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Key metrics | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Credit Suisse (CHF million, except where indicated) | |||||||||||||||||
Net income/(loss) attributable to shareholders | 244 | 303 | 41 | (19) | 495 | 1,143 | (91) | – | |||||||||
Basic earnings/(loss) per share (CHF) | 0.10 | 0.13 | 0.02 | (23) | 400 | 0.48 | (0.04) | – | |||||||||
Diluted earnings/(loss) per share (CHF) | 0.09 | 0.13 | 0.02 | (31) | 350 | 0.47 | (0.04) | – | |||||||||
Return on equity attributable to shareholders (%) | 2.2 | 3.0 | 0.4 | – | – | 3.6 | (0.3) | – | |||||||||
Effective tax rate (%) | 38.3 | 47.4 | 83.3 | – | – | 30.7 | (42.9) | – | |||||||||
Core Results (CHF million, except where indicated) | |||||||||||||||||
Net revenues | 5,227 | 5,479 | 5,561 | (5) | (6) | 16,446 | 16,211 | 1 | |||||||||
Provision for credit losses | 40 | 69 | 50 | (42) | (20) | 138 | 94 | 47 | |||||||||
Total operating expenses | 4,209 | 4,265 | 4,437 | (1) | (5) | 12,976 | 13,316 | (3) | |||||||||
Income before taxes | 978 | 1,145 | 1,074 | (15) | (9) | 3,332 | 2,801 | 19 | |||||||||
Cost/income ratio (%) | 80.5 | 77.8 | 79.8 | – | – | 78.9 | 82.1 | – | |||||||||
Assets under management and net new assets (CHF billion) | |||||||||||||||||
Assets under management | 1,344.8 | 1,307.3 | 1,254.2 | 2.9 | 7.2 | 1,344.8 | 1,254.2 | 7.2 | |||||||||
Net new assets | (1.8) | 12.1 | 11.6 | – | – | 34.7 | 33.5 | 3.6 | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 788,690 | 783,411 | 806,711 | 1 | (2) | 788,690 | 806,711 | (2) | |||||||||
Net loans | 275,853 | 273,865 | 274,606 | 1 | 0 | 275,853 | 274,606 | 0 | |||||||||
Total shareholders' equity | 43,858 | 43,493 | 44,276 | 1 | (1) | 43,858 | 44,276 | (1) | |||||||||
Tangible shareholders' equity | 38,924 | 38,625 | 39,359 | 1 | (1) | 38,924 | 39,359 | (1) | |||||||||
Basel III regulatory capital and leverage statistics | |||||||||||||||||
CET1 ratio (%) | 14.0 | 14.2 | 14.1 | – | – | 14.0 | 14.1 | – | |||||||||
Look-through CET1 ratio (%) | 13.2 | 13.3 | 12.0 | – | – | 13.2 | 12.0 | – | |||||||||
Look-through CET1 leverage ratio (%) | 3.8 | 3.8 | 3.4 | – | – | 3.8 | 3.4 | – | |||||||||
Look-through Tier 1 leverage ratio (%) | 5.2 | 5.2 | 4.6 | – | – | 5.2 | 4.6 | – | |||||||||
Share information | |||||||||||||||||
Shares outstanding (million) | 2,555.1 | 2,553.3 | 2,088.3 | 0 | 22 | 2,555.1 | 2,088.3 | 22 | |||||||||
of which common shares issued | 2,556.0 | 2,556.0 | 2,089.9 | 0 | 22 | 2,556.0 | 2,089.9 | 22 | |||||||||
of which treasury shares | (0.9) | (2.7) | (1.6) | (67) | (44) | (0.9) | (1.6) | (44) | |||||||||
Book value per share (CHF) | 17.17 | 17.03 | 21.20 | 1 | (19) | 17.17 | 21.20 | (19) | |||||||||
Tangible book value per share (CHF) | 15.23 | 15.13 | 18.85 | 1 | (19) | 15.23 | 18.85 | (19) | |||||||||
Market capitalization (CHF million) | 39,184 | 35,426 | 26,563 | 11 | 48 | 39,184 | 26,563 | 48 | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 46,720 | 46,230 | 47,690 | 1 | (2) | 46,720 | 47,690 | (2) | |||||||||
See relevant tables for additional information on these metrics. |
For purposes of this report, unless the context otherwise requires, the terms “Credit Suisse,” “the Group,” “we,” “us” and “our” mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the direct bank subsidiary of the Group, is substantially similar to the Group, and we use these terms to refer to both when the subject is the same or substantially similar. We use the term “the Bank” when we are only referring to Credit Suisse AG and its consolidated subsidiaries.
Abbreviations are explained in the List of abbreviations in the back of this report.
Publications referenced in this report, whether via website links or otherwise, are not incorporated into this report.
In various tables, use of “–” indicates not meaningful or not applicable.
Credit Suisse
Our strategy builds on Credit Suisse’s core strengths: its position as a leading global wealth manager, its specialist investment banking capabilities and its strong presence in our home market of Switzerland. We seek to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets. Founded in 1856, we today have a global reach with operations in about 50 countries and 46,720 employees from over 150 different nations. Our broad footprint helps us to generate a geographically balanced stream of revenues and net new assets and allows us to capture growth opportunities around the world. We serve our clients through three regionally focused divisions: Swiss Universal Bank, International Wealth Management and Asia Pacific. These regional businesses are supported by two other divisions specializing in investment banking capabilities: Global Markets and Investment Banking & Capital Markets. The Strategic Resolution Unit consolidates the remaining portfolios from the former non-strategic units plus additional businesses and positions that do not fit with our strategic direction. Our business divisions cooperate closely to provide holistic financial solutions, including innovative products and specially tailored advice.
Swiss Universal Bank
The Swiss Universal Bank division offers comprehensive advice and a wide range of financial solutions to private, corporate and institutional clients primarily domiciled in our home market Switzerland, which offers attractive growth opportunities and where we can build on a strong market position across our key businesses. Our Private Clients business has a leading franchise in our Swiss home market and serves ultra-high-net-worth individuals, high-net-worth individuals, affluent and retail clients. Our Corporate & Institutional Clients business serves large corporate clients, small and medium-sized enterprises, institutional clients, external asset managers and financial institutions.
International Wealth Management
The International Wealth Management division through its Private Banking business offers comprehensive advisory services and tailored investment and financing solutions to wealthy private clients and external asset managers in Europe, the Middle East, Africa and Latin America, utilizing comprehensive access to the broad spectrum of Credit Suisse’s global resources and capabilities as well as a wide range of proprietary and third-party products and services. Our Asset Management business offers investment solutions and services globally to a broad range of clients, including pension funds, governments, foundations and endowments, corporations and individuals.
Asia Pacific
In the Asia Pacific division, our wealth management, financing and underwriting and advisory teams work closely together to deliver integrated advisory services and solutions to our target ultra-high-net-worth, entrepreneur and corporate clients. Our Wealth Management & Connected business combines our activities in wealth management with our financing, underwriting and advisory activities. Our Markets business represents our equities and fixed income trading business in Asia Pacific, which supports our wealth management activities, but also deals extensively with a broader range of institutional clients.
Global Markets
The Global Markets division offers a broad range of financial products and services to client-driven businesses and also supports Credit Suisse’s global wealth management businesses and their clients. Our suite of products and services includes global securities sales, trading and execution, prime brokerage and comprehensive investment research. Our clients include financial institutions, corporations, governments, institutional investors, such as pension funds and hedge funds, and private individuals around the world.
Investment Banking & Capital Markets
The Investment Banking & Capital Markets division offers a broad range of investment banking services to corporations, financial institutions, financial sponsors and ultra-high-net-worth individuals and sovereign clients. Our range of products and services includes advisory services related to mergers and acquisitions, divestitures, takeover defense mandates, business restructurings and spin-offs. The division also engages in debt and equity underwriting of public securities offerings and private placements.
Strategic Resolution Unit
The Strategic Resolution Unit was created to facilitate the immediate right-sizing of our business divisions from a capital perspective and includes remaining portfolios from former non-strategic units plus transfers of additional exposures from the business divisions. The unit’s primary focus is on facilitating the rapid wind-down of capital usage and costs to reduce the negative impact on the Group’s performance. Repositioned as a separate division, this provides clearer accountability, governance and reporting.
2
Credit Suisse results
Operating environment
Credit Suisse
Swiss Universal Bank
International Wealth Management
Asia Pacific
Global Markets
Investment Banking & Capital Markets
Strategic Resolution Unit
Corporate Center
Assets under management
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Global economic growth appeared to remain robust in 3Q17, while inflation was low. Global equity markets ended the quarter higher, with European bank stocks in particular performing well, and volatility was low. Major government bond yields were stable and the US dollar depreciated against most major currencies. Commodities performed strongly.
The US economy overall was robust during 3Q17, with consumer and business confidence measures continuing at the relatively high levels seen during the previous quarter. The devastating hurricane season caused some economic disruptions that may result in somewhat slower gross domestic product growth for 3Q17 compared to 2Q17. Core inflation showed some signs of stabilization during the quarter after the declines earlier in the year. In the Eurozone, business sentiment improved, suggesting that the robust growth rates of past quarters are sustainable. Among emerging markets, Chinese data may point to a slowdown in growth activity, while both Brazil and Russia continued their recoveries.
The US Federal Reserve (Fed) announced at its September meeting that it will start allowing its balance sheet to slowly shrink beginning in October 2017. The European Central Bank (ECB) left policy rates unchanged and in October announced that with respect to its asset purchase program it intends to decrease monthly purchases to EUR 30 billion from the beginning of 2018 until the end of September 2018 and may continue such purchases beyond this period if necessary. The Swiss National Bank (SNB) softened its language on the valuation of the Swiss franc, while the Bank of England (BoE) hinted at a rate hike in the coming months. Among major emerging markets, policy rates were lowered in Russia, Brazil and India during the quarter.
During 3Q17, global equities showed further positive momentum (refer to the charts under “Equity markets”), due to positive revisions to earnings estimates. Among developed markets, US and European equities slightly outperformed global equity markets while Australian and UK equity markets underperformed. Emerging market equities continued to outperform developed markets as they benefited from the US dollar weakening. Oil and commodity exporting emerging markets such as Russia and Brazil outperformed due to the recovery in commodity prices in general, and oil prices in particular. Among sectors, materials, energy and IT were the top performers while consumer staples was the worst underperformer and the only sector posting a negative performance in 3Q17. Equity market volatility, as measured by the Chicago Board Options Exchange Market Volatility Index (VIX), reached its highest year-to-date level in August, but ended the quarter at a low level. The Credit Suisse Hedge Fund Index increased 1.8% in 3Q17.
In fixed income, US dollar and euro long-dated government bond yields ended 3Q17 broadly unchanged compared to 2Q17. With credit spreads drifting lower, bond index returns were mostly positive with high yield bonds outperforming the general market. In US dollar rates, the yield curve marginally flattened (i.e., the 10-year vs. 2-year yield on US treasuries) on the expectation of a continued subdued inflation environment. In euro rates, the German Bund curve steepened slightly, reflecting higher inflation expectations and a potential ECB tapering of its quantitative easing program. In credit markets, corporate bond spreads tightened, supported by loose financing conditions and a general positive economic backdrop. Emerging market sovereign bond spreads also narrowed reflecting the continued improved economic environment.
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Emerging market hard currency bonds outperformed global high-yield bonds. In US dollar terms, emerging market local currency bonds performed even better due to strong currency gains, despite lower returns towards the end of 3Q17 as the US dollar regained some strength in September.
The US dollar depreciated against most major currencies in 3Q17 as weaker-than-anticipated US inflation weighed on interest rate expectations. The euro as well as Norwegian and Swedish krona were among the strongest currencies, benefitting from strong European economic growth. The British pound also appreciated. The Swiss franc was among the weakest currencies, depreciating both against the euro and US dollar, partly due to the reversal of safe-haven flows of capital, reflecting reduced economic and political risks in the Eurozone. In emerging markets, the South African rand was among the weakest currencies while the Brazilian real was one of the strongest currencies.
The Credit Suisse Commodities Benchmark more than reversed the losses suffered in 2Q17, gaining 7.9% in 3Q17. Energy was the strongest sector followed by base metals, which benefited from improved Chinese industrial activity. Precious metals lost some of their initial gains later in the quarter, but ended the quarter 3.9% higher compared to 2Q17. Agricultural prices continued to underperform amid favorable crop conditions through the summer.
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Market volumes (growth in %) | |||||||||
Global | Europe | ||||||||
end of 3Q17 | QoQ | YoY | QoQ | YoY | |||||
Equity trading volume 1 | (17) | 4 | (20) | 10 | |||||
Announced mergers and acquisitions 2 | 4 | 6 | (12) | 37 | |||||
Completed mergers and acquisitions 2 | (3) | (6) | (29) | (15) | |||||
Equity underwriting 2 | (16) | (1) | (32) | 62 | |||||
Debt underwriting 2 | 3 | (3) | (26) | (13) | |||||
Syndicated lending – investment grade 2 | (32) | (14) | 3 | – | – | ||||
1 London Stock Exchange, Borsa Italiana, Deutsche Börse and BME. Global also includes ICE and NASDAQ. | |||||||||
2 Dealogic. | |||||||||
3 9M17 vs 9M16. |
European bank stocks generally outperformed global stocks in 3Q17 and ended the quarter almost 5% higher. North American bank stocks also posted positive returns, slightly outperforming the global stock market (refer to the charts under “Equity markets”).
In private banking, market conditions remained challenging in light of political and economic uncertainty and the persistence of the low interest rate environment. The sector continues to face significant structural pressure as it adapts to industry-specific regulatory changes and tax regularization initiatives. In 3Q17, the industry experienced supportive equity markets, maintained a long-term fundamental growth trend and saw the continued pursuit of new opportunities and efficiencies arising from digital technology.
In investment banking, equity trading volumes decreased globally and in Europe compared to 2Q17. Compared to 3Q16, equity trading volumes increased globally and in Europe. Announced mergers and acquisitions (M&A) increased globally compared to 2Q17 and compared to 3Q16. In Europe, announced M&A decreased compared to 2Q17 and increased compared to 3Q16. Completed M&A decreased globally and in Europe compared to 2Q17 and 3Q16. Global equity underwriting volumes were lower compared to 2Q17 and compared to 3Q16. European equity underwriting volumes were lower compared to 2Q17, but significantly higher compared to 3Q16. Global debt underwriting volumes increased compared to 2Q17 and decreased compared to 3Q16. European debt underwriting volumes were lower compared to 2Q17 and 3Q16. Compared to 2Q17 and 3Q16, total US fixed income trading volumes were lower, mainly driven by a decrease in treasury volumes.
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In 3Q17, we recorded net income attributable to shareholders of CHF 244 million. Diluted earnings per share were CHF 0.09 and return on equity attributable to shareholders was 2.2%. As of the end of 3Q17, our BIS CET1 ratio was 13.2% on a look-through basis.
Results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net interest income | 1,622 | 1,737 | 1,930 | (7) | (16) | 4,992 | 5,940 | (16) | |||||||||
Commissions and fees | 2,762 | 2,905 | 2,680 | (5) | 3 | 8,713 | 8,151 | 7 | |||||||||
Trading revenues | 320 | 237 | 232 | 35 | 38 | 1,131 | 55 | – | |||||||||
Other revenues | 268 | 326 | 554 | (18) | (52) | 875 | 996 | (12) | |||||||||
Net revenues | 4,972 | 5,205 | 5,396 | (4) | (8) | 15,711 | 15,142 | 4 | |||||||||
Provision for credit losses | 32 | 82 | 55 | (61) | (42) | 167 | 177 | (6) | |||||||||
Compensation and benefits | 2,451 | 2,542 | 2,674 | (4) | (8) | 7,651 | 7,890 | (3) | |||||||||
General and administrative expenses | 1,630 | 1,580 | 1,978 | 3 | (18) | 4,858 | 5,586 | (13) | |||||||||
Commission expenses | 347 | 350 | 322 | (1) | 8 | 1,065 | 1,061 | 0 | |||||||||
Restructuring expenses | 112 | 69 | 145 | 62 | (23) | 318 | 491 | (35) | |||||||||
Total other operating expenses | 2,089 | 1,999 | 2,445 | 5 | (15) | 6,241 | 7,138 | (13) | |||||||||
Total operating expenses | 4,540 | 4,541 | 5,119 | 0 | (11) | 13,892 | 15,028 | (8) | |||||||||
Income/(loss) before taxes | 400 | 582 | 222 | (31) | 80 | 1,652 | (63) | – | |||||||||
Income tax expense | 153 | 276 | 185 | (45) | (17) | 507 | 27 | – | |||||||||
Net income/(loss) | 247 | 306 | 37 | (19) | – | 1,145 | (90) | – | |||||||||
Net income/(loss) attributable to noncontrolling interests | 3 | 3 | (4) | 0 | – | 2 | 1 | 100 | |||||||||
Net income/(loss) attributable to shareholders | 244 | 303 | 41 | (19) | 495 | 1,143 | (91) | – | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 3.5 | 5.1 | 1.8 | – | – | 4.8 | (0.2) | – | |||||||||
Cost/income ratio | 91.3 | 87.2 | 94.9 | – | – | 88.4 | 99.2 | – | |||||||||
Effective tax rate | 38.3 | 47.4 | 83.3 | – | – | 30.7 | (42.9) | – | |||||||||
Earnings per share (CHF) | |||||||||||||||||
Basic earnings/(loss) per share | 0.10 | 0.13 | 0.02 | (23) | 400 | 0.48 | (0.04) | – | |||||||||
Diluted earnings/(loss) per share | 0.09 | 0.13 | 0.02 | (31) | 350 | 0.47 | (0.04) | – | |||||||||
Return on equity (%, annualized) | |||||||||||||||||
Return on equity attributable to shareholders | 2.2 | 3.0 | 0.4 | – | – | 3.6 | (0.3) | – | |||||||||
Return on tangible equity attributable to shareholders 1 | 2.5 | 3.4 | 0.4 | – | – | 4.1 | (0.3) | – | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 788,690 | 783,411 | 806,711 | 1 | (2) | 788,690 | 806,711 | (2) | |||||||||
Risk-weighted assets 2 | 265,012 | 259,337 | 270,462 | 2 | (2) | 265,012 | 270,462 | (2) | |||||||||
Leverage exposure 2 | 908,967 | 906,194 | 948,744 | 0 | (4) | 908,967 | 948,744 | (4) | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 46,720 | 46,230 | 47,690 | 1 | (2) | 46,720 | 47,690 | (2) | |||||||||
1 Based on tangible shareholders' equity attributable to shareholders, a non-GAAP financial measure, which is calculated by deducting goodwill and other intangible assets from total shareholders' equity attributable to shareholders as presented in our balance sheet. Management believes that the return on tangible shareholders' equity attributable to shareholders is meaningful as it allows consistent measurement of the performance of businesses without regard to whether the businesses were acquired. | |||||||||||||||||
2 Disclosed on a look-through basis. |
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![](https://capedge.com/proxy/6-K/0001370368-17-000072/x020_0001.gif)
In 3Q17, Credit Suisse reported net income attributable to shareholders of CHF 244 million compared to CHF 303 million in 2Q17 and CHF 41 million in 3Q16.
Net revenues of CHF 4,972 million decreased 4% compared to 2Q17, primarily reflecting lower net revenues in Global Markets and Swiss Universal Bank, partially offset by higher net revenues in the Corporate Center. The decrease in net revenues in Global Markets was primarily due to less favorable market conditions across its trading and underwriting businesses. The decrease in net revenues in Swiss Universal Bank was primarily driven by seasonally lower transaction-based revenues. The higher revenues in the Corporate Center reflected movements in treasury results, which also reflected the impact of a valuation methodology change.
Net revenues decreased 8% compared to 3Q16, primarily reflecting lower net revenues in Swiss Universal Bank and Global Markets and increased negative net revenues in the Strategic Resolution Unit, partially offset by increased net revenues in International Wealth Management. The decrease in net revenues in Swiss Universal Bank was mainly due to gains on the sale of real estate of CHF 346 million in 3Q16, partially offset by higher transaction-based revenues. Net revenues in Global Markets decreased compared to 3Q16 results, which had benefited from more favorable market conditions. The increase in the Strategic Resolution Unit’s negative net revenues was primarily driven by a reduction in fee-based revenues as a result of accelerated business exits and higher exit losses related to the sale of legacy asset management positions, partially offset by lower overall funding costs. The increase in net revenues in International Wealth Management reflected higher revenues across all revenue categories.
Provision for credit losses of CHF 32 million primarily related to a net provision for credit losses of CHF 14 million in Swiss Universal Bank, CHF 12 million in Investment Banking & Capital Markets, CHF 6 million in Global Markets and CHF 5 million in Asia Pacific, partially offset by a release of provision for credit losses of CHF 8 million in the Strategic Resolution Unit.
Total operating expenses of CHF 4,540 million were stable compared to 2Q17, reflecting a 3% increase in general and administrative expenses and a 62% increase in restructuring expenses, offset by a 4% decrease in compensation and benefits. In 3Q17, we incurred CHF 112 million of restructuring expenses in connection with the implementation of our strategy, of which CHF 99 million were compensation and benefits-related expenses.
Total operating expenses decreased 11% compared to 3Q16, primarily reflecting an 18% decrease in general and administrative expenses, mainly relating to lower litigation provisions and professional fees, an 8% decrease in compensation and benefits and a 23% decrease in restructuring expenses.
Income tax expense of CHF 153 million recorded in 3Q17 mainly reflected the impact of the geographical mix of results and the impact from recognizing tax contingency accruals, partially offset by the impact of a re-assessment of a previously taken tax position relating to the deductibility of funding costs. Overall, net deferred tax assets decreased CHF 79 million to CHF 7,232 million, mainly driven by earnings, partially offset by a foreign exchange impact. Deferred tax assets on net operating losses decreased CHF 121 million to CHF 2,666 million during 3Q17. The Credit Suisse effective tax rate was 38.3% in 3Q17, compared to 47.4% in 2Q17.
> Refer to “Note 22 – Tax” in III – Condensed consolidated financial statements – unaudited for further information.
8
Overview of Results | |||||||||||||||||||
in / end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Strategic Resolution Unit | Credit Suisse | ||||||||||
3Q17 (CHF million) | |||||||||||||||||||
Net revenues | 1,319 | 1,262 | 890 | 1,262 | 457 | 37 | 5,227 | (255) | 4,972 | ||||||||||
Provision for credit losses | 14 | 3 | 5 | 6 | 12 | 0 | 40 | (8) | 32 | ||||||||||
Compensation and benefits | 462 | 543 | 397 | 568 | 293 | 103 | 2,366 | 85 | 2,451 | ||||||||||
Total other operating expenses | 417 | 361 | 270 | 617 | 117 | 61 | 1,843 | 246 | 2,089 | ||||||||||
of which general and administrative expenses | 340 | 285 | 195 | 451 | 99 | 44 | 1,414 | 216 | 1,630 | ||||||||||
of which restructuring expenses | 13 | 16 | 10 | 27 | 16 | 9 | 91 | 21 | 112 | ||||||||||
Total operating expenses | 879 | 904 | 667 | 1,185 | 410 | 164 | 4,209 | 331 | 4,540 | ||||||||||
Income/(loss) before taxes | 426 | 355 | 218 | 71 | 35 | (127) | 978 | (578) | 400 | ||||||||||
Return on regulatory capital (%) | 13.2 | 26.9 | 16.8 | 2.0 | 5.2 | – | 9.3 | – | 3.5 | ||||||||||
Cost/income ratio (%) | 66.6 | 71.6 | 74.9 | 93.9 | 89.7 | – | 80.5 | – | 91.3 | ||||||||||
Total assets | 228,647 | 88,692 | 95,919 | 239,910 | 20,477 | 65,636 | 739,281 | 49,409 | 788,690 | ||||||||||
Goodwill | 606 | 1,540 | 1,485 | 456 | 628 | 0 | 4,715 | 0 | 4,715 | ||||||||||
Risk-weighted assets 1 | 64,519 | 37,217 | 31,237 | 55,993 | 19,486 | 20,718 | 229,170 | 35,842 | 265,012 | ||||||||||
Leverage exposure 1 | 256,207 | 93,455 | 106,128 | 281,531 | 42,794 | 63,467 | 843,582 | 65,385 | 908,967 | ||||||||||
2Q17 (CHF million) | |||||||||||||||||||
Net revenues | 1,405 | 1,264 | 848 | 1,517 | 511 | (66) | 5,479 | (274) | 5,205 | ||||||||||
Provision for credit losses | 36 | 8 | (1) | 12 | 13 | 1 | 69 | 13 | 82 | ||||||||||
Compensation and benefits | 466 | 556 | 387 | 629 | 303 | 107 | 2,448 | 94 | 2,542 | ||||||||||
Total other operating expenses | 401 | 335 | 274 | 619 | 117 | 71 | 1,817 | 182 | 1,999 | ||||||||||
of which general and administrative expenses | 327 | 265 | 199 | 460 | 104 | 61 | 1,416 | 164 | 1,580 | ||||||||||
of which restructuring expenses | (4) | 7 | 11 | 32 | 10 | 2 | 58 | 11 | 69 | ||||||||||
Total operating expenses | 867 | 891 | 661 | 1,248 | 420 | 178 | 4,265 | 276 | 4,541 | ||||||||||
Income/(loss) before taxes | 502 | 365 | 188 | 257 | 78 | (245) | 1,145 | (563) | 582 | ||||||||||
Return on regulatory capital (%) | 15.5 | 28.3 | 14.4 | 7.4 | 12.0 | – | 10.9 | – | 5.1 | ||||||||||
Cost/income ratio (%) | 61.7 | 70.5 | 77.9 | 82.3 | 82.2 | – | 77.8 | – | 87.2 | ||||||||||
Total assets | 235,562 | 89,163 | 90,948 | 228,858 | 20,973 | 63,480 | 728,984 | 54,427 | 783,411 | ||||||||||
Goodwill | 602 | 1,523 | 1,473 | 452 | 623 | 0 | 4,673 | 0 | 4,673 | ||||||||||
Risk-weighted assets 1 | 64,426 | 36,515 | 32,293 | 51,333 | 18,648 | 18,021 | 221,236 | 38,101 | 259,337 | ||||||||||
Leverage exposure 1 | 260,479 | 93,107 | 101,583 | 276,483 | 43,073 | 59,858 | 834,583 | 71,611 | 906,194 | ||||||||||
3Q16 (CHF million) | |||||||||||||||||||
Net revenues | 1,667 | 1,081 | 917 | 1,357 | 467 | 72 | 5,561 | (165) | 5,396 | ||||||||||
Provision for credit losses | 30 | 0 | 34 | (5) | (9) | 0 | 50 | 5 | 55 | ||||||||||
Compensation and benefits | 474 | 513 | 413 | 642 | 313 | 185 | 2,540 | 134 | 2,674 | ||||||||||
Total other operating expenses | 405 | 323 | 318 | 633 | 124 | 94 | 1,897 | 548 | 2,445 | ||||||||||
of which general and administrative expenses | 320 | 256 | 224 | 466 | 109 | 89 | 1,464 | 514 | 1,978 | ||||||||||
of which restructuring expenses | 19 | 15 | 23 | 52 | 15 | 0 | 124 | 21 | 145 | ||||||||||
Total operating expenses | 879 | 836 | 731 | 1,275 | 437 | 279 | 4,437 | 682 | 5,119 | ||||||||||
Income/(loss) before taxes | 758 | 245 | 152 | 87 | 39 | (207) | 1,074 | (852) | 222 | ||||||||||
Return on regulatory capital (%) | 24.7 | 20.5 | 11.3 | 2.5 | 6.1 | – | 10.4 | – | 1.8 | ||||||||||
Cost/income ratio (%) | 52.7 | 77.3 | 79.7 | 94.0 | 93.6 | – | 79.8 | – | 94.9 | ||||||||||
Total assets | 222,164 | 86,457 | 93,079 | 245,492 | 19,931 | 62,007 | 729,130 | 77,581 | 806,711 | ||||||||||
Goodwill | 607 | 1,532 | 1,500 | 457 | 629 | 0 | 4,725 | 0 | 4,725 | ||||||||||
Risk-weighted assets 1 | 65,571 | 33,457 | 32,264 | 51,127 | 18,019 | 16,756 | 217,194 | 53,268 | 270,462 | ||||||||||
Leverage exposure 1 | 246,254 | 88,899 | 108,495 | 286,694 | 44,240 | 59,154 | 833,736 | 115,008 | 948,744 | ||||||||||
1 Disclosed on a look-through basis. |
9
Overview of Results (continued) | |||||||||||||||||||
in / end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Strategic Resolution Unit | Credit Suisse | ||||||||||
9M17 (CHF million) | |||||||||||||||||||
Net revenues | 4,078 | 3,747 | 2,619 | 4,388 | 1,574 | 40 | 16,446 | (735) | 15,711 | ||||||||||
Provision for credit losses | 60 | 13 | 8 | 23 | 31 | 3 | 138 | 29 | 167 | ||||||||||
Compensation and benefits | 1,380 | 1,655 | 1,208 | 1,887 | 944 | 310 | 7,384 | 267 | 7,651 | ||||||||||
Total other operating expenses | 1,306 | 1,068 | 850 | 1,833 | 337 | 198 | 5,592 | 649 | 6,241 | ||||||||||
of which general and administrative expenses | 1,023 | 832 | 614 | 1,349 | 304 | 149 | 4,271 | 587 | 4,858 | ||||||||||
of which restructuring expenses | 61 | 59 | 40 | 79 | 28 | 12 | 279 | 39 | 318 | ||||||||||
Total operating expenses | 2,686 | 2,723 | 2,058 | 3,720 | 1,281 | 508 | 12,976 | 916 | 13,892 | ||||||||||
Income/(loss) before taxes | 1,332 | 1,011 | 553 | 645 | 262 | (471) | 3,332 | (1,680) | 1,652 | ||||||||||
Return on regulatory capital (%) | 13.8 | 26.1 | 13.9 | 6.1 | 13.2 | – | 10.5 | – | 4.8 | ||||||||||
Cost/income ratio (%) | 65.9 | 72.7 | 78.6 | 84.8 | 81.4 | – | 78.9 | – | 88.4 | ||||||||||
9M16 (CHF million) | |||||||||||||||||||
Net revenues | 4,360 | 3,399 | 2,735 | 4,232 | 1,398 | 87 | 16,211 | (1,069) | 15,142 | ||||||||||
Provision for credit losses | 45 | 14 | 15 | 1 | 20 | (1) | 94 | 83 | 177 | ||||||||||
Compensation and benefits | 1,440 | 1,554 | 1,236 | 2,091 | 908 | 155 | 7,384 | 506 | 7,890 | ||||||||||
Total other operating expenses | 1,232 | 1,041 | 862 | 2,097 | 358 | 342 | 5,932 | 1,206 | 7,138 | ||||||||||
of which general and administrative expenses | 959 | 827 | 617 | 1,526 | 323 | 298 | 4,550 | 1,036 | 5,586 | ||||||||||
of which restructuring expenses | 63 | 38 | 34 | 202 | 34 | 0 | 371 | 120 | 491 | ||||||||||
Total operating expenses | 2,672 | 2,595 | 2,098 | 4,188 | 1,266 | 497 | 13,316 | 1,712 | 15,028 | ||||||||||
Income/(loss) before taxes | 1,643 | 790 | 622 | 43 | 112 | (409) | 2,801 | (2,864) | (63) | ||||||||||
Return on regulatory capital (%) | 18.0 | 22.2 | 15.9 | 0.4 | 6.4 | – | 9.1 | – | (0.2) | ||||||||||
Cost/income ratio (%) | 61.3 | 76.3 | 76.7 | 99.0 | 90.6 | – | 82.1 | – | 99.2 |
In 3Q17, Core Results net revenues of CHF 5,227 million decreased 5% compared to 2Q17, primarily reflecting lower net revenues in Global Markets and Swiss Universal Bank, partially offset by higher net revenues in the Corporate Center. Provision for credit losses was CHF 40 million, primarily related to a net provision for credit losses of CHF 14 million in Swiss Universal Bank, CHF 12 million in Investment Banking & Capital Markets, CHF 6 million in Global Markets and CHF 5 million in Asia Pacific. Total operating expenses of CHF 4,209 million decreased slightly compared to 2Q17, mainly reflecting a 3% decrease in compensation and benefits, partially offset by an increase in restructuring expenses. Compared to 2Q17, restructuring expenses of CHF 91 million increased 57%, primarily in Swiss Universal Bank and International Wealth Management.
Core Results net revenues decreased 6% compared to 3Q16, primarily reflecting lower net revenues in Swiss Universal Bank and Global Markets, partially offset by an increase in International Wealth Management. Total operating expenses decreased 5% compared to 3Q16, primarily reflecting a 7% decrease in compensation and benefits, a 3% decrease in general and administrative expenses and a 27% decrease in restructuring expenses.
10
Reconciliation of adjusted results
Adjusted results referred to in this report are non-GAAP financial measures that exclude goodwill impairment and certain other revenues and expenses included in our reported results. Management believes that adjusted results provide a useful presentation of our operating results for purposes of assessing our Group and divisional performance consistently over time, on a basis that excludes items that management does not consider representative of our underlying performance. Provided below is a reconciliation of our adjusted results to the most directly comparable US GAAP measures.
in | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Strategic Resolution Unit | Credit Suisse | ||||||||||
3Q17 | |||||||||||||||||||
Net revenues | 1,319 | 1,262 | 890 | 1,262 | 457 | 37 | 5,227 | (255) | 4,972 | ||||||||||
Provision for credit losses | 14 | 3 | 5 | 6 | 12 | 0 | 40 | (8) | 32 | ||||||||||
Total operating expenses | 879 | 904 | 667 | 1,185 | 410 | 164 | 4,209 | 331 | 4,540 | ||||||||||
Restructuring expenses | (13) | (16) | (10) | (27) | (16) | (9) | (91) | (21) | (112) | ||||||||||
Major litigation provisions | (9) | (11) | 0 | 0 | 0 | 0 | (20) | (88) | (108) | ||||||||||
Total operating expenses adjusted | 857 | 877 | 657 | 1,158 | 394 | 155 | 4,098 | 222 | 4,320 | ||||||||||
Income/(loss) before taxes | 426 | 355 | 218 | 71 | 35 | (127) | 978 | (578) | 400 | ||||||||||
Total adjustments | 22 | 27 | 10 | 27 | 16 | 9 | 111 | 109 | 220 | ||||||||||
Adjusted income/(loss) before taxes | 448 | 382 | 228 | 98 | 51 | (118) | 1,089 | (469) | 620 | ||||||||||
Adjusted return on regulatory capital (%) | 13.9 | 28.9 | 17.6 | 2.8 | 7.6 | – | 10.4 | – | 5.5 |
2Q17 | |||||||||||||||||||
Net revenues | 1,405 | 1,264 | 848 | 1,517 | 511 | (66) | 5,479 | (274) | 5,205 | ||||||||||
Provision for credit losses | 36 | 8 | (1) | 12 | 13 | 1 | 69 | 13 | 82 | ||||||||||
Total operating expenses | 867 | 891 | 661 | 1,248 | 420 | 178 | 4,265 | 276 | 4,541 | ||||||||||
Restructuring expenses | 4 | (7) | (11) | (32) | (10) | (2) | (58) | (11) | (69) | ||||||||||
Major litigation provisions | (6) | (6) | 0 | 0 | 0 | 0 | (12) | (21) | (33) | ||||||||||
Total operating expenses adjusted | 865 | 878 | 650 | 1,216 | 410 | 176 | 4,195 | 244 | 4,439 | ||||||||||
Income/(loss) before taxes | 502 | 365 | 188 | 257 | 78 | (245) | 1,145 | (563) | 582 | ||||||||||
Total adjustments | 2 | 13 | 11 | 32 | 10 | 2 | 70 | 32 | 102 | ||||||||||
Adjusted income/(loss) before taxes | 504 | 378 | 199 | 289 | 88 | (243) | 1,215 | (531) | 684 | ||||||||||
Adjusted return on regulatory capital (%) | 15.6 | 29.3 | 15.3 | 8.3 | 13.5 | – | 11.5 | – | 5.9 |
3Q16 | |||||||||||||||||||
Net revenues | 1,667 | 1,081 | 917 | 1,357 | 467 | 72 | 5,561 | (165) | 5,396 | ||||||||||
Real estate gains | (346) | 0 | 0 | 0 | 0 | 0 | (346) | 0 | (346) | ||||||||||
Net revenues adjusted | 1,321 | 1,081 | 917 | 1,357 | 467 | 72 | 5,215 | (165) | 5,050 | ||||||||||
Provision for credit losses | 30 | 0 | 34 | (5) | (9) | 0 | 50 | 5 | 55 | ||||||||||
Total operating expenses | 879 | 836 | 731 | 1,275 | 437 | 279 | 4,437 | 682 | 5,119 | ||||||||||
Restructuring expenses | (19) | (15) | (23) | (52) | (15) | 0 | (124) | (21) | (145) | ||||||||||
Major litigation provisions | 0 | 19 | 0 | (7) | 0 | 0 | 12 | (318) | (306) | ||||||||||
Total operating expenses adjusted | 860 | 840 | 708 | 1,216 | 422 | 279 | 4,325 | 343 | 4,668 | ||||||||||
Income/(loss) before taxes | 758 | 245 | 152 | 87 | 39 | (207) | 1,074 | (852) | 222 | ||||||||||
Total adjustments | (327) | (4) | 23 | 59 | 15 | 0 | (234) | 339 | 105 | ||||||||||
Adjusted income/(loss) before taxes | 431 | 241 | 175 | 146 | 54 | (207) | 840 | (513) | 327 | ||||||||||
Adjusted return on regulatory capital (%) | 14.0 | 20.1 | 12.9 | 4.1 | 8.6 | – | 8.1 | – | 2.7 | ||||||||||
Adjusted return on regulatory capital is calculated using adjusted results, applying the same methodology used to calculate return on regulatory capital. |
11
Reconciliation of adjusted results (continued) | |||||||||||||||||||
in | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Strategic Resolution Unit | Credit Suisse | ||||||||||
9M17 | |||||||||||||||||||
Net revenues | 4,078 | 3,747 | 2,619 | 4,388 | 1,574 | 40 | 16,446 | (735) | 15,711 | ||||||||||
(Gains)/losses on business sales | 0 | 0 | 0 | 0 | 0 | 23 | 23 | (38) | (15) | ||||||||||
Net revenues adjusted | 4,078 | 3,747 | 2,619 | 4,388 | 1,574 | 63 | 16,469 | (773) | 15,696 | ||||||||||
Provision for credit losses | 60 | 13 | 8 | 23 | 31 | 3 | 138 | 29 | 167 | ||||||||||
Total operating expenses | 2,686 | 2,723 | 2,058 | 3,720 | 1,281 | 508 | 12,976 | 916 | 13,892 | ||||||||||
Restructuring expenses | (61) | (59) | (40) | (79) | (28) | (12) | (279) | (39) | (318) | ||||||||||
Major litigation provisions | (42) | (17) | 0 | 0 | 0 | 0 | (59) | (179) | (238) | ||||||||||
Total operating expenses adjusted | 2,583 | 2,647 | 2,018 | 3,641 | 1,253 | 496 | 12,638 | 698 | 13,336 | ||||||||||
Income/(loss) before taxes | 1,332 | 1,011 | 553 | 645 | 262 | (471) | 3,332 | (1,680) | 1,652 | ||||||||||
Total adjustments | 103 | 76 | 40 | 79 | 28 | 35 | 361 | 180 | 541 | ||||||||||
Adjusted income/(loss) before taxes | 1,435 | 1,087 | 593 | 724 | 290 | (436) | 3,693 | (1,500) | 2,193 | ||||||||||
Adjusted return on regulatory capital (%) | 14.9 | 28.0 | 15.0 | 6.9 | 14.6 | – | 11.7 | – | 6.3 |
9M16 | |||||||||||||||||||
Net revenues | 4,360 | 3,399 | 2,735 | 4,232 | 1,398 | 87 | 16,211 | (1,069) | 15,142 | ||||||||||
Real estate gains | (346) | 0 | 0 | 0 | 0 | 0 | (346) | 0 | (346) | ||||||||||
(Gains)/losses on business sales | 0 | 0 | 0 | 0 | 0 | 52 | 52 | 4 | 56 | ||||||||||
Net revenues adjusted | 4,014 | 3,399 | 2,735 | 4,232 | 1,398 | 139 | 15,917 | (1,065) | 14,852 | ||||||||||
Provision for credit losses | 45 | 14 | 15 | 1 | 20 | (1) | 94 | 83 | 177 | ||||||||||
Total operating expenses | 2,672 | 2,595 | 2,098 | 4,188 | 1,266 | 497 | 13,316 | 1,712 | 15,028 | ||||||||||
Restructuring expenses | (63) | (38) | (34) | (202) | (34) | 0 | (371) | (120) | (491) | ||||||||||
Major litigation provisions | 0 | 19 | 0 | (7) | 0 | 0 | 12 | (318) | (306) | ||||||||||
Total operating expenses adjusted | 2,609 | 2,576 | 2,064 | 3,979 | 1,232 | 497 | 12,957 | 1,274 | 14,231 | ||||||||||
Income/(loss) before taxes | 1,643 | 790 | 622 | 43 | 112 | (409) | 2,801 | (2,864) | (63) | ||||||||||
Total adjustments | (283) | 19 | 34 | 209 | 34 | 52 | 65 | 442 | 507 | ||||||||||
Adjusted income/(loss) before taxes | 1,360 | 809 | 656 | 252 | 146 | (357) | 2,866 | (2,422) | 444 | ||||||||||
Adjusted return on regulatory capital (%) | 14.9 | 22.7 | 16.7 | 2.4 | 8.3 | – | 9.3 | – | 1.2 | ||||||||||
Adjusted return on regulatory capital is calculated using adjusted results, applying the same methodology used to calculate return on regulatory capital. |
12
Core Results by business activity | |||||||||||||||||||
in | 3Q17 | 2Q17 | 3Q16 | ||||||||||||||||
Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Core Results | Core Results | |||||||||||
Related to private banking (CHF million) | |||||||||||||||||||
Net revenues | 727 | 870 | 400 | – | – | – | 1,997 | 2,065 | 2,188 | ||||||||||
of which net interest income | 421 | 367 | 144 | – | – | – | 932 | 929 | 898 | ||||||||||
of which recurring | 205 | 300 | 97 | – | – | – | 602 | 598 | 556 | ||||||||||
of which transaction-based | 101 | 203 | 159 | – | – | – | 463 | 537 | 389 | ||||||||||
Provision for credit losses | 9 | 3 | (1) | – | – | – | 11 | 13 | 50 | ||||||||||
Total operating expenses | 512 | 615 | 261 | – | – | – | 1,388 | 1,384 | 1,357 | ||||||||||
Income before taxes | 206 | 252 | 140 | – | – | – | 598 | 668 | 781 | ||||||||||
Related to corporate & institutional banking | |||||||||||||||||||
Net revenues | 592 | – | – | – | – | – | 592 | 672 | 614 | ||||||||||
of which net interest income | 303 | – | – | – | – | – | 303 | 309 | 311 | ||||||||||
of which recurring | 149 | – | – | – | – | – | 149 | 161 | 156 | ||||||||||
of which transaction-based | 161 | – | – | – | – | – | 161 | 207 | 160 | ||||||||||
Provision for credit losses | 5 | – | – | – | – | – | 5 | 25 | 18 | ||||||||||
Total operating expenses | 367 | – | – | – | – | – | 367 | 367 | 364 | ||||||||||
Income before taxes | 220 | – | – | – | – | – | 220 | 280 | 232 | ||||||||||
Related to investment banking | |||||||||||||||||||
Net revenues | – | – | 490 | 1,262 | 457 | – | 2,209 | 2,471 | 2,395 | ||||||||||
of which fixed income sales and trading | – | – | 80 | 698 | – | – | 778 | 912 | 904 | ||||||||||
of which equity sales and trading | – | – | 262 | 383 | – | – | 645 | 689 | 650 | ||||||||||
of which underwriting and advisory | – | – | 148 | 1 | 240 | 478 | – | 866 | 931 | 891 | |||||||||
Provision for credit losses | – | – | 6 | 6 | 12 | – | 24 | 30 | (18) | ||||||||||
Total operating expenses | – | – | 406 | 1,185 | 410 | – | 2,001 | 2,067 | 2,194 | ||||||||||
Income before taxes | – | – | 78 | 71 | 35 | – | 184 | 374 | 219 | ||||||||||
Related to asset management | |||||||||||||||||||
Net revenues | – | 392 | – | – | – | – | 392 | 337 | 292 | ||||||||||
Total operating expenses | – | 289 | – | – | – | – | 289 | 269 | 243 | ||||||||||
Income before taxes | – | 103 | – | – | – | – | 103 | 68 | 49 | ||||||||||
Related to corporate center | |||||||||||||||||||
Net revenues | – | – | – | – | – | 37 | 37 | (66) | 72 | ||||||||||
Provision for credit losses | – | – | – | – | – | 0 | 0 | 1 | 0 | ||||||||||
Total operating expenses | – | – | – | – | – | 164 | 164 | 178 | 279 | ||||||||||
Loss before taxes | – | – | – | – | – | (127) | (127) | (245) | (207) | ||||||||||
Total | |||||||||||||||||||
Net revenues | 1,319 | 1,262 | 890 | 1,262 | 457 | 37 | 5,227 | 5,479 | 5,561 | ||||||||||
Provision for credit losses | 14 | 3 | 5 | 6 | 12 | 0 | 40 | 69 | 50 | ||||||||||
Total operating expenses | 879 | 904 | 667 | 1,185 | 410 | 164 | 4,209 | 4,265 | 4,437 | ||||||||||
Income/(loss) before taxes | 426 | 355 | 218 | 71 | 35 | (127) | 978 | 1,145 | 1,074 | ||||||||||
Certain transaction-based revenues in Swiss Universal Bank and certain fixed income and equity sales and trading revenues in Asia Pacific and Global Markets relate to the Group’s global advisory and underwriting business. Refer to “Global advisory and underwriting revenues” in Investment Banking & Capital Markets for further information. | |||||||||||||||||||
1 Reflects certain financing revenues in Asia Pacific that are not included in the Group’s global advisory and underwriting revenues. |
13
Core Results by business activity (continued) | |||||||||||||||||
in | 9M17 | 9M16 | |||||||||||||||
Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Corporate Center | Core Results | Core Results | ||||||||||
Related to private banking (CHF million) | |||||||||||||||||
Net revenues | 2,171 | 2,680 | 1,216 | – | – | – | 6,067 | 5,964 | |||||||||
of which net interest income | 1,242 | 1,069 | 473 | – | – | – | 2,784 | 2,631 | |||||||||
of which recurring | 604 | 892 | 281 | – | – | – | 1,777 | 1,655 | |||||||||
of which transaction-based | 324 | 718 | 462 | – | – | – | 1,504 | 1,351 | |||||||||
Provision for credit losses | 32 | 13 | (3) | – | – | – | 42 | 66 | |||||||||
Total operating expenses | 1,550 | 1,879 | 791 | – | – | – | 4,220 | 4,096 | |||||||||
Income before taxes | 589 | 788 | 428 | – | – | – | 1,805 | 1,802 | |||||||||
Related to corporate & institutional banking | |||||||||||||||||
Net revenues | 1,907 | – | – | – | – | – | 1,907 | 1,851 | |||||||||
of which net interest income | 925 | – | – | – | – | – | 925 | 899 | |||||||||
of which recurring | 475 | – | – | – | – | – | 475 | 464 | |||||||||
of which transaction-based | 548 | – | – | – | – | – | 548 | 525 | |||||||||
Provision for credit losses | 28 | – | – | – | – | – | 28 | 16 | |||||||||
Total operating expenses | 1,136 | – | – | – | – | – | 1,136 | 1,114 | |||||||||
Income before taxes | 743 | – | – | – | – | – | 743 | 721 | |||||||||
Related to investment banking | |||||||||||||||||
Net revenues | – | – | 1,403 | 4,388 | 1,574 | – | 7,365 | 7,363 | |||||||||
of which fixed income sales and trading | – | – | 239 | 2,375 | – | – | 2,614 | 2,532 | |||||||||
of which equity sales and trading | – | – | 684 | 1,372 | – | – | 2,056 | 2,532 | |||||||||
of which underwriting and advisory | – | – | 480 | 1 | 801 | 1,618 | – | 2,899 | 2,558 | ||||||||
Provision for credit losses | – | – | 11 | 23 | 31 | – | 65 | 13 | |||||||||
Total operating expenses | – | – | 1,267 | 3,720 | 1,281 | – | 6,268 | 6,840 | |||||||||
Income before taxes | – | – | 125 | 645 | 262 | – | 1,032 | 510 | |||||||||
Related to asset management | |||||||||||||||||
Net revenues | – | 1,067 | – | – | – | – | 1,067 | 946 | |||||||||
Total operating expenses | – | 844 | – | – | – | – | 844 | 769 | |||||||||
Income before taxes | – | 223 | – | – | – | – | 223 | 177 | |||||||||
Related to corporate center | |||||||||||||||||
Net revenues | – | – | – | – | – | 40 | 40 | 87 | |||||||||
Provision for credit losses | – | – | – | – | – | 3 | 3 | (1) | |||||||||
Total operating expenses | – | – | – | – | – | 508 | 508 | 497 | |||||||||
Loss before taxes | – | – | – | – | – | (471) | (471) | (409) | |||||||||
Total | |||||||||||||||||
Net revenues | 4,078 | 3,747 | 2,619 | 4,388 | 1,574 | 40 | 16,446 | 16,211 | |||||||||
Provision for credit losses | 60 | 13 | 8 | 23 | 31 | 3 | 138 | 94 | |||||||||
Total operating expenses | 2,686 | 2,723 | 2,058 | 3,720 | 1,281 | 508 | 12,976 | 13,316 | |||||||||
Income/(loss) before taxes | 1,332 | 1,011 | 553 | 645 | 262 | (471) | 3,332 | 2,801 | |||||||||
Certain transaction-based revenues in Swiss Universal Bank and certain fixed income and equity sales and trading revenues in Asia Pacific and Global Markets relate to the Group’s global advisory and underwriting business. Refer to “Global advisory and underwriting revenues” in Investment Banking & Capital Markets for further information. | |||||||||||||||||
1 Reflects certain financing revenues in Asia Pacific that are not included in the Group’s global advisory and underwriting revenues. |
14
There were 46,720 Group employees as of the end of 3Q17, an increase of 490 compared to 2Q17, primarily reflecting seasonal graduate hiring as well a transfer of contractors to employees, primarily in International Wealth Management, Global Markets and Investment Banking & Capital Markets. The number of outsourced roles, contractors and consultants decreased by 80 compared to 2Q17.
Employees and other headcount | |||||||
end of | 3Q17 | 2Q17 | 3Q16 | ||||
Employees (full-time equivalents) | |||||||
Swiss Universal Bank | 12,600 | 12,610 | 13,440 | ||||
International Wealth Management | 10,110 | 9,930 | 10,350 | ||||
Asia Pacific | 7,050 | 7,000 | 7,140 | ||||
Global Markets | 11,760 | 11,620 | 11,680 | ||||
Investment Banking & Capital Markets | 3,260 | 3,130 | 2,910 | ||||
Strategic Resolution Unit | 1,640 | 1,640 | 1,840 | ||||
Corporate Center | 300 | 300 | 330 | ||||
Total employees | 46,720 | 46,230 | 47,690 | ||||
Other headcount | |||||||
Outsourced roles, contractors and consultants | 22,010 | 22,090 | 25,060 | ||||
Total employees and other headcount | 68,730 | 68,320 | 72,750 |
As of the end of 3Q17, our Bank for International Settlements (BIS) common equity tier 1 (CET1) ratio was 13.2% and our risk-weighted assets (RWA) were CHF 265.0 billion, both on a look-through basis.
Effective July 1, 2017, the Swiss Financial Market Supervisory Authority FINMA (FINMA) has imposed an add-on to our risk-weighted assets relating to operational risk, primarily in respect of our residential mortgage-backed securities (RMBS) settlements. The add-on was CHF 5.2 billion in 3Q17, primarily in respect of the settlement with the US Department of Justice in January 2017 regarding our legacy RMBS business. Separately, Credit Suisse has approached FINMA with a request to review the appropriateness of the level of the operational risk RWA in the Strategic Resolution Unit given the progress in reducing the size of the division over the last seven quarters, with the aim of aligning reductions to the accelerated closure of the Strategic Resolution Unit by the end of 2018. This is still under discussion with FINMA.
As a consequence of the RMBS settlements with the National Credit Union Administration Board in May 2017 and with Massachusetts Mutual Life Insurance Company in September 2017, additional FINMA-imposed add-ons to our risk-weighted assets of CHF 3.2 billion and CHF 0.6 billion, respectively, are expected to be recognized in 4Q17.
> Refer to “Capital management” in II – Treasury, risk, balance sheet and off-balance sheet for further information.
Format of presentation
In managing our business, revenues are evaluated in the aggregate, including an assessment of trading gains and losses and the related interest income and expense from financing and hedging positions. For this reason, specific individual revenue categories in isolation may not be indicative of performance.
Certain reclassifications have been made to prior periods to conform to the current presentation.
International Trading Solutions
Effective July 1, 2017, the Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management whereby it provides centralized trading and sales services to private and institutional clients across the three divisions. These services are now managed as a single business within the Global Markets division, referred to as International Trading Solutions (ITS). ITS is expected to provide aligned market strategies, significant cost synergies and enhanced client focus.
Return on regulatory capital
Credit Suisse measures firm-wide returns against total shareholders’ equity and tangible shareholders’ equity. In addition, it also measures the efficiency of the firm and its divisions with regard to the usage of capital as determined by the minimum requirements set by regulators. This regulatory capital is calculated as the worst of 10% of risk-weighted assets and 3.5% of the leverage exposure. Return on regulatory capital is calculated using income/(loss) after tax and assumes a tax rate of 30% and capital allocated based on the worst of 10% of average risk-weighted assets and 3.5% of average leverage exposure. These percentages are used in the calculation in order to reflect the 2019 fully phased in Swiss regulatory minimum requirements for Basel III CET1 capital and leverage ratio. For Global Markets and Investment Banking & Capital Markets, return on regulatory capital is based on US dollar denominated numbers.
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x020_0002.gif)
15
Fair valuations
Fair value can be a relevant measurement for financial instruments when it aligns the accounting for these instruments with how we manage our business. The levels of the fair value hierarchy as defined by the relevant accounting guidance are not a measurement of economic risk, but rather an indication of the observability of prices or valuation inputs.
> Refer to “Note 1 – Summary of significant accounting policies” and “Note 28 – Financial instruments” in III – Condensed consolidated financial statements – unaudited for further information.
Models were used to value financial instruments for which no prices are available and which have little or no observable inputs (level 3). Models are developed internally and are reviewed by functions independent of the front office to ensure they are appropriate for current market conditions. The models require subjective assessment and varying degrees of judgment depending on liquidity, concentration, pricing assumptions and risks affecting the specific instrument. The models consider observable and unobservable parameters in calculating the value of these products, including certain indices relating to these products. Consideration of these indices is more significant in periods of lower market activity.
As of the end of 3Q17, 39% and 25% of our total assets and total liabilities, respectively, were measured at fair value.
The majority of our level 3 assets are recorded in our investment banking businesses. As of the end of 3Q17, total assets at fair value recorded as level 3 of CHF 17.6 billion were stable compared to the end of 2Q17, primarily reflecting net settlements, mainly in loans and loans held-for-sale, offset by net purchases, mainly in trading assets, and a foreign exchange translation impact, mainly in trading assets, loans held-for-sale and loans.
As of the end of 3Q17, our level 3 assets comprised 2% of total assets and 6% of total assets measured at fair value, unchanged from 2Q17.
We believe that the range of any valuation uncertainty, in the aggregate, would not be material to our financial condition; however, it may be material to our operating results for any particular period, depending, in part, upon the operating results for such period.
The global service company initiative has continued to make progress in 3Q17 in evolving the legal entity structure of the bank and ensuring continued provision of critical services for the Group in case of a resolution event. A branch of Credit Suisse Services AG has been registered in Singapore as Credit Suisse Services AG, Singapore Branch, which is expected to become operational in 2018.
Government leaders and regulators continued to focus on reform of the financial services industry, including capital, leverage and liquidity requirements, changes in compensation practices and systemic risk.
In September 2017, the Fed and the Federal Deposit Insurance Corporation each issued final rules that substantially implement their respective proposed rules designed to improve the resolvability of US headquartered global systematically important banks (G-SIBs) and the US operations of non-US G-SIBs, such as our US operations. Covered “qualified financial contracts” must be conformed to the rules' requirements starting January 1, 2019, with full compliance by January 1, 2020. The Office of the Comptroller of the Currency is expected to issue parallel final rules as well.
> Refer to “Regulation and supervision” in I – Information on the company in the Credit Suisse Annual Report 2016 for further information and “Regulatory framework” and “Regulatory developments and proposals” in II – Treasury, risk, balance sheet and off-balance sheet – Liquidity and funding management and Capital management, respectively, for further information.
16
In 3Q17, we reported income before taxes of CHF 426 million and net revenues of CHF 1,319 million. Income before taxes was 15% lower compared to 2Q17 and 44% lower compared to 3Q16, which included significant gains on the sale of real estate.
3Q17 results
In 3Q17, we reported income before taxes of CHF 426 million and net revenues of CHF 1,319 million. Compared to 2Q17, net revenues were 6% lower, primarily driven by seasonally lower transaction-based revenues. Provision for credit losses was CHF 14 million compared to CHF 36 million in 2Q17. Total operating expenses were stable compared to 2Q17, primarily reflecting higher restructuring expenses and general and administrative expenses, offset by lower commission expenses.
Compared to 3Q16, net revenues were 21% lower, mainly due to gains on the sale of real estate of CHF 346 million in 3Q16, partially offset by higher transaction-based revenues. Provision for credit losses was CHF 14 million compared to CHF 30 million in 3Q16. Total operating expenses were stable compared to 3Q16, reflecting higher general and administrative expenses, offset by slightly lower compensation and benefits and lower restructuring expenses.
Adjusted income before taxes of CHF 448 million was 11% lower and 4% higher compared to 2Q17 and 3Q16, respectively.
Capital and leverage metrics
As of the end of 3Q17, we reported risk-weighted assets of CHF 64.5 billion, stable compared to the end of 2Q17. An increase from methodology and policy changes reflecting the phase-in of the Swiss mortgage multipliers was offset by favorable interest rate movements on our derivatives portfolio. Leverage exposure was CHF 256.2 billion, reflecting a slight decrease of CHF 4.3 billion compared to the end of 2Q17, driven by lower high-quality liquid assets (HQLA).
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 1,319 | 1,405 | 1,667 | (6) | (21) | 4,078 | 4,360 | (6) | |||||||||
Provision for credit losses | 14 | 36 | 30 | (61) | (53) | 60 | 45 | 33 | |||||||||
Compensation and benefits | 462 | 466 | 474 | (1) | (3) | 1,380 | 1,440 | (4) | |||||||||
General and administrative expenses | 340 | 327 | 320 | 4 | 6 | 1,023 | 959 | 7 | |||||||||
Commission expenses | 64 | 78 | 66 | (18) | (3) | 222 | 210 | 6 | |||||||||
Restructuring expenses | 13 | (4) | 19 | – | (32) | 61 | 63 | (3) | |||||||||
Total other operating expenses | 417 | 401 | 405 | 4 | 3 | 1,306 | 1,232 | 6 | |||||||||
Total operating expenses | 879 | 867 | 879 | 1 | 0 | 2,686 | 2,672 | 1 | |||||||||
Income before taxes | 426 | 502 | 758 | (15) | (44) | 1,332 | 1,643 | (19) | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 13.2 | 15.5 | 24.7 | – | – | 13.8 | 18.0 | – | |||||||||
Cost/income ratio | 66.6 | 61.7 | 52.7 | – | – | 65.9 | 61.3 | – | |||||||||
Economic risk capital and return | |||||||||||||||||
Average economic risk capital (CHF million) | 5,464 | 5,651 | 5,649 | (3) | (3) | 5,602 | 5,507 | 2 | |||||||||
Pre-tax return on average economic risk capital (%) | 31.1 | 35.5 | 53.6 | – | – | 31.7 | 39.8 | – | |||||||||
Number of employees and relationship managers | |||||||||||||||||
Number of employees (full-time equivalents) | 12,600 | 12,610 | 13,440 | 0 | (6) | 12,600 | 13,440 | (6) | |||||||||
Number of relationship managers | 1,850 | 1,860 | 1,980 | (1) | (7) | 1,850 | 1,980 | (7) |
17
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Private Clients | 727 | 733 | 1,053 | (1) | (31) | 2,171 | 2,509 | (13) | |||||||||
Corporate & Institutional Clients | 592 | 672 | 614 | (12) | (4) | 1,907 | 1,851 | 3 | |||||||||
Net revenues | 1,319 | 1,405 | 1,667 | (6) | (21) | 4,078 | 4,360 | (6) | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Net interest income | 724 | 717 | 724 | 1 | 0 | 2,167 | 2,139 | 1 | |||||||||
Recurring commissions and fees | 354 | 363 | 361 | (2) | (2) | 1,079 | 1,068 | 1 | |||||||||
Transaction-based revenues | 262 | 330 | 249 | (21) | 5 | 872 | 842 | 4 | |||||||||
Other revenues | (21) | (5) | 333 | 320 | – | (40) | 311 | – | |||||||||
Net revenues | 1,319 | 1,405 | 1,667 | (6) | (21) | 4,078 | 4,360 | (6) | |||||||||
Provision for credit losses (CHF million) | |||||||||||||||||
New provisions | 36 | 52 | 45 | (31) | (20) | 126 | 104 | 21 | |||||||||
Releases of provisions | (22) | (16) | (15) | 38 | 47 | (66) | (59) | 12 | |||||||||
Provision for credit losses | 14 | 36 | 30 | (61) | (53) | 60 | 45 | 33 | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 228,647 | 235,562 | 222,164 | (3) | 3 | 228,647 | 222,164 | 3 | |||||||||
Net loans | 165,221 | 165,435 | 166,910 | 0 | (1) | 165,221 | 166,910 | (1) | |||||||||
of which Private Clients | 110,729 | 110,426 | 109,944 | 0 | 1 | 110,729 | 109,944 | 1 | |||||||||
Risk-weighted assets | 64,519 | 64,426 | 65,571 | 0 | (2) | 64,519 | 65,571 | (2) | |||||||||
Leverage exposure | 256,207 | 260,479 | 246,254 | (2) | 4 | 256,207 | 246,254 | 4 | |||||||||
Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. Recurring commissions and fees includes investment product management, discretionary mandate and other asset management-related fees, fees for general banking products and services and revenues from wealth structuring solutions. Transaction-based revenues arise primarily from brokerage and product issuing fees, fees from foreign exchange client transactions, trading and sales income, equity participations income and other transaction-based income. Other revenues include fair value gains/(losses) on synthetic securitized loan portfolios and other gains and losses. |
Reconciliation of adjusted results | |||||||||||||||||||
Private Clients | Corporate & Institutional Clients | Swiss Universal Bank | |||||||||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | ||||||||||
Adjusted results (CHF million) | |||||||||||||||||||
Net revenues | 727 | 733 | 1,053 | 592 | 672 | 614 | 1,319 | 1,405 | 1,667 | ||||||||||
Real estate gains | 0 | 0 | (346) | 0 | 0 | 0 | 0 | 0 | (346) | ||||||||||
Adjusted net revenues | 727 | 733 | 707 | 592 | 672 | 614 | 1,319 | 1,405 | 1,321 | ||||||||||
Provision for credit losses | 9 | 11 | 12 | 5 | 25 | 18 | 14 | 36 | 30 | ||||||||||
Total operating expenses | 512 | 500 | 515 | 367 | 367 | 364 | 879 | 867 | 879 | ||||||||||
Restructuring expenses | (9) | 2 | (16) | (4) | 2 | (3) | (13) | 4 | (19) | ||||||||||
Major litigation provisions | (2) | (2) | 0 | (7) | (4) | 0 | (9) | (6) | 0 | ||||||||||
Adjusted total operating expenses | 501 | 500 | 499 | 356 | 365 | 361 | 857 | 865 | 860 | ||||||||||
Income before taxes | 206 | 222 | 526 | 220 | 280 | 232 | 426 | 502 | 758 | ||||||||||
Total adjustments | 11 | 0 | (330) | 11 | 2 | 3 | 22 | 2 | (327) | ||||||||||
Adjusted income before taxes | 217 | 222 | 196 | 231 | 282 | 235 | 448 | 504 | 431 | ||||||||||
Adjusted return on regulatory capital (%) | – | – | – | – | – | – | 13.9 | 15.6 | 14.0 | ||||||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
18
Reconciliation of adjusted results (continued) | |||||||||||||
Private Clients | Corporate & Institutional Clients | Swiss Universal Bank | |||||||||||
in | 9M17 | 9M16 | 9M17 | 9M16 | 9M17 | 9M16 | |||||||
Adjusted results (CHF million) | |||||||||||||
Net revenues | 2,171 | 2,509 | 1,907 | 1,851 | 4,078 | 4,360 | |||||||
Real estate gains | 0 | (346) | 0 | 0 | 0 | (346) | |||||||
Adjusted net revenues | 2,171 | 2,163 | 1,907 | 1,851 | 4,078 | 4,014 | |||||||
Provision for credit losses | 32 | 29 | 28 | 16 | 60 | 45 | |||||||
Total operating expenses | 1,550 | 1,558 | 1,136 | 1,114 | 2,686 | 2,672 | |||||||
Restructuring expenses | (54) | (54) | (7) | (9) | (61) | (63) | |||||||
Major litigation provisions | (4) | 0 | (38) | 0 | (42) | 0 | |||||||
Adjusted total operating expenses | 1,492 | 1,504 | 1,091 | 1,105 | 2,583 | 2,609 | |||||||
Income before taxes | 589 | 922 | 743 | 721 | 1,332 | 1,643 | |||||||
Total adjustments | 58 | (292) | 45 | 9 | 103 | (283) | |||||||
Adjusted income before taxes | 647 | 630 | 788 | 730 | 1,435 | 1,360 | |||||||
Adjusted return on regulatory capital (%) | – | – | – | – | 14.9 | 14.9 | |||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
Private clients
Income before taxes of CHF 206 million was 7% lower compared to 2Q17, primarily due to slightly higher total operating expenses with stable net revenues. Compared to 3Q16, income before taxes was significantly lower, primarily reflecting the gains on the sale of real estate of CHF 346 million in 3Q16. Adjusted income before taxes of CHF 217 million was slightly lower compared to 2Q17 and increased 11% compared to 3Q16.
Net revenues
Compared to 2Q17, net revenues of CHF 727 million were stable with lower transaction-based revenues, offset by slightly higher net interest income. Transaction-based revenues of CHF 101 million were 18% lower, primarily due to a gain from the sale of an investment in 2Q17, lower revenues from trading services and lower equity participations income, which included a regular dividend from our ownership interest in SIX Group AG in 2Q17, partially offset by higher corporate advisory fees. Net interest income of CHF 421 million was slightly higher with higher deposit margins on slightly higher average deposit volumes and stable loan margins on stable average loan volumes. Recurring commissions and fees of CHF 205 million were stable.
Compared to 3Q16, net revenues were 31% lower due to the gains on the sale of real estate of CHF 346 million in 3Q16 reflected in other revenues, partially offset by higher transaction-based revenues and slightly higher net interest income. Transaction-based revenues were 13% higher, mainly reflecting increased client activity. Net interest income was slightly higher with increased deposit margins on higher average deposit volumes and stable loan margins on slightly higher average loan volumes. Recurring commissions and fees were stable.
Provision for credit losses
The Private Clients loan portfolio is substantially comprised of residential mortgages in Switzerland and loans collateralized by securities and, to a lesser extent, consumer finance loans.
In 3Q17, Private Clients recorded provision for credit losses of CHF 9 million compared to CHF 11 million in 2Q17 and CHF 12 million in 3Q16. The provisions were primarily related to our consumer finance business.
19
Results - Private Clients | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 727 | 733 | 1,053 | (1) | (31) | 2,171 | 2,509 | (13) | |||||||||
Provision for credit losses | 9 | 11 | 12 | (18) | (25) | 32 | 29 | 10 | |||||||||
Compensation and benefits | 252 | 253 | 277 | 0 | (9) | 747 | 830 | (10) | |||||||||
General and administrative expenses | 222 | 213 | 198 | 4 | 12 | 638 | 595 | 7 | |||||||||
Commission expenses | 29 | 36 | 24 | (19) | 21 | 111 | 79 | 41 | |||||||||
Restructuring expenses | 9 | (2) | 16 | – | (44) | 54 | 54 | 0 | |||||||||
Total other operating expenses | 260 | 247 | 238 | 5 | 9 | 803 | 728 | 10 | |||||||||
Total operating expenses | 512 | 500 | 515 | 2 | (1) | 1,550 | 1,558 | (1) | |||||||||
Income before taxes | 206 | 222 | 526 | (7) | (61) | 589 | 922 | (36) | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 70.4 | 68.2 | 48.9 | – | – | 71.4 | 62.1 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Net interest income | 421 | 408 | 413 | 3 | 2 | 1,242 | 1,240 | 0 | |||||||||
Recurring commissions and fees | 205 | 202 | 205 | 1 | 0 | 604 | 604 | 0 | |||||||||
Transaction-based revenues | 101 | 123 | 89 | (18) | 13 | 324 | 317 | 2 | |||||||||
Other revenues | 0 | 0 | 346 | – | (100) | 1 | 348 | (100) | |||||||||
Net revenues | 727 | 733 | 1,053 | (1) | (31) | 2,171 | 2,509 | (13) | |||||||||
Margins on assets under management (annualized) (bp) | |||||||||||||||||
Gross margin 1 | 142 | 146 | 220 | – | – | 145 | 177 | – | |||||||||
Net margin 2 | 40 | 44 | 110 | – | – | 39 | 65 | – | |||||||||
Number of relationship managers | |||||||||||||||||
Number of relationship managers | 1,300 | 1,310 | 1,440 | (1) | (10) | 1,300 | 1,440 | (10) | |||||||||
1 Net revenues divided by average assets under management. | |||||||||||||||||
2 Income before taxes divided by average assets under management. |
Total operating expenses
Compared to 2Q17, total operating expenses of CHF 512 million were slightly higher, primarily reflecting higher restructuring and general and administrative expenses, partially offset by lower commission expenses. General and administrative expenses of CHF 222 million increased 4%, primarily reflecting higher allocated corporate function costs and higher advertising and marketing expenses, partially offset by lower professional services fees. Compensation and benefits of CHF 252 million were stable. Adjusted total operating expenses of CHF 501 million were stable compared to 2Q17.
Compared to 3Q16, total operating expenses were stable, reflecting higher general and administrative expenses and increased commission expenses, offset by lower compensation and benefits and lower restructuring expenses. General and administrative expenses were 12% higher, primarily reflecting higher allocated corporate function costs. Compensation and benefits were 9% lower, primarily reflecting lower allocated corporate function costs and lower salary expenses. Adjusted total operating expenses were stable compared to 3Q16.
Gross margin
Our gross margin was 142 basis points in 3Q17, four basis points lower compared to 2Q17, mainly driven by 1.4% higher average assets under management. Compared to 3Q16, our gross margin was 78 basis points lower, mainly reflecting the gains on the sale of real estate in 3Q16 on 6.7% higher average assets under management. On the basis of adjusted net revenues, our gross margin was 142 basis points in 3Q17, four basis points lower compared to 2Q17 and six basis points lower compared to 3Q16.
> Refer to “Assets under management” for further information.
Net margin
Our net margin was 40 basis points in 3Q17, four basis points lower compared to 2Q17, mainly reflecting higher restructuring and general and administrative expenses on 1.4% higher average assets under management. Compared to 3Q16, our net margin was 70 basis points lower, primarily due to the gains on the sale of real estate in 3Q16 on 6.7% higher average assets under management. On the basis of adjusted income before taxes, our net margin was 43 basis points in 3Q17, one basis point lower compared to 2Q17 and two basis points higher compared to 3Q16.
20
As of the end of 3Q17, assets under management of CHF 206.1 billion were CHF 4.6 billion higher compared to the end of 2Q17, mainly driven by favorable market and foreign exchange-related movements and net new assets of CHF 1.0 billion.
