Credit Suisse Group AG

SIX:CSGN

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse First Quarter 2020 Results Conference call for Analysts and Investors. [Operator Instructions] I will now turn the conference over to Kinner Lakhani, Head of Group Strategy and Development. Please go ahead, Kinner.

[Kinner R. Lakhani, Head of Group Strategy & Development]

Thank you, operator. Before we begin, let me remind you of the important cautionary statements on Slides 2 and 3, including in relation to forward-looking statements, non-GAAP financial measures, and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse first quarter 2020 earnings release and remind you that our first quarter 2020 financial report and accompanying financial statements for the period will be published on or around May 7. We would also like to remind you that our Annual General Meeting of Shareholders will be taking place next week on April 30. I will now hand over to our CEO, Thomas Gottstein; and CFO, David Mathers, who will run through the numbers.

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Thank you, Kinner. Good morning, everyone. Thank you for joining our call this morning to discuss our first quarter 2020 results, my first as Group Chief Executive. Before I start with the slide presentation, allow me to make a few personal comments. As you know, I took office on the 14th of February. Little did I know then how the world would change within less than a month. During my first 3 weeks, I had the opportunity to meet with many colleagues in meetings and town halls with key clients, investors, including most of our top 30 shareholders, analysts regulators and journalists. These meetings took place in Switzerland, in London and in the U.S. and were very valuable for me personally to exchange views and discuss the strategic priorities and prospects of Credit Suisse with key shareholders and stakeholders. Unfortunately, the global COVID-19 pandemic then became a reality, which changed circumstances completely. Suddenly, traveling was not possible and my priorities shifted to the safety of our employees, ensuring business continuity and being there for our clients in the face of a crisis. I am incredibly proud of how our organization has reacted to the challenge and demonstrated the strength of the Credit Suisse culture based on its can-do attitude, teamwork, entrepreneurship and solidarity. I want to thank all our 48,000 employees for what they have done and achieved over the last few weeks in very difficult circumstances. I also want to thank my colleagues on the Executive Board and on the Board of Directors for their leadership and partnership, which allowed us to quickly react to the recent events in a coordinated fashion. Let me now take you to the slide presentation. I will take you through some of the highlights of the numbers this morning as well as detail our response to the COVID-19 and the impact that it is having on our business. It is clearly an uncertain time for all in financial markets. However, I do believe that we have been able to demonstrate our resilience in the first quarter as well as placing our clients, employees and communities at the center of everything that we do. Let's go to the first slide. In the first quarter, we generated CHF 1.2 billion of pretax income, up 13% year-on-year. This was supported by a 9% increase in revenue across our Private Banking franchises, excluding the gain from the final closing of the InvestLab transfer in the quarter and a 25% increase in our sales and trading revenues. I would note that the increase in pretax income for the group was achieved despite an over CHF 1 billion reserve build. We reduced total operating expenses by 6% year-on-year to CHF 4 billion and are expecting around CHF 16 billion of adjusted operating expenses for the full year 2020. Excluding the provision for credit losses, mark-to-market losses and gain from the InvestLab transfer, our pretax income for the quarter would have been CHF 1.9 billion, a 66% increase year-on-year. This shows how much we have further improved the operating leverage of our business model. At CHF 1.3 billion, we delivered the highest quarterly net income in the last 5 years and the return on tangible equity of 13.1%, in part benefiting from the closing of the InvestLab transfer and a negative tax rate. At the revised tax rate guidance for the full year 2020 of 20% to 25%, our RoTE for the quarter would have been around 9% to 9.5%. I would also add that the 13.1% RoTE achieved in the first quarter was the highest in the last 5 years. In the current market turmoil, we also benefit from our strong capital and liquidity position. In terms of capital, our CET1 ratio stood at 12.1% and our Tier 1 leverage ratio was 5.8% at the end of the first quarter. We also maintained a strong liquidity position with one of the highest liquidity coverage ratios among international peers at an average LCR of 182% for the first quarter. And to further protect our capital base, we have suspended our share back -- buyback program and delayed a decision on the second half of our 2019 dividend until later in the year, as previously communicated. Finally, and as you may have seen from our announcement last week, we received regulatory approval to become a majority shareholder in our securities joint venture, Credit Suisse Founder Securities Limited, marking a significant milestone in the bank's China strategy. Next, let's turn to Slide 6 to look at our response to the COVID-19 pandemic in a little more detail. As I mentioned at the start of my presentation, the impact of the COVID-19 pandemic has had on markets, economies and our society is profound. At Credit Suisse, we have adopted a 3-pronged approach in response to the pandemic. First, my focus and that of the Executive Board has been on the well-being of our employees. We have established numerous support measures for our employees to overcome the challenge of the pandemic, including early engagement of medical advisers in Switzerland and globally, paid family leave in all markets in which schools are closed for those colleagues who are unable to work from home and honoring the contracts of future hires and pushing forward with remote onboarding. As a result of detailed business continuity management, we were able to move quickly to remote working and now approximately 90% of our employees can work remotely with approximately 70% to 80% doing so and health measures in place for those still working from our office locations. Second, we have continued to serve our clients through these challenging times. We continued to provide bespoke client solutions given the market dislocation, whether that's to our Private Banking clients across region or to our wholesale clients in Investment Banking. We have leveraged our digital banking model to ensure business continuity, for example, by onboarding clients digitally. And in Switzerland, we continued to serve our retail clients through branches, 2/3 of which remain open and are following social distancing rules and increased hygiene measures. We also have played an active role from the beginning in the development of the CHF 40 billion bridging loan program to SMEs sponsored by the Swiss government, of which more in a moment. Third, we are working in our communities to provide support where we can. We have launched a bank-wide donor-advised matching program to encourage employee donations to charities working to alleviate the impact of the pandemic. As part of that, myself and every member of the Executive Board has committed to donating at least 20% of 6 months' base salary or equivalent. The Chairman of the Board of Directors has