Credit Suisse Group AG

SIX:CSGN

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group's First Quarter 2019 Results Conference Call for Analysts and Investors. [Operator Instructions] The conference is recorded. [Operator Instructions]I will now turn the conference over to Adam Gishen, Group Head of Investor Relations and Corporate Communications. Please go ahead, Adam.

[Adam Gishen]

Okay, thank you operator. Before we begin, let me remind you of the important cautionary statements on Slide 2, including the statements on non-GAAP financial measures and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse first quarter 2019 earnings release and remind you that our first quarter financial report and accompanying financial statements for the period will be published on or around May 3rd. With that, I will hand over to our CEO, Tidjane Thiam, for a fuller brief.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Thank you, Adam. Good morning, everyone, and thank you for joining our call. With me is David Mathers, our Chief Financial Officer, and together, we will present Credit Suisse's results for the first quarter of 2019. And we look forward to answering your questions at the end of the session and discussing our results in more detail as usual. The first quarter of 2019 is an important one for us as it is the first quarter after the completion of our 3-year restructuring. Therefore, it gives us the first chance to assess whether some of the benefits we expected from the restructuring are starting to emerge.So looking at our performance on the next slide. We have generated our highest reported Q1 pretax income, focusing on reported as we told you at the end of our restructuring, since Q2 2015, so since -- in the last 4 years, at CHF 1.062 billion. So turning now to net income, which impacts both return on equity and shareholder distributions on the next slide. Our net income has continued to grow, as you can see here, reaching CHF 749 million in a challenging quarter. This is an 8% year-on-year increase against a very strong first quarter of 2018 and in, as we all know, a challenging environment, particularly in January and February.This translates, at the bottom of the page, into a return on tangible equity of 8%. The various benefits we mentioned at our 2018 Investor Day: lower funding costs and other restructuring, lower ARU losses which replaced the SRU, have all come through in Q1, and they will have a recurring positive impact on our P&L in the future. David in his slides will give you more color on this later. But our calculations are that with flat revenues versus Q1 '18, i.e., if we have had the same revenues as in Q1 '18, this RoTE will have been 10.9% in Q1 '19.So let's look at the market environment we faced in the first quarter on the next slide. The market dislocation which hit us in the fourth quarter of 2018 continued into the first weeks of '19. The primary pipeline was most heavily impacted by the lag in activity with ECM street fees and leveraged finance issuance volumes, 2 sectors, were very exposed. It's down more than 40% in the quarter. Even though equity index levels bounced back sharply in the second half of the quarter, market volumes and client activity took some time to catch up. This was particularly evident in APAC, which you can see here in the bottom right-hand chart, where equity market volumes were down almost 25%.The start of the year was particularly challenging with primary street such as ECM down up to 70%, 7-0 percent. As we move into the second half of the quarter, however, the environment became more constructive, and we were able to begin to execute on our pipeline.To the next slide, please. Against this market backdrop, we have protected our operating leverage. Over the last 3 years, we have demonstrated a consistent track record of disciplined cost management. Our approach to cost management allows us to flex our cost base intra-quarter if needed during unsupportive markets. And frankly after Q4, we expected that we would face an unsupportive environment in Q1 '19 and plan for a tough quarter. So as you can see here, we were able to reduce operating expenses by 6% year-on-year delivering our 10th consecutive quarter of year-on-year positive operating leverage at the group level.Next slide, please. Then, next important point is capital. Our capital position has remained stable with the CET1 ratio at 12.6%. In Q1 '19, we knew that we needed to absorb in Q1 about 0.3% of methodology changes. And we further invested about [ CHF 0.5 billion ] of additional RWA in our Wealth Management franchise with a net impact of 0.1% that you see here, taking our CET1 at that time below for previous guidance of 12.5%. During the quarter, we took a number of actions to continue to optimize capital usage. And finally, our organic capital generation in the quarter was significantly stronger than we expected when we last updated you on February 14, adding 0.3% to our CET1 ratio and taking it back to 12.6%. It is worth mentioning, on the right here, that this was achieved while launching our share buyback program with CHF 261 million repurchased in the first quarter. And we find -- we take some comfort from the fact that during what was a very challenging quarter, we were able, one, to absorb significant RWA inflation; two, to continue to invest in supporting our clients; and three, to buy back CHF 261 million of shares whilst keeping our CET1 capital and leverage ratios flat.The next slide, please. So having concluded our restructuring and started to accrete capital organically, which was always a key objective for us, what we need to do going forward is to grow our tangible book value per share. Since the same time last year, which still was impacted by a heavy drag from the SRU, elevated funding costs and restructuring charges, we have been able to increase tangible book value by more than CHF 1 billion, demonstrating, we believe, the earnings potential of the bank.So at this stage of my presentation, having talked to you about our first quarter more or less at group level, we covered net income, RoTE, capital and tangible book value per share, I would like to shift gears now and address the performance of some of our businesses. And I will talk more specifically about Wealth Management first and then Global Market. David will give you later more detail division by division and in an exhaustive manner.So let's start with Wealth Management. Our Wealth Management revenues, and this is strictly here SUB, IWM and APAC Private Bank, have remained resilient during the recent market dislocation with a 3% decrease. And let's look now at the component of that, and particularly for net interest income and recurring commission and fees. I'm talking about our AUM on this slide. If you remember, at our Investor Day in December, we said that our AUM had problem to be sticky in the past during episodes of market dislocation and that we did not and will not suffer major current outflows. As you can see here, our Wealth Management AUM has been resilient during the market dislocation in the fourth quarter of 2018, and we ended the first quarter at a record high.As the recurring fees and commission revenues tend to follow AUM with more or less a 1-month time lag, so we put a square here around the revenue months beginning in the first quarter, we expect that overall Q1 revenues were impacted by this. Looking forward, our record AUM level will be supportive of our second quarter fees and commissions, reversing this effect.The other important consideration in this context is net new assets, so there -- on this slide. We continue to attract during the first quarter significant net new assets with about CHF 10 billion, CHF 9.6 billion exactly, of net inflows. That's a 5% annualized growth rate, which is well, well within the targets we have in terms of growth. And comparing this to 4Q, it's a very significant bounce back from a relatively flat level to now a very strongly positive level. And I'd like to single out in Asia here where, in a difficult market, we attracted CHF 5 billion of new assets. That's a 10% growth rate. And it's our highest AUM ever at CHF 219 billion.In Switzerland also, we had inflows of more than CHF 3 billion representing our highest quarterly result to date. A commendable performance. And in IWM, NNA this quarter was lower and it was impacted by the timing of several large transactions, which were delayed and are now expected in Q2.Additionally, we were able to attract CHF 28 billion of net new assets in C&IC, which is our Swiss Corporate and Institutional Client business, which included a large pension fund of about CHF 23 billion. So that's not on this page, but it's worth noting.So after AUM, NNA and recurring revenues, let's look now at transaction revenues, the second component of our Wealth Management revenues. As we have shown on Slide 10, in a quarter of low client activity, we were able to increase transaction revenues overall by 3%. That's largely thanks to the continued progress of ITS, producing a flow of landmark transactions, of which we give you some examples on this page. And fundamentally, as you remember, we did a special workshop at the Investor Day on ITS to give you a sense of the opportunity that this represents, and we're really pleased that they continued to deliver. After an 11% increase in '18 over '17, we now had a 23% increase in revenue in this environment in '19 over '18. And it's a very interesting [ reference ] for us. This were a proof of concept. It's a joint venture between Global Market and the Wealth Management divisions. And as you know, we are now extending this concept to Asia.So if we look at ITS in more detail, and we indexed the performance here. As it matures within our organization, what we see is a continuing and growing flow of transactions and the strengthening of our pipeline year-on-year. ITS is now making a material contribution to our top and bottom line and is increasingly a differentiator for our bank. We are now in early approval of operation of APAC trading solutions, and it will replicate the success across Asia. ITS will be led by Yves-Alain Sommerhalder, one of our most successful managers with deep knowledge of the Asian client base across both Investment Banking and Wealth Management and who's been working very closely with Mike Stewart who leads our Equities business. And I'll come back to Equities later, but that explain a lot of the numbers we've been able to publish this morning.So let me close on Wealth Management by looking at profits, what matters. We achieved a PTI of CHF 1.24 billion. Profitability year-over-year was broadly stable, and we believe that's a reflection of the strength of our diversified global footprint. We are organized geographically but we are still able to enjoy the full benefits of a diversification, which protects our performance in tough times.Looking at the blocks here. In Switzerland, we achieved a PTI of CHF 550 million whilst investing in the development of our core Swiss business. And across the division, we reached a new record AUM level of CHF 607 billion. IWM had a particularly strong start to the year with record quarterly net revenues and pretax income since the division were established with a return on regulatory capital of 35%, and for the first time, above CHF 500 million in profits. And across APAC, Wealth Management and Connected, we have seen a significant pickup in activity level during the quarter and into 2Q also as revenues move to more normalized levels. We continue to enjoy strong momentum in our financing businesses, benefiting from our integrating approach.Let's move now to Global Markets, the second point I wanted to cover. This is a slide taken straight out of the Investor Day in December. At the last Investor Day, we presented a path to improving our returns in Global Markets from a number of known actions: lower funding cost; increased collaboration with Wealth Management for ITS, and I just spoke about that; a reinvigorated Equities platform; and continued productivity improvement across the rest of the bank. So we hoped that Q1 would provide a first data point on Global Markets' ability to execute on this strategy post-restructuring.Next slide. In a challenging quarter with both primary and secondary markets activity down materially year-on-year, GM has delivered solid performance. And also, a few word on Equities because there we're starting to see the benefits of our investments. And we delivered on a number of our strategic priorities. We are better positioned now in cash equities with growing market share, higher content revenues we've hoped and continued progress in rejuvenating our AES platform. In prime, always very important, we are increasing our return on asset by optimizing capital deployment and client balances. And so we're doing more with less. The business was able to generate more revenue with 25% less leverage, and the revenue per leverage -- per unit of leverage is up 31% year-on-year. So that really changes the economics of the business. And in equity derivatives, which is a bright spot, we had our best quarter in the past 5 years in a business we declared core to our strategy and in which we have been investing. So we continue to pick up share with our key clients and have strong momentum across all equity products. Much remains to be done across GM, and Mike Stewart, our Head of Equities, reminds me regularly not to be bullish, so I won't be. But we are pleased with the progress made by Brian and his team and to see early evidence post restructuring of an improvement in returns.So we're often asked to reconstruct our global investment banking performance, and I think [ it's actually ] in the next slide, which basically shows you taking up advisory and underwriting, the actual sales and trading performance, which I think also a lot of our peers published. And if it should comparisons easier for you. So against the backdrop of a particularly slow primary activity in 1Q, we have seen a weak quarter in the underwriting revenues across all our businesses, you can see it here: minus 10%, minus 36%, minus 19% -- sorry, minus 54%, minus 36%, minus 24%, a very, very, very marked decrease. But our global equities and fixed income sales and trading businesses have delivered, we believe, a good performance in the first quarter. Our Equities revenues in total, in the blue at the bottom, were down 5%. But at the global market level, they were up 4% for U.S. and European business, a strong result in a tough quarter. In fixed income, we have been able to match our strong comparable of 1Q 2018 and nearly doubled our revenues sequentially, so from 4Q '18 to 1Q '19, with a 2% decrease overall and a 2% decrease in Global Markets and a 2% increase in APAC, which is a much smaller business.So looking at the Investment Banking businesses in total, we have seen a revenue decline of 17%. So after this presentation of the quarter, let's just take a minute to just talk about the outlook for Q2. As you can see here, we have a solid pipeline of large announced transactions across advisory and underwriting. And you can see this illustrated M&A, which was a weak spot in Q1, but it's coming back with Chevron, with Worldpay, with Mellanox. In ECM also, we have the Lyft, we've done Nexi, which is our largest transactions in Europe this quarter. And LevFin, things are going back. So we believe that this pipeline, over time, because you have to take into account the time between these announcements and when we actually get the fees, will support the primary activity in the coming quarters.So to next slide, please, to give you something that we don't usually disclose. But it's a month by month with '18 and '19. I think it's quite interesting because you see that the first quarter was one of 3 very distinct months. A challenging January, I think it looks really, really challenging. We have a limited recovery in February followed by a very strong March, which is the second highest revenue month for us in the past 39 months. Now the positive momentum which we observed towards the end of the first quarter has broadly continued into April, broadly. However, it is still too early in the quarter to draw any definitive conclusions. While geopolitical and macroeconomic concerns remain, we believe that their impact has begun to recede with client confidence returning progressively. And our pipeline of transactions across both Wealth Management and Investment Banking is strong, and end markets are becoming more constructive as the year progresses.So with this, I'll summarize. We believe we've delivered a solid performance in a challenging market environment. We had a resilient performance in Wealth Management. We have continued to execute our plan with discipline in Global Markets. We have been growing tangible book value per share and executing on our share buyback of at least CHF 1 billion in 2019. So to summarize all this, I would say that we are cautiously optimistic on the second quarter of '19. And with that, I will hand over to David.