Assets under management – Private Clients | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Assets under management (CHF billion) | |||||||||||||||||
Assets under management | 206.1 | 201.5 | 192.6 | 2.3 | 7.0 | 206.1 | 192.6 | 7.0 | |||||||||
Average assets under management | 204.2 | 201.4 | 191.3 | 1.4 | 6.7 | 200.2 | 189.4 | 5.7 | |||||||||
Assets under management by currency (CHF billion) | |||||||||||||||||
USD | 30.1 | 29.8 | 28.0 | 1.0 | 7.5 | 30.1 | 28.0 | 7.5 | |||||||||
EUR | 21.9 | 20.8 | 19.0 | 5.3 | 15.3 | 21.9 | 19.0 | 15.3 | |||||||||
CHF | 144.2 | 141.9 | 137.8 | 1.6 | 4.6 | 144.2 | 137.8 | 4.6 | |||||||||
Other | 9.9 | 9.0 | 7.8 | 10.0 | 26.9 | 9.9 | 7.8 | 26.9 | |||||||||
Assets under management | 206.1 | 201.5 | 192.6 | 2.3 | 7.0 | 206.1 | 192.6 | 7.0 | |||||||||
Growth in assets under management (CHF billion) | |||||||||||||||||
Net new assets | 1.0 | 1.7 | 0.9 | – | – | 4.7 | 1.9 | – | |||||||||
Other effects | 3.6 | 1.6 | 2.1 | – | – | 9.2 | 0.9 | – | |||||||||
of which market movements | 2.2 | 2.9 | 2.6 | – | – | 9.9 | 1.7 | – | |||||||||
of which foreign exchange | 1.7 | (1.1) | (0.1) | – | – | 0.0 | (0.9) | – | |||||||||
of which other | (0.3) | (0.2) | (0.4) | – | – | (0.7) | 0.1 | – | |||||||||
Growth in assets under management | 4.6 | 3.3 | 3.0 | – | – | 13.9 | 2.8 | – | |||||||||
Growth in assets under management (annualized) (%) | |||||||||||||||||
Net new assets | 2.0 | 3.4 | 1.9 | – | – | 3.3 | 1.3 | – | |||||||||
Other effects | 7.1 | 3.3 | 4.5 | – | – | 6.3 | 0.7 | – | |||||||||
Growth in assets under management (annualized) | 9.1 | 6.7 | 6.4 | – | – | 9.6 | 2.0 | – | |||||||||
Growth in assets under management (rolling four-quarter average) (%) | |||||||||||||||||
Net new assets | 1.5 | 1.5 | 0.5 | – | – | – | – | – | |||||||||
Other effects | 5.5 | 4.8 | 3.0 | – | – | – | – | – | |||||||||
Growth in assets under management (rolling four-quarter average) | 7.0 | 6.3 | 3.5 | – | – | – | – | – |
Corporate & institutional clients
Income before taxes of CHF 220 million decreased 21% compared to 2Q17 and 5% compared to 3Q16, primarily due to lower net revenues and stable total operating expenses, partially offset by lower provision for credit losses in 3Q17. Adjusted income before taxes of CHF 231 million decreased 18% compared to 2Q17 and was slightly lower compared to 3Q16.
Net revenues
Compared to 2Q17, net revenues of CHF 592 million were 12% lower with decreased revenues across all revenue categories. Transaction-based revenues of CHF 161 million were 22% lower, mainly due to lower revenues from trading services, lower revenues from our Swiss investment banking business, our profit share on the sale of an investment and a regular dividend from SIX Group in 2Q17. Other revenues decreased CHF 16 million primarily due to gains from credit hedges in 2Q17. Recurring commissions and fees of CHF 149 million were 7% lower, reflecting lower discretionary mandate management fees, lower investment product management fees and lower security account and custody services fees, partially offset by higher wealth structuring solution fees. Net interest income of CHF 303 million was slightly lower with stable loan margins on stable average loan volumes and higher deposit margins on stable average deposit volumes.
21
Compared to 3Q16, net revenues were 4% lower, with slightly lower net interest income, decreased other revenues and lower recurring commissions and fees. Net interest income decreased slightly, driven by lower deposit margins on higher average deposit volumes and stable loan margins on stable average loan volumes. Other revenues decreased CHF 8 million primarily due to higher fair value losses on synthetic securitized loan portfolios. Recurring commissions and fees decreased 4%, driven by lower discretionary mandate management fees, partially offset by higher investment product management fees. Transaction-based revenues were stable.
Results – Corporate & Institutional Clients | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 592 | 672 | 614 | (12) | (4) | 1,907 | 1,851 | 3 | |||||||||
Provision for credit losses | 5 | 25 | 18 | (80) | (72) | 28 | 16 | 75 | |||||||||
Compensation and benefits | 210 | 213 | 197 | (1) | 7 | 633 | 610 | 4 | |||||||||
General and administrative expenses | 118 | 114 | 122 | 4 | (3) | 385 | 364 | 6 | |||||||||
Commission expenses | 35 | 42 | 42 | (17) | (17) | 111 | 131 | (15) | |||||||||
Restructuring expenses | 4 | (2) | 3 | – | 33 | 7 | 9 | (22) | |||||||||
Total other operating expenses | 157 | 154 | 167 | 2 | (6) | 503 | 504 | 0 | |||||||||
Total operating expenses | 367 | 367 | 364 | 0 | 1 | 1,136 | 1,114 | 2 | |||||||||
Income before taxes | 220 | 280 | 232 | (21) | (5) | 743 | 721 | 3 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 62.0 | 54.6 | 59.3 | – | – | 59.6 | 60.2 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Net interest income | 303 | 309 | 311 | (2) | (3) | 925 | 899 | 3 | |||||||||
Recurring commissions and fees | 149 | 161 | 156 | (7) | (4) | 475 | 464 | 2 | |||||||||
Transaction-based revenues | 161 | 207 | 160 | (22) | 1 | 548 | 525 | 4 | |||||||||
Other revenues | (21) | (5) | (13) | 320 | 62 | (41) | (37) | 11 | |||||||||
Net revenues | 592 | 672 | 614 | (12) | (4) | 1,907 | 1,851 | 3 | |||||||||
Number of relationship managers | |||||||||||||||||
Number of relationship managers | 550 | 550 | 540 | 0 | 2 | 550 | 540 | 2 |
Provision for credit losses
The Corporate & Institutional Clients loan portfolio has relatively low concentrations and is mainly secured by real estate, securities and other financial collateral.
In 3Q17, Corporate & Institutional Clients recorded provision for credit losses of CHF 5 million compared to CHF 25 million in 2Q17 and CHF 18 million in 3Q16. The decrease compared to 2Q17 and 3Q16 reflected both lower new provisions and higher releases of provision for credit losses relating to several individual cases.
Total operating expenses
Compared to 2Q17, total operating expenses of CHF 367 million were stable, with higher restructuring expenses and higher general and administrative expenses, offset by lower commission expenses. General and administrative expenses of CHF 118 million increased 4%, mainly reflecting higher litigation provisions. Compensation and benefits of CHF 210 million were stable. Adjusted total operating expenses of CHF 356 million decreased slightly compared to 2Q17.
Compared to 3Q16, total operating expenses were stable, with higher compensation and benefits, offset by decreased commission expenses and slightly lower general and administrative expenses. Compensation and benefits increased 7% mainly due to higher allocated corporate function costs. General and administrative expenses decreased slightly, primarily due to lower allocated corporate function costs and lower professional services fees. Adjusted total operating expenses were stable compared to 3Q16.
As of the end of 3Q17, assets under management of CHF 346.7 billion were CHF 5.8 billion lower compared to the end of 2Q17, mainly driven by net asset outflows of CHF 13.7 billion primarily due to redemptions of CHF 13.3 billion from a single public sector mandate.
22
In 3Q17, we reported income before taxes of CHF 355 million and net revenues of CHF 1,262 million. Income before taxes decreased slightly compared to 2Q17 and increased 45% compared to 3Q16.
3Q17 results
In 3Q17, we reported income before taxes of CHF 355 million and net revenues of CHF 1,262 million. Compared to 2Q17, net revenues were stable, with lower transaction- and performance-based revenues that included the impact of seasonally lower client activity in Private Banking offset by higher revenues in Asset Management. Provision for credit losses was CHF 3 million compared to CHF 8 million in 2Q17. Total operating expenses were stable compared to 2Q17, mainly driven by higher general and administrative expenses, offset by slightly lower compensation and benefits.
Compared to 3Q16, net revenues increased 17% reflecting higher revenues across all revenue categories. Provision for credit losses was CHF 3 million compared to zero in 3Q16. Total operating expenses were 8% higher, mainly driven by higher compensation and benefits and higher general and administrative expenses.
Adjusted income before taxes of CHF 382 million was stable compared to 2Q17 and increased 59% compared to 3Q16.
Capital and leverage metrics
As of the end of 3Q17, we reported risk-weighted assets of CHF 37.2 billion, slightly higher compared to the end of 2Q17, primarily driven by foreign exchange movements and movements in risk levels. Leverage exposure of CHF 93.5 billion was stable compared to the end of 2Q17.
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 1,262 | 1,264 | 1,081 | 0 | 17 | 3,747 | 3,399 | 10 | |||||||||
Provision for credit losses | 3 | 8 | 0 | (63) | – | 13 | 14 | (7) | |||||||||
Compensation and benefits | 543 | 556 | 513 | (2) | 6 | 1,655 | 1,554 | 6 | |||||||||
General and administrative expenses | 285 | 265 | 256 | 8 | 11 | 832 | 827 | 1 | |||||||||
Commission expenses | 60 | 63 | 52 | (5) | 15 | 177 | 176 | 1 | |||||||||
Restructuring expenses | 16 | 7 | 15 | 129 | 7 | 59 | 38 | 55 | |||||||||
Total other operating expenses | 361 | 335 | 323 | 8 | 12 | 1,068 | 1,041 | 3 | |||||||||
Total operating expenses | 904 | 891 | 836 | 1 | 8 | 2,723 | 2,595 | 5 | |||||||||
Income before taxes | 355 | 365 | 245 | (3) | 45 | 1,011 | 790 | 28 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 26.9 | 28.3 | 20.5 | – | – | 26.1 | 22.2 | – | |||||||||
Cost/income ratio | 71.6 | 70.5 | 77.3 | – | – | 72.7 | 76.3 | – | |||||||||
Economic risk capital and return | |||||||||||||||||
Average economic risk capital (CHF million) | 4,438 | 4,428 | 3,958 | 0 | 12 | 4,284 | 3,777 | 13 | |||||||||
Pre-tax return on average economic risk capital (%) | 31.9 | 33.0 | 24.8 | – | – | 31.4 | 27.9 | – | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 10,110 | 9,930 | 10,350 | 2 | (2) | 10,110 | 10,350 | (2) |
23
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Private Banking | 870 | 927 | 789 | (6) | 10 | 2,680 | 2,453 | 9 | |||||||||
Asset Management | 392 | 337 | 292 | 16 | 34 | 1,067 | 946 | 13 | |||||||||
Net revenues | 1,262 | 1,264 | 1,081 | 0 | 17 | 3,747 | 3,399 | 10 | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Net interest income | 367 | 360 | 326 | 2 | 13 | 1,069 | 955 | 12 | |||||||||
Recurring commissions and fees | 538 | 531 | 471 | 1 | 14 | 1,582 | 1,425 | 11 | |||||||||
Transaction- and performance-based revenues | 339 | 390 | 291 | (13) | 16 | 1,095 | 1,024 | 7 | |||||||||
Other revenues | 18 | (17) | (7) | – | – | 1 | (5) | – | |||||||||
Net revenues | 1,262 | 1,264 | 1,081 | 0 | 17 | 3,747 | 3,399 | 10 | |||||||||
Provision for credit losses (CHF million) | |||||||||||||||||
New provisions | 9 | 12 | 14 | (25) | (36) | 27 | 35 | (23) | |||||||||
Releases of provisions | (6) | (4) | (14) | 50 | (57) | (14) | (21) | (33) | |||||||||
Provision for credit losses | 3 | 8 | 0 | (63) | – | 13 | 14 | (7) | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 88,692 | 89,163 | 86,457 | (1) | 3 | 88,692 | 86,457 | 3 | |||||||||
Net loans | 47,531 | 46,263 | 42,942 | 3 | 11 | 47,531 | 42,942 | 11 | |||||||||
of which Private Banking | 47,513 | 46,206 | 42,876 | 3 | 11 | 47,513 | 42,876 | 11 | |||||||||
Risk-weighted assets | 37,217 | 36,515 | 33,457 | 2 | 11 | 37,217 | 33,457 | 11 | |||||||||
Leverage exposure | 93,455 | 93,107 | 88,899 | 0 | 5 | 93,455 | 88,899 | 5 |
Reconciliation of adjusted results | |||||||||||||||||||
Private Banking | Asset Management | International Wealth Management | |||||||||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | ||||||||||
Adjusted results (CHF million) | |||||||||||||||||||
Net revenues | 870 | 927 | 789 | 392 | 337 | 292 | 1,262 | 1,264 | 1,081 | ||||||||||
Provision for credit losses | 3 | 8 | 0 | 0 | 0 | 0 | 3 | 8 | 0 | ||||||||||
Total operating expenses | 615 | 622 | 593 | 289 | 269 | 243 | 904 | 891 | 836 | ||||||||||
Restructuring expenses | (9) | (4) | (13) | (7) | (3) | (2) | (16) | (7) | (15) | ||||||||||
Major litigation provisions | (11) | (6) | 19 | 0 | 0 | 0 | (11) | (6) | 19 | ||||||||||
Adjusted total operating expenses | 595 | 612 | 599 | 282 | 266 | 241 | 877 | 878 | 840 | ||||||||||
Income before taxes | 252 | 297 | 196 | 103 | 68 | 49 | 355 | 365 | 245 | ||||||||||
Total adjustments | 20 | 10 | (6) | 7 | 3 | 2 | 27 | 13 | (4) | ||||||||||
Adjusted income before taxes | 272 | 307 | 190 | 110 | 71 | 51 | 382 | 378 | 241 | ||||||||||
Adjusted return on regulatory capital (%) | – | – | – | – | – | – | 28.9 | 29.3 | 20.1 | ||||||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
24
Reconciliation of adjusted results (continued) | |||||||||||||
Private Banking | Asset Management | International Wealth Management | |||||||||||
in | 9M17 | 9M16 | 9M17 | 9M16 | 9M17 | 9M16 | |||||||
Adjusted results (CHF million) | |||||||||||||
Net revenues | 2,680 | 2,453 | 1,067 | 946 | 3,747 | 3,399 | |||||||
Provision for credit losses | 13 | 14 | 0 | 0 | 13 | 14 | |||||||
Total operating expenses | 1,879 | 1,826 | 844 | 769 | 2,723 | 2,595 | |||||||
Restructuring expenses | (36) | (36) | (23) | (2) | (59) | (38) | |||||||
Major litigation provisions | (17) | 19 | 0 | 0 | (17) | 19 | |||||||
Adjusted total operating expenses | 1,826 | 1,809 | 821 | 767 | 2,647 | 2,576 | |||||||
Income before taxes | 788 | 613 | 223 | 177 | 1,011 | 790 | |||||||
Total adjustments | 53 | 17 | 23 | 2 | 76 | 19 | |||||||
Adjusted income before taxes | 841 | 630 | 246 | 179 | 1,087 | 809 | |||||||
Adjusted return on regulatory capital (%) | – | – | – | – | 28.0 | 22.7 | |||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
Private Banking
Income before taxes of CHF 252 million decreased 15% compared to 2Q17 mainly reflecting lower net revenues. Compared to 3Q16, income before taxes increased 29%, reflecting higher net revenues, partially offset by higher total operating expenses. Adjusted income before taxes of CHF 272 million decreased 11% compared to 2Q17 and increased 43% compared to 3Q16.
Net revenues
Compared to 2Q17, net revenues of CHF 870 million were 6% lower, mainly driven by lower transaction- and performance-based revenues, partially offset by slightly higher net interest income. Transaction- and performance-based revenues of CHF 203 million decreased 23%, mainly driven by lower revenues from trading services, lower brokerage and product issuing fees and lower equity participations income as 2Q17 included a regular dividend from SIX Group. Net interest income of CHF 367 million increased slightly with slightly higher loan margins on stable average loan volumes and slightly lower deposit margins on slightly higher average deposit volumes. Recurring commissions and fees of CHF 300 million were stable.
Compared to 3Q16, net revenues increased 10%, with higher net interest income, higher recurring commissions and fees and slightly higher transaction- and performance-based revenues. Net interest income increased 13%, with higher loan and deposit margins on higher average loan and deposit volumes. Recurring commissions and fees increased 12%, mainly driven by higher investment product management fees, including the impact of higher average assets under management. Transaction- and performance-based revenues increased slightly, mainly driven by higher brokerage and product issuing fees and higher corporate advisory fees related to integrated solutions, partially offset by lower revenues from trading services.
25
Results – Private Banking | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 870 | 927 | 789 | (6) | 10 | 2,680 | 2,453 | 9 | |||||||||
Provision for credit losses | 3 | 8 | 0 | (63) | – | 13 | 14 | (7) | |||||||||
Compensation and benefits | 375 | 388 | 369 | (3) | 2 | 1,144 | 1,081 | 6 | |||||||||
General and administrative expenses | 187 | 182 | 173 | 3 | 8 | 566 | 585 | (3) | |||||||||
Commission expenses | 44 | 48 | 38 | (8) | 16 | 133 | 124 | 7 | |||||||||
Restructuring expenses | 9 | 4 | 13 | 125 | (31) | 36 | 36 | 0 | |||||||||
Total other operating expenses | 240 | 234 | 224 | 3 | 7 | 735 | 745 | (1) | |||||||||
Total operating expenses | 615 | 622 | 593 | (1) | 4 | 1,879 | 1,826 | 3 | |||||||||
Income before taxes | 252 | 297 | 196 | (15) | 29 | 788 | 613 | 29 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 70.7 | 67.1 | 75.2 | – | – | 70.1 | 74.4 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Net interest income | 367 | 360 | 326 | 2 | 13 | 1,069 | 955 | 12 | |||||||||
Recurring commissions and fees | 300 | 302 | 267 | (1) | 12 | 892 | 816 | 9 | |||||||||
Transaction- and performance-based revenues | 203 | 265 | 197 | (23) | 3 | 718 | 687 | 5 | |||||||||
Other revenues | 0 | 0 | (1) | – | 100 | 1 | (5) | – | |||||||||
Net revenues | 870 | 927 | 789 | (6) | 10 | 2,680 | 2,453 | 9 | |||||||||
Margins on assets under management (annualized) (bp) | |||||||||||||||||
Gross margin 1 | 101 | 110 | 104 | – | – | 106 | 111 | – | |||||||||
Net margin 2 | 29 | 35 | 26 | – | – | 31 | 28 | – | |||||||||
Number of relationship managers | |||||||||||||||||
Number of relationship managers | 1,130 | 1,120 | 1,160 | 1 | (3) | 1,130 | 1,160 | (3) | |||||||||
Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. Recurring commissions and fees includes investment product management, discretionary mandate and other asset management-related fees, fees for general banking products and services and revenues from wealth structuring solutions. Transaction- and performance-based revenues arise primarily from brokerage and product issuing fees, fees from foreign exchange client transactions, trading and sales income, equity participations income and other transaction- and performance-based income. | |||||||||||||||||
1 Net revenues divided by average assets under management. | |||||||||||||||||
2 Income before taxes divided by average assets under management. |
Provision for credit losses
In 3Q17, provision for credit losses was CHF 3 million, compared to CHF 8 million in 2Q17 and to zero in 3Q16.
Total operating expenses
Compared to 2Q17, total operating expenses of CHF 615 million were stable, reflecting slightly lower compensation and benefits and lower commission expenses, offset by higher restructuring expenses and slightly higher general and administrative expenses. Compensation and benefits of CHF 375 million decreased slightly, mainly driven by lower deferred compensation expenses from prior-year awards and lower allocated corporate function costs. General and administrative expenses of CHF 187 million increased slightly, driven by higher allocated corporate function costs and higher litigation provisions, partially offset by lower contractor services fees and lower professional services fees. Adjusted total operating expenses of CHF 595 million were slightly lower compared to 2Q17.
Compared to 3Q16, total operating expenses increased 4%, driven by higher general and administrative expenses, slightly higher compensation and benefits and higher commission expenses, partially offset by lower restructuring expenses. General and administrative expenses were 8% higher, mainly driven by litigation provisions in 3Q17, compared to releases in 3Q16, partially offset by lower professional services fees. Compensation and benefits increased slightly, mainly due to higher allocated corporate function costs, partially offset by lower pension expenses. Adjusted total operating expenses were stable compared to 3Q16.
26
Gross margin
Our gross margin was 101 basis points in 3Q17, nine basis points lower compared to 2Q17, mainly reflecting lower transaction- and performance-based revenues and 2.5% higher average assets under management. Our gross margin was three basis points lower compared to 3Q16, reflecting a 13.8% increase in average assets under management, partially offset by higher net interest income and higher recurring commissions and fees.
> Refer to “Assets under management” for further information.
Net margin
Our net margin was 29 basis points in 3Q17, six basis points lower compared to 2Q17, mainly reflecting lower net revenues and the 2.5% higher average assets under management. Our net margin was three basis points higher compared to 3Q16, reflecting higher net revenues, partially offset by the 13.8% increase in average assets under management and higher total operating expenses. On the basis of adjusted income before taxes, our net margin was 31 basis points in 3Q17, five basis points lower compared to 2Q17 and six basis points higher compared to 3Q16.
As of the end of 3Q17, assets under management of CHF 355.3 billion were CHF 18.9 billion higher compared to the end of 2Q17, reflecting favorable foreign exchange-related and market movements and net new assets. Net new assets of CHF 3.6 billion reflected solid inflows from emerging markets and Europe.
Assets under management – Private Banking | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Assets under management (CHF billion) | |||||||||||||||||
Assets under management | 355.3 | 336.4 | 311.4 | 5.6 | 14.1 | 355.3 | 311.4 | 14.1 | |||||||||
Average assets under management | 346.0 | 337.4 | 304.0 | 2.5 | 13.8 | 336.8 | 295.1 | 14.1 | |||||||||
Assets under management by currency (CHF billion) | |||||||||||||||||
USD | 159.6 | 151.1 | 140.1 | 5.6 | 13.9 | 159.6 | 140.1 | 13.9 | |||||||||
EUR | 105.4 | 100.6 | 92.7 | 4.8 | 13.7 | 105.4 | 92.7 | 13.7 | |||||||||
CHF | 22.4 | 21.8 | 20.7 | 2.8 | 8.2 | 22.4 | 20.7 | 8.2 | |||||||||
Other | 67.9 | 62.9 | 57.9 | 7.9 | 17.3 | 67.9 | 57.9 | 17.3 | |||||||||
Assets under management | 355.3 | 336.4 | 311.4 | 5.6 | 14.1 | 355.3 | 311.4 | 14.1 | |||||||||
Growth in assets under management (CHF billion) | |||||||||||||||||
Net new assets | 3.6 | 4.6 | 4.4 | – | – | 12.9 | 15.2 | – | |||||||||
Other effects | 15.3 | (4.4) | 8.4 | – | – | 19.2 | 6.6 | – | |||||||||
of which market movements | 6.4 | 3.2 | 8.5 | – | – | 18.8 | 6.4 | – | |||||||||
of which foreign exchange | 9.0 | (7.6) | (1.2) | – | – | (1.7) | 0.1 | – | |||||||||
of which other | (0.1) | 0.0 | 1.1 | – | – | 2.1 | 0.1 | – | |||||||||
Growth in assets under management | 18.9 | 0.2 | 12.8 | – | – | 32.1 | 21.8 | – | |||||||||
Growth in assets under management (annualized) (%) | |||||||||||||||||
Net new assets | 4.3 | 5.5 | 5.8 | – | – | 5.3 | 7.0 | – | |||||||||
Other effects | 18.2 | (5.3) | 11.3 | – | – | 7.9 | 3.0 | – | |||||||||
Growth in assets under management (annualized) | 22.5 | 0.2 | 17.1 | – | – | 13.2 | 10.0 | – | |||||||||
Growth in assets under management (rolling four-quarter average) (%) | |||||||||||||||||
Net new assets | 4.3 | 4.7 | 3.8 | – | – | – | – | – | |||||||||
Other effects | 9.8 | 8.0 | 4.9 | – | – | – | – | – | |||||||||
Growth in assets under management (rolling four-quarter average) | 14.1 | 12.7 | 8.7 | – | – | – | – | – |
27
Asset management
Results – Asset Management | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 392 | 337 | 292 | 16 | 34 | 1,067 | 946 | 13 | |||||||||
Provision for credit losses | 0 | 0 | 0 | – | – | 0 | 0 | – | |||||||||
Compensation and benefits | 168 | 168 | 144 | 0 | 17 | 511 | 473 | 8 | |||||||||
General and administrative expenses | 98 | 83 | 83 | 18 | 18 | 266 | 242 | 10 | |||||||||
Commission expenses | 16 | 15 | 14 | 7 | 14 | 44 | 52 | (15) | |||||||||
Restructuring expenses | 7 | 3 | 2 | 133 | 250 | 23 | 2 | – | |||||||||
Total other operating expenses | 121 | 101 | 99 | 20 | 22 | 333 | 296 | 13 | |||||||||
Total operating expenses | 289 | 269 | 243 | 7 | 19 | 844 | 769 | 10 | |||||||||
Income before taxes | 103 | 68 | 49 | 51 | 110 | 223 | 177 | 26 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 73.7 | 79.8 | 83.2 | – | – | 79.1 | 81.3 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Management fees | 278 | 269 | 218 | 3 | 28 | 801 | 663 | 21 | |||||||||
Performance and placement revenues | 63 | 32 | 41 | 97 | 54 | 137 | 100 | 37 | |||||||||
Investment and partnership income | 51 | 36 | 33 | 42 | 55 | 129 | 183 | (30) | |||||||||
Net revenues | 392 | 337 | 292 | 16 | 34 | 1,067 | 946 | 13 | |||||||||
of which recurring commissions and fees | 238 | 229 | 204 | 4 | 17 | 690 | 609 | 13 | |||||||||
of which transaction- and performance-based revenues | 136 | 125 | 94 | 9 | 45 | 377 | 337 | 12 | |||||||||
of which other revenues | 18 | (17) | (6) | – | – | 0 | 0 | – | |||||||||
Management fees include fees on assets under management, asset administration revenues and transaction fees related to the acquisition and disposal of investments in the funds being managed. Performance revenues relate to the performance or return of the funds being managed and includes investment-related gains and losses from proprietary funds. Placement revenues arise from our third-party private equity fundraising activities and secondary private equity market advisory services. Investment and partnership income includes equity participation income from seed capital returns and from minority investments in third-party asset managers, income from strategic partnerships and distribution agreements, and other revenues. |
Income before taxes of CHF 103 million increased 51% compared to 2Q17, mainly reflecting higher net revenues, partially offset by higher total operating expenses. Income before taxes increased 110% compared to 3Q16, driven by significantly higher net revenues, partially offset by higher total operating expenses. Adjusted income before taxes of CHF 110 million increased 55% and 116% compared to 2Q17 and 3Q16, respectively.
Net revenues
Compared to 2Q17, net revenues of CHF 392 million were 16% higher, reflecting higher performance and placement revenues, higher investment and partnership income and higher management fees. Performance and placement revenues increased CHF 31 million to CHF 63 million, mainly due to higher investment-related gains and higher performance fees. Investment and partnership income increased CHF 15 million to CHF 51 million mainly due to an investment gain from Asset Management Finance LLC in 3Q17. Management fees of CHF 278 million increased slightly, reflecting slightly higher average assets under management.
Compared to 3Q16, net revenues increased 34%, reflecting higher management fees, higher performance and placement revenues and higher investment and partnership income. Management fees increased 28%, reflecting higher average assets under management. Performance and placement revenues increased CHF 22 million, mainly driven by higher investment-related gains. Investment and partnership income increased CHF 18 million, mainly reflecting investment-related gains.
Total operating expenses
Compared to 2Q17, total operating expenses of CHF 289 million increased 7%, mainly driven by higher general and administrative expenses and higher restructuring expenses. General and administrative expenses of CHF 98 million increased 18%, primarily reflecting higher investments in trading systems and higher professional services fees. Compensation and benefits of CHF 168 million were stable. Adjusted total operating expenses of CHF 282 million increased 6% compared to 2Q17.
28
Compared to 3Q16, total operating expenses were 19% higher, primarily reflecting higher compensation and benefits and higher general and administrative expenses. Compensation and benefits were 17% higher, mainly driven by higher salary expenses, higher discretionary compensation expenses and higher deferred compensation expenses from prior-year awards. General and administrative expenses were 18% higher, mainly reflecting higher professional services fees and higher allocated corporate function costs. Adjusted total operating expenses were 17% higher compared to 3Q16.
As of the end of 3Q17, assets under management of CHF 376.3 billion were CHF 10.3 billion higher compared to the end of 2Q17, reflecting favorable foreign exchange-related and market movements and net new assets of CHF 1.1 billion, primarily reflecting inflows in alternative investments, partially offset by outflows from emerging market joint ventures.
Assets under management – Asset Management | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Assets under management (CHF billion) | |||||||||||||||||
Traditional investments | 208.7 | 203.3 | 163.4 | 2.7 | 27.7 | 208.7 | 163.4 | 27.7 | |||||||||
Alternative investments | 120.6 | 116.4 | 117.7 | 3.6 | 2.5 | 120.6 | 117.7 | 2.5 | |||||||||
Investments and partnerships | 47.0 | 46.3 | 43.2 | 1.5 | 8.8 | 47.0 | 43.2 | 8.8 | |||||||||
Assets under management | 376.3 | 366.0 | 324.3 | 2.8 | 16.0 | 376.3 | 324.3 | 16.0 | |||||||||
Average assets under management | 374.4 | 366.8 | 318.6 | 2.1 | 17.5 | 363.2 | 315.0 | 15.3 | |||||||||
Assets under management by currency (CHF billion) | |||||||||||||||||
USD | 96.8 | 92.5 | 90.2 | 4.6 | 7.3 | 96.8 | 90.2 | 7.3 | |||||||||
EUR | 45.7 | 43.4 | 36.8 | 5.3 | 24.2 | 45.7 | 36.8 | 24.2 | |||||||||
CHF | 177.2 | 175.1 | 145.9 | 1.2 | 21.5 | 177.2 | 145.9 | 21.5 | |||||||||
Other | 56.6 | 55.0 | 51.4 | 2.9 | 10.1 | 56.6 | 51.4 | 10.1 | |||||||||
Assets under management | 376.3 | 366.0 | 324.3 | 2.8 | 16.0 | 376.3 | 324.3 | 16.0 | |||||||||
Growth in assets under management (CHF billion) | |||||||||||||||||
Net new assets 1 | 1.1 | 2.8 | 5.0 | – | – | 18.9 | 10.0 | – | |||||||||
Other effects | 9.2 | (3.9) | 4.4 | – | – | 35.8 | (7.0) | – | |||||||||
of which market movements | 4.5 | 2.9 | 5.0 | – | – | 14.9 | 6.2 | – | |||||||||
of which foreign exchange | 4.7 | (5.3) | (0.8) | – | – | (3.1) | (1.1) | – | |||||||||
of which other | 0.0 | (1.5) | 0.2 | – | – | 24.0 | (12.1) | – | |||||||||
Growth in assets under management | 10.3 | (1.1) | 9.4 | – | – | 54.7 | 3.0 | – | |||||||||
Growth in assets under management (annualized) (%) | |||||||||||||||||
Net new assets | 1.2 | 3.1 | 6.4 | – | – | 7.8 | 4.1 | – | |||||||||
Other effects | 10.1 | (4.3) | 5.5 | – | – | 14.9 | (2.9) | – | |||||||||
Growth in assets under management | 11.3 | (1.2) | 11.9 | – | – | 22.7 | 1.2 | – | |||||||||
Growth in assets under management (rolling four-quarter average) (%) | |||||||||||||||||
Net new assets | 4.5 | 5.8 | 4.3 | – | – | – | – | – | |||||||||
Other effects | 11.5 | 10.4 | (1.2) | – | – | – | – | – | |||||||||
Growth in assets under management (rolling four-quarter average) | 16.0 | 16.2 | 3.1 | – | – | – | – | – | |||||||||
1 Includes outflows for private equity assets reflecting realizations at cost and unfunded commitments on which a fee is no longer earned. |
29
In 3Q17, we reported income before taxes of CHF 218 million and net revenues of CHF 890 million. Income before taxes increased 16% compared to 2Q17 and 43% compared to 3Q16.
3Q17 results
In 3Q17, we reported income before taxes of CHF 218 million and net revenues of CHF 890 million. Compared to 2Q17, net revenues increased 5%, driven by our Markets business reflecting higher equity sales and trading revenues, partially offset by lower fixed income sales and trading revenues. We recorded a provision for credit losses of CHF 5 million in 3Q17, compared to a release of provision for credit losses of CHF 1 million in 2Q17. Total operating expenses of CHF 667 million were stable, primarily due to higher compensation and benefits, offset by lower general and administrative expenses.
Compared to 3Q16, net revenues decreased slightly, driven by lower revenues in our Markets business across fixed income and equity sales and trading revenues, partially offset by higher revenues in our Wealth Management & Connected business, reflecting higher Private Banking revenues and higher advisory, underwriting and financing revenues. Total operating expenses decreased 9%, primarily from lower general and administrative expenses, lower compensation and benefits and a decrease in restructuring expenses in our Markets business.
Adjusted income before taxes of CHF 228 million increased 15% compared to 2Q17 and 30% compared to 3Q16.
Capital and leverage metrics
As of the end of 3Q17, we reported risk-weighted assets of CHF 31.2 billion, a decrease of CHF 1.1 billion compared to the end of 2Q17, mainly reflecting the securitization of certain lending exposures in our Wealth Management & Connected business, partially offset by a foreign exchange impact. Leverage exposure was CHF 106.1 billion, reflecting an increase of CHF 4.5 billion compared to the end of 2Q17, mainly due to an increase in HQLA, higher lending in the Wealth Management & Connected business and the foreign exchange impact, partially offset by a decrease in inventory from the Markets business.
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 890 | 848 | 917 | 5 | (3) | 2,619 | 2,735 | (4) | |||||||||
Provision for credit losses | 5 | (1) | 34 | – | (85) | 8 | 15 | (47) | |||||||||
Compensation and benefits | 397 | 387 | 413 | 3 | (4) | 1,208 | 1,236 | (2) | |||||||||
General and administrative expenses | 195 | 199 | 224 | (2) | (13) | 614 | 617 | 0 | |||||||||
Commission expenses | 65 | 64 | 71 | 2 | (8) | 196 | 211 | (7) | |||||||||
Restructuring expenses | 10 | 11 | 23 | (9) | (57) | 40 | 34 | 18 | |||||||||
Total other operating expenses | 270 | 274 | 318 | (1) | (15) | 850 | 862 | (1) | |||||||||
Total operating expenses | 667 | 661 | 731 | 1 | (9) | 2,058 | 2,098 | (2) | |||||||||
Income before taxes | 218 | 188 | 152 | 16 | 43 | 553 | 622 | (11) | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 16.8 | 14.4 | 11.3 | – | – | 13.9 | 15.9 | – | |||||||||
Cost/income ratio | 74.9 | 77.9 | 79.7 | – | – | 78.6 | 76.7 | – | |||||||||
Economic risk capital and return | |||||||||||||||||
Average economic risk capital (CHF million) | 3,658 | 4,067 | 4,320 | (10) | (15) | 4,000 | 4,058 | (1) | |||||||||
Pre-tax return on average economic risk capital (%) | 23.8 | 18.5 | 14.1 | – | – | 18.4 | 20.4 | – | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 7,050 | 7,000 | 7,140 | 1 | (1) | 7,050 | 7,140 | (1) |
30
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenues (CHF million) | |||||||||||||||||
Wealth Management & Connected | 548 | 559 | 481 | (2) | 14 | 1,696 | 1,344 | 26 | |||||||||
Markets | 342 | 289 | 436 | 18 | (22) | 923 | 1,391 | (34) | |||||||||
Net revenues | 890 | 848 | 917 | 5 | (3) | 2,619 | 2,735 | (4) | |||||||||
Provision for credit losses (CHF million) | |||||||||||||||||
New provisions | 8 | 5 | 54 | 60 | (85) | 19 | 58 | (67) | |||||||||
Releases of provisions | (3) | (6) | (20) | (50) | (85) | (11) | (43) | (74) | |||||||||
Provision for credit losses | 5 | (1) | 34 | – | (85) | 8 | 15 | (47) | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 95,919 | 90,948 | 93,079 | 5 | 3 | 95,919 | 93,079 | 3 | |||||||||
Net loans | 43,066 | 41,607 | 38,669 | 4 | 11 | 43,066 | 38,669 | 11 | |||||||||
of which Private Banking | 35,795 | 34,411 | 32,859 | 4 | 9 | 35,795 | 32,859 | 9 | |||||||||
Risk-weighted assets | 31,237 | 32,293 | 32,264 | (3) | (3) | 31,237 | 32,264 | (3) | |||||||||
Leverage exposure | 106,128 | 101,583 | 108,495 | 4 | (2) | 106,128 | 108,495 | (2) |
Reconciliation of adjusted results | |||||||||||||||||||
Wealth Management & Connected | Markets | Asia Pacific | |||||||||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | ||||||||||
Adjusted results (CHF million) | |||||||||||||||||||
Net revenues | 548 | 559 | 481 | 342 | 289 | 436 | 890 | 848 | 917 | ||||||||||
Provision for credit losses | 5 | (1) | 34 | 0 | 0 | 0 | 5 | (1) | 34 | ||||||||||
Total operating expenses | 370 | 364 | 352 | 297 | 297 | 379 | 667 | 661 | 731 | ||||||||||
Restructuring expenses | (5) | (2) | (7) | (5) | (9) | (16) | (10) | (11) | (23) | ||||||||||
Adjusted total operating expenses | 365 | 362 | 345 | 292 | 288 | 363 | 657 | 650 | 708 | ||||||||||
Income/(loss) before taxes | 173 | 196 | 95 | 45 | (8) | 57 | 218 | 188 | 152 | ||||||||||
Total adjustments | 5 | 2 | 7 | 5 | 9 | 16 | 10 | 11 | 23 | ||||||||||
Adjusted income before taxes | 178 | 198 | 102 | 50 | 1 | 73 | 228 | 199 | 175 | ||||||||||
Adjusted return on regulatory capital (%) | – | – | – | – | – | – | 17.6 | 15.3 | 12.9 |
Wealth Management & Connected | Markets | Asia Pacific | |||||||||||
in | 9M17 | 9M16 | 9M17 | 9M16 | 9M17 | 9M16 | |||||||
Adjusted results (CHF million) | |||||||||||||
Net revenues | 1,696 | 1,344 | 923 | 1,391 | 2,619 | 2,735 | |||||||
Provision for credit losses | 8 | 18 | 0 | (3) | 8 | 15 | |||||||
Total operating expenses | 1,118 | 999 | 940 | 1,099 | 2,058 | 2,098 | |||||||
Restructuring expenses | (11) | (9) | (29) | (25) | (40) | (34) | |||||||
Adjusted total operating expenses | 1,107 | 990 | 911 | 1,074 | 2,018 | 2,064 | |||||||
Income/(loss) before taxes | 570 | 327 | (17) | 295 | 553 | 622 | |||||||
Total adjustments | 11 | 9 | 29 | 25 | 40 | 34 | |||||||
Adjusted income before taxes | 581 | 336 | 12 | 320 | 593 | 656 | |||||||
Adjusted return on regulatory capital (%) | – | – | – | – | 15.0 | 16.7 | |||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
31
wealth Management & connected
Income before taxes of CHF 173 million decreased 12% compared to 2Q17, reflecting lower net revenues, higher total operating expenses and higher provision for credit losses. Compared to 3Q16, income before taxes increased 82%, primarily from higher net revenues and lower provision for credit losses, partially offset by higher total operating expenses. Adjusted income before taxes of CHF 178 million decreased 10% compared to 2Q17 and increased 75% compared to 3Q16.
Net revenues
Net revenues of CHF 548 million decreased slightly compared to 2Q17, mainly reflecting lower net interest income and lower advisory, underwriting and financing revenues, mostly offset by increased transaction-based revenues and higher recurring commissions and fees. Net interest income decreased 11% to CHF 144 million, driven by lower treasury revenues and a negative impact from an accounting reclassification related to treasury revenues. Advisory, underwriting and financing revenues decreased 4% to CHF 148 million, primarily due to lower financing revenues, partially offset by higher fees from M&A transactions. Transaction-based revenues increased 7% to CHF 159 million, due to a positive impact from the accounting reclassification related to treasury revenues, partially offset mainly by lower fees from foreign exchange client business. Recurring commissions and fees increased slightly to CHF 97 million, primarily due to higher investment product management fees, partially offset by lower wealth structuring solutions fees.
Results - Wealth Management & Connected | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 548 | 559 | 481 | (2) | 14 | 1,696 | 1,344 | 26 | |||||||||
Provision for credit losses | 5 | (1) | 34 | – | (85) | 8 | 18 | (56) | |||||||||
Compensation and benefits | 250 | 244 | 240 | 2 | 4 | 761 | 679 | 12 | |||||||||
General and administrative expenses | 98 | 103 | 92 | (5) | 7 | 300 | 277 | 8 | |||||||||
Commission expenses | 17 | 15 | 13 | 13 | 31 | 46 | 34 | 35 | |||||||||
Restructuring expenses | 5 | 2 | 7 | 150 | (29) | 11 | 9 | 22 | |||||||||
Total other operating expenses | 120 | 120 | 112 | 0 | 7 | 357 | 320 | 12 | |||||||||
Total operating expenses | 370 | 364 | 352 | 2 | 5 | 1,118 | 999 | 12 | |||||||||
Income before taxes | 173 | 196 | 95 | (12) | 82 | 570 | 327 | 74 | |||||||||
of which Private Banking | 140 | 149 | 59 | (6) | 137 | 428 | 267 | 60 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 67.5 | 65.1 | 73.2 | – | – | 65.9 | 74.3 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Private Banking | 400 | 405 | 346 | (1) | 16 | 1,216 | 1,002 | 21 | |||||||||
of which net interest income 1 | 144 | 161 | 159 | (11) | (9) | 473 | 436 | 8 | |||||||||
of which recurring commissions and fees | 97 | 94 | 84 | 3 | 15 | 281 | 235 | 20 | |||||||||
of which transaction-based revenues | 159 | 149 | 103 | 7 | 54 | 462 | 347 | 33 | |||||||||
of which other revenues | 0 | 1 | 0 | (100) | – | 0 | (16) | 100 | |||||||||
Advisory, underwriting and financing | 148 | 154 | 135 | (4) | 10 | 480 | 342 | 40 | |||||||||
Net revenues | 548 | 559 | 481 | (2) | 14 | 1,696 | 1,344 | 26 | |||||||||
Private Banking margins on assets under management (annualized) (bp) | |||||||||||||||||
Gross margin 2 | 87 | 91 | 84 | – | – | 91 | 86 | – | |||||||||
Net margin 3 | 30 | 33 | 14 | – | – | 32 | 23 | – | |||||||||
Number of relationship managers | |||||||||||||||||
Number of relationship managers | 590 | 610 | 650 | (3) | (9) | 590 | 650 | (9) | |||||||||
1 Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. | |||||||||||||||||
2 Net revenues divided by average assets under management. | |||||||||||||||||
3 Income before taxes divided by average assets under management. |
32
Compared to 3Q16, net revenues increased 14%, mainly driven by increased transaction-based revenues, higher advisory, underwriting and financing revenues and higher recurring commission and fees, partially offset by lower net interest income. Transaction-based revenues increased 54%, primarily reflecting higher brokerage and product issuing fees and a positive impact from the accounting reclassification. Advisory, underwriting and financing revenues increased 10%, mainly due to higher financing and debt underwriting revenues and higher fees from M&A transactions, partially offset by lower equity underwriting revenues. Recurring commissions and fees increased 15%, mainly due to higher investment product management fees. Net interest income decreased 9%, mainly due to lower treasury revenues and a negative impact from the accounting reclassification.
Provision for credit losses
The Wealth Management & Connected loan portfolio primarily comprises Private Banking lombard loans, mainly backed by listed securities, and secured and unsecured loans to corporates.
In 3Q17, Wealth Management & Connected recorded a provision for credit losses of CHF 5 million, compared to a release of provision for credit losses of CHF 1 million in 2Q17. In 3Q16, we recorded a provision for credit losses of CHF 34 million in relation to a small number of share-based loans in Hong Kong which were impaired due to their collateral values abruptly falling below their loan amounts.
Total operating expenses
Total operating expenses of CHF 370 million increased slightly compared to 2Q17, mainly reflecting higher compensation and benefits, partially offset by lower general and administrative expenses. Compensation and benefits increased slightly to CHF 250 million, primarily driven by higher discretionary compensation expenses. General and administrative expenses decreased 5% to CHF 98 million, mainly due to lower IT infrastructure expenses. Adjusted total operating expenses of CHF 365 million were stable compared to 2Q17.
Compared to 3Q16, total operating expenses increased 5%, mainly reflecting higher compensation and benefits, higher general and administrative expenses and higher commission expenses. Compensation and benefits increased 4%, primarily driven by higher discretionary compensation expenses, partially offset by lower salary expenses. General and administrative expenses increased 7%, mainly due to higher compliance support and risk management expenses. Adjusted total operating expenses increased 6% compared to 3Q16.
Margin calculations are aligned with the performance metrics of our Private Banking business and its related assets under management within the Wealth Management & Connected business.
Gross margin
Our Private Banking gross margin was 87 basis points in 3Q17, four basis points lower compared to 2Q17, mainly reflecting lower net interest income and a 3.4% increase in average assets under management. Compared to 3Q16, our gross margin was three basis points higher, mainly reflecting higher transaction-based revenues and higher recurring commissions and fees, partially offset by an 11.9% increase in average assets under management and lower net interest income.
> Refer to “Assets under management” for further information.
Net margin
Our Private Banking net margin was 30 basis points in 3Q17, three basis points lower compared to 2Q17, reflecting lower net revenues, higher provision for credit losses and a 3.4% increase in average assets under management. Compared to 3Q16, our net margin was sixteen basis points higher, mainly reflecting higher net revenues and lower provision for credit losses, partially offset by an 11.9% increase in average assets under management and higher total operating expenses.
Assets under management and net new assets relate to our Private Banking business within the Wealth Management & Connected business. As of the end of 3Q17, assets under management of CHF 190.0 billion were CHF 12.2 billion higher compared to the end of 2Q17, mainly reflecting net new assets of CHF 5.8 billion and favorable market and foreign exchange-related movements. Net new assets reflected inflows primarily from Greater China.
33
Assets under management – Private Banking | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Assets under management (CHF billion) | |||||||||||||||||
Assets under management | 190.0 | 177.8 | 168.0 | 6.9 | 13.1 | 190.0 | 168.0 | 13.1 | |||||||||
Average assets under management | 184.1 | 178.1 | 164.5 | 3.4 | 11.9 | 177.7 | 155.8 | 14.1 | |||||||||
Assets under management by currency (CHF billion) | |||||||||||||||||
USD | 96.9 | 90.6 | 79.0 | 7.0 | 22.7 | 96.9 | 79.0 | 22.7 | |||||||||
EUR | 6.5 | 5.6 | 4.5 | 16.1 | 44.4 | 6.5 | 4.5 | 44.4 | |||||||||
CHF | 1.8 | 1.9 | 1.8 | (5.3) | 0.0 | 1.8 | 1.8 | 0.0 | |||||||||
Other | 84.8 | 79.7 | 82.7 | 6.4 | 2.5 | 84.8 | 82.7 | 2.5 | |||||||||
Assets under management | 190.0 | 177.8 | 168.0 | 6.9 | 13.1 | 190.0 | 168.0 | 13.1 | |||||||||
Growth in assets under management (CHF billion) | |||||||||||||||||
Net new assets | 5.8 | 4.5 | 4.3 | – | – | 15.6 | 12.9 | – | |||||||||
Other effects | 6.4 | (4.1) | 6.1 | – | – | 7.5 | 4.7 | – | |||||||||
of which market movements | 3.8 | 2.8 | 6.9 | – | – | 13.4 | 5.2 | – | |||||||||
of which foreign exchange | 2.6 | (6.8) | (0.5) | – | – | (5.8) | (0.4) | – | |||||||||
of which other | 0.0 | (0.1) | (0.3) | – | – | (0.1) | (0.1) | – | |||||||||
Growth in assets under management | 12.2 | 0.4 | 10.4 | – | – | 23.1 | 17.6 | – | |||||||||
Growth in assets under management (annualized) (%) | |||||||||||||||||
Net new assets | 13.0 | 10.1 | 10.9 | – | – | 12.5 | 11.4 | – | |||||||||
Other effects | 14.4 | (9.2) | 15.4 | – | – | 6.0 | 4.2 | – | |||||||||
Growth in assets under management (annualized) | 27.4 | 0.9 | 26.3 | – | – | 18.5 | 15.6 | – | |||||||||
Growth in assets under management (rolling four-quarter average) (%) | |||||||||||||||||
Net new assets | 9.7 | 9.4 | 11.4 | – | – | – | – | – | |||||||||
Other effects | 3.4 | 3.4 | 9.4 | – | – | – | – | – | |||||||||
Growth in assets under management (rolling four-quarter average) | 13.1 | 12.8 | 20.8 | – | – | – | – | – |
markets
Income before taxes of CHF 45 million in 3Q17 compared to a loss before taxes of CHF 8 million in 2Q17. The related increase of CHF 53 million primarily reflected higher net revenues. Compared to 3Q16, income before taxes decreased 21%, primarily from lower net revenues, partially offset by lower total operating expenses. Adjusted income before taxes of CHF 50 million in 3Q17 compared to adjusted income before taxes of CHF 1 million and CHF 73 million in 2Q17 and 3Q16, respectively.
Net revenues
Net revenues of CHF 342 million increased 18% compared to 2Q17, reflecting higher equity sales and trading revenues, offset by lower fixed income sales and trading revenues. Equity sales and trading revenues increased 39% to CHF 262 million, mainly due to higher revenues from equity derivatives reflecting higher volatility in Asian markets and increased client activity. Fixed income sales and trading revenues decreased 21% to CHF 80 million, mainly due to lower revenues from emerging markets rates products.
Compared to 3Q16, net revenues decreased 22%, reflecting lower fixed income and equity sales and trading revenues. Fixed income sales and trading revenues decreased 40%, mainly driven by lower revenues from emerging markets rates products compared to a strong 3Q16. Developed markets rates products revenue in 3Q16 included a positive impact of CHF 33 million resulting from an increase in the funding value of certain structured deposits originated in Asia Pacific. Equity sales and trading revenues decreased 13%, mainly due to the transition of the systematic market making business to International Wealth Management that was completed in 1Q17 and lower revenues from prime services.
34
Results - Markets | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 342 | 289 | 436 | 18 | (22) | 923 | 1,391 | (34) | |||||||||
Provision for credit losses | 0 | 0 | 0 | – | – | 0 | (3) | 100 | |||||||||
Compensation and benefits | 147 | 143 | 173 | 3 | (15) | 447 | 557 | (20) | |||||||||
General and administrative expenses | 97 | 96 | 132 | 1 | (27) | 314 | 340 | (8) | |||||||||
Commission expenses | 48 | 49 | 58 | (2) | (17) | 150 | 177 | (15) | |||||||||
Restructuring expenses | 5 | 9 | 16 | (44) | (69) | 29 | 25 | 16 | |||||||||
Total other operating expenses | 150 | 154 | 206 | (3) | (27) | 493 | 542 | (9) | |||||||||
Total operating expenses | 297 | 297 | 379 | 0 | (22) | 940 | 1,099 | (14) | |||||||||
Income/(loss) before taxes | 45 | (8) | 57 | – | (21) | (17) | 295 | – | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Cost/income ratio | 86.8 | 102.8 | 86.9 | – | – | 101.8 | 79.0 | – | |||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Equity sales and trading | 262 | 188 | 302 | 39 | (13) | 684 | 892 | (23) | |||||||||
Fixed income sales and trading | 80 | 101 | 134 | (21) | (40) | 239 | 499 | (52) | |||||||||
Net revenues | 342 | 289 | 436 | 18 | (22) | 923 | 1,391 | (34) |
Total operating expenses
Total operating expenses of CHF 297 million were stable compared to 2Q17, mainly reflecting slightly higher compensation and benefits, offset by lower restructuring expenses. Compensation and benefits increased slightly to CHF 147 million, primarily driven by higher discretionary compensation expenses, partially offset by lower salary expenses. General and administrative expenses were stable at CHF 97 million. Adjusted total operating expenses of CHF 292 million were stable compared to 2Q17.
Compared to 3Q16, total operating expenses decreased 22%, reflecting lower expenses across all categories. General and administrative expenses decreased 27%, mainly due to lower allocated corporate function costs and lower professional services fees. Compensation and benefits decreased 15%, primarily driven by lower deferred compensation expenses from prior-year awards and lower salary expenses. Adjusted total operating expenses decreased 20% compared to 3Q16.
35
In 3Q17, Global Markets reported income before taxes of CHF 71 million and net revenues of CHF 1,262 million. Net revenues decreased 17% compared to 2Q17, as a seasonal decline was exacerbated by persistently low volatility and decreased trading volumes which led to reduced client activity.
3Q17 results
In 3Q17, we implemented a change in financial reporting to reflect an amended business structure consisting of equity sales and trading, fixed income sales and trading and underwriting. Prior periods have been reclassified to conform to the current presentation.
In 3Q17, we reported income before taxes of CHF 71 million and net revenues of CHF 1,262 million. Compared to 2Q17, net revenues decreased 17%, primarily due to less favorable market conditions across our trading and underwriting businesses. Net revenues decreased 7% compared to 3Q16 results, which had benefited from more favorable market conditions.
Total operating expenses of CHF 1,185 million decreased 5% compared to 2Q17, reflecting lower compensation and benefits and reduced restructuring costs, partially offset by higher commission expense. Compared to 3Q16, total operating expenses decreased 7%, reflecting lower compensation and benefits and reduced restructuring costs, partially offset by higher commission expenses. Adjusted income before taxes was CHF 98 million in 3Q17, compared to adjusted income before taxes of CHF 289 million in 2Q17 and adjusted income before taxes of CHF 146 million in 3Q16.
Capital and leverage metrics
As of the end of 3Q17, we reported risk-weighted assets of USD 57.9 billion, reflecting an increase of USD 4.3 billion compared to the end of 2Q17 mainly due to the expiration of a credit risk hedge. Leverage exposure was USD 291.0 billion, reflecting an increase of USD 2.2 billion compared to the end of 2Q17.
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 1,262 | 1,517 | 1,357 | (17) | (7) | 4,388 | 4,232 | 4 | |||||||||
Provision for credit losses | 6 | 12 | (5) | (50) | – | 23 | 1 | – | |||||||||
Compensation and benefits | 568 | 629 | 642 | (10) | (12) | 1,887 | 2,091 | (10) | |||||||||
General and administrative expenses | 451 | 460 | 466 | (2) | (3) | 1,349 | 1,526 | (12) | |||||||||
Commission expenses | 139 | 127 | 115 | 9 | 21 | 405 | 369 | 10 | |||||||||
Restructuring expenses | 27 | 32 | 52 | (16) | (48) | 79 | 202 | (61) | |||||||||
Total other operating expenses | 617 | 619 | 633 | 0 | (3) | 1,833 | 2,097 | (13) | |||||||||
Total operating expenses | 1,185 | 1,248 | 1,275 | (5) | (7) | 3,720 | 4,188 | (11) | |||||||||
Income before taxes | 71 | 257 | 87 | (72) | (18) | 645 | 43 | – | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 2.0 | 7.4 | 2.5 | – | – | 6.1 | 0.4 | – | |||||||||
Cost/income ratio | 93.9 | 82.3 | 94.0 | – | – | 84.8 | 99.0 | – | |||||||||
Economic risk capital and return | |||||||||||||||||
Average economic risk capital (CHF million) | 9,030 | 8,960 | 9,311 | 1 | (3) | 9,164 | 10,087 | (9) | |||||||||
Pre-tax return on average economic risk capital (%) | 3.1 | 11.5 | 3.7 | – | – | 9.4 | 0.6 | – | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 11,760 | 11,620 | 11,680 | 1 | 1 | 11,760 | 11,680 | 1 |
36
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Fixed income sales and trading | 698 | 811 | 770 | (14) | (9) | 2,375 | 2,033 | 17 | |||||||||
Equity sales and trading | 383 | 501 | 348 | (24) | 10 | 1,372 | 1,640 | (16) | |||||||||
Underwriting | 240 | 249 | 282 | (4) | (15) | 801 | 716 | 12 | |||||||||
Other | (59) | (44) | (43) | 34 | 37 | (160) | (157) | 2 | |||||||||
Net revenues | 1,262 | 1,517 | 1,357 | (17) | (7) | 4,388 | 4,232 | 4 | |||||||||
Balance sheet statistics (CHF million, except where indicated) | |||||||||||||||||
Total assets | 239,910 | 228,858 | 245,492 | 5 | (2) | 239,910 | 245,492 | (2) | |||||||||
Risk-weighted assets | 55,993 | 51,333 | 51,127 | 9 | 10 | 55,993 | 51,127 | 10 | |||||||||
Risk-weighted assets (USD) | 57,868 | 53,603 | 52,741 | 8 | 10 | 57,868 | 52,741 | 10 | |||||||||
Leverage exposure | 281,531 | 276,483 | 286,694 | 2 | (2) | 281,531 | 286,694 | (2) | |||||||||
Leverage exposure (USD) | 290,958 | 288,710 | 295,744 | 1 | (2) | 290,958 | 295,744 | (2) |
Reconciliation of adjusted results | |||||||||||
Global Markets | |||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Adjusted results (CHF million) | |||||||||||
Net revenues | 1,262 | 1,517 | 1,357 | 4,388 | 4,232 | ||||||
Provision for credit losses | 6 | 12 | (5) | 23 | 1 | ||||||
Total operating expenses | 1,185 | 1,248 | 1,275 | 3,720 | 4,188 | ||||||
Restructuring expenses | (27) | (32) | (52) | (79) | (202) | ||||||
Major litigation provisions | 0 | 0 | (7) | 0 | (7) | ||||||
Adjusted total operating expenses | 1,158 | 1,216 | 1,216 | 3,641 | 3,979 | ||||||
Income before taxes | 71 | 257 | 87 | 645 | 43 | ||||||
Total adjustments | 27 | 32 | 59 | 79 | 209 | ||||||
Adjusted income before taxes | 98 | 289 | 146 | 724 | 252 | ||||||
Adjusted return on regulatory capital (%) | 2.8 | 8.3 | 4.1 | 6.9 | 2.4 | ||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
Fixed income sales and trading
In 3Q17, fixed income sales and trading revenues of CHF 698 million decreased 14% compared to 2Q17, primarily driven by lower securitized products revenues, particularly in non-agency trading compared to a strong 2Q17 performance. Global credit products revenues decreased significantly, driven by lower leveraged finance and investment grade trading revenues. Macro products revenues declined reflecting lower foreign exchange results partially offset by higher revenues in our rates business. In addition, emerging markets revenues increased reflecting improved Brazil trading and financing activity.
Fixed income sales and trading revenues decreased 9% compared to a strong 3Q16, due to persistently low levels of volatility, which led to reduced client activity. Macro products revenues declined significantly across our rates and foreign exchange businesses, which benefited from higher levels of volatility and increased client activity in 3Q16 following the UK referendum and US elections. Emerging markets revenues declined driven by lower Brazil trading and financing activity compared to 3Q16, which included the positive impact of significant deal activity. In addition, global credit products revenues decreased due to lower leveraged finance and investment grade trading activity given tighter credit spreads. This was partially offset by continued strength in securitized products revenues due to significantly higher asset finance results.
Equity sales and trading
In 3Q17, equity sales and trading revenues of CHF 383 million decreased 24% compared to 2Q17, reflecting a seasonal slowdown in client activity coupled with a difficult trading environment characterized by persistently low levels of volatility and reduced trading volumes. Prime services revenues declined compared to a seasonally higher 2Q17. Equity derivatives revenues decreased significantly due to continued low levels of volatility, which negatively impacted structured and flow derivatives. We also had slightly lower revenues in cash equities consistent with lower trading volumes across regions.
37
Compared to 3Q16, equity sales and trading revenues increased 10% amid the difficult trading environment. Prime services revenues increased, reflecting higher commissions in listed derivatives and higher client financing revenues. Equity derivatives revenues increased, albeit from subdued levels, reflecting improved flow derivatives results, partially offset by lower structured derivatives revenues. In addition, cash equities trading revenues increased reflecting improved secondary revenues in Latin America. This increase was partially offset by significantly lower systematic market making revenues, largely due to challenging operating conditions in that business and its transition to International Wealth Management in 1Q17.
Underwriting
In 3Q17, underwriting revenues of CHF 240 million decreased 4% compared to 2Q17, reflecting a slowdown in issuance activity. Equity underwriting revenues declined significantly, consistent with a slowdown in primary issuance volumes. This was partially offset by higher debt underwriting revenues, reflecting increased revenues across leveraged finance and investment grade.
Underwriting revenues decreased 15% compared to strong 3Q16 results, which benefited from significant client deals, particularly in debt underwriting. Debt underwriting revenues declined, due to lower investment grade revenues partially offset by higher leveraged finance revenues. In addition, we also had lower equity underwriting revenues.
Provision for credit losses
Global markets recorded a provision for credit losses of CHF 6 million, including increased provisions reflecting a methodology change for probable losses inherent in the portfolio relating to the period of time expected to identify defaults once they have occurred. This compares to a provision for credit losses of CHF 12 million in 2Q17 and a release of provision for credit losses of CHF 5 million in 3Q16.
Total operating expenses
In 3Q17, total operating expenses of CHF 1,185 million decreased 5% compared to 2Q17, reflecting lower compensation and benefits and reduced restructuring costs partially offset by higher commission expenses. The decrease in compensation and benefits reflected the lower results. During 3Q17, we incurred restructuring costs of CHF 27 million. General and administrative expenses were slightly lower, as the lower UK bank levy was partially offset by slightly higher allocated corporate function costs. Adjusted total operating expenses decreased 5%.
Compared to 3Q16, total operating expenses decreased 7%, reflecting lower compensation and benefits and restructuring costs, partially offset by higher commission expenses. The decrease in compensation and benefits reflected the lower results. General and administrative expenses decreased slightly, reflecting lower allocated corporate functions costs partially offset by higher professional services fees. Adjusted total operating expenses decreased 5%.
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In 3Q17, Investment Banking & Capital Markets reported income before taxes of CHF 35 million and net revenues of CHF 457 million. Net revenues decreased 2% compared to 3Q16.
3Q17 results
In 3Q17, we reported income before taxes of CHF 35 million, a decrease of 55% compared to 2Q17. Net revenues of CHF 457 million decreased 11% compared to 2Q17, due to lower revenues from equity underwriting and debt underwriting, partially offset by higher revenues from advisory and other fees. Compared to 2Q17, revenues from equity underwriting decreased 38% and debt underwriting decreased 9%, while advisory and other fees increased 8%. Total operating expenses of CHF 410 million decreased 2%, driven by lower compensation and benefits and general and administrative expenses, partially offset by higher restructuring expenses.
Compared to 3Q16, our reported income before taxes decreased 10% in 3Q17, driven by 2% lower revenues and higher provision for credit losses, partially offset by lower operating expenses. Debt underwriting revenues decreased 3%, equity underwriting revenues decreased 12%, while advisory and other fees increased 12%. Total operating expenses of CHF 410 million decreased 6% driven by lower compensation and benefits and lower general and administrative expenses.
Capital and leverage metrics
As of the end of 3Q17, risk-weighted assets were USD 20.1 billion, an increase of USD 0.7 billion compared to the end of 2Q17. The increase was driven primarily by an increase in loan commitments. Leverage exposure was USD 44.2 billion, a decrease of USD 0.8 billion compared to the end of 2Q17, reflecting a shift in the mix of loan commitments towards more non-investment grade exposures.
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | 457 | 511 | 467 | (11) | (2) | 1,574 | 1,398 | 13 | |||||||||
Provision for credit losses | 12 | 13 | (9) | (8) | – | 31 | 20 | 55 | |||||||||
Compensation and benefits | 293 | 303 | 313 | (3) | (6) | 944 | 908 | 4 | |||||||||
General and administrative expenses | 99 | 104 | 109 | (5) | (9) | 304 | 323 | (6) | |||||||||
Commission expenses | 2 | 3 | 0 | (33) | – | 5 | 1 | 400 | |||||||||
Restructuring expenses | 16 | 10 | 15 | 60 | 7 | 28 | 34 | (18) | |||||||||
Total other operating expenses | 117 | 117 | 124 | 0 | (6) | 337 | 358 | (6) | |||||||||
Total operating expenses | 410 | 420 | 437 | (2) | (6) | 1,281 | 1,266 | 1 | |||||||||
Income before taxes | 35 | 78 | 39 | (55) | (10) | 262 | 112 | 134 | |||||||||
Statement of operations metrics (%) | |||||||||||||||||
Return on regulatory capital | 5.2 | 12.0 | 6.1 | – | – | 13.2 | 6.4 | – | |||||||||
Cost/income ratio | 89.7 | 82.2 | 93.6 | – | – | 81.4 | 90.6 | – | |||||||||
Economic risk capital and return | |||||||||||||||||
Average economic risk capital (CHF million) | 5,212 | 5,236 | 4,762 | 0 | 9 | 5,216 | 4,536 | 15 | |||||||||
Pre-tax return on average economic risk capital (%) | 2.7 | 6.0 | 3.2 | – | – | 6.7 | 3.3 | – | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 3,260 | 3,130 | 2,910 | 4 | 12 | 3,260 | 2,910 | 12 |
39
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Advisory and other fees | 180 | 166 | 161 | 8 | 12 | 564 | 581 | (3) | |||||||||
Debt underwriting | 233 | 257 | 239 | (9) | (3) | 781 | 706 | 11 | |||||||||
Equity underwriting | 65 | 105 | 74 | (38) | (12) | 273 | 213 | 28 | |||||||||
Other | (21) | (17) | (7) | 24 | 200 | (44) | (102) | (57) | |||||||||
Net revenues | 457 | 511 | 467 | (11) | (2) | 1,574 | 1,398 | 13 | |||||||||
Balance sheet statistics (CHF million, except where indicated) | |||||||||||||||||
Total assets | 20,477 | 20,973 | 19,931 | (2) | 3 | 20,477 | 19,931 | 3 | |||||||||
Risk-weighted assets | 19,486 | 18,648 | 18,019 | 4 | 8 | 19,486 | 18,019 | 8 | |||||||||
Risk-weighted assets (USD) | 20,138 | 19,473 | 18,588 | 3 | 8 | 20,138 | 18,588 | 8 | |||||||||
Leverage exposure | 42,794 | 43,073 | 44,240 | (1) | (3) | 42,794 | 44,240 | (3) | |||||||||
Leverage exposure (USD) | 44,227 | 44,978 | 45,636 | (2) | (3) | 44,227 | 45,636 | (3) |
Reconciliation of adjusted results | |||||||||||
Investment Banking & Capital Markets | |||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Adjusted results (CHF million) | |||||||||||
Net revenues | 457 | 511 | 467 | 1,574 | 1,398 | ||||||
Provision for credit losses | 12 | 13 | (9) | 31 | 20 | ||||||
Total operating expenses | 410 | 420 | 437 | 1,281 | 1,266 | ||||||
Restructuring expenses | (16) | (10) | (15) | (28) | (34) | ||||||
Adjusted total operating expenses | 394 | 410 | 422 | 1,253 | 1,232 | ||||||
Income before taxes | 35 | 78 | 39 | 262 | 112 | ||||||
Total adjustments | 16 | 10 | 15 | 28 | 34 | ||||||
Adjusted income before taxes | 51 | 88 | 54 | 290 | 146 | ||||||
Adjusted return on regulatory capital (%) | 7.6 | 13.5 | 8.6 | 14.6 | 8.3 | ||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
Advisory and other fees
In 3Q17, revenues from advisory and other fees of CHF 180 million increased 8% compared to 2Q17, reflecting higher revenues from completed M&A transactions.
Compared to 3Q16, revenues increased 12%, despite an industry-wide decline in the overall M&A fee pool.
Debt underwriting
In 3Q17, debt underwriting revenues of CHF 233 million decreased 9% compared to 2Q17, driven by lower leveraged finance revenues, partially offset by higher investment grade underwriting revenues.
Compared to 3Q16, revenues decreased 3%, driven by lower industry-wide leveraged finance activity and lower investment grade acquisition financing revenues compared to strong 3Q16 results.
Equity underwriting
In 3Q17, revenues from equity underwriting of CHF 65 million decreased 38% compared to 2Q17, due to lower revenues from IPOs, rights offerings and follow-ons.
Compared to 3Q16, revenues decreased 12%, primarily driven by lower revenues from convertible bonds and follow-on offerings.
Provision for credit losses
In 3Q17, we recorded a provision for credit losses of CHF 12 million, including increased provisions reflecting a methodology change for probable losses inherent in the portfolio relating to the period of time expected to identify defaults once they have occurred. This compares to a provision for credit losses of CHF 13 million in 2Q17. In 3Q16, we recorded a release of provision for credit losses of CHF 9 million, reflecting a continued stabilization in the energy sector.
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Total operating expenses
Total operating expenses of CHF 410 million decreased 2% compared to 2Q17, driven by lower compensation and benefits and general and administrative expenses, partially offset by higher restructuring expenses. Compensation and benefits of CHF 293 million decreased 3%, reflecting a lower discretionary compensation accrual and lower deferred compensation from prior year awards. General and administrative expenses of CHF 99 million decreased 5% compared to 2Q17.
Compared to 3Q16, total operating expenses decreased 6%, driven by a lower discretionary compensation accrual, partially offset by higher deferred compensation expenses.
Global advisory and underwriting revenues
The Group’s global advisory and underwriting business operates across multiple business divisions that work in close collaboration with each other to generate these revenues. In order to reflect the global performance and capabilities of this business and for enhanced comparability versus its peers, the following table aggregates total advisory and underwriting revenues for the Group into a single metric in US dollar terms before cross-divisional revenue sharing agreements.
in | % change | in | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Global advisory and underwriting revenues (USD million) | |||||||||||||||||
Global advisory and underwriting revenues | 950 | 1,016 | 945 | (6) | 1 | 3,099 | 2,729 | 14 | |||||||||
of which advisory and other fees | 237 | 192 | 209 | 23 | 13 | 707 | 736 | (4) | |||||||||
of which debt underwriting | 544 | 582 | 552 | (7) | (1) | 1,773 | 1,469 | 21 | |||||||||
of which equity underwriting | 169 | 242 | 184 | (30) | (8) | 619 | 524 | 18 |
41
In 3Q17, the Strategic Resolution Unit reported a loss before taxes of CHF 578 million and decreased its risk-weighted assets by USD 2.7 billion and its leverage exposure by USD 7.2 billion.
3Q17 results
In 3Q17, we reported a loss before taxes of CHF 578 million compared to losses of CHF 563 million in 2Q17 and CHF 852 million in 3Q16. In 3Q17, we reported an adjusted loss before taxes of CHF 469 million, compared to adjusted losses of CHF 531 million in 2Q17 and CHF 513 million in 3Q16.
We reported negative net revenues of CHF 255 million in 3Q17, primarily driven by overall funding costs, exit losses related to the sale of legacy asset management positions and valuation adjustments, partially offset by revenues from our legacy cross-border and small markets businesses. Total operating expenses in 3Q17 were CHF 331 million, including CHF 216 million of general and administrative expenses, of which CHF 100 million were litigation provisions, and CHF 85 million of compensation and benefits. In 3Q17, we reported adjusted total operating expenses of CHF 222 million, compared to CHF 244 million in 2Q17 and CHF 343 million in 3Q16.
Capital and leverage metrics
As of the end of 3Q17, we reported risk-weighted assets of USD 37.0 billion, a decrease of USD 2.7 billion and USD 17.9 billion compared to the end of 2Q17 and 3Q16, respectively. In 3Q17, risk-weighted assets reduction was achieved through the sale of legacy asset management positions, sales and restructuring in the residual loan portfolio and continued risk reduction in the derivatives portfolio. Leverage exposure was USD 67.6 billion as of the end of 3Q17, reflecting a decrease of USD 7.2 billion and USD 51.1 billion compared to the end of 2Q17 and 3Q16, respectively. Leverage exposure reduction was achieved through various initiatives, including assets sales and reduction across the derivatives portfolio, including novations and restructurings.
