Credit Suisse Group AG
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group's Third Quarter 2016 Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is recorded. At this time, I'd like to turn the conference over to. Mr. Adam Gishen, Head of Investor Relations of Credit Suisse. Please go ahead, Mr. Gishen.

[Adam Gishen:]

Okay. Good morning and welcome to the third quarter 2016 results call. Before we begin, let me remind you of the important precautionary statement on slide two, including the statements on non-U.S. GAAP measures and Basel III disclosures. With that, I will hand the presentation over to our CEO, Tidjane Thiam.

[Tidjane Thiam:]

Thanks, Adam, and good morning, everyone, and thank you for joining our call. With me today is David Mathers, our Chief Financial Officer. We will present this morning, the third quarter results for Credit Suisse. David and I both look forward to taking your questions at the end of the session. As you know, our second quarter this year was one of marked improvement after a challenging period in Q4 2015 and Q1 2016. I'm pleased that many of those positive trends have been confirmed in the third quarter. During the third quarter, the macro environment remained challenging, with significant political uncertainty and continued low or even negative interest rates, clear headwinds for our industry. In this context, we have continued to implement our strategy with discipline. We see that we have a long way to go in our journey, but there are clear signs in the results we are presenting today that our strategy is working. So, let me now take you through the third quarter results in more details starting with slide four. You will be familiar with this format we have used now for a few quarters showing side-by-side reported on the left and adjusted numbers on the right hand side. David will cover these results in detail in his section; I will therefore limit my comments to our profitability. This morning, we reported group PTI of CHF 222 million, an improvement of 12% sequentially against the second quarter. All our operating divisions were profitable on both a reported and adjusted basis. On an adjusted basis, the group delivered CHF 327 million of pre-tax income, an improvement of 13% sequentially over Q2, confirming the positive momentum in our underlying performance. We have presented on the next slide what for us are the key takeaways of this quarter in the format you're also familiar with. So, in the quarter that is traditionally slower, we have continued to serve our clients effectively and have been able to continue to make progress in our absolute top priority

[David R. Mathers:]

Thank you very much, Tidjane. Good morning, and I'd like to thank you all for joining our third quarter earnings call today. So, I will start on slide 23 with a summary of our third quarter financial results. We show the group numbers here on a reported and on an adjusted basis, and we continue to repair our adjusted results on the same definition that we've used in prior quarters. And as usual, we provide a full reconciliation of our adjusted and our reported results for the group, and for each of our divisions in the appendix. You can see this quarter's adjusted results exclude gains of CHF 346 million from a significant real estate sale, offset by restructuring costs of CHF 145 million; and increase in provisions relating to major litigation items of CHF 306 million. If you look at the results for the third quarter, our reported pre-tax income was CHF 222 million on net revenues of CHF 5.4 billion. Adjusting for the items that I've mentioned, we achieved a pre-tax income of CHF 327 million on CHF 5.1 billion of revenues. Now, as in prior quarters, for the balance of this presentation, I will focus entirely on the adjusted numbers, as we believe these more accurately reflect the operating performance of our businesses. As Tidjane has mentioned, the continued successful execution on our strategy has driven these quarterly results with continued profitability in each of our core operating divisions. So let's turn to slide 24 to review our capital and our leverage positions. During the third quarter, as Tidjane summarized, we continued to reallocate capital to our growth businesses. Risk-weighted assets stood at CHF 270 billion at the end of third quarter, stable from the CHF 271 billion that we reported last quarter, but down from CHF 285 billion in the third quarter in 2015. Compared to a year ago, we reduced risk-weighted assets in the Strategic Resolution Unit by CHF 20 billion, and by CHF 8 billion in Global Markets. I'm pleased to say that with the capital that we released from these areas, we then reinvested CHF 16 billion in to risk-weighted assets in our growth businesses in Asia Pacific, the Swiss Universal Bank, International Wealth Management, and the Investment Banking & Capital Markets division. We've made similar progress in our leverage exposure with year-on-year reductions of CHF 76 billion from the SRU; and CHF 11 billion from Global Markets. As with risk-weighted assets, we then reinvested capital resources with increase in (25

[Tidjane Thiam:]