[David R. Mathers, CFO & Member of the Executive Board]

Thank you, Tidjane, and good morning, everybody. I'd now like to take you through the financials results in some more detail, please. As we've highlighted previously, you'll note that the first quarter, and indeed going forward, we will focus on our reported numbers after the completion of our 3-year restructuring program at the end of last year. Now although the adjusted results are no longer our primary focus, we will continue to provide these numbers in the documents in order to maximize transparency and to give continuity for your models. In the appendix, we've also continued to provide a full reconciliation of the reported and the adjusted results along group and divisional lines.Let's turn to Slide 25. Now for the first quarter, Credit Suisse had net revenues of CHF 5.39 billion, down by 4% on the same quarter of last year, the result, as Tidjane has already summarized, of challenging market conditions in each of the major economies that we operated in during the period. I would note this is an increase of 12% against the fourth quarter of 2018, where net revenues stood at CHF 4.8 billion.The decline in net revenues year-on-year was most marked in terms of primary issuance revenues, but market conditions also adversely impacted trading revenues, and to a degree, transaction revenues in our Wealth Management businesses. This is reflected in the slide where you can see the impact on our different business lines.Our IBCM division saw revenues fall by 36% year-on-year on a U.S. dollar basis as activity fell markedly across The Street in the quarter. Within Global Markets and APAC Markets, we saw revenues fall by 11% on a U.S. dollar basis, which we believe to be significantly better than what we have seen across the industry in the first quarter, particularly in terms of sales and trading activity.Finally, as you'd expect, the impact on Wealth Management-related revenue is much less marked, down by 4% year-on-year with a decline coming in part from transaction revenues in APAC WM&C, and to a lesser extent, in the Swiss Universal Bank. I would note that our credit quality remains high, with credit provisions comparatively low at CHF 81 million.Now as we've said before, most recently at our fourth quarter earnings announcement, we remain committed to delivering year-on-year productivity increase across our business with a paced reinvestment spend depending on the market and the economic environment. Total operating expense in the first quarter were reduced by 6% compared to the same quarter a year ago, 3 percentage points from the end of the restructuring program and another 3% from the overall decline in other operating expenses. Consequently, we generated a pretax income of CHF 1.06 billion in the first quarter, an increase of 1% compared to the first quarter of 2018.Now when we spoke last, I said that I'll give you some more details on our tax position, and I guided that I expect the tax charge to be reduced to around 30% in 2019. You can see that the effective tax rate for the first quarter was marginally less than that at 29%. I would just like to take this opportunity to reaffirm our guidance for 30% for the year as a whole. This includes an estimate of 2% for the marginal impact of the BEAT legislation in the United States, but I would just caution that we still only expect to receive final guidance on this measure at some point between June and September this year.Now with the benefit of this reduction in the tax rate, net income attributable to shareholders stood at CHF 749 million the first quarter, up by 8% year-on-year, which equated to return on tangible equity of 7.8% the first quarter, on which I will give you some more details shortly.Let's turn to Slide 26 now to look at capital. Our CET1 ratio for the first quarter was 12.6%, the same as at the end of 2018, despite repurchasing CHF 261 million worth shares through our buyback program in the first quarter as well as recurring a dividend in line with the policy that we outlined last year. I would just note that taking the value of the share buyback and the dividend accrued in the first quarter, we would have paid out 59% of net income in the quarter.Now just in terms of capital, as Tidjane has touched on already, I will reiterate the guidance that we gave earlier this year. It's our intention to operate at around the 12.5% level, plus or minus 25 basis points, and that we continue to expect to end 2019 above 12.5%. I would just remind you of this point: that we deliver share rewards to our employees in the second quarter and that we would expect this to reduce our CET1 ratio by itself by approximately 11 basis points in the course of this quarter.Now if we turn to the leverage ratio. At the end of the quarter, our CET1 leverage ratio was stable at 4.1%, one in excess of the Swiss 2020 requirement of 3.5%; whilst our Tier 1 leverage ratio also remains stable at 5.2%, above our target level, which is to be greater than 5.0%.Looking at risk-weighted assets. Overall, we saw a CHF 5 billion increase in risk-weighted assets from CHF 285 billion to CHF 290 billion since the end of the fourth quarter of 2018. That increase included CHF 2.1 billion of mandated model and parameter changes by FINMA as well as CHF 3.2 billion relating to the change in U.S. GAAP lease accounting. But I would note that, that impact is partly offset in the ratio by the related increase in CET1 from the capitalization of these leases of CHF 178 million. So if you calculate numbers, that's a net impact from leasing of about CHF 1.8 billion.Now our leverage exposure at the end of the quarter stood at CHF 902 billion up from CHF 881 billion at the end of the fourth quarter, which is a reflection of the usual seasonal improvement in capital activity -- in client activity.Let's turn to costs, please, on Slide 27. As you can see, over the last 3 years, we've been consistently successful through our restructuring program in bringing down expenses sharply. In the first quarter of 2016, we have total operating expenses of CHF 5 billion, including CHF 300 million of adjustable items such as restructuring costs. Last year, in the first quarter of 2018, we have CHF 4.5 billion expenses with CHF 200 million of such adjustments.Now we said at the Investor Day last December, that notwithstanding the completion of our restructuring program, we'd remain very focused on delivering consistent productivity savings across the bank and reinvesting that surplus on a measured basis depending on our assessment of economic and market conditions. As you can see in the first quarter, which was marked by a much more challenging environment, we reduced our operating expenses on adjusted basis by 3% from a year ago from CHF 4.3 billion to CHF 4.2 billion. Our expenses also benefited from the end of the restructuring program, which is worth an additional 3 percentage point reduction, which then equates to an overall decrease of 6% compared to the first quarter of 2018.Let's turn to Slide 28, please. Now as I'm sure you recall from the Investor Day, we gave a detailed analysis of how we expected the various restructuring measures that we've taken to increase our return on tangible equity towards our target level of 10% to 11%. I thought it would be useful to update that analysis today and to show you how we performed in the first quarter of this year.If we start from the left, our RoTE in the first quarter of 2018 was 7.6%. Now if you move from left to right, we said at the Investor Day that we expected savings from the SRU, now ARU run-off, which would be worth a gain of 1.0% for the full year. As you can see from the appendix, the ARU, which now sits within the Corporate Center, had a pretax loss of USD 104 million in the first quarter, putting us well on track for our guidance of an adjusted drag on profits of approximately USD 500 million for the full year. In the first quarter, I'm pleased to say that the reduction in the pretax loss contributed an improvement of 1.1% to our RoTE.Now if you move further right, we said that we expect a projected savings from the restructuring of the AT1 buffer and the redemption of certain other instruments to be worth a benefit of approximately 1% for our RoTE. In the first quarter, these savings actually gave us a benefit to RoTE of approximately 1.3%.Moving on, the end of the restructuring program has given us a further boost of 0.7% to the RoTE. And finally, the reduction in the effective tax rate gives us a benefit of 0.5%. But offsetting that, we have other moves of 0.3% reflecting Corporate Center volatilities from credit spreads, which as you know, narrowed notably in the first quarter; and of course, the increased shareholder equity base. That brings us to RoTE of 10.9% for the first quarter on the basis of flat business revenues, in line with the guidance that we gave last December to achieve 10% to 11% on flat revenues. However, it was, as we've said, a significantly more difficult quarter for revenues with a particular shortfall in primary markets, but also to a lesser extent, in client transactional revenues and in trading revenue. Net of productivity and cost-saving measures that we implemented during the quarter, that reduced RoTE by 3.1% to 7.8% for the first quarter.Now