Divisional results | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Net revenues | (255) | (274) | (165) | (7) | 55 | (735) | (1,069) | (31) | |||||||||
of which from noncontrolling interests without significant economic interest | 9 | 6 | 11 | 50 | (18) | 16 | 27 | (41) | |||||||||
Provision for credit losses | (8) | 13 | 5 | – | – | 29 | 83 | (65) | |||||||||
Compensation and benefits | 85 | 94 | 134 | (10) | (37) | 267 | 506 | (47) | |||||||||
General and administrative expenses | 216 | 164 | 514 | 32 | (58) | 587 | 1,036 | (43) | |||||||||
of which litigation provisions | 100 | 28 | 334 | 257 | (70) | 209 | 404 | (48) | |||||||||
Commission expenses | 9 | 7 | 13 | 29 | (31) | 23 | 50 | (54) | |||||||||
Restructuring expenses | 21 | 11 | 21 | 91 | 0 | 39 | 120 | (68) | |||||||||
Total other operating expenses | 246 | 182 | 548 | 35 | (55) | 649 | 1,206 | (46) | |||||||||
Total operating expenses | 331 | 276 | 682 | 20 | (51) | 916 | 1,712 | (46) | |||||||||
of which from noncontrolling interests without significant economic interest | 2 | 2 | 7 | 0 | (71) | 8 | 21 | (62) | |||||||||
Loss before taxes | (578) | (563) | (852) | 3 | (32) | (1,680) | (2,864) | (41) | |||||||||
of which from noncontrolling interests without significant economic interest | 7 | 4 | 4 | 75 | 75 | 8 | 6 | 33 | |||||||||
Number of employees (full-time equivalents) | |||||||||||||||||
Number of employees | 1,640 | 1,640 | 1,840 | 0 | (11) | 1,640 | 1,840 | (11) |
42
Divisional results (continued) | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Net revenue detail (CHF million) | |||||||||||||||||
Restructuring of select onshore businesses | (1) | (3) | 16 | (67) | – | 31 | 145 | (79) | |||||||||
Legacy cross-border and small markets businesses | 26 | 34 | 46 | (24) | (43) | 97 | 153 | (37) | |||||||||
Legacy asset management positions | (85) | 22 | 2 | – | – | (67) | (56) | 20 | |||||||||
Legacy investment banking portfolio | (115) | (247) | (171) | (53) | (33) | (576) | (1,099) | (48) | |||||||||
Legacy funding costs | (90) | (92) | (75) | (2) | 20 | (247) | (246) | 0 | |||||||||
Other | 1 | 6 | 6 | (83) | (83) | 11 | 7 | 57 | |||||||||
Noncontrolling interests without significant economic interest | 9 | 6 | 11 | 50 | (18) | 16 | 27 | (41) | |||||||||
Net revenues | (255) | (274) | (165) | (7) | 55 | (735) | (1,069) | (31) | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 49,409 | 54,427 | 77,581 | (9) | (36) | 49,409 | 77,581 | (36) | |||||||||
Risk-weighted assets | 35,842 | 38,101 | 53,268 | (6) | (33) | 35,842 | 53,268 | (33) | |||||||||
Risk-weighted assets (USD) | 37,042 | 39,786 | 54,949 | (7) | (33) | 37,042 | 54,949 | (33) | |||||||||
Leverage exposure | 65,385 | 71,611 | 115,008 | (9) | (43) | 65,385 | 115,008 | (43) | |||||||||
Leverage exposure (USD) | 67,574 | 74,778 | 118,638 | (10) | (43) | 67,574 | 118,638 | (43) |
Reconciliation of adjusted results | |||||||||||
Strategic Resolution Unit | |||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Adjusted results (CHF million) | |||||||||||
Net revenues | (255) | (274) | (165) | (735) | (1,069) | ||||||
(Gains)/losses on business sales | 0 | 0 | 0 | (38) | 4 | ||||||
Adjusted net revenues | (255) | (274) | (165) | (773) | (1,065) | ||||||
Provision for credit losses | (8) | 13 | 5 | 29 | 83 | ||||||
Total operating expenses | 331 | 276 | 682 | 916 | 1,712 | ||||||
Restructuring expenses | (21) | (11) | (21) | (39) | (120) | ||||||
Major litigation provisions | (88) | (21) | (318) | (179) | (318) | ||||||
Adjusted total operating expenses | 222 | 244 | 343 | 698 | 1,274 | ||||||
Loss before taxes | (578) | (563) | (852) | (1,680) | (2,864) | ||||||
Total adjustments | 109 | 32 | 339 | 180 | 442 | ||||||
Adjusted loss before taxes | (469) | (531) | (513) | (1,500) | (2,422) | ||||||
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information. |
Net revenues
We reported negative net revenues of CHF 255 million in 3Q17 compared to negative net revenues of CHF 274 million in 2Q17 and CHF 165 million in 3Q16. Compared to 2Q17, the improvement was primarily driven by a reduction in overall funding costs and lower negative valuation adjustments, partially offset by higher exit losses related to the sale of legacy asset management positions.
Compared to 3Q16, the movement was primarily driven by a reduction in fee-based revenues as a result of accelerated business exits and higher exit losses related to the sale of legacy asset management positions. This movement was partially offset by lower overall funding costs.
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Provision for credit losses
In 3Q17, there was a release of provision for credit losses of CHF 8 million compared to a provision for credit losses of CHF 13 million in 2Q17 and CHF 5 million in 3Q16. The improvement in 3Q17 was primarily related to improved economics of a single financing deal.
Total operating expenses
Total operating expenses of CHF 331 million increased CHF 55 million compared to 2Q17, primarily reflecting higher general and administrative expenses, including an increase in litigation provisions by CHF 72 million mainly in connection with mortgage-related matters. Total operating expenses in 3Q17 included costs of CHF 40 million to meet requirements related to the settlements with US authorities regarding US cross-border matters. Adjusted total operating expenses decreased 9%.
Compared to 3Q16, total operating expenses decreased CHF 351 million, due to lower general and administrative expenses, including significantly lower litigation provisions mainly in connection with mortgage-related matters, and lower compensation and benefits as a result of various cost reduction initiatives, including the impact of the transfer of our US private banking business. Adjusted total operating expenses decreased 35%.
44
In 3Q17, Corporate Center recorded a loss before taxes of CHF 127 million compared to a loss of CHF 245 million in 2Q17 and a loss of CHF 207 million in 3Q16.
3Q17 results
Corporate Center includes parent company operations such as Group financing, expenses for projects sponsored by the Group and certain expenses and revenues that have not been allocated to the segments. It also includes consolidation and elimination adjustments required to eliminate intercompany revenues and expenses.
In 3Q17, Corporate Center recorded a loss before taxes of CHF 127 million compared to a loss of CHF 245 million in 2Q17, primarily driven by movements in treasury results, and compared to a loss of CHF 207 million in 3Q16.
Treasury results include the impact of volatility in the valuations of certain central funding transactions such as structured notes issuances and swap transactions. In 3Q17, treasury results reflected revenues with respect to structured notes volatility of CHF 150 million, compared to CHF 58 million in 3Q16. The 3Q17 results included the positive impact of an enhancement to the valuation methodology relating to the instrument-specific credit risk on fair value option elected structured notes that were previously recorded in accumulated other comprehensive income and were transferred to net income during 3Q17. We are in the process of migrating our structured notes portfolio to a new target operating model that allows for a more granular and precise valuation of the individual notes. This migration became sufficiently advanced during 3Q17 with respect to the rates sub-portfolio to allow for this change in estimate. Since 2Q17, treasury results also include additional interest charges from transfer pricing to align funding costs to assets held in the Corporate Center. Other revenues include required elimination adjustments associated with trading in own shares and, beginning in 3Q17, include the cost of certain hedging transactions executed in connection with the Group’s risk-weighted assets.
Compensation and benefits mainly reflect fair value adjustments on certain deferred compensation plans not allocated to the segments and certain deferred compensation retention awards intended to support the restructuring of the Group relating to Global Markets and Investment Banking & Capital Markets, predominantly through the end of 2017, and to Asia Pacific predominantly through the end of 2018. General and administrative expenses primarily reflected costs associated with the evolution of our legal entity structure to meet developing and future regulatory requirements.
As announced in 2Q17, FINMA imposed an add-on to our risk-weighted assets relating to operational risk effective 3Q17. This add-on of CHF 5.2 billion was primarily in respect of our RMBS settlements. This increase was partially offset by CHF 2.7 billion movements in risk levels, primarily in credit risk, including the impact of the hedging transactions executed in connection with the Group’s risk-weighted assets.
Corporate Center results | |||||||||||||||||
in | % change | in | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Statements of operations (CHF million) | |||||||||||||||||
Treasury results | 45 | (91) | 68 | – | (34) | (16) | (85) | (81) | |||||||||
Other | (8) | 25 | 4 | – | – | 56 | 172 | (67) | |||||||||
Net revenues | 37 | (66) | 72 | – | (49) | 40 | 87 | (54) | |||||||||
Provision for credit losses | 0 | 1 | 0 | (100) | – | 3 | (1) | – | |||||||||
Compensation and benefits | 103 | 107 | 185 | (4) | (44) | 310 | 155 | 100 | |||||||||
General and administrative expenses | 44 | 61 | 89 | (28) | (51) | 149 | 298 | (50) | |||||||||
Commission expenses | 8 | 8 | 5 | 0 | 60 | 37 | 44 | (16) | |||||||||
Restructuring expenses | 9 | 2 | 0 | 350 | – | 12 | 0 | – | |||||||||
Total other operating expenses | 61 | 71 | 94 | (14) | (35) | 198 | 342 | (42) | |||||||||
Total operating expenses | 164 | 178 | 279 | (8) | (41) | 508 | 497 | 2 | |||||||||
Loss before taxes | (127) | (245) | (207) | (48) | (39) | (471) | (409) | 15 | |||||||||
Balance sheet statistics (CHF million) | |||||||||||||||||
Total assets | 65,636 | 63,480 | 62,007 | 3 | 6 | 65,636 | 62,007 | 6 | |||||||||
Risk-weighted assets 1 | 20,718 | 18,021 | 16,756 | 15 | 24 | 20,718 | 16,756 | 24 | |||||||||
Leverage exposure 1 | 63,467 | 59,858 | 59,154 | 6 | 7 | 63,467 | 59,154 | 7 | |||||||||
1 Disclosed on a look-through basis. |
45
Expense allocation to divisions | |||||||||||||||||
in / end of | % change | in / end of | % change | ||||||||||||||
3Q17 | 2Q17 | 3Q16 | QoQ | YoY | 9M17 | 9M16 | YoY | ||||||||||
Expense allocation to divisions (CHF million) | |||||||||||||||||
Compensation and benefits | 671 | 679 | 745 | (1) | (10) | 2,023 | 1,852 | 9 | |||||||||
General and administrative expenses | 603 | 601 | 706 | 0 | (15) | 1,791 | 2,207 | (19) | |||||||||
Commission expenses | 8 | 8 | 5 | 0 | 60 | 37 | 44 | (16) | |||||||||
Restructuring expenses | 26 | 28 | 26 | (7) | 0 | 85 | 142 | (40) | |||||||||
Total other operating expenses | 637 | 637 | 737 | 0 | (14) | 1,913 | 2,393 | (20) | |||||||||
Total operating expenses before allocation to divisions | 1,308 | 1,316 | 1,482 | (1) | (12) | 3,936 | 4,245 | (7) | |||||||||
Net allocation to divisions | 1,144 | 1,138 | 1,203 | 1 | (5) | 3,428 | 3,748 | (9) | |||||||||
of which Swiss Universal Bank | 254 | 238 | 239 | 7 | 6 | 749 | 742 | 1 | |||||||||
of which International Wealth Management | 192 | 183 | 195 | 5 | (2) | 573 | 579 | (1) | |||||||||
of which Asia Pacific | 183 | 191 | 185 | (4) | (1) | 553 | 508 | 9 | |||||||||
of which Global Markets | 374 | 370 | 397 | 1 | (6) | 1,106 | 1,288 | (14) | |||||||||
of which Investment Banking & Capital Markets | 71 | 80 | 70 | (11) | 1 | 227 | 207 | 10 | |||||||||
of which Strategic Resolution Unit | 70 | 76 | 117 | (8) | (40) | 220 | 424 | (48) | |||||||||
Total operating expenses | 164 | 178 | 279 | (8) | (41) | 508 | 497 | 2 | |||||||||
Corporate services and business support, including in finance, operations, human resources, legal, compliance, risk management and IT, are provided by corporate functions, and the related costs are allocated to the segments and the Corporate Center based on their requirements and other relevant measures. |
46
As of the end of 3Q17, assets under management were CHF 1,344.8 billion, with net asset outflows of CHF 1.8 billion in 3Q17.
Assets under management
Assets under management comprise assets that are placed with us for investment purposes and include discretionary and advisory counterparty assets.
Discretionary assets are assets for which the client fully transfers the discretionary power to a Credit Suisse entity with a management mandate. Discretionary assets are reported in the business in which the advice is provided as well as in the business in which the investment decisions take place. Assets managed by the Asset Management business of International Wealth Management for other businesses are reported in each applicable business and eliminated at the Group level.
Advisory assets include assets placed with us where the client is provided access to investment advice but retains discretion over investment decisions.
Assets under management and net new assets include assets managed by consolidated entities, joint ventures and strategic participations. Assets from joint ventures and participations are counted in proportion to our share in the respective entity.
Net new assets
Net new assets include individual cash payments, delivery of securities and cash flows resulting from loan increases or repayments.
Interest and dividend income credited to clients and commissions, interest and fees charged for banking services as well as changes in assets under management due to currency and market volatility are not taken into account when calculating net new assets, as such charges or market movements are not directly related to the Group’s success in acquiring assets under management. Similarly structural effects mainly relate to asset inflows and outflows due to acquisition or divestiture, exit from businesses or markets or exits due to new regulatory requirements and are not taken into account when calculating net new assets. The Group reviews relevant policies regarding client assets on a regular basis.
Assets under management and client assets | |||||||||
end of | % change | ||||||||
3Q17 | 2Q17 | 4Q16 | QoQ | ||||||
Assets under management (CHF billion) | |||||||||
Swiss Universal Bank - Private Clients | 206.1 | 201.5 | 192.2 | 2.3 | |||||
Swiss Universal Bank - Corporate & Institutional Clients | 346.7 | 352.5 | 339.3 | (1.6) | |||||
International Wealth Management - Private Banking | 355.3 | 336.4 | 323.2 | 5.6 | |||||
International Wealth Management - Asset Management | 376.3 | 366.0 | 321.6 | 2.8 | |||||
Asia Pacific - Private Banking | 190.0 | 177.8 | 166.9 | 6.9 | |||||
Strategic Resolution Unit | 5.9 | 6.7 | 13.7 | (11.9) | |||||
Assets managed across businesses 1 | (135.5) | (133.6) | (105.8) | 1.4 | |||||
Assets under management | 1,344.8 | 1,307.3 | 1,251.1 | 2.9 | |||||
of which discretionary assets | 446.0 | 429.7 | 404.3 | 3.8 | |||||
of which advisory assets | 898.8 | 877.6 | 846.8 | 2.4 | |||||
Client assets (CHF billion) 2 | |||||||||
Swiss Universal Bank - Private Clients | 234.6 | 229.5 | 218.5 | 2.2 | |||||
Swiss Universal Bank - Corporate & Institutional Clients | 471.7 | 463.5 | 447.8 | 1.8 | |||||
International Wealth Management - Private Banking | 450.0 | 430.5 | 423.4 | 4.5 | |||||
International Wealth Management - Asset Management | 376.3 | 366.0 | 321.6 | 2.8 | |||||
Asia Pacific - Private Banking | 242.7 | 223.4 | 202.8 | 8.6 | |||||
Strategic Resolution Unit | 10.0 | 11.1 | 19.8 | (9.9) | |||||
Assets managed across businesses 1 | (135.5) | (133.6) | (105.8) | 1.4 | |||||
Client Assets | 1,649.8 | 1,590.4 | 1,528.1 | 3.7 | |||||
1 Represents assets managed by Asset Management within International Wealth Management for the other businesses. | |||||||||
2 Client assets is a broader measure than assets under management as it includes transactional accounts and assets under custody (assets held solely for transaction-related or safekeeping/custody purposes) and assets of corporate clients and public institutions used primarily for cash management or transaction-related purposes. |
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Growth in assets under management | |||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Growth in assets under management (CHF billion) | |||||||||||
Net new assets | (1.8) | 12.1 | 11.6 | 34.7 | 33.5 | ||||||
of which Swiss Universal Bank - Private Clients | 1.0 | 1.7 | 0.9 | 4.7 | 1.9 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | (13.7) | 0.0 | (1.9) | (13.7) | 1.7 | ||||||
of which International Wealth Management - Private Banking | 3.6 | 4.6 | 4.4 | 12.9 | 15.2 | ||||||
of which International Wealth Management - Asset Management 1 | 1.1 | 2.8 | 5.0 | 18.9 | 10.0 | ||||||
of which Asia Pacific - Private Banking | 5.8 | 4.5 | 4.3 | 15.6 | 12.9 | ||||||
of which Strategic Resolution Unit | (0.5) | (0.5) | (1.9) | (2.0) | (5.6) | ||||||
of which assets managed across businesses 2 | 0.9 | (1.0) | 0.8 | (1.7) | (2.6) | ||||||
Other effects | 39.3 | (9.0) | 24.9 | 59.0 | 6.6 | ||||||
of which Swiss Universal Bank - Private Clients | 3.6 | 1.6 | 2.1 | 9.2 | 0.9 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | 7.9 | 3.6 | 5.7 | 21.1 | 7.8 | ||||||
of which International Wealth Management - Private Banking | 15.3 | (4.4) | 8.4 | 19.2 | 6.6 | ||||||
of which International Wealth Management - Asset Management | 9.2 | (3.9) | 4.4 | 35.8 | (7.0) | ||||||
of which Asia Pacific - Private Banking | 6.4 | (4.1) | 6.1 | 7.5 | 4.7 | ||||||
of which Strategic Resolution Unit | (0.3) | (0.6) | (0.1) | (5.8) | (3.9) | ||||||
of which assets managed across businesses 2 | (2.8) | (1.2) | (1.7) | (28.0) | (2.5) | ||||||
Growth in assets under management | 37.5 | 3.1 | 36.5 | 93.7 | 40.1 | ||||||
of which Swiss Universal Bank - Private Clients | 4.6 | 3.3 | 3.0 | 13.9 | 2.8 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | (5.8) | 3.6 | 3.8 | 7.4 | 9.5 | ||||||
of which International Wealth Management - Private Banking | 18.9 | 0.2 | 12.8 | 32.1 | 21.8 | ||||||
of which International Wealth Management - Asset Management 1 | 10.3 | (1.1) | 9.4 | 54.7 | 3.0 | ||||||
of which Asia Pacific - Private Banking | 12.2 | 0.4 | 10.4 | 23.1 | 17.6 | ||||||
of which Strategic Resolution Unit | (0.8) | (1.1) | (2.0) | (7.8) | (9.5) | ||||||
of which assets managed across businesses 2 | (1.9) | (2.2) | (0.9) | (29.7) | (5.1) |
Growth in assets under management (annualized) (%) | |||||||||||
Net new assets | (0.6) | 3.7 | 3.7 | 3.7 | 3.7 | ||||||
of which Swiss Universal Bank - Private Clients | 2.0 | 3.4 | 1.9 | 3.3 | 1.3 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | (15.5) | 0.0 | (2.3) | (5.4) | 0.7 | ||||||
of which International Wealth Management - Private Banking | 4.3 | 5.5 | 5.8 | 5.3 | 7.0 | ||||||
of which International Wealth Management - Asset Management 1 | 1.2 | 3.1 | 6.4 | 7.8 | 4.1 | ||||||
of which Asia Pacific - Private Banking | 13.0 | 10.1 | 10.9 | 12.5 | 11.4 | ||||||
of which Strategic Resolution Unit | (29.9) | (25.6) | (38.4) | (19.5) | (27.4) | ||||||
of which assets managed across businesses 2 | (2.7) | 3.0 | (3.4) | 2.1 | 3.8 | ||||||
Other effects | 12.1 | (2.7) | 8.3 | 6.3 | 0.7 | ||||||
of which Swiss Universal Bank - Private Clients | 7.1 | 3.3 | 4.5 | 6.3 | 0.7 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | 8.9 | 4.1 | 6.9 | 8.3 | 3.2 | ||||||
of which International Wealth Management - Private Banking | 18.2 | (5.3) | 11.3 | 7.9 | 3.0 | ||||||
of which International Wealth Management - Asset Management | 10.1 | (4.3) | 5.5 | 14.9 | (2.9) | ||||||
of which Asia Pacific - Private Banking | 14.4 | (9.2) | 15.4 | 6.0 | 4.2 | ||||||
of which Strategic Resolution Unit | (17.9) | (30.8) | (2.0) | (56.4) | (19.0) | ||||||
of which assets managed across businesses 2 | 8.4 | 3.7 | 7.2 | 35.3 | 3.6 | ||||||
Growth in assets under management | 11.5 | 1.0 | 12.0 | 10.0 | 4.4 | ||||||
of which Swiss Universal Bank - Private Clients | 9.1 | 6.7 | 6.4 | 9.6 | 2.0 | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | (6.6) | 4.1 | 4.6 | 2.9 | 3.9 | ||||||
of which International Wealth Management - Private Banking | 22.5 | 0.2 | 17.1 | 13.2 | 10.0 | ||||||
of which International Wealth Management - Asset Management 1 | 11.3 | (1.2) | 11.9 | 22.7 | 1.2 | ||||||
of which Asia Pacific - Private Banking | 27.4 | 0.9 | 26.3 | 18.5 | 15.6 | ||||||
of which Strategic Resolution Unit | (47.8) | (56.4) | (40.4) | (75.9) | (46.4) | ||||||
of which assets managed across businesses 2 | 5.7 | 6.7 | 3.8 | 37.4 | 7.4 | ||||||
1 Includes outflows for private equity assets reflecting realizations at cost and unfunded commitments on which a fee is no longer earned. | |||||||||||
2 Represents assets managed by Asset Management within International Wealth Management for the other businesses. |
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Growth in assets under management (continued) | |||||||||||
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Growth in net new assets (rolling four-quarter average) (%) | |||||||||||
Net new assets | 2.2 | 3.4 | 2.8 | – | – | ||||||
of which Swiss Universal Bank - Private Clients | 1.5 | 1.5 | 0.5 | – | – | ||||||
of which Swiss Universal Bank - Corporate & Institutional Clients | (3.8) | (0.3) | 1.3 | – | – | ||||||
of which International Wealth Management - Private Banking | 4.3 | 4.7 | 3.8 | – | – | ||||||
of which International Wealth Management - Asset Management 1 | 4.5 | 5.8 | 4.3 | – | – | ||||||
of which Asia Pacific - Private Banking | 9.7 | 9.4 | 11.4 | – | – | ||||||
of which Strategic Resolution Unit | (27.5) | (31.8) | (5.8) | – | – | ||||||
of which assets managed across businesses 2 | 1.2 | 1.4 | 2.1 | – | – | ||||||
1 Includes outflows for private equity assets reflecting realizations at cost and unfunded commitments on which a fee is no longer earned. | |||||||||||
2 Represents assets managed by Asset Management within International Wealth Management for the other businesses. |
3Q17 results
As of the end of 3Q17, assets under management of CHF 1,344.8 billion increased CHF 37.5 billion compared to the end of 2Q17. The increase was mainly driven by favorable market and foreign exchange-related movements, partially offset by net asset outflows of CHF 1.8 billion.
Net asset outflows of CHF 1.8 billion mainly reflected outflows of CHF 13.7 billion in the Corporate & Institutional Clients business of Swiss Universal Bank primarily due to redemptions of CHF 13.3 billion from a single public sector mandate, partially offset by net new assets of CHF 5.8 billion in the Private Banking business of Asia Pacific, primarily reflecting inflows from Greater China and net new assets of CHF 3.6 billion in the Private Banking business of International Wealth Management, reflecting solid inflows from emerging markets and Europe.
> Refer to “Swiss Universal Bank”, “International Wealth Management” and “Asia Pacific” for further information.
> Refer to “Note 38 – Assets under management” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information.
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Treasury, risk, balance sheet and off-balance sheet
Liquidity and funding management
Capital management
Risk management
Balance sheet and off-balance sheet
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In 3Q17, we maintained a strong liquidity and funding position. The majority of our unsecured funding was generated from core customer deposits and long-term debt.
Securities for funding and capital purposes have historically been issued primarily by the Bank, our principal operating subsidiary and a US registrant. In response to regulatory reform, we have focused our issuance strategy on offering long-term debt securities at the Group level. Proceeds from issuances are lent to operating subsidiaries and affiliates on both a senior and subordinated basis, as needed; the latter typically to meet capital requirements and the former as desired by management to support business initiatives and liquidity needs.
Our internal liquidity risk management framework is subject to review and monitoring by the FINMA, other regulators and rating agencies.
> Refer to “Treasury management” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 for further information on liquidity and funding management.
Basel III liquidity framework
In 2010, the Basel Committee on Banking Supervision (BCBS) issued the Basel III international framework for liquidity risk measurement, standards and monitoring. The Basel III framework includes a liquidity coverage ratio (LCR) and a net stable funding ratio (NSFR). As of January 1, 2013, Basel III was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder. Our related disclosures are in accordance with our interpretation of such requirements, including relevant assumptions and estimates. Changes in the interpretation of these requirements in Switzerland or in any of our interpretations, assumptions or estimates could result in different numbers from those shown in this report.
The LCR, which is being phased in from January 1, 2015 through January 1, 2019, addresses liquidity risk over a 30-day period. The LCR aims to ensure that banks have unencumbered high-quality liquid assets (HQLA) available to meet short-term liquidity needs under a severe stress scenario. The LCR is comprised of two components, the value of HQLA in stressed conditions and the total net cash outflows calculated according to specified scenario parameters. Under the BCBS requirements, the ratio of liquid assets over net cash outflows is subject to an initial minimum requirement of 60%, which will increase by 10% per year until January 1, 2019.
The NSFR establishes criteria for a minimum amount of stable funding based on the liquidity of a bank’s on- and off-balance sheet activities over a one-year horizon. The NSFR is a complementary measure to the LCR and is structured to ensure that illiquid assets are funded with an appropriate amount of stable long-term funds. The NSFR is defined as the ratio of available stable funding over the amount of required stable funding and once implemented by national regulators, should always be at least 100%.
Swiss liquidity requirements
In 2012, the Swiss Federal Council adopted a liquidity ordinance (Liquidity Ordinance) that implements Basel III liquidity requirements into Swiss law subject, in part, to further rule-making, including with respect to the final Basel III LCR rules adopted in 2014. Under the Liquidity Ordinance, as amended, certain Swiss banks became subject to an initial 60% LCR requirement, with incremental increases by 10% per year until January 1, 2019. Systemically relevant banks like Credit Suisse became subject to an initial minimum LCR requirement of 100% beginning on January 1, 2015 and the associated disclosure requirements. Further, beginning in May 2015, FINMA required us to maintain a minimum LCR of 110% at all times.
In connection with the implementation of Basel III, regulatory LCR disclosures for the Group and certain subsidiaries are required. Further details on our LCR can be found on our website.
>Refer to www.credit-suisse.com/regulatorydisclosures for additional information.
FINMA requires us to report the NSFR to FINMA on a monthly basis. The reporting instructions are generally aligned with the final BCBS NSFR requirements. Following an observation period that began in 2012, the NSFR will become a minimum standard in Switzerland on January 1, 2019, at which time banks will be required to comply with disclosure requirements prescribed by the BCBS and implemented by FINMA.
Our liquidity principles and our liquidity risk management framework as agreed with FINMA are in line with the Basel III liquidity framework.
> Refer to “Treasury management” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 for further information on the Basel III liquidity framework and Swiss liquidity requirements.
Our liquidity and funding policy is designed to ensure that funding is available to meet all obligations in times of stress, whether caused by market events or issues specific to Credit Suisse. We achieve this through a conservative asset/liability management strategy aimed at maintaining long-term funding, including stable deposits, in excess of illiquid assets. To address short-term liquidity stress, we maintain a liquidity pool, described below, that covers unexpected outflows in the event of severe market and idiosyncratic stress. Our liquidity risk parameters reflect various liquidity stress assumptions that we believe are conservative. We manage
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our liquidity profile at a sufficient level such that, in the event we are unable to access unsecured funding, we expect to have sufficient liquidity to sustain operations for a period of time in excess of our minimum limit. This includes potential currency mismatches, which are not deemed to be a major risk but are monitored and subject to limits, particularly in the significant currencies of euro, Japanese yen, pound sterling, Swiss franc and US dollar.
> Refer to “Treasury management” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 for further information on our approach to liquidity risk management, governance and contingency planning.
Liquidity pool
Treasury manages a sizeable portfolio of liquid assets comprised of cash held at central banks and securities. A portion of the liquidity pool is generated through reverse repurchase agreements with top-rated counterparties. We are mindful of potential credit risk and therefore focus our liquidity holdings strategy on cash held at central banks and highly rated government bonds and on short-term reverse repurchase agreements. These government bonds are eligible as collateral for liquidity facilities with various central banks including the SNB, the Fed, the ECB and the BoE. Our direct exposure on these bonds is limited to highly liquid, top-rated sovereign entities or fully guaranteed agencies of sovereign entities. The liquidity pool may be used to meet the liquidity requirements of our operating companies.
As of the end of 3Q17, our liquidity pool managed by Treasury had an HQLA value of CHF 166.0 billion. The liquidity pool consisted of CHF 97.8 billion of cash held at major central banks, primarily the SNB, the Fed and the ECB, and CHF 68.2 billion market value of securities issued by governments and government agencies, primarily from the US, UK and France.
In addition to the liquidity portfolio managed by Treasury, there is also a portfolio of unencumbered liquid assets managed by various businesses, primarily in the Global Markets and Investment Banking & Capital Markets divisions. These assets generally include high-grade bonds and highly liquid equity securities that form part of major indices. In coordination with the businesses, Treasury can access these assets to generate liquidity if required.
As of the end of 3Q17, the portfolio that is not managed by Treasury had a market value of CHF 31.3 billion, consisting of CHF 8.1 billion of high-grade bonds and CHF 23.2 billion of highly liquid equity securities. Under our internal model, an average stress-level haircut of 17% is applied to these assets. The haircuts applied to these portfolios reflect our assessment of overall market risk at the time of measurement, potential monetization capacity taking into account increased haircuts, market volatility and the quality of the relevant securities.
Liquidity pool – Group | |||||||||||||||
End of | 3Q17 | 2Q17 | 4Q16 | ||||||||||||
Swiss franc | US dollar | Euro | Other currencies | Total | Total | Total | |||||||||
Liquid assets (CHF million) | |||||||||||||||
Cash held at central banks | 73,022 | 16,629 | 6,421 | 1,727 | 97,799 | 94,213 | 98,294 | ||||||||
Securities | 5,776 | 32,478 | 10,070 | 19,844 | 68,168 | 61,496 | 91,680 | ||||||||
Liquid assets 1 | 78,798 | 49,107 | 16,491 | 21,571 | 165,967 | 155,709 | 189,974 | ||||||||
1 Reflects a pre-cancellation view. |
Liquidity Coverage Ratio
Our calculation methodology for the LCR is prescribed by FINMA. For disclosure purposes, since January 1, 2017, our LCR is calculated using a three-month average that is measured using daily calculations during the quarter. The FINMA calculation of HQLA takes into account a cancellation mechanism (post-cancellation view) and is therefore not directly comparable to the assets presented in the financial statements that could potentially be monetized under a severe stress scenario. The cancellation mechanism effectively excludes the impact of certain secured financing transactions from available HQLA and simultaneously adjusts the level of net cash outflows calculated. Application of the cancellation mechanism adjusts both the numerator and denominator of the LCR calculation, meaning that the impact is mostly neutral on the LCR itself.
Beginning on March 31, 2017, our HQLA measurement methodology excludes potentially eligible HQLA available for use by entities of the Group in certain jurisdictions that may not be readily accessible for use by the Group as a whole. These HQLA eligible amounts may be restricted for reasons such as local regulatory requirements, including large exposure requirements, or other binding constraints that could limit the transferability to other Group entities in other jurisdictions.
On this basis, the level of our LCR was 181% as of the end of 3Q17, an increase from 165% as of the end of 2Q17, representing an average HQLA of CHF 167.8 billion and average net cash outflows of CHF 92.5 billion.
A significant part of the increase in the LCR in 3Q17 resulted from an increase in HQLA, which was mainly driven by the increase in the amount of securities held. The remainder of the increase resulted from a reduction in net cash outflows compared to the prior quarter, primarily arising from decreased cash outflows associated with other collateral requirements, credit and liquidity facilities and balances related to open and failed trades.
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Liquidity coverage ratio – Group | |||||||||
End of | 3Q17 | 2Q17 | 4Q16 | ||||||
Unweighted value | 1 | Weighted value | 2 | Weighted value | 2 | Weighted value | 2 | ||
High-quality liquid assets (CHF million) | |||||||||
High-quality liquid assets 3 | 168,779 | 167,810 | 158,797 | 190,642 | |||||
Cash outflows (CHF million) | |||||||||
Retail deposits and deposits from small business customers | 155,520 | 19,564 | 19,053 | 18,811 | |||||
Unsecured wholesale funding | 211,091 | 83,410 | 83,985 | 74,763 | |||||
Secured wholesale funding | 149,046 | 66,424 | 70,155 | 63,312 | |||||
Additional requirements | 177,708 | 37,536 | 40,321 | 46,434 | |||||
Other contractual funding obligations | 69,459 | 69,459 | 77,177 | 66,300 | |||||
Other contingent funding obligations | 228,500 | 6,305 | 6,863 | 6,279 | |||||
Total cash outflows | 991,324 | 282,698 | 297,554 | 275,899 | |||||
Cash inflows (CHF million) | |||||||||
Secured lending | 131,449 | 86,276 | 90,958 | 80,759 | |||||
Inflows from fully performing exposures | 61,728 | 30,708 | 31,216 | 30,234 | |||||
Other cash inflows | 73,197 | 73,197 | 79,132 | 70,618 | |||||
Total cash inflows | 266,374 | 190,181 | 201,306 | 181,611 | |||||
Liquidity coverage ratio | |||||||||
High-quality liquid assets (CHF million) | 167,810 | 158,797 | 190,642 | ||||||
Net cash outflows (CHF million) | 92,517 | 96,248 | 94,288 | ||||||
Liquidity coverage ratio (%) | 181 | 165 | 202 | ||||||
Calculated using a three-month average which since 1Q17 is calculated on a daily basis. | |||||||||
1 Calculated as outstanding balances maturing or callable within 30 days. | |||||||||
2 Calculated after the application of haircuts for high-quality liquid assets or inflow and outflow rates. | |||||||||
3 Consists of cash and eligible securities as prescribed by FINMA and reflects a post-cancellation view. |
We fund our balance sheet primarily through core customer deposits, long-term debt, including structured notes, and shareholders’ equity. We monitor the funding sources, including their concentrations against certain limits, according to their counterparty, currency, tenor, geography and maturity, and whether they are secured or unsecured.
A substantial portion of our balance sheet is match funded and requires no unsecured funding. Match funded balance sheet items consist of assets and liabilities with close to equal liquidity durations and values so that the liquidity and funding generated or required by the positions are substantially equivalent.
Cash and due from banks and reverse repurchase agreements are highly liquid. A significant part of our assets, principally unencumbered trading assets that support the securities business, is comprised of securities inventories and collateralized receivables that fluctuate and are generally liquid. These liquid assets are available to settle short-term liabilities.
Loans, which comprise the largest component of our illiquid assets, are funded by our core customer deposits, with an excess coverage of 18% as of the end of 3Q17, compared to 19% as of the end of 2Q17, primarily reflecting a small increase in deposits and loans. We fund other illiquid assets, including real estate, private equity and other long-term investments as well as the haircut for the illiquid portion of securities, with long-term debt and equity, in which we try to maintain a substantial funding buffer.
Our core customer deposits totaled CHF 327 billion as of the end of 3Q17, compared to CHF 323 billion as of the end of 2Q17, reflecting a small increase in the customer deposit base in our private banking and corporate & institutional banking businesses. Core customer deposits are from clients with whom we have a broad and longstanding relationship. Core customer deposits exclude deposits from banks and certificates of deposit. We place a priority on maintaining and growing customer deposits, as they have proven to be a stable and resilient source of funding even in difficult market conditions. Our core customer deposit funding is supplemented by the issuance of long-term debt.
> Refer to the chart “Balance sheet funding structure” and “Balance sheet” in Balance sheet, and off-balance sheet for further information.
Our long-term debt includes senior, senior bail-in and subordinated debt issued in US-registered offerings and medium-term note programs, euro market medium-term note programs, stand-alone offerings, structured note programs, covered bond programs, Australian dollar domestic medium-term note programs and a Samurai shelf registration statement in Japan. As a global bank, we have access to multiple markets worldwide and our major funding centers are New York, London, Zurich and Tokyo.
Our covered bond funding is in the form of mortgage-backed loans funded by domestic covered bonds issued through Pfandbriefbank Schweizerischer Hypothekarinstitute, one of two institutions established by a 1930 act of the Swiss Parliament to centralize the issuance of covered bonds, or historically from our own international covered bond program.
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![](https://capedge.com/proxy/6-K/0001370368-17-000072/x060_0001.gif)
As of the end of 3Q17, we had outstanding long-term debt of CHF 180.3 billion, which included senior and subordinated instruments. We had CHF 57.0 billion and CHF 18.7 billion of structured notes and covered bonds outstanding, respectively, as of the end of 3Q17 compared to CHF 57.7 billion and CHF 18.4 billion, respectively, as of the end of 2Q17.
> Refer to “Issuances and redemptions” in Capital management for information on capital issuances, including buffer and progressive capital notes.
As of the end of 3Q17, the weighted average maturity of long-term debt was 5.9 years (including certificates of deposit with a maturity of one year or longer, but excluding structured notes, and assuming callable securities are redeemed at final maturity, or in 2030 for instruments without a stated final maturity).
Short-term borrowings decreased to CHF 16.2 billion as of the end of 3Q17 compared to CHF 17.2 billion as of the end of 2Q17, mainly due to the maturity of outstanding notes and lower issuances.
The following table provides information on long-term debt issuances, maturities and redemptions in 3Q17, excluding structured notes.
Debt issuances and redemptions | |||||||||
in 3Q17 | Senior | Senior bail-in | Sub- ordinated | Long-term debt | |||||
Long-term debt (CHF billion, notional value) | |||||||||
Issuances | 0.1 | 4.0 | 0.0 | 4.1 | |||||
of which unsecured | 0.0 | 4.0 | 0.0 | 4.0 | |||||
of which secured 1 | 0.1 | 0.0 | 0.0 | 0.1 | |||||
Maturities / Redemptions | 2.7 | 0.0 | 0.0 | 2.7 | |||||
of which unsecured | 2.7 | 0.0 | 0.0 | 2.7 | |||||
of which secured 1 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
Excludes structured notes. | |||||||||
1 Includes covered bonds. |
The maximum impact of a simultaneous one, two or three-notch downgrade by all three major rating agencies in the Bank’s long-term debt ratings would result in additional collateral requirements or assumed termination payments under certain derivative instruments of CHF 0.4 billion, CHF 1.7 billion and CHF 2.4 billion, respectively, as of the end of 3Q17, and would not be material to our liquidity and funding planning. If the downgrade does not involve all three rating agencies, the impact may be smaller.
Potential cash outflows on these derivative contracts associated with a downgrade of our long-term debt credit ratings, such as the requirement to post additional collateral to the counterparty, the loss of re-hypothecation rights on any collateral received and impacts arising from additional termination events are monitored and taken into account in the calculation of our liquidity requirements. There are additional derivative related risks that do not relate to the downgrade of our long term debt credit ratings and which may impact our liquidity position, including risks relating to holdings of derivatives collateral or potential movements in the valuation of derivatives positions. The potential outflows resulting across all derivative product types are monitored as part of the LCR scenario parameters and the internal liquidity reporting.
> Refer to “Credit ratings” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 for further information.
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As of the end of 3Q17, our BIS CET1 ratio was 14.0% and 13.2% on a look-through basis. Our BIS tier 1 leverage ratio was 5.7% and 5.2% on a look-through basis.
Effective January 1, 2013, the Basel III framework was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder (Swiss Requirements). Together with the related implementing ordinances, the legislation includes capital, liquidity, leverage and large exposure requirements and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency. Our related disclosures are in accordance with our current interpretation of such requirements, including relevant assumptions. Changes in the interpretation of these requirements in Switzerland or in any of our assumptions or estimates could result in different numbers from those shown in this report. Also, our capital metrics fluctuate during any reporting period in the ordinary course of business.
References to phase-in and look-through included herein refer to Basel III capital requirements and Swiss Requirements. Phase-in reflects that, for the years 2014 – 2018, there will be a five-year (20% per annum) phase-in of goodwill, other intangible assets and other capital deductions (e.g., certain deferred tax assets) and the phase-out of an adjustment for the accounting treatment of pension plans and, for the years 2013 – 2022, there will be a phase-out of certain capital instruments. Look-through assumes the full phase-in of goodwill and other intangible assets and other regulatory adjustments and the phase-out of certain capital instruments.
> Refer to “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 for further information.
The BCBS, the standard setting committee within the BIS, issued the Basel III framework, with higher minimum capital requirements and conservation and countercyclical buffers, revised risk-based capital measures, a leverage ratio and liquidity standards. The framework was designed to strengthen the resilience of the banking sector and requires banks to hold more capital, mainly in the form of common equity. The new capital standards are being phased in from 2013 through 2018 and become fully effective on January 1, 2019 for those countries that have adopted Basel III.
> Refer to the table “BIS phase-in requirements for Credit Suisse” for capital requirements and applicable effective dates during the phase-in period.
Under Basel III, the minimum CET1 requirement is 4.5% of risk-weighted assets (RWA). In addition, a 2.5% CET1 capital conservation buffer is required to absorb losses in periods of financial and economic stress. Banks that do not maintain this buffer will be limited in their ability to pay dividends and make discretionary bonus payments and other earnings distributions.
A progressive buffer between 1% and 2.5% (with a possible additional 1% surcharge) of CET1, depending on a bank’s systemic importance, is an additional capital requirement for G-SIB. The Financial Stability Board has identified Credit Suisse as a G-SIB and currently requires Credit Suisse to maintain a 1.5% progressive buffer.
In addition to the CET1 requirements, there is also a requirement for 1.5% of additional tier 1 capital and 2% of tier 2 capital. These requirements may also be met with CET1 capital.
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BIS phase-in requirements for Credit Suisse | |||||||||
For | 2017 | 2018 | 2019 | ||||||
Capital ratios | |||||||||
CET1 | 4.5% | 4.5% | 4.5% | ||||||
Capital conservation buffer | 1.250% | 1 | 1.875% | 1 | 2.5% | ||||
Progressive buffer for G-SIB | 0.750% | 1 | 1.125% | 1 | 1.5% | ||||
Total CET1 | 6.5% | 7.5% | 8.5% | ||||||
Additional tier 1 | 1.5% | 1.5% | 1.5% | ||||||
Tier 1 | 8.0% | 9.0% | 10.0% | ||||||
Tier 2 | 2.0% | 2.0% | 2.0% | ||||||
Total capital | 10.0% | 11.0% | 12.0% | ||||||
Phase-in deductions from CET1 2 | 80.0% | 1 | 100.0% | 100.0% | |||||
Capital instruments subject to phase-out | Phased out over a 10-year horizon beginning 2013 through 2022 | ||||||||
1 Indicates phase-in period. | |||||||||
2 Includes goodwill, other intangible assets and certain deferred tax assets. |
To qualify as additional tier 1 under Basel III, capital instruments must provide for principal loss absorption through a conversion into common equity or a write-down of principal feature. The trigger for such conversion or write-down must include a CET1 ratio of at least 5.125% as well as a trigger at the point of non-viability.
Basel III further provides for a countercyclical buffer that could require banks to hold up to 2.5% of CET1. This requirement is imposed by national regulators where credit growth is deemed to be excessive and leading to the build-up of system-wide risk.
Capital instruments that do not meet the strict criteria for inclusion in CET1 are excluded. Capital instruments that would no longer qualify as tier 1 or tier 2 capital will be phased out. In addition, instruments with an incentive to redeem prior to their stated maturity, if any, are phased out at their effective maturity date, which is generally the date of the first step-up coupon.
Banks are required to maintain a tier 1 leverage ratio of 3% beginning on January 1, 2018.
The legislation implementing the Basel III framework in Switzerland in respect of capital requirements for systemically relevant banks, including Credit Suisse, goes beyond the Basel III minimum standards for systemically relevant banks.
In May 2016, the Swiss Federal Council amended the Capital Adequacy Ordinance applicable to Swiss banks. The amendment recalibrates and expands the existing “Too Big to Fail” regime in Switzerland. Under the amended regime, systemically important banks operating internationally, such as Credit Suisse, will be subject to two different minimum requirements for loss-absorbing capacity: G-SIBs must hold sufficient capital that absorbs current operating losses to ensure continuity of service (going concern requirement) and they must issue sufficient debt instruments to fund restructuring without recourse to public resources (gone concern requirement). Going concern capital and gone concern capital together form our total loss-absorbing capacity (TLAC). The going concern and gone concern requirements are generally aligned with the FSB’s total loss-absorbing capacity standard. The amended Capital Adequacy Ordinance came into effect on July 1, 2016, subject to phase-in and grandfathering provisions for certain outstanding instruments, and has to be fully applied by January 1, 2020.
Going concern requirement
The going concern requirement applicable in 2020 for a G-SIB consists of (i) a base requirement of 12.86% of RWA and 4.5% of leverage exposure; and (ii) a surcharge, which reflects the G-SIB’s systemic importance. For Credit Suisse, this currently translates into a going concern requirement of 14.3% of RWA, of which the minimum CET1 component is 10%, with the remainder to be met with a maximum of 4.3% additional tier 1 capital, which includes high-trigger capital instruments that would be converted into common equity or written down if the CET1 ratio falls below 7%. Under the going concern requirement, the Swiss leverage ratio must be 5%, of which the minimum CET1 component is 3.5%, with the remainder to be met with a maximum of 1.5% additional tier 1 capital, which includes high-trigger capital instruments.
Gone concern requirement
The gone concern requirement of a G-SIB is equal to its total going concern requirement, which in 2020, consists of a base requirement of 12.86% of RWA and 4.5% of leverage exposure, plus any surcharges applicable to the relevant G-SIB. The gone concern requirement does not include any countercyclical buffers. Credit Suisse is currently subject to a gone concern requirement of 14.3% of RWA and a 5% Swiss leverage ratio and is subject to potential capital rebates for resolvability and for certain tier 2 low-trigger instruments recognized as gone concern capital.
The gone concern requirement should primarily be fulfilled with bail-in debt instruments that are designed to absorb losses after the write-down or conversion into equity of regulatory capital of a G-SIB in a restructuring scenario, but before the write-down or conversion into equity of other senior obligations of the G-SIB. Bail-in debt instruments do not feature capital triggers that may lead to a write-down and/or a conversion into equity outside of restructuring, but only begin to bear losses once the G-SIB is formally in restructuring proceedings and FINMA orders capital measures (i.e., a write-down and/or a conversion into equity) in the restructuring plan.
According to the amended Capital Adequacy Ordinance, bail-in debt instruments must fulfill certain criteria in order to qualify under the gone concern requirement, including FINMA approval. In addition to bail-in debt instruments, the gone concern requirement may further be fulfilled with other capital instruments, including CET1, additional tier 1 capital instruments or tier 2 capital instruments.
Grandfathering provisions
The Capital Adequacy Ordinance provides for a number of grandfathering provisions with regard to the qualification of previously issued additional tier 1 capital instruments and tier 2 capital instruments:
– Additional tier 1 capital instruments with a low trigger qualify as going concern capital until their first call date. Additional tier 1 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital;
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– Tier 2 capital instruments with a high trigger qualify as going concern capital until the earlier of (i) their maturity date or first call date; and (ii) December 31, 2019. Tier 2 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital until one year before their final maturity; and
– Tier 2 capital instruments with a low trigger also qualify as going concern capital until the earlier of (i) their maturity date or first call date; and (ii) December 31, 2019. Tier 2 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital until one year before their final maturity.
Furthermore, to be eligible as gone concern capital, outstanding bail-in debt instruments issued before July 1, 2016 and bail-in debt instruments issued by a (Swiss or foreign) special purpose vehicle before January 1, 2017 must have been approved by FINMA.
Both the going concern and the gone concern requirements are subject to a phase-in with gradually increasing requirements and have to be fully applied by January 1, 2020.
Other requirements
Effective July 1, 2016, Switzerland implemented an extended countercyclical buffer, which is based on the BIS countercyclical buffer that could require banks to hold up to 2.5% of RWA in the form of CET1 capital. The extended countercyclical buffer relates to a requirement that can be imposed by national regulators when credit growth is deemed to be excessive and leading to the build-up of system-wide risk.
The Swiss Federal Council has not activated the BIS countercyclical buffer for Switzerland but instead requires banks to hold CET1 capital in the amount of 2% of their RWA pertaining to mortgage loans that finance residential property in Switzerland (Swiss countercyclical buffer).
In 2013, FINMA introduced increased capital charges for mortgages that finance owner occupied residential property in Switzerland (mortgage multiplier) to be phased in through January 1, 2019. The mortgage multiplier applies for purposes of both BIS and FINMA requirements.
In December 2013, FINMA issued a decree (2013 FINMA Decree) specifying capital adequacy requirements for the Bank, on a stand-alone basis (Bank parent company), and the Bank and the Group, each on a consolidated basis, as systemically relevant institutions.
> Refer to “Regulatory developments and proposals” below and in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management in the Credit Suisse Annual Report 2016 for further information on the FINMA Decree.
Within the Basel framework for FINMA regulatory capital purposes, we implemented risk measurement models, including an incremental risk charge, stressed Value-at-Risk (VaR), risks not in VaR and advanced credit valuation adjustment (CVA).
For capital purposes, FINMA, in line with BIS requirements, uses a multiplier to impose an increase in market risk capital for every regulatory VaR backtesting exception over four in the prior rolling 12-month period. In 3Q17, our market risk capital multiplier remained at FINMA and BIS minimum levels and we did not experience an increase in market risk capital.
> Refer to “Market risk review” in Risk management for further information.
Partial replacement of the 2013 FINMA Decree
In October 2017, FINMA issued an additional decree with respect to the regulatory capital requirements of the Bank parent company (2017 FINMA Decree), specifying the treatment of investments in subsidiaries for capital adequacy purposes. This decree partially replaces certain aspects of the 2013 FINMA Decree, but all other aspects of that decree remain in force. The 2017 FINMA Decree is effective retroactively as of July 1, 2017. The changes aim to create a capital adequacy framework for the Bank parent company that is more comparable to relevant international frameworks and does not rely on exemptions from, or corrections of, the basic framework applicable to all Swiss banks. The changes only apply to the going concern capital requirements for the Bank parent company, which, as of July 1, 2017, amount to 14.3% of RWA, of which the minimum CET1 component is 10%, with the remainder to be met with a maximum of 4.3% additional tier 1 capital, which includes high-trigger capital instruments. Additional effects from countercyclical buffers impact the CET1 minimum requirement. Under the going concern requirement, the Swiss leverage ratio must be 5%, of which the minimum CET1 component is 3.5%, with the remainder to be met with a maximum of 1.5% additional tier 1 capital, which includes high-trigger capital instruments.
The new rules will require the Bank parent company to risk-weight both direct and indirect investments in subsidiaries, with the initial risk-weight set at 200%. Beginning in 2019, these risk-weights will gradually increase over 10 years to 250% for participations in subsidiaries in Switzerland and to 400% for participations in subsidiaries abroad. This replaces the existing framework that, for systemically relevant banks, provided exemptions to the general rule of capital deduction with respect to investments in subsidiaries to avoid unintended effects from the existing “Too Big to Fail” legislation and capital requirements thereunder. Furthermore, the Swiss administration plans to amend the Capital Adequacy Ordinance accordingly so that these new rules will apply to all banks in Switzerland.
The 2017 FINMA Decree also applies an adjustment (referred to as a regulatory filter) to any impact on CET1 capital arising from the upcoming accounting change under applicable Swiss banking rules for the Bank parent company’s investments in subsidiaries from the current portfolio valuation method to the individual valuation method by 2020. The regulatory filter allows for the measurement of the regulatory capital position as if the Bank parent company had maintained the portfolio valuation method, which results in higher total participation values subject to risk weighting.
> Refer to www.credit-suisse.com/regulatorydisclosures for the Bank parent company’s regulatory disclosures.
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Other developments
In October 2017, the BCBS published final guidelines on the identification and management of step-in risk. Step-in risk refers to the risk that a bank decides to provide financial support to an unconsolidated entity that is facing financial stress in the absence of, or in excess of, any contractual obligations or equity ties to actually provide such support, in particular to avoid reputational risks. The guidelines do not prescribe any automatic liquidity or capital charge, but rather rely on existing prudential measures to mitigate significant step-in risk through identification and management of step-in risks and a supervisory process built on reporting. The BCBS expects the guidelines to be implemented in member jurisdictions by 2020.
In October 2017, FINMA announced its re-assessment of rebates for resolvability relating to the gone concern requirement. The eligibility for the rebates for resolvability is assessed on an annual basis. Effective July 1, 2017, our capital ratio rebate is 0.868% and our leverage ratio rebate is 0.28%.
Issuances
In July 2017, the Group issued EUR 1.5 billion 1.25% senior notes due 2025.
In September 2017, the Group issued GBP 750 million 2.125% senior notes due 2025, USD 1,000 million 2.997% senior notes due 2023 and USD 500 million floating rate senior notes due 2023.
In October 2017, the Group issued JPY 38.7 billion 0.553% callable senior notes due 2023, JPY 8.3 billion 0.904% callable senior notes due 2027 and JPY 10 billion 1.269% callable senior notes due 2033.
All of the above-mentioned issuances count as bail-in instruments.
Higher Trigger Capital Amount
The capital ratio write-down triggers for certain of our outstanding capital instruments take into account the fact that other outstanding capital instruments that contain relatively higher capital ratios as part of their trigger feature are expected to convert into equity or be written down prior to the write-down of such capital instruments. The amount of additional capital that is expected to be contributed by such conversion into equity or write-down is referred to as the Higher Trigger Capital Amount.
With respect to the capital instruments that specify a trigger event if the CET1 ratio were to fall below 5.125%, the Higher Trigger Capital Amount was CHF 7.5 billion and the Higher Trigger Capital Ratio (i.e., the ratio of the Higher Trigger Capital Amount to the aggregate of all RWA of the Group) was 2.8%, both as of the end of 3Q17.
With respect to the capital instruments that specify a trigger event if the CET1 ratio were to fall below 5%, the Higher Trigger Capital Amount was CHF 12.4 billion and the Higher Trigger Capital Ratio was 4.6%, both as of the end of 3Q17.
> Refer to the table “BIS capital metrics – Group” for further information on the BIS metrics used to calculate such measures.
> Refer to “Higher Trigger Capital Amount” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Issuances and redemptions in the Credit Suisse Annual Report 2016 for further information on the Higher Trigger Capital Amount.
BIS capital metrics – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Capital and risk-weighted assets (CHF million) | |||||||||||||||||
CET1 capital | 37,331 | 37,011 | 36,576 | 1 | 34,860 | 34,467 | 30,783 | 1 | |||||||||
Tier 1 capital | 51,848 | 51,260 | 48,865 | 1 | 47,210 | 46,687 | 41,879 | 1 | |||||||||
Total eligible capital | 57,208 | 56,526 | 55,728 | 1 | 51,322 | 50,721 | 46,758 | 1 | |||||||||
Risk-weighted assets | 266,588 | 260,918 | 271,372 | 2 | 265,012 | 259,337 | 268,045 | 2 | |||||||||
Capital ratios (%) | |||||||||||||||||
CET1 ratio | 14.0 | 14.2 | 13.5 | – | 13.2 | 13.3 | 11.5 | – | |||||||||
Tier 1 ratio | 19.4 | 19.6 | 18.0 | – | 17.8 | 18.0 | 15.6 | – | |||||||||
Total capital ratio | 21.5 | 21.7 | 20.5 | – | 19.4 | 19.6 | 17.4 | – |
Our CET1 ratio was 14.0% as of the end of 3Q17 compared to 14.2% as of the end of 2Q17, reflecting a slight increase in CET1 capital and higher RWA. Our tier 1 ratio was 19.4% as of the end of 3Q17 compared to 19.6% as of the end of 2Q17. Our total capital ratio was 21.5% as of the end of 3Q17 compared to 21.7% as of the end of 2Q17.
CET1 capital was CHF 37.3 billion as of the end of 3Q17, a slight increase compared to CHF 37.0 billion as of the end of 2Q17, mainly reflecting a positive foreign exchange impact and net income attributable to shareholders, partially offset by the impact of a dividend accrual and the net regulatory impact of losses on fair-valued financial liabilities due to changes in own credit risk.
Additional tier 1 capital increased to CHF 14.5 billion as of the end of 3Q17 compared to CHF 14.2 billion as of the end of 2Q17, mainly reflecting a positive foreign exchange impact and the impact of the prescribed amortization of issuance fees as instruments move closer to their maturity date.
Tier 2 capital increased slightly to CHF 5.4 billion as of the end of 3Q17 compared to CHF 5.3 billion as of the end of 2Q17, mainly reflecting a positive foreign exchange impact.
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Eligible capital – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Eligible capital (CHF million) | |||||||||||||||||
Total shareholders' equity | 43,858 | 43,493 | 41,897 | 1 | 43,858 | 43,493 | 41,897 | 1 | |||||||||
Regulatory adjustments 1 | (597) | (372) | (694) | 60 | (597) | (372) | (694) | 60 | |||||||||
Adjustments subject to phase-in | |||||||||||||||||
Accounting treatment of defined benefit pension plans | 590 | 600 | 1,246 | (2) | – | – | – | – | |||||||||
Common share capital issued by subsidiaries and held by third parties | 39 | 45 | 83 | (13) | – | – | – | – | |||||||||
Goodwill 2 | (3,755) | (3,722) | (2,919) | 1 | (4,694) | (4,653) | (4,864) | 1 | |||||||||
Other intangible assets 2 | (49) | (49) | (42) | 0 | (61) | (62) | (70) | (2) | |||||||||
Deferred tax assets that rely on future profitability | (2,133) | (2,230) | (2,120) | (4) | (2,666) | (2,787) | (3,534) | (4) | |||||||||
Shortfall of provisions to expected losses | (375) | (396) | (299) | (5) | (469) | (496) | (498) | (5) | |||||||||
Gains/(losses) due to changes in own credit on fair-valued liabilities | 1,745 | 1,483 | 435 | 18 | 2,181 | 1,853 | 724 | 18 | |||||||||
Defined benefit pension assets 2 | (972) | (860) | (479) | 13 | (1,215) | (1,075) | (798) | 13 | |||||||||
Investments in own shares | (7) | (4) | (1) | 75 | (9) | (5) | (2) | 80 | |||||||||
Other adjustments 3 | 17 | 10 | 11 | 70 | 21 | 14 | 20 | 50 | |||||||||
Deferred tax assets from temporary differences (threshold-based) | (1,030) | (987) | (542) | 4 | (1,489) | (1,443) | (1,398) | 3 | |||||||||
Adjustments subject to phase-in | (5,930) | 4 | (6,110) | (4,627) | (3) | (8,401) | (8,654) | (10,420) | (3) | ||||||||
CET1 capital | 37,331 | 37,011 | 36,576 | 1 | 34,860 | 34,467 | 30,783 | 1 | |||||||||
High-trigger capital instruments (7% trigger) | 7,505 | 7,418 | 6,000 | 1 | 7,505 | 7,418 | 6,000 | 1 | |||||||||
Low-trigger capital instruments (5.125% trigger) | 4,845 | 4,802 | 5,096 | 1 | 4,845 | 4,802 | 5,096 | 1 | |||||||||
Additional tier 1 instruments | 12,350 | 12,220 | 11,096 | 1 | 12,350 | 12,220 | 11,096 | 1 | |||||||||
Additional tier 1 instruments subject to phase-out 5 | 2,704 | 2,631 | 2,899 | 3 | – | – | – | – | |||||||||
Deductions from additional tier 1 capital | (537) | 6 | (602) | (1,706) | (11) | – | – | – | – | ||||||||
Additional tier 1 capital | 14,517 | 14,249 | 12,289 | 2 | 12,350 | 12,220 | 11,096 | 1 | |||||||||
Tier 1 capital | 51,848 | 51,260 | 48,865 | 1 | 47,210 | 46,687 | 41,879 | 1 | |||||||||
High-trigger capital instruments (7% trigger) | 0 | 0 | 698 | – | 0 | 0 | 698 | – | |||||||||
Low-trigger capital instruments (5% trigger) | 4,112 | 4,034 | 4,181 | 2 | 4,112 | 4,034 | 4,181 | 2 | |||||||||
Tier 2 instruments | 4,112 | 4,034 | 4,879 | 2 | 4,112 | 4,034 | 4,879 | 2 | |||||||||
Tier 2 instruments subject to phase-out | 1,295 | 1,281 | 2,083 | 1 | – | – | – | – | |||||||||
Deductions from tier 2 capital | (47) | (49) | (99) | (4) | – | – | – | – | |||||||||
Tier 2 capital | 5,360 | 5,266 | 6,863 | 2 | 4,112 | 4,034 | 4,879 | 2 | |||||||||
Total eligible capital | 57,208 | 56,526 | 55,728 | 1 | 51,322 | 50,721 | 46,758 | 1 | |||||||||
1 Includes regulatory adjustments not subject to phase-in, including a cumulative dividend accrual. | |||||||||||||||||
2 Net of deferred tax liability. | |||||||||||||||||
3 Includes cash flow hedge reserve. | |||||||||||||||||
4 Reflects 80% phase-in deductions, including goodwill, other intangible assets and certain deferred tax assets, and 20% of an adjustment primarily for the accounting treatment of pension plans pursuant to phase-in requirements. | |||||||||||||||||
5 Includes hybrid capital instruments that are subject to phase-out. | |||||||||||||||||
6 Includes 20% of goodwill and other intangible assets (CHF 1.0 billion) and other capital deductions, including the regulatory reversal of gains/(losses) due to changes in own credit risk on fair-valued financial liabilities, which will be deducted from CET1 once Basel III is fully implemented. |
Total eligible capital was CHF 57.2 billion as of the end of 3Q17 compared to CHF 56.5 billion as of the end of 2Q17.
As of the end of 3Q17, the look-through CET1 ratio was 13.2% compared to 13.3% as of the end of 2Q17. As of the end of 3Q17, the look-through total capital ratio was 19.4% compared to 19.6% as of the end of 2Q17.
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Capital movement – Group | |||||
3Q17 | Phase-in | Look- through | |||
CET1 capital (CHF million) | |||||
Balance at beginning of period | 37,011 | 34,467 | |||
Net income attributable to shareholders | 244 | 244 | |||
Foreign exchange impact | 257 | 1 | 232 | ||
Other | (181) | 2 | (83) | ||
Balance at end of period | 37,331 | 34,860 | |||
Additional tier 1 capital (CHF million) | |||||
Balance at beginning of period | 14,249 | 12,220 | |||
Foreign exchange impact | 115 | 94 | |||
Other | 153 | 3 | 36 | ||
Balance at end of period | 14,517 | 12,350 | |||
Tier 2 capital (CHF million) | |||||
Balance at beginning of period | 5,266 | 4,034 | |||
Foreign exchange impact | 116 | 96 | |||
Other | (22) | (18) | |||
Balance at end of period | 5,360 | 4,112 | |||
Eligible capital (CHF million) | |||||
Balance at end of period | 57,208 | 51,322 | |||
1 Includes US GAAP cumulative translation adjustments and the foreign exchange impact on regulatory CET1 adjustments. | |||||
2 Includes the impact of a dividend accrual, the net effect of share-based compensation and pensions and a change in other regulatory adjustments (e.g., the net regulatory impact of gains/(losses) on fair-valued financial liabilities due to changes in own credit risk and certain deferred tax assets). | |||||
3 Includes the impact of the prescribed amortization of issuance fees as instruments move closer to their maturity date and the net regulatory impact of gains/(losses) on fair-valued financial liabilities due to changes in own credit risk, which will be deducted from CET1 once Basel III is fully implemented. |
Our balance sheet positions and off-balance sheet exposures translate into RWA that are categorized as credit, market and operational risk RWA. When assessing RWA, it is not the nominal size, but rather the nature (including risk mitigation such as collateral or hedges) of the balance sheet positions or off-balance sheet exposures that determines the RWA. Credit risk RWA reflect the capital requirements for the possibility of a loss being incurred as the result of a borrower or counterparty failing to meet its financial obligations or as a result of a deterioration in the credit quality of the borrower or counterparty. Capital requirements for premises and equipment are also included in credit risk. Under Basel III, certain regulatory capital adjustments are dependent on the level of CET1 capital (thresholds). The amount above the threshold is deducted from CET1 capital and the amount below the threshold is risk-weighted. RWA subject to such threshold adjustments are included in credit risk RWA. Market risk RWA reflect the capital requirements of potential changes in the fair values of financial instruments in response to market movements inherent in both balance sheet and off-balance sheet items. Operational risk RWA reflect the capital requirements for the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
RWA increased 2% to CHF 266.6 billion as of the end of 3Q17 compared to CHF 260.9 billion as of the end of 2Q17, primarily driven by methodology and policy changes in operational risk and credit risk and a foreign exchange impact. These increases were partially offset by decreases resulting from movements in risk levels in credit risk.
Excluding the foreign exchange impact, the decrease in credit risk was primarily driven by movements in risk levels attributable to book size, partially offset by increases related to methodology and policy changes. The decrease in risk levels attributable to book size in the Corporate Center mainly reflected the impact of hedging transactions executed in connection with managing the Group’s risk-weighted asset position. The decrease in risk levels attributable to book size in the Strategic Resolution Unit was partially related to the sale of legacy asset management positions, and the decrease in Asia Pacific was partially due to the securitization of certain lending exposures. Risk levels attributable to book size were also impacted by reductions in advanced CVA resulting from decreased exposures in the Strategic Resolution Unit and Swiss Universal Bank. These decreases were partially offset by the expiration of a credit risk hedge and increases in derivative exposures primarily in Global Markets. The increase relating to methodology and policy changes was mainly due to an additional phase-in of the multiplier on income producing real estate exposures within Swiss Universal Bank and an additional phase-in of a multiplier on certain investment banking corporate exposures in Investment Banking & Capital Markets, Global Markets and Asia Pacific.
Excluding the foreign exchange impact, the increase in market risk was primarily driven by movements in risk levels in Global Markets, partially offset by a decrease relating to movements in risk levels primarily in Asia Pacific.
The increase in operational risk was driven by methodology and policy changes reflecting the FINMA-imposed add-on of CHF 5.2 billion primarily in respect of our RMBS settlements.
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Risk-weighted asset movement by risk type – Group | |||||||||||||||||
3Q17 (CHF million) | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Corporate Center | Total | |||||||||
Credit risk | |||||||||||||||||
Balance at beginning of period | 51,497 | 22,907 | 20,464 | 30,131 | 15,985 | 16,523 | 19,379 | 176,886 | |||||||||
Foreign exchange impact | 241 | 400 | 263 | 445 | 339 | 223 | 168 | 2,079 | |||||||||
Movements in risk levels | (457) | 313 | (786) | 2,425 | 239 | (2,639) | (2,935) | (3,840) | |||||||||
of which credit risk – book size 1 | (610) | 457 | (902) | 2,612 | 575 | (2,882) | (2,908) | (3,658) | |||||||||
of which credit risk – book quality 2 | 153 | (144) | 116 | (187) | (336) | 243 | (27) | (182) | |||||||||
Model and parameter updates 3 | 40 | (217) | (7) | 88 | 55 | 48 | 26 | 33 | |||||||||
Methodology and policy changes 4 | 464 | (37) | 97 | 383 | 222 | 46 | 2 | 1,177 | |||||||||
Balance at end of period – phase-in | 51,785 | 23,366 | 20,031 | 33,472 | 16,840 | 14,201 | 16,640 | 176,335 | |||||||||
Market risk | |||||||||||||||||
Balance at beginning of period | 861 | 1,085 | 5,993 | 7,881 | 88 | 1,918 | 223 | 18,049 | |||||||||
Foreign exchange impact | 19 | 26 | 139 | 161 | 2 | 44 | 5 | 396 | |||||||||
Movements in risk levels | (205) | 109 | (843) | 1,408 | (20) | 0 | 258 | 707 | |||||||||
Model and parameter updates 3 | 0 | 117 | 81 | (268) | 1 | 19 | (22) | (72) | |||||||||
Balance at end of period – phase-in | 675 | 1,337 | 5,370 | 9,182 | 71 | 1,981 | 464 | 19,080 | |||||||||
Operational risk | |||||||||||||||||
Balance at beginning of period | 12,068 | 12,523 | 5,836 | 13,321 | 2,575 | 19,660 | 0 | 65,983 | |||||||||
Movements in risk levels | (9) | (9) | 0 | 18 | 0 | 0 | 0 | 0 | |||||||||
Methodology and policy changes 4 | 0 | 0 | 0 | 0 | 0 | 0 | 5,190 | 5,190 | |||||||||
Balance at end of period – phase-in | 12,059 | 12,514 | 5,836 | 13,339 | 2,575 | 19,660 | 5,190 | 71,173 | |||||||||
Total | |||||||||||||||||
Balance at beginning of period | 64,426 | 36,515 | 32,293 | 51,333 | 18,648 | 38,101 | 19,602 | 260,918 | |||||||||
Foreign exchange impact | 260 | 426 | 402 | 606 | 341 | 267 | 173 | 2,475 | |||||||||
Movements in risk levels | (671) | 413 | (1,629) | 3,851 | 219 | (2,639) | (2,677) | (3,133) | |||||||||
Model and parameter updates 3 | 40 | (100) | 74 | (180) | 56 | 67 | 4 | (39) | |||||||||
Methodology and policy changes 4 | 464 | (37) | 97 | 383 | 222 | 46 | 5,192 | 6,367 | |||||||||
Balance at end of period – phase-in | 64,519 | 37,217 | 31,237 | 55,993 | 19,486 | 35,842 | 22,294 | 266,588 | |||||||||
Look-through adjustment 5 | – | – | – | – | – | – | (1,576) | (1,576) | |||||||||
Balance at end of period – look-through | 64,519 | 37,217 | 31,237 | 55,993 | 19,486 | 35,842 | 20,718 | 265,012 | |||||||||
1 Represents changes in portfolio size. | |||||||||||||||||
2 Represents changes in average risk weighting across credit risk classes. | |||||||||||||||||
3 Represents movements arising from updates to models and recalibrations of parameters and internal changes impacting how exposures are treated. | |||||||||||||||||
4 Represents externally prescribed regulatory changes impacting how exposures are treated. | |||||||||||||||||
5 The look-through adjustment impacts only credit risk within the Corporate Center. The difference between phase-in and look-through risk-weighted assets relates to transitional arrangements such as the impact from pension assets and deferred tax assets not deducted from CET1 during the phase-in period and the transitional impact from threshold-related risk-weighted assets. |
63
Risk-weighted assets – Group | |||||||||||||||||
end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Corporate Center | Group | |||||||||
3Q17 (CHF million) | |||||||||||||||||
Credit risk | 51,785 | 23,366 | 20,031 | 33,472 | 16,840 | 14,201 | 16,640 | 176,335 | |||||||||
Market risk | 675 | 1,337 | 5,370 | 9,182 | 71 | 1,981 | 464 | 19,080 | |||||||||
Operational risk | 12,059 | 12,514 | 5,836 | 13,339 | 2,575 | 19,660 | 5,190 | 71,173 | |||||||||
Risk-weighted assets – phase-in | 64,519 | 37,217 | 31,237 | 55,993 | 19,486 | 35,842 | 22,294 | 266,588 | |||||||||
Look-through adjustment | – | – | – | – | – | – | (1,576) | (1,576) | |||||||||
Risk-weighted assets – look-through | 64,519 | 37,217 | 31,237 | 55,993 | 19,486 | 35,842 | 20,718 | 265,012 | |||||||||
4Q16 (CHF million) | |||||||||||||||||
Credit risk | 52,713 | 21,737 | 19,961 | 29,565 | 15,280 | 22,214 | 20,599 | 182,069 | |||||||||
Market risk | 888 | 992 | 8,808 | 8,755 | 172 | 3,567 | 66 | 23,248 | |||||||||
Operational risk | 12,068 | 12,523 | 5,836 | 13,393 | 2,575 | 19,660 | 0 | 66,055 | |||||||||
Risk-weighted assets – phase-in | 65,669 | 35,252 | 34,605 | 51,713 | 18,027 | 45,441 | 20,665 | 271,372 | |||||||||
Look-through adjustment | – | – | – | – | – | – | (3,327) | (3,327) | |||||||||
Risk-weighted assets – look-through | 65,669 | 35,252 | 34,605 | 51,713 | 18,027 | 45,441 | 17,338 | 268,045 |
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x060_0004.gif)
64
Beginning in 1Q15, Credit Suisse adopted the BIS leverage ratio framework, as issued by the BCBS and implemented in Switzerland by FINMA. Under the BIS framework, the leverage ratio measures tier 1 capital against the end-of-period exposure. BIS leverage amounts are calculated based on our interpretation of, and assumptions and estimates related to, the BIS requirements as implemented in Switzerland by FINMA. Changes in the interpretation of these requirements in Switzerland or in any of our interpretations, assumptions or estimates could result in different numbers from those shown here.