Thank you, David. Before we take your questions, let me wrap up on the quarter and provide an outlook for Q4. In summary, this has been a quarter of continued progress for Credit Suisse. We have executed with discipline and are generating significant cost savings. We have delivered profitable growth in APAC, IWM and SUB, with good momentum in IBCM, and a second consecutive quarter of profitability in Global Markets. We further improved our look-through CET1 ratio to 12%, the highest level we ever reported. Looking ahead, we remain cautious about the outlook for the remainder of the year. We expect market activity to continue to be influenced by geopolitical and macroeconomic uncertainty over the next several quarters, and the outlook to remain challenging. We still have a long way to go, but we are on the right track. We are fully mobilized to deliver in challenging market conditions on our key commitments to reduce cost, strengthen our capital base, and drive profitable business growth where attractive prospects exist. With that, we look forward to your questions.

[Operator:]

Thank you, sir. Our first question today comes from the line of Daniele Brupbacher from UBS. Please go ahead.

[Daniele Brupbacher:]

Yeah. Good morning and thank you. I had two things. Firstly, on the interest rate sensitivity, could you give us a bit of an update there, particularly with regards to the sensitivity Credit Suisse has to the U.S. yield curve, and probably how you're skewed to the short-end of the curve? And then secondly on cost management, can you just give us a little bit more details in terms of value better (47

[David R. Mathers:]

Thank you very much, Daniele. It's David here. I think in terms of interest rate sensitivity within the financial reports on page 75, we do give the usual disclosure. And you'll see there what we say is the impact of a one-basis- point parallel move in yield curves would have been an increase of CHF 4.5 million. So essentially, very similar to what we said before. I think in the past we said CHF 500 million for 100 basis points, it's CHF 450 million now. But given that we've obviously exited from the U.S. broker-dealer business a year ago, that would explain the slight downward shift in sensitivity. And that's actually no change from the second quarter. So that's our current interest rate exposure within the banking book. I think in terms of cost details, I think we're clearly pleased with the execution progress we've actually made over the course of the year so far. Clearly, what we've given is a net saving of CHF 1.46 billion compared to the average run rate in 2015. And just for the sake of clarity, when I spoke before, I did mention that what we do when we report our cost numbers is those are on FX-neutral basis. So in other words, the CHF 14.5 billion nine-month cost excludes the benefit that we get from the reduction from FX move, which is predominantly driven by the weakness of sterling so far this year. So it's a clean comparison to 2015. In terms of the components of that, I think we've given already in terms obviously, deferred comp was the biggest reduction in the first quarter, and it's also continued to contribute during the second and the third quarters. But as you say, we have relatively high professional service costs in the bank. That is being driven by a, I would say, unduly large contractor population. And that has been a very substantial focus of our cost efforts so far this year. In fact, it's been the largest contributor of the 5,400 reductions that Tidjane's already summarized, and will be of the 6,000 total. So I think we're very pleased to see that number come down. And I think, obviously, by prioritizing those costs, they tend to come out quicker because this is clearly no notices periods. And actually, the restructuring costs associated with contractors are minimal. So I think, you see benefit from that. And I think, clearly, it's also the right thing to do from our employee base as well. So I think more to go there. That's clearly being driven by some of the initiatives we have that would be – for example, I think you're aware of the London program which we're heard the code name which I think is Lighthouse II, but there's also an equivalent program in New York as well to drive these costs down. So I think that's been good. And that's obviously being the second driver after deferred comp. I did say, I think, in the end of the second quarter that we would see some savings in our salary costs from the reduction in permanent employees, and that's the sort of third component which is now coming through as well. So I think more to go, Daniele, in terms of the numbers you've outlined. We have to get back to in terms of the percentage of these actual professional service fees, which relate to contractors. I would say the difference between contractors, consultants is a little bit academic, but we can probably give you some more insight.

[Daniele Brupbacher:]

That's great. Thank you.

[Tidjane Thiam:]

Okay. Thank you.

[Operator:]

Thank you very much. Our next question comes from the line of Andrew Coombs from Citigroup. Please go ahead.

[Andrew P. Coombs:]

Good morning. Three questions, please; one on litigation, one on net new money, and then finally, one on Asia. Starting with litigation, if I look at page 162 of the report, your estimate of losses not covered by existing provision is now estimated to be up CHF 2.6 billion, and that's up from CHF 2.1 billion in the prior quarter despite the CHF 0.3 billion exit provision you booked in Q3. So I was hoping you could just provide a bit more color on why you've increased your estimated potential losses there. Second question is just on the regularization outflows that you flag on slide 34. They've jumped up from CHF 1.4 billion to CHF 2.8 billion in the third quarter including quite a big increase in Asia. So again, what's driving the increase in those cross-border outflows there? And then the final question -- Asia, the provision number has ticked up. It's not a big increase, but there is a subtle increase there. You flagged some share-based loans in Hong Kong. Would be grateful if you could just provide a bit more detail. Thank you.