I think overall, we're very pleased to be continuing to deliver on all the key strategic measures that we actually outlined just last year. And given the market conditions in this quarter, we believe that delivering a return on tangible equity of 7.8% is a credible performance.Let me turn now to the first of our divisions, please, on Slide 29. The Swiss Universal Bank delivered a pretax income of CHF 550 million in the first quarter, slightly down year-on-year on net revenues of CHF 1.38 billion, down by 4%. In terms of business revenues, that reflects a reduction in recurring and transaction fees, predominantly due to the fall in markets that we saw in late 2018, whilst net interest income was more stable. Operating expenses are reduced by 4% to CHF 800 million.If we turn to net new assets. We saw a very strong net new assets in both our Private Clients and our Corporate and Institutional Clients businesses. in Private Clients, we had NNA of CHF 3.3 billion, which we believe is the strongest quarter for SUB in this metric since we began the restructuring of our bank in 2015. Combined with the rebound in markets, that's led to assets under management growing to a record CHF 607 billion, reversing the falls that we saw at the end of last year.I was also pleased to see very substantial pension fund inflows in our Corporate and Institutional Client business, which contributed to CHF 27.6 billion of net new assets in the quarter, lifting C&IC assets under management to CHF 396 billion, an increase of 12% on the first quarter of 2018.With that, let me turn to Slide 30 to look at IWM. Notwithstanding the market conditions, our International Wealth Management division started the year extremely well with record quarterly revenues of CHF 1.4 billion, up 1% year-on-year, leading to an 8% increase year-on-year in pretax income of CHF 523 million. If you look at the components of these revenues, transaction-based revenues in Private Banking rose by 14% year-on-year to CHF 354 million in the quarter. As I'll discuss in more detail when I come to Global Markets, this was underpinned by very strong levels of collaborative activity, and in particular, the continued momentum of the ITS franchise in the first quarter. IWM's profitability also benefited from further diligence on costs, with total operating expenses reducing by 4%.If we turn to net new assets. In Private Banking, inflows started the year slightly lower with a total of CHF 1.3 billion of NNA. This reflected growth in the high net worth client segment and a recovery of flows in Europe that reduced inflows in the ultrahigh net worth client segment in emerging markets. Notwithstanding the slightly slower start to the year in Private Banking NNA, we do expect to see a pickup of inflows in the second quarter of 2019, and we expect to achieve 4% NNA growth for 2019 as a whole, similar to the level that we achieved in 2018.In Asset Management, we saw inflows of CHF 2 billion across most of our portfolio offset by net outflows of CHF 2.5 billion in our emerging market joint ventures to leave NNA at minus CHF 0.5 billion for the quarter.Let's turn to APAC, please. Market conditions were particularly challenging in Asia Pacific in the first quarter reflecting the cumulative impact of the market and economic slowdown last year. Net revenues in our APAC division fell by 14% to CHF 854 million in the first 3 months of the year. Pretax income stood at CHF 183 million in the first quarter down by 22% compared to the first quarter of 2018.If we look first at Wealth Management & Connected, we saw a continued strong performance in financing offset by weaker levels of primary activities and a significantly low level of transactions. Overall revenues in private banking fell by 13% compared to the first quarter of 2018 whilst advisory, underwriting and financing related in total were 20% lower. I would note that the weakness in primary activity we saw elsewhere also applied to deal flow in the Asia Pacific region. Overall, we made a pretax profit of CHF 170 million in WMC compared to CHF 205 million in the same quarter a year ago.If we turn to the markets business, I'm pleased to say that we returned this business to overall profitability in the first quarter after a loss that we suffered in the final quarter of 2018. This was driven by a significant improvement in its credit and equities franchises quarter-on-quarter. On a year-on-year basis, the credit franchise had a strong quarter but this was offset by the weakness in equity trading revenues. Combined with a cumulative benefit of the cost measures that we undertook during the course of 2018, we reduced the total operating expenses year-on-year by 12% resulting in a pretax profit for the subdivision of USD 13 million.Just briefly on net new assets, I'm pleased to say that we saw NNA at CHF 5 billion for the first quarter, which took, as Tidjane's remarked already, assets under management to a total of CHF 219 billion in Asia Pacific.Let's turn now to Slide 32 and IBCM. Our IBCM business has delivered a very resilient performance over a number of years. However, as we already outlined, the market conditions that we saw in the first quarter were extreme, adversely affecting revenues in all the major economies in which IBCM operates. If we look at geologic data, this downturn was most marked in equity capital markets which fell by 47% in the first quarter compared to the first quarter of 2018. As a result of these conditions, IBCM's net revenues was down by 36% to USD 357 million. Notwithstanding 11% fall in total operating expenses and a 6% fall in adjusted operating expenses that still resulted in USD 94 million loss.Now as Tidjane's already summarized, this weakness was most evident in January, and we have seen a consistent improvement in revenues and capital markets activity in each successive month of the year so far. If we look at the position at the end of the first quarter, our pipeline of transactions for 2019, both advisory and ECM, is similar to that of 2018. Now whilst this does support a continued improvement in the performance of this business, I would caution this is likely to very much weighted towards the second half of the year. We expect conditions in Europe to remain significantly weaker than U.S. given current macroeconomic trends and the continued uncertainty over Brexit.Finally, let me turn to Global Markets please on Slide 33. Though this was also a difficult environment for our markets businesses to be operating in, and for that reason, we are very pleased to be reporting a pretax income of USD 283 million with a return on regulatory capital of 9% for Global Markets in the first quarter of 2019.We were pleased with the performance of all our sales and trading business in the quarter. Our Equities franchise, for which as you know, we have made a number of significant hires and investments over the past few years, achieved net revenues only 3% lower than a year ago which reflects both the strength of the ITS franchise and equity derivatives and the strength of our overall equity trading business which offset the flows, the weakness in primary flows and underwriting in the quarter.Fixed income revenues fell by 13% to USD 1.01 billion during the quarter, again reflecting resilience in our trading businesses offset by weakness in primary. I think this performance has very much demonstrated both the ability of our fixed income business to deliver good returns in difficult market conditions and the momentum that we're seeing in our Equities franchise. It's also evident that GM's performance has been bolstered by ITS. We see as GM working in tandem with IWM and with SUB. And I think ITS has demonstrated once again the potential that results from collaboration and better integration of flow and the improved service offering of better products from our clients from this shared business. I'd also point to the continued and disciplined approach that GM has taken to resource allocation with total operating expenses reduced by 11% year-on-year and to the conservative approach on the deployment of both RWA and leverage which has helped to maintain the return on regulatory capital in what otherwise could have been a difficult quarter.On that note, I'd like to hand back to Tidjane.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Thank you. Thank you, David. Before we move to the question-and-answer session, I'd just like to wrap up. I think that pleasingly when you look at the performance this quarter, keep in mind how unusual this quarter was, we could have frankly helped -- hoped for better circumstances, market environment for our first quarter post restructuring. That said, we believe we've delivered a solid performance in that challenging market environment. And the performance in Wealth Management inspite of the pressures in transaction income, net interest income is resilient. And pleasingly, we start to see the results of the restructuring that Global Markets has undergone in the last few years. We've now are growing tangible book value per share, something we have not seen in a long time and the execution of our share buyback of at least CHF 1 billion in 2019. And I will reiterate our mindset regarding 2Q which is cautiously optimistic.So with that, we move to the Q&A, please.

