Q4 2016 Real-Time Call Brief

Highlights

We have significantly increased operating leverage across our businesses, realizing net cost savings of CHF 1.9 million for 2016.

Our objective is to achieve a good cost base of below CHF 17 billion for 2018, having started above CHF 21 billion in 2015.

So moving on from cost to growth, profitable growth, we have achieved CHF 28.5 billion of net assets inflows, an increase of 58% compared to 2015.

At end Q4, our look-through CET1 ratio stood at 11.6%, and our CET1 leverage ratio was 3.3%.

Pre-DOJ RMBS settlement these ratios would have been respectively 12.5% and 3.5%.

We have reduced operating expenses by CHF1.9 billion in 2016.

This is more than 30% above our initial target of CHF1.4 billion.

Within these reductions, our 2016 non-comp expenses at constant exchange rates are down 9%.

These are very important KPI for us.

So, non-comp expenses down 9% year-over-year, and down 16% in the fourth quarter compared to same quarter a year ago showing an acceleration within 2016 in the cost getting efforts.

So, at the end of the run rate of exit of ‘16 is 16% below over the run rate of the exit of ‘15.

We measured our progress on cost reduction on an FX neutralized basis with end 2015 exchange rates.

This leads to an operating cost base of $19.4 billion at end 2016.

With current exchange rates, our actual cost base is $400 million lower at CHF19.1 billion so from CHF21 billion at the end of ‘15.

We produced strong net new assets inflows CHF28.5 billion, an increase of 58% compared to prior year and with higher gross and net margins.

Clients tax programs; our regularization program has now moved to Latin America, where it was mentioned in 2016 and this clearly has resulted in outflow around CHF1.5 billion in Q4.

Also in Switzerland, we've accelerated the exit of certain external asset managers what we called EAMs to protect our profitability and risk of our portfolio.

This is deliberate, discretionary and productive, and it contributed CHF1.1 billion of outflows in the quarter.

We have continued our regulation efforts in Switzerland too.

This contributed CHF0.8 billion of outflows in Q4.

Overall, out of the CHF5 billion of outflows you see here, CHF1.6 billion can be attributed to seasonal effects and CHF3.4 billion, so majority, to our own productive management actions, which we consider as an investment in the future to ensure that we have clean and complaint group.

Our total assets rose by region for 2016, we have seen CHF14.6 billion of net inflows in APAC, representing a growth rate of 10% with the double digit growth rate and in Middle East Africa and Eastern Europe we have attracted NNA of CHF14.3 billion, a 13% growth rate.

In Europe, a more mature market, we have attracted NAA of CHF4.2 billion or 4% growth rate.

At year end, we had $734 billion of AUM in Wealth Management, an increase of 8% over the year.

In our Private Banking activity, 2016 revenues were up 17%, year-on-year, confirming our regular continues progress in this core activity.

So equity and debt underwriting and advisory M&A, net revenues increased 34% year-on-year.

Our financing platform catering to the needs of our ultra-high-net-worth client was setup in early 2016, and expanded in second half of 2016.

So that in 2016 its revenues were up 32% year-on-year, with a mild increase in deductivity.

So taken together, these teams have had very strong year, with revenues up 24% and estimating PTI up 65%, well on track to achieve our 2018 targets presented at our recent Investor Day.

That return on capital has increased in the past twelve months from 16% to 23%.

Moving now Global Markets in the Asia, our Global Markets operations had a more challenging year.

Equity sales and trading revenues decreased 31% for the full year of ‘16, as they were adversely impacted by lower client activity, particularly in China and Hock Kong.

Importantly, and as we mentioned at Investor Day, we have launched CHF300 million cost reduction program in APAC in order to protect our existing and planned investments in people technology in the region and improve returns overtime.

IWM international wealth management; we have generated a significant increase in asset inflows with CHF15.6 billion of net inflows versus CHF3 billion of outflows in 2015.

Overall, IWM adjusted PTI increased by 9% to CHF1.1 billion with a return on capital increasing from 22% to 23%.