[Tidjane Thiam:]

(52

[David R. Mathers:]

I think, taking that in sequence now, on litigation, we are, I think going to continue with what we've said before. We're not going to make any further comments around our litigation visions or the RPO number you mention on page 152, I'm afraid. In terms of net new assets, and particularly the regularization outflows, as you say, I think slide 34 does give the regularization outflows. I think, previously, we're obviously focused and given our guidance around the International Wealth Management business. And I think we've guided there to total regularization outflows of approaching CHF 5 billion this year. We're clearly at CHF 3.5 billion so far, and the run rate in the third quarter was consistent with what we've seen earlier in the year. So I wouldn't be looking to change that guidance. I think that's an unchanged number. In terms of the other areas, I did pick up, obviously, we have seen some outflows in the Swiss Universal Bank, just under CHF 0.5 billion. That basically has both been in our own book and also in the books of some of the External Asset Managers. And we would expect some further outflows, but it will probably be primarily more by the realignment of the External Asset Manager business. Within Asia Pacific, we have seen outflows of about CHF 0.9 billion, of which CHF 0.7 billion relates to the amnesty which we've seen in Indonesia. And we'd probably expect similar to slightly less in the fourth quarter, I think, would be my guidance basically. But I think one point, just to put this in context, I mean, I think if you go back over the last few years, obviously, the peak outflows was actually about three years ago when it was CHF 13 billion. And the margin impact of those outflows, obviously, was quite material, and because of the high gross margin we actually saw in those businesses, and they were primarily in Western Europe. The outflows we're seeing now, the margin on this business is not particularly different to the average gross margin, for example, we have in Asia Pacific. So you should not expect a sort of margin shift as a consequence of this, just to be clear on that. It's quite different from the events several years ago.

[Tidjane Thiam:]

(54

[David R. Mathers:]

Just in terms of the provisions of a net CHF 34 million, I think as we said, that relates to a small number of Hong Kong-based share loans, where there was a fall in the stock price that exceeded significantly the average loan-to-value, which is typically around 55% on these type of exposures, extremely unusual, by area (55

[Tidjane Thiam:]

And again, Tidjane here. As David said, the recovery on this, the track record is very good. Over time, there are (56

[Andrew P. Coombs:]

Very helpful. Thank you.

[Tidjane Thiam:]

Thank you.

[Operator:]

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

[Jeremy C. Sigee:]

Good morning. Thank you. Two questions please. Firstly, you made a comment about Global Markets. I think, you said was to the effect that the right-sizing of Global Markets is complete; the cost income there is still very problematic. It's sort of 90% in 3Q, 94% for the nine months. So it's still, like it needs more than just operating leverage to rectify that going forward. So I just wondered if you could amplify a little bit that comment and your outlook for how that gets fixed. And then my second question relates to the SRU. Obviously, you've achieved very impressive shrinkage in the quarter here. And I just wondered whether it's reasonable for us to view that as a continuing acceleration in the coming quarters. Should we expect you to continue to track faster in terms of reduction than you originally targeted, or should we view that as a bit of a one-off event in 3Q?

[Tidjane Thiam:]

Thank you, Jeremy. You're right to mention the cost income on Global Markets. We're really doing two things there. The first one, as we described, is really to drive the cost down. And I think the progress there has been very much (57

[David R. Mathers:]

Thank you, Tidjane. So I think as Tidjane said, I mean, I think, obviously, we're very pleased with a CHF 20 billion reduction in risk-weighted assets, CHF 76 billion reduction in leverage. So I mean, I think to be down 40% in leverage, 37% in RWA ex (59

[Jeremy C. Sigee:]

Thank you.

[David R. Mathers:]

Okay. Thank you.

[Operator:]

Thank you. Your next question comes from the line of Kinner Lakhani from Deutsche Bank.