As used herein, leverage exposure is based on the BIS leverage ratio framework and consists of period-end balance sheet assets and prescribed regulatory adjustments.
The look-through leverage exposure was CHF 909.0 billion as of the end of 3Q17, stable compared to the end of 2Q17 reflecting the Group’s stable balance sheet assets.
> Refer to “Balance sheet and off-balance sheet” for further information on the reduction in the Group’s consolidated balance sheet.
Look-through leverage exposure – Group | |||||||
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Look-through leverage exposure (CHF million) | |||||||
Swiss Universal Bank | 256,207 | 260,479 | 252,889 | ||||
International Wealth Management | 93,455 | 93,107 | 94,092 | ||||
Asia Pacific | 106,128 | 101,583 | 108,926 | ||||
Global Markets | 281,531 | 276,483 | 284,143 | ||||
Investment Banking & Capital Markets | 42,794 | 43,073 | 45,571 | ||||
Strategic Resolution Unit | 65,385 | 71,611 | 105,768 | ||||
Corporate Center | 63,467 | 59,858 | 59,374 | ||||
Leverage exposure | 908,967 | 906,194 | 950,763 |
BIS leverage ratios – Group
The tier 1 leverage ratio was 5.7% as of the end of 3Q17, with a CET1 component of 4.1%. On a look-through basis, the tier 1 leverage ratio was 5.2%, with a CET1 component of 3.8%.
The CET1 leverage ratio of 4.1% as of the end of 3Q17 was stable compared to the end of 2Q17, reflecting a slight increase in CET1 capital and stable leverage exposure.
The tier 1 leverage ratio of 5.7% as of the end of 3Q17 increased compared to 5.6% as of the end of 2Q17, mainly reflecting a slight increase in tier 1 capital and stable leverage exposure.
Leverage exposure components – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Leverage exposure (CHF million) | |||||||||||||||||
Balance sheet assets | 788,690 | 783,411 | 819,861 | 1 | 788,690 | 783,411 | 819,861 | 1 | |||||||||
Adjustments | |||||||||||||||||
Difference in scope of consolidation and tier 1 capital deductions 1 | (12,551) | (12,210) | (9,316) | 3 | (15,573) | (15,235) | (15,620) | 2 | |||||||||
Derivative financial instruments | 85,872 | 87,106 | 88,656 | (1) | 85,872 | 87,106 | 88,656 | (1) | |||||||||
Securities financing transactions | (25,298) | (23,788) | (22,766) | 6 | (25,298) | (23,788) | (22,766) | 6 | |||||||||
Off-balance sheet exposures | 75,276 | 74,700 | 80,632 | 1 | 75,276 | 74,700 | 80,632 | 1 | |||||||||
Total adjustments | 123,299 | 125,808 | 137,206 | (2) | 120,277 | 122,783 | 130,902 | (2) | |||||||||
Leverage exposure | 911,989 | 909,219 | 957,067 | 0 | 908,967 | 906,194 | 950,763 | 0 | |||||||||
1 Includes adjustments for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation and tier 1 capital deductions related to balance sheet assets. |
BIS leverage metrics – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Capital and leverage exposure (CHF million) | |||||||||||||||||
CET1 capital | 37,331 | 37,011 | 36,576 | 1 | 34,860 | 34,467 | 30,783 | 1 | |||||||||
Tier 1 capital | 51,848 | 51,260 | 48,865 | 1 | 47,210 | 46,687 | 41,879 | 1 | |||||||||
Leverage exposure | 911,989 | 909,219 | 957,067 | 0 | 908,967 | 906,194 | 950,763 | 0 | |||||||||
Leverage ratios (%) | |||||||||||||||||
CET1 leverage ratio | 4.1 | 4.1 | 3.8 | – | 3.8 | 3.8 | 3.2 | – | |||||||||
Tier 1 leverage ratio | 5.7 | 5.6 | 5.1 | – | 5.2 | 5.2 | 4.4 | – |
65
Swiss capital metrics
> Refer to “Swiss Requirements” for further information on Swiss regulatory requirements.
As of the end of 3Q17, our Swiss CET1 ratio was 13.9%, our going concern capital ratio was 20.1%, our gone concern capital ratio was 12.7% and our TLAC ratio was 32.8%.
On a look-through basis, as of the end of 3Q17, our Swiss CET1 capital was CHF 34.7 billion and our Swiss CET1 ratio was 13.1%. Our going concern capital was CHF 47.1 billion and our going concern capital ratio was 17.7%. Our gone concern capital was CHF 33.5 billion and our gone concern capital ratio was 12.6%. Our total loss-absorbing capacity was CHF 80.6 billion and our TLAC ratio was 30.3%.
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x060_0007.gif)
Swiss capital metrics – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Swiss capital and risk-weighted assets (CHF million) | |||||||||||||||||
Swiss CET1 capital | 37,178 | 36,865 | 36,417 | 1 | 34,705 | 34,319 | 30,616 | 1 | |||||||||
Going concern capital | 53,640 | 53,118 | 52,392 | 1 | 47,055 | 46,538 | 42,410 | 1 | |||||||||
Gone concern capital | 34,040 | 29,487 | 26,783 | 15 | 33,535 | 29,065 | 26,340 | 15 | |||||||||
Total loss-absorbing capacity (TLAC) | 87,680 | 82,605 | 79,175 | 6 | 80,590 | 75,603 | 68,750 | 7 | |||||||||
Swiss risk-weighted assets | 267,184 | 261,580 | 272,090 | 2 | 265,607 | 259,999 | 268,762 | 2 | |||||||||
Swiss capital ratios (%) | |||||||||||||||||
Swiss CET1 ratio | 13.9 | 14.1 | 13.4 | – | 13.1 | 13.2 | 11.4 | – | |||||||||
Going concern capital ratio | 20.1 | 20.3 | 19.3 | – | 17.7 | 17.9 | 15.8 | – | |||||||||
Gone concern capital ratio | 12.7 | 11.3 | 9.8 | – | 12.6 | 11.2 | 9.8 | – | |||||||||
TLAC ratio | 32.8 | 31.6 | 29.1 | – | 30.3 | 29.1 | 25.6 | – |
66
Swiss capital and risk-weighted assets – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Swiss capital (CHF million) | |||||||||||||||||
CET1 capital – BIS | 37,331 | 37,011 | 36,576 | 1 | 34,860 | 34,467 | 30,783 | 1 | |||||||||
Swiss regulatory adjustments 1 | (153) | (146) | (159) | 5 | (155) | (148) | (167) | 5 | |||||||||
Swiss CET1 capital | 37,178 | 36,865 | 36,417 | 1 | 34,705 | 34,319 | 30,616 | 1 | |||||||||
Additional tier 1 high-trigger capital instruments | 7,505 | 7,417 | 6,000 | 1 | 7,505 | 7,417 | 6,000 | 1 | |||||||||
Grandfathered capital instruments | 8,957 | 8,836 | 9,975 | 1 | 4,845 | 4,802 | 5,794 | 1 | |||||||||
of which additional tier 1 low-trigger capital instruments | 4,845 | 4,802 | 5,096 | 1 | 4,845 | 4,802 | 5,096 | 1 | |||||||||
of which tier 2 high-trigger capital instruments | 0 | 0 | 698 | – | 0 | 0 | 698 | – | |||||||||
of which tier 2 low-trigger capital instruments | 4,112 | 4,034 | 4,181 | 2 | – | – | – | – | |||||||||
Swiss additional tier 1 capital | 16,462 | 16,253 | 15,975 | 1 | 12,350 | 12,219 | 11,794 | 1 | |||||||||
Going concern capital | 53,640 | 53,118 | 52,392 | 1 | 47,055 | 46,538 | 42,410 | 1 | |||||||||
Bail-in debt instruments | 29,423 | 25,030 | 22,159 | 18 | 29,423 | 25,030 | 22,159 | 18 | |||||||||
Additional tier 1 instruments subject to phase-out | 2,704 | 2,631 | 2,899 | 3 | – | – | – | – | |||||||||
Tier 2 instruments subject to phase-out | 1,295 | 1,281 | 2,083 | 1 | – | – | – | – | |||||||||
Tier 2 amortization component | 1,202 | 1,194 | 1,448 | 1 | – | – | – | – | |||||||||
Tier 2 low-trigger capital instruments | – | – | – | – | 4,112 | 4,035 | 4,181 | 2 | |||||||||
Deductions | (584) | (649) | (1,806) | (10) | – | – | – | – | |||||||||
Gone concern capital | 34,040 | 29,487 | 26,783 | 15 | 33,535 | 29,065 | 26,340 | 15 | |||||||||
Total loss-absorbing capacity | 87,680 | 82,605 | 79,175 | 6 | 80,590 | 75,603 | 68,750 | 7 | |||||||||
Risk-weighted assets (CHF million) | |||||||||||||||||
Risk-weighted assets – BIS | 266,588 | 260,918 | 271,372 | 2 | 265,012 | 259,337 | 268,045 | 2 | |||||||||
Swiss regulatory adjustments 2 | 596 | 662 | 718 | (10) | 595 | 662 | 717 | (10) | |||||||||
Swiss risk-weighted assets | 267,184 | 261,580 | 272,090 | 2 | 265,607 | 259,999 | 268,762 | 2 | |||||||||
1 Includes adjustments for certain unrealized gains outside the trading book. | |||||||||||||||||
2 Primarily includes differences in the credit risk multiplier. |
Swiss leverage metrics – Group | |||||||||||||||||
Phase-in | Look-through | ||||||||||||||||
% change | % change | ||||||||||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||||||
Swiss capital and leverage exposure (CHF million) | |||||||||||||||||
Swiss CET1 capital | 37,178 | 36,865 | 36,417 | 1 | 34,705 | 34,319 | 30,616 | 1 | |||||||||
Going concern capital | 53,640 | 53,118 | 52,392 | 1 | 47,055 | 46,538 | 42,410 | 1 | |||||||||
Gone concern capital | 34,040 | 29,487 | 26,783 | 15 | 33,535 | 29,065 | 26,340 | 15 | |||||||||
Total loss-absorbing capacity | 87,680 | 82,605 | 79,175 | 6 | 80,590 | 75,603 | 68,750 | 7 | |||||||||
Leverage exposure | 911,989 | 909,219 | 957,067 | 0 | 908,967 | 906,194 | 950,763 | 0 | |||||||||
Swiss leverage ratios (%) | |||||||||||||||||
Swiss CET1 leverage ratio | 4.1 | 4.1 | 3.8 | – | 3.8 | 3.8 | 3.2 | – | |||||||||
Going concern leverage ratio | 5.9 | 5.8 | 5.5 | – | 5.2 | 5.1 | 4.5 | – | |||||||||
Gone concern leverage ratio | 3.7 | 3.2 | 2.8 | – | 3.7 | 3.2 | 2.8 | – | |||||||||
TLAC leverage ratio | 9.6 | 9.1 | 8.3 | – | 8.9 | 8.3 | 7.2 | – | |||||||||
Rounding differences may occur. |
Swiss leverage metrics
The leverage exposure used in the Swiss leverage ratio is measured on the same period-end basis as the leverage exposure for the BIS leverage ratio.
As of the end of 3Q17, our Swiss CET1 leverage ratio was 4.1%, our going concern leverage ratio was 5.9%, our gone concern leverage ratio was 3.7% and our TLAC leverage ratio was 9.6%.
On a look-through basis, as of the end of 3Q17, our Swiss CET1 leverage ratio was 3.8%, our going concern leverage ratio was 5.2%, our gone concern leverage ratio was 3.7% and our TLAC leverage ratio was 8.9%.
67
The following capital, RWA and leverage disclosures apply to the Bank. The business of the Bank is substantially the same as that of the Group, including business drivers and trends relating to capital, RWA and leverage metrics.
BIS capital and leverage metrics – Bank
> Refer to “BIS capital metrics”, “Risk-weighted assets” and “Leverage metrics” for further information.
BIS capital metrics – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Capital and risk-weighted assets (CHF million) | |||||||||
CET1 capital | 38,560 | 38,472 | 37,356 | 0 | |||||
Tier 1 capital | 52,286 | 51,994 | 48,888 | 1 | |||||
Total eligible capital | 57,646 | 57,260 | 55,802 | 1 | |||||
Risk-weighted assets | 267,400 | 261,449 | 270,653 | 2 | |||||
Capital ratios (%) | |||||||||
CET1 ratio | 14.4 | 14.7 | 13.8 | – | |||||
Tier 1 ratio | 19.6 | 19.9 | 18.1 | – | |||||
Total capital ratio | 21.6 | 21.9 | 20.6 | – |
Eligible capital and risk-weighted assets – Bank | |||||||||
Phase-in | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | % change QoQ | |||||
Eligible capital (CHF million) | |||||||||
Total shareholder's equity | 44,923 | 44,724 | 42,789 | 0 | |||||
Regulatory adjustments 1 | (609) | (407) | (22) | 50 | |||||
Adjustments subject to phase-in | (5,754) | 2 | (5,845) | (5,411) | (2) | ||||
CET1 capital | 38,560 | 38,472 | 37,356 | 0 | |||||
Additional tier 1 instruments | 11,509 | 3 | 11,402 | 10,217 | 1 | ||||
Additional tier 1 instruments subject to phase-out 4 | 2,704 | 2,631 | 2,899 | 3 | |||||
Deductions from additional tier 1 capital | (487) | 5 | (511) | (1,584) | (5) | ||||
Additional tier 1 capital | 13,726 | 13,522 | 11,532 | 2 | |||||
Tier 1 capital | 52,286 | 51,994 | 48,888 | 1 | |||||
Tier 2 instruments | 4,112 | 6 | 4,034 | 4,931 | 2 | ||||
Tier 2 instruments subject to phase-out | 1,295 | 1,281 | 2,083 | 1 | |||||
Deductions from tier 2 capital | (47) | (49) | (100) | (4) | |||||
Tier 2 capital | 5,360 | 5,266 | 6,914 | 2 | |||||
Total eligible capital | 57,646 | 57,260 | 55,802 | 1 | |||||
Risk-weighted assets by risk type (CHF million) | |||||||||
Credit risk | 177,147 | 177,417 | 181,350 | 0 | |||||
Market risk | 19,080 | 18,049 | 23,248 | 6 | |||||
Operational risk | 71,173 | 65,983 | 66,055 | 8 | |||||
Risk-weighted assets | 267,400 | 261,449 | 270,653 | 2 | |||||
1 Includes regulatory adjustments not subject to phase-in, including a cumulative dividend accrual. | |||||||||
2 Primarily reflects 80% phase-in deductions, including goodwill, other intangible assets and certain deferred tax assets. | |||||||||
3 Consists of high-trigger and low-trigger capital instruments. Of this amount, CHF 7.6 billion consists of capital instruments with a capital ratio write-down trigger of 7% and CHF 3.9 billion consists of capital instruments with a capital ratio write-down trigger of 5.125%. | |||||||||
4 Includes hybrid capital instruments that are subject to phase-out. | |||||||||
5 Includes 20% of goodwill and other intangible assets (CHF 0.8 billion) and other capital deductions, including the regulatory reversal of gains/(losses) due to changes in own credit risk on fair-valued financial liabilities, which will be deducted from CET1 once Basel III is fully implemented. | |||||||||
6 Consists of low-trigger capital instruments with a capital ratio write-down trigger of 5%. |
68
Leverage exposure components – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Leverage exposure (CHF million) | |||||||||
Balance sheet assets | 791,146 | 785,494 | 822,065 | 1 | |||||
Adjustments | |||||||||
Difference in scope of consolidation and tier 1 capital deductions 1 | (12,535) | (12,103) | (10,639) | 4 | |||||
Derivative financial instruments | 86,050 | 87,176 | 88,975 | (1) | |||||
Securities financing transactions | (25,298) | (23,787) | (22,766) | 6 | |||||
Off-balance sheet exposures | 75,276 | 74,700 | 80,661 | 1 | |||||
Total adjustments | 123,493 | 125,986 | 136,231 | (2) | |||||
Leverage exposure | 914,639 | 911,480 | 958,296 | 0 | |||||
1 Includes adjustments for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation and tier 1 capital deductions related to balance sheet assets. |
BIS leverage metrics – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Capital and leverage exposure (CHF million) | |||||||||
CET1 capital | 38,560 | 38,472 | 37,356 | 0 | |||||
Tier 1 capital | 52,286 | 51,994 | 48,888 | 1 | |||||
Leverage exposure | 914,639 | 911,480 | 958,296 | 0 | |||||
Leverage ratios (%) | |||||||||
CET1 leverage ratio | 4.2 | 4.2 | 3.9 | – | |||||
Tier 1 leverage ratio | 5.7 | 5.7 | 5.1 | – |
Swiss capital and leverage metrics – Bank
> Refer to “Swiss capital and leverage metrics” for further information.
Swiss capital metrics – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Swiss capital and risk-weighted assets (CHF million) | |||||||||
Swiss CET1 capital | 38,407 | 38,326 | 37,196 | 0 | |||||
Going concern capital | 54,028 | 53,762 | 52,344 | 0 | |||||
Gone concern capital | 34,152 | 29,580 | 26,904 | 15 | |||||
Total loss-absorbing capacity | 88,180 | 83,342 | 79,248 | 6 | |||||
Swiss risk-weighted assets | 267,986 | 262,101 | 271,359 | 2 | |||||
Swiss capital ratios (%) | |||||||||
Swiss CET1 ratio | 14.3 | 14.6 | 13.7 | – | |||||
Going concern capital ratio | 20.2 | 20.5 | 19.3 | – | |||||
Gone concern capital ratio | 12.7 | 11.3 | 9.9 | – | |||||
TLAC ratio | 32.9 | 31.8 | 29.2 | – |
69
Swiss capital and risk-weighted assets – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Swiss capital (CHF million) | |||||||||
CET1 capital – BIS | 38,560 | 38,472 | 37,356 | 0 | |||||
Swiss regulatory adjustments 1 | (153) | (146) | (160) | 5 | |||||
Swiss CET1 capital | 38,407 | 38,326 | 37,196 | 0 | |||||
Additional tier 1 high-trigger capital instruments | 7,578 | 7,507 | 6,083 | 1 | |||||
Grandfathered capital instruments | 8,043 | 7,929 | 9,065 | 1 | |||||
of which additional tier 1 low-trigger capital instruments | 3,931 | 3,895 | 4,134 | 1 | |||||
of which tier 2 high-trigger capital instruments | 0 | 0 | 750 | – | |||||
of which tier 2 low-trigger capital instruments | 4,112 | 4,034 | 4,181 | 2 | |||||
Swiss additional tier 1 capital | 15,621 | 15,436 | 15,148 | 1 | |||||
Going concern capital | 54,028 | 53,762 | 52,344 | 0 | |||||
Bail-in debt instruments | 29,486 | 25,034 | 22,159 | 18 | |||||
Additional tier 1 instruments subject to phase-out | 2,704 | 2,631 | 2,899 | 3 | |||||
Tier 2 instruments subject to phase-out | 1,295 | 1,281 | 2,083 | 1 | |||||
Tier 2 amortization component | 1,201 | 1,194 | 1,447 | 1 | |||||
Deductions | (534) | (560) | (1,684) | (5) | |||||
Gone concern capital | 34,152 | 29,580 | 26,904 | 15 | |||||
Total loss-absorbing capacity | 88,180 | 83,342 | 79,248 | 6 | |||||
Risk-weighted assets (CHF million) | |||||||||
Risk-weighted assets – BIS | 267,400 | 261,449 | 270,653 | 2 | |||||
Swiss regulatory adjustments 2 | 586 | 652 | 706 | (10) | |||||
Swiss risk-weighted assets | 267,986 | 262,101 | 271,359 | 2 | |||||
1 Includes adjustments for certain unrealized gains outside the trading book. | |||||||||
2 Primarily includes differences in the credit risk multiplier. |
Swiss leverage metrics – Bank | |||||||||
Phase-in | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Swiss capital and leverage exposure (CHF million) | |||||||||
Swiss CET1 capital | 38,407 | 38,326 | 37,196 | 0 | |||||
Going concern capital | 54,028 | 53,762 | 52,344 | 0 | |||||
Gone concern capital | 34,152 | 29,580 | 26,904 | 15 | |||||
Total loss-absorbing capacity | 88,180 | 83,342 | 79,248 | 6 | |||||
Leverage exposure | 914,639 | 911,480 | 958,296 | 0 | |||||
Swiss leverage ratios (%) | |||||||||
Swiss CET1 leverage ratio | 4.2 | 4.2 | 3.9 | – | |||||
Going concern leverage ratio | 5.9 | 5.9 | 5.5 | – | |||||
Gone concern leverage ratio | 3.7 | 3.2 | 2.8 | – | |||||
TLAC leverage ratio | 9.6 | 9.1 | 8.3 | – |
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In connection with the implementation of Basel III, certain regulatory disclosures for the Group and certain of its subsidiaries are required. The Group’s Pillar 3 disclosure, regulatory disclosures, additional information on capital instruments, including the main features and terms and conditions of regulatory capital instruments that form part of the eligible capital base, G-SIB financial indicators, reconciliation requirements, leverage ratios and certain liquidity disclosures as well as regulatory disclosures for subsidiaries can be found on our website.
> Refer to www.credit-suisse.com/regulatorydisclosures for additional information.
Total shareholders’ equity
Our total shareholders’ equity increased from CHF 43.5 billion as of the end of 2Q17 to CHF 43.9 billion as of the end of 3Q17. Total shareholders’ equity was positively impacted by foreign exchange-related movements on cumulative translation adjustments, net income attributable to shareholders and an increase in the share-based compensation obligation. These movements were partially offset by losses on fair value elected liabilities relating to credit risk and transactions relating to the settlement of share-based compensation awards.
> Refer to the “Consolidated statements of changes in equity (unaudited)” in III – Condensed consolidated financial statements – unaudited for further information on shareholders’ equity.
Shareholders' equity and share metrics | |||||||||
% change | |||||||||
end of | 3Q17 | 2Q17 | 4Q16 | QoQ | |||||
Shareholders' equity (CHF million) | |||||||||
Common shares | 102 | 102 | 84 | 0 | |||||
Additional paid-in capital | 35,527 | 35,465 | 32,131 | 0 | |||||
Retained earnings | 27,099 | 26,855 | 25,954 | 1 | |||||
Treasury shares, at cost | (17) | (40) | 0 | (58) | |||||
Accumulated other comprehensive loss | (18,853) | (18,889) | (16,272) | 0 | |||||
Total shareholders' equity | 43,858 | 43,493 | 41,897 | 1 | |||||
Goodwill | (4,715) | (4,673) | (4,913) | 1 | |||||
Other intangible assets | (219) | (195) | (213) | 12 | |||||
Tangible shareholders' equity 1 | 38,924 | 38,625 | 36,771 | 1 | |||||
Shares outstanding (million) | |||||||||
Common shares issued | 2,556.0 | 2,556.0 | 2,089.9 | 0 | |||||
Treasury shares | (0.9) | (2.7) | 0.0 | (67) | |||||
Shares outstanding | 2,555.1 | 2,553.3 | 2,089.9 | 0 | |||||
Par value (CHF) | |||||||||
Par value | 0.04 | 0.04 | 0.04 | 0 | |||||
Book value per share (CHF) | |||||||||
Total book value per share | 17.17 | 17.03 | 20.05 | 1 | |||||
Goodwill per share | (1.85) | (1.83) | (2.35) | 1 | |||||
Other intangible assets per share | (0.09) | (0.07) | (0.11) | 29 | |||||
Tangible book value per share 1 | 15.23 | 15.13 | 17.59 | 1 | |||||
1 Management believes that tangible shareholders' equity and tangible book value per share, both non-GAAP financial measures, are meaningful as they are measures used and relied upon by industry analysts and investors to assess valuations and capital adequacy. |
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In 3Q17, our available economic capital increased CHF 0.8 billion to CHF 50.0 billion, economic risk capital increased CHF 0.7 billion to CHF 32.4 billion and average risk management VaR decreased 4% to USD 26 million. Gross impaired loans of CHF 2.2 billion decreased slightly on a gross loan portfolio of CHF 276.9 billion.
Fundamental to our business is the prudent taking of risk in line with our strategic priorities. The primary objectives of risk management are to protect our financial strength and reputation, while ensuring that capital is well deployed to support business activities. Our risk management framework is based on transparency, management accountability and independent oversight.
> Refer to “Key risk developments”, “Risk management oversight”, “Risk appetite framework” and “Risk coverage and management��� in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2016 for further information and additional details of our current risk management framework and activities, including definitions of certain terms and relevant metrics.
Key risk developments
North Korean crisis
Following North Korea’s launch of several missiles and a nuclear test, the United Nations (UN) passed new sanctions. Against this uncertain environment, we enhanced risk controls around the relevant portfolios and increased the size of the macro hedge program to offset potential losses. We continued to closely assess and monitor the related risks in our portfolio through several scenarios.
US markets and Fed tapering
In September the Fed announced the unwinding of its quantitative easing (QE) program and indicated that there could be another rate hike by year end, despite persistently low inflation. Also, valuations are currently high in equity and credit markets. Using a suite of scenarios, we continue to monitor the risk associated with high valuations and a potential disorderly QE program wind down.
Natural disasters
Recent hurricanes in the Caribbean and the US caused immediate and widespread economic disruption and affected some Credit Suisse offices, including utility power loss and infrastructure shutdown. Our crisis management team successfully engaged recovery procedures and notification tools allowing offices to continue operation. Some insurance-linked funds managed by Credit Suisse have an exposure to the affected areas. We expect a limited impact on revenues in our insurance-linked funds business and on our credit portfolio. An earthquake in Mexico required staff evacuation, however, did not have any further implications.
Economic risk capital is used as a consistent and comprehensive tool for capital management, limit monitoring and performance management. Economic risk capital is our core Group-wide risk management tool for measuring and reporting the combined impact from quantifiable risks such as market, credit, operational, pension, expense and model risks, each of which has an impact on our capital position.
Economic risk capital measures risks in terms of economic realities rather than regulatory or accounting rules and estimates the amount of capital needed to remain solvent and in business under extreme market, business and operating conditions over the period of one year, given our target financial strength (our long-term credit rating). Economic risk capital is set to a level needed to absorb unexpected losses at a confidence level of 99.97%. Our economic risk capital model is a set of methodologies used for measuring quantifiable risks associated with our business activities on a consistent basis. It is calculated separately for position risk (reflecting our exposure to market and credit risks), operational risk and other risks.
We regularly review our economic capital methodology in order to ensure that the model remains relevant as markets and business strategies evolve. In the event of material methodology changes and dataset and model parameter updates, prior-period balances are restated in order to show meaningful trends.
> Refer to “Economic risk capital” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management in the Credit Suisse Annual Report 2016 for further information on economic risk capital.
With effect from July 1, 2017, the Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management whereby it provides centralized trading and sales services to private and institutional clients across the three divisions. These services are now managed as a single business within the Global Markets division, referred to as ITS. As a result, we have updated our divisional capital allocation key and revenue sharing agreements. The impact of this update on our economic risk capital measures was immaterial and prior periods have not been restated.
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in / end of | % change | ||||||||||
3Q17 | 2Q17 | 4Q16 | QoQ | Ytd | |||||||
Available economic capital (CHF million) | |||||||||||
BIS look-through CET1 capital (Basel III) | 34,860 | 34,467 | 30,783 | 1 | 13 | ||||||
Economic adjustments 1 | 15,123 | 14,733 | 15,166 | 3 | 0 | ||||||
Available economic capital | 49,983 | 49,200 | 45,949 | 2 | 9 | ||||||
Position risk (CHF million) | |||||||||||
Fixed income trading 2 | 778 | 652 | 1,270 | 19 | (39) | ||||||
Equity trading & investments | 1,234 | 1,312 | 1,504 | (6) | (18) | ||||||
Private banking corporate & retail lending | 2,604 | 2,702 | 2,920 | (4) | (11) | ||||||
International lending & counterparty exposures | 5,069 | 5,220 | 5,784 | (3) | (12) | ||||||
Emerging markets country event risk | 1,703 | 1,247 | 1,168 | 37 | 46 | ||||||
Real estate & structured assets 3 | 1,144 | 1,092 | 1,188 | 5 | (4) | ||||||
Diversification benefit 4 | (2,507) | (2,191) | (2,495) | 14 | 0 | ||||||
Position risk (99% confidence level for risk management purposes) | 10,025 | 10,034 | 11,339 | 0 | (12) | ||||||
Economic risk capital (CHF million) | |||||||||||
Position risk (99.97% confidence level) | 17,913 | 17,879 | 20,299 | 0 | (12) | ||||||
Operational risk | 8,237 | 7,635 | 7,720 | 8 | 7 | ||||||
Other risks 5 | 6,271 | 6,218 | 6,628 | 1 | (5) | ||||||
Economic risk capital | 32,421 | 31,732 | 34,647 | 2 | (6) | ||||||
Economic risk capital coverage ratio (%) 6 | |||||||||||
Economic risk capital coverage ratio | 154 | 155 | 133 | – | – | ||||||
1 Includes primarily high- and low-trigger capital instruments, adjustments to unrealized gains on owned real estate, reduced recognition of deferred tax assets and adjustments to treatment of pensions. Economic adjustments are made to BIS look-through CET1 capital to enable comparison between economic risk capital and available economic capital under the Basel III framework. | |||||||||||
2 This category comprises fixed income trading, foreign exchange, commodity and insurance exposures. | |||||||||||
3 This category comprises commercial and residential real estate (including RMBS and CMBS), ABS exposure, real estate acquired at auction and real estate fund investments. | |||||||||||
4 Reflects the net difference between the sum of the position risk categories and the position risk on the total portfolio. | |||||||||||
5 Includes owned real estate risk, expense risk, pension risk, foreign exchange risk between available economic capital and economic risk capital, interest rate risk on treasury positions, diversification benefits, the impact from deferred share-based compensation awards and an estimate for the impacts of certain planned methodology changes. | |||||||||||
6 Ratio of available economic capital to economic risk capital. |
Available economic capital trends
As of the end of 3Q17, our available economic capital for the Group was CHF 50.0 billion, an increase of CHF 0.8 billion from the end of 2Q17. BIS look-through CET1 capital increased CHF 0.4 billion, mainly reflecting net income attributable to shareholders and a positive foreign exchange impact. Economic adjustments increased CHF 0.4 billion, mainly reflecting a positive foreign exchange impact on contingent capital instruments and an increase in dividend accruals.
End of period | Average | ||||||||||||||||||||
3Q17 | 2Q17 | 4Q16 | % change QoQ | % change Ytd | 3Q17 | 2Q17 | 4Q16 | % change QoQ | % change Ytd | ||||||||||||
Economic risk capital by division (CHF million) | |||||||||||||||||||||
Swiss Universal Bank | 5,320 | 5,608 | 5,789 | (5) | (8) | 5,464 | 5,651 | 5,763 | (3) | (5) | |||||||||||
International Wealth Management | 4,462 | 4,414 | 3,816 | 1 | 17 | 4,438 | 4,428 | 3,976 | 0 | 12 | |||||||||||
Asia Pacific | 3,363 | 3,953 | 4,504 | (15) | (25) | 3,658 | 4,067 | 4,453 | (10) | (18) | |||||||||||
Global Markets | 9,440 | 8,621 | 9,295 | 10 | 2 | 9,030 | 8,960 | 9,030 | 1 | 0 | |||||||||||
Investment Banking & Capital Markets | 5,276 | 5,149 | 5,117 | 2 | 3 | 5,212 | 5,236 | 5,030 | 0 | 4 | |||||||||||
Strategic Resolution Unit | 3,194 | 3,390 | 5,145 | (6) | (38) | 3,292 | 3,619 | 5,015 | (9) | (34) | |||||||||||
Corporate Center 1 | 1,366 | 597 | 981 | 129 | 39 | 982 | 744 | 1,105 | 32 | (11) | |||||||||||
Economic risk capital - Group | 32,421 | 31,732 | 34,647 | 2 | (6) | 32,076 | 32,704 | 34,372 | (2) | (7) | |||||||||||
1 Includes primarily expense risk, operational risk, diversification benefits from the divisions and foreign exchange risk between available economic capital and economic risk capital. |
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Economic risk capital trends
Compared to the end of 2Q17, our economic risk capital increased slightly to CHF 32.4 billion, mainly due to an 8% increase in operational risk, primarily reflected in our Corporate Center. The increase in operational risk was mainly driven by the add-on to our risk-weighted assets relating to operational risk imposed by FINMA, primarily in respect of our RMBS settlements. Overall position risk was stable. Emerging markets country event risk increased, mainly reflecting higher exposures in Brazil. International lending & counterparty exposures and private banking corporate & retail lending exposures decreased, primarily in Asia, driven by the securitization of certain lending exposures and decreased counterparty risk, respectively. Equity trading & investments risk decreased due to reduced private equity exposure across several regions. Other risks was stable, primarily reflecting increased foreign exchange risk between available economic capital and economic risk capital offset by lower pension risk driven by reduced equity risk in our Swiss and UK pension plans.
For Swiss Universal Bank, economic risk capital decreased 5% to CHF 5.3 billion from the end of 2Q17, mainly due to an impact from the agreement related to ITS and the lower pension risk driven by reduced equity risk in our Swiss pension plan.
For International Wealth Management, economic risk capital was stable at CHF 4.5 billion compared to the end of 2Q17.
For Asia Pacific, economic risk capital decreased 15% to CHF 3.4 billion from the end of 2Q17, mainly due to the securitization of certain lending exposures in international lending & counterparty exposures and a reduction in private banking corporate & retail lending exposures reflecting decreased counterparty risk. These reductions were partially offset by increased traded equity exposures in equity trading & investments and higher interest rate derivatives risk in fixed income trading.
For Global Markets, economic risk capital increased 10% to CHF 9.4 billion compared to the end of 2Q17, mainly due to increased exposures in Brazil in emerging markets country event risk and new loan commitments in international lending & counterparty exposures. These increases were partially offset by the impact of divisional revenue sharing agreements and the reduced pension risk in our UK pension plan.
For Investment Banking & Capital Markets, economic risk capital increased slightly to CHF 5.3 billion from the end of 2Q17, mainly due to increased credit risk model reserve in other risks.
For the Strategic Resolution Unit, economic risk capital decreased 6% to CHF 3.2 billion from the end of 2Q17, mainly reflecting decreased risk in equity trading & investments due to reduced private equity exposure across several regions.
As part of our overall risk management, we hold a portfolio of hedges. Hedges are impacted by market movements, similar to other trading securities, and may result in gains or losses which offset losses or gains on the portfolios they were designated to hedge. Due to the varying nature and structure of hedges, these gains or losses may not wholly offset the losses or gains on the portfolios.
Market risk is the risk of financial loss arising from movements in market prices. Market risks arise from both our trading and non-trading business activities. The classification of assets into trading book and banking book portfolios determines the approach for analyzing our market risk exposure. Market risk in the trading book is measured using VaR and market risk in our banking book is measured using sensitivity analysis on related market factors.
> Refer to “Market risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management in the Credit Suisse Annual Report 2016 for further information on market risk including our VaR methodology.
Trading book
Market risks from our trading book relate to our trading activities primarily in Global Markets and Asia Pacific. We are active in most of the principal trading markets of the world, using the majority of common trading and hedging products, including derivatives such as swaps, futures, options and structured products. Some of the structured products are customized transactions using combinations of derivatives and are executed to meet specific client or internal needs. As a result of our broad participation in products and markets, our trading strategies are correspondingly diverse and exposures are generally spread across a range of risks and locations.
VaR is a risk measure which quantifies the potential loss on a given portfolio of financial instruments over a certain holding period and that is expected to occur at a certain confidence level. VaR is an important tool in risk management and is used for measuring quantifiable risks from our activities exposed to market risk on a daily basis. In addition, VaR is one of the main risk measures for limit monitoring, financial reporting, calculation of regulatory capital and regulatory backtesting.
We regularly review our VaR model to ensure that it remains appropriate given evolving market conditions and the composition of our trading portfolio. In 3Q17, we updated our VaR methodology to capture volatility risk in exotic interest rate products. The volatility modelling now accounts for a close to zero and a negative interest rate environment for major developed markets and for select emerging markets. The impact of this methodology change was immaterial and prior periods have not been restated.
We continue to receive regulatory approval for ongoing enhancements to our VaR methodology used for the calculation of regulatory capital, and the model is subject to regular reviews by regulators.
Information required under Pillar 3 of the Basel framework related to risk is available on our website at www.credit-suisse.com/pillar3.
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The tables entitled “Average one-day, 98% risk management VaR by division” and “One-day, 98% risk management VaR” show our trading-related market risk exposure, as measured by one-day, 98% risk management VaR in Swiss francs and US dollars. As we measure trading book VaR for internal risk management purposes using the US dollar as the base currency, the VaR figures were translated into Swiss francs using daily foreign exchange translation rates. VaR estimates are computed separately for each risk type and for the whole portfolio using the historical simulation methodology. The different risk types are grouped into five categories including interest rate, credit spread, foreign exchange, commodity and equity.
in / end of | Interest rate | Credit spread | Foreign exchange | Commodity | Equity | Diversi- fication benefit | Total | ||||||||
Risk management VaR (CHF million) | |||||||||||||||
3Q17 | |||||||||||||||
Average | 14 | 18 | 6 | 3 | 9 | (25) | 25 | ||||||||
Minimum | 11 | 16 | 4 | 2 | 8 | – | 1 | 21 | |||||||
Maximum | 17 | 20 | 9 | 6 | 12 | – | 1 | 31 | |||||||
End of period | 13 | 17 | 6 | 2 | 10 | (25) | 23 | ||||||||
2Q17 | |||||||||||||||
Average | 17 | 19 | 6 | 2 | 10 | (28) | 26 | ||||||||
Minimum | 12 | 17 | 4 | 1 | 8 | – | 1 | 23 | |||||||
Maximum | 23 | 21 | 9 | 3 | 12 | – | 1 | 30 | |||||||
End of period | 12 | 17 | 7 | 3 | 10 | (26) | 23 | ||||||||
4Q16 | |||||||||||||||
Average | 13 | 23 | 6 | 2 | 13 | (30) | 27 | ||||||||
Minimum | 10 | 21 | 4 | 1 | 10 | – | 1 | 24 | |||||||
Maximum | 19 | 24 | 9 | 3 | 16 | – | 1 | 31 | |||||||
End of period | 15 | 21 | 7 | 1 | 13 | (28) | 29 | ||||||||
Risk management VaR (USD million) | |||||||||||||||
3Q17 | |||||||||||||||
Average | 14 | 19 | 7 | 3 | 10 | (27) | 26 | ||||||||
Minimum | 11 | 17 | 4 | 2 | 8 | – | 1 | 22 | |||||||
Maximum | 18 | 21 | 9 | 7 | 12 | – | 1 | 33 | |||||||
End of period | 13 | 17 | 6 | 2 | 10 | (24) | 24 | ||||||||
2Q17 | |||||||||||||||
Average | 18 | 19 | 6 | 2 | 10 | (28) | 27 | ||||||||
Minimum | 12 | 18 | 4 | 1 | 8 | – | 1 | 24 | |||||||
Maximum | 23 | 20 | 9 | 3 | 12 | – | 1 | 30 | |||||||
End of period | 12 | 18 | 7 | 3 | 10 | (26) | 24 | ||||||||
4Q16 | |||||||||||||||
Average | 13 | 23 | 6 | 2 | 13 | (30) | 27 | ||||||||
Minimum | 10 | 21 | 3 | 1 | 10 | – | 1 | 23 | |||||||
Maximum | 19 | 24 | 9 | 3 | 17 | – | 1 | 32 | |||||||
End of period | 15 | 21 | 6 | 1 | 13 | (28) | 28 | ||||||||
Excludes risks associated with counterparty and own credit exposures. | |||||||||||||||
1 As the maximum and minimum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit. |
75
in | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Strategic Resolution Unit | Diversi- fication benefit | 1 | Credit Suisse | |||||||
Average risk management VaR (CHF million) | |||||||||||||||
3Q17 | 0 | 4 | 12 | 20 | 5 | (16) | 25 | ||||||||
2Q17 | 0 | 4 | 13 | 22 | 7 | (20) | 26 | ||||||||
4Q16 | 0 | 5 | 15 | 21 | 7 | (21) | 27 | ||||||||
Average risk management VaR (USD million) | |||||||||||||||
3Q17 | 0 | 4 | 12 | 21 | 5 | (16) | 26 | ||||||||
2Q17 | 0 | 4 | 13 | 22 | 7 | (19) | 27 | ||||||||
4Q16 | 0 | 5 | 15 | 21 | 7 | (21) | 27 | ||||||||
Excludes risks associated with counterparty and own credit exposures. Investment Banking & Capital Markets has only banking book positions. | |||||||||||||||
1 Difference between the sum of the standalone VaR for each division and the VaR for the Group. |
We measure VaR in US dollars, as the majority of our trading activities are conducted in US dollars.
Average risk management VaR decreased 4% to USD 26 million from 2Q17, mainly driven by decreased interest rate derivatives exposures in Europe, primarily reflected in the Strategic Resolution Unit. For Global Markets, the decrease in average risk management VaR was mainly driven by lower credit spread risk from commercial mortgage-backed securities (CMBS) in the US.
Period-end risk management VaR was stable at USD 24 million compared to 2Q17, mainly due to an increase in interest rate exposures offset by a decrease in credit spread risk reflecting reduced exposures in CMBS in the US.
The chart entitled “Daily risk management VaR” shows the aggregated market risk in our trading book on a consolidated basis.
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x060_0005.gif)
The histogram entitled “Actual daily trading revenues” compares the actual daily trading revenues for 3Q17 with those for 2Q17 and 4Q16. The dispersion of trading revenues indicates the day-to-day volatility in our trading activities. We had no trading loss days in 3Q17 and 2Q17 and two trading loss days in 4Q16.
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x060_0006.gif)
VaR backtesting
Various techniques are used to assess the accuracy of the VaR methodology used for risk management and regulatory purposes and to assess if our regulatory capital is sufficient to absorb actual losses. Our VaR backtesting process is used to assess the accuracy and performance of our regulatory VaR model and to encourage developments to our VaR model. Backtesting involves comparing the results produced from the VaR model with the daily trading revenues. A backtesting exception occurs when a trading loss exceeds the daily VaR estimate. For capital purposes, FINMA, in line with BIS requirements, uses a multiplier to impose an increase in market risk capital for every regulatory VaR backtesting exception over four in the prior rolling 12-month period calculated using a subset of the actual daily trading revenues also referred to as “hypothetical” trading revenues under the Basel framework. In the rolling 12-month period through the end of 3Q17, we had no backtesting exceptions in our regulatory VaR model calculated using the subset of actual daily trading revenues. Since there were fewer than five backtesting exceptions in the rolling 12-month period
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through the end of 3Q17, in line with BIS industry guidelines, the VaR model is deemed to be statistically valid.
> Refer to “Market risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management in the Credit Suisse Annual Report 2016 for further information on VaR backtesting.
> Refer to “Other requirements” in Capital management – Swiss requirements for further information on the use of our regulatory VaR model in the calculation of trading book market risk capital requirements.
Banking book
Market risks from our banking book primarily relate to asset and liability mismatch exposures, equity participations and investments in bonds and money market instruments. Our businesses and the Corporate Center have non-trading portfolios that carry market risks, mainly related to changes in interest rates but also to changes in foreign exchange rates, equity prices and, to a lesser extent, commodity prices.
Interest rate risk on banking book positions is measured by estimating the impact resulting from a one basis point parallel increase in yield curves on the fair value of interest rate-sensitive banking book positions. As of the end of 3Q17, the interest rate sensitivity of a one basis point parallel increase in yield curves would have been positive CHF 5.5 million, compared to positive CHF 4.1 million as of the end of 2Q17.
All transactions that are exposed to potential losses due to a counterparty failing to meet an obligation are subject to credit risk exposure measurement and management. The majority of our credit risk is concentrated in the private banking, corporate and institutional businesses and in the investment banking businesses.
> Refer to “Credit risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management in the Credit Suisse Annual Report 2016 for further information on credit risk.
> Refer to “Note 16 – Loans, allowance for loan losses and credit quality” and “Note 28 – Financial instruments” in III – Condensed consolidated financial statements – unaudited for further information on loans and impaired loans and counterparty credit risk, respectively.
Loans
Compared to the end of 2Q17, gross loans increased CHF 2.0 billion to CHF 276.9 billion as of the end of 3Q17, mainly driven by higher loans collateralized by securities, higher mortgages, increased loans to the real estate sector and higher loans to financial institutions and the translation impact from the US dollar and the euro. These increases were partially offset by lower commercial and industrial loans and a decrease in consumer finance loans. The net increase of CHF 1.6 billion in loans collateralized by securities was mainly driven by Asia Pacific and International Wealth Management. The net increase of CHF 0.5 billion in mortgages was mainly driven by increases in International Wealth Management and Swiss Universal Bank. Loans to the real estate sector increased CHF 0.3 billion, primarily in Asia Pacific and International Wealth Management. Loans to financial institutions increased CHF 0.3 billion, primarily in International Wealth Management and Global Markets, partially offset by a decrease in the Strategic Resolution Unit. The net decrease of CHF 0.4 billion in commercial and industrial loans primarily reflected decreases in the Strategic Resolution Unit, Swiss Universal Bank and Investment Banking & Capital Markets, partially offset by an increase in Global Markets. The net decrease of CHF 0.2 billion in consumer finance loans was mainly driven by Swiss Universal Bank.
On a divisional level, increases in gross loans of CHF 1.5 billion in Asia Pacific, CHF 1.3 billion in International Wealth Management and CHF 0.5 billion in Global Markets were partially offset by decreases in gross loans of CHF 0.8 billion in the Strategic Resolution Unit, CHF 0.2 billion in Swiss Universal Bank and CHF 0.2 billion in Investment Banking & Capital Markets.
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end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Credit Suisse | 1 | |||||||
3Q17 (CHF million) | |||||||||||||||
Mortgages | 100,440 | 4,027 | 1,282 | 0 | 0 | 140 | 105,889 | ||||||||
Loans collateralized by securities | 7,200 | 18,532 | 14,769 | 0 | 1,282 | 93 | 41,876 | ||||||||
Consumer finance | 3,215 | 519 | 10 | 17 | 0 | 86 | 3,847 | ||||||||
Consumer | 110,855 | 23,078 | 16,061 | 17 | 1,282 | 319 | 151,612 | ||||||||
Real estate | 23,178 | 1,859 | 813 | 227 | 292 | 53 | 26,422 | ||||||||
Commercial and industrial loans | 27,099 | 20,650 | 23,077 | 3,791 | 2,889 | 2,479 | 80,007 | ||||||||
Financial institutions | 3,756 | 1,935 | 2,189 | 5,072 | 468 | 1,181 | 14,829 | ||||||||
Governments and public institutions | 745 | 221 | 1,008 | 1,379 | 0 | 659 | 4,012 | ||||||||
Corporate & institutional | 54,778 | 2 | 24,665 | 3 | 27,087 | 4 | 10,469 | 3,649 | 4,372 | 125,270 | |||||
Gross loans | 165,633 | 47,743 | 43,148 | 10,486 | 4,931 | 4,691 | 276,882 | ||||||||
of which held at fair value | 43 | 161 | 4,642 | 6,119 | 1,805 | 2,592 | 15,362 | ||||||||
Net (unearned income) / deferred expenses | 52 | (113) | (21) | (14) | (10) | (1) | (107) | ||||||||
Allowance for loan losses 5 | (464) | (99) | (61) | (37) | (51) | (210) | (922) | ||||||||
Net loans | 165,221 | 47,531 | 43,066 | 10,435 | 4,870 | 4,480 | 275,853 | ||||||||
2Q17 (CHF million) | |||||||||||||||
Mortgages | 100,180 | 3,757 | 1,305 | 0 | 0 | 191 | 105,433 | ||||||||
Loans collateralized by securities | 7,150 | 17,987 | 13,664 | 0 | 1,349 | 127 | 40,277 | ||||||||
Consumer finance | 3,421 | 476 | 27 | 17 | 0 | 84 | 4,025 | ||||||||
Consumer | 110,751 | 22,220 | 14,996 | 17 | 1,349 | 402 | 149,735 | ||||||||
Real estate | 23,263 | 1,645 | 504 | 317 | 353 | 62 | 26,144 | ||||||||
Commercial and industrial loans | 27,316 | 20,692 | 23,095 | 3,435 | 3,022 | 2,825 | 80,405 | ||||||||
Financial institutions | 3,776 | 1,635 | 2,096 | 4,923 | 392 | 1,500 | 14,575 | ||||||||
Governments and public institutions | 746 | 267 | 1,006 | 1,284 | 0 | 733 | 4,036 | ||||||||
Corporate & institutional | 55,101 | 2 | 24,239 | 3 | 26,701 | 4 | 9,959 | 3,767 | 5,120 | 125,160 | |||||
Gross loans | 165,852 | 46,459 | 41,697 | 9,976 | 5,116 | 5,522 | 274,895 | ||||||||
of which held at fair value | 50 | 185 | 4,684 | 6,337 | 2,171 | 3,200 | 16,627 | ||||||||
Net (unearned income) / deferred expenses | 44 | (107) | (30) | (9) | (10) | (1) | (113) | ||||||||
Allowance for loan losses 5 | (461) | (89) | (60) | (36) | (46) | (225) | (917) | ||||||||
Net loans | 165,435 | 46,263 | 41,607 | 9,931 | 5,060 | 5,296 | 273,865 | ||||||||
4Q16 (CHF million) | |||||||||||||||
Mortgages | 99,383 | 3,551 | 1,166 | 0 | 0 | 235 | 104,335 | ||||||||
Loans collateralized by securities | 7,224 | 17,863 | 11,704 | 0 | 273 | 204 | 37,268 | ||||||||
Consumer finance | 2,923 | 438 | 3 | 18 | 0 | 108 | 3,490 | ||||||||
Consumer | 109,530 | 21,852 | 12,873 | 18 | 273 | 547 | 145,093 | ||||||||
Real estate | 23,661 | 1,383 | 499 | 160 | 214 | 99 | 26,016 | ||||||||
Commercial and industrial loans | 28,460 | 19,618 | 23,405 | 3,788 | 4,441 | 4,008 | 83,740 | ||||||||
Financial institutions | 3,657 | 2,077 | 2,320 | 4,351 | 465 | 4,878 | 17,921 | ||||||||
Governments and public institutions | 801 | 223 | 1,135 | 1,070 | 0 | 1,044 | 4,273 | ||||||||
Corporate & institutional | 56,579 | 2 | 23,301 | 3 | 27,359 | 4 | 9,369 | 5,120 | 10,029 | 131,950 | |||||
Gross loans | 166,109 | 45,153 | 40,232 | 9,387 | 5,393 | 10,576 | 277,043 | ||||||||
of which held at fair value | 38 | 397 | 5,377 | 6,711 | 2,545 | 4,460 | 19,528 | ||||||||
Net (unearned income) / deferred expenses | 38 | (99) | (27) | (8) | (8) | (25) | (129) | ||||||||
Allowance for loan losses 5 | (462) | (89) | (71) | (19) | (24) | (273) | (938) | ||||||||
Net loans | 165,685 | 44,965 | 40,134 | 9,360 | 5,361 | 10,278 | 275,976 | ||||||||
1 Includes the Corporate Center, in addition to the divisions disclosed. | |||||||||||||||
2 The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 11,155 million and CHF 32,638 million, respectively, as of the end of 3Q17, CHF 10,818 million and CHF 32,855 million, respectively, as of the end of 2Q17, and CHF 11,266 million and CHF 33,515 million, respectively, as of the end of 4Q16. | |||||||||||||||
3 The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 19,538 million and CHF 1,648 million, respectively, as of the end of 3Q17, CHF 18,567 million and CHF 1,519 million, respectively, as of the end of 2Q17, and CHF 18,084 million and CHF 1,165 million, respectively, as of the end of 4Q16. | |||||||||||||||
4 The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 19,561 million and CHF 136 million, respectively, as of the end of 3Q17, CHF 19,275 million and CHF 164 million, respectively, as of the end of 2Q17, and CHF 21,135 million and CHF 175 million, respectively, as of the end of 4Q16. | |||||||||||||||
5 Allowance for loan losses are only based on loans that are not carried at fair value. |
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end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Credit Suisse | 1 | |||||||
3Q17 (CHF million) | |||||||||||||||
Non-performing loans | 427 | 307 | 93 | 28 | 35 | 174 | 1,064 | ||||||||
Non-interest-earning loans | 168 | 17 | 0 | 0 | 0 | 45 | 230 | ||||||||
Non-performing and non-interest-earning loans | 595 | 324 | 93 | 28 | 35 | 219 | 1,294 | ||||||||
Restructured loans | 61 | 84 | 8 | 0 | 0 | 164 | 317 | ||||||||
Potential problem loans | 154 | 72 | 9 | 9 | 0 | 339 | 583 | ||||||||
Other impaired loans | 215 | 156 | 17 | 9 | 0 | 503 | 900 | ||||||||
Gross impaired loans 2 | 810 | 480 | 110 | 37 | 35 | 722 | 2,194 | ||||||||
of which loans with a specific allowance | 684 | 297 | 94 | 37 | 35 | 681 | 1,828 | ||||||||
of which loans without a specific allowance | 126 | 183 | 16 | 0 | 0 | 41 | 366 | ||||||||
2Q17 (CHF million) | |||||||||||||||
Non-performing loans | 388 | 256 | 124 | 29 | 33 | 199 | 1,029 | ||||||||
Non-interest-earning loans | 173 | 17 | 0 | 0 | 0 | 38 | 228 | ||||||||
Non-performing and non-interest-earning loans | 561 | 273 | 124 | 29 | 33 | 237 | 1,257 | ||||||||
Restructured loans | 62 | 82 | 9 | 0 | 0 | 191 | 344 | ||||||||
Potential problem loans | 170 | 90 | 8 | 9 | 0 | 362 | 639 | ||||||||
Other impaired loans | 232 | 172 | 17 | 9 | 0 | 553 | 983 | ||||||||
Gross impaired loans 2 | 793 | 445 | 141 | 38 | 33 | 790 | 2,240 | ||||||||
of which loans with a specific allowance | 682 | 210 | 121 | 38 | 33 | 711 | 1,795 | ||||||||
of which loans without a specific allowance | 111 | 235 | 20 | 0 | 0 | 79 | 445 | ||||||||
4Q16 (CHF million) | |||||||||||||||
Non-performing loans | 341 | 179 | 242 | 8 | 0 | 466 | 1,236 | ||||||||
Non-interest-earning loans | 168 | 17 | 1 | 0 | 0 | 79 | 265 | ||||||||
Non-performing and non-interest-earning loans | 509 | 196 | 243 | 8 | 0 | 545 | 1,501 | ||||||||
Restructured loans | 53 | 89 | 17 | 0 | 0 | 199 | 358 | ||||||||
Potential problem loans | 191 | 39 | 6 | 9 | 0 | 368 | 613 | ||||||||
Other impaired loans | 244 | 128 | 23 | 9 | 0 | 567 | 971 | ||||||||
Gross impaired loans 2 | 753 | 324 | 266 | 17 | 0 | 1,112 | 2,472 | ||||||||
of which loans with a specific allowance | 674 | 170 | 239 | 17 | 0 | 985 | 2,085 | ||||||||
of which loans without a specific allowance | 79 | 154 | 27 | 0 | 0 | 127 | 387 | ||||||||
1 Includes the Corporate Center, in addition to the divisions disclosed. | |||||||||||||||
2 Impaired loans are only based on loans that are not carried at fair value. |
Impaired loans
Compared to the end of 2Q17, gross impaired loans decreased slightly to CHF 2.2 billion as of the end of 3Q17, mainly reflecting lower potential problem loans and lower restructured loans, primarily in the Strategic Resolution Unit.
In the Strategic Resolution Unit, gross impaired loans decreased CHF 68 million, primarily driven by a reduction in ship finance. In Asia Pacific, gross impaired loans decreased CHF 31 million, mainly reflecting the repayment of a share-backed loan exposure. In International Wealth Management, gross impaired loans increased CHF 35 million, primarily driven by a small number of newly defaulted mortgages and secured loans in ship finance, partially offset by reductions mainly in aviation finance. In Swiss Universal Bank, gross impaired loans increased CHF 17 million, mainly driven by the default of an exposure in commodity trade finance. Gross impaired loans for Global Markets and Investment Banking & Capital Markets were stable at CHF 37 million and CHF 35 million, respectively.
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end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Credit Suisse | 1 | |||||||
3Q17 (CHF million) | |||||||||||||||
Allowance for loan losses at beginning of period 2 | 461 | 89 | 60 | 36 | 46 | 225 | 917 | ||||||||
of which individually evaluated for impairment | 334 | 55 | 49 | 27 | 28 | 219 | 712 | ||||||||
of which collectively evaluated for impairment | 127 | 34 | 11 | 9 | 18 | 6 | 205 | ||||||||
Net movements recognized in statements of operations | 17 | 6 | 3 | (4) | (4) | (10) | 8 | ||||||||
Gross write-offs | (23) | 0 | (1) | 0 | 0 | (11) | (35) | ||||||||
Recoveries | 6 | 0 | 0 | 3 | 5 | 1 | 15 | ||||||||
Net write-offs | (17) | 0 | (1) | 3 | 5 | (10) | (20) | ||||||||
Provisions for interest | 1 | 1 | (1) | 1 | 1 | 4 | 7 | ||||||||
Foreign currency translation impact and other adjustments, net | 2 | 3 | 0 | 1 | 3 | 1 | 10 | ||||||||
Allowance for loan losses at end of period 2 | 464 | 99 | 61 | 37 | 51 | 210 | 922 | ||||||||
of which individually evaluated for impairment | 339 | 67 | 45 | 23 | 27 | 205 | 706 | ||||||||
of which collectively evaluated for impairment | 125 | 32 | 16 | 14 | 24 | 5 | 216 | ||||||||
9M17 (CHF million) | |||||||||||||||
Allowance for loan losses at beginning of period 2 | 462 | 89 | 71 | 19 | 24 | 273 | 938 | ||||||||
of which individually evaluated for impairment | 314 | 56 | 62 | 9 | 0 | 259 | 700 | ||||||||
of which collectively evaluated for impairment | 148 | 33 | 9 | 10 | 24 | 14 | 238 | ||||||||
Net movements recognized in statements of operations | 67 | 16 | 4 | 11 | 16 | 30 | 144 | ||||||||
Gross write-offs | (80) | (13) | (2) | 0 | 0 | (92) | (187) | ||||||||
Recoveries | 13 | 0 | 0 | 6 | 8 | 9 | 36 | ||||||||
Net write-offs | (67) | (13) | (2) | 6 | 8 | (83) | (151) | ||||||||
Provisions for interest | 5 | 3 | (7) | 1 | 1 | 3 | 6 | ||||||||
Foreign currency translation impact and other adjustments, net | (3) | 4 | (5) | 0 | 2 | (13) | (15) | ||||||||
Allowance for loan losses at end of period 2 | 464 | 99 | 61 | 37 | 51 | 210 | 922 | ||||||||
of which individually evaluated for impairment | 339 | 67 | 45 | 23 | 27 | 205 | 706 | ||||||||
of which collectively evaluated for impairment | 125 | 32 | 16 | 14 | 24 | 5 | 216 | ||||||||
1 Includes the Corporate Center, in addition to the divisions disclosed. | |||||||||||||||
2 Allowance for loan losses are only based on loans that are not carried at fair value. |
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end of | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Credit Suisse | 1 | |||||||
3Q17 (%) | |||||||||||||||
Non-performing and non-interest-earning loans / Gross loans | 0.4 | 0.7 | 0.2 | 0.6 | 1.1 | 10.4 | 0.5 | ||||||||
Gross impaired loans / Gross loans | 0.5 | 1.0 | 0.3 | 0.8 | 1.1 | 34.4 | 0.8 | ||||||||
Allowance for loan losses / Gross loans | 0.3 | 0.2 | 0.2 | 0.8 | 1.6 | 10.0 | 0.4 | ||||||||
Specific allowance for loan losses / Gross impaired loans | 41.9 | 14.0 | 40.9 | 62.2 | 77.1 | 28.4 | 32.2 | ||||||||
2Q17 (%) | |||||||||||||||
Total non-performing and non-interest-earning loans / Gross loans | 0.3 | 0.6 | 0.3 | 0.8 | 1.1 | 10.2 | 0.5 | ||||||||
Gross impaired loans / Gross loans | 0.5 | 1.0 | 0.4 | 1.0 | 1.1 | 34.0 | 0.9 | ||||||||
Allowance for loan losses / Gross loans | 0.3 | 0.2 | 0.2 | 1.0 | 1.6 | 9.7 | 0.4 | ||||||||
Specific allowance for loan losses / Gross impaired loans | 42.1 | 12.4 | 34.8 | 71.1 | 84.8 | 27.7 | 31.8 | ||||||||
4Q16 (%) | |||||||||||||||
Non-performing and non-interest-earning loans / Gross loans | 0.3 | 0.4 | 0.7 | 0.3 | 0.0 | 8.9 | 0.6 | ||||||||
Gross impaired loans / Gross loans | 0.5 | 0.7 | 0.8 | 0.6 | 0.0 | 18.2 | 1.0 | ||||||||
Allowance for loan losses / Gross loans | 0.3 | 0.2 | 0.2 | 0.7 | 0.8 | 4.5 | 0.4 | ||||||||
Specific allowance for loan losses / Gross impaired loans | 41.7 | 17.3 | 23.3 | 52.9 | – | 23.3 | 28.3 | ||||||||
Gross loans and gross impaired loans exclude loans carried at fair value and the allowance for loan losses is only based on loans that are not carried at fair value. | |||||||||||||||
1 Includes the Corporate Center, in addition to the divisions disclosed. |
The scope of our disclosure of European credit risk exposure includes all countries of the EU which are rated below AA or its equivalent by at least one of the three major rating agencies and where our gross exposure exceeds our quantitative threshold of EUR 0.5 billion.
> Refer to “Selected European credit risk exposures” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk review and results in the Credit Suisse Annual Report 2016 for further information on selected European credit risk exposures.
Monitoring of selected European credit risk exposures
Our credit risk exposure to these European countries is managed as part of our overall risk management process. The Group makes use of country limits and performs scenario analyses on a regular basis, which include analyses of our indirect sovereign credit risk exposures from our exposures to selected European financial institutions. This assessment of indirect sovereign credit risk exposures includes analysis of publicly available disclosures of counterparties’ exposures to the European countries within the defined scope of our disclosure. We monitor the concentration of collateral underpinning our over-the-counter (OTC) derivative and reverse repurchase agreement exposures through monthly reporting. We also monitor the impact of sovereign rating downgrades on collateral eligibility. Strict limits on sovereign collateral from G7 and non-G7 countries are monitored monthly. Similar disclosure is part of our regular risk reporting to regulators.
Development of selected European credit risk exposures
On a gross basis, before taking into account risk mitigation, our risk-based sovereign credit risk exposure to Cyprus, Croatia, Greece, Ireland, Italy, Malta, Portugal and Spain increased 4% to EUR 3,237 million as of the end of 3Q17, compared to EUR 3,124 million as of the end of 2Q17. Our net exposure to these sovereigns was EUR 1,314 million, 9% higher compared to EUR 1,207 million as of the end of 2Q17. Our non-sovereign risk-based credit risk exposure in these countries as of the end of 3Q17 included net exposure to financial institutions of EUR 1,824 million and to corporates and other counterparties of EUR 2,225 million, 6% higher compared to EUR 1,726 million and 3% higher compared to EUR 2,162 million, respectively, as of the end of 2Q17.
> Refer to “Selected European credit risk exposures” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk review and results in the Credit Suisse Annual Report 2016 for further information on the presentation of selected European credit risk exposures.
Sovereign debt rating developments
In 3Q17, the long-term sovereign debt ratings of the countries listed in the table changed as follows: Standard & Poor’s increased its rating for Portugal from BB+ to BBB-, Fitch increased its rating for Greece from CCC to B- and Moody’s increased its rating for Cyprus from B1 to Ba3.
81
Gross credit risk exposure | Risk mitigation | Net credit risk exposure | Inventory | 2 | Total credit risk exposure | ||||||||||||
end of 3Q17 | CDS | Other | 1 | Net synthetic inventory | 3 | Gross | Net | ||||||||||
Croatia (EUR million) | |||||||||||||||||
Sovereign | 58 | 0 | 49 | 9 | 11 | 8 | 69 | 20 | |||||||||
Corporates & other | 50 | 0 | 0 | 50 | 0 | 0 | 50 | 50 | |||||||||
Total | 108 | 0 | 49 | 59 | 11 | 8 | 119 | 70 | |||||||||
Cyprus (EUR million) | |||||||||||||||||
Financial institutions | 45 | 0 | 42 | 3 | 24 | 0 | 69 | 27 | |||||||||
Corporates & other | 1,121 | 0 | 1,049 | 72 | 0 | 0 | 1,121 | 72 | |||||||||
Total | 1,166 | 0 | 1,091 | 75 | 24 | 0 | 1,190 | 99 | |||||||||
Greece (EUR million) | |||||||||||||||||
Sovereign | 0 | 0 | 0 | 0 | 28 | 0 | 28 | 28 | |||||||||
Financial institutions | 160 | 0 | 160 | 0 | 0 | 0 | 160 | 0 | |||||||||
Corporates & other | 678 | 0 | 646 | 32 | 6 | 0 | 684 | 38 | |||||||||
Total | 838 | 0 | 806 | 32 | 34 | 0 | 872 | 66 | |||||||||
Ireland (EUR million) | |||||||||||||||||
Sovereign | 384 | 0 | 0 | 384 | 0 | 0 | 384 | 384 | |||||||||
Financial institutions | 883 | 0 | 326 | 557 | 194 | (44) | 1,077 | 751 | |||||||||
Corporates & other | 702 | 0 | 228 | 474 | 27 | 9 | 729 | 501 | |||||||||
Total | 1,969 | 0 | 554 | 1,415 | 221 | (35) | 2,190 | 1,636 | |||||||||
Italy (EUR million) | |||||||||||||||||
Sovereign | 2,194 | 1,746 | 128 | 320 | 178 | 143 | 2,372 | 498 | |||||||||
Financial institutions | 868 | 1 | 609 | 258 | 21 | (18) | 889 | 279 | |||||||||
Corporates & other | 3,499 | 50 | 2,624 | 825 | 45 | 17 | 3,544 | 870 | |||||||||
Total | 6,561 | 1,797 | 3,361 | 1,403 | 244 | 142 | 6,805 | 1,647 | |||||||||
Malta (EUR million) | |||||||||||||||||
Financial institutions | 49 | 0 | 0 | 49 | 0 | 0 | 49 | 49 | |||||||||
Corporates & other | 627 | 0 | 568 | 59 | 0 | 0 | 627 | 59 | |||||||||
Total | 676 | 0 | 568 | 108 | 0 | 0 | 676 | 108 | |||||||||
Portugal (EUR million) | |||||||||||||||||
Sovereign | 0 | 0 | 0 | 0 | 51 | 45 | 51 | 51 | |||||||||
Financial institutions | 302 | 0 | 296 | 6 | 11 | (8) | 313 | 17 | |||||||||
Corporates & other | 281 | 8 | 173 | 100 | 43 | 46 | 324 | 143 | |||||||||
Total | 583 | 8 | 469 | 106 | 105 | 83 | 688 | 211 | |||||||||
Spain (EUR million) | |||||||||||||||||
Sovereign | 333 | 0 | 0 | 333 | 0 | (13) | 333 | 333 | |||||||||
Financial institutions | 1,349 | 6 | 643 | 700 | 1 | (47) | 1,350 | 701 | |||||||||
Corporates & other | 1,775 | 35 | 1,290 | 450 | 42 | (33) | 1,817 | 492 | |||||||||
Total | 3,457 | 41 | 1,933 | 1,483 | 43 | (93) | 3,500 | 1,526 | |||||||||
Total (EUR million) | |||||||||||||||||
Sovereign | 2,969 | 1,746 | 177 | 1,046 | 268 | 183 | 3,237 | 1,314 | |||||||||
Financial institutions | 3,656 | 7 | 2,076 | 1,573 | 251 | (117) | 3,907 | 1,824 | |||||||||
Corporates & other | 8,733 | 93 | 6,578 | 2,062 | 163 | 39 | 8,896 | 2,225 | |||||||||
Total | 15,358 | 1,846 | 8,831 | 4,681 | 682 | 105 | 16,040 | 5,363 | |||||||||
1 Includes other hedges (derivative instruments), guarantees, insurance and collateral. | |||||||||||||||||
2 Represents long inventory positions netted at issuer level. | |||||||||||||||||
3 Substantially all of which results from CDS; represents long positions net of short positions. |
82
Total assets were CHF 788.7 billion, total liabilities were CHF 744.6 billion and total equity was CHF 44.1 billion. Total assets increased 1% and total liabilities increased 1% for the quarter, reflecting the foreign exchange translation impact and lower operating activities. The majority of our transactions are recorded on our balance sheet, however, we also enter into transactions that give rise to both on and off-balance sheet exposure.
Total assets were CHF 788.7 billion as of the end of 3Q17, an increase of CHF 5.3 billion, or 1%, from the end of 2Q17, reflecting the foreign exchange translation impact and lower operating activities. Excluding the foreign exchange translation impact, total assets decreased CHF 2.2 billion.
Compared to the end of 2Q17, central bank funds sold, securities purchased under resale agreements and securities borrowing transactions increased CHF 10.7 billion, or 8%, mainly driven by an increase in reverse repurchase transactions from banks and customers and cash collateral from banks. Trading assets and net loans were stable. Brokerage receivables decreased CHF 4.8 billion, or 12%, primarily reflecting decreases in failed settlements and margin lending. Cash and due from banks decreased CHF 4.6 billion, or 4%, mainly driven by lower cash positions at the Fed. All other assets were stable.
end of | % change | ||||||||||
3Q17 | 2Q17 | 4Q16 | QoQ | Ytd | |||||||
Assets (CHF million) | |||||||||||
Cash and due from banks | 105,779 | 110,332 | 121,161 | (4) | (13) | ||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 140,041 | 129,347 | 134,839 | 8 | 4 | ||||||
Trading assets | 142,379 | 140,981 | 165,150 | 1 | (14) | ||||||
Net loans | 275,853 | 273,865 | 275,976 | 1 | 0 | ||||||
Brokerage receivables | 35,525 | 40,279 | 33,431 | (12) | 6 | ||||||
All other assets | 89,113 | 88,607 | 89,304 | 1 | 0 | ||||||
Total assets | 788,690 | 783,411 | 819,861 | 1 | (4) | ||||||
Liabilities and equity (CHF million) | |||||||||||
Due to banks | 17,497 | 17,654 | 22,800 | (1) | (23) | ||||||
Customer deposits | 354,386 | 356,674 | 355,833 | (1) | 0 | ||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 33,146 | 30,711 | 33,016 | 8 | 0 | ||||||
Trading liabilities | 43,920 | 43,535 | 44,930 | 1 | (2) | ||||||
Long-term debt | 180,294 | 176,700 | 193,315 | 2 | (7) | ||||||
Brokerage payables | 32,416 | 33,545 | 39,852 | (3) | (19) | ||||||
All other liabilities | 82,950 | 80,756 | 87,804 | 3 | (6) | ||||||
Total liabilities | 744,609 | 739,575 | 777,550 | 1 | (4) | ||||||
Total shareholders' equity | 43,858 | 43,493 | 41,897 | 1 | 5 | ||||||
Noncontrolling interests | 223 | 343 | 414 | (35) | (46) | ||||||
Total equity | 44,081 | 43,836 | 42,311 | 1 | 4 | ||||||
Total liabilities and equity | 788,690 | 783,411 | 819,861 | 1 | (4) |
83
Total liabilities were CHF 744.6 billion as of the end of 3Q17, an increase of CHF 5.0 billion, or 1%, from the end of 2Q17, reflecting the foreign exchange translation impact and lower operating activities. Excluding the foreign exchange translation impact, total liabilities decreased CHF 0.8 billion.
Compared to the end of 2Q17, long-term debt increased CHF 3.6 billion, or 2%, primarily reflecting issuances of senior debt, the foreign exchange translation impact and valuation adjustments, partially offset by maturities of senior debt. Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions increased CHF 2.4 billion, or 8%, primarily due to an increase in repurchase transactions with customers. Due to banks, customer deposits and trading liabilities were stable. Brokerage payables decreased CHF 1.1 billion, or 3%, mainly due to decreases in failed settlements. All other liabilities increased CHF 2.2 billion, or 3%, reflecting increases of CHF 2.5 billion, or 8%, in obligation to return securities received as collateral and CHF 0.7 billion, or 2%, in other liabilities, partially offset by a decrease of CHF 1.0 billion, or 6%, in short-term borrowings.