Our Swiss team affiliates the strong performance during 2016 with four consecutive quarters of profit growth when compound to 2015 accelerating for a progression in fourth quarter with 13% year-on-year increase.

In 2016, adjusted PTI per-tax income was CHF1.7 billion, 9% up from 2015 if we exclude this Swisscard impact.

So if we look at the full year performance for over three years, profit increased from CHF1.5 billion in ‘14 to CHF1.6 billion ‘15 and CHF1.7 billion in ‘16, an increase of 15% in two years.

Swiss IPO; when we started this restructuring, we were clear in October ‘15 that we needed between CHF9 billion and CHF11 billion of capital.

We took the opportunity then to raise CHF6 billion by way of pacing and right issue, and raised about CHF1 billion from various disposals.

At seven we went CHF2 billion to CHF4 billion to get to CHF9 billion to CHF11 billion, $2 billion to $4 billion to be raised through a partial IPO of Credit Suisse Schweiz AG.

In 2016, we set up and created a distinct and visible Swiss Universal Bank division within the Group with 1.6 trends and more than 13,000 employees, which as I have just highlighted has been making considerable financial and refreshable progress ahead of our planned IPO in the second half of ‘17.

We ended the year with CET1 ratio of 11.6% and a pre-DOJ settlement ratio of 12.5%.

In terms of our global advisory and underwriting activities, we delivered revenue growth of 9% year-over-year outperforming the market.

DCM was up 16% for us compared to a market of 5%.

Advisory was up 20% for us compared to a market down 2%.

ECM was down 14% compared to market down 25%.

In Q4 2016, net revenues rose 36% year-over-year to USD569 million, this represents our strongest fourth quarter since 2012.

We continue to see strong momentum in our advisory and underwriting activities with revenues up more than 90% I think 92% exactly year-over-year as of end January.

Our M&A pipeline remained strong looking forward and to highlight continued success in cross boarder announced transactions, we are advised to AG in their USD30 billion agreed sales to GM AG.

In the Europe significant restructuring global market remained profitable with an adjusted PTI CHF204 million in 2016.

We have made good progress in reducing the cost base with annualized 4Q ‘16 operating expenses below USD5.2 billion at year-end, a reduction of more than 13% versus 2015.

We remain on track to reach our ambition of less than $4.8 billion by 2018 and are well position to benefits from operating leverage we have created.

Absolute revenues in global markets for Q4 were 8% year-over-year, in absolute term.

In a division I would like to remind you that consume 20% less dubious.

So always when you measure performance of global market is good to keep in mind that we have booked 20% as RWA at work DOJ.

For moment if the division is strong with 66% year-over-year increase in net revenues across our credit businesses in 4Q.

If we excludes the effects of SMG on which I commented at Q3 and look at the sequential Q3 to Q4 equities net revenues in Q4 improved by 34% sequentially.

We have credit and securitized products revenues up over 100% year-on-year, somewhat offset by lower trading volumes and volatility level in equities.

In the SRU, our team has continued to make significant progress in disposing of legacy positions and derisking with 39% reduction in RWA or 53% reduction if we exclude operating risk, which is a better measure I think we're progress made, so on the other way we can tackle 54% reduction and also 39% decrease in leverage exposure.

In December 2016, we reached settlement of US Department of Justice (DOJ) related to our legacy RMBS business.

We estimate the total all-in cost of this agreement for us consumer relief included at about USD2,550 million as stated in our accounts.

If you look at our core capital ratios, the look-through CET1 ratio stood at 11.6% at end of the fourth quarter compared to a CET1 ratio of 12.5% pre-RMBS settlement.

And in terms of leverage, we ended the year with a 3.3% CET1 leverage ratio compared to 3.5% pre-DOJ RMBS settlement.

In global markets, we have seen a significant rebound in current activity levels across capital markets and trading, with credit and securitized products revenues up over 100% year-on-year, somewhat offset by lower trading volumes and volatility levels in equities.

We have been extremely active pricing 19 deals for a total of over $5 billion.