[Operator]

[Operator Instructions] Your first question comes from the line of Andrew Stimpson of Bank of America.

[Andrew Stimpson, Director and Senior Analyst]

Two questions for me, please. Firstly, on capital. Clearly, that was better than we had all perhaps [ seen ] it and Slide 9 of your presentation shows that you only had a 10 basis point headwind from the investments you made into Wealth Management and IBCM, it says on the slide there. Were those growth opportunities less than what you expected and in other greater headwinds and capital you'd highlight for the rest of the year? Or was it really 1Q that you saw we should all expect in that particular headwind when you made the comments last quarter, please? And then secondly, Slide 22 I felt was very helpful showing that March momentum is good. Clearly, that's a group revenues slide deck. Can you talk about how the different divisions work through? I know I'm asking for more detail or more detail about that, but any extra detail you can give on which divisions or where you've seen that momentum even if it's just Wealth versus the more Investment Banking start revenues? I think that will be really helpful, please.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay, thank you. Thank you, Andy, and then good morning, again. Look, part of the answer to your first question is in the second one. You have to go to Slide 22 and project yourself back on February 14 when we're talking and what we are looking at which is a really, really very challenging January with no real momentum into February. And how we do update the market taking from 12.6% to 12.38% on the CET1, [ total will be ] 12.3%. And frankly, not knowing how the quarter is going to pan out and knowing that you also need to invest. So honestly we felt that it was prudent at that time to change the guidance, and we maintain but change guidance bandwidth and to clarify that we were highly confident the 12.5%, but we warranted for management the ability to flex that in prior because we otherwise you could been stepped -- and stop and go in the market but that is so deteriorated or under pressure. So that is very transparently what you're thinking was. On the opportunities, look, we've -- we always work harder, you see a 0.2% of optimization, et cetera. What happened is that we bring you the net, the 0.1%, but we actually invested CHF 2.5 billion of RWA. What we did is that we also got some capital out in particular for memory and RWA, from GM in the given year, in that quarter. So it's this capital allocation process we run intraquarter. So what you're seeing is the net of the gross, the gross investment was bigger than that. So yes we did mobilize capital to support clients and entering into transaction but we worked very hard to be better efficiently, capital efficient. That's more of the answer, okay?

[David R. Mathers, CFO & Member of the Executive Board]

And then 1 point there as you may recall, Andy, that when we spoke on February 14, we said we'd actually invested CHF 2 billion of actually RWA into APAC at that point. So it's -- you have to think about it not just as one quarter but as we've done previously.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

And the final comments which you've heard we made maybe too many times is that our CET1 is clean, by that I mean there is much less uncertainty on it because we spent 3 years dealing with legacy. So we haven't proved a legacy down the road, we took upfront. And that is the sort of why we are more comfortable letting it vary. We don't need to hold onto CET1 in the expectation of some big event coming. We don't have that on the horizon. That is a very important factor on how we think about this. Yes, good revenues, how is it going Slide 22. Yes, let's have innovation, I'm glad you find it useful because we discussed it quite a bit. No I think it is interesting in lieu of the sense of what we see, when we're sitting here and we see the P&L daily, I said, "What's going on," March, very strong. If we run through the divisions, APAC, suddenly sentiment is better Asia than it was. It's been an improving trend. It has not hit the level of Q2 '18 which was a very, very strong quarter. You can tell in Q2 was above Q1 in Asia last year which is actually unusual. So we have mentioned we reached the level of exuberance of Q2 '18, but it's improving. And Wealth Management revenue, if you think about the run rate we need to hit our numbers. January, February, we were probably 20% below that and not we're back to that run rate give and take. But it's still to early to tell. Really, April, the holidays, Easter, let's say, for itself, that does have an impact on the picture in April. So we've had fewer days in April than we would normally have at this point in the quarter. Switzerland, I think steady as you go, well, slightly up. So yes, Switzerland is good. RWA, I understand has a very a strong pipeline and some of the NNA miss that you see in Q1 will be in Q2. These are the transactions that we know but we talked about that move from 1 quarter to another in the final days of the quarter, what do I have, Global Markets. Global Markets is better than in January and February, I would say it's below Q2 last year, but that's solid. But again that's also disturbed already, it's also disturbed by the number of trading days, the Holy Days, Easter, etc, also too early to tell. And then IBCM would be the same. The pipeline is strong, it's growing -- it is improving, but -- in summary, I would say April is like March more or less on the balance, yes. David?

[David R. Mathers, CFO & Member of the Executive Board]

No, I [ do ] agree, Tidjane, and I think broadly speaking, I think if you're looking at differences between the businesses, I think actually that was a pretty fair picture on that slide from what we saw across all the businesses. March was consistently better. And as Tidjane has said, I think we've seen that continuation through April. But I need first couple of weeks to talk about that.

[Operator]

Our next question comes from the line of Al Alevizakos of HSBC.

[Alevizos Alevizakos, Analyst]

Couple of questions on my side. Yes, a couple of questions. The first one is on total operating expenses. You can see the run rate right now is at CHF 16.8 billion for the year. Clearly, there's going to be some seasonality with Q1 being higher than certain other quarters. But I would like to know how do you feel about the operating expenses now that you've got a better view of all the investments spending given that Q1 revenues were a bit weaker. And then secondly, I really liked the additional disclosure on prime because prime has been a division that hasn't been performing very well for you. Can you tell me about the prime balances instead of the profitability? Are they going up? So basically, are you investing into getting new clients in?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay. Thank you. And David, you want to say for the expenses?

[David R. Mathers, CFO & Member of the Executive Board]

Of course, yes. I mean I think if you go back to Investor Day last December, we gave an indicative range offering between CHF 16.4 billion and CHF 16.9 billion. And what we said is that post the restructuring phase, we intended to continue to deliver 2%, 3% productivity savings every year. And I think we've obviously continued to do that in the first quarter. And as we've said, we obviously measured the amount of reinvestment we want to make to match what we see as the market environment that was clearly subdued in the first quarter. And as a consequence, if you look at the RoTE [indiscernible] you can see that drop through to about a 2% drop in expenses x restructuring and x ARU everything else in the first quarter. So I think -- I mean I think, look, it's April, so I'm not sure we're going to give you full year guidance for expenses now. I don't think I'd say that much different from what we said back in December. If you look at that range of CHF 16.4 billion to CHF 16.9 billion after clearly a very weak market and economic start to the year, I would expect our expenses to weave towards the bottom end of that range, quite clearly but I don't think I'd go beyond that in terms of our expense guidance. I think probably that they are at this point.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

I think that's correct. We manage the expenses depending on the revenue environment. And unfortunately, we don't do for revenue environment. But we've always showed -- we've been cautious, and we can, as the year goes, manage the costs down, but we don't pre-commit to a certain numbers not knowing when the circumstances will be and if we need to invest our [indiscernible] I mean what you can count on is that we'll be responsible. We're laser-focused on cost and cost will be appropriate to protect the bottom line. That's really what we want. But after few years of restructuring, we'd like not to have a number out there, but we have to beat that at any cost while making budget.