> Refer to “Funding sources and uses” in Liquidity and funding management and “Capital management” for further information, including our funding of the balance sheet and the leverage ratio.
We enter into off-balance sheet arrangements in the normal course of business. Off-balance sheet arrangements are transactions or other contractual arrangements with, or for the benefit of, an entity that is not consolidated. These transactions include derivative instruments, guarantees and similar arrangements, retained or contingent interests in assets transferred to an unconsolidated entity in connection with our involvement with special purpose entities (SPEs), and obligations and liabilities (including contingent obligations and liabilities) under variable interests in unconsolidated entities that provide financing, liquidity, credit and other support.
> Refer to “Balance sheet, off-balance sheet and other contractual obligations” in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2016 and “Note 26 – Guarantees and commitments” and “Note 30 – Litigation” in III – Condensed consolidated financial statements – unaudited for further information.
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Condensed consolidated financial statements – unaudited
Report of Independent Registered Public Accounting Firm
Condensed consolidated financial statements – unaudited
Notes to the condensed consolidated financial statements – unaudited
85
Consolidated statements of operations (unaudited)
Consolidated statements of comprehensive income (unaudited)
Consolidated balance sheets (unaudited)
Consolidated balance sheets (unaudited) (continued)
Consolidated statements of changes in equity (unaudited)
Consolidated statements of changes in equity (unaudited) (continued)
Consolidated statements of changes in equity (unaudited) (continued)
Consolidated statements of cash flows (unaudited)
Consolidated statements of cash flows (unaudited) (continued)
Supplemental cash flow information (unaudited)
1 Summary of significant accounting policies
2 Recently issued accounting standards
3 Business developments
4 Segment information
5 Net interest income
6 Commissions and fees
7 Trading revenues
8 Other revenues
9 Provision for credit losses
10 Compensation and benefits
11 General and administrative expenses
12 Restructuring expenses
13 Earnings per share
14 Trading assets and liabilities
15 Investment securities
16 Loans, allowance for loan losses and credit quality
17 Goodwill
18 Other assets and other liabilities
19 Long-term debt
21 Offsetting of financial assets and financial liabilities
22 Tax
23 Employee deferred compensation
24 Pension and other post-retirement benefits
25 Derivatives and hedging activities
26 Guarantees and commitments
27 Transfers of financial assets and variable interest entities
28 Financial instruments
29 Assets pledged and collateral
30 Litigation
31 Subsidiary guarantee information
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Report of Independent Registered PublicAccountingFirmto the Board of Directors of Credit Suisse Group AG, ZurichWe have reviewed the accompanying condensed consolidated balance sheet of Credit Suisse Group AG and subsidiaries (“the Group”) as of September 30, 2017, the related condensed consolidated statements of operations, comprehensive income, and changes in equity for the three and ninemonth periods ended September 30, 2017 and 2016, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016. These condensed consolidated financial statements are the responsibility of the Group’s management.We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Group as of December31, 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated March24, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.KPMG AGNicholas EdmondsAnthony AnzevinoLicensed Audit ExpertGlobal Lead PartnerZurich, SwitzerlandNovember 2, 2017
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in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Consolidated statements of operations (CHF million) | |||||||||||
Interest and dividend income | 4,273 | 4,602 | 4,222 | 12,917 | 13,564 | ||||||
Interest expense | (2,651) | (2,865) | (2,292) | (7,925) | (7,624) | ||||||
Net interest income | 1,622 | 1,737 | 1,930 | 4,992 | 5,940 | ||||||
Commissions and fees | 2,762 | 2,905 | 2,680 | 8,713 | 8,151 | ||||||
Trading revenues | 320 | 237 | 232 | 1,131 | 55 | ||||||
Other revenues | 268 | 326 | 554 | 875 | 996 | ||||||
Net revenues | 4,972 | 5,205 | 5,396 | 15,711 | 15,142 | ||||||
Provision for credit losses | 32 | 82 | 55 | 167 | 177 | ||||||
Compensation and benefits | 2,451 | 2,542 | 2,674 | 7,651 | 7,890 | ||||||
General and administrative expenses | 1,630 | 1,580 | 1,978 | 4,858 | 5,586 | ||||||
Commission expenses | 347 | 350 | 322 | 1,065 | 1,061 | ||||||
Restructuring expenses | 112 | 69 | 145 | 318 | 491 | ||||||
Total other operating expenses | 2,089 | 1,999 | 2,445 | 6,241 | 7,138 | ||||||
Total operating expenses | 4,540 | 4,541 | 5,119 | 13,892 | 15,028 | ||||||
Income/(loss) before taxes | 400 | 582 | 222 | 1,652 | (63) | ||||||
Income tax expense | 153 | 276 | 185 | 507 | 27 | ||||||
Net income/(loss) | 247 | 306 | 37 | 1,145 | (90) | ||||||
Net income/(loss) attributable to noncontrolling interests | 3 | 3 | (4) | 2 | 1 | ||||||
Net income/(loss) attributable to shareholders | 244 | 303 | 41 | 1,143 | (91) | ||||||
Earnings/(loss) per share (CHF) | |||||||||||
Basic earnings/(loss) per share | 0.10 | 0.13 | 0.02 | 0.48 | (0.04) | ||||||
Diluted earnings/(loss) per share | 0.09 | 0.13 | 0.02 | 0.47 | (0.04) |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Comprehensive income/(loss) (CHF million) | |||||||||||
Net income/(loss) | 247 | 306 | 37 | 1,145 | (90) | ||||||
Gains/(losses) on cash flow hedges | (5) | 10 | (32) | 1 | 34 | ||||||
Foreign currency translation | 353 | (1,101) | (221) | (1,248) | (731) | ||||||
Unrealized gains/(losses) on securities | 0 | (5) | (1) | (7) | 6 | ||||||
Actuarial gains/(losses) | 68 | 82 | 95 | 253 | 282 | ||||||
Net prior service credit/(cost) | (27) | (28) | (24) | (94) | (77) | ||||||
Gains/(losses) on liabilities related to credit risk | (352) | (630) | (852) | (1,495) | 345 | ||||||
Other comprehensive income/(loss), net of tax | 37 | (1,672) | (1,035) | (2,590) | (141) | ||||||
Comprehensive income/(loss) | 284 | (1,366) | (998) | (1,445) | (231) | ||||||
Comprehensive income/(loss) attributable to noncontrolling interests | 4 | (3) | (13) | (7) | (12) | ||||||
Comprehensive income/(loss) attributable to shareholders | 280 | (1,363) | (985) | (1,438) | (219) |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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end of | 3Q17 | 2Q17 | 4Q16 | ||||
Assets (CHF million) | |||||||
Cash and due from banks | 105,779 | 110,332 | 121,161 | ||||
of which reported at fair value | 175 | 123 | 200 | ||||
of which reported from consolidated VIEs | 419 | 554 | 369 | ||||
Interest-bearing deposits with banks | 684 | 641 | 772 | ||||
of which reported at fair value | 0 | 39 | 26 | ||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 140,041 | 129,347 | 134,839 | ||||
of which reported at fair value | 97,413 | 91,520 | 87,331 | ||||
Securities received as collateral, at fair value | 35,901 | 33,385 | 32,564 | ||||
of which encumbered | 32,804 | 31,040 | 30,762 | ||||
Trading assets, at fair value | 142,379 | 140,981 | 165,150 | ||||
of which encumbered | 39,136 | 39,932 | 52,322 | ||||
of which reported from consolidated VIEs | 2,950 | 2,463 | 2,744 | ||||
Investment securities | 2,704 | 2,281 | 2,489 | ||||
of which reported at fair value | 2,704 | 2,281 | 2,489 | ||||
of which reported from consolidated VIEs | 740 | 380 | 511 | ||||
Other investments | 6,173 | 6,633 | 6,777 | ||||
of which reported at fair value | 3,727 | 4,144 | 4,096 | ||||
of which reported from consolidated VIEs | 1,801 | 1,950 | 2,006 | ||||
Net loans | 275,853 | 273,865 | 275,976 | ||||
of which reported at fair value | 15,362 | 16,627 | 19,528 | ||||
of which encumbered | 134 | 127 | 132 | ||||
of which reported from consolidated VIEs | 278 | 283 | 284 | ||||
allowance for loan losses | (922) | (917) | (938) | ||||
Premises and equipment | 4,591 | 4,525 | 4,711 | ||||
of which reported from consolidated VIEs | 160 | 161 | 199 | ||||
Goodwill | 4,715 | 4,673 | 4,913 | ||||
Other intangible assets | 219 | 195 | 213 | ||||
of which reported at fair value | 153 | 128 | 138 | ||||
Brokerage receivables | 35,525 | 40,279 | 33,431 | ||||
Other assets | 34,126 | 36,274 | 36,865 | ||||
of which reported at fair value | 8,624 | 11,403 | 9,383 | ||||
of which encumbered | 135 | 210 | 257 | ||||
of which reported from consolidated VIEs | 2,722 | 3,125 | 2,617 | ||||
Total assets | 788,690 | 783,411 | 819,861 |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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end of | 3Q17 | 2Q17 | 4Q16 | ||||
Liabilities and equity (CHF million) | |||||||
Due to banks | 17,497 | 17,654 | 22,800 | ||||
of which reported at fair value | 521 | 370 | 437 | ||||
Customer deposits | 354,386 | 356,674 | 355,833 | ||||
of which reported at fair value | 3,554 | 3,579 | 3,576 | ||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 33,146 | 30,711 | 33,016 | ||||
of which reported at fair value | 17,300 | 16,038 | 19,634 | ||||
Obligation to return securities received as collateral, at fair value | 35,901 | 33,385 | 32,564 | ||||
Trading liabilities, at fair value | 43,920 | 43,535 | 44,930 | ||||
of which reported from consolidated VIEs | 7 | 3 | 18 | ||||
Short-term borrowings | 16,227 | 17,237 | 15,385 | ||||
of which reported at fair value | 5,821 | 5,628 | 4,061 | ||||
of which reported from consolidated VIEs | 0 | 0 | 1 | ||||
Long-term debt | 180,294 | 176,700 | 193,315 | ||||
of which reported at fair value | 69,346 | 71,803 | 72,868 | ||||
of which reported from consolidated VIEs | 1,472 | 1,199 | 1,759 | ||||
Brokerage payables | 32,416 | 33,545 | 39,852 | ||||
Other liabilities | 30,822 | 30,134 | 39,855 | ||||
of which reported at fair value | 8,427 | 8,279 | 9,493 | ||||
of which reported from consolidated VIEs | 277 | 233 | 244 | ||||
Total liabilities | 744,609 | 739,575 | 777,550 | ||||
Common shares | 102 | 102 | 84 | ||||
Additional paid-in capital | 35,527 | 35,465 | 32,131 | ||||
Retained earnings | 27,099 | 26,855 | 25,954 | ||||
Treasury shares, at cost | (17) | (40) | 0 | ||||
Accumulated other comprehensive income/(loss) | (18,853) | (18,889) | (16,272) | ||||
Total shareholders' equity | 43,858 | 43,493 | 41,897 | ||||
Noncontrolling interests | 223 | 343 | 414 | ||||
Total equity | 44,081 | 43,836 | 42,311 | ||||
Total liabilities and equity | 788,690 | 783,411 | 819,861 |
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Additional share information | |||||||
Par value (CHF) | 0.04 | 0.04 | 0.04 | ||||
Authorized shares 1 | 3,271,129,950 | 3,271,129,950 | 2,797,379,244 | ||||
Common shares issued | 2,556,011,720 | 2,556,011,720 | 2,089,897,378 | ||||
Treasury shares | (949,715) | (2,742,487) | 0 | ||||
Shares outstanding | 2,555,062,005 | 2,553,269,233 | 2,089,897,378 | ||||
1 Includes issued shares and unissued shares (conditional, conversion and authorized capital). |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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Attributable to shareholders | |||||||||||||||||
Common shares | Additional paid-in capital | Retained earnings | Treasury shares, at cost | Accumu- lated other compre- hensive income/ (loss) | Total share- holders' equity | Non- controlling interests | Total equity | ||||||||||
3Q17 (CHF million) | |||||||||||||||||
Balance at beginning of period | 102 | 35,465 | 26,855 | (40) | (18,889) | 43,493 | 343 | 43,836 | |||||||||
Purchase of subsidiary shares from non- controlling interests, not changing ownership 1, 2 | – | – | – | – | – | – | (26) | (26) | |||||||||
Sale of subsidiary shares to noncontrolling interests, not changing ownership 2 | – | – | – | – | – | – | 25 | 25 | |||||||||
Net income/(loss) | – | – | 244 | – | – | 244 | 3 | 247 | |||||||||
Total other comprehensive income/(loss), net of tax | – | – | – | – | 36 | 36 | 1 | 37 | |||||||||
Sale of treasury shares | – | 5 | – | 3,298 | – | 3,303 | – | 3,303 | |||||||||
Repurchase of treasury shares | – | – | – | (3,319) | – | (3,319) | – | (3,319) | |||||||||
Share-based compensation, net of tax | – | 154 | – | 44 | – | 198 | – | 198 | |||||||||
Financial instruments indexed to own shares 3 | – | (97) | – | – | – | (97) | – | (97) | |||||||||
Dividends paid | – | – | – | – | – | – | (1) | (1) | |||||||||
Change in scope of consolidation, net | – | – | – | – | – | – | (122) | (122) | |||||||||
Balance at end of period | 102 | 35,527 | 27,099 | (17) | (18,853) | 43,858 | 223 | 44,081 | |||||||||
1 Distributions to owners in funds include the return of original capital invested and any related dividends. | |||||||||||||||||
2 Transactions with and without ownership changes related to fund activity are all displayed under "not changing ownership". | |||||||||||||||||
3 Includes certain call options the Group purchased on its own shares to economically hedge share-based compensation awards. In accordance with US GAAP, these call options were designated as equity instruments and, as such, were initially recognized in shareholders' equity at their fair values and not subsequently remeasured. |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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Attributable to shareholders | |||||||||||||||||
Common shares | Additional paid-in capital | Retained earnings | Treasury shares, at cost | Accumu- lated other compre- hensive income/ (loss) | Total share- holders' equity | Non- controlling interests | Total equity | ||||||||||
2Q17 (CHF million) | |||||||||||||||||
Balance at beginning of period | 84 | 32,388 | 26,552 | (99) | (17,223) | 41,702 | 377 | 42,079 | |||||||||
Purchase of subsidiary shares from non- controlling interests, not changing ownership | – | – | – | – | – | – | (30) | (30) | |||||||||
Sale of subsidiary shares to noncontrolling interests, not changing ownership | – | – | – | – | – | – | 12 | 12 | |||||||||
Net income/(loss) | – | – | 303 | – | – | 303 | 3 | 306 | |||||||||
Total other comprehensive income/(loss), net of tax | – | – | – | – | (1,666) | (1,666) | (6) | (1,672) | |||||||||
Issuance of common shares | 18 | 5,195 | – | – | – | 5,213 | – | 5,213 | |||||||||
Sale of treasury shares | – | 10 | – | 3,302 | – | 3,312 | – | 3,312 | |||||||||
Repurchase of treasury shares | – | – | – | (3,789) | – | (3,789) | – | (3,789) | |||||||||
Share-based compensation, net of tax | – | (617) | – | 546 | – | (71) | – | (71) | |||||||||
Financial instruments indexed to own shares | – | 203 | – | – | – | 203 | – | 203 | |||||||||
Dividends paid | – | (1,546) | – | – | – | (1,546) | – | (1,546) | |||||||||
Change in scope of consolidation, net | – | – | – | – | – | – | (8) | (8) | |||||||||
Other | – | (168) | – | – | – | (168) | (5) | (173) | |||||||||
Balance at end of period | 102 | 35,465 | 26,855 | (40) | (18,889) | 43,493 | 343 | 43,836 | |||||||||
3Q16 (CHF million) | |||||||||||||||||
Balance at beginning of period | 84 | 31,702 | 28,532 | (94) | (15,262) | 44,962 | 367 | 45,329 | |||||||||
Purchase of subsidiary shares from non- controlling interests, not changing ownership | – | – | – | – | – | – | (2) | (2) | |||||||||
Sale of subsidiary shares to noncontrolling interests, not changing ownership | – | – | – | – | – | – | 15 | 15 | |||||||||
Net income/(loss) | – | – | 41 | – | – | 41 | (4) | 37 | |||||||||
Total other comprehensive income/(loss), net of tax | – | – | – | – | (1,026) | (1,026) | (9) | (1,035) | |||||||||
Sale of treasury shares | – | 19 | – | 4,091 | – | 4,110 | – | 4,110 | |||||||||
Repurchase of treasury shares | – | – | – | (4,031) | – | (4,031) | – | (4,031) | |||||||||
Share-based compensation, net of tax | – | 241 | – | 16 | – | 257 | – | 257 | |||||||||
Financial instruments indexed to own shares | – | (37) | – | – | – | (37) | – | (37) | |||||||||
Change in scope of consolidation, net | – | – | – | – | – | – | 114 | 114 | |||||||||
Balance at end of period | 84 | 31,925 | 28,573 | (18) | (16,288) | 44,276 | 481 | 44,757 |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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Attributable to shareholders | |||||||||||||||||
Common shares | Additional paid-in capital | Retained earnings | Treasury shares, at cost | Accumu- lated other compre- hensive income/ (loss) | Total share- holders' equity | Non- controlling interests | Total equity | ||||||||||
9M17 (CHF million) | |||||||||||||||||
Balance at beginning of period | 84 | 32,131 | 25,954 | 0 | (16,272) | 41,897 | 414 | 42,311 | |||||||||
Purchase of subsidiary shares from non- controlling interests, not changing ownership 1, 2 | – | – | – | – | – | – | (81) | (81) | |||||||||
Sale of subsidiary shares to noncontrolling interests, not changing ownership 2 | – | – | – | – | – | – | 54 | 54 | |||||||||
Net income/(loss) | – | – | 1,143 | – | – | 1,143 | 2 | 1,145 | |||||||||
Cumulative effect of accounting changes, net of tax | – | – | 2 | – | – | 2 | – | 2 | |||||||||
Total other comprehensive income/(loss), net of tax | – | – | – | – | (2,581) | (2,581) | (9) | (2,590) | |||||||||
Issuance of common shares | 18 | 5,195 | – | – | – | 5,213 | – | 5,213 | |||||||||
Sale of treasury shares | – | (3) | – | 9,140 | – | 9,137 | – | 9,137 | |||||||||
Repurchase of treasury shares | – | – | – | (9,764) | – | (9,764) | – | (9,764) | |||||||||
Share-based compensation, net of tax | – | (188) | – | 607 | – | 419 | – | 419 | |||||||||
Financial instruments indexed to own shares 3 | – | 106 | – | – | – | 106 | – | 106 | |||||||||
Dividends paid | – | (1,546) | 4 | – | – | – | (1,546) | (3) | (1,549) | ||||||||
Changes in scope of consolidation, net | – | – | – | – | – | – | (142) | (142) | |||||||||
Other | – | (168) | – | – | – | (168) | (12) | (180) | |||||||||
Balance at end of period | 102 | 35,527 | 27,099 | (17) | (18,853) | 43,858 | 223 | 44,081 | |||||||||
9M16 (CHF million) | |||||||||||||||||
Balance at beginning of period | 78 | 31,925 | 29,139 | (125) | (16,635) | 44,382 | 636 | 45,018 | |||||||||
Purchase of subsidiary shares from non- controlling interests, not changing ownership | – | – | – | – | – | – | (65) | (65) | |||||||||
Sale of subsidiary shares to noncontrolling interests, not changing ownership | – | – | – | – | – | – | 92 | 92 | |||||||||
Net income/(loss) | – | – | (91) | – | – | (91) | 1 | (90) | |||||||||
Cumulative effect of accounting changes, net of tax | – | – | (475) | – | 475 | – | – | – | |||||||||
Total other comprehensive income/(loss), net of tax | – | – | – | – | (128) | (128) | (13) | (141) | |||||||||
Issuance of common shares | 6 | 1,661 | – | – | – | 1,667 | – | 1,667 | |||||||||
Sale of treasury shares | – | (17) | – | 13,285 | – | 13,268 | – | 13,268 | |||||||||
Repurchase of treasury shares | – | – | – | (13,332) | – | (13,332) | – | (13,332) | |||||||||
Share-based compensation, net of tax | – | (42) | – | 154 | – | 112 | – | 112 | |||||||||
Financial instruments indexed to own shares | – | (145) | – | – | – | (145) | – | (145) | |||||||||
Dividends paid | – | (1,435) | – | – | – | (1,435) | – | (1,435) | |||||||||
Changes in scope of consolidation, net | – | – | – | – | – | – | (141) | (141) | |||||||||
Other | – | (22) | – | – | – | (22) | (29) | (51) | |||||||||
Balance at end of period | 84 | 31,925 | 28,573 | (18) | (16,288) | 44,276 | 481 | 44,757 | |||||||||
1 Distributions to owners in funds include the return of original capital invested and any related dividends. | |||||||||||||||||
2 Transactions with and without ownership changes related to fund activity are all displayed under "not changing ownership". | |||||||||||||||||
3 Includes certain call options the Group purchased on its own shares to economically hedge share-based compensation awards. In accordance with US GAAP, these call options were designated as equity instruments and, as such, were initially recognized in shareholders' equity at their fair values and not subsequently remeasured. | |||||||||||||||||
4 Paid out of capital contribution reserves. |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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in | 9M17 | 9M16 | |||
Operating activities of continuing operations (CHF million) | |||||
Net income/(loss) | 1,145 | (90) | |||
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities of continuing operations (CHF million) | |||||
Impairment, depreciation and amortization | 651 | 705 | |||
Provision for credit losses | 167 | 177 | |||
Deferred tax provision/(benefit) | 177 | (488) | |||
Share of net income/(loss) from equity method investments | (87) | 13 | |||
Trading assets and liabilities, net | 20,305 | 4,677 | |||
(Increase)/decrease in other assets | (6,068) | (4,183) | |||
Increase/(decrease) in other liabilities | (12,424) | 1,180 | |||
Other, net | 984 | 1,079 | |||
Total adjustments | 3,705 | 3,160 | |||
Net cash provided by/(used in) operating activities of continuing operations | 4,850 | 3,070 | |||
Investing activities of continuing operations (CHF million) | |||||
(Increase)/decrease in interest-bearing deposits with banks | 87 | 53 | |||
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | (11,609) | 7,538 | |||
Purchase of investment securities | (53) | (76) | |||
Proceeds from sale of investment securities | 12 | 11 | |||
Maturities of investment securities | 210 | 271 | |||
Investments in subsidiaries and other investments | (989) | (537) | |||
Proceeds from sale of other investments | 1,390 | 1,162 | |||
(Increase)/decrease in loans | (7,497) | (3,852) | |||
Proceeds from sales of loans | 6,835 | 1,389 | |||
Capital expenditures for premises and equipment and other intangible assets | (746) | (870) | |||
Proceeds from sale of premises and equipment and other intangible assets | 1 | 54 | |||
Other, net | 53 | 538 | |||
Net cash provided by/(used in) investing activities of continuing operations | (12,306) | 5,681 |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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in | 9M17 | 9M16 | |||
Financing activities of continuing operations (CHF million) | |||||
Increase/(decrease) in due to banks and customer deposits | (4) | 5,650 | |||
Increase/(decrease) in short-term borrowings | 1,641 | 3,456 | |||
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 1,757 | (13,707) | |||
Issuances of long-term debt | 32,722 | 43,982 | |||
Repayments of long-term debt | (46,647) | (35,434) | |||
Issuances of common shares | 4,253 | 725 | |||
Sale of treasury shares | 9,137 | 13,268 | |||
Repurchase of treasury shares | (9,764) | (13,332) | |||
Dividends paid | (589) | (493) | |||
Other, net | 317 | 318 | |||
Net cash provided by/(used in) financing activities of continuing operations | (7,177) | 4,433 | |||
Effect of exchange rate changes on cash and due from banks (CHF million) | |||||
Effect of exchange rate changes on cash and due from banks | (749) | (540) | |||
Net increase/(decrease) in cash and due from banks (CHF million) | |||||
Net increase/(decrease) in cash and due from banks | (15,382) | 12,644 | |||
Cash and due from banks at beginning of period | 121,161 | 92,328 | |||
Cash and due from banks at end of period | 105,779 | 104,972 |
in | 9M17 | 9M16 | |||
Cash paid for income taxes and interest (CHF million) | |||||
Cash paid for income taxes | 503 | 245 | |||
Cash paid for interest | 7,675 | 7,181 | |||
Assets and liabilities sold in business divestitures (CHF million) | |||||
Assets sold | 1,633 | 0 | |||
Liabilities sold | 1,554 | 0 |
The accompanying notes to the condensed consolidated financial statements – unaudited are an integral part of these statements.
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Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Credit Suisse Group AG (the Group) are prepared in accordance with accounting principles generally accepted in the US (US GAAP) and are stated in Swiss francs (CHF). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016 included in the Credit Suisse Annual Report 2016.
> Refer to “Note 1 – Summary of significant accounting policies” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for a description of the Group’s significant accounting policies.
Certain financial information, which is normally included in annual consolidated financial statements prepared in accordance with US GAAP, but not required for interim reporting purposes, has been condensed or omitted. Certain reclassifications have been made to the prior period’s consolidated financial statements to conform to the current period’s presentation. These condensed consolidated financial statements reflect, in the opinion of management, all adjustments that are necessary for a fair presentation of the condensed consolidated financial statements for the periods presented. The 2Q17 consolidated statements of operations and comprehensive income, the 2Q17 consolidated balance sheets and the 3Q17, 2Q17 and 3Q16 consolidated statements of changes in equity have been added for convenience of the reader and are not a required presentation under US GAAP. The results of operations for interim periods are not indicative of results for the entire year.
In preparing these condensed consolidated financial statements, management is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently adopted accounting standards
The following provides the most relevant recently adopted accounting standards.
> Refer to “Note 2 – Recently issued accounting standards” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for a description of accounting standards adopted in 2016.
ASC Topic 350 – Intangibles - Goodwill and Other
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, “Simplifying the Test for Goodwill Impairment” (ASU 2017-04), an update to Accounting Standards Codification (ASC) Topic 805 – Business Combinations. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, and for the interim periods within those annual reporting periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 is to be applied on a prospective basis. The Group elected to early adopt ASU 2017-04 on January 1, 2017, which did not have a material impact on the Group’s financial position, results of operations or cash flows.
ASC Topic 718 – Compensation – Stock Compensation
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09), an update to ASC Topic 718 – Compensation—Stock Compensation. The amendments in ASU 2016-09 provide simplification updates for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of ASU 2016-09 on January 1, 2017 resulted in the recognition of previously unrecorded deferred tax asset net operating loss balances which arose due to prior tax windfalls that did not immediately result in cash tax savings. The adjustment resulted in an increase in retained earnings of CHF 85 million upon adoption.
ASC Topic 740 – Income Taxes
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASU 2016-16), an update to ASC Topic 740 – Income Taxes. The amendments in ASU 2016-16 eliminate the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, and for the interim periods within those annual reporting periods. Early adoption is permitted. The Group elected to early adopt ASU 2016-16 on January 1, 2017, which resulted in a reclassification from other assets to deferred tax assets. The net impact upon adoption was a reduction in retained earnings of CHF 81 million.
ASC Topic 825 – Financial Instruments – Overall
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), an update to ASC Topic 825 – Financial
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Instruments – Overall. The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, and for the interim periods within those annual reporting periods. Early adoption of the full standard is not permitted; however, certain sections of ASU 2016-01 relating to fair value option-elected financial liabilities can be early adopted in isolation. These amendments to ASU 2016-01 require the changes in fair value relating to instrument-specific credit risk of fair value option elected financial liabilities to be presented separately in accumulated other comprehensive income (AOCI). The Group has early adopted these sections of the update on January 1, 2016. As a result of adoption, a reclassification of a gain from retained earnings to AOCI of CHF 475 million, net of tax, was recorded. The Group is currently evaluating the impact of the adoption of the remaining sections of ASU 2016-01 on the Group’s financial position, results of operations and cash flows.
Standards to be adopted in future periods
ASC Topic 230 – Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (ASU 2016-15), an update to ASC Topic 230 – Statement of Cash Flows. The amendments in ASU 2016-15 provide guidance regarding classification of certain cash receipts and payments where diversity in practice was observed. ASU 2016-15 is required to be applied retrospectively to all periods presented beginning in the year of adoption. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, and for the interim periods within those annual reporting periods. Early adoption is permitted, including adoption in an interim period. The Group is currently evaluating the impact of the adoption of ASU 2016-15 on the Group’s financial position, results of operations and cash flows.
ASC Topic 326 – Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), creating ASC Topic 326 – Financial Instruments – Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on financial assets measured at amortized cost basis (including, but not limited to loans), net investments in leases recognized as lessor and off-balance sheet credit exposures. ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss methodology for recognizing credit losses. Instead, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Group will incorporate forward-looking information and macroeconomic factors into its credit loss estimates. ASU 2016-13 requires enhanced disclosures to help investors and other financial statement users to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. As the Group is a US Securities and Exchange Commission (SEC) filer, ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and for the interim periods within those annual reporting periods. Early application will be permitted for annual reporting periods and for the interim periods within those annual reporting periods, beginning after December 15, 2018.
The Group has established a cross-functional implementation team and governance structure for the project. The Group has decided on a current expected credit loss (CECL) methodology while it is adjusting for key interpretive issues. Furthermore, the Group will continue to monitor the initial scope assessment, as a basis to determine the requirements and data sourcing of the CECL models, and to design, build and test the models until the effective date.
The Group expects that the new CECL methodology would generally result in increased and more volatile allowance for loan losses. The main impact drivers include:
– the remaining life of the loans measured at amortized cost and the off-balance sheet credit exposures at the adoption date and subsequent reporting dates because of the new requirement to measure lifetime expected credit losses;
– the point of time in the economic cycle at the adoption date and subsequent reporting dates because of the new requirement to incorporate reasonable and supportable forward-looking information and macroeconomic factors; and
– the credit quality of the loans measured at amortized cost and the off-balance sheet credit exposures at the adoption date and subsequent reporting dates.
Upon adoption of the standard, the Group expects an adjustment to be posted to retained earnings for any changes in loan losses. As the implementation progresses, the Group will continue to evaluate the extent of the impact of the adoption of ASU 2016-13 on the Group’s financial position, results of operations and cash flows.
ASC Topic 606 – Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), an update to ASC Topic 606 – Revenue from Contracts with Customers. The
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core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU outlines key steps that an entity should follow to achieve the core principle. ASU 2014-09 and its subsequent amendments are effective for the annual reporting period beginning after December 15, 2017, and for the interim periods within those annual reporting periods.
The Group has established a cross-functional implementation team and governance structure for the project. The Group’s implementation efforts include the identification of revenue and costs within the scope of the guidance, as well as the evaluation of revenue contracts under the new guidance and related accounting policies. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other US GAAP guidance. To date, the recognition and timing impacts that the Group has identified relate to the timing of certain fees. The new guidance eliminates industry specific guidance and as a result will have an impact on the gross versus net presentation of certain income and expenses, for example a change from net to gross reporting of underwriting expenses and reimbursed costs from advisory activities. The changes identified thus far are not expected to have a material impact on the Group’s financial position, results of operations or cash flows; however, the evaluation remains ongoing.
ASC Topic 715 – Compensation – Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07), an update to ASC Topic 715 – Compensation – Retirement Benefits. The amendments in ASU 2017-07 require that the service cost component of the net periodic benefit cost be presented in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost should be reported separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, and for the interim periods within those annual reporting periods. Early adoption is permitted. The Group is currently evaluating the impact of the adoption of ASU 2017-07 on the Group’s financial position, results of operations and cash flows.
ASC Topic 815 – Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting Hedging Activities” (ASU 2017-12), an update to ASC Topic 815 – Derivatives and Hedging. ASU 2017-12 makes changes to the hedge accounting model intended to facilitate financial reporting that more closely reflects an entity’s risk management activities and to simplify application of hedge accounting. The amendments in ASU 2017-12 provide more hedging strategies that will be eligible for hedge accounting, ease the documentation and effectiveness assessment requirements and result in changes to the presentation and disclosure requirements of hedge accounting activities.
ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, and for the interim periods within those annual reporting periods. Early adoption is permitted in any interim period after issuance. The Group is currently evaluating the impact of the adoption of ASU 2017-12 on the Group’s financial position, results of operations and cash flows.
ASC Topic 842 – Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02), creating ASC Topic 842 – Leases. ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 also includes disclosure requirements to provide more information about the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting is substantially unchanged compared to the current accounting guidance. Under the current lessee accounting model, the Group is required to distinguish between finance leases, which are recognized on the balance sheet, and operating leases, which are not. ASU 2016-02 will require lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with a lease term of greater than twelve months. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and for the interim periods within those annual reporting periods.
The Group has established a cross-functional implementation team and governance structure for the project. The Group is currently reviewing its existing contracts to determine the impact of the adoption of ASU 2016-02. The Group expects an increase in total assets and total liabilities as a result of recognizing right-of-use assets and lease liabilities for all leases under the new guidance. The Group does not expect a material change to the timing of expense recognition and is currently evaluating the impact of the adoption of ASU 2016-02 on the Group’s results of operations and cash flows.
There were no significant business developments in 3Q17.
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The Group is a global financial services company domiciled in Switzerland and serves its clients through three regionally focused divisions: Swiss Universal Bank, International Wealth Management and Asia Pacific. These regional businesses are supported by two other divisions specialized in investment banking capabilities: Global Markets and Investment Banking & Capital Markets. The Strategic Resolution Unit consolidates the remaining portfolios from the former non-strategic units plus additional businesses and positions that do not fit with the strategic direction. The segment information reflects the Group’s six reportable segments and the Corporate Center, which are managed and reported on a pre-tax basis.
> Refer to “Note 5 – Segment information” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on segment information, revenue sharing and cost allocation and funding.
Net revenues and income before taxes
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Net revenues (CHF million) | |||||||||||
Swiss Universal Bank | 1,319 | 1,405 | 1,667 | 4,078 | 4,360 | ||||||
International Wealth Management | 1,262 | 1,264 | 1,081 | 3,747 | 3,399 | ||||||
Asia Pacific | 890 | 848 | 917 | 2,619 | 2,735 | ||||||
Global Markets | 1,262 | 1,517 | 1,357 | 4,388 | 4,232 | ||||||
Investment Banking & Capital Markets | 457 | 511 | 467 | 1,574 | 1,398 | ||||||
Strategic Resolution Unit | (255) | (274) | (165) | (735) | (1,069) | ||||||
Corporate Center | 37 | (66) | 72 | 40 | 87 | ||||||
Net revenues | 4,972 | 5,205 | 5,396 | 15,711 | 15,142 | ||||||
Income/(loss) before taxes (CHF million) | |||||||||||
Swiss Universal Bank | 426 | 502 | 758 | 1,332 | 1,643 | ||||||
International Wealth Management | 355 | 365 | 245 | 1,011 | 790 | ||||||
Asia Pacific | 218 | 188 | 152 | 553 | 622 | ||||||
Global Markets | 71 | 257 | 87 | 645 | 43 | ||||||
Investment Banking & Capital Markets | 35 | 78 | 39 | 262 | 112 | ||||||
Strategic Resolution Unit | (578) | (563) | (852) | (1,680) | (2,864) | ||||||
Corporate Center | (127) | (245) | (207) | (471) | (409) | ||||||
Income/(loss) before taxes | 400 | 582 | 222 | 1,652 | (63) |
Total assets
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Total assets (CHF million) | |||||||
Swiss Universal Bank | 228,647 | 235,562 | 228,363 | ||||
International Wealth Management | 88,692 | 89,163 | 91,083 | ||||
Asia Pacific | 95,919 | 90,948 | 97,221 | ||||
Global Markets | 239,910 | 228,858 | 239,700 | ||||
Investment Banking & Capital Markets | 20,477 | 20,973 | 20,784 | ||||
Strategic Resolution Unit | 49,409 | 54,427 | 80,297 | ||||
Corporate Center | 65,636 | 63,480 | 62,413 | ||||
Total assets | 788,690 | 783,411 | 819,861 |
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in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Net interest income (CHF million) | |||||||||||
Loans | 1,520 | 1,447 | 1,415 | 4,427 | 4,178 | ||||||
Investment securities | 11 | 12 | 16 | 34 | 49 | ||||||
Trading assets | 1,626 | 2,040 | 1,764 | 5,284 | 6,142 | ||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 643 | 632 | 693 | 1,882 | 2,107 | ||||||
Other | 473 | 471 | 334 | 1,290 | 1,088 | ||||||
Interest and dividend income | 4,273 | 4,602 | 4,222 | 12,917 | 13,564 | ||||||
Deposits | (348) | (328) | (255) | (981) | (757) | ||||||
Short-term borrowings | (43) | (40) | (18) | (116) | (56) | ||||||
Trading liabilities | (891) | (1,178) | (738) | (2,857) | (2,964) | ||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | (319) | (324) | (363) | (896) | (1,116) | ||||||
Long-term debt | (933) | (893) | (871) | (2,779) | (2,583) | ||||||
Other | (117) | (102) | (47) | (296) | (148) | ||||||
Interest expense | (2,651) | (2,865) | (2,292) | (7,925) | (7,624) | ||||||
Net interest income | 1,622 | 1,737 | 1,930 | 4,992 | 5,940 |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Commissions and fees (CHF million) | |||||||||||
Lending business | 421 | 484 | 495 | 1,369 | 1,345 | ||||||
Investment and portfolio management | 866 | 841 | 777 | 2,529 | 2,366 | ||||||
Other securities business | 11 | 12 | 11 | 33 | 36 | ||||||
Fiduciary business | 877 | 853 | 788 | 2,562 | 2,402 | ||||||
Underwriting | 356 | 441 | 371 | 1,294 | 988 | ||||||
Brokerage | 712 | 757 | 682 | 2,274 | 2,272 | ||||||
Underwriting and brokerage | 1,068 | 1,198 | 1,053 | 3,568 | 3,260 | ||||||
Other services | 396 | 370 | 344 | 1,214 | 1,144 | ||||||
Commissions and fees | 2,762 | 2,905 | 2,680 | 8,713 | 8,151 |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Trading revenues (CHF million) | |||||||||||
Interest rate products | 1,040 | 587 | 1,673 | 3,003 | 5,377 | ||||||
Foreign exchange products | 350 | 703 | 300 | 1,587 | (915) | ||||||
Equity/index-related products | (753) | (953) | (1,066) | (2,624) | (3,073) | ||||||
Credit products | (284) | (143) | (743) | (865) | (2,011) | ||||||
Commodity and energy products | 9 | 28 | 89 | 74 | 102 | ||||||
Other products | (42) | 15 | (21) | (44) | 575 | ||||||
Trading revenues | 320 | 237 | 232 | 1,131 | 55 | ||||||
Represents revenues on a product basis which are not representative of business results within segments, as segment results utilize financial instruments across various product types. |
> Refer to “Note 8 – Trading revenues” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on trading revenues and managing trading risks.
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in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Other revenues (CHF million) | |||||||||||
Noncontrolling interests without SEI | (1) | 0 | 0 | (2) | 1 | ||||||
Loans held-for-sale | 5 | 1 | (4) | 5 | (61) | ||||||
Long-lived assets held-for-sale | (5) | (4) | 340 | (16) | 364 | ||||||
Equity method investments | 59 | 65 | 34 | 165 | 129 | ||||||
Other investments | (46) | 30 | (4) | 31 | 11 | ||||||
Other | 256 | 234 | 188 | 692 | 552 | ||||||
Other revenues | 268 | 326 | 554 | 875 | 996 |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Provision for credit losses (CHF million) | |||||||||||
Provision for loan losses | 8 | 70 | 62 | 144 | 175 | ||||||
Provision for lending-related and other exposures | 24 | 12 | (7) | 23 | 2 | ||||||
Provision for credit losses | 32 | 82 | 55 | 167 | 177 |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Compensation and benefits (CHF million) | |||||||||||
Salaries and variable compensation | 2,142 | 2,196 | 2,349 | 6,684 | 6,882 | ||||||
Social security | 163 | 204 | 163 | 523 | 521 | ||||||
Other 1 | 146 | 142 | 162 | 444 | 487 | ||||||
Compensation and benefits | 2,451 | 2,542 | 2,674 | 7,651 | 7,890 | ||||||
1 Includes pension and other post-retirement expense of CHF 60 million, CHF 53 million, CHF 84 million, CHF 177 million and CHF 243 million in 3Q17, 2Q17, 3Q16, 9M17 and 9M16, respectively. |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
General and administrative expenses (CHF million) | |||||||||||
Occupancy expenses | 256 | 246 | 252 | 745 | 742 | ||||||
IT, machinery, etc. | 301 | 259 | 290 | 841 | 865 | ||||||
Provisions and losses | 164 | 80 | 365 | 389 | 534 | ||||||
Travel and entertainment | 75 | 80 | 74 | 238 | 245 | ||||||
Professional services | 554 | 592 | 672 | 1,745 | 2,215 | ||||||
Amortization and impairment of other intangible assets | 2 | 2 | 3 | 7 | 7 | ||||||
Other | 278 | 321 | 322 | 893 | 978 | ||||||
General and administrative expenses | 1,630 | 1,580 | 1,978 | 4,858 | 5,586 |
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In connection with the strategic review of the Group, restructuring expenses of CHF 112 million, CHF 69 million, CHF 145 million, CHF 318 million and CHF 491 million were recognized in 3Q17, 2Q17, 3Q16, 9M17 and 9M16, respectively. Restructuring expenses primarily include termination costs, expenses in connection with the acceleration of certain deferred compensation awards and real estate contract termination costs.
Restructuring expenses by segment
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Restructuring expenses by segment (CHF million) | |||||||||||
Swiss Universal Bank | 13 | (4) | 19 | 61 | 63 | ||||||
International Wealth Management | 16 | 7 | 15 | 59 | 38 | ||||||
Asia Pacific | 10 | 11 | 23 | 40 | 34 | ||||||
Global Markets | 27 | 32 | 52 | 79 | 202 | ||||||
Investment Banking & Capital Markets | 16 | 10 | 15 | 28 | 34 | ||||||
Strategic Resolution Unit | 21 | 11 | 21 | 39 | 120 | ||||||
Corporate Center | 9 | 2 | 0 | 12 | 0 | ||||||
Total restructuring expenses | 112 | 69 | 145 | 318 | 491 |
Restructuring expenses by type
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Restructuring expenses by type (CHF million) | |||||||||||
Compensation and benefits-related expenses | 99 | 50 | 123 | 278 | 355 | ||||||
of which severance expenses | 59 | 24 | 65 | 145 | 181 | ||||||
of which accelerated deferred compensation | 28 | 17 | 52 | 70 | 141 | ||||||
of which pension expenses | 12 | 9 | 6 | 63 | 33 | ||||||
General and administrative-related expenses | 13 | 19 | 22 | 40 | 136 | ||||||
Total restructuring expenses | 112 | 69 | 145 | 318 | 491 |
Restructuring provision
3Q17 | 2Q17 | 3Q16 | |||||||||||||||||
Compen- sation and benefits | General and administrative expenses | Total | Compen- sation and benefits | General and administrative expenses | Total | Compen- sation and benefits | General and administrative expenses | Total | |||||||||||
Restructuring provision (CHF million) | |||||||||||||||||||
Balance at beginning of period | 181 | 83 | 264 | 220 | 89 | 309 | 189 | 110 | 299 | ||||||||||
Net additional charges 1 | 59 | 10 | 69 | 24 | 9 | 33 | 65 | 22 | 87 | ||||||||||
Utilization | (50) | (10) | (60) | (63) | (15) | (78) | (38) | (40) | (78) | ||||||||||
Balance at end of period | 190 | 83 | 273 | 181 | 83 | 264 | 216 | 92 | 308 | ||||||||||
1 The following items for which expense accretion was accelerated in 3Q17, 2Q17 and 3Q16 due to the restructuring of the Group are not included in the restructuring provision: unsettled share-based compensation of CHF 22 million, CHF 12 million and CHF 42 million, respectively; unsettled pension obligations of CHF 12 million, CHF 9 million and CHF 6 million, respectively, which remain classified as a component of total shareholders’ equity; unsettled cash-based deferred compensation of CHF 6 million, CHF 5 million and CHF 10 million, respectively, which remain classified as compensation liabilities; and accelerated accumulated depreciation and impairment of CHF 3 million, CHF 10 million and CHF 0 million, respectively, which remain classified as premises and equipment. The settlement date for the unsettled share-based compensation remains unchanged at three years. |
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Restructuring provision (continued)
9M17 | 9M16 | ||||||||||||
Compen- sation and benefits | General and administrative expenses | Total | Compen- sation and benefits | General and administrative expenses | Total | ||||||||
Restructuring provision (CHF million) | |||||||||||||
Balance at beginning of period | 217 | 94 | 311 | 187 | 12 | 199 | |||||||
Net additional charges 1 | 145 | 27 | 172 | 181 | 136 | 317 | |||||||
Utilization | (172) | (38) | (210) | (152) | (56) | (208) | |||||||
Balance at end of period | 190 | 83 | 273 | 216 | 92 | 308 | |||||||
1 The following items for which expense accretion was accelerated in 9M17 and 9M16 due to the restructuring of the Group are not included in the restructuring provision: unsettled share-based compensation of CHF 49 million and CHF 48 million, respectively; unsettled pension obligations of CHF 63 million and CHF 33 million, respectively, which remain classified as a component of total shareholders’ equity; unsettled cash-based deferred compensation of CHF 21 million and CHF 92 million, respectively, which remain classified as compensation liabilities; and accelerated accumulated depreciation and impairment of CHF 13 million and CHF 0 million, respectively, which remain classified as premises and equipment. The settlement date for the unsettled share-based compensation remains unchanged at three years. |
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Basic net income/(loss) attributable to shareholders (CHF million) | |||||||||||
Net income/(loss) attributable to shareholders for basic earnings per share | 244 | 303 | 41 | 1,143 | (91) | ||||||
Available for common shares | 244 | 303 | 41 | 1,143 | (94) | ||||||
Available for unvested share-based payment awards | 0 | 0 | 0 | 0 | 3 | ||||||
Diluted net income/(loss) attributable to shareholders (CHF million) | |||||||||||
Net income/(loss) attributable to shareholders for basic earnings per share | 244 | 303 | 41 | 1,143 | (91) | ||||||
Available for common shares | 244 | 303 | 41 | 1,143 | (94) | ||||||
Available for unvested share-based payment awards | 0 | 0 | 0 | 0 | 3 | ||||||
Weighted-average shares outstanding (million) | |||||||||||
Weighted-average shares outstanding for basic earnings per share available for common shares | 2,565.5 | 2,309.6 | 2,181.0 | 2,363.1 | 2,119.0 | ||||||
Dilutive share options and warrants | 1.8 | 4.2 | 2.8 | 3.2 | 0.0 | ||||||
Dilutive share awards | 58.8 | 40.3 | 52.9 | 51.4 | 0.0 | ||||||
Weighted-average shares outstanding for diluted earnings per share available for common shares 1 | 2,626.1 | 2,354.1 | 2,236.7 | 2,417.7 | 2,119.0 | 2 | |||||
Weighted-average shares outstanding for basic/diluted earnings per share available for unvested share-based payment awards | 0.1 | 0.1 | 0.2 | 0.1 | 3.9 | ||||||
Earnings/(loss) per share available for common shares (CHF) | |||||||||||
Basic earnings/(loss) per share available for common shares | 0.10 | 0.13 | 0.02 | 0.48 | (0.04) | ||||||
Diluted earnings/(loss) per share available for common shares | 0.09 | 0.13 | 0.02 | 0.47 | (0.04) | ||||||
Prior periods have been adjusted to reflect the increase in the number of shares outstanding as a result of the discount element in the 2017 rights issue and scrip dividend, as required under US GAAP. | |||||||||||
1 Weighted-average potential common shares relating to instruments that were not dilutive for the respective periods (and therefore not included in the diluted earnings per share calculation above) but could potentially dilute earnings per share in the future were 10.7 million, 10.4 million, 13.4 million, 9.6 million and 11.0 million for 3Q17, 2Q17, 3Q16, 9M17 and 9M16, respectively. | |||||||||||
2 Due to the net loss in 9M16, 2.9 million of weighted-average share options and warrants outstanding and 49.9 million of weighted-average share awards outstanding were excluded from the diluted earnings per share calculation, as the effect would be antidilutive. |
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end of | 3Q17 | 2Q17 | 4Q16 | ||||
Trading assets (CHF million) | |||||||
Debt securities | 63,228 | 62,677 | 65,668 | ||||
Equity securities | 52,463 | 51,961 | 63,871 | ||||
Derivative instruments 1 | 20,863 | 20,932 | 26,782 | ||||
Other | 5,825 | 5,411 | 8,829 | ||||
Trading assets | 142,379 | 140,981 | 165,150 | ||||
Trading liabilities (CHF million) | |||||||
Short positions | 29,285 | 26,917 | 24,565 | ||||
Derivative instruments 1 | 14,635 | 16,618 | 20,365 | ||||
Trading liabilities | 43,920 | 43,535 | 44,930 | ||||
1 Amounts shown after counterparty and cash collateral netting. |
Cash collateral on derivative instruments
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Cash collateral – netted (CHF million) 1 | |||||||
Cash collateral paid | 23,910 | 24,780 | 33,429 | ||||
Cash collateral received | 15,757 | 18,605 | 22,948 | ||||
Cash collateral – not netted (CHF million) 2 | |||||||
Cash collateral paid | 5,297 | 5,848 | 5,705 | ||||
Cash collateral received | 9,112 | 9,226 | 11,497 | ||||
1 Recorded as cash collateral netting on derivative instruments in Note 21 – Offsetting of financial assets and financial liabilities. | |||||||
2 Recorded as cash collateral on derivative instruments in Note 18 – Other assets and other liabilities. |
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end of | 3Q17 | 2Q17 | 4Q16 | ||||
Investment securities (CHF million) | |||||||
Securities available-for-sale | 2,704 | 2,281 | 2,489 | ||||
Total investment securities | 2,704 | 2,281 | 2,489 |
Investment securities by type
end of | 3Q17 | 4Q16 | |||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||
Investment securities by type (CHF million) | |||||||||||||||||
Debt securities issued by Swiss federal, cantonal or local governmental entities | 199 | 14 | 0 | 213 | 241 | 18 | 0 | 259 | |||||||||
Debt securities issued by foreign governments | 1,371 | 24 | 0 | 1,395 | 1,309 | 34 | 0 | 1,343 | |||||||||
Corporate debt securities | 255 | 0 | 0 | 255 | 287 | 0 | 0 | 287 | |||||||||
Residential mortgage-backed securities 1 | 738 | 0 | 0 | 738 | 497 | 0 | 0 | 497 | |||||||||
Commercial mortgage-backed securities | 2 | 0 | 0 | 2 | 14 | 0 | 0 | 14 | |||||||||
Debt securities available-for-sale | 2,565 | 38 | 0 | 2,603 | 2,348 | 52 | 0 | 2,400 | |||||||||
Banks, trust and insurance companies | 72 | 29 | 0 | 101 | 66 | 23 | 0 | 89 | |||||||||
Equity securities available-for-sale | 72 | 29 | 0 | 101 | 66 | 23 | 0 | 89 | |||||||||
Securities available-for-sale | 2,637 | 67 | 0 | 2,704 | 2,414 | 75 | 0 | 2,489 | |||||||||
1 Relate to the consolidation of RMBS securitization VIEs where the assets are carried at fair value under the fair value option as are the VIEs’ liabilities recorded in long-term debt. |
Proceeds from sales, realized gains and realized losses from available-for-sale securities
in | 9M17 | 9M16 | |||||||
Debt securities | Equity securities | Debt securities | Equity securities | ||||||
Additional information (CHF million) | |||||||||
Proceeds from sales | 6 | 6 | 9 | 2 |
Amortized cost, fair value and average yield of debt securities
Debt securities available-for-sale | |||||||
end of | Amortized cost | Fair value | Average yield (in %) | ||||
3Q17 (CHF million, except where indicated) | |||||||
Due within 1 year | 817 | 822 | 0.61 | ||||
Due from 1 to 5 years | 923 | 948 | 0.99 | ||||
Due from 5 to 10 years | 77 | 83 | 0.96 | ||||
Due after 10 years | 748 | 750 | 1.66 | ||||
Total debt securities | 2,565 | 2,603 | 1.06 |
106
> Refer to “Note 19 – Loans, allowance for loan losses and credit quality” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on loans, allowance for loan losses, credit quality, value of collateral and impaired loans.
Loans
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Loans (CHF million) | |||||||
Mortgages | 105,889 | 105,433 | 104,335 | ||||
Loans collateralized by securities | 41,876 | 40,277 | 37,268 | ||||
Consumer finance | 3,847 | 4,025 | 3,490 | ||||
Consumer | 151,612 | 149,735 | 145,093 | ||||
Real estate | 26,422 | 26,144 | 26,016 | ||||
Commercial and industrial loans | 80,007 | 80,405 | 83,740 | ||||
Financial institutions | 14,829 | 14,575 | 17,921 | ||||
Governments and public institutions | 4,012 | 4,036 | 4,273 | ||||
Corporate & institutional | 125,270 | 125,160 | 131,950 | ||||
Gross loans | 276,882 | 274,895 | 277,043 | ||||
of which held at amortized cost | 261,520 | 258,268 | 257,515 | ||||
of which held at fair value | 15,362 | 16,627 | 19,528 | ||||
Net (unearned income)/deferred expenses | (107) | (113) | (129) | ||||
Allowance for loan losses | (922) | (917) | (938) | ||||
Net loans | 275,853 | 273,865 | 275,976 | ||||
Gross loans by location (CHF million) | |||||||
Switzerland | 158,097 | 158,441 | 158,766 | ||||
Foreign | 118,785 | 116,454 | 118,277 | ||||
Gross loans | 276,882 | 274,895 | 277,043 | ||||
Impaired loan portfolio (CHF million) | |||||||
Non-performing loans | 1,064 | 1,029 | 1,236 | ||||
Non-interest-earning loans | 230 | 228 | 265 | ||||
Non-performing and non-interest-earning loans | 1,294 | 1,257 | 1,501 | ||||
Restructured loans | 317 | 344 | 358 | ||||
Potential problem loans | 583 | 639 | 613 | ||||
Other impaired loans | 900 | 983 | 971 | ||||
Gross impaired loans | 2,194 | 2,240 | 2,472 |
107
Allowance for loan losses by loan portfolio
3Q17 | 2Q17 | 3Q16 | |||||||||||||||||
Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | |||||||||||
Allowance for loan losses (CHF million) | |||||||||||||||||||
Balance at beginning of period | 215 | 702 | 917 | 217 | 682 | 899 | 187 | 676 | 863 | ||||||||||
Net movements recognized in statements of operations | 11 | (3) | 8 | 14 | 56 | 70 | 46 | 16 | 62 | ||||||||||
Gross write-offs | (14) | (21) | (35) | (17) | (36) | (53) | (25) | (53) | (78) | ||||||||||
Recoveries | 2 | 13 | 15 | 2 | 7 | 9 | 4 | 6 | 10 | ||||||||||
Net write-offs | (12) | (8) | (20) | (15) | (29) | (44) | (21) | (47) | (68) | ||||||||||
Provisions for interest | 1 | 6 | 7 | 3 | 2 | 5 | 4 | 4 | 8 | ||||||||||
Foreign currency translation impact and other adjustments, net | 2 | 8 | 10 | (4) | (9) | (13) | 0 | 1 | 1 | ||||||||||
Balance at end of period | 217 | 705 | 922 | 215 | 702 | 917 | 216 | 650 | 866 | ||||||||||
of which individually evaluated for impairment | 175 | 531 | 706 | 172 | 540 | 712 | 170 | 459 | 629 | ||||||||||
of which collectively evaluated for impairment | 42 | 174 | 216 | 43 | 162 | 205 | 46 | 191 | 237 | ||||||||||
Gross loans held at amortized cost (CHF million) | |||||||||||||||||||
Balance at end of period | 151,596 | 109,924 | 261,520 | 149,718 | 108,550 | 258,268 | 145,716 | 109,976 | 255,692 | ||||||||||
of which individually evaluated for impairment 1 | 611 | 1,583 | 2,194 | 607 | 1,633 | 2,240 | 713 | 1,589 | 2,302 | ||||||||||
of which collectively evaluated for impairment | 150,985 | 108,341 | 259,326 | 149,111 | 106,917 | 256,028 | 145,003 | 108,387 | 253,390 |
9M17 | 9M16 | ||||||||||||
Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | ||||||||
Allowance for loan losses (CHF million) | |||||||||||||
Balance at beginning of period | 216 | 722 | 938 | 216 | 650 | 866 | |||||||
Net movements recognized in statements of operations | 42 | 102 | 144 | 53 | 122 | 175 | |||||||
Gross write-offs | (45) | (142) | (187) | (67) | (158) | (225) | |||||||
Recoveries | 10 | 26 | 36 | 9 | 35 | 44 | |||||||
Net write-offs | (35) | (116) | (151) | (58) | (123) | (181) | |||||||
Provisions for interest | (4) | 10 | 6 | 9 | 5 | 14 | |||||||
Foreign currency translation impact and other adjustments, net | (2) | (13) | (15) | (4) | (4) | (8) | |||||||
Balance at end of period | 217 | 705 | 922 | 216 | 650 | 866 | |||||||
1 Represents gross impaired loans both with and without a specific allowance. |
Purchases, reclassifications and sales
in | 3Q17 | 2Q17 | 3Q16 | ||||||||||||||||
Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | |||||||||||
Loans held at amortized cost (CHF million) | |||||||||||||||||||
Purchases 1 | 0 | 727 | 727 | 0 | 734 | 734 | 30 | 500 | 530 | ||||||||||
Reclassifications from loans held-for-sale 2 | 0 | 11 | 11 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||
Reclassifications to loans held-for-sale 3 | 0 | 1,040 | 1,040 | 0 | 705 | 705 | 0 | 256 | 256 | ||||||||||
Sales 3 | 0 | 1,013 | 1,013 | 0 | 907 | 907 | 0 | 275 | 275 | ||||||||||
1 Includes drawdowns under purchased loan commitments. | |||||||||||||||||||
2 Includes loans previously reclassified to held-for-sale that were not sold and were reclassified back to loans held-to-maturity. | |||||||||||||||||||
3 All loans held at amortized cost which are sold are reclassified to loans held-for-sale on or prior to the date of the sale. |
108
Purchases, reclassifications and sales (continued)
in | 9M17 | 9M16 | |||||||||||
Consumer | Corporate & institutional | Total | Consumer | Corporate & institutional | Total | ||||||||
Loans held at amortized cost (CHF million) | |||||||||||||
Purchases 1 | 0 | 2,385 | 2,385 | 30 | 1,915 | 1,945 | |||||||
Reclassifications from loans held-for-sale 2 | 0 | 11 | 11 | 0 | 125 | 125 | |||||||
Reclassifications to loans held-for-sale 3 | 0 | 4,849 | 4,849 | 1,632 | 920 | 2,552 | |||||||
Sales 3 | 0 | 4,709 | 4,709 | 0 | 305 | 305 | |||||||
1 Includes drawdowns under purchased loan commitments. | |||||||||||||
2 Includes loans previously reclassified to held-for-sale that were not sold and were reclassified back to loans held-to-maturity. | |||||||||||||
3 All loans held at amortized cost which are sold are reclassified to loans held-for-sale on or prior to the date of the sale. |
Gross loans held at amortized cost by internal counterparty rating
Investment grade | Non-investment grade | ||||||||
end of | AAA to BBB | BB to C | D | Total | |||||
3Q17 (CHF million) | |||||||||
Mortgages | 94,268 | 11,336 | 285 | 105,889 | |||||
Loans collateralized by securities | 38,575 | 3,191 | 110 | 41,876 | |||||
Consumer finance | 1,440 | 2,238 | 153 | 3,831 | |||||
Consumer | 134,283 | 16,765 | 548 | 151,596 | |||||
Real estate | 19,959 | 5,822 | 108 | 25,889 | |||||
Commercial and industrial loans | 39,001 | 33,041 | 1,361 | 73,403 | |||||
Financial institutions | 7,638 | 1,717 | 47 | 9,402 | |||||
Governments and public institutions | 1,161 | 67 | 2 | 1,230 | |||||
Corporate & institutional | 67,759 | 40,647 | 1,518 | 109,924 | |||||
Gross loans held at amortized cost | 202,042 | 57,412 | 2,066 | 261,520 | |||||
Value of collateral 1 | 188,552 | 47,066 | 1,437 | 237,055 | |||||
4Q16 (CHF million) | |||||||||
Mortgages | 92,533 | 11,613 | 189 | 104,335 | |||||
Loans collateralized by securities | 34,136 | 2,916 | 216 | 37,268 | |||||
Consumer finance | 1,164 | 2,119 | 184 | 3,467 | |||||
Consumer | 127,833 | 16,648 | 589 | 145,070 | |||||
Real estate | 19,594 | 5,878 | 84 | 25,556 | |||||
Commercial and industrial loans | 36,469 | 35,945 | 1,459 | 73,873 | |||||
Financial institutions | 9,695 | 1,887 | 107 | 11,689 | |||||
Governments and public institutions | 1,253 | 60 | 14 | 1,327 | |||||
Corporate & institutional | 67,011 | 43,770 | 1,664 | 112,445 | |||||
Gross loans held at amortized cost | 194,844 | 60,418 | 2,253 | 257,515 | |||||
Value of collateral 1 | 180,276 | 51,344 | 1,480 | 233,100 | |||||
1 Includes the value of collateral up to the amount of the outstanding related loans. For mortgages, the value of collateral is determined at the time of granting the loan and thereafter regularly reviewed according to the Group's risk management policies and directives, with maximum review periods determined by property type, market liquidity and market transparency. |
109
Gross loans held at amortized cost – aging analysis
Current | Past due | ||||||||||||||
end of | Up to 30 days | 31–60 days | 61–90 days | More than 90 days | Total | Total | |||||||||
3Q17 (CHF million) | |||||||||||||||
Mortgages | 104,078 | 1,574 | 14 | 8 | 215 | 1,811 | 105,889 | ||||||||
Loans collateralized by securities | 41,754 | 9 | 0 | 0 | 113 | 122 | 41,876 | ||||||||
Consumer finance | 3,305 | 322 | 35 | 34 | 135 | 526 | 3,831 | ||||||||
Consumer | 149,137 | 1,905 | 49 | 42 | 463 | 2,459 | 151,596 | ||||||||
Real estate | 25,250 | 523 | 11 | 7 | 98 | 639 | 25,889 | ||||||||
Commercial and industrial loans | 72,070 | 586 | 45 | 143 | 559 | 1,333 | 73,403 | ||||||||
Financial institutions | 9,240 | 114 | 3 | 1 | 44 | 162 | 9,402 | ||||||||
Governments and public institutions | 1,225 | 3 | 0 | 0 | 2 | 5 | 1,230 | ||||||||
Corporate & institutional | 107,785 | 1,226 | 59 | 151 | 703 | 2,139 | 109,924 | ||||||||
Gross loans held at amortized cost | 256,922 | 3,131 | 108 | 193 | 1,166 | 4,598 | 261,520 | ||||||||
4Q16 (CHF million) | |||||||||||||||
Mortgages | 102,047 | 2,053 | 29 | 33 | 173 | 2,288 | 104,335 | ||||||||
Loans collateralized by securities | 36,953 | 93 | 1 | 1 | 220 | 315 | 37,268 | ||||||||
Consumer finance | 2,963 | 276 | 36 | 40 | 152 | 504 | 3,467 | ||||||||
Consumer | 141,963 | 2,422 | 66 | 74 | 545 | 3,107 | 145,070 | ||||||||
Real estate | 24,843 | 631 | 17 | 2 | 63 | 713 | 25,556 | ||||||||
Commercial and industrial loans | 72,002 | 854 | 127 | 131 | 759 | 1,871 | 73,873 | ||||||||
Financial institutions | 11,536 | 49 | 0 | 0 | 104 | 153 | 11,689 | ||||||||
Governments and public institutions | 1,268 | 44 | 1 | 0 | 14 | 59 | 1,327 | ||||||||
Corporate & institutional | 109,649 | 1,578 | 145 | 133 | 940 | 2,796 | 112,445 | ||||||||
Gross loans held at amortized cost | 251,612 | 4,000 | 211 | 207 | 1,485 | 5,903 | 257,515 |
Gross impaired loans by category
Non-performing and non-interest-earning loans | Other impaired loans | ||||||||||||||
end of | Non- performing | Non- interest- earning | Total | Re- structured | Potential problem | Total | Total | ||||||||
3Q17 (CHF million) | |||||||||||||||
Mortgages | 256 | 17 | 273 | 13 | 56 | 69 | 342 | 1 | |||||||
Loans collateralized by securities | 95 | 15 | 110 | 0 | 2 | 2 | 112 | ||||||||
Consumer finance | 148 | 8 | 156 | 0 | 1 | 1 | 157 | ||||||||
Consumer | 499 | 40 | 539 | 13 | 59 | 72 | 611 | ||||||||
Real estate | 95 | 5 | 100 | 0 | 19 | 19 | 119 | ||||||||
Commercial and industrial loans | 468 | 141 | 609 | 304 | 502 | 806 | 1,415 | ||||||||
Financial institutions | 0 | 44 | 44 | 0 | 3 | 3 | 47 | ||||||||
Governments and public institutions | 2 | 0 | 2 | 0 | 0 | 0 | 2 | ||||||||
Corporate & institutional | 565 | 190 | 755 | 304 | 524 | 828 | 1,583 | ||||||||
Gross impaired loans | 1,064 | 230 | 1,294 | 317 | 583 | 900 | 2,194 | ||||||||
4Q16 (CHF million) | |||||||||||||||
Mortgages | 190 | 11 | 201 | 13 | 40 | 53 | 254 | 1 | |||||||
Loans collateralized by securities | 193 | 17 | 210 | 0 | 13 | 13 | 223 | ||||||||
Consumer finance | 180 | 4 | 184 | 0 | 1 | 1 | 185 | ||||||||
Consumer | 563 | 32 | 595 | 13 | 54 | 67 | 662 | ||||||||
Real estate | 62 | 5 | 67 | 0 | 19 | 19 | 86 | ||||||||
Commercial and industrial loans | 539 | 182 | 721 | 345 | 513 | 858 | 1,579 | ||||||||
Financial institutions | 58 | 46 | 104 | 0 | 27 | 27 | 131 | ||||||||
Governments and public institutions | 14 | 0 | 14 | 0 | 0 | 0 | 14 | ||||||||
Corporate & institutional | 673 | 233 | 906 | 345 | 559 | 904 | 1,810 | ||||||||
Gross impaired loans | 1,236 | 265 | 1,501 | 358 | 613 | 971 | 2,472 | ||||||||
1 As of the end of 3Q17 and 4Q16, CHF 114 million and CHF 62 million, respectively, were related to consumer mortgages secured by residential real estate for which formal foreclosure proceedings according to local requirements of the applicable jurisdiction were in process. |
110
Gross impaired loan detail
end of | 3Q17 | 4Q16 | |||||||||||
Recorded investment | Unpaid principal balance | Associated specific allowance | Recorded investment | Unpaid principal balance | Associated specific allowance | ||||||||
Gross impaired loan detail (CHF million) | |||||||||||||
Mortgages | 264 | 248 | 35 | 211 | 198 | 21 | |||||||
Loans collateralized by securities | 109 | 97 | 45 | 209 | 193 | 54 | |||||||
Consumer finance | 155 | 135 | 95 | 177 | 160 | 97 | |||||||
Consumer | 528 | 480 | 175 | 597 | 551 | 172 | |||||||
Real estate | 86 | 80 | 11 | 65 | 59 | 10 | |||||||
Commercial and industrial loans | 1,165 | 1,127 | 481 | 1,283 | 1,250 | 472 | |||||||
Financial institutions | 47 | 47 | 39 | 126 | 122 | 46 | |||||||
Governments and public institutions | 2 | 2 | 0 | 14 | 14 | 0 | |||||||
Corporate & institutional | 1,300 | 1,256 | 531 | 1,488 | 1,445 | 528 | |||||||
Gross impaired loans with a specific allowance | 1,828 | 1,736 | 706 | 2,085 | 1,996 | 700 | |||||||
Mortgages | 78 | 78 | – | 43 | 43 | – | |||||||
Loans collateralized by securities | 3 | 3 | – | 14 | 14 | – | |||||||
Consumer finance | 2 | 2 | – | 8 | 8 | – | |||||||
Consumer | 83 | 83 | – | 65 | 65 | – | |||||||
Real estate | 33 | 33 | – | 21 | 21 | – | |||||||
Commercial and industrial loans | 250 | 250 | – | 296 | 296 | – | |||||||
Financial institutions | 0 | 0 | – | 5 | 5 | – | |||||||
Corporate & institutional | 283 | 283 | – | 322 | 322 | – | |||||||
Gross impaired loans without specific allowance | 366 | 366 | – | 387 | 387 | – | |||||||
Gross impaired loans | 2,194 | 2,102 | 706 | 2,472 | 2,383 | 700 | |||||||
of which consumer | 611 | 563 | 175 | 662 | 616 | 172 | |||||||
of which corporate & institutional | 1,583 | 1,539 | 531 | 1,810 | 1,767 | 528 |
111
Gross impaired loan detail (continued)
in | 3Q17 | 2Q17 | 3Q16 | ||||||||||||||||
Average recorded investment | Interest income recognized | Interest income recognized (cash basis) | Average recorded investment | Interest income recognized | Interest income recognized (cash basis) | Average recorded investment | Interest income recognized | Interest income recognized (cash basis) | |||||||||||
Gross impaired loan detail (CHF million) | |||||||||||||||||||
Mortgages | 232 | 1 | 0 | 233 | 1 | 1 | 195 | 0 | 0 | ||||||||||
Loans collateralized by securities | 111 | 0 | 0 | 112 | 0 | 0 | 176 | 0 | 0 | ||||||||||
Consumer finance | 161 | 3 | 3 | 169 | 1 | 1 | 204 | 0 | 0 | ||||||||||
Consumer | 504 | 4 | 3 | 514 | 2 | 2 | 575 | 0 | 0 | ||||||||||
Real estate | 78 | 0 | 0 | 71 | 0 | 0 | 69 | 1 | 0 | ||||||||||
Commercial and industrial loans | 1,167 | 4 | 0 | 1,110 | 3 | 1 | 973 | 3 | 2 | ||||||||||
Financial institutions | 70 | 1 | 1 | 76 | 0 | 0 | 146 | 0 | 0 | ||||||||||
Governments and public institutions | 4 | 0 | 0 | 6 | 0 | 0 | 3 | 0 | 0 | ||||||||||
Corporate & institutional | 1,319 | 5 | 1 | 1,263 | 3 | 1 | 1,191 | 4 | 2 | ||||||||||
Gross impaired loans with a specific allowance | 1,823 | 9 | 4 | 1,777 | 5 | 3 | 1,766 | 4 | 2 | ||||||||||
Mortgages | 79 | 0 | 0 | 87 | 1 | 0 | 90 | 1 | 0 | ||||||||||
Loans collateralized by securities | 3 | 0 | 0 | 9 | 0 | 0 | 10 | 0 | 0 | ||||||||||
Consumer finance | 2 | 0 | 0 | 1 | 0 | 0 | 7 | 0 | 0 | ||||||||||
Consumer | 84 | 0 | 0 | 97 | 1 | 0 | 107 | 1 | 0 | ||||||||||
Real estate | 36 | 1 | 0 | 37 | 0 | 0 | 23 | 0 | 0 | ||||||||||
Commercial and industrial loans | 278 | 3 | 0 | 289 | 3 | 1 | 375 | 2 | 0 | ||||||||||
Financial institutions | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 0 | ||||||||||
Governments and public institutions | 0 | 0 | 0 | 0 | 0 | 0 | 13 | 0 | 0 | ||||||||||
Corporate & institutional | 314 | 4 | 0 | 326 | 3 | 1 | 414 | 2 | 0 | ||||||||||
Gross impaired loans without specific allowance | 398 | 4 | 0 | 423 | 4 | 1 | 521 | 3 | 0 | ||||||||||
Gross impaired loans | 2,221 | 13 | 4 | 2,200 | 9 | 4 | 2,287 | 7 | 2 | ||||||||||
of which consumer | 588 | 4 | 3 | 611 | 3 | 2 | 682 | 1 | 0 | ||||||||||
of which corporate & institutional | 1,633 | 9 | 1 | 1,589 | 6 | 2 | 1,605 | 6 | 2 |
112
Gross impaired loan detail (continued)
in | 9M17 | 9M16 | |||||||||||
Average recorded investment | Interest income recognized | Interest income recognized (cash basis) | Average recorded investment | Interest income recognized | Interest income recognized (cash basis) | ||||||||
Gross impaired loan detail (CHF million) | |||||||||||||
Mortgages | 224 | 2 | 1 | 192 | 1 | 1 | |||||||
Loans collateralized by securities | 118 | 0 | 0 | 137 | 0 | 0 | |||||||
Consumer finance | 167 | 4 | 4 | 208 | 0 | 0 | |||||||
Consumer | 509 | 6 | 5 | 537 | 1 | 1 | |||||||
Real estate | 73 | 0 | 0 | 70 | 1 | 0 | |||||||
Commercial and industrial loans | 1,168 | 12 | 3 | 973 | 8 | 3 | |||||||
Financial institutions | 85 | 1 | 1 | 159 | 1 | 0 | |||||||
Governments and public institutions | 7 | 0 | 0 | 2 | 0 | 0 | |||||||
Corporate & institutional | 1,333 | 13 | 4 | 1,204 | 10 | 3 | |||||||
Gross impaired loans with a specific allowance | 1,842 | 19 | 9 | 1,741 | 11 | 4 | |||||||
Mortgages | 78 | 2 | 0 | 88 | 3 | 0 | |||||||
Loans collateralized by securities | 9 | 0 | 0 | 18 | 0 | 0 | |||||||
Consumer finance | 3 | 0 | 0 | 12 | 0 | 0 | |||||||
Consumer | 90 | 2 | 0 | 118 | 3 | 0 | |||||||
Real estate | 33 | 1 | 0 | 33 | 0 | 0 | |||||||
Commercial and industrial loans | 278 | 8 | 1 | 303 | 5 | 0 | |||||||
Financial institutions | 0 | 0 | 0 | 2 | 0 | 0 | |||||||
Governments and public institutions | 0 | 0 | 0 | 7 | 0 | 0 | |||||||
Corporate & institutional | 311 | 9 | 1 | 345 | 5 | 0 | |||||||
Gross impaired loans without specific allowance | 401 | 11 | 1 | 463 | 8 | 0 | |||||||
Gross impaired loans | 2,243 | 30 | 10 | 2,204 | 19 | 4 | |||||||
of which consumer | 599 | 8 | 5 | 655 | 4 | 1 | |||||||
of which corporate & institutional | 1,644 | 22 | 5 | 1,549 | 15 | 3 |
Restructured loans held at amortized cost
in | 3Q17 | 2Q17 | 3Q16 | ||||||||||||||||
Number of contracts | Recorded investment – pre- modification | Recorded investment – post- modification | Number of contracts | Recorded investment – pre- modification | Recorded investment – post- modification | Number of contracts | Recorded investment – pre- modification | Recorded investment – post- modification | |||||||||||
Restructured loans (CHF million, except where indicated) | |||||||||||||||||||
Commercial and industrial loans | 0 | 0 | 0 | 5 | 14 | 14 | 3 | 64 | 64 | ||||||||||
Total | 0 | 0 | 0 | 5 | 14 | 14 | 3 | 64 | 64 |
in | 9M17 | 9M16 | |||||||||||
Number of contracts | Recorded investment – pre- modification | Recorded investment – post- modification | Number of contracts | Recorded investment – pre- modification | Recorded investment – post- modification | ||||||||
Restructured loans (CHF million, except where indicated) | |||||||||||||
Commercial and industrial loans | 9 | 49 | 49 | 11 | 123 | 123 | |||||||
Total | 9 | 49 | 49 | 11 | 123 | 123 |
In 3Q17, 2Q17, 3Q16, 9M17 and 9M16, the Group did not experience a default on any loan that had been restructured within the previous 12 months.
