Credit Suisse is profitable in first half of 2017, both in 1Q and 2Q, through positive operating leverage
Group 2Q17 adjusted* pre-tax income of CHF 684 million
Group 1H17 adjusted* net revenues up 9% year on year and adjusted* non-compensation expenses1 down 13% year on year resulting in an adjusted* pre-tax income of CHF 1.6 billion
Continued profitable growth in SUB, IWM and APAC WM&C with 1H17 adjusted* pre-tax income2 up 21% year on year. Wealth Management with strong net new assets3 in 1H17 of CHF 22.8 billion, up 12% year on year and our strongest asset inflows in six years. This resulted in record assets under management3 in 2Q17 of CHF 716 billion, up 8%4
IBCM achieved strong adjusted* pre-tax income of USD 243 million in 1H17, up 143% year on year. Net revenues up 19% in 1H17 driven by substantial increases in equity and debt underwriting, with net revenues up 49% and 17% year on year
Global Markets delivered significantly improved year on year performance, with net revenues of USD 3.2 billion, up 9%, and adjusted* total operating expenses down 10%, leading to 1H17 adjusted* pre-tax income of USD 638 million, up 480%
On track to achieve cost target of less than CHF 18.5 billion for 2017, with adjusted* operating expenses at constant FX rates of CHF 9.1 billion in 1H17, down 6% year on year (2Q17: CHF 4.5 billion)
Accelerated wind-down of SRU on track, with USD 8 billion of leverage reduction during 2Q17, a 10% reduction sequentially and a 49% reduction year on year
Strong capital ratios following completion of our rights offering with look-through CET1 ratio of 13.3% at end 2Q17, up 150 bps year over year, and look-through tier 1 leverage ratio of 5.2%, up 80 bps year over year
- Adjusted* net revenues of CHF 10.7 billion in 1H17, up 9% year on year (2Q17: CHF 5.2 billion)
- Adjusted* operating expenses at constant FX rates of CHF 9.1 billion in 1H17, down 6% year on year (2Q17: CHF 4.5 billion)
- Adjusted* non-compensation expenses at constant FX rates of CHF 3.8 billion in 1H17, down 13% year on year (2Q17: CHF 1.9 billion)
- Reported pre-tax income of CHF 1.3 billion in 1H17, compared to a pre-tax loss of CHF 285 million in 1H16 (2Q17: CHF 582 million)
- Adjusted* pre-tax income of CHF 1.6 billion in 1H17, compared to adjusted* pre-tax income of CHF 117 million in 1H16 (2Q17: CHF 684 million)
- Net income attributable to shareholders of CHF 899 million in 1H17, compared to a net loss of CHF 132 million in 1H16 (2Q17: CHF 303 million)
Tidjane Thiam, Chief Executive Officer of Credit Suisse, stated: “We are now midway through the execution of our three-year strategic plan and our strategy is working: we are making good progress against our key objectives. Our focus on the global wealth management opportunity is paying off, with growing net new assets3 and record global assets under management3 growing at 8%4 in this first half. In parallel, our efforts to right-size and restructure Global Markets (GM) are also having an impact as GM was profitable during 1H17. Overall, in 1H17, the Groups adjusted* pre-tax income was CHF 1.6 billion compared with CHF 0.1 billion in 1H16.
We have achieved strong revenue growth3 across our Wealth Management businesses. We were able to serve a growing part of our client needs by offering them customized solutions and services. Net new assets3 of close to CHF 23 billion in our Wealth Management businesses represent our strongest performance in the past six years, leading to our highest assets under management ever. In addition, our Asset Management activities attracted CHF 17.8 billion of net new assets in 1H17.
In GM we are seeing the benefits of the positive operating leverage we have created, with higher revenues, lower costs and a significant increase in profitability in the first half of 2017, year on year.
Our overall cost program is on track to achieve less than CHF 18.5 billion of costs5 in 2017, after we had CHF 9.1 billion of costs5 in 1H17.
The progress we have made in winding down the SRU is another key contributor to our stronger first half performance. While core profitability of the firm has increased by CHF 600 million, the profit drag from our non-core division has reduced by CHF 900 million year on year.
In the last 18 months, the first half of our three year plan, we have made significant progress in (i) generating profitable growth, (ii) reducing costs, (iii) strengthening our capital position, (iv) reducing risk and (v) resolving legacy issues.
I am determined, with our teams across all our markets and geographies, to ensure that during the next 18 months, we continue to build on the positive momentum we have created to date and stay disciplined and focused on executing on our strategy for the benefit of our clients and shareholders.”