also committed to donate to a similar extent. We have also made local donations of masks to hospitals and health care providers in a range of locations and made donations through our regional foundations to a range of charities. Next slide, please. Here in Switzerland, I'm proud to say that we have been able to play an active role from an early stage in the development of a highly effective and innovative CHF 40 billion bridging loan solution for Swiss SMEs and we have done so in conjunction with the Finance Ministry, the Swiss National Bank, FINMA and the Swiss Bankers Association. The details of the 2 programs are referenced here targeting small- and medium-sized companies, providing access to funds quickly and without onerous paperwork requirements. The programs were modeled on an idea originally from Credit Suisse using the trade export guarantee system as a basis and involve significant government guarantees at 85%. As you can see from the slide, from the original idea to the program being implemented on March 26 was a matter of days. Eligible customers were able to access funds within 0.5 hour of completing a simple 1-page form. The success of the program overall is reflected in the decision on April 3 to increase the overall lending guarantee from the original amount of CHF 20 billion to CHF 40 billion. To date, Credit Suisse has granted approximately 14,000 loans with a total volume of CHF 2.4 billion under both the SME and the corporate facility. Where we make a profit on these loans, if any, we have said from the outset, we will donate it to organizations focused on helping the Swiss economy. The program is a testament to the strength of the Swiss financial center working together for a common cause at a time of great need. Next slide, please. As I mentioned earlier, our results for the first quarter contained a gain from the second and final closing of the transfer of InvestLab to Allfunds. Including this transfer, pretax income rose 13% to CHF 1.2 billion. Excluding the gains from the transfer, but including the over CHF 1 billion reserve build, which we'll cover later in this presentation, pretax income was down 11% on the same quarter of last year. Next slide, please. As mentioned at the outset of my presentation, we have delivered the highest quarterly net income in the past 5 years at CHF 1.3 billion. In part, this was supported by a negative tax rate that David will discuss in more detail later on. Next slide, please. This brings us to return on tangible equity. Despite credit provisioning and mark-to-market losses, we achieved a return on tangible equity of 13.1%, significantly increased from the 7.8% reported in the first quarter of 2019. Here, again, we see the benefit from the earlier mentioned gains from the InvestLab transfer and the negative tax rate. Based on a tax rate in line with our new guidance of 20% to 25% for the full year, our return on tangible equity for the first quarter would have been around 9% to 9.5%. Next slide, please. Our Private Banking businesses are at the core of our strategy and continued to demonstrate their importance during the first quarter despite the COVID-19 pandemic. Within Private Banking, we saw growing net interest income, stable recurring revenues and strong transaction activity, up 31% in the first quarter of 2020 compared to the same period a year ago. Overall, Private Banking net revenues rose 9%, and this excludes the gain from InvestLab, showing continued strong momentum in these businesses. Next slide, please. Our integrated International Trading Solutions, ITS, business, a collaboration between SUB, IWM and Global Markets, continues to be an important differentiating factor in our model, providing trading solutions to Private Clients. During periods of market dislocation, as we are currently in, Private Clients are often seeking innovative solutions in order to protect their positions and best-in-class trading execution across all asset classes, including equities, bonds, FX, OTC derivatives and structured products. ITS is also at the heart of our lombard and share-backed lending effort to our Private Clients and once again proved its worth, as reflected in the 64% increase in revenues between the first quarter of 2018 and the quarter just ended. Next slide, please. Here, we are showing the makeup of our total Investment Banking net revenues across advisory and underwriting, equity sales and trading, and fixed income sales and trading. Both equity and fixed income sales and trading had strong first quarters, up 24% and 26%, respectively. Those strengths in our diversified Investment Banking portfolio, however, were offset by weakness in advisory and underwriting in March, resulting in 38% lower revenues from this business in the first quarter compared to the first quarter of 2019. Excluding the mark-to-market losses of USD 459 million incurred in the first quarter, overall Investment Banking net revenues stood at $2.9 billion, up 23% on the same quarter a year ago. Next slide, please. This slide provides an overview of our comprehensive reserve build during the first quarter as a response to the challenging environment and continued pressure on oil prices. As a U.S. GAAP reporting bank, we also incorporated appropriate CECL provisioning, taking into account updated relevant macroeconomic forecasts. David will provide further details on our modeling approach and underlying assumptions in his section. For the first quarter, we saw an increase in allowance for loan losses of CHF 585 million, as you can see from the bar in the center of this chart. On top of that, we took CHF 284 million of mark-to-market losses in leveraged finance and a further CHF 160 million for the APAC Financing Group. Together, that gives a total reserve build of just over CHF 1 billion. CHF 376 million of this amount relates to CECL provisioning, which, as you know, reflects general credit risks and not specific client exposures. Next slide, please. I just wanted to take a moment to reinforce the importance of our home market in the current environment. From the start of 2017 until the end of 2019, on average, the Swiss Universal Bank contributed 38% to group profit. The Swiss Universal Bank accounts for 58% of the group's net loans on its books, as shown in the pie chart on the lower left of this slide. Swiss loan quality has proven to be particularly resilient when compared to other countries. This is displayed on the right side of this page showing provisions for credit losses and nonperforming loans, respectively, as a percentage of total loans across some of the biggest banks in each of these markets. When looking at our balance sheet, the strength of our home market and its strategic importance should not be underestimated nor forgotten. To sum up the main part of my presentation, let me turn to the following slide. Here in the right-hand bar, we show the net revenues for the group in the quarter, excluding the gains from the InvestLab transfer and the aforementioned mark-to-market losses. The light blue section of the bar shows the total operating expenses, which we have incurred to deliver these revenues; and the dark blue section depicts the preprovision profit for the quarter if it weren't for the appropriate credit provisions reflecting current market conditions. At CHF 1.9 billion, this represents a CHF 773 million increase compared to the same quarter of last year and shows that we have further strengthened our combined Private Banking and Investment Banking franchise our profitability and delivered substantial operating leverage. And with that, I would like to hand over to David for the discussion of our financial results in more detail.