[Kinner Lakhani:]

Yes. Hi, good morning. I have three questions. So firstly, just wanted to revisit Global Markets. In the context that most of us would have said 3Q was actually quite a good outturn, and annualizing Q3 revenues essentially gets us to CHF 5.5 billion for the year, which is broadly in line with the cost base. So, it doesn't feel that this franchise is much better than breakeven at this point in time. Second question is on net interest income, and thanks for pointing out your sensitivity. I guess, the issue being none of us really expect rates to go up in a parallel fashion. So I guess, to put the question in a different way, based on forward curves today, how would you expect your NII to evolve one, two, and three years out from here? And then the final question is on Wealth Management. But here, I'm looking at Wealth Management in totality. So, adding the three subdivisions; I understand transaction revenues are cyclical, but just looking at the fee and commission margins, they seem to be down from 36 basis points a year ago to 32 basis points in Q3. So, just trying to understand, what you think of the key components behind the 4 basis points deterioration and therefore, the outlook on that? Thank you.

[David R. Mathers:]

So perhaps I'll just start with the Global Markets point. Now, I think a few points to make. When we came out with the acceleration program back in March, we did give some longer-term cost targets for the group as a whole. And particularly, obviously we said, we'd be at or below CHF 19.8 billion, and we provided that guidance today to be below the CHF 19.8 billion for the current year. We also said that we've been looking to reduce our costs further during the course of 2017, and 2018. And GM will actually gain their portion of those costs. And therefore, that does give us the potential to reduce our expense base below the 5.4 billion, which we analyzed today. And I think it's clearly a very good news that we've achieved the 5.4 billion in nine months in Italy, two years ahead of schedule. But I think a) there is the overall group saving to come through; and b) I think, it's something we'll look to give you more guidance to on Investor Day. I think it's certainly fair to say, and we are very much focused on the profitability of this division, not so much the revenue or the costs of this division. We want to move towards a 10% to 15% return on capital. You know that means sort of 1 billion to 1.5 billion in terms of the profit contribution; that can really come both from the cost lever, as well as the revenue lever. That said, it's also clear, the performance of our equities business, particularly in Europe was disappointing. And I think that touches on the revenue opportunity, which Tidjane mentioned in terms of that. So it's those combination of factors which we look to drive, as I said, we will look to give some more help and guidance on this issue on the 7th of December.

[Kinner Lakhani:]

I think that's great. Net interest income?

[David R. Mathers:]

Just moving to the second question then. So yes, I think the net interest income trends for the bank, I mean, it clearly has different sensitivities budget for divisions. I think it's the obvious point to make. If we actually think around a core part of our strategy, it's been to actually expand our lending operations across the Wealth Management businesses, I think to help our clients, providing the lending that she needs, but it's also good for us in terms of the strength of our client relationships, the business opportunities come from that. And that is clearly driving a large component of our net interest income growth, and you see that particularly, for example, in International Wealth Management. You see it in the Swiss Universal Bank, too, but in the Swiss Universal Bank, you're also seeing some of the increase in funding costs there relating to the T venture (1

[Kinner Lakhani:]

That's very helpful. Thanks, David.

[David R. Mathers:]

Thank you.

[Kinner Lakhani:]

And just to ask you on TLAC actually. Have you provided any guidance on the impact of meeting the kind of TLAC-type requirements?

[David R. Mathers:]

Yeah. We have given some guidance to the debt market in terms of the likely scale additions we need. I mean, I think, just to go back to the Investor Day over a year ago, we talked to that point around total leverage exposure about CHF 1 trillion. Under the Swiss Too Big to Fail rule, they require us to actually operate with a 5% TLAC buffer, so that would equate to about CHF 50 billion of TLAC. Now, you may recall that TLAC has diminishing effectiveness in the last year and the last two years, which you can potentially address through some structural changes around TLAC issuance, which we could talk about offline. But you do need to operate with a slight buffer to that, so, therefore, we've given guidance in the sort of CHF 55 billion to CHF 60 billion in terms of the amount of TLAC to have an issuance. And we're just over CHF 20 billion so far in terms of the actual TLAC we've actually issued in the debt market, today. I mean, I think perhaps if I could jump ahead therefore to, sort of, obviously put next question, I guess, which would be what does that mean for your overall funding costs?

[Kinner Lakhani:]

Great.