In leverage finance, we have launched 63 lead left US deals for a total of $37 billion.

The most significant adjustment item in the fourth quarter was the major litigation expenses of CHF2.1 billion of which CHF2 billion relates the settlement with the US Department of Justice regarding legacy RMBS matters on which we announced the final settlement on January 18th of this year.

For the fourth quarter, we reported pre-tax loss of CHF1.9 billion, on revenues of CHF2.5 billion.

On an adjusted basis, we achieved a pre-tax income of CHF171 million of CHF5.1 billion of revenues.

For full year 2016, we achieved an adjusted pre-tax profit of CHF615 million and that compares to reported pre-tax loss just under CHF2 billion.

Now in net terms, given the immaterial tax offset from the DOJ settlement, our reported income was a loss of CHF2.4 billion for the whole of last year.

Risk-weighted assets stood at CHF268 billion in the fourth quarter and that's a reduction of CHF22 billion from the CHF290 billion at the end of the fourth quarter in 2015.

Compared to a year ago, we have reduced risk-weighted assets in Strategic Resolution Unit by CHF28 billion and by further CHF12 billion in Global Markets.

Now with the capital release from these areas, we've reinvested CHF9 billion of risk-weighted assets into our growth businesses in Asia-Pacific, international wealth management, the Swiss Universal Bank and Investment Banking and capital markets.

We've made similar progress in terms of leverage exposure, which stood at CHF951 billion at the end of fourth quarter, that's down by CHF37 billion from the CHF988 billion at the end of 2015.

This is primarily being driven by year-on-year reduction of CHF63 billion within the SRU.

As with risk-weighted assets we then reinvested our capital resources increasing leverage exposure by CHF30 billion in our growth businesses.

If you look at our capital leverage ratios, we ended the year then with the look-through CET1 ratio of 11.6%, which compares to 11.4% at the end of 2015.

Of note, if we excluded the impact from the DOJ settlement in the fourth quarter, the CET 1 ratio would have ended the year at 12.5%.

That's a 110 basis points higher and 11.4% that we reported at the end of 2015.

Our CET1 leverage ratio was 3.3% at the end of quarter and that's stable from a year-ago.

If through, we are gaining exclude the impact from DOJ settlement, the CET 1 leverage ratio would have increased to 3.5% meeting Swiss Too Big to fair going concern requirement for 2020.

Our Tier 1 leverage ratio stood at 4.4% at the end of the fourth quarter, and that compares to 4.5% at the end of the of 2015.

We achieved a year end CET1 ratio 11.6% and that's a 20 basis points improvement from 11.4% at the end of the last year.

The settlement of the DOJ reduced that ratio about approximately 90 basis points in the first quarter and adjusting for this the pre- settlement CET1 ratio would have been 12.5%.

Our previous guidance was to operate between 11% and 12% CET1 ratio for the duration of 2016 subject to major litigation events.

Now, in terms of our guidance for CET1 ratio with the RMBS settlement now behind us, we would now expect to operate between 11% and 12% pre-IPO during the quarter of 2017.

On dividends, we have continued our prior year practice and we intend to recommend to our shareholders of the General Assembly our payment of CHF0.7 per share in cash with a scrip alternative as in prior years.

Our cost to program remains very much on track and we surpassed our target for 2016 with our full year cost base being reduced under CHF19.4 billion, compared to the CHF19.8 billion target that we set for 2016.

I would reiterate these amounts sustained on FX neutral basis, from the full year 2015 base line, of CHF21.2 billion.

In fact, factoring in currency moves which is particularly depreciation of sterling in the quarter of last year, our adjusted cost base was CHF19.1 billion for 2016.

In FX neutral terms, we achieved net cost saves of CHF1.9 billion, well in excess the target of CHF1.4 billion that we set originally.

We exceeded our original target of 6,000 net reductions, reducing our net headcount by more than 7,250 of which the represents departed and notified contractors and consultants.