Strong profit growth across our core businesses
- Swiss Universal Bank (SUB) delivered adjusted* pre-tax income of CHF 987 million in 1H17, up 6% compared to 1H16 and up 14%6 compared to 1H15, two years ago. In 2Q17, we achieved record adjusted* pre-tax income of CHF 504 million, making this our sixth consecutive quarter of year on year adjusted* pre-tax income growth and delivering an adjusted* return on regulatory capital of 16%. In line with targeted revenue initiatives across the division, 2Q17 net revenues increased 5% year on year. Adjusted* total operating expenses in 2Q17 continued to decrease year on year, reflecting our disciplined cost management. We ended 2Q17 with record assets under management of CHF 554 billion. Private Clients attracted net new assets of CHF 3.7 billion in 1H17, a significant improvement over the CHF 1 billion recorded in 1H16 and its strongest half-year performance in asset gathering since 1H14. This performance reflected robust inflows from UHNWI and our entrepreneur clients. Our strategy emphasizes quality and compliant growth. Therefore in 2Q17, we continued to invest in compliance, risk and digitalization, including the launch of an innovative online relationship onboarding tool and the further enhancement of our online banking platform. Alongside our Private Clients business, our Corporate & Institutional Clients business delivered a very strong performance in 1H17 and 2Q17, with year on year revenue growth of 6% and 10%, respectively, as it benefited from increased investment banking and lending activities. Net new assets were impacted by continued outflows from our deliberate strategy of exiting selected EAMs. Overall, after a strong 1Q17, 2Q17 was a quarter of continued strong delivery for SUB, with broad-based revenue growth (stable recurring commission and fees, higher net interest income, up 5%, and higher transaction-based revenues, up 8% compared to 2Q16) combined with lower costs, which led to a very strong 1H17 with close to a billion of adjusted* profits7 of CHF 987 million.
- International Wealth Management (IWM) continued to execute very effectively on its strategy, with a step change in adjusted* pre-tax income as we experienced strong client demand for our solutions and services and our focused approach to our strategic clients. 1H17 adjusted* pre-tax income of CHF 705 million increased 24% compared to 1H16, and 2Q17 adjusted* pre-tax income of CHF 378 million was up 45% compared to 2Q16. We also achieved strong momentum in asset gathering with net new assets of CHF 27 billion in 1H17, almost double our 1H16 result. The increased operating leverage generated by IWM in 1H17 was driven both by higher revenues and continued cost effectiveness. The adjusted* return on regulatory capital improved to 28% in 1H17 and 29% in 2Q17. Private Banking saw a sharp improvement in its profitability with 1H17 adjusted* pre-tax income rising 29% year on year, reflecting a return to profitability in Europe and profitable continued growth in emerging markets. We achieved an even greater improvement in 2Q17 adjusted* pre-tax income, which grew 56% compared to 2Q16, while the adjusted* net margin reached a record 36 bps alongside a 14% increase in net revenues. In both 1H17 and 2Q17, revenue growth was mainly driven by higher net interest income from continued loan growth, while recurring and transaction-based revenues rose as a result of increased client engagement supported by our ‘House View’-linked solutions. Private Banking net new assets totaled CHF 9.3 billion in 1H17, corresponding to an annualized growth rate of 6%, as we generated broad-based inflows from emerging markets and Europe. In 1H17, Asset Management adjusted* pre-tax income grew 6% to CHF 136 million compared to 1H16, which included investment gains of CHF 69 million. Management fees of CHF 523 million rose 18% compared to 1H16, reflecting good investment performance and strong net new assets of CHF 17.8 billion.
- Asia Pacific (APAC) Wealth Management & Connected business (WM&C) continued to be an effective integrated platform for our UHNWI and entrepreneur clients. WM&C delivered a 33% increase in net revenues to CHF 1,148 million and 72% growth in adjusted* pre-tax income to a record CHF 403 million in 1H17 compared to 1H16. We had a strong performance in 2Q17, with net revenues rising 23% and adjusted* pre-tax income up 78% year on year. Within WM&C, Private Banking 1H17 net revenues grew 24% year on year and adjusted* pre-tax income remained strong. Net new assets in 1H17 totaled CHF 10 billion and assets under management reached a record level of CHF 178 billion. Driven by higher transaction activity and higher loan and deposit volumes, net margins increased 6 bps on both a reported and adjusted* basis, compared to 1H16. We saw further strong demand for our UHNWI financing solutions, which contributed to a 60% rise in net revenues in advisory, underwriting and financing compared to 1H16. WM&C achieved adjusted* return on regulatory capital of 29% in 1H17. Euromoney8 named Credit Suisse Asia’s Best Bank for Wealth Management and Asia’s Best Bank for Financing as part of its 2017 Awards for Excellence. In our Markets business, our restructuring efforts continued in connection with our efforts to increase the profitability of this business and we made good progress: net revenues in US dollars increased slightly compared to 1Q17, while we maintained strong cost discipline in 2Q17. We reduced adjusted* operating expenses by 11% in 2Q17 compared to 1Q17. In 1H17, a resilient performance in our Cash business, as well as in Credit products, was offset by a more subdued performance in Equity Derivative products and significantly reduced activity in Rates. Institutional Investor9 voted our Equities business the top overall sales team in its 2017 All-Asia Sales Team survey. Overall, APAC generated an adjusted* return on regulatory capital of 14% for 1H17.
