our 2015 goal, and I think it’s absolutely right to be doing a refresh around this, to think how we take this forward and doing it the way you outlined.
Huw van Steenis:

Thank you, Tidjane and David.
Tidjane Thiam:

Thank you.
Operator:

Thank you. Your next question comes from the line of Jeremy Sigee from Barclays. Please go ahead.
Jeremy Sigee:

Good morning. Thank you, and particularly to Tidjane for being on the call at such an early stage. I just wanted just to start off with quite a sort of strategic question. I think one of your expectations is that you will seek to boost growth in Asia Pacific and in Wealth Management and you’ve touched on that in the - shown on the latter end of the slide. I just wanted, at this early stage, if you could talk about how you see the potential there in terms of what can be done and what levers can be pulled to boost growth in Asia Pac and in Wealth Management. I’ve got a couple of more specific numbers question, I don’t know if you want me to give you those now or follow up?
Tidjane Thiam:

Jeremy, good morning again. There are some things now that we’ll cover...
Jeremy Sigee:

Well, so it’s a level down in terms of being more nitty-gritty, so it’s two things really. One is on the wealth management, I thought the net interest income was striking to step up there. And I was just wondering if you could talk a bit more about some of the steps that you’ve taken. You mentioned loan repricing, deposit repricing. I wonder if you could talk about that, and just help us understand whether that is a new sustainable level, whether it improves further. And then the second question I had again, a numbers questions is the IB non-staff costs. So, I take the point about dollars versus [ph] Swiss’. You talked about it being a step up in risk regulation and compliance cost and I just wondered what sort of costs those are. Are those sort of swift to [indiscernible] non-staff, so are those systems, are those fees paid to outside parties, and is this a new base level basically?
Tidjane Thiam:

Okay. Now, thank you, Jeremy, also actually an important point, not just integrity, the net interest income, I mean, we have good answers and then - and it gives you a lot to what happened in Switzerland, I’ll let David cover that later. And with the increase in non-staff cost, David has pointed some of the increase being due to the increasing variable cost, commissions which is good news, but some of them, it’s all non-staff cost, we can always explain to you exactly what it is. I will focus on the first question and then pass to David to cover the other points. Look, I think you’re right, hesitating where to start, the focus on Asia is for very simple reasons. First of all, it is 70% of the world population, it’s an important statistic to keep in mind. So it’s [indiscernible] but there’s no strategy on Earth that shouldn’t include Asia and it’s 70% [indiscernible] on this planet, so it’s an important part of the world. I think we have a potential under Wealth, the increasing Wealth. First of all, a lot of additional growth, whatever when we think of China, et cetera, in the short-term, in terms of non-Brazil, lot of the additional growth in the world. And the world GDP is going to take place in Asia, in the emerging markets in general. So there is no doubt that the potential is huge. In my transition period in April, we first decided to go to Hong Kong and sit down with the Asia team and they have felt both the warmth of my support and the pressure of my demands. I think it’s - when the potential is high, the performance should be high. And actually, it’s always a trick because it’s very easy to underperform in Asia because the growth is such that I want us to grow more than the market, not less. And if you only look at relative performance, Asia often looks great and it can be that you’re actually underperforming. So the opposition are huge in the Ultra High Net-worth and High Net-worth segment, which is a fact of life, and growth in emerging markets is in its early stages. It’s quite concentrated. And we are really focused on the segment where most of that wealth creation is going to be. The key thing we do in Asia, is really integrating the Private Bank, Wealth Management and the Investment Bank. You have seen the impact of Asia. It’s in the net flows, CHF6.3 billion. David, I think, in the quarter, yeah, CHF 6.3 billion.
David Mathers:

Yes.
Tidjane Thiam:

But it’s also in the equity franchise because it’s very hard for non-Asian banks to break into the Fixed Income market, but the equities franchise is the big opportunity in Asia and we happen to have one of the strongest equity franchises in the world. So it’s really a key strategic position for us. We have a brand. We have the skills, the capabilities in our Investment Bank. And if we join the two, we can cover the needs of our customers, which always tend to focus on strategic stuff with a customer with both our Private Bank and Wealth Manager and also in our Corporate & Investment Bank and advisor. So, how do we increase that? Frankly, by increasing our share of wallet with existing clients and I always thought there, that’s the most profitable investment always before running up to new clients. We need to do more. With the clients we have, which are already quite significant and quite attractive and that’s through - some of it is - what we call the digital platform, improving the quality of service, improving the tools we have in Asia, capturing more flows, managing the source, making money from a manageable source. And then it’s the kind of quantitative approach of really increasing the variations with managers in order also to acquire new customers, which is additional growth. But on that, well, you don’t me, because I come from insurance. I’m always been very focused on quality growth for me. Three words I’ve got to give are quality, profitable and growth. It’s no growth at any cost. It’s profitable growth. And it’s not just any type of what is quality growth. And when you grow in Asia, we have to be very careful. It’s very easy to hire people and formerly that’s our problem. What’s harder is to hire quality people who are going to get, how can I say, the sticky business. Track assets that will stay with you, and that you can make money from year after year after year. And my focus, and David knows this, we talk about it a lot, is really on the recurring income. If there’s anything that’s going to drive our share price, it’s the recurring income in Asia, okay? We need to drive that up, those that are on high multiple, with high our high-quality profit and vital to our future. I mean, I could go longer, but I think I’m sure there are many more questions, so we’ll talk about Asia again. So, if that’s okay on Asia, Jeremy, let’s move on to your two other questions.
David Mathers:

So just, Jeremy, to take the other two questions you’ve asked. So, firstly, in terms of the increase in net interest income in the Wealth Management business, I mean, I think there’s a number of points here. Firstly, in the first quarter, generally, we had two months from the measures we put in place, whereas obviously in the third for technical, we have a full closure in terms of that. I think you’re aware Jeremy that the measures we have put in place, the fact is actually we obviously are not passing through negative interest rates to our retail and wealth management clients, but we have maintained the spread in our mortgages. Nonetheless, mortgage rates remained very low in Switzerland, so I think that’s probably the right balance. Clearly, I think you know as well that we - over a number of years, have actually put in floors on our LIBOR based loans. So therefore, the negative swap rates which pertains for at the moment actually boost our negative interest income. So I think if you’re thinking about looking forward around this, I think we will probably say certainly in the near term, that that net interest income number is sustainable. I think there’s a few points here. I mean, clearly, if we think about the negative floor rate, and we obviously have some exposure, it’s a negative swap rates converged back to zero, let’s say, policy normalizes in the SNB, then we have a negative adverse impact. Clearly, if we would see a resumption of some of the strategies and strengths in the euro zone, then that can have an opposite events. But just to give you an idea, that the levers and drivers actually pushing that forward. I would say that the second factor is obviously on our U.S. exposure, if rates do increase, if the curves does steepen, that would obviously be a positive. And I think obviously, given the situation of the euro zone, it’s probably best to keep that as a neutral expectation for the moment I’m afraid. There is some further potential on deposit re-pricing. I think we’re obviously looking very carefully at some of the deposit assumptions and where those deposits have very high outflow assumptions under both our internal and our external liquidity measures. I think we do look to see how we should actually recruit that in a balanced way basically. So there is some positives there in terms of that. But I think net-net, certainly on - and I’ve tried to explain the levers for this because I think a lot of them are actually market observable, roughly stable is probably a good outlook in terms of wealth management interest income. But I would come back to Tidjane’s point though which is perhaps the most important point about the results is not so much on net interest income, but it’s the fact we’ve seen an improvement in mandates penetration and an improvement in the second quarter against the first quarter from recurring income. And I do hopefully try to explain in the presentation that whilst the recurring number is down compared to last year, that reflects Verde and the regularization effect. So also pleased I missed the fact that we are reducing our guidance regularization outflows as well. And I think that’s probably as important a metric as anything else in terms of the net interest income number, but hopefully that answers the detailed point around the net interest income number. Now in terms of the IB costs. So obviously, in the - at the end of the first quarter, we warn that we would see increases, as you referenced in risk compliance and other risk regulatory and infrastructure costs. And I’m sorry to say that has indeed come true and that is an important factor in terms of these cost pressures. And however, I think you mentioned, you obviously pick up norm start costs within our disclosure. There a number of factors around that. So just to be clear, we have seen a CHF 57 million increase in litigation Q-on-Q, a CHF 65 million increase year-on-year. So that has to come through as a pickup in terms of non-staff costs in terms of the business. And if we look at, I think, I mentioned from that indirect cost, that’s about another CHF 33 million. And as I said before, we have seen some pickup in our commission expense cost related to the strength in the equity business. And variable cost, that’s still a cost in that sense, and that cost is about CHF 47 million. Welcome but, obviously, it needs to be optimized in terms of how we do that. So, a lot of that basically is coming through in terms of the non-staff costs you are actually referencing. That said, there are regulatory costs in that non-staff cost as well being taken there because a number of things we were actually doing to actually improve the regulatory investment bank does involve professional services. It’s not necessarily consultants, but external parties are actually supporting what we’re actually doing there. So, you’re seeing some component of that coming through. I hope I have covered most of the points. But to give you some idea in terms of that mix, a lot of it is around, is either directly or indirectly driven by that infrastructure cost coming.
Tidjane Thiam:

So, I hope that this is your point, Jeremy, I kind of have a final comment on Asia, which is diversification, and it may preempt questions to come. There is no viable strategy in Asia that doesn’t include diversification. My experience of Asia is [indiscernible] capability to emerging economies are volatile; that’s just a fact of life, and [indiscernible] diversification. So, you can drive Asia performance quarter-to-quarter if you have a diversified platform, and that is something we actually do have. If you’ve got a position in Southeast Asia, so in Singapore, Thailand, the Philippines, Malaysia, Vietnam, et cetera, Indonesia, of course, we have a diversified position with a clear upside in China, and that’s in the numbers, too. But fundamentally, I think the way to cope the emerging market-related volatility is to have a very diversified world, diversified platform. Thank you.
Jeremy Sigee:

Great. Thank you very much.
Tidjane Thiam:

Thank you. Next question.
Operator:

Thank you very much. Your next question comes from Kinner Lakhani from Citi. Please go ahead.
Kinner Lakhani:

Yes. Good morning. So, I wanted to start off with just following up on a couple of questions that have been asked already. Firstly, just on the Wealth Management side, where are we in terms of thinking about the U.S. yield curve? Are we at a point where we can start to capture and realize some of the opportunities as we have perhaps heard from Morgan Stanley recently? Or are we still waiting for potentially yield curves to steepen further before you see the opportunity? Secondly, just on the IB cost base again, just wanted to ask about the additional kind of investments that we’re making in regulatory and compliance. Are these investments that are being made from the request of any regulators, Switzerland, U.S. or elsewhere? And at - and do you see these as sustainable kind of investments or something that will drop off at some time in the future? And then maybe just a more kind of strategic question for Tidjane. As you’ve gone through your review, you suggested that there might be certain business or activities that you might want to consider divesting. Have you seen any kind of gaps in the portfolio where you see non-organic kind of investments that might be necessary? Maybe also with reference to an article yesterday suggesting investments in the asset management business.
Tidjane Thiam:

Okay. Thank you. Very clear, Kinner, good questions. So, I’ll let David take the first one. I’ll take the third one that’s on the yield curve agreement we got [inaudible].
David Mathers:

Thank you, Tidjane. Thank you, Kinner. Our policy around turning out hasn’t really - it hasn’t changed really over the last few years, and we’ve rigorously stuck to a policy, an average turnout of about 18 months in terms of what we do in the replication portfolio. Clearly, a steepening in the U.S. curve does - in one session, should you actually seek to capture that or not. I have to say that’s obviously something we’ll look at over the course of the next six months to a year depending on how rates actually move in the Fed. But we haven’t really thought to change that at this point in terms of what we’re actually doing. So, I think no more change at this point. You’re right to highlight the potential. It’s no change to our policy. In terms of the IB cost base, and so just specifically on the risk and compliance and regulatory spend there. I think, clearly, a large component of what we’re actually doing related to upcoming regulatory changes the banking system is looking forward to. And so, I think clearly we have, as you know, the fundamental review of the trading book for which I think you may know that the BCBS is actually called for a further quiz around that. So, I think this is probably likely to be a more extended process than perhaps was originally anticipated, and it’s obviously a continuing issue. In theory, I think the deadline for the FRTB implementation I think is 1/1/2018. But clearly, to even - obviously, there’s a rule evolution process, and then there’s an infrastructure process around how you actually run that business. You need these rules very well. You have to build very complex switching models between standard and advanced models depending on the visibility of pricing and liquidity for these assets. So, it’s a non-trivial exercise in terms of analysis and model development. And I think the second component would be SACCR, which is due for implementation on 1/1/2017. And I think we talked about potential for that and we don’t particularly expect any RWA impact from that. But there’s an important provider in there in the sense the SACCR does require a new generation of Monte Carlo models to be built and approved for that matter, for our business. So, that’s a very hefty build in terms of what we’re actually doing. I think and clearly beyond that, in theory, also scheduled for the 1st of January, 2018, but I personally think it will probably get delayed is this concept of new standard models and flows against that which will be a further generation of models and infrastructure that has to actually be built against on. I think that’s - and the folks says, the common cost from all of the - certainly, the European banks that have to prepare for this sort of next generation of our reforms and that will therefore be an ongoing cost the next few years. And I would also touch on - although some of the costs for this were actually taken within the corporate center charges you are aware, we obviously have to go live with the IHC in the United States next summer. And we’re in full preparation for that now. It’s a very substantial infrastructure exercise because you’re essentially setting up not just a new company, a new corporate around that, but actually all the relevant governance and systems to actually meet those requirements. And clearly, following on from that, I think you are aware that the foreign banks then place the first CCAR test in the first quarter of 2017. And I think obviously, you obviously know the U.S. banks. I think you’re aware the scale of work that was actually implied by that. So, I’m afraid to say, I think this is going to be a feature of our costs actually going forward. I do think - I’d refer back to Tidjane’s comments before is deciding what you want to do and what you not want to do. It may help to ameliorate that. But I think there’s a lot of work to be done around these different initiatives, frankly. I think one slight positive against that is, clearly, that we had a slight increase in head count, in infrastructure head count to actually build all those systems. And then, hopefully, that will subside in due course. But I would definitely warn this is going to be an issue for at least the next 18 months, given the timings we’ve outlined for these models. And potentially, longer if as I would say seems likely, the rollout of these new generation of regulation is actually then delayed in search for other quizzes, which I think will happen.
Tidjane Thiam:

David is absolutely right. If you got the important CCAR, FRTB, won’t be surprised that we’re investing our resources to make sure that we get to the right outcome, and it’s not cheap. I think the final question was really about the review we’re conducting. Look, I think I have made a choice, which has been to have a relatively deliberate and very participative process. I think that’s really an important aspect of what we’re trying to do. I’ve got some experience on these processes. And by the time you invest up front, you get many times back downstream because if you see - work with a team, the fact that what is in the end presented has been developed together, but there is a deep understanding of what led to those conclusions is the best way to reduce execution risk and to increase execution speed. We’re going to drop solutions from above. So, that’s my management style. I like to involve people, and that’s what we are doing. Now, the downside of that is that it takes a few months, as we said, before we end the year. And during that period, speculation is unavoidable. So, I am not going to answer specific stories, you refer to the story in the newspaper yesterday, but I’m not going to get into a discussion about the specific stories. All I can point to honestly is my track record of value creation. I think I’m extremely focused on shareholder value creation, and you should take some comfort from that. I have also, I think, delivered a track record of organic growth. I’ve been on the record many times saying that the primary source of capital is to operate profitably. The [ph] 2-plus capital and it was easily accessible. And I’ve said earlier that we are trying to design a business model that will be comfortably cash generative. I want activities that - where return on capital is comfortably in excess of the cost of capital. So, all those points I think point you in the same direction, which is that we want a sustainable, profitable organic model. And that’s where my mind is. And only few of the known organizational business - yeah. Will there be moments where we’ll do things off an inorganic nature? Possibly but they’ll be small, and our track record there, too, if you look at all the bolt-ons, i.e. our Prudentials have been hugely successful from UOB to Standard Chartered to many others, our tradition of doing good deals. And you can count on me to for anything to be done till we have a completely manageable size. I’m trying desperately not to say the three letter word. I know it’s on everybody’s mind. It will be a completely manageable size and completely value enhancing. There.
Kinner Lakhani:

Great. Thank you very much for the very comprehensive answers, Tidjane.
Tidjane Thiam:

Thank you.
Operator:

Your next question comes from Kian Abouhossein from JPMorgan. Please go ahead.
Kian Abouhossein:

Yes, hi. Thank you for taking my questions. The first question is, Tidjane, you mentioned cost of capital. Could you tell us what you’re seeing the cost of capital of the investment bank is? And in that context, historically, CS targeted a 50% to 55% capital allocation to the IB. And I was wondering, do you think that is the right thinking? Or do you think that’s a business that should be smaller or it doesn’t matter as long as the return is, as you say, there’s a nice area of margin above the cost of equity that you allocate to this business? And the third question is on slide 39. CS historic - this is kind of like a historic chart, this public chart in the presentation. And it continues to indicate the global market is a poor business with credit as a good business, and we all know most of the capital is in credit and securitization. And do you think this is a good reflection of how you think about this business? Thank you.
Tidjane Thiam:

Okay, Kian. Thank you. Thank you for your questions. I may give you a general answer and possibly pass it to David and then come back. But, really, you have to think about this in a relatively single way. There are things - I used to be a strategy director, and I spent probably too many days in my life looking at cost of equity, cost of capital. There are so many peer deficits written on that. I don’t know whether there’s accepted method of computing the cost of capital, universally accepted so many of them. When you’re doing about interest rates when you’re in the current interest rate level, do you - are you a strong market efficiency and properties gain, we’re going to take the spot prices for everything. Are you going to introduce me in reversal? We can get into a really fascinating debate on that as you look for that equity volatility, if you take implied volatility, if you take historic volatility. I’m happy to discuss it, but I don’t think that’s the purpose of today. My view on that is you’re ways above that and you are just prudent. You know what you don’t know. Therefore, you take businesses that aren’t comfortably above cost of capital. Now what do we know? If you look at the numbers we review today, you take one definition of capital, regulatory capital as we define it 10% of RWA and 3% of leverage. We said 26% in the dividend-driven business and we said 15% in VIP. If you’re a CEO of the company and you have two businesses with that type of profile, you’ve got to ask yourself the question you’re asking, which is how do you allocate capital between the two for this. So the secret that private banking wealth management is as at a higher return on capital and that if you wish to drove between the return of capital and the cost of capital are quite significant. So I think the short answer is yes, we want to move towards allocating more capital to that business and be more selective about what we do in the investment bank. What we are doing now is developing a precise answer. I’m not going to tell you how much today free. There’s a lot of work to cover with the optimal answer, which is going to be a function of the economic cycle because I would say we’re not in a business of betting. When we develop different options or portfolio of business on a relative going forward or output going forward and investing going forward, you also have to look at the volatility of that itself. You’ve got to stress test it. You’ve got to run it through economic cycles, and that’s a lot of work, sorry, I am - since we’re not able to give you a quantitative answer on that. But the direction of travel is clear. Actually, I like the shape of these results. You’ve seen Private Banking & Wealth Management driving forward, and that’s the most attractive part of the world economy, if you wish, and that’s not surprising. I keep reemphasizing the Swiss performance because that’s also very important in my thinking. Switzerland is not to be neglected. It’s one of the best-performing economies in the world and we have a leading position here and the performance of the Swiss business has been superb. It was a nice, interesting comment. I think it’s one of the areas of the market that’s been a surprise. Everybody’s still meeting on Asia today. It’s not just Asia. It’s also Switzerland. And we will continue to push that forward and the Investment Bank as a real strength to our strategy, which can help us develop our Private Banking business and which are really good to have. I mean, I’d have a much bigger problem if I had really underperforming investment, performing - Investment Banking activity, which I needed to turn around. That is not what we’re dealing with here. We’re dealing with a really very well performing investment bank. But whereas sometimes, the regulation has developed in an unsupportive or unfavorable way and the pragmatic thing to do is to take that into account. Leverages are constrained today so of course, we’re going to look at leverage consumption in the business and we’re going to optimize that. RWA is a constraint further down the road and it’s also very important. We’re going to look at that and optimize that. And after that, we will have a streamlined portfolio, which we can drive forward and where we’re happy to invest. I’ve said. I’m only happy to run companies where I’m happy to invest in all my business lines. This just makes your life easier and it doesn’t make you [indiscernible] fortune because we only control the activity to a certain level. The world moves out there. And customers do what they want. And we are also quite demand-driven. You’ll see in our comments today, when we comment on different business lines, how much of the level of activity is also linked to client activity. So, once you reached our position where you have a really good portfolio of businesses, you can ride the cycle whilst creating value throughout. So, I don’t know if that addresses your question but that’s how I look at it. Hello?
Kian Abouhossein:

Yeah. No, that addresses the question. If you could maybe just also highlight on slide - but just on the capital mix, do you feel that one option is clearly to say I need to reallocate capital. We all know that wealth management of CSG makes higher ROEs, and one way is to just allude the business that make lower capital but still make capital, robust cost of capital. Is there any view that you have at this point already in that respect? You can accelerate or you can do it slower.
Tidjane Thiam:

I think I said comfortably above the cost of capital. So, that will mean shrinking some of the current investment banking activities. Because to me, if you are 100 basis point above cost of capital, you don’t know about your above cost of capital cycle operating in a margin of error.
Kian Abouhossein:

And lastly on page 39, do you see that as a good reflection of your business, the way you look at it?
Tidjane Thiam:

As David said in the slide, so maybe I’ll let him comment on that.
David Mathers:

Thank you, Tidjane. So, slide 39 the bubble chart. I think it was quite with your answers being infamous in bubble chart actually. No, I mean, it is a fair reflection in the sense it does show the return on capital in each business line. Capital, as Tidjane said, on 10% of RWA and 3% of equity leverage ratio on an average over the last four quarters and obviously, it’s on the leverage ratio in the numbers we actually disclosed. So it is a fair representation. And it has, I’m afraid, these are features. I think you can see securitized products remains our highest return business. We also have very strong cash equities and equity derivatives and, obviously, the equity derivatives position in particular has benefited from the strength in Asia Pacific. On credit, I think as we’ve said, it’s obviously had a slower first half. You’ve seen a reduced level of activity. I would point out generally speaking, it’s a higher return business. And actually, when I looked at this business over the last 15 years or so, it has generally done well or we have some cyclical moments [indiscernible].
Tidjane Thiam:

Beyond that, I would have to commend David on this slide because philosophically, I also have a track record of transparency I believe, and for disclosure. I think it’s very good to guide a market and to keep this - that was a key piece of analysis. The only tweet I will make tweet is that I think one level further and look for each bubble at the baiting constraint. Our [indiscernible] was to be $0.10 of other view instead of leverage is in the span of, I don’t know, is linear. We’re actually doing something that discontinues. So you really have to take the baiting constraint by business and that will be the right way to look at it as we...
David Mathers:

And I think that also - I can tell you, I think that also reflects the capital regime we talked about last quarter and it’s still this quarter that implicitly, the Swiss regime is currently - or should we say more accurately with the post- Brunetti TV our preview likely to be more binding around leverage than it is around RWA for the next couple of years until we, I guess, get through SACCR, FRTB, et cetera, et cetera. So you can’t point exactly correct in the sense if you actually think about it, as that has been a group constraint, then, clearly, you have to think as in the binding constraint on a business-line basis.
Tidjane Thiam:

You don’t run - it’s double with necessarily the same metric.
David Mathers:

Exactly.
Kian Abouhossein:

Okay. That’s very helpful. We look forward to hear more about the strategy and hopefully see some tangible book value growth since you haven’t had one since 2008. And this quarter, you haven’t had one again. So, hopefully, the ROE come through.
David Mathers:

Good point, Kian, just good point there. Obviously, we did pay the dividend in the quarter, so that does have an impact.
Kian Abouhossein:

Yeah.
Tidjane Thiam:

Yeah. No, we can only agree with you as long as we measure it over a sufficient period of time.
Kian Abouhossein:

Thank you.
Tidjane Thiam:

Thank you.
Operator:

Thank you. Your next question comes from Jon Peace from Nomura. Please go ahead.
Jon Peace:

Yes, thank you. Two quick questions, please. The first one is just whether you could perhaps give a bit more color and size the revenue impacts of deleveraging in the Investment Bank in the second half of the year. I think, David, you once said it might have been around $300 million. I wondered if that’s still the sort of right ballpark and how we should allocate that. And then the second question is just on your note that you were accruing the dividend in line with prior year including with the 60% scrip option. Should we read anything into that at this stage? Or would the dividend fall out to the broader strategic review? Thanks.
Tidjane Thiam:

Okay. Thank you, Jon. David, I think [indiscernible].
David Mathers:

Thank you very much, Jon. So, if we look to slide 22, which is the leverage exposure reversion, I mean, I think - you’re right. I think it was actually my colleague, Charlotte Jones, who mentioned that I think a conference back in the first quarter that we - when we talked about the leverage reduction that we might see an exposure around 50 basis points in terms of that or about CHF 300 million. But I think what we also said at that time was clearly that will depend, A, on the actual mix of leverage exposure we actually achieve, and B, on the extent to which we see repricing of leverage, which I think is clearly an industry phenomenon now given that leverage is not just a mining constraint for Swiss francs but it’s a value constraints for UK, euro zone and U.S. banks. So I think it’s changed, as you might say, the pricing environment for this. So that just what’s the context around this. I think, as I said so far, it’s very difficult to identify any material revenue impact from the steps we’ve taken. And I think that partly reflects the fact that focus has been on clearing and compression, the non-strategic reductions and reduction in derivative add-ons, all of which are really, as you might say, new accounting leverage exposure. And therefore, the impact in terms of issues such as business and client optimization, or those being already less. But I - what I think we feel is that we do need to repeat that warning that if we look to the second half, in which as you can see on this page, we still have further client and business optimization measures to actually take. You would expect that there is still risk of some revenue reduction. And I guess, basically, 50 basis points is the guidance you gave before, not necessarily long in terms of the potential. You can see the numbers here. I don’t know if that quite gets you to $300 million because I think, Jon, obviously the performance has been somewhat less so far. And clearly, the factor which we still very difficult to estimate is what is the offsetting impact of repricing in terms of that. But other than that, probably, a reasonable update in terms of what we’ve seen so far over the last four, five months since we spoke originally about the leverage exposure.
Tidjane Thiam:

Can I maybe have some word? It must have been my first impression. So I’ve been very impressed by the skill of the teams in doing that so far. How we’re enable to deleverage whilst protecting the revenue line safe, probably not more than sales, but so far, we’ve done very well, but we just want to be conservative in our guidance also so that that becomes basically an upside and we have done very well so far.
David Mathers:

I think on the point around the dividend, I think there’s probably two points there, one perhaps you most take, Tidjane. I think in terms of what we’ve actually done this quarter, we have maintained an approach which is exactly consistent with our prior quarter. Essentially, we have accrued to a dividend at 0.7 per share. And as in the prior quarter, we’ve assumed that we do offer a scrip alternative for our shareholders and recommend that to our board and subsequently even the board approves it to our shareholder at next year’s AGM. I think the only difference is we obviously did complete the 2014 script during the second quarter. I think you may be aware though that the script take-up was actually 63.6% that compared to our assumption of 50%. That directly generates about CHF 150 million more of capital CET1, well that help our CET1 position this quarter but we also therefore have to think because we have to set an assumption for take-up on the basis of our evidence. So we actually move the assumption to 60% rather 50%, which work was worth about another CHF 50 million in terms of secondary effect, but it’s still there. But I think we’ve remained exactly consistent with prior quarters. I’m not sure one should take a broader message from that. So, I don’t know if Tidjane wants to comment.
Tidjane Thiam:

Well, I think you’re absolutely right. If it’s I mean the key points and the qualities sort of like CHF 180 million of [indiscernible].
David Mathers:

About CHF 200 million between those two in there.
Tidjane Thiam:

…between the two. So yeah that’s great. But all I can say about dividend is that it’s something that’s very close to my heart and important for me. When I talk about strategy, I talk about cash [ph] as an Iraqi business model. At the end of the day, you want to generate cash and you want to grow, which is another reason why capital, efficient capital light businesses are attractive. So it’s a general point.
Jon Peace:

Great. Thank you.
Tidjane Thiam:

Okay. Thank you.
Operator:

Your next question comes from the line of Daniele Brupbacher from UBS. Please go ahead.
Daniele Brupbacher:

Hey. Good morning and thank you. Can I just come back to one of the points you made just five minutes ago, which are very interesting around obviously this capital allocation topic? And you did say the binding constraints by business line is very key. Now, I mean, if I think about it, I guess, prime services purely based on a 3% equity leverage requirement, the ROEs would be quite a bit worse than if you took the blend. So in that context, how do you think about cross-selling and multiply your effects into other businesses that you say, okay, well, it might does have on a stand-alone basis, a not-so-nice ROE. But I’m ready to live with that because it helps me in other businesses. And then, in that context, I mean, how important is really the upcoming new leverage ratio requirements in Switzerland in the strategic debate? Is this is a very crucial input sector, which is one of many? Or do you just assume 3% for the time being and the rest is then within your margin of error, how you described it very well before? So that’s just one question. And then, could you also talk a little bit about the cyclicality of where your assessment is in terms of cyclicality of some of these businesses on slide 39? And very lastly, sorry, a bit of a numbers question on page 39 of the earnings release on page 39. There seems to be - it seems like you had quite some activity on the securitization side in the loan portfolio, I think, in Private Banking, which obviously helps RWA. Now, is that - how should we look at this? Is that a start of a new trend or a new strategy? Or is it more like a one-off? And could you tell us what businesses you’ve securitized there and what sort of the additional opportunities are in that space? Thank you.
Tidjane Thiam:

Daniele, it’s a resounding thank you because you allow me to make a really important point with your question. This is why we are not answering the strategy questions today. What you described is exactly why it’s complicated. If these were discrete bubbles, this sounds misleading, of course, there’s a third dimension that’s missing. There’s a two dimensional trial. If these were discrete circles, these would be resolved in half a day. You just put that in a computer, it gives you the answer. But exactly as you said, there are linkages in the business. There are questions of your total footprint because markets, for anybody who’s trading in the market, your market presence matters, your total size matters. So, you have to integrate all of that in the analysis, not just a bubble-by-bubble analysis. It’s really once you develop different scenarios of options. What is the resulting footprint? What does it mean for your brand? What does it mean for your franchise or your ability to get more business? Really this is just - I think you’re right. I think you - this is how we are looking at it and we are effectively getting into quite a refined analysis of those questions. Now, all of that being said, set of review, but even if you take all that into account, you can still reduce the leverage.
Daniele Brupbacher:

Okay.
Tidjane Thiam:

So the question is by how much. It’s by how much. When you give your balance sheet, you also have to take into account what David said earlier, absolutely right. But the difference in this restructuring is restructuring in an environment where everybody else is, okay? We’re not the only one who have prime services franchise and what was our repricing balance sheet too and their leverage. So actually I see a lot of positive because it makes the restructuring potentially less painful in terms of lost business because if you’re going to leave, where are we going to go if everybody is doing the same thing. So, that’s where the environment is helpful. We’re lucky to be doing this exercise at this time. And sorry, I go one about that because you’re spot-on and it’s exactly why we need months to give you an answer rather than weeks, days. And cyclicality is the overall complexity. And of course, you’ve got a portfolio with different characteristics. And what I’ll say about that is you just have to be careful because - I mean, I’ve been myself a great promoter of optionality as a concept, but there is no free options. If you think about the business, people will tell you, okay, fine. You cannot cut this activity. If the yield curve rises and steepens, it’s going to happen. You cannot do this because equity volatility frequently goes up. This business is going to make money. You can’t do this because your market goes up. So, based on what we were telling you is we want to keep maximum optionality, okay? My answer to that is, well, how much does do reductions cost, okay? We used to live in a world where options were free. So, what we haven’t always done is - and that we are thinking to the new world. 10 years ago, you could keep those offerings and hold them. You had no holding costs for all those offerings. Today, the cost and the penalty for holding them is higher. And therefore, this is something you have to include in your analysis. And as you test the resilience of your system through because the cyclicality - the cyclicality sensitivity flourished. The sensitivity to cyclicality of the portfolio you have built, if you’re with me, you need also to integrate in your [indiscernible] value creation the cost of those options. And then you get closer to the answer. That answer has to be robust and the answer has to be robust across and through business cycles.
Daniele Brupbacher:

Very clear. Very helpful. Thank you.
Tidjane Thiam:

Okay. And then we have the securitization in the [indiscernible].
David Mathers:

I think on the securitization point, I’m not sure exactly which reference in the earnings release, but I think as a matter of fact, within the corporate institutional client business for a number of years, I think actually dating about pre-2010, we have securitized some of those positions as part of our risk management efforts because it’s actually part of some of the credit risk and exposure around that. And you are correct, we did actually do further trade in the second quarter around that. But it is part of our ongoing risk management for the division.
Daniele Brupbacher:

And what portfolios are those, if I may ask, or is that too much detail?
David Mathers:

It was in the corporate institutional client business, but I already commented on that.
Daniele Brupbacher:

Thank you. Thank you very much.
Tidjane Thiam:

One thing concerns me is the need to focus in capital and capital efficiency across business is something we’re very focused on.
Daniele Brupbacher:

Yes.
Tidjane Thiam:

Yeah.
Daniele Brupbacher:

Thank you.
Tidjane Thiam:

Okay. Thank you.
Operator:

Thank you. Your next question comes from Jernej Omahen from Goldman Sachs. Please go ahead.
Jernej Omahen:

Good morning from my side as well, and welcome to Credit Suisse, Tidjane.
Tidjane Thiam:

Thank you.
Jernej Omahen:

I have a - let me kick off with you’ve been very generous with your time in trying to frame how we will think about the future. But can I just ask you how you think about the Credit Suisse that you have joined today, i.e., what the state of affairs is? Can I start on slide 23 of your presentation? Now, this slide suggest that the return on equity of your investment bank is 17%. Do you believe that number?
Tidjane Thiam:

It’s a good question. I’m thinking about...
Jernej Omahen:

The reason why I’m asking is because you mentioned before that you will eliminate underperforming businesses which would you find as businesses that don’t cover cost of capital. But if you believe that your investment bank makes 17%, then it seems to me that you’re not really planning to cut anything.
Tidjane Thiam:

Well, I - first of all, with 17% - let’s assume the 17% that it’s a mix of businesses. You can imagine that we have different performances. But I made I think this very important point that, here, we are using a hybrid capital, a hybrid denominator. Okay, if I’m blunt, I don’t think that that’s the metric you will use if you want to make capital allocation decision. I’m a great believer that you have to look at the by line of business.
Jernej Omahen:

Right, right. Okay. So, then I guess we would both agree that that number overstates the returns of the investment bank a bit?
Tidjane Thiam:

I don’t know, but the businesses are very different intrinsic with profiles.
Jernej Omahen:

All right.
Tidjane Thiam:

So when you want to make a decision on a given business, you’re going to look at the performance and the binding constraint again, and denominator by line of business and take that into account, plus the fact that - what I said earlier about the uncertainty, the kind of known inflation in RWA, the unknown inflation, you take all that into account, but you will not going to make these decisions at this level, at the level where you are on slide - whatever number it is, 22.
David Mathers:

23.
Tidjane Thiam:

23. Does that answer your question?
Operator:

Thank you. And your last question comes from the line of Andrew Stimpson from Bank of America. Please go ahead.
Andrew Stimpson:

Morning, guys. So, just on - all the juicy questions have gone I think, but coming back to a couple of points. So, on the repricing, David, you said about that repricing is bound to start some of the deleveraging difficulties or the difficulties to revenue. Can you talk to where you’re seeing that the most, i.e., in which products? Is that - I think that whole process of re-pricing has been a lot slower than all of the - than all the markets thought when these rules came out many moons ago now? And then, on litigation, any ideas where you guys are in the queue to settle the RMBS and CDO case with the DoJ and all the other U.S. parties? And maybe update us on what your stock of litigation provisions is. I know at the end of 2014, it was about CHF 1 billion. There’s not been much provisions built in that. I just wondered if there’s been many - any settlements, any other settlements there I might have missed? And then lastly, just a bit of housekeeping on the IB revenues. And you said there was a lot revenue share between - from the WMC on the structured products. Can you just tell us how much of impacts that has had on the equities result and I think add some strategic implications on the IB and Wealth Management synergies you said you might want to exploit? Thanks.
Tidjane Thiam:

Okay. Thank you. Andy, I think there’s still quite a bit of [ph] juice in your questions, but this will be the last question. So, David.
David Mathers:

So, I think - your first question, I think, was a general question, I think, about, re-pricing, Andy, but correct me if I’ve got it wrong. What re-pricing have we actually seen and what would we might expect? I think there’s probably, I don’t know, three rough pages for that. I think, firstly, with the Basel III transition, I think you know, we saw significant re-pricing around securitized products and to some degree, around the credit business as well. I think that very much - if you look at the returns we achieved on those businesses, you will reflect in that re-pricing, which comes as being market leaders in those business at the same time. I think we are definitely seeing, currently, re-pricing around leverage because essentially, simultaneously around the world, or at least - the western world at least. There is an application of much higher leverage requirements, and that obviously directly affects any business that has exposure to that. So, obviously, that’s pretty clear. Obviously, repo within macro, defined service business, but all lending-type businesses are exposed to that and that has broader consequences. And I think you are seeing repricing around that. I think obviously, one would expect on prior precedent that you would expect to see further repricing as we go to the next generation of regulatory change, so FIT, FSAI, et cetera, et cetera. But I think, the lesson from - we’ve seen from the past two rounds is until those rules are pretty much final, and everyone knows exactly what the timetable is, you don’t know and see much happening until that actually happens. There’s not much anticipation for better or for worse, but I think it does reflect the complexity. And I think, I certainly would want that if you look at this set of measures, the complexity is extremely high and the feasibility is not that high. But I think the market does refresh. I think at the end of the day, the banks are publicly run corporations and I think the pressure is very much clear at that point.
Tidjane Thiam:

The litigation question?
David Mathers:

On the litigation, yeah, I mean, obviously, there will be further disclosure in our full release next week. So you probably should wait for that rather than giving anything now. But I don’t think you’ll find anything particularly interesting or change from what we have formally in that document. I think in terms of the mortgage litigation, I think there’s not much I can really add. I think you know, we’ve discussed before that we’re further behind in the queue than some of the U.S. banks. And that very much remains the case. We clearly evaluate this position very carefully, my legal team but also - and finance as well, and quite carefully with the audit committee and the board. And it’s a continuous process. But we’ve not made any particular change to our mortgage provision beyond the one which I think you may recall, we took on the 28 of February early this year. In terms of your final question, which is around RSA for any revenues, I’m not going to give you a specific number. But if you think about what we said about Asia Pacific and you think about the strength we’ve seen in that business, a lot of it has been driven by the strength of our equity derivatives business and that basically has been a key, as you might say, product factory which has generated for us, which are very much in demand by our clients who are in the wealth management business, and I think have been broadly sold and I think very much wanted by those clients and it’s been a good business to actually be in, matching that need with what we’ve actually deliver. I think you know we’ve invested heavily in our Asia equity derivatives business now for the last, I think, four or five years both in terms of our direct fund office debt but also the infrastructure around that. And I think we’re very much seeing the real gains from that. I think just to be clear, we also have expanded our range of distribution of these products beyond their own channels as well and I think the strength to the product franchise what we have to offer has been recognized by other banks, and they do buy these products extensive throughout Asia Pacific. So it’s a broad story in terms of that sense. But it’s very much driven by the Asia equity derivatives if that is the core of what we’re doing there. The other businesses like cash equities are also benefited, but I’d probably focus on that area.
Andrew Stimpson:

Okay. Thank you.
Tidjane Thiam:

Today to all for turning our call, Q2 was a good quarter. I understand that there’s a degree of frustration because we’re not giving you the answers you need on the strategic view, but I can assure that we are working very hard with the management team to come up with a good answer and I’m confident that quality in this bank and quality portfolio and we’ll come up with something that will be compelling and very attractive. So, thank you very much. And if you are - if you were unable to ask questions, please make sure you talk to our IR Department or ourselves. We’re very available to make sure you get all the answers to your questions. So with that, I will close this call. Thank you very much and talk to you all soon. Thank you.
Operator:

Thank you very much. That concludes today’s conference. An e-mail will be sent out shortly advising you on how to access the replay of the conference. Thank you for joining today’s call. You may now disconnect.

Credit Suisse Group AG Q2 2015 Earnings Call Transcript

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Credit Suisse Group AG
Q2 2015 Earnings Call Transcript