[David R. Mathers:]

And I probably should answer that. I mean, when I look at the funding costs over the next two to three years, we would expect obviously some increase in funding costs relating to TLAC, because we're typically issuing that at 50 to 60 basis points wider spreads than we're actually issuing senior debt. That said, we have several contra factors. So firstly, we clearly have still a very substantial funding position within the Strategic Resolution Unit. So as that actually run off, that will actually reduce our actual funding requirements. Secondly, within the Strategic Resolution Unit, you may recall that we had, I think, some legacy ball to (1

[Kinner Lakhani:]

Thanks again. Very helpful.

[David R. Mathers:]

Thank you.

[Operator:]

Thank you. Your next question comes from the line of Jernej Omahen from Goldman Sachs. Please go ahead.

[Jernej Omahen:]

Yeah. Good morning from my side as well. I have two questions; and I don't want to take away from what is obviously a positive quarter, particularly on the capital side of the equation. But still, there's two things that stand out here, I think. So the first one is, I'm looking at your equity results, and I think, particularly, David, you described it in reasonably constructive terms. But going back to Credit Suisse's old disclosure, the equities revenue is the lowest or the worst this quarter in the last decade, and this is during the quarter where your competitors had a reasonable equity result. So I'm just trying to understand that when you comment on your equities results, should we take this number and take it as a new base for where you see your equity revenues going? So, that's question number one. Question number two, if that's not the case, what went wrong here? Because it doesn't seem to us at least, that this is due to volatility or weakness in equity derivatives alone, and if it is, there must have been a substantial trading loss on some of your positions. And then the second question is, we would just like to understand better, how does one lose money on a Lombard loan? Because as you point out, the loan to value is 50%. I don't think – was there any major Asian equity that dropped 50% so quickly that you couldn't liquidate the collateral? How does this work and how does that make you feel about the rapid expansion of the loan portfolio in Asia? And finally, on Tidjane's point that there's an expectation that there will be substantial recovery on these Lombard loan, does that mean that Credit Suisse hasn't sold the underlying collateral, so you expect positive mikes (1

[David R. Mathers:]

Let me start then with just to provide some more details around the equity performance. I think first and foremost, I think, yes, I think it's certainly true that the equity numbers particularly in Europe were disappointing in the third quarter. I think, if we look at your first point really, in terms of equity derivatives, what we actually saw was quite good equity derivatives numbers in the second quarter, helped obviously by the rather surprising result in the EU referendum, which pushed out vol and actually generated gains in the second quarter. As basically vol has deteriorated through the course of the third quarter, that's actually cost us money in our equity derivatives business. So it's been that decline in volatility, at home (1

[Tidjane Thiam:]

Yes; if I may just add on this. I think, as we said, really, it's a tale of two cities, if you wish, a geographic story in Americas, which is most of our franchise, things were fine, in line with market or better. So, it's a loss in revenue, there are no trading losses, which is something you raised. A loss in revenue is mostly in Europe, so I don't think you should take this point as a new reference point, absolutely not (1

[David R. Mathers:]

I think, the second question then was around the...

[Jernej Omahen:]

Lombard loan. Yeah.

[David R. Mathers:]

Yeah, (1

[Tidjane Thiam:]

Recovery is a broad word I use, but actually we are going to get Jewish money back (1

[Jernej Omahen:]

Okay. Can I just please have one follow-on on the first question on the Equities business performance? David, within the Equities franchise, was there any subsegment that was substantially loss-making that you expect to revert to zero in the fourth quarter?

[David R. Mathers:]

No. I don't think there was any particular one-off losses per se. It was lower activity, particularly in Europe, as I said, and across equity derivatives. And obviously, limited primary flows in Europe, therefore, limited follow-on business from that as well. Plus a generally weak trading environment. But I mean, on derivatives, it's straightforward. It's obviously the fall-off involved in those positions over the last three months.

[Tidjane Thiam:]

If we lower revenue. If you look at the revenue drop, it's probably 190 million, 195 million, and most of that was in Europe, not in the U.S.

[Jernej Omahen:]

Most of that was in Europe, yeah?

[Tidjane Thiam:]

Yeah. It's a revenue loss story.

[Jernej Omahen:]

All right. Thank you very much.

[Tidjane Thiam:]

The U.S. was down in line with the market, marginally down. Thank you.

[Jernej Omahen:]

Thank you very much.

[Tidjane Thiam:]

Yeah.