As we said at Investor Day in December, we are target our cost to be at or below CHF17 billion, by the end of 2018, and I note this is again is measured on an FX neutral basis, and just for the context we did that today's exchange rate, that would acquire to a target is about CHF300 million than the FX neutral target.

If we look at 2017, we're therefore targeting cost to be at or below CHF18.5 billion, again stated on that consistent FX neutral base, and that supported by additional net headcount reductions of between 5,500 and 6,500 across the bank.

For the fourth quarter, the Swiss Universal Bank delivered a pretax income of CHF378 million, that's an increase of 13% year-on-year.

Overall fourth quarter operating expenses declined by about 5% year-on-year and the cost of income ratio improved to 70%.

Within wealth management the continued success of Credit Suisse invest resulted in our mandate penetration increased into 30% and that's up for about 26% as the end of ‘15.

In the Corporate Institutional Banking business, we delivered a pre- tax profit of CHF207 million in the fourth quarter, that's an increase of 6% year-on-year.

Wealth Management saw a net new assets inflows of CHF2.1 billion before the impact of our regularization and the selected exits in our external asset management business.

The combined regularization and EAM raised down flows totaled CHF3.8 billion for the whole of ‘16 and the majority of these were actually taken in the fourth quarter.

Just looking at 2017, we would still expect to see outflows from both regularization and selected EAM exits and we guide you towards total outflows of roughly CHF3 billion in 2017 somewhat lower than in 2016.

Just concluded on Corporate Institutional Banking, the full year have positive new assets of CHF4.3 billion, of which CHF2.5 billion was received in the fourth quarter.

The international wealth management division had a strong finish to the year contributing to a 9% growth in pre-tax income for 2016 as a whole.

In the fourth quarter, pre-tax income of CHF300 million was an increase of 31% year-on-year.

Overall the fourth quarter, cost to income ratio improved to 75% down from 81% a year ago, and return on regulatory capital improved to 24% from 19%.

Within wealth management revenues increased by 8% compared to fourth quarter of last year, primarily driven by higher net interest income compared to third quarter with our remarked uptake in transaction revenues.

Overall, fourth quarter pre-tax income CHF192 million was broadly stable year-on-year, but excluding the extraordinary dividend from fixed I mentioned before pre-tax income increased by 15%.

If you look at assets from wealth management, AUM increased by 12% during 2016.

We saw record full year net new assets inflows of CHF15.6 billion across our businesses and emerging market and in Europe.

We also saw regularization-related outflows of CHF5.7 billion in 2016, which is in line with guidance, we have given before for that to be around CHF5 billion and these reincurred primarily in Latin America.

That means the annualized growth rate was 5% to 2016 or 7% before the regularization-related outflows.

So as looking forward to 2017, we would continue to our prior guidance, and we would expect further regularization outflows around CHF5 billion in the current year.

Year-on-year, the gross margin improved by 3 basis points to 110 basis points the full year.

In assets management, the fourth quarter pre-tax income of CHF108 million, improved significant.

In fact, it increased by over 175% year-on-year.

And for the full year, pretax income of CHF287 million was up by 54% compared to 2015.

Recurring management fees were stable year-on-year, but I will also point out the cost to control was a key success for asset management the fourth quarter expense is down by 16% year-on-year.

When you look at new assets, for asset management we saw inflows for the whole of 2016 totaling CHF5.6 billion but it still include outflows of CHF4.4 billion in the fourth quarter primarily in respect to money market funds in our emerging markets of joint venture.

Asia-Pacific delivered a pre-tax income of CHF122 million in the fourth quarter and that compares to a CHF148 million in the fourth quarter of 2015.

Wealth management and connected businesses; for the full year we achieved a pro-forma pretax income of CHF513 million, reflecting the continued focus ultra-high-net-worth, entrepreneur and corporate clients.

The number of net relationship manage increased by 10% year-on-year.

With our net new assets inflows did slow in the fourth quarter, our full year net US inflows still totaled CHF14.6 billion, and I note that these net asset inflows were after regularized-related outflows from CHF1.4 billion in the fourth quarter, and CHF2.5 billion for the whole of 2016.

