11.04.2021

Credit Suisse to Exit from Majority of Prime Services

Credit Suisse posts strong pre-tax income of CHF 1.0 bn, up 26% YoY, and reinforces its strong capital base with a CET1 ratio of 14.4%

“Credit Suisse reported strong third quarter pre-tax income and a CET1 ratio of 14.4 percent.

Wealth Management businesses returned to robust net new assets and higher transaction revenues sequentially, while recurring commissions & fees and client business volumes demonstrated strong year on year momentum. Our Swiss Universal Bank had a record1 third quarter performance. Our Asia Pacific business had a resilient performance notwithstanding deleveraging by clients and we continue to invest in the region, including in relationship managers and building-out our mainland China presence. Our Investment Bank delivered solid profitability driven by strong performance across Advisory, Capital Markets, Securitized Products and Equity Derivatives. Asset Management reported a further improved underlying performance driven across all revenues lines. We have also taken decisive actions to strengthen our overall risk & controls foundation, continued our remediation efforts on the Supply Chain Finance Funds matter, with our priority to return cash to investors, and made significant progress in resolving legacy issues. Our objectives are clear: we want to become a stronger, more customer-centric bank that puts risk management at the very core of its DNA to deliver sustainable growth for investors, clients and colleagues.” Thomas Gottstein, Chief Executive Officer of Credit Suisse Group AG

Highlights for the third quarter 2021

Strong pre-tax income growth year on year, together with more conservative risk appetite, driven by solid revenue growth and a net release of CHF 144 mn in provision for credit losses, partly offset by additional costs, including in relation to longstanding litigation issues

– Net income attributable to shareholders of CHF 434 mn, down 21% year on year driven by an elevated effective tax rate

– Reported pre-tax income of CHF 1.0 bn, up 26% year on year, including a gain of CHF 235 mn relating to Archegos, mainly due to a release of provisions pertaining to an assessment of the future recoverability of receivables, and a CHF 129 mn gain related to our equity investment in Allfunds Group. These gains were offset by major litigation charges of CHF 564 mn4 , including CHF 214 mn in connection with settlements we announced last month relating to the Mozambique matter and litigation provisions in connection with certain other legacy matters, including mortgage-related matters, and in connection with the Supply Chain Finance Funds (SCFF) matter. We also recorded a further impairment relating to York Capital Management of CHF 113 mn in AM

– On an adjusted basis, excluding significant items and Archegos*, record5 third quarter pre-tax income of CHF 1.4 bn, up 25% year on year

– On an adjusted basis, excluding significant items and Archegos*, net revenues were up 6% year on year driven by higher net revenues across IB, AM and SUB, partly offset by lower net revenues in IWM

-Reported operating expenses of CHF 4.6 bn, up 6% year on year, primarily due to higher major litigation provisions and professional services fees. Adjusted operating expenses, excluding significant items and Archegos*, up 2% year on year, with continued investments in strategic initiatives, partially offset by lower compensation and benefits

– Net release of provision for credit losses of CHF 144 mn relating primarily to a release of USD 202 mn (CHF 188 mn) pertaining to an assessment of the future recoverability of receivables related to Archegos in the IB

– Settlement with US, UK and Swiss regulators of legacy matters related to loan financing for Mozambique state enterprises and related securities transactions that took place between 2013 and 2016; concluded enforcement proceeding with Swiss regulator related to past observation activities

– Continued progress on remediation work on the SCFF matter. Returning cash to investors remains a priority; total cash paid out and current cash and cash equivalents of approximately USD 7.0 bn as of September 30, 2021

Strong capital position, stable Assets under Management (AuM), and Net New Assets (NNA) of CHF 5.6 bn

– Strong capital base, with CET1 ratio at 14.4% as of the end of 3Q21, up from 13.7% as of the end of 2Q21 benefitting from strong income generation and risk reduction across businesses; Tier 1 leverage ratio at 6.1%; CET1 leverage ratio at 4.3%