[David R. Mathers, CFO & Member of the Executive Board]

Yes. And I think we've just focused there on the adjusted operating expenses. I think what you can also see is the absence, the drag on our returns to shareholders from the restructuring program. So you've seen that, that further start shortfalling our reported operating expenses. And then obviously the ARU is I think we're very happy to say a small fraction of the SRU, and we've obviously seen further expense reductions there as well, it's in the MD&A disclosure. You can see the loss in the ARU down to CHF 103 million for the first quarter.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Seems it's laser-focused on cost that something we have now in our DNA, I was adamant about cost restructuring, the absolute Q1 '19 below Q1 '18 and better costs to prove that there is no relaxation of discipline over pressure, and we will manage costs and we'd built some credibility there. We will manage cost as [indiscernible]

[David R. Mathers, CFO & Member of the Executive Board]

The second question was on prime.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

On prime, yes. Okay, few words on prime, thanks for the questions, this is really the heart of this whole thing, on GM and Equities because the return on capital, we were a bit [indiscernible] . From the start, we said we will take worst of for return on capital. The return on RWA has always actually been quite decent, and we could actually [ butt ] forward but by saying the worst of, we punished prime because the return on leverage which prime consumes as we know was always depressed, okay? So attacking prime has always been a priority. A number of things happened in the last 12, 18 months. We actually really, really, really -- and I know Mike and his team will treat every client with a talk on return to discuss pricing. And that was an execution and a discipline issue. And we realigned the pricing which have the numbers. We consolidated our collateral measure within 6 centers, and we reduced the number of centers for our collateral management in what was a huge efficiency. So it's -- all in all, we were able to reduce the balance sheet by about 25% and to reduce the revenue. Actually prime revenue are marginally up, so return asset is 30 basis points better versus 1Q '18. So it is really a case of good execution and of course equity is [indiscernible] if you've encashed, it's really [ Abenante ] and his team [ rooting ] permits in it and what he has been doing to modernize investment technology, upgrade our AES capability. But equity, that's a revenue problem, it's just simple, a revenue problem which we were tackling, by increasing revenue in prime, we've less balance sheet by increasing the revenue in AES and then really build a kind of bright spot is really the equity derivatives where we have been attracting top talents. And we are mentioning on the previous calls and [ varies ] everytime, but we have also [indiscernible], he is a name in the market. Revenues in total was there is a struggle from 1 year after another and the ITS, as we said earlier, pipeline and transactions that are often [indiscernible] has been very good. And don't forget in Asia, we're top 2 in equity derivatives. So in all of the kind of frustration sometimes about our position. We're a top 5 equity player in Asia, we're top 2 in equity derivatives in Asia. We believe we gained share in Q1. We have to be cautious because we're among the first ones to announce. But we believe on the back of these numbers that we've gained share. And we think that we're moving up in the ranks in Equities. And I don't need to tell you that's an activity where profitability and rank are quite correlated. So actually the higher will be, the more profitable we will be and the final comments, that's [ Wealth ] and actually comments is that we believe the Equities capability is strategic but as economies get wealth here, their equitization will increase, all these enterpreneurs that we always talk about, they've made a fortune they hoped to IPO their companies, so the ability to IPO and the ability to engage with sedentary trading and the ability to structure derivatives are highly valued by our clients, and that's why we've invested so much resource in this turnaround behind Mike Stewart and his team and have started to deliver. But again as Mike tells me, "Don't be too bullish." I won't be too bullish. We are in a better place than before.

[Operator]

Our next question comes from the line of Benjamin Goy of Deutsche Bank.

[BENJAMIN GOY, Research Analyst]

Two questions at least from my side. So in Q1, you're well on track on your at least CHF 1 billion share buyback. Just wondering on the parameters to better judge the at least CHF 1 billion. Is it being close or above 12.5% or is it a year-on-year progression in the net profit you are showing throughout the year? And then secondly, in your comments around Wealth Management and the recurring fees are quite reassuring. Just wondering on net interest income whether we should also expect the recovery here given what's a bit weaker maybe in Q1?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Absolutely, 2 good important points. So David, you want to take the share buyback?

[David R. Mathers, CFO & Member of the Executive Board]

I mean I think thank you very much. I think on the issue of share buyback, I mean we obviously set up 2 parameters: one is that we intend to distribute 50% at least of our net income to our shareholders in respect to 2019.; and two, we felt that would support a share buyback of at least CHF 1 billion up to CHF 1.5 billion. I mean I think in the first quarter, we had net income of CHF 749 million. We accrued a dividend in line with the plus 5% policy that we summarized in the Investor Day last December, and we bought back 261 million shares at an average price of CHF 12.267 per share. So I think that's very much in track with what we said. Actually, we're [ offset ] about 59% of net income for the first quarter. I think we understand it's a, it's [ paddock ] cash city plan for the bank that we've actually return some of the surplus capital to our shareholders. And b, I think [ we obviously ] see a lot of support from our shareholders for us repurchasing shares at a discount to tangible book which just would remind you increased to 15.47 at the end of the first quarter. So we're going to continue to execute against that. I mean there's not much help as I can say. I think we obviously exceeded an annualized rate of CHF 1 billion in the first quarter in what was a seasonally difficult quarter. So I think we are very much on track with what we said before.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Correct. And do you want to talk about NII?

[David R. Mathers, CFO & Member of the Executive Board]

Yes. I think net interest income, I think you have to think about each of our 3 Wealth Management businesses separately. If we start first of all here in Switzerland in the Swiss Universal Bank, if you look at the C&IC business, you can see that our NII was very resilient, and we have been very disciplined pushing through the impact of negative interest rates here in Switzerland out to our corporate institution and pension fund customers. If you look on the product clients side, then we continue to shield private banking and our retail customers here in Switzerland from the SNB's 75 basis points negative interest rate. So I think unsurprisingly, you see a slightly weaker trend in NII for the SUB compared to the C&IC side. If we look at the other regions, then in IWM, I think it has the most positive trends in terms of net interest income because of the dollar balances and even though the dollar curve was actually flattened so far this year, it's clearly ahead of where it was a year ago. I think that's clear. But 1 fact I just disclosed is we had a loan break fee in the first quarter IWM NII in the first quarter of 2018, so that's why the NII in IWM looks slightly down. X that it would be flat which I think is roughly what you expect in this particular environment.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

You can give a number. It was CHF 17 million...

[David R. Mathers, CFO & Member of the Executive Board]

CHF 17 million.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

So in '18?

[David R. Mathers, CFO & Member of the Executive Board]

In '18. Correct. So that explains I think the delta for IWM. I think for Asia Pacific, another trend is different, obviously I think we remarked in the course of that quarters last year that we sort of sustain deleveraging by a number of that clients in Asia Pacific to reflect overview of the economic environment at that point and then did reduce the net interest income we actually received from loans. You'll also note in the MD&A, we actually also referred to this as well, there was a bundled service offerings within as well in which we offered slightly lower spreads on loans but with high recurring fees which I think makes a lot of sense in terms of the pattern of our business. So those I think 3 very different trends for NII. And I think in terms of forward-looking statements, I mean I think one would expect to be stable. Clearly, there was a degree of the lines on the economic environment. We have begun to see some releveraging in the first quarter, so that will eventually boost NII as well. Including terms of the curve I think we've given guidance before on what would expect the benefit to our NII being from the interest curve. Just to update that, it's between $100 and $150 million for 2020 compared to 2019. It's pretty consistent with what we said before, and this springs around about, that clearly the Swiss curve has actually gone lower because of the move downwards in ECB as has the U.S. But on balance it's about $100 to $150 million benefit across the bank.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

I think that's absolutely correct. And if I may just add one thing also looking forward and also actions we can take, and I'm thinking about the SUB here with Swiss Bank because in C&IC, there was -- when you look at loan deposit pricing, that help the NII held. And there are things we can look at also in the private kind of side to see what we can do to improve the margins and the NII we're looking at that.

[Operator]

Our next question comes from the line of Jeremy Sigee from Exane.

[Jeremy Charles Sigee, Research Analyst]

Just a couple of follow-ons, please. One was on IBCM with the weaker revenues that I think reflect the environment. The costs didn't flex very much. And I just wondered if that's the nature of the business model or if it's sort of conservative approach to intrayear accrual. Just if you could talk about the cost base in IBCM, that would be helpful. And then second question really was a follow-up on the RWA point. Do we sort of now take it that the risk of dipping below 12.5% intrayear is reduced up to the better revenue environment that's come through and having got through 1Q without that dip materializing? Or are there factors that could still cause that dip to come through the remainder of the year between now and year-end.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay, thank you, Jeremy. David?