In 9M17, the loan modifications of the Group included extended loan repayment terms, including the suspension of quarterly and annual loan amortizations, modifications of covenants and a waiver of a loan termination.
113
Goodwill
3Q17 | Swiss Universal Bank | International Wealth Management | Asia Pacific | Global Markets | Investment Banking & Capital Markets | Strategic Resolution Unit | Credit Suisse Group | ||||||||
Gross amount of goodwill (CHF million) | |||||||||||||||
Balance at beginning of period | 602 | 1,523 | 2,245 | 3,171 | 1,011 | 12 | 8,564 | ||||||||
Foreign currency translation impact | 4 | 17 | 12 | 4 | 5 | 0 | 42 | ||||||||
Balance at end of period | 606 | 1,540 | 2,257 | 3,175 | 1,016 | 12 | 8,606 | ||||||||
Accumulated impairment (CHF million) | |||||||||||||||
Balance at beginning of period | 0 | 0 | 772 | 2,719 | 388 | 12 | 3,891 | ||||||||
Balance at end of period | 0 | 0 | 772 | 2,719 | 388 | 12 | 3,891 | ||||||||
Net book value (CHF million) | |||||||||||||||
Net book value | 606 | 1,540 | 1,485 | 456 | 628 | 0 | 4,715 |
9M17 | |||||||||||||||
Gross amount of goodwill (CHF million) | |||||||||||||||
Balance at beginning of period | 623 | 1,612 | 2,318 | 3,195 | 1,044 | 12 | 8,804 | ||||||||
Foreign currency translation impact | (17) | (68) | (61) | (20) | (28) | 0 | (194) | ||||||||
Other | 0 | (4) | 0 | 0 | 0 | 0 | (4) | ||||||||
Balance at end of period | 606 | 1,540 | 2,257 | 3,175 | 1,016 | 12 | 8,606 | ||||||||
Accumulated impairment (CHF million) | |||||||||||||||
Balance at beginning of period | 0 | 0 | 772 | 2,719 | 388 | 12 | 3,891 | ||||||||
Balance at end of period | 0 | 0 | 772 | 2,719 | 388 | 12 | 3,891 | ||||||||
Net book value (CHF million) | |||||||||||||||
Net book value | 606 | 1,540 | 1,485 | 456 | 628 | 0 | 4,715 |
In accordance with US GAAP, the Group continually assesses whether or not there has been a triggering event requiring a review of goodwill. There was no triggering event in 3Q17. As of September 30, 2017, the Group’s market capitalization was below book value.
On December 7, 2016, and on February 14, 2017, the Group announced a reorganization and change to financial reporting affecting its Swiss Universal Bank and Asia Pacific segments. During 1Q17, these measures were implemented. The Group determined that these changes constituted triggering events. The Group’s reporting units as a result of these measures are defined as follows: Swiss Universal Bank – Private Clients (formerly Private Banking), Swiss Universal Bank – Corporate & Institutional Clients (formerly Corporate & Institutional Banking), International Wealth Management – Private Banking, International Wealth Management – Asset Management, Asia Pacific – Wealth Management & Connected (formerly Private Banking), Asia Pacific – Markets (formerly Investment Banking), Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit.
The carrying value of each reporting unit for the purpose of the goodwill impairment test is determined by considering the reporting units’ risk-weighted assets usage, leverage ratio exposure, deferred tax assets, goodwill and intangible assets. Any residual equity, after considering the total of these elements, is allocated to the reporting units on a pro-rata basis.
In estimating the fair value of its reporting units, the Group applied a combination of the market approach and the income approach. Under the market approach, consideration was given to price to projected earnings multiples or price to book value multiples for similarly traded companies and prices paid in recent transactions that have occurred in its industry or in related industries. Under the income approach, a discount rate was applied that reflects the risk and uncertainty related to the reporting unit’s projected cash flows, which are determined from the Group’s financial plan.
In determining the estimated fair value, the Group relied upon its updated five-year strategic business plan which included significant management assumptions and estimates based on its view of current and future economic conditions and regulatory changes.
Goodwill is tested for impairment before and immediately after a reorganization or restructuring of reporting units. As a result, the goodwill impairment test was performed during 1Q17 under the old business structure and then again under the modified structure according to the measures implemented in connection with the announcements on December 7, 2016 and on February 14, 2017.
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The Group concluded that the estimated fair value for all of its reporting units impacted by the measures implemented in connection with the December 7, 2016 and February 14, 2017 announcements substantially exceeded their related carrying values and that no impairment was necessary.
The results of the impairment evaluation of each reporting unit’s goodwill would be significantly impacted by adverse changes in the underlying parameters used in the valuation process. If actual outcomes adversely differ by a significant margin from its best estimates of the key economic assumptions and associated cash flows applied in the valuation of the reporting unit, the Group could potentially incur material impairment charges in the future.
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Other assets (CHF million) | |||||||
Cash collateral on derivative instruments | 5,297 | 5,848 | 5,705 | ||||
Cash collateral on non-derivative transactions | 1,848 | 873 | 1,237 | ||||
Derivative instruments used for hedging | 44 | 112 | 148 | ||||
Assets held-for-sale | 7,210 | 9,920 | 8,214 | ||||
of which loans 1 | 7,029 | 9,742 | 8,062 | ||||
of which real estate 2 | 143 | 150 | 122 | ||||
of which long-lived assets | 38 | 28 | 30 | ||||
Assets held for separate accounts | 398 | 410 | 431 | ||||
Interest and fees receivable | 4,532 | 4,577 | 4,787 | ||||
Deferred tax assets | 7,503 | 7,542 | 5,828 | ||||
Prepaid expenses | 450 | 464 | 394 | ||||
Failed purchases | 1,430 | 1,642 | 2,423 | ||||
Defined benefit pension and post-retirement plan assets | 1,591 | 1,412 | 1,061 | ||||
Other | 3,823 | 3,474 | 6,637 | ||||
Other assets | 34,126 | 36,274 | 36,865 | ||||
Other liabilities (CHF million) | |||||||
Cash collateral on derivative instruments | 9,112 | 9,226 | 11,497 | ||||
Cash collateral on non-derivative transactions | 545 | 418 | 369 | ||||
Derivative instruments used for hedging | 3 | 2 | 2 | ||||
Deposits held-for-sale | 0 | 0 | 1,577 | ||||
Provisions | 980 | 954 | 4,077 | ||||
of which off-balance sheet risk | 108 | 82 | 88 | ||||
Restructuring liabilities | 273 | 264 | 311 | ||||
Liabilities held for separate accounts | 398 | 410 | 431 | ||||
Interest and fees payable | 5,221 | 5,548 | 6,039 | ||||
Current tax liabilities | 602 | 526 | 636 | ||||
Deferred tax liabilities | 271 | 231 | 129 | ||||
Failed sales | 657 | 787 | 737 | ||||
Defined benefit pension and post-retirement plan liabilities | 529 | 501 | 516 | ||||
Other | 12,231 | 11,267 | 13,534 | ||||
Other liabilities | 30,822 | 30,134 | 39,855 | ||||
1 Included as of the end of 3Q17, 2Q17 and 4Q16 were CHF 477 million, CHF 608 million and CHF 681 million, respectively, in restricted loans, which represented collateral on secured borrowings. | |||||||
2 As of the end of 3Q17, 2Q17 and 4Q16, real estate held-for-sale included foreclosed or repossessed real estate of CHF 5 million, CHF 5 million and CHF 16 million, respectively, of which CHF 2 million, CHF 2 million and CHF 13 million, respectively were related to residental real estate. |
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Long-term debt
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Long-term debt (CHF million) | |||||||
Senior | 155,529 | 152,549 | 168,601 | ||||
Subordinated | 23,293 | 22,952 | 22,955 | ||||
Non-recourse liabilities from consolidated VIEs | 1,472 | 1,199 | 1,759 | ||||
Long-term debt | 180,294 | 176,700 | 193,315 | ||||
of which reported at fair value | 69,346 | 71,803 | 72,868 | ||||
of which structured notes | 56,962 | 57,664 | 59,544 |
Structured notes by product
end of | 3Q17 | 2Q17 | 4Q16 | ||||
Structured notes (CHF million) | |||||||
Equity | 35,838 | 35,393 | 35,980 | ||||
Fixed income | 14,662 | 15,632 | 16,395 | ||||
Credit | 5,101 | 5,429 | 5,713 | ||||
Other | 1,361 | 1,210 | 1,456 | ||||
Total structured notes | 56,962 | 57,664 | 59,544 |
116
Accumulated other comprehensive income/(loss)
Gains/ (losses) on cash flow hedges | Cumulative translation adjustments | Unrealized gains/ (losses) on securities | Actuarial gains/ (losses) | Net prior service credit/ (cost) | Gains/ (losses) on liabilities relating to credit risk | Accumu- lated other compre- hensive income/ (loss) | |||||||||
3Q17 (CHF million) | |||||||||||||||
Balance at beginning of period | (29) | (13,686) | 54 | (4,093) | 576 | (1,711) | (18,889) | ||||||||
Increase/(decrease) | 3 | 353 | 0 | (14) | 0 | (522) | (180) | ||||||||
Increase/(decrease) due to equity method investments | 1 | (1) | 0 | 0 | 0 | 0 | 0 | ||||||||
Reclassification adjustments, included in net income/(loss) | (9) | 0 | 0 | 82 | (27) | 170 | 216 | ||||||||
Total increase/(decrease) | (5) | 352 | 0 | 68 | (27) | (352) | 36 | ||||||||
Balance at end of period | (34) | (13,334) | 54 | (4,025) | 549 | (2,063) | (18,853) | ||||||||
2Q17 (CHF million) | |||||||||||||||
Balance at beginning of period | (39) | (12,591) | 59 | (4,175) | 604 | (1,081) | (17,223) | ||||||||
Increase/(decrease) | (8) | (1,096) | (5) | 2 | 0 | (628) | (1,735) | ||||||||
Increase/(decrease) due to equity method investments | 0 | 1 | 0 | 0 | 0 | 0 | 1 | ||||||||
Reclassification adjustments, included in net income/(loss) | 18 | 0 | 0 | 80 | (28) | (2) | 68 | ||||||||
Total increase/(decrease) | 10 | (1,095) | (5) | 82 | (28) | (630) | (1,666) | ||||||||
Balance at end of period | (29) | (13,686) | 54 | (4,093) | 576 | (1,711) | (18,889) | ||||||||
3Q16 (CHF million) | |||||||||||||||
Balance at beginning of period | 51 | (13,121) | 67 | (4,485) | 554 | 1,672 | (15,262) | ||||||||
Increase/(decrease) | (28) | (214) | (1) | 13 | 0 | (852) | (1,082) | ||||||||
Increase/(decrease) due to equity method investments | 2 | 0 | 0 | 0 | 0 | 0 | 2 | ||||||||
Reclassification adjustments, included in net income/(loss) | (6) | 2 | 0 | 82 | (24) | 0 | 54 | ||||||||
Total increase/(decrease) | (32) | (212) | (1) | 95 | (24) | (852) | (1,026) | ||||||||
Balance at end of period | 19 | (13,333) | 66 | (4,390) | 530 | 820 | (16,288) | ||||||||
9M17 (CHF million) | |||||||||||||||
Balance at beginning of period | (35) | (12,095) | 61 | (4,278) | 643 | (568) | (16,272) | ||||||||
Increase/(decrease) | (13) | (1,262) | (7) | 11 | 0 | (1,663) | (2,934) | ||||||||
Increase/(decrease) due to equity method investments | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||
Reclassification adjustments, included in net income/(loss) | 13 | 23 | 0 | 242 | (94) | 168 | 352 | ||||||||
Total increase/(decrease) | 1 | (1,239) | (7) | 253 | (94) | (1,495) | (2,581) | ||||||||
Balance at end of period | (34) | (13,334) | 54 | (4,025) | 549 | (2,063) | (18,853) | ||||||||
9M16 (CHF million) | |||||||||||||||
Balance at beginning of period | (15) | (12,615) | 60 | (4,672) | 607 | – | (16,635) | ||||||||
Increase/(decrease) | 45 | (778) | 6 | 35 | 0 | 345 | (347) | ||||||||
Increase/(decrease) due to equity method investments | (4) | 0 | 0 | 0 | 0 | 0 | (4) | ||||||||
Reclassification adjustments, included in net income/(loss) | (7) | 60 | 0 | 247 | (77) | 0 | 223 | ||||||||
Cumulative effect of accounting changes, net of tax | 0 | 0 | 0 | 0 | 0 | 475 | 475 | ||||||||
Total increase/(decrease) | 34 | (718) | 6 | 282 | (77) | 820 | 347 | ||||||||
Balance at end of period | 19 | (13,333) | 66 | (4,390) | 530 | 820 | (16,288) |
117
Details on significant reclassification adjustments
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Reclassification adjustments, included in net income/(loss) (CHF million) | |||||||||||
Cumulative translation adjustments | |||||||||||
Reclassification adjustments 1 | 0 | 0 | 2 | 23 | 60 | ||||||
Actuarial gains/(losses) | |||||||||||
Amortization of recognized actuarial losses 2 | 102 | 100 | 105 | 302 | 317 | ||||||
Tax expense/(benefit) | (20) | (20) | (23) | (60) | (70) | ||||||
Net of tax | 82 | 80 | 82 | 242 | 247 | ||||||
Net prior service credit/(cost) | |||||||||||
Amortization of recognized prior service credit/(cost) 2 | (34) | (36) | (30) | (120) | (98) | ||||||
Tax expense | 7 | 8 | 6 | 26 | 21 | ||||||
Net of tax | (27) | (28) | (24) | (94) | (77) | ||||||
Gains/(losses) on liabilities relating to credit risk | |||||||||||
Reclassification adjustments 3 | 170 | (2) | 0 | 168 | 0 | ||||||
1 Includes net releases of CHF 23 million on the sale of Credit Suisse (Monaco) S.A.M. in 1Q17 and net releases of CHF 2 million, CHF 3 million and CHF 52 million on the sale of Credit Suisse (Gibraltar) Limited in 3Q16, 2Q16 and 1Q16, respectively. These were reclassified from cumulative translation adjustments and included in net income in other revenues. | |||||||||||
2 These components are included in the computation of total benefit costs. Refer to "Note 24 – Pension and other post-retirement benefits" for further information. | |||||||||||
3 Includes the positive impact of an enhancement to the valuation methodology relating to the instrument-specific credit risk on fair value option elected structured notes that were previously recorded in accumulated other comprehensive income and were transferred to net income (trading revenues). Refer to "Note 28 - Financial instruments" for further information. |
Additional share information
3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | |||||||
Common shares issued | |||||||||||
Balance at beginning of period | 2,556,011,720 | 2,089,897,378 | 2,089,897,378 | 2,089,897,378 | 1,957,379,244 | ||||||
Issuance of common shares | 0 | 466,114,342 | 0 | 466,114,342 | 132,518,134 | ||||||
of which share-based compensation | 0 | 0 | 0 | 0 | 30,000,000 | ||||||
Balance at end of period | 2,556,011,720 | 2,556,011,720 | 2,089,897,378 | 2,556,011,720 | 2,089,897,378 | ||||||
Treasury shares | |||||||||||
Balance at beginning of period | (2,742,487) | (6,308,347) | (8,533,613) | 0 | (5,910,224) | ||||||
Sale of treasury shares | 225,915,428 | 240,261,524 | 346,218,308 | 631,637,175 | 1,011,408,538 | ||||||
Repurchase of treasury shares | (227,146,403) | (273,705,085) | (340,446,685) | (673,718,857) | (1,018,608,827) | ||||||
Share-based compensation | 3,023,747 | 37,009,421 | 1,199,850 | 41,131,967 | 11,548,373 | ||||||
Balance at end of period | (949,715) | (2,742,487) | (1,562,140) | (949,715) | (1,562,140) | ||||||
Common shares outstanding | |||||||||||
Balance at end of period | 2,555,062,005 | 1 | 2,553,269,233 | 1 | 2,088,335,238 | 2 | 2,555,062,005 | 1 | 2,088,335,238 | 2 | |
1 At par value CHF 0.04 each, fully paid. In addition to the treasury shares, a maximum of 653,000,000 unissued shares (conditional, conversion and authorized capital) were available for issuance without further approval of the shareholders. 505,062,294 of these shares were reserved for capital instruments. | |||||||||||
2 At par value CHF 0.04 each, fully paid. In addition to the treasury shares, a maximum of 653,000,000 unissued shares (conditional, conversion and authorized capital) were available for issuance without further approval of the shareholders. 415,099,918 of these shares were reserved for capital instruments. |
118
The disclosures set out in the tables below include derivatives, reverse repurchase and repurchase agreements, and securities lending and borrowing transactions that:
– are offset in the Group’s consolidated balance sheets; or
– are subject to an enforceable master netting agreement or similar agreement (enforceable master netting agreements), irrespective of whether they are offset in the Group’s consolidated balance sheets.
Similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities lending agreements.
Derivatives
The Group transacts bilateral OTC derivatives mainly under the International Swaps and Derivatives Association (ISDA) Master Agreements and Swiss Master Agreements for OTC derivative instruments. These agreements provide for the net settlement of all transactions under the agreement through a single payment in the event of default or termination under the agreement. They allow the Group to offset balances from derivative assets and liabilities as well as the receivables and payables to related cash collateral transacted with the same counterparty. Collateral for OTC derivatives is received and provided in the form of cash and marketable securities. Such collateral may be subject to the standard industry terms of an ISDA Credit Support Annex. The terms of an ISDA Credit Support Annex provide that securities received or provided as collateral may be pledged or sold during the term of the transactions and must be returned upon maturity of the transaction. These terms also give each counterparty the right to terminate the related transactions upon the other counterparty’s failure to post collateral. Financial collateral received or pledged for OTC derivatives may also be subject to collateral agreements which restrict the use of financial collateral.
For derivatives transacted with exchanges (exchange-traded derivatives) and central clearing counterparties (OTC-cleared derivatives), positive and negative replacement values (PRV/NRV) and related cash collateral may be offset if the terms of the rules and regulations governing these exchanges and central clearing counterparties permit such netting and offset.
Where no such agreements exist, fair values are recorded on a gross basis.
Exchange-traded derivatives or OTC-cleared derivatives, that are fully margined and for which the daily margin payments constitute settlement of the outstanding exposure, are not included in the offsetting disclosures because they are not subject to offsetting due to the daily settlement. The daily margin payments, which are not settled until the next settlement cycle is conducted, are presented in brokerage receivables or brokerage payables. The notional amount for these daily settled derivatives is included in the fair value of derivative instruments table in “Note 25 – Derivatives and hedging activities”.
Under US GAAP, the Group elected to account for substantially all financial instruments with an embedded derivative that is not considered clearly and closely related to the host contract at fair value. There is an exception for a bifurcatable hybrid debt instrument which the Group did not elect to account for at fair value. However, this bifurcated embedded derivative is not subject to an enforceable master netting agreement and is not recorded as a derivative instrument under trading assets and liabilities or other assets and other liabilities. Information on this bifurcated embedded derivative has therefore not been included in the offsetting disclosures.
119
The following table presents the gross amount of derivatives subject to enforceable master netting agreements by contract and transaction type, the amount of offsetting, the amount of derivatives not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
Offsetting of derivatives
end of | 3Q17 | 4Q16 | |||||||
Derivative assets | Derivative liabilities | Derivative assets | Derivative liabilities | ||||||
Gross derivatives subject to enforceable master netting agreements (CHF billion) | |||||||||
OTC-cleared | 2.2 | 1.5 | 8.2 | 7.5 | |||||
OTC | 88.5 | 82.5 | 129.1 | 121.7 | |||||
Exchange-traded | 0.1 | 0.2 | 0.1 | 0.1 | |||||
Interest rate products | 90.8 | 84.2 | 137.4 | 129.3 | |||||
OTC | 32.7 | 38.5 | 59.3 | 69.2 | |||||
Exchange-traded | 0.0 | 0.0 | 0.0 | 0.1 | |||||
Foreign exchange products | 32.7 | 38.5 | 59.3 | 69.3 | |||||
OTC | 12.7 | 12.9 | 11.2 | 11.5 | |||||
Exchange-traded | 10.0 | 11.1 | 11.5 | 13.0 | |||||
Equity/index-related products | 22.7 | 24.0 | 22.7 | 24.5 | |||||
OTC-cleared | 3.6 | 4.0 | 2.1 | 2.3 | |||||
OTC | 4.7 | 5.4 | 5.8 | 6.2 | |||||
Credit derivatives | 8.3 | 9.4 | 7.9 | 8.5 | |||||
OTC | 1.1 | 0.6 | 2.2 | 1.1 | |||||
Exchange-traded | 0.0 | 0.0 | 0.0 | 0.1 | |||||
Other products | 1.1 | 0.6 | 2.2 | 1.2 | |||||
OTC-cleared | 5.8 | 5.5 | 10.3 | 9.8 | |||||
OTC | 139.7 | 139.9 | 207.6 | 209.7 | |||||
Exchange-traded | 10.1 | 11.3 | 11.6 | 13.3 | |||||
Total gross derivatives subject to enforceable master netting agreements | 155.6 | 156.7 | 229.5 | 232.8 | |||||
Offsetting (CHF billion) | |||||||||
OTC-cleared | (5.6) | (5.4) | (8.5) | (7.8) | |||||
OTC | (123.9) | (131.3) | (188.6) | (199.1) | |||||
Exchange-traded | (9.7) | (10.7) | (11.1) | (11.9) | |||||
Offsetting | (139.2) | (147.4) | (208.2) | (218.8) | |||||
of which counterparty netting | (123.4) | (123.4) | (184.7) | (184.7) | |||||
of which cash collateral netting | (15.8) | (24.0) | (23.5) | (34.1) | |||||
Net derivatives presented in the consolidated balance sheets (CHF billion) | |||||||||
OTC-cleared | 0.2 | 0.1 | 1.8 | 2.0 | |||||
OTC | 15.8 | 8.6 | 19.0 | 10.6 | |||||
Exchange-traded | 0.4 | 0.6 | 0.5 | 1.4 | |||||
Total net derivatives subject to enforceable master netting agreements | 16.4 | 9.3 | 21.3 | 14.0 | |||||
Total derivatives not subject to enforceable master netting agreements 1 | 4.5 | 5.3 | 5.6 | 6.4 | |||||
Total net derivatives presented in the consolidated balance sheets | 20.9 | 14.6 | 26.9 | 20.4 | |||||
of which recorded in trading assets and trading liabilities | 20.9 | 14.6 | 26.8 | 20.4 | |||||
of which recorded in other assets and other liabilities | 0.0 | 0.0 | 0.1 | 0.0 | |||||
1 Represents derivatives where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place. |
120
Reverse repurchase and repurchase agreements and securities lending and borrowing transactions
Reverse repurchase and repurchase agreements are generally covered by global master repurchase agreements with netting terms similar to ISDA Master Agreements. In certain situations, for example in the event of default, all contracts under the agreements are terminated and are settled net in one single payment. Transactions under such agreements are netted in the consolidated balance sheets if they are with the same counterparty, have the same maturity date, settle through the same clearing institution and are subject to the same master netting agreement. The amounts offset are measured on the same basis as the underlying transaction (i.e., on an accrual basis or fair value basis).
Securities lending and borrowing transactions are generally executed under global master securities lending agreements with netting terms similar to ISDA Master Agreements. In certain situations, for example in the event of default, all contracts under the agreement are terminated and are settled net in one single payment. Transactions under these agreements are netted in the consolidated balance sheets if they meet the same right of offset criteria as for reverse repurchase and repurchase agreements. In general, most securities lending and borrowing transactions do not meet the criterion of having the same settlement date specified at inception of the transaction, and therefore they are not eligible for netting in the consolidated balance sheets. However, securities lending and borrowing transactions with explicit maturity dates may be eligible for netting in the consolidated balance sheets.
Reverse repurchase and repurchase agreements are collateralized principally by government securities, money market instruments and corporate bonds and have terms ranging from overnight to a longer or unspecified period of time. In the event of counterparty default, the reverse repurchase agreement or securities lending agreement provides the Group with the right to liquidate the collateral held. In certain circumstances, financial collateral received may be restricted during the term of the agreement (e.g., in tri-party arrangements).
The following table presents the gross amount of securities purchased under resale agreements and securities borrowing transactions subject to enforceable master netting agreements, the amount of offsetting, the amount of securities purchased under resale agreements and securities borrowing transactions not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
Offsetting of securities purchased under resale agreements and securities borrowing transactions
end of | 3Q17 | 4Q16 | |||||||||||
Gross | Offsetting | Net book value | Gross | Offsetting | Net book value | ||||||||
Securities purchased under resale agreements and securities borrowing transactions (CHF billion) | |||||||||||||
Securities purchased under resale agreements | 106.5 | (24.1) | 82.4 | 99.9 | (26.9) | 73.0 | |||||||
Securities borrowing transactions | 18.6 | (4.8) | 13.8 | 24.0 | (4.5) | 19.5 | |||||||
Total subject to enforceable master netting agreements | 125.1 | (28.9) | 96.2 | 123.9 | (31.4) | 92.5 | |||||||
Total not subject to enforceable master netting agreements 1 | 43.8 | – | 43.8 | 42.2 | – | 42.2 | |||||||
Total | 168.9 | (28.9) | 140.0 | 2 | 166.1 | (31.4) | 134.7 | 2 | |||||
1 Represents securities purchased under resale agreements and securities borrowing transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place. | |||||||||||||
2 CHF 97,413 million and CHF 87,331 million of the total net amount as of the end of 3Q17 and 4Q16, respectively, are reported at fair value. |
The following table presents the gross amount of securities sold under repurchase agreements and securities lending transactions subject to enforceable master netting agreements, the amount of offsetting, the amount of securities sold under repurchase agreements and securities lending transactions not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
121
Offsetting of securities sold under repurchase agreements and securities lending transactions
end of | 3Q17 | 4Q16 | |||||||||||
Gross | Offsetting | Net book value | Gross | Offsetting | Net book value | ||||||||
Securities sold under repurchase agreements and securities lending transactions (CHF billion) | |||||||||||||
Securities sold under repurchase agreements | 47.7 | (26.5) | 21.2 | 51.3 | (29.0) | 22.3 | |||||||
Securities lending transactions | 7.9 | (2.4) | 5.5 | 8.3 | (2.4) | 5.9 | |||||||
Obligation to return securities received as collateral, at fair value | 32.7 | 0.0 | 32.7 | 31.9 | 0.0 | 31.9 | |||||||
Total subject to enforceable master netting agreements | 88.3 | (28.9) | 59.4 | 91.5 | (31.4) | 60.1 | |||||||
Total not subject to enforceable master netting agreements 1 | 9.6 | – | 9.6 | 5.5 | – | 5.5 | |||||||
Total | 97.9 | (28.9) | 69.0 | 97.0 | (31.4) | 65.6 | |||||||
of which securities sold under repurchase agreements and securities lending transactions | 62.0 | (28.9) | 33.1 | 2 | 64.4 | (31.4) | 33.0 | 2 | |||||
of which obligation to return securities received as collateral, at fair value | 35.9 | 0.0 | 35.9 | 32.6 | 0.0 | 32.6 | |||||||
1 Represents securities sold under repurchase agreements and securities lending transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place. | |||||||||||||
2 CHF 17,300 million and CHF 19,634 million of the total net amount as of the end of 3Q17 and 4Q16, respectively, are reported at fair value. |
The following table presents the net amount presented in the consolidated balance sheets of financial assets and liabilities subject to enforceable master netting agreements and the gross amount of financial instruments and cash collateral not offset in the consolidated balance sheets. The table excludes derivatives, reverse repurchase and repurchase agreements and securities lending and borrowing transactions not subject to enforceable master netting agreements where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place. Net exposure reflects risk mitigation in the form of collateral.
Amounts not offset in the consolidated balance sheets
end of | 3Q17 | 4Q16 | |||||||||||||||
Net book value | Financial instruments | 1 | Cash collateral received/ pledged | 1 | Net exposure | Net book value | Financial instruments | 1 | Cash collateral received/ pledged | 1 | Net exposure | ||||||
Financial assets subject to enforceable master netting agreements (CHF billion) | |||||||||||||||||
Derivatives | 16.4 | 5.6 | 0.0 | 10.8 | 21.3 | 6.3 | 0.0 | 15.0 | |||||||||
Securities purchased under resale agreements | 82.4 | 82.4 | 0.0 | 0.0 | 73.0 | 73.0 | 0.0 | 0.0 | |||||||||
Securities borrowing transactions | 13.8 | 13.5 | 0.0 | 0.3 | 19.5 | 18.6 | 0.0 | 0.9 | |||||||||
Total financial assets subject to enforceable master netting agreements | 112.6 | 101.5 | 0.0 | 11.1 | 113.8 | 97.9 | 0.0 | 15.9 | |||||||||
Financial liabilities subject to enforceable master netting agreements (CHF billion) | |||||||||||||||||
Derivatives | 9.3 | 2.2 | 0.0 | 7.1 | 14.0 | 3.3 | 0.0 | 10.7 | |||||||||
Securities sold under repurchase agreements | 21.2 | 21.2 | 0.0 | 0.0 | 22.3 | 22.3 | 0.0 | 0.0 | |||||||||
Securities lending transactions | 5.5 | 5.2 | 0.0 | 0.3 | 5.9 | 5.7 | 0.0 | 0.2 | |||||||||
Obligation to return securities received as collateral, at fair value | 32.7 | 30.4 | 0.0 | 2.3 | 31.9 | 30.4 | 0.0 | 1.5 | |||||||||
Total financial liabilities subject to enforceable master netting agreements | 68.7 | 59.0 | 0.0 | 9.7 | 74.1 | 61.7 | 0.0 | 12.4 | |||||||||
1 The total amount reported in financial instruments (recognized financial assets and financial liabilities and non-cash financial collateral) and cash collateral is limited to the amount of the related instruments presented in the consolidated balance sheets and therefore any over-collateralization of these positions is not included. |
Net exposure is subject to further credit mitigation through the transfer of the exposure to other market counterparties by the use of credit default swaps (CDS) and credit insurance contracts. Therefore, the net exposure presented in the table above is not representative of the Group’s counterparty exposure.
122
The 3Q17 income tax expense of CHF 153 million includes the impact of the continuous reassessment of the estimated annual effective tax rate as well as the impact of items that need to be recorded in the specific interim period in which they occur. Further details are outlined in the tax expense reconciliation below.
Net deferred tax assets related to net operating losses, net deferred tax assets on temporary differences and net deferred tax liabilities are presented in the following manner. Nettable gross deferred tax liabilities are allocated on a pro-rata basis to gross deferred tax assets on net operating losses and gross deferred tax assets on temporary differences. This approach is aligned with the underlying treatment of netting gross deferred tax assets and liabilities under the Basel III framework. Valuation allowances have been allocated against such deferred tax assets on net operating losses first with any remainder allocated to such deferred tax assets on temporary differences. This presentation is considered the most appropriate disclosure given the underlying nature of the gross deferred tax balances.
As of September 30, 2017, the Group had accumulated undistributed earnings from foreign subsidiaries of CHF 5.1 billion which are considered indefinitely reinvested. The Group would need to accrue and pay taxes on these undistributed earnings if such earnings were repatriated. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.
The Group is currently subject to ongoing tax audits, inquiries and litigation with the tax authorities in a number of jurisdictions, including Brazil, the Netherlands, the US, the UK and Switzerland. Although the timing of completion is uncertain, it is reasonably possible that some of these will be resolved within 12 months of the reporting date. It is reasonably possible that there will be a decrease between zero and CHF 70 million in unrecognized tax benefits within 12 months of the reporting date.
The Group remains open to examination from federal, state, provincial or similar local jurisdictions from the following years onward in these major countries: Brazil – 2012; Japan – 2012; Switzerland – 2011; the US – 2010; the UK – 2009; and the Netherlands – 2006.
Effective tax rate
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Effective tax rate (%) | 38.3 | 47.4 | 83.3 | 30.7 | (42.9) |
Tax expense reconciliation
in | 3Q17 | ||
CHF million | |||
Income tax expense computed at the Swiss statutory tax rate of 22% | 88 | ||
Increase/(decrease) in income taxes resulting from | |||
Foreign tax rate differential | 22 | ||
Other non-deductible expenses | (89) | ||
Changes in deferred tax valuation allowance | 40 | ||
Lower taxed income | (20) | ||
(Windfall tax benefits)/shortfall tax charges on share-based compensation | 1 | ||
Other | 111 | ||
Income tax expense | 153 |
Foreign tax rate differential
3Q17 included a foreign tax expense of CHF 22 million in respect of earnings in higher tax jurisdictions, such as Brazil, as well as earnings in lower tax jurisdictions, such as Singapore.
Other non-deductible expenses
3Q17 included the reversal of non-deductible interest expenses of CHF 201 million arising from the reassessment of a previously taken tax position relating to the deductibility of such costs, partially offset by a tax expense of CHF 106 million relating to the non-deductible interest expenses and a tax expense of CHF 6 million in respect of non-deductible bank levy costs and other non-deductible expenses.
Changes in deferred tax valuation allowance
3Q17 included the impact of the increase of valuation allowances of CHF 92 million mainly in respect of three of the Group’s operating entities, two in the UK and one in Switzerland, and a decrease of valuation allowances of CHF 52 million mainly in respect of two of the Group’s operating entities, one in the UK and one in Switzerland, related to estimated current year earnings.
Lower taxed income
3Q17 included the impacts of CHF 6 million related to non-taxable life insurance income, a beneficial earnings mix in one of the Group’s operating entities in Switzerland of CHF 14 million, and various smaller items.
123
Other
3Q17 included a tax expense of CHF 96 million from an adverse earnings mix in one of the Group’s operating entities in Switzerland, a tax expense of CHF 55 million relating to the increase of tax contingency accruals and a tax expense of CHF 11 million from prior year adjustments, partially offset by a tax benefit of CHF 49 million from a favorable court decision and a tax benefit of CHF 20 million from own-credit revaluation losses. The remaining balance included various smaller items.
Net deferred tax assets
end of | 3Q17 | 2Q17 | |||
Net deferred tax assets (CHF million) | |||||
Deferred tax assets | 7,503 | 7,542 | |||
of which net operating losses | 2,666 | 2,787 | |||
of which deductible temporary differences | 4,837 | 4,755 | |||
Deferred tax liabilities | (271) | (231) | |||
Net deferred tax assets | 7,232 | 7,311 |
The Group’s current and previous deferred compensation plans include share awards, performance share awards, Contingent Capital Awards, Capital Opportunity Facility awards, Plus Bond awards, 2008 Partner Asset Facilities awards and other cash awards.
> Refer to “Note 29 – Employee deferred compensation” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information.
The following tables show the compensation expense for deferred compensation awards recognized in the consolidated statements of operations, the estimated unrecognized expense for deferred compensation awards granted in 3Q17 and prior periods and the remaining requisite service period over which the unrecognized expense will be recognized. The estimated unrecognized compensation expense was based on the fair value of each award on the grant date and included the current estimated outcome of relevant performance criteria and estimated future forfeitures but no estimate for future mark-to-market adjustments.
Deferred compensation expense
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Deferred compensation expense (CHF million) | |||||||||||
Share awards | 119 | 130 | 145 | 395 | 481 | ||||||
Performance share awards | 83 | 87 | 80 | 268 | 286 | ||||||
Contingent Capital Awards | 65 | 65 | 84 | 215 | 146 | ||||||
Contingent Capital share awards | 4 | 6 | 10 | 15 | 16 | ||||||
Capital Opportunity Facility awards | 3 | 3 | 4 | 10 | 10 | ||||||
Plus Bond awards | 0 | 0 | 0 | 0 | 5 | 1 | |||||
2008 Partner Asset Facility awards 2 | 0 | 0 | 21 | 7 | 5 | ||||||
Other cash awards | 130 | 87 | 107 | 312 | 242 | ||||||
Total deferred compensation expense | 404 | 378 | 451 | 1,222 | 1,191 | ||||||
1 Compensation expense primarily relates to mark-to-market changes of the underlying assets of the Plus Bonds and the amortization of the voluntary Plus Bonds elected in 1Q13 and expensed over a three-year vesting period. | |||||||||||
2 Compensation expense mainly includes the change in underlying fair value of the indexed assets during the period. |
124
Estimated unrecognized deferred compensation
end of | 3Q17 | ||
Estimated unrecognized compensation expense (CHF million) | |||
Share awards | 592 | ||
Performance share awards | 249 | ||
Contingent Capital Awards | 162 | ||
Contingent Capital share awards | 8 | ||
Other cash awards | 232 | ||
Total | 1,243 | ||
Weighted-average requisite service period (years) | |||
Aggregate remaining weighted-average requisite service period | 1.3 |
3Q17 activity
In 3Q17, the Group granted fixed deferred cash awards of CHF 90 million to certain employees in the US. These awards will be expensed in the Global Markets, Investment Banking & Capital Markets and International Wealth Management divisions over a three-year period from the grant date, with CHF 38 million being expensed in 3Q17.
Share-based award activity
3Q17 | 9M17 | |||||||||||||
Number of awards (in millions) | Share awards | Performance share awards | Contingent Capital share awards | Share awards | Performance share awards | Contingent Capital share awards | ||||||||
Share-based award activities | ||||||||||||||
Balance at beginning of period | 87.1 | 56.5 | 8.9 | 73.2 | 48.4 | 13.5 | ||||||||
Granted | 2.2 | 0.0 | 0.0 | 49.9 | 1 | 31.8 | 1 | 0.3 | 1 | |||||
Settled | (4.6) | (0.5) | (0.1) | (37.0) | (23.8) | (5.0) | ||||||||
Forfeited | (1.8) | (1.2) | (0.2) | (3.2) | (1.6) | (0.2) | ||||||||
Balance at end of period | 82.9 | 54.8 | 8.6 | 82.9 | 54.8 | 8.6 | ||||||||
of which vested | 6.9 | 5.8 | 1.2 | 6.9 | 5.8 | 1.2 | ||||||||
of which unvested | 76.0 | 49.0 | 7.4 | 76.0 | 49.0 | 7.4 | ||||||||
1 Includes an adjustment for share awards granted in 2Q17 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional shares granted. |
The Group expects to contribute CHF 442 million to the Swiss and international defined benefit plans and other post-retirement defined benefit plans in 2017. As of the end of 3Q17, CHF 343 million of contributions have been made.
Components of total benefit costs
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Total benefit costs (CHF million) | |||||||||||
Service costs on benefit obligation | 67 | 67 | 77 | 200 | 232 | ||||||
Interest costs on benefit obligation | 41 | 36 | 67 | 114 | 207 | ||||||
Expected return on plan assets | (151) | (151) | (177) | (454) | (533) | ||||||
Amortization of recognized prior service cost/(credit) | (33) | (33) | (29) | (98) | (87) | ||||||
Amortization of recognized actuarial losses | 102 | 100 | 105 | 303 | 315 | ||||||
Net periodic benefit costs | 26 | 19 | 43 | 65 | 134 | ||||||
Settlement losses/(gains) | 0 | 0 | 0 | (1) | 2 | ||||||
Curtailment losses/(gains) | (6) | (8) | (1) | (32) | (11) | ||||||
Special termination benefits | 8 | 4 | 7 | 12 | 11 | ||||||
Total benefit costs | 28 | 15 | 49 | 44 | 136 |
125
> Refer to “Note 32 – Derivatives and hedging activities” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information.
Fair value of derivative instruments
The tables below present gross derivative replacement values by type of contract and balance sheet location and whether the derivative is used for trading purposes or in a qualifying hedging relationship. Notional amounts have also been provided as an indication of the volume of derivative activity within the Group.
Information on bifurcated embedded derivatives has not been included in these tables. Under US GAAP, the Group elected to account for substantially all financial instruments with an embedded derivative that is not considered clearly and closely related to the host contract at fair value.
> Refer to “Note 28 – Financial instruments” for further information.
Fair value of derivative instruments
Trading | Hedging | 1 | |||||||||||
end of 3Q17 | Notional amount | Positive replacement value (PRV) | Negative replacement value (NRV) | Notional amount | Positive replacement value (PRV) | Negative replacement value (NRV) | |||||||
Derivative instruments (CHF billion) | |||||||||||||
Forwards and forward rate agreements | 8,372.3 | 0.8 | 0.9 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 12,592.4 | 63.3 | 57.8 | 45.0 | 0.1 | 0.2 | |||||||
Options bought and sold (OTC) | 2,129.5 | 27.3 | 26.1 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 559.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 481.6 | 0.2 | 0.2 | 0.0 | 0.0 | 0.0 | |||||||
Interest rate products | 24,134.9 | 91.6 | 85.0 | 45.0 | 0.1 | 0.2 | |||||||
Forwards | 1,286.5 | 12.8 | 12.7 | 13.7 | 0.1 | 0.0 | |||||||
Swaps | 624.4 | 16.3 | 22.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 452.2 | 5.1 | 5.2 | 2.0 | 0.0 | 0.0 | |||||||
Futures | 21.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 5.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Foreign exchange products | 2,390.1 | 34.2 | 39.9 | 15.7 | 0.1 | 0.0 | |||||||
Forwards | 1.3 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 192.1 | 5.2 | 5.9 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 234.9 | 8.3 | 8.3 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 42.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 394.0 | 10.1 | 11.5 | 0.0 | 0.0 | 0.0 | |||||||
Equity/index-related products | 864.5 | 23.6 | 25.8 | 0.0 | 0.0 | 0.0 | |||||||
Credit derivatives 2 | 551.2 | 8.5 | 9.8 | 0.0 | 0.0 | 0.0 | |||||||
Forwards | 6.5 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 20.0 | 1.8 | 1.2 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 15.1 | 0.2 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 16.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 3.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Other products 3 | 60.7 | 2.0 | 1.3 | 0.0 | 0.0 | 0.0 | |||||||
Total derivative instruments | 28,001.4 | 159.9 | 161.8 | 60.7 | 0.2 | 0.2 | |||||||
The notional amount, PRV and NRV (trading and hedging) was CHF 28,062.1 billion, CHF 160.1 billion and CHF 162.0 billion, respectively, as of September 30, 2017. | |||||||||||||
1 Relates to derivative contracts that qualify for hedge accounting under US GAAP. | |||||||||||||
2 Primarily credit default swaps. | |||||||||||||
3 Primarily precious metals, commodity and energy products. |
126
Fair value of derivative instruments (continued)
Trading | Hedging | 1 | |||||||||||
end of 4Q16 | Notional amount | Positive replacement value (PRV) | Negative replacement value (NRV) | Notional amount | Positive replacement value (PRV) | Negative replacement value (NRV) | |||||||
Derivative instruments (CHF billion) | |||||||||||||
Forwards and forward rate agreements | 8,321.9 | 3.3 | 3.2 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 13,190.0 | 91.0 | 85.5 | 47.5 | 1.0 | 1.0 | |||||||
Options bought and sold (OTC) | 2,164.4 | 43.1 | 41.1 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 522.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 468.0 | 0.2 | 0.2 | 0.0 | 0.0 | 0.0 | |||||||
Interest rate products | 24,666.4 | 137.6 | 130.0 | 47.5 | 1.0 | 1.0 | |||||||
Forwards | 1,211.6 | 19.2 | 20.8 | 11.0 | 0.1 | 0.0 | |||||||
Swaps | 819.4 | 34.5 | 42.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 416.8 | 8.1 | 8.4 | 4.8 | 0.0 | 0.0 | |||||||
Futures | 17.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 4.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Foreign exchange products | 2,469.7 | 61.8 | 71.2 | 15.8 | 0.1 | 0.0 | |||||||
Forwards | 1.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 191.0 | 4.7 | 5.3 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 206.5 | 7.7 | 7.4 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 41.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 355.9 | 11.6 | 13.1 | 0.0 | 0.0 | 0.0 | |||||||
Equity/index-related products | 796.2 | 24.0 | 25.8 | 0.0 | 0.0 | 0.0 | |||||||
Credit derivatives 2 | 558.7 | 8.1 | 9.2 | 0.0 | 0.0 | 0.0 | |||||||
Forwards | 7.2 | 0.1 | 0.2 | 0.0 | 0.0 | 0.0 | |||||||
Swaps | 20.1 | 2.0 | 1.4 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (OTC) | 20.2 | 0.4 | 0.3 | 0.0 | 0.0 | 0.0 | |||||||
Futures | 14.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
Options bought and sold (exchange-traded) | 3.4 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | |||||||
Other products 3 | 65.2 | 2.5 | 2.0 | 0.0 | 0.0 | 0.0 | |||||||
Total derivative instruments | 28,556.2 | 234.0 | 238.2 | 63.3 | 1.1 | 1.0 | |||||||
The notional amount, PRV and NRV (trading and hedging) was CHF 28,619.5 billion, CHF 235.1 billion and CHF 239.2 billion, respectively, as of December 31, 2016. | |||||||||||||
1 Relates to derivative contracts that qualify for hedge accounting under US GAAP. | |||||||||||||
2 Primarily credit default swaps. | |||||||||||||
3 Primarily precious metals, commodity and energy products. |
Netting of derivative instruments
> Refer to “Derivatives” in Note 21 – Offsetting of financial assets and financial liabilities for further information on the netting of derivative instruments.
Fair value hedges
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Gains/(losses) recognized in income on derivatives (CHF million) | |||||||||||
Interest rate products | 17 | 282 | (124) | 48 | 1,783 | ||||||
Total | 17 | 282 | (124) | 48 | 1,783 | ||||||
Gains/(losses) recognized in income on hedged items (CHF million) | |||||||||||
Interest rate products | (28) | (301) | 128 | (72) | (1,943) | ||||||
Total | (28) | (301) | 128 | (72) | (1,943) | ||||||
Details of fair value hedges (CHF million) | |||||||||||
Net gains/(losses) on the ineffective portion | (11) | (19) | 4 | (24) | (160) | ||||||
Represents gains/(losses) recognized in trading revenues. |
127
Cash flow hedges
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Gains/(losses) recognized in AOCI on derivatives (CHF million) | |||||||||||
Interest rate products | (11) | 8 | (35) | (10) | 62 | ||||||
Foreign exchange products | 22 | (26) | 2 | (8) | (7) | ||||||
Total | 11 | (18) | (33) | (18) | 55 | ||||||
Gains/(losses) reclassified from AOCI into income (CHF million) | |||||||||||
Interest rate products | (2) | 1 | (2) | 1 | 10 | 1 | (4) | 1 | 26 | 1 | |
Foreign exchange products | 10 | 2,3 | (16) | 2,3 | (3) | 3,4 | (10) | 2,3 | (14) | 2,3,4 | |
Total | 8 | (18) | 7 | (14) | 12 | ||||||
Details of cash flow hedges (CHF million) | |||||||||||
Net gains/(losses) on the ineffective portion 2 | (2) | (2) | (13) | (1) | 18 | ||||||
Represents gains/(losses) on effective portion. | |||||||||||
1 Included in interest and dividend income. | |||||||||||
2 Included in trading revenues. | |||||||||||
3 Included in other revenues. | |||||||||||
4 Included in total other operating expenses. |
As of the end of 3Q17, the maximum length of time over which the Group hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was five years.
The net loss associated with cash flow hedges expected to be reclassified from AOCI within the next 12 months is CHF 21 million.
Net investment hedges
in | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | ||||||
Gains/(losses) recognized in AOCI on derivatives (CHF million) | |||||||||||
Foreign exchange products | (213) | 133 | (128) | (267) | (380) | ||||||
Total | (213) | 133 | (128) | (267) | (380) | ||||||
Represents gains/(losses) on effective portion. |
The Group includes all derivative instruments not included in hedge accounting relationships in its trading activities.
> Refer to “Note 7 – Trading revenues” for gains and losses on trading activities by product type.
Disclosures relating to contingent credit risk
Certain of the Group’s derivative instruments contain provisions that require it to maintain a specified credit rating from each of the major credit rating agencies. If the ratings fall below the level specified in the contract, the counterparties to the agreements could request payment of additional collateral on those derivative instruments that are in a net liability position. Certain of the derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Group or the counterparty, at the existing mark-to-market replacement value of the derivative contract.
The following table provides the Group’s current net exposure from contingent credit risk relating to derivative contracts with bilateral counterparties and SPEs that include credit support agreements, the related collateral posted and the additional collateral required in a one-notch, two-notch and a three-notch downgrade event, respectively. The table also includes derivative contracts with contingent credit risk features without credit support agreements that have accelerated termination event conditions. The current net exposure for derivative contracts with bilateral counterparties and contracts with accelerated termination event conditions is the aggregate fair value of derivative instruments that were in a net liability position. For SPEs, the current net exposure is the contractual amount that is used to determine the collateral payable in the event of a downgrade. The contractual amount could include both the NRV and a percentage of the notional value of the derivative.
128
Contingent credit risk
end of | 3Q17 | 4Q16 | |||||||||||||||
Bilateral counterparties | Special purpose entities | Accelerated terminations | Total | Bilateral counterparties | Special purpose entities | Accelerated terminations | Total | ||||||||||
Contingent credit risk (CHF billion) | |||||||||||||||||
Current net exposure | 5.7 | 0.1 | 1.1 | 6.9 | 10.5 | 0.2 | 1.1 | 11.8 | |||||||||
Collateral posted | 4.6 | 0.1 | – | 4.7 | 9.5 | 0.2 | – | 9.7 | |||||||||
Impact of a one-notch downgrade event | 0.2 | 0.1 | 0.1 | 0.4 | 0.3 | 0.2 | 0.0 | 0.5 | |||||||||
Impact of a two-notch downgrade event | 1.0 | 0.2 | 0.5 | 1.7 | 1.3 | 0.4 | 0.5 | 2.2 | |||||||||
Impact of a three-notch downgrade event | 1.1 | 0.6 | 0.7 | 2.4 | 1.5 | 0.7 | 0.7 | 2.9 | |||||||||
The impact of a downgrade event reflects the amount of additional collateral required for bilateral counterparties and special purpose entities and the amount of additional termination expenses for accelerated terminations, respectively. |
Credit derivatives
> Refer to “Note 32 – Derivatives and hedging activities” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on credit derivatives.
Credit protection sold/purchased
The following tables do not include all credit derivatives and differ from the credit derivatives in the “Fair value of derivative instruments” tables. This is due to the exclusion of certain credit derivative instruments under US GAAP, which defines a credit derivative as a derivative instrument (a) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (b) that exposes the seller to potential loss from credit risk-related events specified in the contract.
Total return swaps (TRS) of CHF 6.4 billion and CHF 7.8 billion as of the end of 3Q17 and 4Q16, respectively, were also excluded because a TRS does not expose the seller to potential loss from credit risk-related events specified in the contract. A TRS only provides protection against a loss in asset value and not against additional amounts as a result of specific credit events.
Credit protection sold/purchased
end of | 3Q17 | 4Q16 | |||||||||||||||||||
Credit protection sold | Credit protection purchased | 1 | Net credit protection (sold)/ purchased | Other protection purchased | Fair value of credit protection sold | Credit protection sold | Credit protection purchased | 1 | Net credit protection (sold)/ purchased | Other protection purchased | Fair value of credit protection sold | ||||||||||
Single-name instruments (CHF billion) | |||||||||||||||||||||
Investment grade 2 | (63.7) | 59.7 | (4.0) | 12.1 | 0.9 | (72.4) | 67.4 | (5.0) | 14.3 | 0.7 | |||||||||||
Non-investment grade | (31.0) | 28.1 | (2.9) | 16.1 | (0.3) | (30.3) | 28.1 | (2.2) | 18.1 | (1.0) | |||||||||||
Total single-name instruments | (94.7) | 87.8 | (6.9) | 28.2 | 0.6 | (102.7) | 95.5 | (7.2) | 32.4 | (0.3) | |||||||||||
of which sovereign | (23.0) | 20.8 | (2.2) | 5.6 | (0.6) | (27.7) | 25.6 | (2.1) | 6.5 | (0.9) | |||||||||||
of which non-sovereign | (71.7) | 67.0 | (4.7) | 22.6 | 1.2 | (75.0) | 69.9 | (5.1) | 25.9 | 0.6 | |||||||||||
Multi-name instruments (CHF billion) | |||||||||||||||||||||
Investment grade 2 | (121.4) | 115.2 | (6.2) | 34.2 | 0.3 | (115.0) | 113.9 | (1.1) | 41.2 | 0.0 | |||||||||||
Non-investment grade | (26.8) | 25.8 | 3 | (1.0) | 10.9 | 1.3 | (20.9) | 19.5 | 3 | (1.4) | 9.8 | 0.3 | |||||||||
Total multi-name instruments | (148.2) | 141.0 | (7.2) | 45.1 | 1.6 | (135.9) | 133.4 | (2.5) | 51.0 | 0.3 | |||||||||||
of which sovereign | (0.2) | 0.2 | 0.0 | 0.4 | 0.0 | (0.3) | 0.2 | (0.1) | 0.7 | 0.1 | |||||||||||
of which non-sovereign | (148.0) | 140.8 | (7.2) | 44.7 | 1.6 | (135.6) | 133.2 | (2.4) | 50.3 | 0.2 | |||||||||||
Total instruments (CHF billion) | |||||||||||||||||||||
Investment grade 2 | (185.1) | 174.9 | (10.2) | 46.3 | 1.2 | (187.4) | 181.3 | (6.1) | 55.5 | 0.7 | |||||||||||
Non-investment grade | (57.8) | 53.9 | (3.9) | 27.0 | 1.0 | (51.2) | 47.6 | (3.6) | 27.9 | (0.7) | |||||||||||
Total instruments | (242.9) | 228.8 | (14.1) | 73.3 | 2.2 | (238.6) | 228.9 | (9.7) | 83.4 | 0.0 | |||||||||||
of which sovereign | (23.2) | 21.0 | (2.2) | 6.0 | (0.6) | (28.0) | 25.8 | (2.2) | 7.2 | (0.8) | |||||||||||
of which non-sovereign | (219.7) | 207.8 | (11.9) | 67.3 | 2.8 | (210.6) | 203.1 | (7.5) | 76.2 | 0.8 | |||||||||||
1 Represents credit protection purchased with identical underlyings and recoveries. | |||||||||||||||||||||
2 Based on internal ratings of BBB and above. | |||||||||||||||||||||
3 Includes synthetic securitized loan portfolios. |
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Credit protection sold
Credit protection sold is the maximum potential payout, which is based on the notional value of derivatives and represents the amount of future payments that the Group would be required to make as a result of credit risk-related events.
Credit protection purchased
Credit protection purchased represents those instruments where the underlying reference instrument is identical to the reference instrument of the credit protection sold.
Other protection purchased
In the normal course of business, the Group purchases protection to offset the risk of credit protection sold that may have similar, but not identical, reference instruments and may use similar, but not identical, products, which reduces the total credit derivative exposure. Other protection purchased is based on the notional value of the instruments.
Fair value of credit protection sold
The fair values of the credit protection sold give an indication of the amount of payment risk, as the negative fair values increase when the potential payment under the derivative contracts becomes more probable.
The following table reconciles the notional amount of credit derivatives included in the table “Fair value of derivative instruments” to the table “Credit protection sold/purchased”.
Credit derivatives
end of | 3Q17 | 4Q16 | |||
Credit derivatives (CHF billion) | |||||
Credit protection sold | 242.9 | 238.6 | |||
Credit protection purchased | 228.8 | 228.9 | |||
Other protection purchased | 73.3 | 83.4 | |||
Other instruments 1 | 6.2 | 7.8 | |||
Total credit derivatives | 551.2 | 558.7 | |||
1 Consists of total return swaps and other derivative instruments. |
The segregation of the future payments by maturity range and underlying risk gives an indication of the current status of the potential for performance under the derivative contracts.
Maturity of credit protection sold
end of | Maturity less than 1 year | Maturity between 1 to 5 years | Maturity greater than 5 years | Total | |||||
3Q17 (CHF billion) | |||||||||
Single-name instruments | 26.7 | 59.7 | 8.3 | 94.7 | |||||
Multi-name instruments | 46.6 | 66.7 | 34.9 | 148.2 | |||||
Total instruments | 73.3 | 126.4 | 43.2 | 242.9 | |||||
4Q16 (CHF billion) | |||||||||
Single-name instruments | 24.2 | 72.7 | 5.8 | 102.7 | |||||
Multi-name instruments | 27.5 | 84.7 | 23.7 | 135.9 | |||||
Total instruments | 51.7 | 157.4 | 29.5 | 238.6 |
Guarantees
In the ordinary course of business, guarantees are provided that contingently obligate the Group to make payments to third parties if the counterparty fails to fulfill its obligation under a borrowing or other contractual arrangement. The total gross amount disclosed within the Guarantees table reflects the maximum potential payment under the guarantees. The carrying value represents the higher of the initial fair value (generally the related fee received or receivable) less cumulative amortization and the Group’s current best estimate of payments that will be required under existing guarantee arrangements.
Guarantees provided by the Group are classified as follows: credit guarantees and similar instruments, performance guarantees and similar instruments, derivatives and other guarantees. The Group no longer provides guarantees for securities lending indemnifications.
> Refer to “Guarantees” in V – Consolidated financial statements – Credit Suisse Group – Note 33 – Guarantees and commitments in the Credit Suisse Annual Report 2016 for a detailed description of guarantees.
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Guarantees
end of | Maturity less than 1 year | Maturity greater than 1 year | Total gross amount | Total net amount | 1 | Carrying value | Collateral received | ||||||
3Q17 (CHF million) | |||||||||||||
Credit guarantees and similar instruments | 1,791 | 1,081 | 2,872 | 2,629 | 21 | 1,649 | |||||||
Performance guarantees and similar instruments | 4,803 | 2,221 | 7,024 | 6,073 | 28 | 3,011 | |||||||
Derivatives 2 | 11,638 | 9,782 | 21,420 | 21,420 | 437 | – | 3 | ||||||
Other guarantees | 3,692 | 1,854 | 5,546 | 5,541 | 50 | 3,506 | |||||||
Total guarantees | 21,924 | 14,938 | 36,862 | 35,663 | 536 | 8,166 | |||||||
4Q16 (CHF million) | |||||||||||||
Credit guarantees and similar instruments | 1,962 | 1,171 | 3,133 | 2,913 | 13 | 2,043 | |||||||
Performance guarantees and similar instruments | 5,109 | 2,005 | 7,114 | 6,124 | 76 | 3,090 | |||||||
Derivatives 2 | 15,864 | 7,943 | 23,807 | 23,807 | 684 | – | 3 | ||||||
Other guarantees | 3,460 | 2,000 | 5,460 | 5,456 | 44 | 3,668 | |||||||
Total guarantees | 26,395 | 13,119 | 39,514 | 38,300 | 817 | 8,801 | |||||||
1 Total net amount is computed as the gross amount less any participations. | |||||||||||||
2 Excludes derivative contracts with certain active commercial and investment banks and certain other counterparties, as such contracts can be cash settled and the Group had no basis to conclude it was probable that the counterparties held, at inception, the underlying instruments. | |||||||||||||
3 Collateral for derivatives accounted for as guarantees is not significant. |
Deposit-taking banks and securities dealers in Switzerland and certain other European countries are required to ensure the payout of privileged deposits in case of specified restrictions or compulsory liquidation of a deposit-taking bank. In Switzerland, deposit-taking banks and securities dealers jointly guarantee an amount of up to CHF 6 billion. Upon occurrence of a payout event triggered by a specified restriction of business imposed by FINMA or by the compulsory liquidation of another deposit-taking bank, the Group’s contribution will be calculated based on its share of privileged deposits in proportion to total privileged deposits. Based on FINMA’s estimate for the Group’s banking subsidiaries in Switzerland, the Group’s share in the deposit insurance guarantee program for the period July 1, 2017 to June 30, 2018 is CHF 0.5 billion. These deposit insurance guarantees were reflected in other guarantees.
Representations and warranties on residential mortgage loans sold
In connection with the former Investment Banking division’s sale of US residential mortgage loans, the Group has provided certain representations and warranties relating to the loans sold. The Group has provided these representations and warranties relating to sales of loans to: the US government-sponsored enterprises Fannie Mae and Freddie Mac; institutional investors, primarily banks; and non-agency, or private label, securitizations. The loans sold are primarily loans that the Group has purchased from other parties. The scope of representations and warranties, if any, depends on the transaction, but can include: ownership of the mortgage loans and legal capacity to sell the loans; loan-to-value ratios and other characteristics of the property, the borrower and the loan; validity of the liens securing the loans and absence of delinquent taxes or related liens; conformity to underwriting standards and completeness of documentation; and origination in compliance with law. If it is determined that representations and warranties were breached, the Group may be required to repurchase the related loans or indemnify the investors to make them whole for losses. Whether the Group will incur a loss in connection with repurchases and make whole payments depends on: the extent to which claims are made; the validity of such claims made within the statute of limitations (including the likelihood and ability to enforce claims); whether the Group can successfully claim against parties that sold loans to the Group and made representations and warranties to the Group; the residential real estate market, including the number of defaults; and whether the obligations of the securitization vehicles were guaranteed or insured by third parties.
During the first nine months of 2017, the Group received repurchase claims for residential mortgage loans that were not significant, and loans repurchased during this period and related losses were not significant. The balance of outstanding repurchase claims as of the end of 3Q17 was not significant.
Repurchase claims on residential mortgage loans sold that are subject to arbitration or litigation proceedings, or become so during the reporting period, are not included in this Guarantees and commitments disclosure but are addressed in litigation and related loss contingencies and provisions. The Group is involved in litigation relating to representations and warranties on residential mortgages sold.
> Refer to “Note 30 – Litigation” for further information.
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Disposal-related contingencies and other indemnifications
The Group has certain guarantees for which its maximum contingent liability cannot be quantified. These guarantees include disposal-related contingencies in connection with the sale of assets or businesses, and other indemnifications. These guarantees are not reflected in the “Guarantees” table.
> Refer to “Disposal-related contingencies and other indemnifications” in V – Consolidated financial statements – Credit Suisse Group – Note 33 – Guarantees and commitments in the Credit Suisse Annual Report 2016 for a description of these guarantees.
Other commitments
Other commitments of the Group are classified as follows: irrevocable commitments under documentary credits, irrevocable loan commitments, forward reverse repurchase agreements and other commitments.
> Refer to “Other commitments” in V – Consolidated financial statements – Credit Suisse Group – Note 33 – Guarantees and commitments in the Credit Suisse Annual Report 2016 for a description of these commitments.
Other commitments
end of | 3Q17 | 4Q16 | |||||||||||||||||||
Maturity less than 1 year | Maturity greater than 1 year | Total gross amount | Total net amount | 1 | Collateral received | Maturity less than 1 year | Maturity greater than 1 year | Total gross amount | Total net amount | 1 | Collateral received | ||||||||||
Other commitments (CHF million) | |||||||||||||||||||||
Irrevocable commitments under documentary credits | 4,113 | 16 | 4,129 | 4,013 | 2,523 | 4,356 | 0 | 4,356 | 4,281 | 2,748 | |||||||||||
Irrevocable loan commitments 2 | 23,763 | 81,163 | 104,926 | 101,038 | 43,484 | 30,382 | 86,593 | 116,975 | 113,016 | 46,068 | |||||||||||
Forward reverse repurchase agreements | 540 | 0 | 540 | 540 | 540 | 84 | 0 | 84 | 84 | 84 | |||||||||||
Other commitments | 146 | 187 | 333 | 333 | 0 | 487 | 150 | 637 | 637 | 0 | |||||||||||
Total other commitments | 28,562 | 81,366 | 109,928 | 105,924 | 46,547 | 35,309 | 86,743 | 122,052 | 118,018 | 48,900 | |||||||||||
1 Total net amount is computed as the gross amount less any participations. | |||||||||||||||||||||
2 Irrevocable loan commitments do not include a total gross amount of CHF 106,901 million and CHF 95,743 million of unused credit limits as of the end of 3Q17 and 4Q16, respectively, which were revocable at the Group's sole discretion upon notice to the client. |
In the normal course of business, the Group enters into transactions with, and makes use of, SPEs. An SPE is an entity in the form of a trust or other legal structure designed to fulfill a specific limited need of the company that organized it and is generally structured to isolate the SPE’s assets from creditors of other entities, including the Group. The principal uses of SPEs are to assist the Group and its clients in securitizing financial assets and creating investment products. The Group also uses SPEs for other client-driven activity, such as to facilitate financings, and Group tax or regulatory purposes.
Securitizations
The majority of the Group’s securitization activities involve mortgages and mortgage-related securities and are predominantly transacted using SPEs. In a typical securitization, the SPE purchases assets financed by proceeds received from the SPE’s issuance of debt and equity instruments, certificates, commercial paper (CP) and other notes of indebtedness. These assets and liabilities are recorded on the balance sheet of the SPE and not reflected on the Group’s consolidated balance sheet, unless either the Group sold the assets to the entity and the accounting requirements for sale were not met or the Group consolidates the SPE.
The Group purchases commercial and residential mortgages for the purpose of securitization and sells these mortgage loans to SPEs. These SPEs issue commercial mortgage-backed securities (CMBS), RMBS and asset-backed securities (ABS) that are collateralized by the assets transferred to the SPE and that pay a return based on the returns on those assets. Investors in these mortgage-backed securities or ABS typically have recourse to the assets in the SPEs, unless a third-party guarantee has been received to further enhance the creditworthiness of the assets. The investors and the SPEs have no recourse to the Group’s assets. The Group is typically an underwriter of, and makes a market in, these securities.
The Group also transacts in re-securitizations of previously issued RMBS securities. Typically, certificates issued out of an existing securitization vehicle are sold into a newly created and separate securitization vehicle. Often, these re-securitizations are initiated in order to repackage an existing security to give the investor a higher rated tranche.
The Group also uses SPEs for other asset-backed financings relating to client-driven activity and for Group tax or regulatory purposes. Types of structures included in this category include managed collateralized loan obligations (CLOs), CLOs, leveraged finance, repack and other types of transactions, including life insurance structures, emerging market structures set up for financing, loan participation or loan origination purposes, and other alternative structures created for the purpose of investing in venture capital-like investments. CLOs are collateralized by loans transferred to the CLO vehicle and pay a return based on the returns on the loans. Leveraged finance structures are used to assist in
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the syndication of certain loans held by the Group, while repack structures are designed to give a client collateralized exposure to specific cash flows or credit risk backed by collateral purchased from the Group. In these asset-backed financing structures investors typically only have recourse to the collateral of the SPE and do not have recourse to the Group’s assets.
When the Group transfers assets into an SPE, it must assess whether that transfer is accounted for as a sale of the assets. Transfers of assets may not meet sale requirements if the assets have not been legally isolated from the Group and/or if the Group’s continuing involvement is deemed to give it effective control over the assets. If the transfer is not deemed a sale, it is instead accounted for as a secured borrowing, with the transferred assets as collateral.
Gains and losses on securitization transactions depend, in part, on the carrying values of mortgages and loans involved in the transfer and are allocated between the assets sold and any beneficial interests retained according to the relative fair values at the date of sale.
The Group does not retain material servicing responsibilities from securitization activities.
The following table provides the gains or losses and proceeds from the transfer of assets relating to 9M17 and 9M16 securitizations of financial assets that qualify for sale accounting and subsequent derecognition, along with the cash flows between the Group and the SPEs used in any securitizations in which the Group maintained continuing involvement from the time of the transaction, regardless of when the securitization occurred.
Securitizations
in | 9M17 | 9M16 | |||
Gains and cash flows (CHF million) | |||||
CMBS | |||||
Net gain 1 | 32 | 0 | |||
Proceeds from transfer of assets | 4,234 | 3,315 | |||
Cash received on interests that continue to be held | 23 | 53 | |||
RMBS | |||||
Net gain/(loss) 1 | 3 | (1) | |||
Proceeds from transfer of assets | 11,329 | 7,706 | |||
Servicing fees | 2 | 2 | |||
Cash received on interests that continue to be held | 225 | 394 | |||
Other asset-backed financings | |||||
Net gain 1 | 31 | 22 | |||
Proceeds from transfer of assets | 5,833 | 1,963 | |||
Fees 2 | 93 | 93 | |||
Cash received on interests that continue to be held | 4 | 2 | |||
1 Includes underwriting revenues, deferred origination fees, gains or losses on the sale of collateral to the SPE and gains or losses on the sale of newly issued securities to third parties, but excludes net interest income on assets prior to the securitization. The gains or losses on the sale of the collateral is the difference between the fair value on the day prior to the securitization pricing date and the sale price of the loans. | |||||
2 Represents management fees and performance fees earned for investment management services provided to managed CLOs. |
Continuing involvement in transferred financial assets
The Group may have continuing involvement in the financial assets that are transferred to an SPE which may take several forms, including, but not limited to, servicing, recourse and guarantee arrangements, agreements to purchase or redeem transferred assets, derivative instruments, pledges of collateral and beneficial interests in the transferred assets.
> Refer to “Transfer of financial assets” in V – Consolidated financial statements – Credit Suisse Group – Note 34 – Transfer of financial assets and variable interest entities in the Credit Suisse Annual Report 2016 for a detailed description of continuing involvement in transferred financial assets.
The following table provides the outstanding principal balance of assets to which the Group continued to be exposed after the transfer of the financial assets to any SPE and the total assets of the SPE as of the end of 3Q17 and 4Q16, regardless of when the transfer of assets occurred.