In 2017, we continue to expect some further regularized rating outflows of approximately CHF1 billion in the course of the year.

In fourth quarter particularly in December the market for our fixed income business deteriorate a substantially and we saw a significant reduction in client activity for our rates products, and as a consequence across the loss the full year we made a pro forma pretax income of around CHF265 million in our APAC trading business.

Investment Banking and Capital Markets; the division reported a very strong result in the fourth quarter net revenues of $569 million and that's increase of 36% year-on-year.

Now if you look at this in terms of revenue, our equity underwriting revenues roughly US$100 million flat year-on-year better than decline in industry-wide fees.

We also remained very active advisory with revenues of US$265 million.

But clearly our strongest was underwriting, where we had 63% increase year-on-year with revenues totaling US$225 million.

Operating expenses for the quarter fell by 14% year-on-year, reflecting compensation and G&A expenses and overall the division delivered a pretax income of $142 million equivalent to turn on capital of 22%.

We achieved to return on capital of 28% for the quarter.

IBCM; net revenues of $2 billion was up 8% year-on-year driven by strong advisory and to underwriting revenues while operating expenses were down by 5% reflecting both cost discipline and a focus on self funding investments.

Overall, the full year pretax income was $297 million triple of that of 2015.

Overall across all of our divisions, our total global advisory and underwriting revenues of CHF1 billion, was up by 32% year-on-year, significantly outperforming the industry-wide people.

Global Markets; we've also significant reduced the amount of capital in the division, and I'm pleased therefore to say, the division delivered revenues of CHF5.6 billion to the full year and a pre-tax profit notwithstanding this restructuring of $284 million.

Our Global Markets division still delivered revenues of $1.3 billion an 8% increase year-on-year.

Furthermore with the support of 26% reduction in costs, we were powerful in the fourth quarter, reaching pretax income of $23 million and that compares to the loss of $507 million, that we suffered in the fourth quarter of 2015.

The credit franchise posted revenues of $608 million, and that's increase of 66% year-on-year.

If you look at equities excluding SMG, revenues of $421 million declined by 6% year-on-year.

Compared to the third quarter of 2016 equity revenues again excluding SMG increased by 34% despite what's normally and seasonally slower quarter.

In Solutions, fourth quarter revenue of $259 million was down 18% year-on-year.

Last year in terms of capital, you can see we are significantly reduced our risk profile in 2016 at $51 billion of risk-weighted assets.

We continue to operate well below our year-end RWAs to the target of $60 billion.

In leverage, $278 billion of leverage exposure compares to a $290 billion.

In the fourth quarter, we reduced total risk-weighted assets by $11 billion, 20% compared to the third quarter.

Reduced leverage exposure about $16 billion or 13% quarter-on-quarter, and these reductions included the unwind and innovation of macro derivatives, the sale restructuring roll off of emerging market corporate loans and the sale of our entire European little market land portfolio.

If you look at the last year, that means we reduced RWA by $29 billion or 39%.

Furthermore, if look at leverage exposure, it reduced the total by $67 billion also 39%.

A key contributor to this is clear been reduction in our external bio-lateral derivative trade count, we cut this by roughly 57% eliminating 191,000 trades last year.

Operating expenses were $1.6 billion the full year, a reduction of $1.1 billion or 41% compared to 2015.

In the fourth quarter, our operating expenses up $287 million was reduction of $64 million from the previous quarter.

If we look at the cash generation of the SRU before litigation restructuring costs and legacy funding, we released about $1.1 billion last year.

So the exit costs these were approximately 0.5% of RWA in the fourth quarter and 1% for the whole of 2016.

Given the progress we have made, we are revising our guidance down for exit costs to be at or below 3%, of RWA over the lifetime of SRU.

We have increased our operating leverage with CHF1.9 billion of net cost savings.

We have achieved profitable growth and the 58% increase in net new assets and an 8% increase in assets under management, with higher margins and discontinued into 2017.

We ended the year with an 11.6% CET1 ratio after our settlement.