[David R. Mathers, CFO & Member of the Executive Board]

Yes. I mean I think if we look at the IBCM business, I mean we did reduce expenses by 11% in the first quarter 2019 compared to first quarter 2018 which I think is a fairly significant reduction expense...

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Given the total operation and the people business. Total means those service-related noncompetence...

[David R. Mathers, CFO & Member of the Executive Board]

Total, yes. It is. Competence exactly. So there was a pretty sustained activity, and that broke down to 11% in total, 6% in adjusted. So it was actually one of the greater increase -- decreases we could do. And I think that was a pretty disciplined approach to expenses whilst protecting the franchise. And I just would step back a bit, I mean this is actually the only, the second quarter that IBCM has actually made a loss since we established IBCM as a division back in 2015. And the average return on capital, I did look this one up, for IBCM over that period was actually 13.6% post-tax, including this loss in the previous one. So I think that does indicate what a very good track record this business has had and how we've actually before. I think the conditions in the first quarter were extreme. I don't think we really would have anticipated we would have seen such a slowdown in all 3 of the major markets in which we operate for different reasons at the same time.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

And the RWA?

[David R. Mathers, CFO & Member of the Executive Board]

I think I'll just reiterate what Tidjane has said already. I think firstly one small point of fact which I did mention which is that we do deliver our share awards to employees in the second quarter. That will cost us about 11 basis points in the CET1 ratio all by itself, so we were 12.60%, so that's going to take you 12.50%. But I think perhaps more fundamentally, the reason that we said we wanted to operate 12.5% plus or minus 25 basis points was because we wanted the flexibility to respond to opportunities and not be continuously trapped against the 12.5% floor. So I'm not going to give you specific guidance. It's going to be 12.5% or what exact number. I think the point is we will look to take advantage of these opportunities as they come up during the course of the year. Trading conditions have generally improved month to month during the first quarter. And there is that 11 basis point thing to actually look for as well. And I think it's also true is that the return of the investment of marginal RWA is never fully realized just in the immediate quarter it's invested. It tends to come through all the several quarters as indeed we've seen in the financing revenues in APAC this quarter when you may recall we made the investment back in the fourth quarter of '18.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

That is a really, really important point that you cannot redispose shareholder value by sticking too much to a given CET1 number, because that means you will pass that value-creating opportunities in certain quarters. It has to defeat a number, and that cannot be the long-term interest of the shareholders. And this is why we think that again, we've cleaned the blank with an SRU by this close. We've most offer our legacy that weave our ability to move the CET1 from this [ sooner ] because there's nothing out there that really justifies keeping an artificially high CET1. So that's the idea we think 12.5% is achievable for a year. I wouldn't say directly to a question where [ debt of RBC ] has decreased or increased. I think it's going to -- for the opportunistic, right we have. I mean of course, we don't know what to compete the 12.5%. And as you've seen this quarter, if we [ commit ] under our [ certiorate ], we can exceed it with you. But we want the rate or if we have the rate from time to time, if necessary to dip below that without creating alarm in the market.

[David R. Mathers, CFO & Member of the Executive Board]

And I think I mean 1 point and this is side of your questions. So hope you don't mind me to say [indiscernible]. I think -- obviously I think one concern people have when we change our guidance was what does this say about capital generation. Well, let's just look at the first quarter. We ended the fourth quarter of '18 with a CET1 ratio of 12.59%. We closed it at the end of '18 at 12.59%. We closed the first quarter at 12.60%. So we actually marginally increased the CET1 ratio. In the course of that period, we actually executed above that CHF 261 million, and we have accrued a dividend as well through that period which equates to 59% payouts. So we've managed both to maintain share buyback obligations at dividend accruals and end up the period with a slightly high level of cap ratio. And I think as you can see with the franchise is in better shape now than they were a year ago, frankly. So I think just step back, I think capital generation is clearly strong, and I think what we're arguing for is the ability to reinvest that marginally when we see the right opportunities.

[Operator]

Our next question comes from the line of Jeremy Omaha (sic) [ Jernej Omahen ] of Goldman Sachs.

[Jernej Omahen]

I have 3 questions, please. So the first one relates to the slides on Page 22 and 28. And I was just wondering, did at any point during the first quarter, so say, January, February or March, did at any point, Credit Suisse exceed the 10% return on tangible equity? So you're basically saying that the revenue momentum was very poor at the start of the quarter, but then increased cumulatively towards the end. And I was just wondering whether the revenue level in February and March, for example, is sufficient for Credit Suisse to meet or exceed its target. And then the other 2 questions. So I think it's really encouraging to see that there was no restructuring cost this quarter and no litigation cost. I was just wondering to what extent you're comfortable saying that we can expect to see this for the whole of 2019. And the final question is on Equities. So your U.S. peer group was down 20% year-on-year. You obviously did substantially better than this. To what extent do you put this down to a lower result in Q1 last year, i.e., to a lower base effect than your international peers? If it's not that, if it is, in your mind, a generally more constructive performance of the business, when you look at what drove revenues in Equities this quarter, where do you think the big differential is to your international peers?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay, thank you, Jernej. Thanks for your questions. I'm looking at everything here, I think in '22 -- for your first question, I'm tempted to say March...

[David R. Mathers, CFO & Member of the Executive Board]

I think March is...

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

We go for green.

[David R. Mathers, CFO & Member of the Executive Board]

We're not going to disclose our results month by month, but in March, it was definitely above 10%.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

For the month, it was definitely above 10%.

[Jernej Omahen]

So a revenue level from March is already sufficient to meet your target?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Absolutely. But it was a very good month. I have to say it's a caveat. But yes, at that level -- we have a restructured bank. The level of costs we have has risen comfortably above 10%. Very comfortably. The second point, restructuring and mitigation costs, we were pleased, too. There is a settlement in our Q1 numbers.

[David R. Mathers, CFO & Member of the Executive Board]

There was a settlement relating to residential mortgage litigation, which was taken actually within the corporate center because it also -- it relates to the former SRU activities. So that's actually in the corporate center and you can see it in the -- that's right. You could see it in the adjusting to reported reconciliation for the CC in the appendix.

[Jernej Omahen]

How much was that?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

27.

[David R. Mathers, CFO & Member of the Executive Board]

27. We would have been at 10 89, you know, 1,089 billion reported. So there is --- look, unfortunately, we have a pipeline of legacy cases. We have dealt with the big one, RMBS, as you say in [indiscernible], but there are still small ones coming. So I wish I could tell you there's no litigation coming -- litigation cost coming, but I can't do that. What I can say is we expect it to be manageable, within our earning power now and -- yes. But restructuring, no restructuring. No restructuring signs, charging insights. Okay? On Equities, yes. You were asking what is it due to? Is it -- I think it's fair to say there was lower comp because 1Q '18 for us was less good than for our American peers. The reason I hesitate is I don't know the performance of our European peers. So for them, it's not -- their comparatives wasn't necessarily low. I think it was a bit like us. Let me rephrase. If you compare us to the Americans, they had a tougher comparative. If you compare it to the Europeans, we don't think they had a tougher comparative. So we need to see what the other Europeans produced when the numbers come out. I think in terms of what's driving the revenue, in Q1, it was really the kind of ITS equity derivative but it links to volatility levels and the [indiscernible] and where our markets are. So I would caution on that. But all I think is that we have a footprint that's broad enough between everything we do for our clients that we should be able to see progress -- continued progress in Equities. I think we've got 29 broker ratings this year and 329 we're up, that's significant. I actually attended the equities conference for the first time this year 2 weeks ago and I spoke to a lot of clients. It was super well attended. There was a buzz around the room. What we get from clients is also more positive. So I think I won't give the names, but I give the rankings done by account and we've been moving up in a lot of places in terms of how clients look at us. So that's encouraging. But again, I'm always cautious. I don't want to say that our job is done in Equities. No, there's still a lot to do, but we're in a better place.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

I think just to tackle one other point I'd made, which is you talked about Equities, but the other point, remember, is the actual Fixed Income revenues, I think, also draw very good comparison against the peers particularly on the sales and trading side. And in terms of comparables, you should remember that the first quarter 2018 was particularly strong in our securitized products business. So I think we had a tough comparable in our Fixed Income business for 1Q '19 compared to 1Q '18.

[Operator]

Your next question comes from the line of Kian Abouhossein with JP Morgan.