Principal amounts outstanding and total assets of SPEs resulting from continuing involvement
end of | 3Q17 | 4Q16 | |||
CHF million | |||||
CMBS | |||||
Principal amount outstanding | 20,968 | 28,779 | |||
Total assets of SPE | 31,424 | 40,234 | |||
RMBS | |||||
Principal amount outstanding | 35,152 | 38,319 | |||
Total assets of SPE | 36,310 | 39,680 | |||
Other asset-backed financings | |||||
Principal amount outstanding | 20,295 | 19,777 | |||
Total assets of SPE | 36,348 | 36,049 | |||
Principal amount outstanding relates to assets transferred from the Group and does not include principal amounts for assets transferred from third parties. |
Fair value of beneficial interests
The fair value measurement of the beneficial interests held at the time of transfer and as of the reporting date that result from any continuing involvement is determined using fair value estimation techniques, such as the present value of estimated future cash flows that incorporate assumptions that market participants customarily use in these valuation techniques. The fair value of the assets or liabilities that result from any continuing involvement does not include any benefits from financial instruments that the Group may utilize to hedge the inherent risks.
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Key economic assumptions at the time of transfer
> Refer to “Note 28 – Financial instruments” for information on fair value hierarchy levels.
Key economic assumptions used in measuring fair value of beneficial interests at time of transfer
at time of transfer, in | 9M17 | 9M16 | |||||||||||||||
CMBS | RMBS | CMBS | RMBS | ||||||||||||||
CHF million, except where indicated | |||||||||||||||||
Fair value of beneficial interests | 71 | 1,323 | 42 | 1,499 | |||||||||||||
of which level 2 | 71 | 1,254 | 42 | 1,396 | |||||||||||||
of which level 3 | 0 | 69 | 0 | 103 | |||||||||||||
Weighted-average life, in years | 10.4 | 8.1 | 10.7 | 6.4 | |||||||||||||
Prepayment speed assumption (rate per annum), in % 1 | – | 2 | 5.0 | – | 17.9 | – | 2 | 8.0 | – | 33.0 | |||||||
Cash flow discount rate (rate per annum), in % 3 | 2.4 | – | 3.5 | 2.0 | – | 9.9 | 2.4 | – | 4.9 | 1.4 | – | 24.4 | |||||
Expected credit losses (rate per annum), in % | 0.6 | – | 0.6 | 0.8 | – | 2.1 | 0.0 | – | 0.0 | 11.2 | – | 11.2 | |||||
Transfers of assets in which the Group does not have beneficial interests are not included in this table. | |||||||||||||||||
1 Prepayment speed assumption (PSA) is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the constant prepayment rate (CPR) assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR. | |||||||||||||||||
2 To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances. | |||||||||||||||||
3 The rate was based on the weighted-average yield on the beneficial interests. |
Key economic assumptions as of the reporting date
The following table provides the sensitivity analysis of key economic assumptions used in measuring the fair value of beneficial interests held in SPEs as of the end of 3Q17 and 4Q16.
Key economic assumptions used in measuring fair value of beneficial interests held in SPEs
end of | 3Q17 | 4Q16 | |||||||||||||||||||||||
CMBS | 1 | RMBS | Other asset- backed financing activities | 2 | CMBS | 1 | RMBS | Other asset- backed financing activities | 2 | ||||||||||||||||
CHF million, except where indicated | |||||||||||||||||||||||||
Fair value of beneficial interests | 200 | 1,571 | 608 | 258 | 1,851 | 443 | |||||||||||||||||||
of which non-investment grade | 91 | 314 | 32 | 70 | 523 | 32 | |||||||||||||||||||
Weighted-average life, in years | 6.3 | 8.1 | 6.0 | 7.2 | 8.1 | 5.6 | |||||||||||||||||||
Prepayment speed assumption (rate per annum), in % 3 | – | 1.0 | – | 21.1 | – | – | 2.0 | – | 26.9 | – | |||||||||||||||
Impact on fair value from 10% adverse change | – | (23.7) | – | – | (28.7) | – | |||||||||||||||||||
Impact on fair value from 20% adverse change | – | (46.4) | – | – | (55.9) | – | |||||||||||||||||||
Cash flow discount rate (rate per annum), in % 4 | 2.2 | – | 13.1 | 1.6 | – | 30.9 | 1.0 | – | 29.0 | 2.3 | – | 28.8 | 1.7 | – | 47.2 | 0.8 | – | 21.2 | |||||||
Impact on fair value from 10% adverse change | (4.2) | (36.5) | (30.2) | (6.0) | (48.1) | (8.3) | |||||||||||||||||||
Impact on fair value from 20% adverse change | (8.2) | (71.1) | (48.2) | (11.7) | (93.5) | (16.4) | |||||||||||||||||||
Expected credit losses (rate per annum), in % | 0.6 | – | 11.9 | 0.8 | – | 28.7 | 1.1 | – | 28.0 | 0.7 | – | 28.0 | 0.9 | – | 44.9 | 0.9 | – | 21.2 | |||||||
Impact on fair value from 10% adverse change | (2.5) | (18.2) | (7.9) | (3.5) | (27.3) | (5.1) | |||||||||||||||||||
Impact on fair value from 20% adverse change | (4.9) | (35.7) | (29.3) | (6.9) | (53.3) | (10.0) | |||||||||||||||||||
1 To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances. | |||||||||||||||||||||||||
2 CDOs and CLOs within this category are generally structured to be protected from prepayment risk. | |||||||||||||||||||||||||
3 PSA is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the CPR assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR. | |||||||||||||||||||||||||
4 The rate was based on the weighted-average yield on the beneficial interests. |
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These sensitivities are hypothetical and do not reflect economic hedging activities. Changes in fair value based on a 10% or 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the beneficial interests is calculated without changing any other assumption. In practice, changes in one assumption may result in changes in other assumptions (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
Transfers of financial assets where sale treatment was not achieved
The following table provides the carrying amounts of transferred financial assets and the related liabilities where sale treatment was not achieved as of the end of 3Q17 and 4Q16.
> Refer to “Note 29 – Assets pledged and collateral” for further information.
Carrying amounts of transferred financial assets and liabilities where sale treatment was not achieved
end of | 3Q17 | 4Q16 | |||
CHF million | |||||
Other asset-backed financings | |||||
Trading assets | 406 | 240 | |||
Other assets | 0 | 12 | |||
Liability to SPE, included in Other liabilities | (406) | (252) |
Transfers of financial assets accounted for as a sale
US GAAP requires the disclosure of a transaction accounted for as a sale that comprises both of the following: a transfer of financial assets to a transferee and an agreement entered into in contemplation of the initial transfer with the transferee that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. In the ordinary course of business, the Group transfers a financial asset accounted for as a sale and, in some instances, enters into an agreement in contemplation of that initial transfer with the same counterparty to retain substantially all of the economics of that transferred financial asset. As of the end of 3Q17 and 4Q16, the Group had agreements in the form of longevity swaps on life insurance policies.
The following table presents information about the transfers of financial assets accounted for as sales with agreements that result in the Group retaining substantially all of the exposure to the economic return on the transferred assets at the date of sale and remain outstanding as of the end of 3Q17 and 4Q16, respectively, gross cash proceeds received for assets derecognized at the date of sale and the fair values of transferred assets and the aforementioned agreements as of the end of 3Q17 and 4Q16.
Transfer of financial assets accounted for as sales – by transaction type
at date of derecognition | end of | ||||||||||
Carrying amount derecognized | Gross cash proceeds received for assets derecognized | Fair value of transferred assets | Gross derivative assets recorded | 1 | Gross derivative liabilities recorded | 1 | |||||
3Q17 (CHF million) | |||||||||||
Sales with longevity swaps | 262 | 322 | 355 | 523 | – | ||||||
Total transactions outstanding | 262 | 322 | 355 | 523 | 2 | 0 | |||||
4Q16 (CHF million) | |||||||||||
Sales with longevity swaps | 277 | 340 | 374 | 556 | – | ||||||
Total transactions outstanding | 277 | 340 | 374 | 556 | 2 | 0 | |||||
1 Balances presented on a gross basis, before application of counterparty and cash collateral netting. | |||||||||||
2 As of the end of 3Q17 and 4Q16, gross derivative assets of CHF 523 million and CHF 556 million, respectively, were included in other products, as disclosed in Note 25 – Derivatives and hedging activities. |
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Securities sold under repurchase agreements and securities lending transactions accounted for as secured borrowings
For securities sold under repurchase agreements and securities lending transactions accounted for as secured borrowings, US GAAP requires the disclosure of the collateral pledged and the associated risks to which a transferor continues to be exposed after the transfer. This provides an understanding of the nature and risks of short-term collateralized financing obtained through these types of transactions.
Securities sold under repurchase agreements and securities lending transactions represent collateralized financing transactions used to earn net interest income, increase liquidity or facilitate trading activities. These transactions are collateralized principally by government debt securities, corporate debt securities, asset-backed securities, equity securities and other collateral and have terms ranging from on demand to a longer period of time.
In the event of the Group’s default or a decline in fair value of collateral pledged, the repurchase agreement provides the counterparty with the right to liquidate the collateral held or request additional collateral. Similarly, in the event of the Group's default, the securities lending transaction provides the counterparty the right to liquidate the securities borrowed.
The following tables provide the gross obligation relating to securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral by the class of collateral pledged and by remaining contractual maturity as of the end of 3Q17 and 4Q16.
Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by class of collateral pledged
end of | 3Q17 | 4Q16 | |||
CHF billion | |||||
Government debt securities | 26.5 | 29.4 | |||
Corporate debt securities | 16.5 | 13.9 | |||
Asset-backed securities | 8.4 | 10.3 | |||
Equity securities | 0.6 | 1.1 | |||
Other | 0.4 | 0.3 | |||
Securities sold under repurchase agreements | 52.4 | 55.0 | |||
Government debt securities | 2.8 | 2.5 | |||
Corporate debt securities | 0.4 | 0.5 | |||
Equity securities | 6.2 | 6.0 | |||
Other | 0.3 | 0.4 | |||
Securities lending transactions | 9.7 | 9.4 | |||
Government debt securities | 2.3 | 0.7 | |||
Corporate debt securities | 0.5 | 0.4 | |||
Equity securities | 33.1 | 31.5 | |||
Obligation to return securities received as collateral, at fair value | 35.9 | 32.6 | |||
Total | 98.0 | 97.0 |
Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by remaining contractual maturity
Remaining contractual maturities | |||||||||||
end of | On demand | 1 | Up to 30 days | 2 | 31–90 days | More than 90 days | Total | ||||
3Q17 (CHF billion) | |||||||||||
Securities sold under repurchase agreements | 8.1 | 27.2 | 8.0 | 9.1 | 52.4 | ||||||
Securities lending transactions | 7.1 | 2.4 | 0.0 | 0.2 | 9.7 | ||||||
Obligation to return securities received as collateral, at fair value | 35.7 | 0.0 | 0.0 | 0.2 | 35.9 | ||||||
Total | 50.9 | 29.6 | 8.0 | 9.5 | 98.0 | ||||||
4Q16 (CHF billion) | |||||||||||
Securities sold under repurchase agreements | 6.8 | 31.9 | 8.4 | 7.9 | 55.0 | ||||||
Securities lending transactions | 6.7 | 2.4 | 0.0 | 0.3 | 9.4 | ||||||
Obligation to return securities received as collateral, at fair value | 32.2 | 0.4 | 0.0 | 0.0 | 32.6 | ||||||
Total | 45.7 | 34.7 | 8.4 | 8.2 | 97.0 | ||||||
1 Includes contracts with no contractual maturity that may contain termination arrangements subject to a notice period. | |||||||||||
2 Includes overnight transactions. |
> Refer to “Note 21 – Offsetting of financial assets and financial liabilities” for further information on the gross amount of securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral and the net amounts disclosed in the consolidated balance sheets.
136
As a normal part of its business, the Group engages in various transactions that include entities that are considered variable interest entities (VIEs) and are grouped into three primary categories: collateralized debt obligations (CDOs)/CLOs, CP conduits and financial intermediation.
> Refer to “Variable interest entities” in V – Consolidated financial statements – Credit Suisse Group – Note 34 – Transfer of financial assets and variable interest entities in the Credit Suisse Annual Report 2016 for a detailed description of VIEs, CDO/CLOs, CP conduit or financial intermediation.
Collateralized debt and loan obligations
The Group engages in CDO/CLO transactions to meet client and investor needs, earn fees and sell financial assets. The Group may act as underwriter, placement agent or asset manager and may warehouse assets prior to the closing of a transaction.
Commercial paper conduit
In 2Q16, the Group established Alpine Securitization Ltd (Alpine), a multi-seller asset-backed CP conduit used for client and Group financing purposes. The Group acts as the administrator and provider of liquidity and credit enhancement facilities for Alpine. Alpine discloses to CP investors certain portfolio and asset data and submits its portfolio to rating agencies for public ratings. This CP conduit purchases assets such as loans and receivables or enters into reverse repurchase agreements and finances such activities through the issuance of CP backed by these assets. The CP conduit can enter into liquidity facilities with third-party entities pursuant to which it may purchase assets from these entities to provide them with liquidity and credit support. The financing transactions are structured to provide credit support to the CP conduit in the form of over-collateralization and other asset-specific enhancements. Alpine is a separate legal entity that is wholly owned by the Group. However, its assets are available to satisfy only the claims of its creditors. In addition, the Group, as administrator and liquidity facility provider, has significant exposure to and power over the activities of Alpine. Alpine is considered a VIE for accounting purposes and the Group is deemed the primary beneficiary and consolidates this entity.
The overall average maturity of the conduit’s outstanding CP was approximately 164 days as of the end of 3Q17. Alpine was rated A-1(sf) by Standard & Poor’s and P-1(sf) by Moody’s and had exposures mainly in a reverse repurchase agreement, credit card receivables, student loans and car loans.
The Group’s commitment to this CP conduit consists of obligations under liquidity agreements. The liquidity agreements are asset-specific arrangements, which require the Group to purchase assets from the CP conduit in certain circumstances, including a lack of liquidity in the CP market such that the CP conduit cannot refinance its obligations or, in some cases, a default of an underlying asset. The asset-specific credit enhancements provided by the client seller of the assets remain unchanged as a result of such a purchase. In entering into such agreements, the Group reviews the credit risk associated with these transactions on the same basis that would apply to other extensions of credit.
The Group’s economic risks associated with the CP conduit are included in the Group’s risk management framework including counterparty, economic risk capital and scenario analysis.
Financial intermediation
The Group has significant involvement with VIEs in its role as a financial intermediary on behalf of clients.
Financial intermediation consists of securitizations, funds, loans and other vehicles.
Consolidated VIEs
The Group has significant involvement with VIEs in its role as a financial intermediary on behalf of clients. The Group consolidates all VIEs related to financial intermediation for which it was the primary beneficiary.
The consolidated VIEs tables provide the carrying amounts and classifications of the assets and liabilities of consolidated VIEs as of the end of 3Q17 and 4Q16.
137
Consolidated VIEs in which the Group was the primary beneficiary
Financial intermediation | |||||||||||||||
end of | CDO/ CLO | CP Conduit | Securi- tizations | Funds | Loans | Other | Total | ||||||||
3Q17 (CHF million) | |||||||||||||||
Cash and due from banks | 38 | 131 | 81 | 92 | 69 | 8 | 419 | ||||||||
Trading assets | 1 | 0 | 498 | 169 | 875 | 1,407 | 2,950 | ||||||||
Investment securities | 0 | 0 | 740 | 0 | 0 | 0 | 740 | ||||||||
Other investments | 0 | 0 | 0 | 264 | 1,254 | 283 | 1,801 | ||||||||
Net loans | 0 | 9 | 0 | 9 | 20 | 240 | 278 | ||||||||
Premises and equipment | 0 | 0 | 0 | 0 | 160 | 0 | 160 | ||||||||
Other assets | 309 | 6 | 1,086 | 4 | 40 | 1,277 | 2,722 | ||||||||
of which loans held-for-sale | 308 | 0 | 155 | 0 | 3 | 0 | 466 | ||||||||
Total assets of consolidated VIEs | 348 | 146 | 2,405 | 538 | 2,418 | 3,215 | 9,070 | ||||||||
Trading liabilities | 0 | 0 | 0 | 0 | 6 | 1 | 7 | ||||||||
Long-term debt | 100 | 0 | 1,305 | 0 | 35 | 32 | 1,472 | ||||||||
Other liabilities | 0 | 0 | 0 | 55 | 111 | 111 | 277 | ||||||||
Total liabilities of consolidated VIEs | 100 | 0 | 1,305 | 55 | 152 | 144 | 1,756 | ||||||||
4Q16 (CHF million) | |||||||||||||||
Cash and due from banks | 43 | 1 | 41 | 52 | 50 | 182 | 369 | ||||||||
Trading assets | 0 | 0 | 0 | 478 | 933 | 1,333 | 2,744 | ||||||||
Investment securities | 0 | 0 | 511 | 0 | 0 | 0 | 511 | ||||||||
Other investments | 0 | 0 | 0 | 228 | 1,446 | 332 | 2,006 | ||||||||
Net loans | 0 | 0 | 0 | 0 | 30 | 254 | 284 | ||||||||
Premises and equipment | 0 | 0 | 0 | 0 | 199 | 0 | 199 | ||||||||
Other assets | 0 | 1 | 1,483 | 48 | 51 | 1,034 | 2,617 | ||||||||
of which loans held-for-sale | 0 | 0 | 415 | 0 | 7 | 0 | 422 | ||||||||
Total assets of consolidated VIEs | 43 | 2 | 2,035 | 806 | 2,709 | 3,135 | 8,730 | ||||||||
Trading liabilities | 0 | 0 | 0 | 0 | 18 | 0 | 18 | ||||||||
Short-term borrowings | 0 | 0 | 0 | 1 | 0 | 0 | 1 | ||||||||
Long-term debt | 54 | 0 | 1,639 | 7 | 57 | 2 | 1,759 | ||||||||
Other liabilities | 0 | 0 | 1 | 15 | 124 | 104 | 244 | ||||||||
Total liabilities of consolidated VIEs | 54 | 0 | 1,640 | 23 | 199 | 106 | 2,022 |
138
Non-consolidated VIEs
The non-consolidated VIEs tables provide the carrying amounts and classification of the assets and liabilities of variable interests recorded in the Group’s consolidated balance sheets, maximum exposure to loss and total assets of the non-consolidated VIEs.
Certain VIEs have not been included in the following table, including VIEs structured by third parties in which the Group’s interest is in the form of securities held in the Group’s inventory, certain repurchase financings to funds and single-asset financing vehicles not sponsored by the Group to which the Group provides financing but has very little risk of loss due to over-collateralization and guarantees, failed sales where the Group does not have any other holdings and other entities out of scope.
> Refer to “Variable interest entities” in V – Consolidated financial statements – Credit Suisse Group – Note 34 – Transfer of financial assets and variable interest entities in the Credit Suisse Annual Report 2016 for further information on non-consolidated VIEs.
Non-consolidated VIEs
Financial intermediation | |||||||||||||
end of | CDO/ CLO | Securi- tizations | Funds | Loans | Other | Total | |||||||
3Q17 (CHF million) | |||||||||||||
Trading assets | 562 | 3,931 | 1,041 | 241 | 2,328 | 8,103 | |||||||
Net loans | 250 | 725 | 2,378 | 5,444 | 252 | 9,049 | |||||||
Other assets | 6 | 10 | 67 | 2 | 454 | 539 | |||||||
Total variable interest assets | 818 | 4,666 | 3,486 | 5,687 | 3,034 | 17,691 | |||||||
Maximum exposure to loss | 818 | 6,139 | 3,490 | 8,754 | 3,942 | 23,143 | |||||||
Total assets of non-consolidated VIEs | 12,066 | 66,489 | 67,295 | 27,015 | 34,610 | 207,475 | |||||||
4Q16 (CHF million) | |||||||||||||
Trading assets | 440 | 3,881 | 1,526 | 528 | 191 | 6,566 | |||||||
Net loans | 4 | 105 | 2,007 | 4,634 | 608 | 7,358 | |||||||
Other assets | 5 | 14 | 20 | 4 | 520 | 563 | |||||||
Total variable interest assets | 449 | 4,000 | 3,553 | 5,166 | 1,319 | 14,487 | |||||||
Maximum exposure to loss | 449 | 7,171 | 3,553 | 9,215 | 1,821 | 22,209 | |||||||
Total assets of non-consolidated VIEs | 9,774 | 65,820 | 68,546 | 32,651 | 37,087 | 213,878 |
The disclosure of the Group’s financial instruments below includes the following sections:
– Concentration of credit risk;
– Fair value measurement (including fair value hierarchy, transfers between levels; level 3 reconciliation; qualitative and quantitative disclosures of valuation techniques and nonrecurring fair value changes);
– Fair value option; and
– Disclosures about fair value of financial instruments not carried at fair value.
Credit risk concentrations arise when a number of counterparties are engaged in similar business activities, are located in the same geographic region or when there are similar economic features that would cause their ability to meet contractual obligations to be similarly impacted by changes in economic conditions.
> Refer to “Note 35 – Financial instruments” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on the Group’s concentrations of credit risk.
A significant portion of the Group’s financial instruments are carried at fair value. Deterioration of financial markets could significantly impact the fair value of these financial instruments and the results of operations.
> Refer to “Note 35 – Financial instruments” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on fair value measurement of financial instruments and the definition of the levels of the fair value hierarchy.
139
Assets and liabilities measured at fair value on a recurring basis
end of 3Q17 | Level 1 | Level 2 | Level 3 | Netting impact | 1 | Assets measured at net asset value per share | 2 | Total | |||||
Assets (CHF million) | |||||||||||||
Cash and due from banks | 0 | 175 | 0 | – | – | 175 | |||||||
Interest-bearing deposits with banks | 0 | 0 | 0 | – | – | 0 | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 0 | 97,413 | 0 | – | – | 97,413 | |||||||
Debt | 555 | 877 | 1 | – | – | 1,433 | |||||||
of which corporates | 0 | 840 | 1 | – | – | 841 | |||||||
Equity | 34,115 | 335 | 18 | – | – | 34,468 | |||||||
Securities received as collateral | 34,670 | 1,212 | 19 | – | – | 35,901 | |||||||
Debt | 24,790 | 36,314 | 2,124 | – | – | 63,228 | |||||||
of which foreign governments | 24,387 | 3,704 | 336 | – | – | 28,427 | |||||||
of which corporates | 300 | 10,882 | 1,056 | – | – | 12,238 | |||||||
of which RMBS | 0 | 18,022 | 393 | – | – | 18,415 | |||||||
of which CMBS | 0 | 2,165 | 33 | – | – | 2,198 | |||||||
of which CDO | 0 | 1,540 | 157 | – | – | 1,697 | |||||||
Equity | 46,908 | 4,288 | 209 | – | 1,058 | 52,463 | |||||||
Derivatives | 4,822 | 151,537 | 3,473 | (138,969) | – | 20,863 | |||||||
of which interest rate products | 778 | 90,066 | 806 | – | – | – | |||||||
of which foreign exchange products | 111 | 33,907 | 201 | – | – | – | |||||||
of which equity/index-related products | 3,933 | 18,749 | 889 | – | – | – | |||||||
of which credit derivatives | 0 | 7,977 | 474 | – | – | – | |||||||
Other | 2,311 | 439 | 3,075 | – | – | 5,825 | |||||||
Trading assets | 78,831 | 192,578 | 8,881 | (138,969) | 1,058 | 142,379 | |||||||
Debt | 244 | 2,305 | 54 | – | – | 2,603 | |||||||
of which foreign governments | 97 | 1,298 | 0 | – | – | 1,395 | |||||||
of which corporates | 0 | 255 | 0 | – | – | 255 | |||||||
of which RMBS | 0 | 687 | 51 | – | – | 738 | |||||||
of which CMBS | 0 | 0 | 2 | – | – | 2 | |||||||
Equity | 6 | 95 | 0 | – | – | 101 | |||||||
Investment securities | 250 | 2,400 | 54 | – | – | 2,704 | |||||||
Private equity | 0 | 0 | 7 | – | 422 | 429 | |||||||
of which equity funds | 0 | 0 | 0 | – | 196 | 196 | |||||||
Hedge funds | 0 | 0 | 0 | – | 334 | 334 | |||||||
of which debt funds | 0 | 0 | 0 | – | 236 | 236 | |||||||
Other equity investments | 24 | 5 | 268 | – | 1,308 | 1,605 | |||||||
of which private | 16 | 5 | 267 | – | 1,306 | 1,594 | |||||||
Life finance instruments | 0 | 1 | 1,358 | – | – | 1,359 | |||||||
Other investments | 24 | 6 | 1,633 | – | 2,064 | 3,727 | |||||||
Loans | 0 | 10,399 | 4,963 | – | – | 15,362 | |||||||
of which commercial and industrial loans | 0 | 4,201 | 2,400 | – | – | 6,601 | |||||||
of which financial institutions | 0 | 3,795 | 1,631 | – | – | 5,426 | |||||||
Other intangible assets (mortgage servicing rights) | 0 | 0 | 153 | – | – | 153 | |||||||
Other assets | 252 | 6,670 | 1,899 | (197) | – | 8,624 | |||||||
of which loans held-for-sale | 0 | 4,763 | 1,691 | – | – | 6,454 | |||||||
Total assets at fair value | 114,027 | 310,853 | 17,602 | (139,166) | 3,122 | 306,438 | |||||||
1 Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements. | |||||||||||||
2 In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. |
140
Assets and liabilities measured at fair value on a recurring basis (continued)
end of 3Q17 | Level 1 | Level 2 | Level 3 | Netting impact | 1 | Liabilities measured at net asset value per share | 2 | Total | |||||
Liabilities (CHF million) | |||||||||||||
Due to banks | 0 | 521 | 0 | – | – | 521 | |||||||
Customer deposits | 0 | 3,116 | 438 | – | – | 3,554 | |||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 0 | 17,300 | 0 | – | – | 17,300 | |||||||
Debt | 555 | 877 | 1 | – | – | 1,433 | |||||||
of which corporates | 0 | 840 | 1 | – | – | 841 | |||||||
Equity | 34,115 | 335 | 18 | – | – | 34,468 | |||||||
Obligation to return securities received as collateral | 34,670 | 1,212 | 19 | – | – | 35,901 | |||||||
Debt | 4,997 | 4,381 | 10 | – | – | 9,388 | |||||||
of which foreign governments | 4,936 | 312 | 0 | – | – | 5,248 | |||||||
of which corporates | 1 | 3,867 | 10 | – | – | 3,878 | |||||||
Equity | 19,371 | 471 | 51 | – | 4 | 19,897 | |||||||
Derivatives | 4,906 | 154,144 | 2,731 | (147,146) | – | 14,635 | |||||||
of which interest rate products | 817 | 83,851 | 328 | – | – | – | |||||||
of which foreign exchange products | 150 | 39,607 | 82 | – | – | – | |||||||
of which equity/index-related products | 3,939 | 20,778 | 1,092 | – | – | – | |||||||
of which credit derivatives | 0 | 9,145 | 686 | – | – | – | |||||||
Trading liabilities | 29,274 | 158,996 | 2,792 | (147,146) | 4 | 43,920 | |||||||
Short-term borrowings | 0 | 5,222 | 599 | – | – | 5,821 | |||||||
Long-term debt | 0 | 56,429 | 12,917 | – | – | 69,346 | |||||||
of which treasury debt over two years | 0 | 949 | 0 | – | – | 949 | |||||||
of which structured notes over one year and up to two years | 0 | 6,266 | 276 | – | – | 6,542 | |||||||
of which structured notes over two years | 0 | 37,882 | 12,476 | – | – | 50,358 | |||||||
of which other debt instruments over two years | 0 | 2,963 | 62 | – | – | 3,025 | |||||||
of which other subordinated bonds | 0 | 5,435 | 0 | – | – | 5,435 | |||||||
of which non-recourse liabilities | 0 | 1,371 | 100 | – | – | 1,471 | |||||||
Other liabilities | 0 | 7,241 | 1,415 | (229) | – | 8,427 | |||||||
of which failed sales | 0 | 386 | 233 | – | – | 619 | |||||||
Total liabilities at fair value | 63,944 | 250,037 | 18,180 | (147,375) | 4 | 184,790 | |||||||
1 Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements. | |||||||||||||
2 In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. |
141
Assets and liabilities measured at fair value on a recurring basis (continued)
end of 4Q16 | Level 1 | Level 2 | Level 3 | Netting impact | 1 | Assets measured at net asset value per share | 2 | Total | |||||
Assets (CHF million) | |||||||||||||
Cash and due from banks | 0 | 200 | 0 | – | – | 200 | |||||||
Interest-bearing deposits with banks | 0 | 25 | 1 | – | – | 26 | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 0 | 87,157 | 174 | – | – | 87,331 | |||||||
Debt | 619 | 419 | 1 | – | – | 1,039 | |||||||
of which corporates | 1 | 375 | 1 | – | – | 377 | |||||||
Equity | 30,706 | 750 | 69 | – | – | 31,525 | |||||||
Securities received as collateral | 31,325 | 1,169 | 70 | – | – | 32,564 | |||||||
Debt | 29,498 | 32,193 | 3,977 | – | – | 65,668 | |||||||
of which foreign governments | 29,226 | 2,408 | 292 | – | – | 31,926 | |||||||
of which corporates | 180 | 12,326 | 1,674 | – | – | 14,180 | |||||||
of which RMBS | 0 | 14,153 | 605 | – | – | 14,758 | |||||||
of which CMBS | 0 | 2,227 | 65 | – | – | 2,292 | |||||||
of which CDO | 0 | 1,074 | 1,165 | – | – | 2,239 | |||||||
Equity | 58,490 | 3,795 | 240 | – | 1,346 | 63,871 | |||||||
Derivatives | 5,631 | 224,142 | 4,305 | (207,296) | – | 26,782 | |||||||
of which interest rate products | 3,074 | 133,834 | 748 | – | – | – | |||||||
of which foreign exchange products | 18 | 61,448 | 355 | – | – | – | |||||||
of which equity/index-related products | 2,538 | 20,519 | 914 | – | – | – | |||||||
of which credit derivatives | 0 | 7,388 | 688 | – | – | – | |||||||
Other | 2,267 | 2,319 | 4,243 | – | – | 8,829 | |||||||
Trading assets | 95,886 | 262,449 | 12,765 | (207,296) | 1,346 | 165,150 | |||||||
Debt | 294 | 2,034 | 72 | – | – | 2,400 | |||||||
of which foreign governments | 103 | 1,240 | 0 | – | – | 1,343 | |||||||
of which corporates | 0 | 287 | 0 | – | – | 287 | |||||||
of which RMBS | 0 | 425 | 72 | – | – | 497 | |||||||
of which CMBS | 0 | 14 | 0 | – | – | 14 | |||||||
Equity | 3 | 86 | 0 | – | – | 89 | |||||||
Investment securities | 297 | 2,120 | 72 | – | – | 2,489 | |||||||
Private equity | 0 | 0 | 8 | – | 574 | 582 | |||||||
of which equity funds | 0 | 0 | 0 | – | 240 | 240 | |||||||
Hedge funds | 0 | 0 | 0 | – | 546 | 546 | |||||||
of which debt funds | 0 | 0 | 0 | – | 292 | 292 | |||||||
Other equity investments | 22 | 64 | 310 | – | 984 | 1,380 | |||||||
of which private | 15 | 64 | 310 | – | 984 | 1,373 | |||||||
Life finance instruments | 0 | 0 | 1,588 | – | – | 1,588 | |||||||
Other investments | 22 | 64 | 1,906 | – | 2,104 | 4,096 | |||||||
Loans | 0 | 12,943 | 6,585 | – | – | 19,528 | |||||||
of which commercial and industrial loans | 0 | 6,051 | 3,816 | – | – | 9,867 | |||||||
of which financial institutions | 0 | 4,403 | 1,829 | – | – | 6,232 | |||||||
Other intangible assets (mortgage servicing rights) | 0 | 0 | 138 | – | – | 138 | |||||||
Other assets | 260 | 8,359 | 1,679 | (915) | – | 9,383 | |||||||
of which loans held-for-sale | 0 | 4,640 | 1,316 | – | – | 5,956 | |||||||
Total assets at fair value | 127,790 | 374,486 | 23,390 | (208,211) | 3,450 | 320,905 | |||||||
1 Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements. | |||||||||||||
2 In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. |
142
Assets and liabilities measured at fair value on a recurring basis (continued)
end of 4Q16 | Level 1 | Level 2 | Level 3 | Netting impact | 1 | Liabilities measured at net asset value per share | 2 | Total | |||||
Liabilities (CHF million) | |||||||||||||
Due to banks | 0 | 437 | 0 | – | – | 437 | |||||||
Customer deposits | 0 | 3,166 | 410 | – | – | 3,576 | |||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 0 | 19,634 | 0 | – | – | 19,634 | |||||||
Debt | 619 | 419 | 1 | – | – | 1,039 | |||||||
of which corporates | 1 | 375 | 1 | – | – | 377 | |||||||
Equity | 30,706 | 750 | 69 | – | – | 31,525 | |||||||
Obligation to return securities received as collateral | 31,325 | 1,169 | 70 | – | – | 32,564 | |||||||
Debt | 4,376 | 3,564 | 23 | – | – | 7,963 | |||||||
of which foreign governments | 4,374 | 547 | 0 | – | – | 4,921 | |||||||
of which corporates | 0 | 2,760 | 23 | – | – | 2,783 | |||||||
Equity | 16,365 | 191 | 41 | – | 1 | 16,598 | |||||||
Derivatives | 5,407 | 229,051 | 3,673 | (217,762) | – | 20,369 | |||||||
of which interest rate products | 2,946 | 126,422 | 538 | – | – | – | |||||||
of which foreign exchange products | 18 | 71,006 | 150 | – | – | – | |||||||
of which equity/index-related products | 2,442 | 22,219 | 1,181 | – | – | – | |||||||
of which credit derivatives | 0 | 8,350 | 851 | – | – | – | |||||||
Trading liabilities | 26,148 | 232,806 | 3,737 | (217,762) | 1 | 44,930 | |||||||
Short-term borrowings | 0 | 3,545 | 516 | – | – | 4,061 | |||||||
Long-term debt | 0 | 59,453 | 13,415 | – | – | 72,868 | |||||||
of which treasury debt over two years | 0 | 3,217 | 0 | – | – | 3,217 | |||||||
of which structured notes over one year and up to two years | 0 | 6,852 | 326 | – | – | 7,178 | |||||||
of which structured notes over two years | 0 | 39,824 | 12,434 | – | – | 52,258 | |||||||
of which other debt instruments over two years | 0 | 2,311 | 634 | – | – | 2,945 | |||||||
of which other subordinated bonds | 0 | 5,482 | 1 | – | – | 5,483 | |||||||
of which non-recourse liabilities | 0 | 1,742 | 17 | – | – | 1,759 | |||||||
Other liabilities | 0 | 8,823 | 1,684 | (1,014) | – | 9,493 | |||||||
of which failed sales | 0 | 507 | 219 | – | – | 726 | |||||||
Total liabilities at fair value | 57,473 | 329,033 | 19,832 | (218,776) | 1 | 187,563 | |||||||
1 Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements. | |||||||||||||
2 In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. |
Transfers between level 1 and level 2
All transfers between level 1 and level 2 are reported through the last day of the reporting period.
In 9M17, transfers to level 1 out of level 2 were from trading assets and trading liabilities. The transfers from trading assets were mainly in exchange traded derivatives and equity securities as prices became observable. The transfers from trading liabilities were primarily in exchange traded derivatives as prices became observable.
In 9M17, transfers out of level 1 to level 2 were primarily from trading assets, mainly in debt and equity securities, for which suitable closing prices were unobtainable as of the end of 9M17.
Transfers between level 1 and level 2
in | 9M17 | 9M16 | |||||||
Transfers to level 1 out of level 2 | Transfers out of level 1 to level 2 | Transfers to level 1 out of level 2 | Transfers out of level 1 to level 2 | ||||||
Assets (CHF million) | |||||||||
Securities received as collateral | 0 | 135 | 0 | 0 | |||||
Debt | 15 | 220 | 1,998 | 1,683 | |||||
Equity | 700 | 337 | 286 | 1,003 | |||||
Derivatives | 2,688 | 0 | 2,875 | 0 | |||||
Trading assets | 3,403 | 557 | 5,159 | 2,686 | |||||
Investment securities | 0 | 0 | 0 | 1,233 | |||||
Liabilities (CHF million) | |||||||||
Obligations to return securities received as collateral | 0 | 135 | 0 | 0 | |||||
Debt | 2 | 43 | 2 | 39 | |||||
Equity | 75 | 129 | 24 | 150 | |||||
Derivatives | 3,042 | 49 | 3,548 | 19 | |||||
Trading liabilities | 3,119 | 221 | 3,574 | 208 |
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Assets and liabilities measured at fair value on a recurring basis for level 3 | |||||||||||||||||||||||||||||||
Trading revenues | Other revenues | Accumulated other comprehensive income | |||||||||||||||||||||||||||||
9M17 | Balance at beginning of period | Transfers in | Transfers out | Purchases | Sales | Issuances | Settlements | On transfers in / out | 1 | On all other | On transfers in / out | 1 | On all other | On transfers in / out | 1 | On all other | Foreign currency translation impact | Balance at end of period | |||||||||||||
Assets (CHF million) | |||||||||||||||||||||||||||||||
Interest-bearing deposits with banks | 1 | 40 | 0 | 0 | (41) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 174 | 0 | 0 | 0 | 0 | 26 | (193) | 0 | 0 | 0 | 0 | 0 | 0 | (7) | 0 | ||||||||||||||||
Securities received as collateral | 70 | 3 | (1) | 37 | (86) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (4) | 19 | ||||||||||||||||
Debt | 3,977 | 421 | (721) | 1,684 | (2,752) | 0 | 0 | (6) | (95) | 5 | 2 | 0 | 0 | (391) | 2,124 | ||||||||||||||||
of which corporates | 1,674 | 177 | (513) | 1,491 | (1,644) | 0 | 0 | (5) | (26) | 5 | 0 | 0 | 0 | (103) | 1,056 | ||||||||||||||||
of which RMBS | 605 | 234 | (196) | 77 | (227) | 0 | 0 | 3 | (75) | 0 | 0 | 0 | 0 | (28) | 393 | ||||||||||||||||
of which CMBS | 65 | 5 | (16) | 1 | (13) | 0 | 0 | (3) | (2) | 0 | 0 | 0 | 0 | (4) | 33 | ||||||||||||||||
of which CDO | 1,165 | 25 | (128) | 141 | (995) | 0 | 0 | 0 | (11) | 0 | 1 | 0 | 0 | (41) | 157 | ||||||||||||||||
Equity | 240 | 33 | (29) | 131 | (149) | 0 | 0 | 0 | (5) | 0 | 0 | 0 | 0 | (12) | 209 | ||||||||||||||||
Derivatives | 4,305 | 314 | (693) | 0 | 0 | 734 | (1,102) | 102 | 19 | 0 | 0 | 0 | 0 | (206) | 3,473 | ||||||||||||||||
of which interest rate products | 748 | 54 | (33) | 0 | 0 | 109 | (119) | 6 | 70 | 0 | 0 | 0 | 0 | (29) | 806 | ||||||||||||||||
of which equity/index-related products | 914 | 100 | (63) | 0 | 0 | 298 | (404) | 10 | 79 | 0 | 0 | 0 | 0 | (45) | 889 | ||||||||||||||||
of which credit derivatives | 688 | 158 | (199) | 0 | 0 | 57 | (210) | 24 | (8) | 0 | 0 | 0 | 0 | (36) | 474 | ||||||||||||||||
Other | 4,243 | 96 | (227) | 11,060 | (12,153) | 0 | (247) | 4 | 316 | 0 | 0 | 0 | 0 | (17) | 3,075 | ||||||||||||||||
Trading assets | 12,765 | 864 | (1,670) | 12,875 | (15,054) | 734 | (1,349) | 100 | 235 | 5 | 2 | 0 | 0 | (626) | 8,881 | ||||||||||||||||
Investment securities | 72 | 0 | (17) | 89 | (86) | 0 | (80) | (1) | 81 | 0 | 0 | 0 | 0 | (4) | 54 | ||||||||||||||||
Equity | 318 | 0 | (22) | 124 | (143) | 0 | 0 | 0 | (19) | 0 | 29 | 0 | 0 | (12) | 275 | ||||||||||||||||
Life finance instruments | 1,588 | 0 | 0 | 140 | (320) | 0 | 0 | 0 | 33 | 0 | 0 | 0 | 0 | (83) | 1,358 | ||||||||||||||||
Other investments | 1,906 | 0 | (22) | 264 | (463) | 0 | 0 | 0 | 14 | 0 | 29 | 0 | 0 | (95) | 1,633 | ||||||||||||||||
Loans | 6,585 | 941 | (597) | 66 | (565) | 805 | (2,052) | (14) | 105 | 0 | 0 | 0 | 0 | (311) | 4,963 | ||||||||||||||||
of which commercial and industrial loans | 3,816 | 299 | (325) | 62 | (385) | 312 | (1,246) | (2) | 42 | 0 | 0 | 0 | 0 | (173) | 2,400 | ||||||||||||||||
of which financial institutions | 1,829 | 349 | (9) | 3 | (176) | 407 | (672) | 0 | (9) | 0 | 0 | 0 | 0 | (91) | 1,631 | ||||||||||||||||
Other intangible assets (mortgage servicing rights) | 138 | 0 | 0 | 23 | (1) | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | (8) | 153 | ||||||||||||||||
Other assets | 1,679 | 154 | (83) | 497 | (843) | 1,022 | (297) | 0 | (150) | 0 | (6) | 0 | 0 | (74) | 1,899 | ||||||||||||||||
of which loans held-for-sale 2 | 1,316 | 79 | (68) | 429 | (708) | 1,021 | (297) | 0 | (18) | 0 | (5) | 0 | 0 | (58) | 1,691 | ||||||||||||||||
Total assets at fair value | 23,390 | 2,002 | (2,390) | 13,851 | (17,139) | 2,587 | (3,971) | 85 | 285 | 5 | 26 | 0 | 0 | (1,129) | 17,602 | ||||||||||||||||
Liabilities (CHF million) | |||||||||||||||||||||||||||||||
Customer deposits | 410 | 0 | 0 | 0 | 0 | 35 | 0 | 0 | (29) | 0 | 0 | 0 | 25 | (3) | 438 | ||||||||||||||||
Obligation to return securities received as collateral | 70 | 3 | (1) | 37 | (86) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (4) | 19 | ||||||||||||||||
Trading liabilities | 3,737 | 343 | (872) | 92 | (102) | 763 | (1,235) | 101 | 159 | 0 | (2) | 0 | 0 | (192) | 2,792 | ||||||||||||||||
of which interest rate derivatives | 538 | 52 | (35) | 0 | 0 | 45 | (242) | 4 | (9) | 0 | 0 | 0 | 0 | (25) | 328 | ||||||||||||||||
of which foreign exchange derivatives | 150 | 11 | (1) | 0 | 0 | 7 | (10) | 0 | (68) | 0 | 0 | 0 | 0 | (7) | 82 | ||||||||||||||||
of which equity/index-related derivatives | 1,181 | 30 | (129) | 0 | 0 | 396 | (528) | 20 | 185 | 0 | 0 | 0 | 0 | (63) | 1,092 | ||||||||||||||||
of which credit derivatives | 851 | 205 | (297) | 0 | 0 | 129 | (222) | 17 | 49 | 0 | 0 | 0 | 0 | (46) | 686 | ||||||||||||||||
Short-term borrowings | 516 | 90 | (103) | 0 | 0 | 484 | (368) | (2) | 28 | 4 | 4 | 0 | (27) | (27) | 599 | ||||||||||||||||
Long-term debt | 13,415 | 1,010 | (2,361) | 0 | 0 | 3,550 | (3,179) | 52 | 1,061 | 0 | 0 | 12 | 138 | (781) | 12,917 | ||||||||||||||||
of which structured notes over two years | 12,434 | 842 | (2,261) | 0 | 0 | 2,997 | (2,055) | 51 | 1,055 | 0 | 0 | 12 | 137 | (736) | 12,476 | ||||||||||||||||
Other liabilities | 1,684 | 108 | (56) | 121 | (199) | 8 | (397) | (16) | (5) | 0 | 246 | 0 | 0 | (79) | 1,415 | ||||||||||||||||
of which failed sales | 219 | 46 | (28) | 108 | (147) | 0 | 0 | (1) | 47 | 0 | 0 | 0 | 0 | (11) | 233 | ||||||||||||||||
Total liabilities at fair value | 19,832 | 1,554 | (3,393) | 250 | (387) | 4,840 | (5,179) | 135 | 1,214 | 4 | 248 | 12 | 136 | (1,086) | 18,180 | ||||||||||||||||
Net assets/(liabilities) at fair value | 3,558 | 448 | 1,003 | 13,601 | (16,752) | (2,253) | 1,208 | (50) | (929) | 1 | (222) | (12) | (136) | (43) | (578) | ||||||||||||||||
1 For all transfers to level 3 or out of level 3, the Group determines and discloses as level 3 events only gains or losses through the last day of the reporting period. | |||||||||||||||||||||||||||||||
2 Includes unrealized losses recorded in trading revenues of CHF (48) million primarily related to subprime exposures in securitized products business and market movements across the wider loans held-for-sale portfolio. |
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Assets and liabilities measured at fair value on a recurring basis for level 3 (continued) | |||||||||||||||||||||||||||||||
Trading revenues | Other revenues | Accumulated other comprehensive income | |||||||||||||||||||||||||||||
9M16 | Balance at beginning of period | Transfers in | Transfers out | Purchases | Sales | Issuances | Settlements | On transfers in / out | 1 | On all other | On transfers in / out | 1 | On all other | On transfers in / out | 1 | On all other | Foreign currency translation impact | Balance at end of period | |||||||||||||
Assets (CHF million) | |||||||||||||||||||||||||||||||
Interest-bearing deposits with banks | 0 | 0 | 0 | 49 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 49 | ||||||||||||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 158 | 0 | 0 | 0 | 0 | 227 | (227) | 0 | 0 | 0 | 0 | 0 | 0 | (2) | 156 | ||||||||||||||||
Securities received as collateral | 0 | 0 | 0 | 34 | (18) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 16 | ||||||||||||||||
Debt | 4,563 | 941 | (1,276) | 3,114 | (3,121) | 0 | 0 | (6) | (129) | 0 | 1 | 0 | 0 | (28) | 4,059 | ||||||||||||||||
of which corporates | 1,745 | 361 | (590) | 2,206 | (1,839) | 0 | 0 | 0 | (21) | 0 | 0 | 0 | 0 | (14) | 1,848 | ||||||||||||||||
of which RMBS | 814 | 442 | (464) | 378 | (475) | 0 | 0 | (12) | (80) | 0 | 0 | 0 | 0 | (16) | 587 | ||||||||||||||||
of which CMBS | 215 | 12 | (9) | 44 | (167) | 0 | 0 | 0 | (36) | 0 | 0 | 0 | 0 | (2) | 57 | ||||||||||||||||
of which CDO | 1,298 | 76 | (159) | 454 | (508) | 0 | 0 | 2 | (20) | 0 | 1 | 0 | 0 | (23) | 1,121 | ||||||||||||||||
Equity | 871 | 101 | (118) | 450 | (962) | 0 | 0 | (42) | (49) | 0 | 0 | 0 | 0 | (11) | 240 | ||||||||||||||||
Derivatives | 4,831 | 1,108 | (701) | 0 | 0 | 1,269 | (2,517) | 28 | 276 | 0 | (22) | 0 | 0 | (39) | 4,233 | ||||||||||||||||
of which interest rate products | 791 | 60 | (38) | 0 | 0 | 106 | (173) | 4 | 85 | 0 | 0 | 0 | 0 | (5) | 830 | ||||||||||||||||
of which equity/index-related products | 936 | 268 | (109) | 0 | 0 | 354 | (353) | 12 | 91 | 0 | (22) | 0 | 0 | 2 | 1,179 | ||||||||||||||||
of which credit derivatives | 1,568 | 765 | (542) | 0 | 0 | 517 | (1,599) | 15 | (33) | 0 | 0 | 0 | 0 | (20) | 671 | ||||||||||||||||
Other | 4,266 | 770 | (952) | 2,464 | (2,433) | 0 | (269) | 6 | 322 | 0 | 0 | 0 | 0 | (83) | 4,091 | ||||||||||||||||
Trading assets | 14,531 | 2,920 | (3,047) | 6,028 | (6,516) | 1,269 | (2,786) | (14) | 420 | 0 | (21) | 0 | 0 | (161) | 12,623 | ||||||||||||||||
Investment securities | 148 | 0 | (36) | 95 | (85) | 0 | (103) | (10) | 80 | 0 | 0 | 0 | 0 | (1) | 88 | ||||||||||||||||
Equity | 366 | 7 | (1) | 57 | (107) | 0 | 0 | 0 | 16 | 0 | 12 | 0 | 0 | 11 | 361 | ||||||||||||||||
Life finance instruments | 1,669 | 0 | 0 | 142 | (271) | 0 | 0 | 0 | 134 | 0 | 0 | 0 | 0 | (34) | 1,640 | ||||||||||||||||
Other investments | 2,035 | 7 | (1) | 199 | (378) | 0 | 0 | 0 | 150 | 0 | 12 | 0 | 0 | (23) | 2,001 | ||||||||||||||||
Loans | 8,950 | 601 | (1,700) | 445 | (1,211) | 2,890 | (2,864) | (49) | 4 | 0 | 0 | 0 | 0 | (117) | 6,949 | ||||||||||||||||
of which commercial and industrial loans | 5,735 | 338 | (453) | 45 | (839) | 1,728 | (1,894) | (17) | (70) | 0 | 0 | 0 | 0 | (48) | 4,525 | ||||||||||||||||
of which financial institutions | 1,729 | 73 | (288) | 332 | (337) | 570 | (547) | (2) | 46 | 0 | 0 | 0 | 0 | (36) | 1,540 | ||||||||||||||||
Other intangible assets (mortgage servicing rights) | 112 | 0 | 0 | 6 | (1) | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | (3) | 115 | ||||||||||||||||
Other assets | 7,087 | 280 | (1,186) | 1,955 | (5,791) | 825 | (797) | (59) | (128) | 0 | (6) | 0 | 0 | 40 | 2,220 | ||||||||||||||||
of which loans held-for-sale | 6,768 | 209 | (1,001) | 1,748 | (5,705) | 825 | (797) | (72) | (32) | 0 | (6) | 0 | 0 | 45 | 1,982 | ||||||||||||||||
Total assets at fair value | 33,021 | 3,808 | (5,970) | 8,811 | (14,000) | 5,211 | (6,777) | (132) | 526 | 0 | (14) | 0 | 0 | (267) | 24,217 | ||||||||||||||||
Liabilities (CHF million) | |||||||||||||||||||||||||||||||
Customer deposits | 254 | 0 | (39) | 0 | 0 | 239 | (18) | 0 | (41) | 0 | 0 | 0 | 5 | 14 | 414 | ||||||||||||||||
Obligation to return securities received as collateral | 0 | 0 | 0 | 34 | (18) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 16 | ||||||||||||||||
Trading liabilities | 4,615 | 962 | (778) | 42 | (48) | 1,007 | (3,106) | 84 | 672 | 0 | (10) | 0 | 0 | (54) | 3,386 | ||||||||||||||||
of which interest rate derivatives | 578 | 36 | (45) | 0 | 0 | 105 | (141) | 14 | 21 | 0 | 0 | 0 | 0 | (8) | 560 | ||||||||||||||||
of which foreign exchange derivatives | 329 | 10 | (3) | 0 | 0 | 13 | (392) | 2 | 175 | 0 | 0 | 0 | 0 | (4) | 130 | ||||||||||||||||
of which equity/index-related derivatives | 1,347 | 122 | (181) | 0 | 0 | 326 | (672) | 16 | 192 | 0 | 0 | 0 | 0 | (6) | 1,144 | ||||||||||||||||
of which credit derivatives | 1,757 | 784 | (539) | 0 | 0 | 362 | (1,684) | 51 | 195 | 0 | 0 | 0 | 0 | (23) | 903 | ||||||||||||||||
Short-term borrowings | 72 | 24 | (29) | 0 | 0 | 498 | (159) | 1 | 14 | (3) | 0 | 0 | 0 | (7) | 411 | ||||||||||||||||
Long-term debt | 14,123 | 2,508 | (1,596) | 0 | 0 | 3,666 | (5,390) | (74) | 496 | 0 | 0 | 1 | (70) | (279) | 13,385 | ||||||||||||||||
of which structured notes over two years | 9,924 | 2,148 | (1,465) | 0 | 0 | 3,277 | (1,482) | (86) | 250 | 0 | 0 | 1 | (70) | (230) | 12,267 | ||||||||||||||||
of which non-recourse liabilities | 3,197 | 0 | (3) | 0 | 0 | 180 | (3,230) | 3 | 46 | 0 | 0 | 0 | 0 | (32) | 161 | ||||||||||||||||
Other liabilities | 2,491 | 159 | (143) | 145 | (70) | 14 | (602) | (63) | (120) | (1) | 41 | 0 | 0 | (32) | 1,819 | ||||||||||||||||
of which failed sales | 454 | 27 | (94) | 107 | (18) | 0 | 0 | 0 | 6 | 0 | 0 | 0 | 0 | (10) | 472 | ||||||||||||||||
Total liabilities at fair value | 21,555 | 3,653 | (2,585) | 221 | (136) | 5,424 | (9,275) | (52) | 1,021 | (4) | 31 | 1 | (65) | (358) | 19,431 | ||||||||||||||||
Net assets/(liabilities) at fair value | 11,466 | 155 | (3,385) | 8,590 | (13,864) | (213) | 2,498 | (80) | (495) | 4 | (45) | (1) | 65 | 91 | 4,786 | ||||||||||||||||
1 For all transfers to level 3 or out of level 3, the Group determines and discloses as level 3 events only gains or losses through the last day of the reporting period. |
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Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
in | 9M17 | 9M16 | |||||||||||
Trading revenues | Other revenues | Total revenues | Trading revenues | Other revenues | Total revenues | ||||||||
Gains and losses on assets and liabilities (CHF million) | |||||||||||||
Net realized/unrealized gains/(losses) included in net revenues | (979) | (221) | (1,200) | 1 | (575) | (41) | (616) | 1 | |||||
Whereof: | |||||||||||||
Unrealized gains/(losses) relating to assets and liabilities still held as of the reporting date | (1,194) | 107 | (1,087) | (239) | 3 | (236) | |||||||
1 Excludes net realized/unrealized gains/(losses) attributable to foreign currency translation impact. |
Both observable and unobservable inputs may be used to determine the fair value of positions that have been classified within level 3. As a result, the unrealized gains and losses for assets and liabilities within level 3 presented in the table above may include changes in fair value that were attributable to both observable and unobservable inputs.
The Group employs various economic hedging techniques in order to manage risks, including risks in level 3 positions. Such techniques may include the purchase or sale of financial instruments that are classified in levels 1 and/or 2. The realized and unrealized gains and losses for assets and liabilities in level 3 presented in the table above do not reflect the related realized or unrealized gains and losses arising on economic hedging instruments classified in levels 1 and/or 2.
Transfers in and out of level 3
Transfers into level 3 assets during 9M17 were CHF 2,002 million, primarily from loans and trading assets. The transfers were primarily in the credit, fixed income and financing businesses due to limited observability of pricing data and reduced pricing information from external providers. Transfers out of level 3 assets during 9M17 were CHF 2,390 million, primarily in trading assets and loans. The transfers were primarily in the Strategic Resolution Unit and credit businesses due to increased observability of pricing data and increased availability of pricing information from external providers.
Transfers into level 3 assets during 3Q17 were CHF 764 million, primarily from loans and trading assets. The transfers were primarily in the Strategic Resolution Unit, credit, fixed income and financing businesses due to limited observability of pricing data and reduced pricing information from external providers. Transfers out of level 3 assets during 3Q17 were CHF 683 million, primarily in trading assets and loans. The transfers were primarily in the Strategic Resolution Unit and credit businesses due to increased observability of pricing data and increased availability of pricing information from external providers.
Qualitative disclosures of valuation techniques
Overview
The Group has implemented and maintains a valuation control framework, which is supported by policies and procedures that define the principles for controlling the valuation of the Group’s financial instruments.
> Refer to “Note 35 – Financial instruments” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on the Group’s valuation control framework.
The following information on the valuation techniques and significant unobservable inputs of the various financial instruments, and the sensitivity of fair value measurements to changes in significant unobservable inputs, should be read in conjunction with the tables “Quantitative information about level 3 assets at fair value” and “Quantitative information about level 3 liabilities at fair value”.
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions
Securities purchased under resale agreements and securities sold under repurchase agreements are measured at fair value using discounted cash flow analysis. Future cash flows are discounted using observable market interest rate repurchase/resale curves for the applicable maturity and underlying collateral of the instruments. As such, the significant majority of both securities purchased under resale agreements and securities sold under repurchase agreements are included in level 2 of the fair value hierarchy. Structured resale and repurchase agreements include embedded derivatives, which are measured using the same techniques as described below for stand-alone derivative contracts held for trading purposes or used in hedge accounting relationships. If the value of the embedded derivative is determined using significant unobservable inputs, those structured resale and repurchase agreements are classified within level 3 of the fair value hierarchy. The significant unobservable input is funding spread.
Securities purchased under resale agreements are usually fully collateralized or over collateralized by government securities, money market instruments, corporate bonds, or other debt instruments. In the event of counterparty default, the collateral service agreement provides the Group with the right to liquidate the collateral held.
Debt securities
Foreign governments and corporates
Government debt securities typically have quoted prices in active markets and are categorized as level 1 instruments. For debt
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securities for which market prices are not available, valuations are based on yields reflecting credit rating, historical performance, delinquencies, loss severity, the maturity of the security, recent transactions in the market or other modeling techniques, which may involve judgment. Those securities where the price or model inputs are observable in the market are categorized as level 2 instruments, while those securities where prices are not observable and significant model inputs are unobservable are categorized as level 3 of the fair value hierarchy.
Corporate bonds are priced to reflect current market levels either through recent market transactions or broker or dealer quotes. Where a market price for the particular security is not directly available, valuations are obtained based on yields reflected by other instruments in the specific or similar entity’s capital structure and adjusting for differences in seniority and maturity, benchmarking to a comparable security where market data is available (taking into consideration differences in credit, liquidity and maturity), or through the application of cash flow modeling techniques utilizing observable inputs, such as current interest rate curves and observable CDS spreads. Significant unobservable inputs may include price and correlation. For securities using market comparable price, the differentiation between level 2 and level 3 is based upon the relative significance of any yield adjustments as well as the accuracy of the comparison characteristics (i.e., the observable comparable security may be in the same country but a different industry and may have a different seniority level – the lower the comparability the more likely the security will be level 3).
CMBS, RMBS and CDO securities
Fair values of RMBS, CMBS and CDO may be available through quoted prices, which are often based on the prices at which similarly structured and collateralized securities trade between dealers and to and from customers. Fair values of RMBS, CMBS and CDO for which there are significant unobservable inputs are valued using capitalization rate and discount rate. Price may not be observable for fair value measurement purposes for many reasons, such as the length of time since the last executed transaction for the related security, use of a price from a similar instrument, or use of a price from an indicative quote. Fair values determined by market comparable price may include discounted cash flow models using the inputs prepayment rate, default rate, loss severity, discount rate and credit spread. Prices from similar observable instruments are used to calculate implied inputs which are then used to value unobservable instruments using discounted cash flow. The discounted cash flow price is then compared to the unobservable prices and assessed for reasonableness.
For most structured debt securities, determination of fair value requires subjective assessment depending on liquidity, ownership concentration, and the current economic and competitive environment. Valuation is determined based on the Front Office’s own assumptions about how market participants would price the asset. Collateralized bond and loan obligations are split into various structured tranches and each tranche is valued based upon its individual rating and the underlying collateral supporting the structure. Valuation models are used to value both cash and synthetic CDOs.
Equity securities
The majority of the Group’s positions in equity securities are traded on public stock exchanges for which quoted prices are readily and regularly available and are therefore categorized as level 1 instruments. Level 2 and level 3 equities include fund-linked products, convertible bonds or equity securities with restrictions that are not traded in active markets. Significant unobservable inputs may include market comparable price and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.
Derivatives
Derivatives held for trading purposes or used in hedge accounting relationships include both OTC and exchange-traded derivatives. The fair values of exchange-traded derivatives measured using observable exchange prices are included in level 1 of the fair value hierarchy. For exchange-traded derivatives where the volume of trading is low, the observable exchange prices may not be considered executable at the reporting date. These derivatives are valued in the same manner as similar observable OTC derivatives and are included in level 2 of the fair value hierarchy. If the similar OTC derivative used for valuing the exchange-traded derivative is not observable, the exchange-traded derivative is included in level 3 of the fair value hierarchy.
The fair values of OTC derivatives are determined on the basis of either industry standard models or internally developed proprietary models. Both model types use various observable and unobservable inputs in order to determine fair value. The inputs include those characteristics of the derivative that have a bearing on the economics of the instrument. The determination of the fair value of many derivatives involves only a limited degree of subjectivity because the required inputs are observable in the marketplace, while more complex derivatives may use unobservable inputs that rely on specific proprietary modeling assumptions. Where observable inputs (prices from exchanges, dealers, brokers or market consensus data providers) are not available, attempts are made to infer values from observable prices through model calibration (spot and forward rates, mean reversion, benchmark interest rate curves and volatility inputs for commonly traded option products). For inputs that cannot be derived from other sources, estimates from historical data may be made. OTC derivatives where the majority of the value is derived from market observable inputs are categorized as level 2 instruments, while those where the majority of the value is derived from unobservable inputs are categorized as level 3 of the fair value hierarchy.
The valuation of derivatives includes an adjustment for the cost of funding uncollateralized OTC derivatives.
Interest rate derivatives
OTC vanilla interest rate products, such as interest rate swaps, swaptions, and caps and floors are valued by discounting the
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anticipated future cash flows. The future cash flows and discounting are derived from market standard yield curves and industry standard volatility inputs. Where applicable, exchange-traded prices are also used to value exchange-traded futures and options and can be used in yield curve construction. For more complex products, inputs include, but are not limited to correlation, volatility skew, prepayment rate and basis spread.
Foreign exchange derivatives
Foreign exchange derivatives include vanilla products such as spot, forward and option contracts where the anticipated discounted future cash flows are determined from foreign exchange forward curves and industry standard optionality modeling techniques. Where applicable, exchange-traded prices are also used for futures and option prices. For more complex products inputs include, but are not limited to prepayment rate, correlation and contingent probability.
Equity and index-related derivatives
Equity derivatives include a variety of products ranging from vanilla options and swaps to exotic structures with bespoke payoff profiles. The main inputs in the valuation of equity derivatives may include volatility, buyback probability, gap risk, correlation and price.
Generally, the interrelationship between the volatility and correlation is positively correlated.
Credit derivatives
Credit derivatives include index and single name CDS in addition to more complex structured credit products. Vanilla products are valued using industry standard models and inputs that are generally market observable including credit spread and recovery rate.
Complex structured credit derivatives are valued using proprietary models requiring unobservable inputs such as recovery rate, credit spread and correlation. These inputs are generally implied from available market observable data. Fair values determined by price may include discounted cash flow models using the inputs prepayment rate, default rate, loss severity and discount rate.
Other trading assets
Other trading assets primarily include RMBS loans and life settlement and premium finance instruments. Life settlement and premium finance instruments are valued using proprietary models with several inputs. The significant unobservable inputs of the fair value for life settlement and premium finance instruments is the estimate of market implied life expectancy, while for RMBS loans it is market comparable price.
For life settlement and premium finance instruments, individual life expectancy rates are typically obtained by multiplying a base mortality curve for the general insured population provided by a professional actuarial organization together with an individual-specific multiplier. Individual-specific multipliers are determined based on data from third-party life expectancy data providers, which examine the insured individual’s medical conditions, family history and other factors to arrive at a life expectancy estimate.
For RMBS loans, the use of market comparable price varies depending upon each specific loan. For some loans, similar to unobservable RMBS securities, prices from similar observable instruments are used to calculate implied inputs which are then used to value unobservable instruments using discounted cash flow. The discounted cash flow price is then compared to the unobservable prices and assessed for reasonableness. For other RMBS loans, the loans are categorized by specific characteristics, such as loan-to-value ratio, average account balance, loan type (single or multi-family), lien, seasoning, coupon, FICO score, locality, delinquency status, cash flow velocity, roll rates, loan purpose, occupancy, servicers advance agreement type, modification status, Federal Housing Administration insurance, property value and documentation quality. Loans with unobservable prices are put into consistent buckets which are then compared to market observable comparable prices in order to assess the reasonableness of those unobservable prices.
Other investments
Private equity, hedge funds and other equity investments
Other equity investments principally includes equity investments in the form of a) direct investments in third-party hedge funds, private equity funds and funds of funds, b) equity-method investments where the Group has the ability to significantly influence the operating and financial policies of the investee, and c) direct investments in non-marketable equity securities.
Direct investments in third-party hedge funds, private equity funds and funds of funds are measured at fair value based on their published net asset values (NAVs) as permitted by ASC Topic 820 – Fair Value Measurement. In some cases, NAVs may be adjusted where there is sufficient evidence that the NAV published by the investment manager is not in line with the fund’s observable market data, it is probable that the investment will be sold for an amount other than NAV or there exist other circumstances that would require an adjustment to the published NAV. Although rarely adjusted, significant judgment is involved in making any adjustments to the published NAVs. The investments for which the fair value is measured using the NAV practical expedient are not categorized within the fair value hierarchy.
Direct investments in non-marketable equity securities consist of both real estate investments and non-real estate investments. Equity-method investments and direct investments in non-marketable equity securities are initially measured at their transaction price, as this is the best estimate of fair value. Thereafter, these investments are individually measured at fair value based upon a number of factors that include any recent rounds of financing involving third-party investors, comparable company transactions, multiple analyses of cash flows or book values, or discounted cash flow analyses. The availability of information used in these modeling techniques is often limited and involves significant judgment in evaluating these different factors over time. As a result, these investments are included in level 3 of the fair value hierarchy.
150
Life finance instruments
Life finance instruments include Single Premium Immediate Annuities (SPIA) and other premium finance instruments. Life finance instruments are valued in a similar manner as described for life settlement and premium finance instruments under the other trading assets section above.
Loans
The Group’s loan portfolio which is measured at fair value primarily consists of commercial and industrial loans and loans to financial institutions. Within these categories, loans measured at fair value include commercial loans, real estate loans, corporate loans, leverage finance loans and emerging market loans. Fair value is based on recent transactions and quoted prices, where available. Where recent transactions and quoted prices are not available, fair value may be determined by relative value benchmarking (which includes pricing based upon another position in the same capital structure, other comparable loan issues, generic industry credit spreads, implied credit spreads derived from CDS for the specific borrower, and enterprise valuations) or calculated based on the exit price of the collateral, based on current market conditions.
Both the funded and unfunded portion of revolving credit lines on the corporate lending portfolio are valued using a loan pricing model, which requires estimates of significant inputs including credit spreads, recovery rates, credit conversion factors, and weighted average life of the loan. Significant unobservable inputs may include credit spread and price.
The Group’s other assets and liabilities include mortgage loans held in conjunction with securitization activities and assets and liabilities of VIEs and mortgage securitizations that do not meet the criteria for sale treatment under US GAAP. The fair value of mortgage loans held in conjunction with securitization activities is determined on a whole-loan basis and is consistent with the valuation of RMBS loans discussed in “Other trading assets” above. Whole-loan valuations are calculated based on the exit price reflecting the current market conditions. The fair value of assets and liabilities of VIEs and mortgage securitizations that do not meet the criteria for sale treatment under US GAAP are determined based on the quoted prices for securitized bonds, where available, or on cash flow analyses for securitized bonds, when quoted prices are not available. The fair value of the consolidated financial assets of RMBS and CMBS securitization vehicles, which qualify as CFEs, are measured on the basis of the more observable fair value of the VIEs’ financial liabilities.
Accrual based loans in the Group’s private, corporate and institutional banking businesses, for which an estimated fair value is disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below, include consumer loans relating to mortgages, loans collateralized by securities or consumer finance, as well as corporate and institutional loans relating to real estate, commercial and industrial loans, and loans to financial institutions, governments and public institutions. Fair values for these loans are determined by using a discounted cash flow model. Future cash flows are discounted using risk-adjusted discount rates which are derived from observable market interest rates for the applicable maturity and currency and from counterparty-related credit spreads.
Deposits
Accrual based deposits with a stated maturity, for which an estimated fair value is disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below, are generally fair valued by using a discounted cash flow model incorporating the Group’s credit spreads. The estimated fair value of accrual accounted deposits without a stated maturity approximates the carrying amount; however, the value does not include an estimate of the value attributed to the long-term relationships with its customers that in the aggregate adds significant value to the Group’s stable deposit base.
Short-term borrowings and long-term debt
The Group’s short-term borrowings and long-term debt include structured notes (hybrid financial instruments that are both bifurcatable and non-bifurcatable) and vanilla debt. The fair value of structured notes is based on quoted prices, where available. When quoted prices are not available, fair value is determined by using a discounted cash flow model incorporating the Group’s credit spreads, the value of derivatives embedded in the debt and the residual term of the issuance based on call options. Derivatives structured into the issued debt are valued consistently with the Group’s stand-alone derivative contracts held for trading purposes or used in hedge accounting relationships as discussed above. The fair value of structured debt is heavily influenced by the combined call options and performance of the underlying derivative returns. Significant unobservable inputs for long-term debt include buyback probability, gap risk, correlation, volatility, credit spread, mean reversion and price.
Generally, the interrelationships between volatility, correlation, gap risk and credit spread inputs are positively correlated.
Other liabilities
Failed sales
These liabilities represent the financing of assets that did not achieve sale accounting treatment under US GAAP. Failed sales are valued in a manner consistent with the related underlying financial instruments.
Short-term financial instruments
Certain short-term financial instruments are not carried at fair value on the balance sheet, but a fair value has been disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below. These instruments include: cash and due from banks, cash collateral receivables and payables and other receivables and payables arising in the ordinary course of business. For these financial instruments, the carrying value approximates the fair value due to the relatively short period of time between their origination and expected realization, as well as the minimal credit risk inherent in these instruments.
151
Sensitivity of fair value measurements to changes in significant unobservable inputs
For level 3 assets with a significant unobservable input of EBITDA multiple, market implied life expectancy (for life finance instruments), buyback probability, correlation, contingent probability, price, volatility, volatility skew or funding spread, in general, an increase in the significant unobservable input would increase the fair value. For level 3 assets with a significant unobservable input of market implied life expectancy (for life settlement and premium finance instruments), capitalization rate, discount rate, prepayment rate, gap risk, recovery rate or credit spread, in general, an increase in the significant unobservable input would decrease the fair value.
For level 3 liabilities, in general, an increase in the related significant unobservable inputs would have the inverse impact on fair value. An increase in the significant unobservable input mean reversion would increase the fair value. An increase in the significant unobservable input basis spread would decrease the fair value.
Interrelationships between significant unobservable inputs
Except as noted above, there are no material interrelationships between the significant unobservable inputs for the financial instruments. As the significant unobservable inputs move independently, generally an increase or decrease in one significant unobservable input will have no impact on the other significant unobservable inputs.
Quantitative disclosures of valuation techniques
The following tables provide the representative range of minimum and maximum values and the associated weighted averages of each significant unobservable input for level 3 assets and liabilities by the related valuation technique most significant to the related financial instrument.