[Operator:]

Thank you. Our next question comes from the line of Fiona Swaffield from RBC. Please go ahead.

[Fiona M. Swaffield:]

Hi. Good morning. Just a couple of things. First was on the improvement in the look-through Core Tier 1. I'm trying to understand what drove it, because the net profit wasn't that significant in Q3. Something to do with other? I wondered if you could go through that on page 60 of the report. And the other issue I want to ask about was the Strategic Resolution Unit and the exit losses or just generally the negative revenues. They seem to me to be somewhat higher, the 1% of RWA reduction, particularly if you looked to the nine-months data. I just wondered if you could talk about the future revenues ex the exit cost issue because I can't quite get to the numbers that you're discussing. Thanks.

[Tidjane Thiam:]

David, you take the CET1.

[David R. Mathers:]

Thanks, Fiona. We actually did have positive operating free cash flow or free capital growth during the period. Obviously, that's driven partly by the pre-tax profits. But I think the other point, as we mentioned before, is how share-based compensation awards actually work for employees. So during the quarter – during the year, we basically expense those awards, but we retain the capital on those awards until we actually deliver. So I think we've said this before, you would expect to see the capital ratio improve consistently, but there's then normally a drop in the second quarter as a consequence of that. So, that is a substantial component of the other number, which you were referring to actually, Fiona. I think beyond that, clearly, we obviously dropped the RWA slightly, and that's what drove that result, but that is the core component actually, Fiona. I think the second question then was...

[Tidjane Thiam:]

SRU.

[David R. Mathers:]

The SRU. That's right. So, yeah, the exit losses, I think, was about 42 million, which is (1

[Fiona M. Swaffield:]

Thanks so much.

[Tidjane Thiam:]

Okay. Thank you.

[Operator:]

Thank you very much. Your next question comes from the line of Al Alevizakos from HSBC. Please go ahead.

[Alevizos Alevizakos:]

Hi, thank you for taking my questions. I've got a couple of questions. First of all, it seems like you haven't reiterated the target of 11% to 12% CET1 capital ratio target. Obviously, now, you're being at 12% and therefore, it feels like you could exceed it. But I just wanted to ask what is the expected pension heap in Q4? Because obviously, everybody who reports under IFRS tends to take it quarterly, but you do it annually. And the second thing is, can we factor any additional gains on real estate for the fourth quarter? And that's question number one. Question number two is that, generally, provisions have looked elevated like for banks in certain countries in Asia Pacific and also emerging markets. A good example could be Singapore for example. And I'm just trying to get an update on – because I saw that the provisions in IWM were zero, but I heard somewhere Iqbal Khan mentioning that certain loan classes may have got some problems like, for example, transport or shipping. So, I just wanted to get a bit of an outlook on that kind of question.

[Tidjane Thiam:]

Okay. Thank you. David, do you want to talk about the pension?

[David R. Mathers:]

Yeah. So, I think just – so, as you said, we gave guidance of 11% to 12% as being our CET1 ratio this year, barring any major litigation provisions. I think we're not updating that guidance at this point. I think we've been very clear over the course of last year that we need to build our CET1 ratio ahead of the (1

[Tidjane Thiam:]

Provisions?

[David R. Mathers:]

Provisions in terms of emerging markets. I think you may be referring to the impaired loan note, which is actually in the financial report. What we refer to there actually is some increase I think in aviation impaired loans. And I think – but that's been offset by some improvement actually in ship loans actually and net zero. By the way, impaired loans doesn't mean we take credit provisions. It means there is some issue in the loans. If we have collateral against it, then we don't have to take our credit provision because we haven't suffered a loss. But they still count towards the impaired loan balance. Hence, the zero credit charge in IWM.

[Tidjane Thiam:]

(1

[Alevizos Alevizakos:]

And what about any kind of additional gains for the real estate?

[David R. Mathers:]

Well, I think we've completed the bulk of the actions towards the target we laid out this year. We may have some small gains in the fourth quarter, but I would not – you should not expect anything as large as we saw in the third quarter.

[Alevizos Alevizakos:]

Okay. That was very helpful. Thank you.

[Tidjane Thiam:]

Sorry. Is that okay? Okay. Thank you. We can take one more question. We're getting to the end.

[Operator:]

Thank you, sir. Your final question comes from the line of Andrew Stimpson from Bank of America. Please go ahead.