[Kian Abouhossein]

One question I have is on IBCM. You discussed the mark-to-market issue and I'm just trying to understand -- I assume this is related to hedges, but please clarify. And also how we should think about going forward mark-to-market positives or negatives based on credit spread tightening in that business and the impact of that, is this or material or not. And then, secondly, if I look at your slides towards the 10%-plus ROE where you clearly make a point that revenues were lower relative to last year, I'm looking at something like a 5% annualized revenue growth rate over the next 9 months to get to 10%-plus ROE. And you've discussed a little bit the cost guidance and you don't actually have the cost guidance on any of your slides anymore. Just wondering how we should think about the 10%. Is this a hard target even with lower revenues? Because I think last time you gave guidance, it's flat revenues. Or should we assume that even this lower revenue environment, you should be able to reach the 10%. And for me, very quickly, last one, a lot of discussion about Asset Management restructuring, consolidation, what's your view?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay. Thank you for your questions. David, do you want to take the...

[David R. Mathers, CFO & Member of the Executive Board]

IBCM. yes. I think, as you know, Kian, we saw a marked progression in CDS spreads in the first quarter of 2019. We ran a corporate lending book. Part of that is actually accrual, part of that clearly we mark to par. So on the asset side, we obviously saw some gains as a consequence of that credit spread move. But on the CDS, that's all in mark-to-market. So that's why we saw the hedging loss in the first quarter. And if you look at the MD&A, you'll see this minus 28 in other basically, which is essentially the bulk of that change. What does that mean in the quarter? I mean I think you had exposure relative to credit spreads. So I think your credit spreads go wider then obviously we'd see some small gains. And if we went narrow, then you'd see some small losses. But I think we just wanted to break it out to give clarity to everybody about the numbers.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Just to add to that, I think, currently, the portfolio is one with a the short base, but it's a dynamic approach. So in terms of the ratio to the portfolio loan, it's not a fixed correlation to credit spreads. So you can't really look at one-to-one analysis over the course of the year. RoTE, 10%?

[David R. Mathers, CFO & Member of the Executive Board]

Yes. I think, Kian, I mean, I think the question you're asking really is obviously the balance between revenue growth and cost base. I think what we wanted to show on Page 28 was how our RoTE stat walk actually was composed because we did give some quite clear guidance back in December on what we intend to deliver. And I think you can see whether it's the ARU runoff, it's the funding cost, it's the reduction in restructuring expenses, it's the tax rate, or for that matter, reduction in costs overall, we've delivered or done slightly better than what we actually indicated to at the Investor Day. Now clearly, what we said also to that point is that in a flat revenue scenario, we would be in the 10% to 11% range and I think what Page 28 shows, that's exactly what happened. We were at 10.9% on a flat revenue scenario. Now I think sitting here in April, I'm not going to get drawn on expectations for full year revenues. I've made a couple of points, though, which is, firstly, as Tidjane's slide showed, each successive month of the quarter showed an improvement and we've give some views about how April actually has been. So I think we've certainly seen improvement against that. I think the second point that I'd make is it's unusual to see conditions like we saw in the first quarter because you saw obviously severe weakness in primary markets, you saw some weakness in the sales and trading side, you saw some weakness in transactions relating to the fourth quarter and there was a lagging impact from a reduction in AUM on the recurring fee stream for the Wealth Management businesses. So let's just take -- pick that apart in turn. Is it -- I think -- Kian, you can make your own views as to how you see markets develop in the course of 2019. All I'd say if you look at AUM, we've already indicated the back at record levels and we charge on a month-plus-1 basis. So I think you should see recovery and recurring coming through. I think we've given a pretty good indication of what we're seeing around the pipeline IBCM and we've said about what we said about sales and trading. And I think it's pretty clear that we do believe that our sales and trading side had done notably better than The Street in the course of the first quarter and I think that does reflect the momentum in the investments we've made. What you can also see on Page 28 is we have stuck by what we said, that we intend to deliver productivity savings of 2% to 3% per annum and that's coming through and it's not actually driving heavy restructuring costs, which otherwise would also depress the return on tangible equity. So yes, there is volatility in the RoTE, but as a previous question has said, where were we in March and the answer is at an RoTE, which was more than 10%.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Absolutely. And to keep a fair point, Kian, I would also mention that, how can I say this, we cannot be -- the 9-month '18 is quite weak. But don't forget that when you talk about 5% increase against 9-month '18, it's at quite a low bar because we suffered enough of our results in Q3, Q4 to be able to tell you that Q3, Q4 '18 was low. So it's simply too early to say that 9-month '19 cannot hit 9-month '18 or even exceed 9-month '18. I feel quite confident that we have a number of levers we can pull when we see the dynamic in GM. Because it's not really a discussion of the world economy and what it's going to do. I think there's quite a bit that is under our control, that we still can do within the year to drive revenue in Wealth Management. ATS, really strong and they've got a pipeline, very strong. It's going to come through any kind of transactions that's going to help revenues, that's going to help GM, that's going to help SUB. On that, we've got APAC, ATS having even in Asia. It's going to be things happening there. I see Helman nodding. We're going to -- it's not a really a lot of ideas. But we can do more in structured credit in Asia than we've been doing. We used to have a strong position, which we lost, but relatively easy to rebuild. There are things that we can do in terms of better collaboration with Wealth Management. So I can see [indiscernible] across-the-board to have a better 9 months. So I think it's just too early. I think that 10% is certainly -- we've been reaching it and we certainly hit it in March and we have to see, but we are determined to give you the best RoTE we can and we'll pull all the levers that we have and there are many from capital to cost to Wealth Management to get there. Q1 was a very depressed quarter and we'll keep saying that really. For the conditions we faced in January and February, 8% is encouraging.

[David R. Mathers, CFO & Member of the Executive Board]

And I think, just to be clear, I think the other structural measures we outlined on that slide, the ARU runoff, the funding costs, i.e., I don't see any reason why we are not going to at least meet the targets we've actually set.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

I said management restructuring, actually we always tried to give representation to look. But it's a very good story, our Asset Management story. Very strong performance in this quarter, very strong performance in a number of quarters in a row. This has turned into a kind of CHF 400 million to CHF 500 million business from kind of double from years back and we are cautious in terms of inorganic growth. What we'd like about our model is that we said what CHF 9.6 billion of PB growth and in Q1 more than CHF 100 billion in the last 3 years. Given the level of organic growth we achieved, it makes the bar for any inorganic action even higher, and we think that particularly in Asset Management, those are tricky. In any field M&A is largely a function of price. So it's very hard to get the right price. Because if you're a buying from owners, managers, my first advice is don't because if they are willing to sell to you, you're probably paying more than it's worth and there's some specific reason in their life that they want to sell. When you get into all the issues of retention, it's messy, very difficult. And buying from another institutional buyer, lots of integration issues. We only have so much share of mind so [ use distraction ]. And actually, the way we look at it, we tend to wish our peers to do M&A because it's an opportunity for us to do better in the market [ with the distraction ]. So that's how we look at M&A mostly.

[Operator]

Our next question comes from the line of Magdalena Stoklosa of Morgan Stanley.

[Magdalena Lucja Stoklosa, Managing Director]

I think I've got 2 more questions, which will most likely round off the return on tangible target discussion. So for my first one, numbers aside and I understand it early in the year to talk about revenues for the full '19, but when you look at your business now, particularly what you see is the cyclical versus structural and also the effect of the restructuring. Where is the biggest delta? In which business do you think there is the biggest delta to reach closer to your kind of original revenue run rate. So that's my first question. And my second question, could you just remind us of the trajectory of the funding cost saves from hereon? You've talked about AT1, you talked about the legacy instruments which were replaced so far. But could you just run us through the details of what is to come in 2019?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay. Thank you. Do you want to take, David, the second one and then we do the first one?

[David R. Mathers, CFO & Member of the Executive Board]

Thank you, Magdalena. Good question. I'll take the second one first. I mean I think in terms of the funding cost savings, I mean I think we are certainly annualizing at or above the CHF 700 million guidance of savings for 2019 compared to 2018. And I don't see any particular threat to that on the horizon frankly. So I think that's very much done here. I think one sort of follow-up question obviously is you may have seen that the Swiss government has produced a CAO, Capital Advisory -- Adequacy Ordinance relating to potential TLAC requirements. I would assert we do support the CAO. I think it's a good package of measures because it does basically provide for a buffer of TLAC capital at CSAG, which I think supports our going-concern regime. So that's -- personally, I think it's a good idea. I would just, though, in terms of any concerns, reiterate the guidance that we've given for debt markets before that we do not expect TLAC requirement of CHF 55 billion to change as a consequence of the publication of the CAO. So we're standing by our long-term TLAC plan. So I don't see that as being a particular challenge in terms of the funding cost guidance we've given. But just wanted to be clear on that point.