Quantitative information about level 3 assets at fair value
end of 3Q17 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Securities received as collateral | 19 | – | – | – | – | – | |||||||
Debt | 2,124 | ||||||||||||
of which corporates | 1,056 | ||||||||||||
of which | 334 | Option model | Correlation, in % | (60) | 98 | 55 | |||||||
of which | 394 | Market comparable | Price, in % | 0 | 128 | 92 | |||||||
of which | 324 | Discounted cash flow | Credit spread, in bp | 0 | 978 | 213 | |||||||
of which RMBS | 393 | Discounted cash flow | Discount rate, in % | 0 | 37 | 14 | |||||||
Prepayment rate, in % | 2 | 30 | 9 | ||||||||||
Default rate, in % | 0 | 12 | 4 | ||||||||||
Loss severity, in % | 0 | 100 | 65 | ||||||||||
of which CMBS | 33 | Discounted cash flow | Capitalization rate, in % | 8 | 16 | 16 | |||||||
Discount rate, in % | 1 | 15 | 8 | ||||||||||
Prepayment rate, in % | 0 | 15 | 7 | ||||||||||
of which CDO | 157 | Discounted cash flow | Discount rate, in % | 4 | 13 | 8 | |||||||
Prepayment rate, in % | 5 | 20 | 16 | ||||||||||
Credit spread, in bp | 18 | 292 | 121 | ||||||||||
Default rate, in % | 2 | 5 | 2 | ||||||||||
Loss severity, in % | 0 | 80 | 34 | ||||||||||
Equity | 209 | ||||||||||||
of which | 13 | Vendor price | Price, in actuals | 0 | 217 | 12 | |||||||
of which | 69 | Market comparable | EBITDA multiple | 3 | 8 | 5 | |||||||
Price, in % | 0 | 100 | 100 | ||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. |
152
Quantitative information about level 3 assets at fair value (continued)
end of 3Q17 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Derivatives | 3,473 | ||||||||||||
of which interest rate products | 806 | Option model | Correlation, in % | 21 | 100 | 73 | |||||||
Prepayment rate, in % | 4 | 34 | 17 | ||||||||||
Volatility skew, in % | (4) | 0 | (1) | ||||||||||
of which equity/index-related products | 889 | Option model | Correlation, in % | (60) | 98 | 69 | |||||||
Volatility, in % | 2 | 163 | 30 | ||||||||||
Buyback probability, in % | 2 | 50 | 100 | 87 | |||||||||
Gap risk, in % | 3 | 0 | 2 | 1 | |||||||||
of which credit derivatives | 474 | Discounted cash flow | Credit spread, in bp | 0 | 1,713 | 132 | |||||||
Recovery rate, in % | 0 | 70 | 29 | ||||||||||
Discount rate, in % | 0 | 40 | 18 | ||||||||||
Default rate, in % | 1 | 20 | 5 | ||||||||||
Loss severity, in % | 22 | 100 | 64 | ||||||||||
Correlation, in % | 97 | 97 | 97 | ||||||||||
Prepayment rate, in % | 0 | 15 | 6 | ||||||||||
Other | 3,075 | ||||||||||||
of which | 1,946 | Market comparable | Price, in % | 0 | 110 | 24 | |||||||
of which | 840 | Discounted cash flow | Market implied life expectancy, in years | 3 | 18 | 8 | |||||||
Trading assets | 8,881 | ||||||||||||
Investment securities | 54 | – | – | – | – | – | |||||||
Private equity | 7 | – | – | – | – | – | |||||||
Other equity investments | 268 | – | – | – | – | – | |||||||
Life finance instruments | 1,358 | Discounted cash flow | Market implied life expectancy, in years | 2 | 18 | 6 | |||||||
Other investments | 1,633 | ||||||||||||
Loans | 4,963 | ||||||||||||
of which commercial and industrial loans | 2,400 | ||||||||||||
of which | 1,978 | Discounted cash flow | Credit spread, in bp | 96 | 1,160 | 383 | |||||||
of which | 414 | Market comparable | Price, in % | 0 | 100 | 59 | |||||||
of which financial institutions | 1,631 | ||||||||||||
of which | 1,442 | Discounted cash flow | Credit spread, in bp | 52 | 1,475 | 407 | |||||||
of which | 10 | Market comparable | Price, in % | 0 | 95 | 95 | |||||||
Other intangible assets (mortgage servicing rights) | 153 | – | – | – | – | – | |||||||
Other assets | 1,899 | ||||||||||||
of which loans held-for-sale | 1,691 | ||||||||||||
of which | 1,247 | Discounted cash flow | Credit spread, in bp | 117 | 961 | 243 | |||||||
Recovery rate, in % | 12 | 98 | 76 | ||||||||||
of which | 225 | Market comparable | Price, in % | 0 | 102 | 79 | |||||||
Total level 3 assets at fair value | 17,602 | ||||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. | |||||||||||||
2 Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments. | |||||||||||||
3 Risk of unexpected large declines in the underlying values occuring between collateral settlement dates. |
153
Quantitative information about level 3 assets at fair value (continued)
end of 4Q16 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Interest-bearing deposits with banks | 1 | – | – | – | – | – | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 174 | Discounted cash flow | Funding spread, in bp | 10 | 450 | 259 | |||||||
Securities received as collateral | 70 | – | – | – | – | – | |||||||
Debt | 3,977 | ||||||||||||
of which corporates | 1,674 | ||||||||||||
of which | 448 | Option model | Correlation, in % | (85) | 98 | 23 | |||||||
of which | 817 | Market comparable | Price, in % | 0 | 117 | 86 | |||||||
of which | 101 | Discounted cash flow | Credit spread, in bp | 3 | 1,004 | 308 | |||||||
of which RMBS | 605 | ||||||||||||
of which | 445 | Discounted cash flow | Discount rate, in % | 0 | 47 | 8 | |||||||
Prepayment rate, in % | 2 | 30 | 12 | ||||||||||
Default rate, in % | 0 | 10 | 3 | ||||||||||
Loss severity, in % | 0 | 100 | 43 | ||||||||||
of which | 120 | Market comparable | Price, in % | 21 | 30 | 26 | |||||||
of which CMBS | 65 | Discounted cash flow | Capitalization rate, in % | 8 | 9 | 9 | |||||||
Discount rate, in % | 2 | 27 | 10 | ||||||||||
Prepayment rate, in % | 0 | 15 | 9 | ||||||||||
of which CDO | 1,165 | ||||||||||||
of which | 195 | Discounted cash flow | Discount rate, in % | 7 | 27 | 15 | |||||||
Prepayment rate, in % | 0 | 30 | 10 | ||||||||||
Credit spread, in bp | 328 | 328 | 328 | ||||||||||
Default rate, in % | 0 | 5 | 2 | ||||||||||
Loss severity, in % | 3 | 100 | 45 | ||||||||||
of which | 851 | Market comparable | Price, in % | 208 | 208 | 208 | |||||||
Equity | 240 | Market comparable | EBITDA multiple | 3 | 8 | 6 | |||||||
Price, in % | 0 | 100 | 70 | ||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. |
154
Quantitative information about level 3 assets at fair value (continued)
end of 4Q16 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Derivatives | 4,305 | ||||||||||||
of which interest rate products | 748 | Option model | Correlation, in % | 20 | 100 | 65 | |||||||
Prepayment rate, in % | 1 | 32 | 16 | ||||||||||
Volatility skew, in % | (7) | 1 | (2) | ||||||||||
of which equity/index-related products | 914 | Option model | Correlation, in % | (85) | 98 | 21 | |||||||
Volatility, in % | 2 | 180 | 32 | ||||||||||
Buyback probability, in % | 2 | 50 | 100 | 62 | |||||||||
Gap risk, in % | 3 | 0 | 2 | 1 | |||||||||
of which credit derivatives | 688 | Discounted cash flow | Credit spread, in bp | 0 | 1,635 | 396 | |||||||
Recovery rate, in % | 0 | 45 | 10 | ||||||||||
Discount rate, in % | 1 | 45 | 21 | ||||||||||
Default rate, in % | 0 | 33 | 5 | ||||||||||
Loss severity, in % | 15 | 100 | 69 | ||||||||||
Correlation, in % | 97 | 97 | 97 | ||||||||||
Prepayment rate, in % | 0 | 13 | 5 | ||||||||||
Other | 4,243 | ||||||||||||
of which | 3,005 | Market comparable | Price, in % | 0 | 116 | 39 | |||||||
of which | 882 | Discounted cash flow | Market implied life expectancy, in years | 3 | 19 | 8 | |||||||
Trading assets | 12,765 | ||||||||||||
Investment securities | 72 | – | – | – | – | – | |||||||
Private equity | 8 | – | – | – | – | – | |||||||
Other equity investments | 310 | – | – | – | – | – | |||||||
Life finance instruments | 1,588 | Discounted cash flow | Market implied life expectancy, in years | 2 | 19 | 6 | |||||||
Other investments | 1,906 | ||||||||||||
Loans | 6,585 | ||||||||||||
of which commercial and industrial loans | 3,816 | ||||||||||||
of which | 2,959 | Discounted cash flow | Credit spread, in bp | 5 | 5,400 | 544 | |||||||
of which | 852 | Market comparable | Price, in % | 0 | 100 | 51 | |||||||
of which financial institutions | 1,829 | ||||||||||||
of which | 1,588 | Discounted cash flow | Credit spread, in bp | 67 | 952 | 342 | |||||||
of which | 149 | Market comparable | Price, in % | 0 | 550 | 483 | |||||||
Other intangible assets (mortgage servicing rights) | 138 | – | – | – | – | – | |||||||
Other assets | 1,679 | ||||||||||||
of which loans held-for-sale | 1,316 | ||||||||||||
of which | 760 | Discounted cash flow | Credit spread, in bp | 117 | 1,082 | 334 | |||||||
Recovery rate, in % | 6 | 100 | 74 | ||||||||||
of which | 356 | Market comparable | Price, in % | 0 | 102 | 78 | |||||||
Total level 3 assets at fair value | 23,390 | ||||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. | |||||||||||||
2 Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments. | |||||||||||||
3 Risk of unexpected large declines in the underlying values occuring between collateral settlement dates. |
155
Quantitative information about level 3 liabilities at fair value
end of 3Q17 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Customer deposits | 438 | – | – | – | – | – | |||||||
Obligation to return securities received as collateral | 19 | – | – | – | – | – | |||||||
Trading liabilities | 2,792 | ||||||||||||
of which interest rate derivatives | 328 | Option model | Basis spread, in bp | (13) | 70 | 28 | |||||||
Correlation, in % | 21 | 100 | 61 | ||||||||||
Prepayment rate, in % | 4 | 34 | 9 | ||||||||||
of which foreign exchange derivatives | 82 | ||||||||||||
of which | 64 | Option model | Correlation, in % | (10) | 70 | 48 | |||||||
Prepayment rate, in % | 27 | 34 | 31 | ||||||||||
of which | 6 | Discounted cash flow | Contingent probability, in % | 90 | 95 | 92 | |||||||
of which equity/index-related derivatives | 1,092 | Option model | Correlation, in % | (60) | 98 | 56 | |||||||
Volatility, in % | 2 | 163 | 26 | ||||||||||
Buyback probability, in % | 2 | 50 | 100 | 87 | |||||||||
of which credit derivatives | 686 | Discounted cash flow | Credit spread, in bp | 0 | 1,713 | 114 | |||||||
Discount rate, in % | 0 | 40 | 18 | ||||||||||
Default rate, in % | 1 | 20 | 5 | ||||||||||
Recovery rate, in % | 20 | 70 | 43 | ||||||||||
Loss severity, in % | 22 | 100 | 64 | ||||||||||
Correlation, in % | 27 | 86 | 56 | ||||||||||
Prepayment rate, in % | 0 | 15 | 6 | ||||||||||
Short-term borrowings | 599 | – | – | – | – | – | |||||||
Long-term debt | 12,917 | ||||||||||||
of which structured notes over two years | 12,476 | ||||||||||||
of which | 10,072 | Option model | Correlation, in % | (60) | 99 | 55 | |||||||
Volatility, in % | 0 | 163 | 21 | ||||||||||
Buyback probability, in % | 2 | 50 | 100 | 87 | |||||||||
Gap risk, in % | 3 | 0 | 2 | 1 | |||||||||
Mean reversion, in % | 4 | (14) | (1) | (6) | |||||||||
of which | 1,752 | Discounted cash flow | Credit spread, in bp | 0 | 652 | 110 | |||||||
Other liabilities | 1,415 | ||||||||||||
of which failed sales | 233 | ||||||||||||
of which | 109 | Market comparable | Price, in % | 0 | 91 | 55 | |||||||
of which | 46 | Discounted cash flow | Discount rate, in % | 9 | 19 | 14 | |||||||
Total level 3 liabilities at fair value | 18,180 | ||||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. | |||||||||||||
2 Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments. | |||||||||||||
3 Risk of unexpected large declines in the underlying values occuring between collateral settlement dates. | |||||||||||||
4 Management's best estimate of the speed at which interest rates will revert to the long-term average. |
156
Quantitative information about level 3 liabilities at fair value (continued)
end of 4Q16 | Fair value | Valuation technique | Unobservable input | Minimum value | Maximum value | Weighted average | 1 | ||||||
CHF million, except where indicated | |||||||||||||
Customer deposits | 410 | – | – | – | – | – | |||||||
Obligation to return securities received as collateral | 70 | – | – | – | – | – | |||||||
Trading liabilities | 3,737 | ||||||||||||
of which interest rate derivatives | 538 | Option model | Basis spread, in bp | (2) | 66 | 33 | |||||||
Correlation, in % | 20 | 100 | 57 | ||||||||||
Prepayment rate, in % | 1 | 32 | 9 | ||||||||||
Gap risk, in % | 2 | 20 | 20 | 20 | |||||||||
Funding spread, in bp | 237 | 237 | 237 | ||||||||||
of which foreign exchange derivatives | 150 | ||||||||||||
of which | 65 | Option model | Correlation, in % | (10) | 70 | 49 | |||||||
Prepayment rate, in % | 22 | 32 | 27 | ||||||||||
of which | 69 | Discounted cash flow | Contingent probability, in % | 95 | 95 | 95 | |||||||
of which equity/index-related derivatives | 1,181 | Option model | Correlation, in % | (85) | 98 | 23 | |||||||
Volatility, in % | 2 | 180 | 28 | ||||||||||
Buyback probability, in % | 3 | 50 | 100 | 62 | |||||||||
of which credit derivatives | 851 | Discounted cash flow | Credit spread, in bp | 0 | 1,635 | 163 | |||||||
Discount rate, in % | 2 | 45 | 21 | ||||||||||
Default rate, in % | 0 | 33 | 5 | ||||||||||
Recovery rate, in % | 20 | 60 | 35 | ||||||||||
Loss severity, in % | 15 | 100 | 70 | ||||||||||
Correlation, in % | 43 | 85 | 63 | ||||||||||
Prepayment rate, in % | 0 | 13 | 5 | ||||||||||
Short-term borrowings | 516 | – | – | – | – | – | |||||||
Long-term debt | 13,415 | ||||||||||||
of which structured notes over two years | 12,434 | ||||||||||||
of which | 12,008 | Option model | Correlation, in % | (85) | 99 | 23 | |||||||
Volatility, in % | 0 | 180 | 23 | ||||||||||
Buyback probability, in % | 3 | 50 | 100 | 62 | |||||||||
Gap risk, in % | 2 | 0 | 2 | 1 | |||||||||
Mean reversion, in % | 4 | (14) | (1) | (6) | |||||||||
of which | 286 | Discounted cash flow | Credit spread, in bp | 1 | 452 | 89 | |||||||
Other liabilities | 1,684 | ||||||||||||
of which failed sales | 219 | ||||||||||||
of which | 163 | Market comparable | Price, in % | 0 | 100 | 68 | |||||||
of which | 39 | Discounted cash flow | Discount rate, in % | 11 | 29 | 21 | |||||||
Total level 3 liabilities at fair value | 19,832 | ||||||||||||
1 Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis. | |||||||||||||
2 Risk of unexpected large declines in the underlying values occuring between collateral settlement dates. | |||||||||||||
3 Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments. | |||||||||||||
4 Management's best estimate of the speed at which interest rates will revert to the long-term average. |
Qualitative discussion of the ranges of significant unobservable inputs
The following sections provide further information about the ranges of significant unobservable inputs included in the tables above. The level of aggregation and diversity within the financial instruments disclosed in the tables above results in certain ranges of significant inputs being wide and unevenly distributed across asset and liability categories.
Discount rate
The discount rate is the rate of interest used to calculate the present value of the expected cash flows of a financial instrument. There are multiple factors that will impact the discount rate for any given financial instrument including the coupon on the instrument, the term and the underlying risk of the expected cash flows. Two instruments of similar term and expected cash flows may have significantly different discount rates because the coupons on the instruments are different.
157
Default rate and loss severity
For financial instruments backed by residential real estate or other assets, diversity in the portfolio is reflected in a wide range for loss severity due to varying levels of default. The lower end of the range represents high performing or government guaranteed collateral with a low probability of default or guaranteed timely payment of principal and interest, while the higher end of the range relates to collateral with a greater risk of default.
Credit spread and recovery rate
For financial instruments where credit spread is the significant unobservable input, the wide range represents positions with varying levels of risk. The lower end of the credit spread range typically represents shorter-dated instruments and/or those with better perceived credit risk. The higher end of the range typically comprises longer-dated financial instruments or those referencing non-performing, distressed or impaired reference credits. Similarly, the spread between the reference credit and an index can vary significantly based on the risk of the instrument. The spread will be positive for instruments that have a higher risk of default than the index (which is based on a weighted average of its components) and negative for instruments that have a lower risk of default than the index.
Similarly, recovery rates can vary significantly depending upon the specific assets and terms of each transaction. Transactions with higher seniority or more valuable collateral will have higher recovery rates, while those transactions which are more subordinated or with less valuable collateral will have lower recovery rates.
Correlation
There are many different types of correlation inputs, including credit correlation, cross-asset correlation (such as equity-interest rate correlation), and same-asset correlation (such as interest rate-interest rate correlation). Correlation inputs are generally used to value hybrid and exotic instruments. Due to the complex and unique nature of these instruments, the ranges for correlation inputs can vary widely across portfolios.
Prepayment rate
Prepayment rates may vary from collateral pool to collateral pool, and are driven by a variety of collateral-specific factors, including the type and location of the underlying borrower, the remaining tenor of the obligation and the level and type (e.g., fixed or floating) of interest rate being paid by the borrower.
Volatility and volatility skew
Volatility and its skew are both impacted by the underlying risk, term and strike price of the derivative. In the case of interest rate derivatives, volatility may vary significantly between different underlying currencies and expiration dates on the options. Similarly, in the case of equity derivatives, the volatility attributed to a structure may vary depending upon the underlying reference name on the derivative.
Market implied life expectancy
Market implied life expectancy is the primary significant unobservable input on such products as life settlement, premium finance and SPIA, and represents the estimated mortality rate for the underlying insured for each contract. This estimate may vary depending upon multiple factors including the age and specific health characteristics of the insured.
Price
Bond equivalent price is a primary significant unobservable input for multiple products. Where market prices are not available for an instrument, benchmarking may be utilized to identify comparable issues (same industry and similar product mixes) while adjustments are considered for differences in deal terms and performance.
Buyback probability
Buyback probability is the probability assigned to structured notes being unwound prior to their legal maturity.
Gap risk
Gap risk is the primary significant unobservable input for fund-linked Constant Proportion Portfolio Insurance products and structures where the payoff may be sensitive to discontinuity in the hedging portfolio.
Mean reversion
Mean reversion is the primary significant unobservable input for callable constant maturity swap (CMS) spread exotics and represents the idea that prices and returns eventually move back towards the historical average.
Funding spread
Funding spread is the primary significant unobservable input for special purpose vehicle funding facilities. Synthetic funding curves which represent the assets pledged as collateral are used to value structured financing transactions. The curves provide an estimate of where secured funding can be sourced and are expressed as a basis point spread in relation to the referenced benchmark rate.
Capitalization rate
Capitalization rate is the primary significant unobservable input for CMBS loans and is used to estimate the potential return on investment. This is done by dividing the yearly income by the total value of the property.
Basis spread
Basis spread is the primary significant unobservable input for non-callable constant maturity treasury-CMS products and is used to determine interest rate risk as a result of differing lending and borrowing rates.
158
EBITDA multiple
EBITDA multiple is a primary significant unobservable input for some equity deals which are benchmarked using industry comparables. The EBITDA multiple may be preferred over other measures because it is normalized for differences between the accounting policies of similar companies.
Contingent probability
Contingent probability is the primary significant unobservable input for contingent foreign exchange forward trades where the delivery or exercise and the premium payment are contingent on an event such as completion of an M&A deal or regulatory approval for a product.
Fair value measurements of investments in certain entities that calculate NAV per share
Investments in funds held in trading assets and liabilities primarily include positions held in equity funds of funds as an economic hedge for structured notes and derivatives issued to clients that reference the same underlying risk and liquidity terms of the fund. A majority of these funds have limitations imposed on the amount of withdrawals from the fund during the redemption period due to illiquidity of the investments. In other instances, the withdrawal amounts may vary depending on the redemption notice period and are usually larger for the longer redemption notice periods. In addition, penalties may apply if redemption is within a certain time period from initial investment.
Investment in funds held in other investments principally involves private securities and, to a lesser extent, publicly traded securities and fund of funds. Several of these investments have redemption restrictions subject to the discretion of the Board of Directors of the fund and/or redemption is permitted without restriction, but is limited to a certain percentage of total assets or only after a certain date.
Furthermore, for those investments held in both trading assets and other investments that are nonredeemable, the underlying assets of such funds are expected to be liquidated over the life of the fund, which is generally up to 10 years.
The following table pertains to investments in certain entities that calculate NAV per share or its equivalent, primarily private equity and hedge funds. These investments do not have a readily determinable fair value and are measured at fair value using NAV.
Fair value, unfunded commitments and term of redemption conditions
end of | 3Q17 | 4Q16 | |||||||||||||||
Non- redeemable | Redeemable | Total fair value | Unfunded commit- ments | Non- redeemable | Redeemable | Total fair value | Unfunded commit- ments | ||||||||||
Fair value and unfunded commitments (CHF million) | |||||||||||||||||
Equity funds | 63 | 995 | 1 | 1,058 | 0 | 65 | 1,281 | 2 | 1,346 | 0 | |||||||
Equity funds sold short | 0 | (4) | (4) | 0 | 0 | (1) | (1) | 0 | |||||||||
Total funds held in trading assets and liabilities | 63 | 991 | 1,054 | 0 | 65 | 1,280 | 1,345 | 0 | |||||||||
Debt funds | 171 | 65 | 236 | 0 | 215 | 77 | 292 | 0 | |||||||||
Equity funds | 2 | 44 | 46 | 0 | 2 | 51 | 53 | 0 | |||||||||
Others | 1 | 51 | 52 | 0 | 0 | 201 | 201 | 0 | |||||||||
Hedge funds | 174 | 160 | 3 | 334 | 0 | 217 | 329 | 4 | 546 | 0 | |||||||
Debt funds | 1 | 0 | 1 | 0 | 5 | 0 | 5 | 20 | |||||||||
Equity funds | 196 | 0 | 196 | 54 | 240 | 0 | 240 | 42 | |||||||||
Real estate funds | 191 | 0 | 191 | 46 | 212 | 0 | 212 | 50 | |||||||||
Others | 34 | 0 | 34 | 15 | 117 | 0 | 117 | 58 | |||||||||
Private equities | 422 | 0 | 422 | 115 | 574 | 0 | 574 | 170 | |||||||||
Equity method investments | 74 | 1,234 | 1,308 | 5 | 347 | 637 | 984 | 218 | |||||||||
Total funds held in other investments | 670 | 1,394 | 2,064 | 120 | 1,138 | 966 | 2,104 | 388 | |||||||||
Total fair value | 733 | 5 | 2,385 | 6 | 3,118 | 120 | 7 | 1,203 | 5 | 2,246 | 6 | 3,449 | 388 | 7 | |||
1 56% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 30% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 11% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 3% is redeemable on an annual basis with a notice period primarily of more than 60 days. | |||||||||||||||||
2 58% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 23% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 17% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 2% is redeemable on an annual basis with a notice period of more than 60 days. | |||||||||||||||||
3 51% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 45 days, 42% is redeemable on a monthly basis with a notice period primarily of less than 30 days, and 7% is redeemable on demand with a notice period primarily of less than 30 days. | |||||||||||||||||
4 68% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 60 days, 26% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 5% is redeemable on demand with a notice period primarily of less than 30 days, and 1% is redeemable on an annual basis with a notice period primarily of more than 45 days. | |||||||||||||||||
5 Includes CHF 219 million and CHF 334 million attributable to noncontrolling interests in 3Q17 and 4Q16, respectively. | |||||||||||||||||
6 Includes CHF 105 million and CHF 231 million attributable to noncontrolling interests in 3Q17 and 4Q16, respectively. | |||||||||||||||||
7 Includes CHF 69 million and CHF 88 million attributable to noncontrolling interests in 3Q17 and 4Q16, respectively. |
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Nonrecurring fair value changes
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. The Group typically uses nonfinancial assets measured at fair value on a recurring or nonrecurring basis in a manner that reflects their highest and best use. Nonrecurring measurements are completed as of the end of the period unless otherwise stated.
Nonrecurring fair value changes
end of | 3Q17 | 4Q16 | |||
CHF billion | |||||
Assets held-for-sale recorded at fair value on a nonrecurring basis | 0.1 | 0.1 | |||
of which level 2 | 0.1 | 0.1 |
The Group has availed itself of the simplification in accounting offered under the fair value option, primarily in the investment banking businesses and International Wealth Management’s Asset Management business. This has been accomplished generally by electing the fair value option, both at initial adoption and for subsequent transactions, on items impacted by the hedge accounting requirements of US GAAP. That is, for instruments for which there was an inability to achieve hedge accounting and for which the Group is economically hedged, the Group has elected the fair value option. Similarly, where the Group manages an activity on a fair value basis but previously has been unable to achieve fair value accounting, the Group has utilized the fair value option to align its risk management reporting to its financial accounting.
> Refer to “Note 35 – Financial instruments” in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 for further information on the Group’s election of the fair value option for certain of its financial statement captions.
Difference between the aggregate fair value and the aggregate unpaid principal balances of loans and financial instruments
end of | 3Q17 | 4Q16 | |||||||||||
Aggregate fair value | Aggregate unpaid principal | Difference | Aggregate fair value | Aggregate unpaid principal | Difference | ||||||||
Loans (CHF million) | |||||||||||||
Non-interest-earning loans | 928 | 3,996 | (3,068) | 1,276 | 4,495 | (3,219) | |||||||
Financial instruments (CHF million) | |||||||||||||
Interest-bearing deposits with banks | 0 | 0 | 0 | 26 | 25 | 1 | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 97,413 | 97,324 | 89 | 87,331 | 87,208 | 123 | |||||||
Loans | 15,362 | 15,832 | (470) | 19,528 | 20,144 | (616) | |||||||
Other assets 1 | 7,875 | 10,635 | (2,760) | 8,369 | 11,296 | (2,927) | |||||||
Due to banks and customer deposits | (1,063) | (997) | (66) | (1,120) | (1,059) | (61) | |||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | (17,300) | (17,301) | 1 | (19,634) | (19,638) | 4 | |||||||
Short-term borrowings | (5,821) | (5,798) | (23) | (4,061) | (4,017) | (44) | |||||||
Long-term debt | (69,346) | (72,536) | 3,190 | (72,868) | (76,123) | 3,255 | |||||||
Other liabilities | (618) | (2,205) | 1,587 | (727) | (2,331) | 1,604 | |||||||
1 Primarily loans held-for-sale. |
160
Gains and losses on financial instruments
in | 9M17 | 9M16 | |||
Net gains/ (losses) | Net gains/ (losses) | ||||
Financial instruments (CHF million) | |||||
Interest-bearing deposits with banks | 9 | 1 | 1 | 1 | |
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 1,195 | 1 | 1,187 | 1 | |
Other investments | 143 | 2 | 248 | 2 | |
of which related to credit risk | (1) | (4) | |||
Loans | 1,062 | 1 | 1,663 | 1 | |
of which related to credit risk | 15 | 12 | |||
Other assets | 379 | 1 | (540) | 2 | |
of which related to credit risk | 51 | (182) | |||
Due to banks and customer deposits | (24) | 2 | (43) | 2 | |
of which related to credit risk | 13 | (16) | |||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | (24) | 1 | (103) | 1 | |
Short-term borrowings | (275) | 2 | 333 | 2 | |
of which related to credit risk | (17) | (2) | |||
Long-term debt | (4,823) | 2 | (2,987) | 2 | |
Other liabilities | 179 | 3 | 364 | 2 | |
of which related to credit risk | 94 | 236 | |||
1 Primarily recognized in net interest income. | |||||
2 Primarily recognized in trading revenues. | |||||
3 Primarily recognized in other revenues. |
The following table provides additional information regarding the gains and losses attributable to changes in instrument-specific credit risk on fair value option elected liabilities which are recorded through AOCI. The table includes both the amount of change during the period and cumulatively that is attributable to the changes in instrument-specific credit risk. In addition it includes the gains and losses related to instrument-specific credit risk that was previously recorded in AOCI that have been transferred during the period to net income.
Own credit gains/(losses) on fair value option elected instruments recorded in AOCI
Gains/(losses) recorded into AOCI | 1 | Gains/(losses) recorded in AOCI transferred to net income | 1 | ||||||||
in | 3Q17 | Cumulatively | 3Q16 | 3Q17 | 3Q16 | ||||||
Financial instruments (CHF million) | |||||||||||
Deposits | (3) | (46) | (5) | 0 | 0 | ||||||
Short-term borrowings | (21) | (19) | 0 | 4 | 0 | ||||||
Long-term debt | (526) | (2,129) | (1,081) | 169 | 0 | ||||||
of which treasury debt over two years | (54) | (511) | (278) | 0 | 0 | ||||||
of which structured notes over two years | (473) | (1,610) | (782) | 169 | 0 | ||||||
Total | (550) | (2,194) | (1,086) | 173 | 0 | ||||||
1 Amounts are reflected gross of tax. |
161
The following table provides the carrying value and fair value of financial instruments which are not carried at fair value in the consolidated balance sheets. The disclosure excludes all non-financial instruments such as lease transactions, real estate, premises and equipment, equity method investments and pension and benefit obligations.
Carrying value and fair value of financial instruments not carried at fair value
Carrying value | Fair value | ||||||||||
end of | Level 1 | Level 2 | Level 3 | Total | |||||||
3Q17 (CHF million) | |||||||||||
Financial assets | |||||||||||
Central banks funds sold, securities purchased under resale agreements and securities borrowing transactions | 42,629 | 0 | 42,629 | 0 | 42,629 | ||||||
Loans | 256,692 | 0 | 260,943 | 2,891 | 263,834 | ||||||
Other financial assets 1 | 156,410 | 105,690 | 49,918 | 1,116 | 156,724 | ||||||
Financial liabilities | |||||||||||
Due to banks and deposits | 367,807 | 203,446 | 164,367 | 0 | 367,813 | ||||||
Central banks funds purchased, securities sold under repurchase agreements and securities lending transactions | 15,846 | 0 | 15,846 | 0 | 15,846 | ||||||
Short-term borrowings | 10,406 | 0 | 10,408 | 0 | 10,408 | ||||||
Long-term debt | 110,948 | 0 | 113,757 | 485 | 114,242 | ||||||
Other financial liabilities 2 | 50,362 | 0 | 50,233 | 130 | 50,363 | ||||||
4Q16 (CHF million) | |||||||||||
Financial assets | |||||||||||
Central banks funds sold, securities purchased under resale agreements and securities borrowing transactions | 47,508 | 0 | 47,508 | 0 | 47,508 | ||||||
Loans | 252,535 | 0 | 256,020 | 4,602 | 260,622 | ||||||
Other financial assets 1 | 171,514 | 121,075 | 49,353 | 1,436 | 171,864 | ||||||
Financial liabilities | |||||||||||
Due to banks and deposits | 374,620 | 199,721 | 174,877 | 0 | 374,598 | ||||||
Central banks funds purchased, securities sold under repurchase agreements and securities lending transactions | 13,382 | 0 | 13,382 | 0 | 13,382 | ||||||
Short-term borrowings | 11,324 | 0 | 11,327 | 0 | 11,327 | ||||||
Long-term debt | 120,448 | 0 | 122,220 | 521 | 122,741 | ||||||
Other financial liabilities 2 | 62,291 | 1,595 | 60,573 | 125 | 62,293 | ||||||
1 Primarily includes cash and due from banks, interest-bearing deposits with banks, brokerage receivables, loans held-for-sale, cash collateral on derivative instruments, interest and fee receivables and non-marketable equity securities. | |||||||||||
2 Primarily includes brokerage payables, cash collateral on derivative instruments and interest and fee payables. |
162
The Group pledges assets mainly for repurchase agreements and other securities financing. Certain pledged assets may be encumbered, meaning they have the right to be sold or repledged. The encumbered assets are disclosed on the consolidated balance sheet.
Assets pledged
end of | 3Q17 | 4Q16 | |||
Assets pledged (CHF million) | |||||
Total assets pledged or assigned as collateral | 117,553 | 122,805 | |||
of which encumbered | 72,209 | 83,473 |
Collateral
The Group receives cash and securities in connection with resale agreements, securities borrowing and loans, derivative transactions and margined broker loans. A substantial portion of the collateral and securities received by the Group was sold or repledged in connection with repurchase agreements, securities sold not yet purchased, securities borrowings and loans, pledges to clearing organizations, segregation requirements under securities laws and regulations, derivative transactions and bank loans.
Collateral
end of | 3Q17 | 4Q16 | |||
Collateral (CHF million) | |||||
Fair value of collateral received with the right to sell or repledge | 429,171 | 402,690 | |||
of which sold or repledged | 169,464 | 167,487 |
The Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses. The Group’s material proceedings, related provisions and estimate of the aggregate range of reasonably possible losses that are not covered by existing provisions are described in Note 39 – Litigation in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2016 and updated in subsequent quarterly reports (including those discussed below). Some of these proceedings have been brought on behalf of various classes of claimants and seek damages of material and/or indeterminate amounts.
The Group accrues loss contingency litigation provisions and takes a charge to income in connection with certain proceedings when losses, additional losses or ranges of loss are probable and reasonably estimable. The Group also accrues litigation provisions for the estimated fees and expenses of external lawyers and other service providers in relation to such proceedings, including in cases for which it has not accrued a loss contingency provision. The Group accrues these fee and expense litigation provisions and takes a charge to income in connection therewith when such fees and expenses are probable and reasonably estimable. The Group reviews its legal proceedings each quarter to determine the adequacy of its litigation provisions and may increase or release provisions based on management’s judgment and the advice of counsel. The establishment of additional provisions or releases of litigation provisions may be necessary in the future as developments in such proceedings warrant.
The specific matters described include (a) proceedings where the Group has accrued a loss contingency provision, given that it is probable that a loss may be incurred and such loss is reasonably estimable; and (b) proceedings where the Group has not accrued such a loss contingency provision for various reasons, including, but not limited to, the fact that any related losses are not reasonably estimable. The description of certain of the matters includes a statement that the Group has established a loss contingency provision and discloses the amount of such provision; for the other matters no such statement is made. With respect to the matters for which no such statement is made, either (a) the Group has not established a loss contingency provision, in which case the matter is treated as a contingent liability under the applicable accounting standard, or (b) the Group has established such a provision but believes that disclosure of that fact would violate confidentiality obligations to which the Group is subject or otherwise compromise attorney-client privilege, work product protection or other protections against disclosure or compromise the Group’s management of the matter. The future outflow of funds in respect of any matter for which the Group has accrued loss contingency provisions cannot be determined with certainty based on currently available information, and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that is reflected on the Group’s balance sheet.
It is inherently difficult to determine whether a loss is probable or even reasonably possible or to estimate the amount of any loss or loss range for many of the Group’s legal proceedings. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the proceeding, the progress of the matter, the advice of counsel, the Group’s defenses and its experience in similar matters, as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings.
163
Factual and legal determinations, many of which are complex, must be made before a loss, additional losses or ranges of loss can be reasonably estimated for any proceeding.
Most matters pending against the Group seek damages of an indeterminate amount. While certain matters specify the damages claimed, such claimed amount may not represent the Group’s reasonably possible losses. For certain of the proceedings discussed the Group has disclosed the amount of damages claimed and certain other quantifiable information that is publicly available.
The Group’s aggregate litigation provisions include estimates of losses, additional losses or ranges of loss for proceedings for which such losses are probable and can be reasonably estimated. The Group does not believe that it can estimate an aggregate range of reasonably possible losses for certain of its proceedings because of their complexity, the novelty of some of the claims, the early stage of the proceedings, the limited amount of discovery that has occurred and/or other factors. The Group’s estimate of the aggregate range of reasonably possible losses that are not covered by existing provisions for the proceedings discussed in Note 39 referenced above and updated in quarterly reports (including below) for which the Group believes an estimate is possible is zero to CHF 1.3 billion.
In 3Q17, the Group recorded net litigation provisions of CHF 162 million. After taking into account its litigation provisions, the Group believes, based on currently available information and advice of counsel, that the results of its legal proceedings, in the aggregate, will not have a material adverse effect on the Group’s financial condition. However, in light of the inherent uncertainties of such proceedings, including those brought by regulators or other governmental authorities, the ultimate cost to the Group of resolving such proceedings may exceed current litigation provisions and any excess may be material to its operating results for any particular period, depending, in part, upon the operating results for such period.
Enron-related litigation
On September 27, 2017, following a settlement, an order of final judgment was entered by the US District Court for the Southern District of Texas, presiding in the action brought by Connecticut Resources Recovery Authority, dismissing with prejudice all claims against Credit Suisse Securities (USA) LLC (CSS LLC) and its affiliates.
Mortgage-related matters
Civil litigation
The amounts disclosed below do not reflect actual realized plaintiff losses to date or anticipated future litigation exposure. Rather, unless otherwise stated, these amounts reflect the original unpaid principal balance amounts as alleged in these actions and do not include any reduction in principal amounts since issuance.
Individual investor actions
On September 12, 2017, following a settlement, the US District Court for the District of Massachusetts, presiding in the two actions brought by Massachusetts Mutual Life Insurance Company, dismissed with prejudice all claims against CSS LLC and its employees related to approximately USD 107 million of RMBS at issue.
On October 30, 2017, CSS LLC reached an agreement in principle with CMFG Life Insurance Company and affiliated entities to settle the action brought against CSS LLC relating to approximately USD 62 million of RMBS.
Rates-related matters
Regulatory authorities in a number of jurisdictions, including the Swiss Competition Commission, the European Competition Commission, the South African Competition Commission, the Brazilian Competition Authority and the New York Department of Financial Services, have been conducting investigations into the trading activities, information sharing and the setting of benchmark rates in the foreign exchange (including electronic trading) markets. On March 31, 2014, the Swiss Competition Commission announced a formal investigation of numerous Swiss and international financial institutions, including the Group, in relation to the setting of exchange rates in foreign exchange trading. The Group is cooperating fully with these investigations.
On September 29, 2017, the US District Court for the Southern District of New York (SDNY) in the multi-district litigation concerning US Dollar LIBOR dismissed without prejudice Credit Suisse AG from the remaining non-stayed putative class action on the ground that there were no remaining class representatives with claims against any Credit Suisse entity.
On September 25, 2017, the SDNY granted defendants’ motion to dismiss all claims against Credit Suisse Group AG and other defendants in the putative class action relating to Swiss franc LIBOR. The SDNY has granted plaintiffs leave to file an amended complaint by November 6, 2017.
On August 18, 2017, the SDNY dismissed all claims against Credit Suisse Group AG and affiliates in the putative class action lawsuit relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate. On September 18, 2017, the plaintiffs filed an amended complaint. On October 18, 2017, defendants filed motions to dismiss the amended complaint.
On August 11, 2017, defendants filed motions to dismiss the consolidated putative class action complaint in the SDNY alleging manipulation of the foreign exchange market on behalf of indirect purchasers of foreign exchange instruments.
On August 23, 2017, the SDNY appointed lead counsel in the consolidated putative class actions relating to the US treasury markets. On August 25, 2017, three purported class representatives re-filed their complaints as a collective individual action.
On July 28, 2017, the SDNY granted in part and denied in part defendants’ motion to dismiss plaintiffs’ consolidated putative civil class action complaint and plaintiffs’ consolidated individual complaint, relating to interest rate swaps.
On October 6, 2017, in response to defendants’ motions to dismiss the putative class action in the SDNY relating to supranational, sub-sovereign, and agency bonds, plaintiffs filed a motion for leave to file a consolidated amended class action complaint.
164
On August 17, 2017, Credit Suisse Group AG and affiliates, along with other financial institutions, were named in a civil putative class action lawsuit filed in the SDNY, alleging that defendants conspired to keep stock loan trading fixed in an over-the-counter market and collectively boycotted certain trading platforms which sought to enter the market.
CDS-related matters
On September 11, 2017, defendants filed motions to dismiss the civil action in the SDNY filed by Tera Group, Inc. and related entities alleging violations of antitrust law by credit default swap dealers.
ATA litigation
On September 11, 2017, Credit Suisse AG and other defendants served motions to dismiss the plaintiffs' amended complaint in the case filed against a number of banks alleging claims under the United States Anti-Terrorism Act (ATA) that was transferred to the US District Court for the Eastern District of New York (EDNY) by order dated April 12, 2017. On October 3, 2017, the plaintiffs filed a stipulation of voluntary dismissal and withdrew their complaint. The separate lawsuit that was filed on November 10, 2014 in the EDNY against a number of banks, including Credit Suisse AG, alleging claims under the ATA, remains pending.
Customer account matters
In connection with claims that a former relationship manager in Switzerland had exceeded his investment authority, civil liability lawsuits were initiated on August 25, 2017 in the High Court of Singapore, the High Court of New Zealand and the Supreme Court of Bermuda against Credit Suisse AG and certain affiliates, based on the findings established in the criminal proceedings against the former relationship manager.
Tax and securities law matters
On May 19, 2014, Credit Suisse AG entered into settlement agreements with several US regulators regarding its US cross-border matters, including the New York State Department of Financial Services (DFS). As part of the settlement, Credit Suisse AG, among other things, engaged an independent corporate monitor that reports to the DFS (a separate position from the independent consultant agreed to in the settlement with the SEC) and provides ongoing reports to various agencies. Credit Suisse AG is paying for the cost of the monitor. Credit Suisse AG is presently in discussions with the DFS regarding a potential limited extension of the monitor’s term.
Certain wholly owned finance subsidiaries of the Group, including Credit Suisse Group Funding (Guernsey) Limited, which is a Guernsey incorporated non-cellular company limited by shares, have issued securities fully and unconditionally guaranteed by the Group. There are various legal and regulatory requirements, including the satisfaction of a solvency test under Guernsey law for the Guernsey subsidiary, applicable to some of the Group’s subsidiaries that may limit their ability to pay dividends or distributions and make loans and advances to the Group.
On March 26, 2007, the Group and the Bank issued full, unconditional and several guarantees of Credit Suisse (USA), Inc.’s outstanding SEC-registered debt securities. In accordance with the guarantees, if Credit Suisse (USA), Inc. fails to make any timely payment under the agreements governing such debt securities, the holders of the debt securities may demand payment from either the Group or the Bank, without first proceeding against Credit Suisse (USA), Inc. The guarantee from the Group is subordinated to senior liabilities. Credit Suisse (USA), Inc. is an indirect, wholly owned subsidiary of the Group.
As part of an announced program to evolve the Group’s legal entity structure to meet developing and future regulatory requirements and Fed regulation on establishing intermediate holding companies in the US for non-US banks, legal entities are re-parented as subsidiaries of Credit Suisse (USA), Inc.
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, during 1Q17, the equity stakes in Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH held by the Group were transferred to Credit Suisse (Schweiz) AG, a wholly owned subsidiary of the Bank.
Prior periods are restated to conform to the current presentation to reflect the impact of such transactions.
165
Condensed consolidating statements of operations
in 3Q17 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Condensed consolidating statements of operations (CHF million) | |||||||||||||
Interest and dividend income | 1,391 | 2,884 | 4,275 | 144 | (146) | 4,273 | |||||||
Interest expense | (1,197) | (1,422) | (2,619) | (157) | 125 | (2,651) | |||||||
Net interest income | 194 | 1,462 | 1,656 | (13) | (21) | 1,622 | |||||||
Commissions and fees | 828 | 1,895 | 2,723 | 7 | 32 | 2,762 | |||||||
Trading revenues | (42) | 360 | 318 | (12) | 14 | 320 | |||||||
Other revenues | 215 | 62 | 277 | 262 | 2 | (271) | 268 | ||||||
Net revenues | 1,195 | 3,779 | 4,974 | 244 | (246) | 4,972 | |||||||
Provision for credit losses | 0 | 32 | 32 | 0 | 0 | 32 | |||||||
Compensation and benefits | 715 | 1,551 | 2,266 | 19 | 166 | 2,451 | |||||||
General and administrative expenses | 553 | 1,431 | 1,984 | (23) | (331) | 1,630 | |||||||
Commission expenses | 59 | 288 | 347 | 0 | 0 | 347 | |||||||
Restructuring expenses | 44 | 53 | 97 | 0 | 15 | 112 | |||||||
Total other operating expenses | 656 | 1,772 | 2,428 | (23) | (316) | 2,089 | |||||||
Total operating expenses | 1,371 | 3,323 | 4,694 | (4) | (150) | 4,540 | |||||||
Income/(loss) before taxes | (176) | 424 | 248 | 248 | (96) | 400 | |||||||
Income tax expense/(benefit) | (74) | 206 | 132 | 4 | 17 | 153 | |||||||
Net income/(loss) | (102) | 218 | 116 | 244 | (113) | 247 | |||||||
Net income/(loss) attributable to noncontrolling interests | 2 | 3 | 5 | 0 | (2) | 3 | |||||||
Net income/(loss) attributable to shareholders | (104) | 215 | 111 | 244 | (111) | 244 | |||||||
1 Includes eliminations and consolidation adjustments. | |||||||||||||
2 Primarily consists of revenues from investments in Group companies accounted for under the equity method. |
Condensed consolidating statements of comprehensive income
in 3Q17 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Comprehensive income (CHF million) | |||||||||||||
Net income/(loss) | (102) | 218 | 116 | 244 | (113) | 247 | |||||||
Gains/(losses) on cash flow hedges | 0 | (7) | (7) | 2 | 0 | (5) | |||||||
Foreign currency translation | 163 | 186 | 349 | 1 | 3 | 353 | |||||||
Actuarial gains/(losses) | (5) | 9 | 4 | 0 | 64 | 68 | |||||||
Net prior service credit/(cost) | 0 | 0 | 0 | 0 | (27) | (27) | |||||||
Gains/(losses) on liabilities related to credit risk | (7) | (322) | (329) | (15) | (8) | (352) | |||||||
Other comprehensive income/(loss), net of tax | 151 | (134) | 17 | (12) | 32 | 37 | |||||||
Comprehensive income/(loss) | 49 | 84 | 133 | 232 | (81) | 284 | |||||||
Comprehensive income/(loss) attributable to noncontrolling interests | 3 | 9 | 12 | 0 | (8) | 4 | |||||||
Comprehensive income/(loss) attributable to shareholders | 46 | 75 | 121 | 232 | (73) | 280 | |||||||
1 Includes eliminations and consolidation adjustments. |
166
Condensed consolidating statements of operations (continued)
in 3Q16 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Condensed consolidating statements of operations (CHF million) | |||||||||||||
Interest and dividend income | 1,331 | 2,891 | 4,222 | 70 | (70) | 4,222 | |||||||
Interest expense | (922) | (1,362) | (2,284) | (84) | 76 | (2,292) | |||||||
Net interest income | 409 | 1,529 | 1,938 | (14) | 6 | 1,930 | |||||||
Commissions and fees | 863 | 1,770 | 2,633 | 7 | 40 | 2,680 | |||||||
Trading revenues | (36) | 395 | 359 | (40) | (87) | 232 | |||||||
Other revenues | 181 | 419 | 600 | 82 | 2 | (128) | 554 | ||||||
Net revenues | 1,417 | 4,113 | 5,530 | 35 | (169) | 5,396 | |||||||
Provision for credit losses | 0 | 55 | 55 | 0 | 0 | 55 | |||||||
Compensation and benefits | 813 | 1,906 | 2,719 | 20 | (65) | 2,674 | |||||||
General and administrative expenses | 716 | 1,300 | 2,016 | (26) | (12) | 1,978 | |||||||
Commission expenses | 60 | 262 | 322 | 0 | 0 | 322 | |||||||
Restructuring expenses | 52 | 87 | 139 | 0 | 6 | 145 | |||||||
Total other operating expenses | 828 | 1,649 | 2,477 | (26) | (6) | 2,445 | |||||||
Total operating expenses | 1,641 | 3,555 | 5,196 | (6) | (71) | 5,119 | |||||||
Income/(loss) before taxes | (224) | 503 | 279 | 41 | (98) | 222 | |||||||
Income tax expense/(benefit) | 15 | 197 | 212 | 0 | (27) | 185 | |||||||
Net income/(loss) | (239) | 306 | 67 | 41 | (71) | 37 | |||||||
Net income/(loss) attributable to noncontrolling interests | 36 | (41) | (5) | 0 | 1 | (4) | |||||||
Net income/(loss) attributable to shareholders | (275) | 347 | 72 | 41 | (72) | 41 | |||||||
1 Includes eliminations and consolidation adjustments. | |||||||||||||
2 Primarily consists of revenues from investments in Group companies accounted for under the equity method. |
Condensed consolidating statements of comprehensive income (continued)
in 3Q16 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Comprehensive income (CHF million) | |||||||||||||
Net income/(loss) | (239) | 306 | 67 | 41 | (71) | 37 | |||||||
Gains/(losses) on cash flow hedges | 0 | (36) | (36) | 4 | 0 | (32) | |||||||
Foreign currency translation | (88) | (135) | (223) | 0 | 2 | (221) | |||||||
Unrealized gains/(losses) on securities | 0 | (1) | (1) | 0 | 0 | (1) | |||||||
Actuarial gains/(losses) | 23 | 2 | 25 | 0 | 70 | 95 | |||||||
Net prior service credit/(cost) | 0 | 0 | 0 | 0 | (24) | (24) | |||||||
Gains/(losses) on liabilities related to credit risk | (66) | (803) | (869) | 56 | (39) | (852) | |||||||
Other comprehensive income/(loss), net of tax | (131) | (973) | (1,104) | 60 | 9 | (1,035) | |||||||
Comprehensive income/(loss) | (370) | (667) | (1,037) | 101 | (62) | (998) | |||||||
Comprehensive income/(loss) attributable to noncontrolling interests | 34 | (52) | (18) | 0 | 5 | (13) | |||||||
Comprehensive income/(loss) attributable to shareholders | (404) | (615) | (1,019) | 101 | (67) | (985) | |||||||
1 Includes eliminations and consolidation adjustments. |
167
Condensed consolidating statements of operations (continued)
in 9M17 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Condensed consolidating statements of operations (CHF million) | |||||||||||||
Interest and dividend income | 4,002 | 8,918 | 12,920 | 409 | (412) | 12,917 | |||||||
Interest expense | (3,269) | (4,555) | (7,824) | (448) | 347 | (7,925) | |||||||
Net interest income | 733 | 4,363 | 5,096 | (39) | (65) | 4,992 | |||||||
Commissions and fees | 2,729 | 5,868 | 8,597 | 21 | 95 | 8,713 | |||||||
Trading revenues | 60 | 1,032 | 1,092 | (16) | 55 | 1,131 | |||||||
Other revenues | 658 | 271 | 929 | 1,179 | 2 | (1,233) | 875 | ||||||
Net revenues | 4,180 | 11,534 | 15,714 | 1,145 | (1,148) | 15,711 | |||||||
Provision for credit losses | 4 | 163 | 167 | 0 | 0 | 167 | |||||||
Compensation and benefits | 2,302 | 5,252 | 7,554 | 54 | 43 | 7,651 | |||||||
General and administrative expenses | 1,447 | 3,829 | 5,276 | (57) | (361) | 4,858 | |||||||
Commission expenses | 188 | 877 | 1,065 | 0 | 0 | 1,065 | |||||||
Restructuring expenses | 110 | 142 | 252 | 0 | 66 | 318 | |||||||
Total other operating expenses | 1,745 | 4,848 | 6,593 | (57) | (295) | 6,241 | |||||||
Total operating expenses | 4,047 | 10,100 | 14,147 | (3) | (252) | 13,892 | |||||||
Income/(loss) before taxes | 129 | 1,271 | 1,400 | 1,148 | (896) | 1,652 | |||||||
Income tax expense/(benefit) | 35 | 483 | 518 | 5 | (16) | 507 | |||||||
Net income/(loss) | 94 | 788 | 882 | 1,143 | (880) | 1,145 | |||||||
Net income/(loss) attributable to noncontrolling interests | (7) | 10 | 3 | 0 | (1) | 2 | |||||||
Net income/(loss) attributable to shareholders | 101 | 778 | 879 | 1,143 | (879) | 1,143 | |||||||
1 Includes eliminations and consolidation adjustments. | |||||||||||||
2 Primarily consists of revenues from investments in Group companies accounted for under the equity method. |
Condensed consolidating statements of comprehensive income (continued)
in 9M17 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Comprehensive income (CHF million) | |||||||||||||
Net income/(loss) | 94 | 788 | 882 | 1,143 | (880) | 1,145 | |||||||
Gains/(losses) on cash flow hedges | 0 | (5) | (5) | 6 | 0 | 1 | |||||||
Foreign currency translation | (911) | (316) | (1,227) | 0 | (21) | (1,248) | |||||||
Unrealized gains/(losses) on securities | 0 | (7) | (7) | 0 | 0 | (7) | |||||||
Actuarial gains/(losses) | 3 | 26 | 29 | 0 | 224 | 253 | |||||||
Net prior service credit/(cost) | 0 | 0 | 0 | 0 | (94) | (94) | |||||||
Gains/(losses) on liabilities related to credit risk | (29) | (1,225) | (1,254) | (165) | (76) | (1,495) | |||||||
Other comprehensive income/(loss), net of tax | (937) | (1,527) | (2,464) | (159) | 33 | (2,590) | |||||||
Comprehensive income/(loss) | (843) | (739) | (1,582) | 984 | (847) | (1,445) | |||||||
Comprehensive income/(loss) attributable to noncontrolling interests | 4 | (45) | (41) | 0 | 34 | (7) | |||||||
Comprehensive income/(loss) attributable to shareholders | (847) | (694) | (1,541) | 984 | (881) | (1,438) | |||||||
1 Includes eliminations and consolidation adjustments. |
168
Condensed consolidating statements of operations (continued)
in 9M16 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Condensed consolidating statements of operations (CHF million) | |||||||||||||
Interest and dividend income | 4,427 | 9,138 | 13,565 | 210 | (211) | 13,564 | |||||||
Interest expense | (2,932) | (4,669) | (7,601) | (251) | 228 | (7,624) | |||||||
Net interest income | 1,495 | 4,469 | 5,964 | (41) | 17 | 5,940 | |||||||
Commissions and fees | 2,538 | 5,487 | 8,025 | 20 | 106 | 8,151 | |||||||
Trading revenues | (969) | 1,016 | 47 | 32 | (24) | 55 | |||||||
Other revenues | 608 | 503 | 1,111 | (126) | 2 | 11 | 996 | ||||||
Net revenues | 3,672 | 11,475 | 15,147 | (115) | 110 | 15,142 | |||||||
Provision for credit losses | (7) | 184 | 177 | 0 | 0 | 177 | |||||||
Compensation and benefits | 2,407 | 5,631 | 8,038 | 38 | (186) | 7,890 | |||||||
General and administrative expenses | 1,664 | 4,035 | 5,699 | (64) | (49) | 5,586 | |||||||
Commission expenses | 181 | 880 | 1,061 | 1 | (1) | 1,061 | |||||||
Restructuring expenses | 194 | 264 | 458 | 0 | 33 | 491 | |||||||
Total other operating expenses | 2,039 | 5,179 | 7,218 | (63) | (17) | 7,138 | |||||||
Total operating expenses | 4,446 | 10,810 | 15,256 | (25) | (203) | 15,028 | |||||||
Income/(loss) before taxes | (767) | 481 | (286) | (90) | 313 | (63) | |||||||
Income tax expense/(benefit) | (231) | 172 | (59) | 1 | 85 | 27 | |||||||
Net income/(loss) | (536) | 309 | (227) | (91) | 228 | (90) | |||||||
Net income/(loss) attributable to noncontrolling interests | 108 | (111) | (3) | 0 | 4 | 1 | |||||||
Net income/(loss) attributable to shareholders | (644) | 420 | (224) | (91) | 224 | (91) | |||||||
1 Includes eliminations and consolidation adjustments. | |||||||||||||
2 Primarily consists of revenues from investments in Group companies accounted for under the equity method. |
Condensed consolidating statements of comprehensive income (continued)
in 9M16 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Comprehensive income (CHF million) | |||||||||||||
Net income/(loss) | (536) | 309 | (227) | (91) | 228 | (90) | |||||||
Gains/(losses) on cash flow hedges | 0 | 32 | 32 | 2 | 0 | 34 | |||||||
Foreign currency translation | (400) | (326) | (726) | 6 | (11) | (731) | |||||||
Unrealized gains/(losses) on securities | 0 | 6 | 6 | 0 | 0 | 6 | |||||||
Actuarial gains/(losses) | 36 | 9 | 45 | 0 | 237 | 282 | |||||||
Net prior service credit/(cost) | 0 | 0 | 0 | 0 | (77) | (77) | |||||||
Gains/(losses) on liabilities related to credit risk | (11) | 184 | 173 | 134 | 38 | 345 | |||||||
Other comprehensive income/(loss), net of tax | (375) | (95) | (470) | 142 | 187 | (141) | |||||||
Comprehensive income/(loss) | (911) | 214 | (697) | 51 | 415 | (231) | |||||||
Comprehensive income/(loss) attributable to noncontrolling interests | 106 | (136) | (30) | 0 | 18 | (12) | |||||||
Comprehensive income/(loss) attributable to shareholders | (1,017) | 350 | (667) | 51 | 397 | (219) | |||||||
1 Includes eliminations and consolidation adjustments. |
169
Condensed consolidating balance sheets
end of 3Q17 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Assets (CHF million) | |||||||||||||
Cash and due from banks | 2,815 | 102,726 | 105,541 | 343 | (105) | 105,779 | |||||||
Interest-bearing deposits with banks | 32 | 643 | 675 | 489 | (480) | 684 | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 79,338 | 60,703 | 140,041 | 0 | 0 | 140,041 | |||||||
Securities received as collateral | 34,106 | 1,795 | 35,901 | 0 | 0 | 35,901 | |||||||
Trading assets | 44,467 | 98,198 | 142,665 | 0 | (286) | 142,379 | |||||||
Investment securities | 740 | 1,961 | 2,701 | 13,910 | (13,907) | 2,704 | |||||||
Other investments | 927 | 5,178 | 6,105 | 47,306 | (47,238) | 6,173 | |||||||
Net loans | 15,681 | 264,211 | 279,892 | 0 | (4,039) | 275,853 | |||||||
Premises and equipment | 957 | 3,396 | 4,353 | 0 | 238 | 4,591 | |||||||
Goodwill | 715 | 3,297 | 4,012 | 0 | 703 | 4,715 | |||||||
Other intangible assets | 191 | 28 | 219 | 0 | 0 | 219 | |||||||
Brokerage receivables | 18,017 | 17,508 | 35,525 | 0 | 0 | 35,525 | |||||||
Other assets | 12,789 | 20,727 | 33,516 | 406 | 204 | 34,126 | |||||||
Total assets | 210,775 | 580,371 | 791,146 | 62,454 | (64,910) | 788,690 | |||||||
Liabilities and equity (CHF million) | |||||||||||||
Due to banks | 95 | 17,398 | 17,493 | 588 | (584) | 17,497 | |||||||
Customer deposits | 1 | 355,379 | 355,380 | 0 | (994) | 354,386 | |||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 47,982 | (14,836) | 33,146 | 0 | 0 | 33,146 | |||||||
Obligation to return securities received as collateral | 34,106 | 1,795 | 35,901 | 0 | 0 | 35,901 | |||||||
Trading liabilities | 11,421 | 32,549 | 43,970 | 0 | (50) | 43,920 | |||||||
Short-term borrowings | 13,529 | 3,182 | 16,711 | 0 | (484) | 16,227 | |||||||
Long-term debt | 52,865 | 126,519 | 179,384 | 17,633 | (16,723) | 180,294 | |||||||
Brokerage payables | 23,793 | 8,623 | 32,416 | 0 | 0 | 32,416 | |||||||
Other liabilities | 11,172 | 19,817 | 30,989 | 375 | (542) | 30,822 | |||||||
Total liabilities | 194,964 | 550,426 | 745,390 | 18,596 | (19,377) | 744,609 | |||||||
Total shareholders' equity | 15,673 | 29,250 | 44,923 | 43,858 | (44,923) | 43,858 | |||||||
Noncontrolling interests | 138 | 695 | 833 | 0 | (610) | 223 | |||||||
Total equity | 15,811 | 29,945 | 45,756 | 43,858 | (45,533) | 44,081 | |||||||
Total liabilities and equity | 210,775 | 580,371 | 791,146 | 62,454 | (64,910) | 788,690 | |||||||
1 Includes eliminations and consolidation adjustments. |
170
Condensed consolidating balance sheets (continued)
end of 4Q16 | Credit Suisse (USA), Inc. consolidated | Bank parent company and other subsidiaries | 1 | Bank | Group parent company | Eliminations and consolidation adjustments | Credit Suisse Group | ||||||
Assets (CHF million) | |||||||||||||
Cash and due from banks | 2,491 | 118,575 | 121,066 | 938 | (843) | 121,161 | |||||||
Interest-bearing deposits with banks | 3,520 | (2,753) | 767 | 5 | 0 | 772 | |||||||
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 82,363 | 52,476 | 134,839 | 0 | 0 | 134,839 | |||||||
Securities received as collateral | 30,914 | 1,650 | 32,564 | 0 | 0 | 32,564 | |||||||
Trading assets | 48,914 | 116,478 | 165,392 | 0 | (242) | 165,150 | |||||||
Investment securities | 511 | 1,975 | 2,486 | 4,173 | (4,170) | 2,489 | |||||||
Other investments | 1,146 | 5,571 | 6,717 | 44,753 | (44,693) | 6,777 | |||||||
Net loans | 12,809 | 266,151 | 278,960 | 126 | (3,110) | 275,976 | |||||||
Premises and equipment | 990 | 3,676 | 4,666 | 0 | 45 | 4,711 | |||||||
Goodwill | 756 | 3,433 | 4,189 | 0 | 724 | 4,913 | |||||||
Other intangible assets | 179 | 34 | 213 | 0 | 0 | 213 | |||||||
Brokerage receivables | 17,461 | 15,970 | 33,431 | 0 | 0 | 33,431 | |||||||
Other assets | 13,119 | 23,656 | 36,775 | 244 | (154) | 36,865 | |||||||
Total assets | 215,173 | 606,892 | 822,065 | 50,239 | (52,443) | 819,861 | |||||||
Liabilities and equity (CHF million) | |||||||||||||
Due to banks | 77 | 22,723 | 22,800 | 2,943 | (2,943) | 22,800 | |||||||
Customer deposits | 8 | 357,216 | 357,224 | 0 | (1,391) | 355,833 | |||||||
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 54,900 | (21,884) | 33,016 | 0 | 0 | 33,016 | |||||||
Obligation to return securities received as collateral | 30,914 | 1,650 | 32,564 | 0 | 0 | 32,564 | |||||||
Trading liabilities | 10,125 | 34,827 | 44,952 | 0 | (22) | 44,930 | |||||||
Short-term borrowings | 17,110 | (1,725) | 15,385 | 0 | 0 | 15,385 | |||||||
Long-term debt | 41,481 | 151,014 | 192,495 | 5,078 | (4,258) | 193,315 | |||||||
Brokerage payables | 28,706 | 11,146 | 39,852 | 0 | 0 | 39,852 | |||||||
Other liabilities | 14,992 | 24,927 | 39,919 | 321 | (385) | 39,855 | |||||||
Total liabilities | 198,313 | 579,894 | 778,207 | 8,342 | (8,999) | 777,550 | |||||||
Total shareholders' equity | 17,006 | 25,783 | 42,789 | 41,897 | (42,789) | 41,897 | |||||||
Noncontrolling interests | (146) | 1,215 | 1,069 | 0 | (655) | 414 | |||||||
Total equity | 16,860 | 26,998 | 43,858 | 41,897 | (43,444) | 42,311 | |||||||
Total liabilities and equity | 215,173 | 606,892 | 822,065 | 50,239 | (52,443) | 819,861 | |||||||
1 Includes eliminations and consolidation adjustments. |
171
A | ||
ABS | Asset-backed securities | |
ADS | American Depositary Share | |
AOCI | Accumulated other comprehensive income/(loss) | |
ASC | Accounting Standards Codification | |
ASU | Accounting Standards Update | |
B | ||
BCBS | Basel Committee on Banking Supervision | |
BIS | Bank for International Settlements | |
BoE | Bank of England | |
bp | Basis point | |
C | ||
CDO | Collateralized debt obligation | |
CDS | Credit default swaps | |
CECL | Current expected credit loss | |
CET1 | Common equity tier 1 | |
CLO | Collateralized loan obligations | |
CMBS | Commercial mortgage-backed securities | |
CMS | Constant maturity swap | |
CP | Commercial paper | |
CPR | Constant prepayment rate | |
CSS LLC | Credit Suisse Securities (USA) LLC | |
CVA | Credit valuation adjustment | |
D | ||
DFS | New York State Department of Financial Services | |
E | ||
EBITDA | Earnings before interest, taxes, depreciation and amortization | |
ECB | European Central Bank | |
EDNY | US District Court for the Eastern District of New York | |
EU | European Union | |
F | ||
FASB | Financial Accounting Standards Board | |
Fed | US Federal Reserve | |
FINMA | Swiss Financial Market Supervisory Authority FINMA | |
G | ||
G7 | Group of seven leading industry nations | |
G-SIB | Global systemically important bank | |
H | ||
HQLA | High-quality liquid assets | |
I | ||
ISDA | International Swaps and Derivatives Association | |
ITS | International Trading Solutions |
L | ||
LCR | Liquidity coverage ratio | |
M | ||
M&A | Mergers and acquisitions | |
N | ||
NAV | Net asset value | |
NRV | Negative replacement value | |
NSFR | Net stable funding ratio | |
O | ||
OTC | Over-the-counter | |
P | ||
PRV | Positive replacement value | |
PSA | Prepayment speed assumption | |
Q | ||
QoQ | Quarter on quarter | |
R | ||
RMBS | Residential mortgage-backed securities | |
RWA | Risk-weighted assets | |
S | ||
SDNY | US District Court for the Southern District of New York | |
SEC | US Securities and Exchange Commission | |
SEI | Significant economic interest | |
SNB | Swiss National Bank | |
SPE | Special purpose entity | |
SPIA | Single premium immediate annuity | |
T | ||
TLAC | Total loss-absorbing capacity | |
TRS | Total return swap | |
U | ||
UK | United Kingdom | |
US | United States of America | |
US GAAP | US generally accepted accounting principles | |
V | ||
VaR | Value-at-risk | |
VDAX | Deutsche Börse AG DAX Volatility Index | |
VIE | Variable interest entity | |
VIX | Chicago Board Options Exchange Market Volatility Index | |
Y | ||
YoY | Year on year | |
Ytd | Year to date |
172
Share data | |||||||||
in / end of | 9M17 | 2016 | 2015 | 2014 | |||||
Share price (common shares, CHF) | |||||||||
Average | 14.72 | 13.71 | 23.85 | 26.52 | |||||
Minimum | 13.04 | 9.92 | 18.22 | 23.77 | |||||
Maximum | 16.12 | 21.31 | 27.89 | 30.08 | |||||
End of period | 15.33 | 14.61 | 21.69 | 25.08 | |||||
Share price (American Depositary Shares, USD) | |||||||||
Average | 14.96 | 13.88 | 25.43 | 28.98 | |||||
Minimum | 13.37 | 10.21 | 20.48 | 24.84 | |||||
Maximum | 15.99 | 21.36 | 29.69 | 33.19 | |||||
End of period | 15.80 | 14.31 | 21.69 | 25.08 | |||||
Market capitalization | |||||||||
Market capitalization (CHF million) | 39,184 | 30,533 | 42,456 | 40,308 | |||||
Market capitalization (USD million) | 40,385 | 29,906 | 42,456 | 40,308 | |||||
Dividend per share (CHF) | |||||||||
Dividend per share | – | 0.70 | 1 | 0.70 | 1 | 0.70 | 1 | ||
1 Paid out of capital contribution reserves. |
Ticker symbols / stock exchange listings | |||||
Common shares | ADS | 1 | |||
Ticker symbols | |||||
SIX Financial Information | CSGN | – | |||
Bloomberg | CSGN VX | CS US | |||
Reuters | CSGN.VX | CS.N | |||
Stock exchange listings | |||||
Swiss security number | 1213853 | 570660 | |||
ISIN number | CH0012138530 | US2254011081 | |||
CUSIP number | – | 225 401 108 | |||
1 One American Depositary Share (ADS) represents one common share. |
Credit ratings and outlook | |||||||
as of November 1, 2017 | Short-term debt | Long-term debt | Outlook | ||||
Credit Suisse Group | |||||||
Moody's | – | Baa2 | Stable | ||||
Standard & Poor's | – | BBB+ | Stable | ||||
Fitch Ratings | F2 | A- | Stable | ||||
Rating and Investment Information | – | A | Negative | ||||
Credit Suisse (the Bank) | |||||||
Moody's | P-1 | A1 | Stable | ||||
Standard & Poor's | A-1 | A | Stable | ||||
Fitch Ratings | F1 | A | Stable |
![](https://capedge.com/proxy/6-K/0001370368-17-000072/x095_0001.gif)
173
Financial calendar | |
Investor day 2017 | Thursday, November 30, 2017 |
Fourth quarter results 2017 | Wednesday, February 14, 2018 |
Investor relations | |
Phone | +41 44 333 71 49 |
investor.relations@credit-suisse.com | |
Internet | www.credit-suisse.com/investors |
Media relations | |
Phone | +41 844 33 88 44 |
media.relations@credit-suisse.com | |
Internet | www.credit-suisse.com/news |
Additional information | |
Results and financial information | www.credit-suisse.com/results |
Printed copies | www.credit-suisse.com/publications |
US share register and transfer agent | |
ADS depositary bank | The Bank of New York Mellon |
Shareholder correspondence address | BNY Mellon Shareowner Services |
P.O. Box 30170 | |
College Station, TX 77842-3170, USA | |
Overnight correspondence address | BNY Mellon Shareowner Services |
211 Quality Circle, Suite 210 | |
College Station, TX 77845, USA | |
US and Canada phone | +1 866 886 0788 |
Phone from outside US and Canada | +1 201 680 6825 |
shrrelations@cpushareownerservices.com | |
Swiss share register and transfer agent | |
Address | Credit Suisse Group AG |
Share Register RXS | |
8070 Zurich, Switzerland | |
Phone | +41 44 332 02 02 |
share.register@credit-suisse.com |
Foreign currency translation rates | |||||||||||||||||||
End of | Average in | Average in | |||||||||||||||||
3Q17 | 2Q17 | 4Q16 | 3Q16 | 3Q17 | 2Q17 | 3Q16 | 9M17 | 9M16 | |||||||||||
1 USD / CHF | 0.97 | 0.96 | 1.02 | 0.97 | 0.96 | 0.98 | 0.97 | 0.98 | 0.98 | ||||||||||
1 EUR / CHF | 1.14 | 1.09 | 1.07 | 1.09 | 1.13 | 1.08 | 1.09 | 1.09 | 1.09 | ||||||||||
1 GBP / CHF | 1.30 | 1.24 | 1.26 | 1.26 | 1.26 | 1.26 | 1.28 | 1.26 | 1.37 | ||||||||||
100 JPY / CHF | 0.86 | 0.85 | 0.87 | 0.96 | 0.87 | 0.88 | 0.95 | 0.88 | 0.90 |
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This document contains statements that constitute forward-looking statements. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:
– our plans, objectives or goals;
– our future economic performance or prospects;
– the potential effect on our future performance of certain contingencies; and
– assumptions underlying any such statements.
Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements except as may be required by applicable securities laws.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:
– the ability to maintain sufficient liquidity and access capital markets;
– market volatility and interest rate fluctuations and developments affecting interest rate levels;
– the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular the risk of continued slow economic recovery or downturn in the US or other developed countries or in emerging markets in 2017 and beyond;
– the direct and indirect impacts of deterioration or slow recovery in residential and commercial real estate markets;
– adverse rating actions by credit rating agencies in respect of us, sovereign issuers, structured credit products or other credit-related exposures;
– the ability to achieve our strategic objectives, including cost efficiency, net new asset, pre-tax income/(loss), capital ratios and return on regulatory capital, leverage exposure threshold, risk-weighted assets threshold and other targets and ambitions;
– the ability of counterparties to meet their obligations to us;
– the effects of, and changes in, fiscal, monetary, exchange rate, trade and tax policies, as well as currency fluctuations;
– political and social developments, including war, civil unrest or terrorist activity;
– the possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;
– operational factors such as systems failure, human error, or the failure to implement procedures properly;
– the risk of cyberattacks on our business or operations;
– actions taken by regulators with respect to our business and practices and possible resulting changes to our business organization, practices and policies in countries in which we conduct our operations;
– the effects of changes in laws, regulations or accounting policies or practices in countries in which we conduct our operations;
– the potential effects of proposed changes in our legal entity structure;
– competition or changes in our competitive position in geographic and business areas in which we conduct our operations;
– the ability to retain and recruit qualified personnel;
– the ability to maintain our reputation and promote our brand;
– the ability to increase market share and control expenses;
– technological changes;
– the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;
– acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets;
– the adverse resolution of litigation, regulatory proceedings and other contingencies; and
– other unforeseen or unexpected events and our success at managing these and the risks involved in the foregoing.
We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, including the information set forth in “Risk factors” in I – Information on the company in our Annual Report 2016.
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Our 2016 annual publication suite consisting of Annual Report and Corporate Responsibility Report, which also contains the Company Profile, is available on our website www.credit-suisse.com/investors.
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