– Group AuM of over CHF 1.6 trn at the end of 3Q21, up approximately 10% year on year; NNA of CHF 5.6 bn with NNA in APAC, SUB and IWM offsetting net asset outflows in AM

– Wealth Management AuM of CHF 843 bn, up approximately 9% year on year, supporting recurring commissions and fees’ growth of 14% year on year Highlights for the nine months of 2021

Highlights for the nine months of 2021

– Despite challenges year to date, we concluded our nine months ending September 2021 with a pre-tax income of CHF 1.1 bn, down 70% year on year due mainly to the charges incurred in relation to Archegos of CHF 4.8 bn (USD 5.1 bn)

– On an adjusted basis, excluding significant items and Archegos*, pre-tax income was CHF 6.3 bn, up 78% year on year, driven by a strong contribution from IB, SUB, APAC and AM; as well as lower operating expenses, down 3%

– On an adjusted basis, excluding significant items and Archegos*, net revenues were up 8% year on year, at CHF 18.2 bn, driven by growth in net revenues across IB, AM, and APAC, slightly offset by lower revenues in IWM – NNA of CHF 29.3 bn compared to CHF 33.6 bn in 9M20 across the Group; NNA of CHF 13.3 bn across Wealth Management businesses in 9M21, compared to CHF 18.3 bn in 9M20

Outlook

Overall, we expect to see a further reduction in market volumes for the remainder of 2021 as the trading environment normalizes compared to the elevated levels seen in 2020, particularly as central banks begin to signal the end of the monetary support provided during the COVID-19 crisis.

In Wealth Management, we expect recurring commissions and fees to continue to benefit from higher levels of AuM as well as increased levels of mandate penetration. With regard to transaction-based revenues in Wealth Management and the Investment Bank, we would expect revenue performance to reflect the normalization of trading conditions as well as the usual seasonal slowdown in market activity.

The exit from the majority of Prime Services is expected to also reduce Equity Sales & Trading revenues. We would, though, expect our capital markets and advisory revenues to continue to benefit from the strong pipelines in both ECM and M&A.

As noted in our strategy update, we expect an impairment in 4Q21 of ~CHF 1.6 bn in respect of the remaining Investment Bank-related goodwill on our balance sheet, which primarily relates to the Donaldson, Lufkin & Jenrette acquisition in 2000, as a consequence of which we would expect to report a net loss in 4Q21. It should be noted that this is a non-cash charge, which will neither reduce the Group’s capital ratios, nor its tangible book value. As we noted at the end of 1Q21, we would expect the effective tax rate to remain significantly elevated for the final quarter of the year.

Our Investment Bank delivered a solid underlying performance despite continued discipline in risk and capital management with reductions to RWA and leverage exposure in Prime Services.

Net revenues of USD 2.5 bn were up 10% year on year; IB reported results included a release of provision for credit losses of USD 202 mn (CHF 188 mn) as well as a USD 24 mn (CHF 23 mn) benefit to revenues and USD 26 mn (CHF 24 mn) net cost recovery in operating expenses relating to Archegos. Adjusted net revenues, excluding Archegos*, were up 9% driven by strong client activity across Capital Markets, M&A and Equity Derivatives.

Fixed Income Sales & Trading revenues were down 13% year on year and Equity Sales & Trading revenues, excluding Archegos*, were down 9% due to continued de-risking in Prime Services.

Excluding Prime Services, Equity Sales & Trading revenues substantially increased driven by robust Equity Derivatives performance and higher Cash Equities results. Capital Markets revenues were up 14% and Advisory revenues were up significantly, by 182%, year on year. Revenues in Global Trading Solutions, our collaboration between the IB and our wealth management businesses, declined, in part due to our reduced capital usage and more conservative risk appetite coupled with lower volumes and volatility compared to an exceptional comparable in 3Q20.

Source: Credit Suisse

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