[Magdalena Lucja Stoklosa, Managing Director]

Perfect. And David, just to follow up. And out of the CHF 700 million, what did we -- what was already realized in 1Q?

[David R. Mathers, CFO & Member of the Executive Board]

I'm not going to give you an exact number, but I would say at least and actually slightly more than 25% of that CHF 700 million number.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

I think it's [indiscernible] good guidance on each those lines. We did about 1/4 in the first quarter, the restructuring savings, funding savings and the lower ARU or SRU losses. Your first question is really, really interesting, but I'm kind of struggling to answer it, where is the biggest delta. Because it kind of depends on how we measure it, is it revenue, is it PTI, is it -- look, I think I can run through. Besides having SUB -- having SUB has so much [ side ]. I think Q1 was tough in SUB so it should be able to produce a PTI, higher -- a good PTI, a strong PTI, a progressive PTI. The balance of that between revenue and cost, it's circular. It's the same question. Tell me what revenue will be and I'll tell you. It's -- it depends on, yes, how things evolve in the Swiss economy. APAC, I think there is a room there for improvement, but it's going to depend a little bit on sentiment. It's the Wealth Management, we see good [indiscernible], good flows. But people in Asia are waiting for -- there's kind of [ clinch ] effect there. If the trade thing is resolved or not, you're looking at 2 completely different universes and that's also very kind of beyond my pay grade to predict it. So everybody is trying to predict, but we don't really know. It's kind of difficult to answer, but there is an upside. IWM is on a really, really good level. Asset Management, I'm quite confident we have some visibility over the next 2, 3 quarters that they are going to continue at a high level. PB, you find the same issues as elsewhere. Yes. We have a good pipeline of transactions. I think that's going to come through, so it should be a good performance. GM, with this test, it's very hard to predict. It's our most market dependent. We have taken costs down, which helps a lot. We have made it very much more capital efficient. There's a lot of focus on capital. I think potentially, yes, if markets are constructive, there's a sizable delta there compared to last year, but that's depending on market. And IBCM, IBCM has a good pipeline, as I said. But that takes, whatever, 6 to 12 months to come through. So I think you said, David, in your commentary it will be H2 weighted, kind of back end loaded and I agree with that. So Q2, we are still light -- but we have a better second half. And then we are held structurally, as I said earlier, by the weak comparative in the second half. We had a difficult second half last year and that's going to be a relatively low comparative. So I don't know, anything -- any other thoughts, David?

[David R. Mathers, CFO & Member of the Executive Board]

No, I mean I think, Magdalena, I think Tidjane has carried all the points. I mean I think if you look at 2019 and we go back to the Investor Day in December, we laid out things like funding costs and the SRU rundown and other savings, which would boost returns. But I think, more importantly, my business colleagues outlined the different plans they have, whether it's ITS, whether it's growth in terms of asset accumulation. And first quarter of this year was a pretty tough environment to be executing against that. But I think you can see we did execute against that. I think we've laid out what we're going to do that and I think you should I mean hopefully have confidence that we're going to execute.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

And my reticence is more of a very short-term forecast. If you asked me over 12 or 18 months, you'd get a different answer. I'm confident now that the things we're doing are going to come through. The AUM keeps grinding up, that's future revenue and that puts a floor under a lot of things. But from one quarter to another, when you see the kind of pattern you've seen in Q1, January was probably one of our worst months ever and March was one of our best months ever. I think -- I hope you won't blame us for being a bit cautious in an environment like that. That's why we said we're cautiously optimistic. If things remain constructive, yes, we'd do very well, not a shadow of a doubt. But if some disruptions, completely unexpected at this stage, yes, we'll be impacted. So that's I guess the best we can tell you at this stage. But again, for me, the takeaway point is, look, this bank has been restructured to a degree where any normalization of [indiscernible] it's a double-digit RoTE and that's where we started, and that's we think is most important part of the business.

[Operator]

Your next question comes from the line of Anke Reingen of Royal Bank of Canada.

[Anke Reingen, Analyst]

The first one is on ITS, it's just a couple of times the positive trends there and I just wondered if you can give us any flavor in terms how material the contribution is or the driver. Would the transaction revenues in Wealth Management be flat excluding the benefits as an example? And also, would you say that Q1 was exceptionally strong as that with maybe a specific marketing or some initiative or is that just a point on the trajectory of higher penetration? And then, secondly, on the risk-weighted assets, I just wondered if you can update us on the outlook of risk-weighted assets and the inflation in the rest of the year. And I mean it's probably hard to say, but do you expect any other positive benefits like in Q1 for model updates?

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay, thank you. On ITS, it's a fair a question and we've debated a lot internally whether we should or disclose those numbers and we've debated that close. But for the time being, we've chosen not to. And so as a management point, this ITS has been tried a number of times at Credit Suisse and it's never worked and there was a lot of skepticism when we started. And we have to give credit here to Brian, to Thomas, to Iqbal. Two years ago, really the internal skepticism was high. But we have really taken an approach of just make the pie grow and we've doubled, tripled count and it doesn't matter who gets each section of the pie, we just wanted to grow. And actually I think not putting too much disclosure around it has been part of why it's been so successful. So for the time being, we don't want to change that. We're continuing. But as soon as you disclose those numbers, things become difficult. But if you go back to the slide that we lifted from Investor Day, we gave you some sense. I think it was CHF 300 million to CHF 400 million from memory. The additional revenue we expected -- yes, can we have the slide, it's -- yes, 17, 17. We said Equities and ITS collaboration revenue opportunities of $300 million to $400 million, so that's an increase, right, by 2020. So I'd give you a sense of the scale of this business. It is not small that we can subscribe materially. Now was Q1 exceptional, no. On Slide 15, I think, yes, if we showed you on this slide the number of transactions, it's been going up very strongly and we probably do now in a quarter the number of transactions we used to do in a year to give you -- 2, 3 years ago to give you a sense of the -- and that trend is very solid. The pipeline in Q2 is very strong. So no, Q1 was not a one-off. Progression there is very, very good and the client appetite is very good. How much time do we have?

[Adam Gishen]

Last question. A few minutes.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Okay, okay. So I was going to -- I wanted to give you one concrete example of the kind of things we do Equities and it's really interesting. We'll go -- we have an international asset manager who wants to raise a fund. We know a client in Brazil who has an appetite for that type of instrument. We will then hedge this by [ laying ] of a risk. We offer investors that we know that have an appetite. And if we had a transaction like that, I think [indiscernible] books on that page. It's a transaction between a U.K. -based, very large asset manager, emerging market focused. A call we made in our -- by our CRO about emerging market bonds, that would be sent by our client. And it's a CHF 650 million transaction notional and we had a really comfortable feel and we were exclusive on that. So the ability for us to do things like that, it's not limiting. It's really a question of scaling up. And we have a lot of opportunities and each of them is big. So that's the beauty of that model, it's material. You're talking about a lot of transactions that bring you 10 million, 15 million, 20 million a transaction and really that's why we're excited about doing the same thing in Asia because exactly the same opportunity exists there. So yes, it's a good story. Let's hope that it gets to a level where we have no choice, but to disclose it and I'm looking forward to that day. So RWA outlook?

[David R. Mathers, CFO & Member of the Executive Board]

Yes. The second point really was on RWA inflation. And just to be clear, at one point, we did not see any benefit from model changes in the first quarter number. We saw a CHF 2.1 billion relating to model and parameter updating in relating to the calibration of RWA. It's in rules, so there was a CHF 2.1 billion inflation in RWA as a consequence. There was no benefit from model changes per se. In terms of the full year outlook, I would expect that to be somewhere between CHF 6 billion to CHF 7 billion depending on the final calibration and we'll see that relatively evenly spread out the remaining 3 quarters.

[Cheick Tidjane Thiam, CEO & Member of the Executive Board]

Well, thank you. Thank you for your patience this morning and for the questions. I hope we answered them. And of course, if there are other questions or things that need clarification, IR is here happy to help you. And to wrap up, I'll say that it's a -- we're out of our restructuring. It's a much better period for us. We faced for our first quarter really challenging conditions. I think we delivered a solid performance, but we believe we see a double-digit RoTE bank. Under any normal or reasonable circumstances, we have an ability to grow that RoTE. That's why we're not often just discussing quarter over the next quarter, but over 2, 3 years as we indicated at the Investor Day. And all other things being equal, I'm absolutely confident that we can grow the RoTE year-after-year and that's what's going to create value and growing the tangible book value per share.So with that, thank you, again, for attending our call them and talk to you soon. Thank you.

[Operator]

That concludes today's conference call for analysts and investors. A recording of the presentation will be available about 2 hours after the event. The telephone replay function will be available for 10 days. Thank you for joining today's call. You may all disconnect.