- Investment Banking & Capital Markets (IBCM) made continued progress against its strategy in 1H17, resulting in market share gains10 and an increase in net revenues year on year. In addition to our strength in the Americas, our performance improved in EMEA. We announced two of the three largest M&A deals10 in 1H17 and ranked in the top 5 for IPOs11and top 4 in Leveraged Finance11. IBCM generated adjusted* pre-tax income of USD 243 million in 1H17, an increase of 143% year on year. This represents our strongest half-year adjusted* pre-tax income since 1H14. Net revenues grew to USD 1.1 billion in 1H17, driven by substantial increases in equity and debt underwriting, with net revenues up 49% and 17%, respectively, partially offset by lower revenues in advisory compared to 1H16. Investments continued to be self-funded in 2Q17 and adjusted* operating expenses declined 1% year on year. The adjusted* return on regulatory capital was 18% in 1H17. Net revenues in global advisory and underwriting12 were up 20% year on year to USD 2.2 billion, driven primarily by higher revenues in debt and equity underwriting.
- Global Markets (GM) delivered improved operating leverage, reflecting the consistent execution of our strategy. 1H17 profitability increased substantially with adjusted* pre-tax income of USD 638 million and an adjusted* return on regulatory capital of 9%. 1H17 net revenues of USD 3.2 billion increased 9% year on year, highlighting the strength of our client franchise and more favorable operating conditions. We maintained our leading market share13 across our trading and underwriting businesses, reflecting solid performance in Securitized Products, Global Credit Products, Emerging Markets, Cash Equities and Prime Services for 1H17. Adjusted* total operating expenses in 1H17 declined 10% compared to the same period in the prior year, demonstrating our strong cost discipline across compensation and benefits and other operating expenses. Our consistent performance leaves us well positioned to achieve our 2018 targets of USD 6 billion of revenues and a cost base of below USD 4.8 billion. In 2Q17, adjusted* pre-tax income of USD 300 million increased 44% year on year, reflecting outperformance in our Securitized Products franchise, positive Equities performance excluding SMG with adjusted* net revenues up 5% and a significant decline in costs. With the majority of our restructuring behind us, we remain focused on opportunistically growing and investing in our franchise, including hiring key talent. As a pillar of Credit Suisse’s strategy, we have focused on increasing cross-divisional collaboration and established a partnership with IWM and SUB to improve the diversity and depth of product offering for institutional and wealth management clients.
Market environment in 1H17
The market environment in the first half of 2017 was characterized by a unique combination of rising market indices and persistently low levels of volatility. This provided a healthy backdrop for primary issuances across equity and debt capital markets but resulted in lower activity across a number of asset classes, most notably in derivatives.
In credit markets, spreads continued to tighten in 2Q17, though the pace of the narrowing slowed, especially for emerging market issuers. As in 1Q17, oil prices remained relatively subdued, given continued concerns over supply, especially in the Middle East.
The US dollar depreciated against most major currencies in 2Q17 as US economic and in particular inflation data weakened more than expected. The Euro demonstrated particular strength positively impacted by the outcome of the French presidential election and stronger economic data.
We expect current low levels of volatility, geopolitical concerns and periods of low client activity to continue to impact our more market dependent activities. Wealth management has a more predictable earnings contribution, beyond the traditional and expected seasonality of the third quarter. Therefore, we believe we will continue to benefit from the long-term tail winds underpinning this attractive area of financial services.
On a macroeconomic level, we believe that growth prospects have been improving in many of the geographies in which we operate. Credit quality remains sound and we expect to benefit from rising US interest rates across our wealth management franchise over time.
Notwithstanding the healthy client dialogue we are having across wealth management and investment banking, we expect market activity to be influenced by normal seasonality in the third quarter, but we believe our pipeline will remain strong for the balance of the year.