[Andrew Stimpson:]

Good morning, guys. So, first question on Asia, I know you're up 100 advisors year-on-year, but it looks like you didn't – there's no net hiring in the third quarter. So, just wondering what interrupted the momentum that you've been building on hiring there? And whether you can, given you hired an extra 100 people over the past year, then it doesn't look like inflows over a nine-month period have been accelerating. So, given that you have hired so many people, essentially that those inflow numbers have to improve, when do you think that inflection point might be given that you've hired so many people? And then secondly, on Equities, if this is – we're supposed to estimate that these will – revenues will recover. And would you also suggest that we would therefore expect the risk-weighted assets and leverage numbers to expand again in the IB return? Which I know, last quarter, you kind of said that actually maybe – the low number in the second quarter, maybe that would rebound over time. Just wondering whether we should be connecting those, and therefore also whether costs would come back, whether the cost reduction that you've seen in the IB is genuine fixed cost reduction that you've put through there. And then lastly, on the LCR, I see it's come down a little bit, but it still seems exceptionally high versus your peer group. And I can't see an obvious reason why it needs to run with such a high number. Clearly, it looks to me though there is a clear way that could improve your leverage ratio if you were to run that nearer to ratios, similar to your peers. So, just, A) can you do that; and B) how quickly might that happen please? Thank you.

[Tidjane Thiam:]

Yes. Okay. Thank you, Andrew. Andrew, recruiting in Asia, in the NNA, we think that actually you're seeing some of the benefits already on a relative basis. On a relative basis, we've done we believe, much better than our peers, at least on the data we can see the CHF 4.6 billion in Q3 is very strong. The other thing you have to keep in mind is that, of course, people will come on stream, they don't – it's not the 100 people on January 1. This is spread all over the year, because some of them come from competitors, et cetera. So, it's not – the average infusion of people is much lower than 100. But we think that they are contributing, you see it in the NNA. You see it also in the way we run risk model. A lot of the IBCM revenues are linked to some of those new relationships we have introduced. We said we have 9%, 10% (1

[Andrew Stimpson:]

Okay.

[Tidjane Thiam:]

Yeah. Yeah. Equities, are we going to expand – I think, really, if you look exactly (1

[David R. Mathers:]

Yeah. So, the LCR, as you say, dropped from 172% to 163% between the second and third quarter. I think we did say last quarter that we're very focused actually on reducing the amount of HQLA we actually had on. And we obviously made progress on this quarter, and that remains a core priority of us. But I would refresh what I actually said back in July, which is, obviously, you're aware of Reg YY, which is part of the Federal Reserve, which does require that both subsidiaries and branches have the matching liquidity funds. So, that does require – given that you – banks are increasing and they're operating with a network of independent branches and a network of subsidiaries, all of which have to have pools of liquidity against that. That is going to result in a binding constraint for HQLA, which is higher than we've required if liquidity was treated as fully fungible across all the entities of the bank. So, I think it will come down. That's something we're really focused on. But I think we look to make progress quarter-on-quarter. But I think I would caution that given the important Reg YY, that the – some of the components by branch subsidiaries will be in excess of a group LCR requirement. And that's been another binding constraint on liquidity for banks.

[Andrew Stimpson:]

Okay. And do you feel that affects – I know you won't comment on competitors, but just given the overall supply to all your competitors as well and they're all in about 30 percentage points, if not more, lower on the LCR. Is that the kind of level you'd think you'd get to or would you just naturally be higher?

[David R. Mathers:]

We don't really comment on competitors. And I think getting into legal entity structure is a complex subject. I would merely say that we've always operated in the UK. We have a standalone subsidiary in fact too, River I (1

[Andrew Stimpson:]

Okay. Thank you.

[Tidjane Thiam:]

Okay. Well, thank you. I think this closes our call. Thank you very much for attending and pointing your questions. We think Q3 was a quarter of continued progress, continuing to make progress on the cost front, continuing to attract assets at stable and good margins, very good performance in IBCM, profitability in GM, Global Markets, and very good performance in SRU, which leads to a stronger capital position. So, hopefully, more on that at the Investor Day on December 7. So, thank you. Thank you for being here this morning. Thank you.

[Operator:]

Thank you very much, sir. That does conclude today's conference. An e-mail will be sent out shortly advising you on how to access the replay of this conference. Thank you for joining today's call. You may all disconnect.