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

Thank you, Thomas. Good morning, everybody. And I'd like now to take you through the financial numbers in more detail. As Thomas has mentioned before, Credit Suisse's businesses delivered a resilient first quarter despite the challenging market and operational environment. As with prior quarters, to be helpful with comparisons and to better illustrate our financial performance, you will see that we've included a table at the bottom that includes our results excluding gains relating to the transfer of the InvestLab fund platform to Allfunds Group. This will be the last time that we break out such gains from InvestLab as we now completed the second and the final closing at the end of the first quarter of 2020. Gains in the first quarter from InvestLab totaled CHF 268 million. Now overall net revenues in the first quarter of 2020 were CHF 5.8 billion. That's an increase of 7% year-on-year, including the impact of the gains from InvestLab that I just mentioned. If we were to exclude those gains, net revenues for the quarter would have been CHF 5.5 billion, and that's an increase of 2% year-on-year. Now just looking at our business lines. In the first quarter, Wealth Management-related revenues increased by 7% compared to the same quarter in 2019, again including InvestLab. Wealth Management-related results, excluding that gain, suffered from mark-to-market losses seen in Asset Management and in the APAC Financing Group portfolio. But Private Banking revenues, even excluding InvestLab, was strong. We saw increase of 9% compared to the prior year. And overall, within Private Banking, we saw a significant growth in transaction revenues as well as a resilient result in net interest income and in recurring commissions and fees. If we look at our other operations and our Markets businesses across both GM and Asia Pacific, we saw a combined revenue growth of 22% for the quarter, stated in U.S. dollars. These businesses benefit from a significant increase in market volumes and volatility during the quarter. Our Investment Banking & Capital Markets activities had an initially strong start to the year, and we saw a pickup of momentum and deal closings in January and February. But as we moved into March, the global response to COVID-19 made for a markedly more difficult environment for this business. We saw a reduction in primary activity as well as the increase in credit provisions and in mark-to-market losses. Thomas has already touched on the reserve build in the first quarter, and I'll give you some more details shortly. But you'll note that we had a provision for credit losses of CHF 568 million and that compared to CHF 81 million in the first quarter of 2019. We saw these provisions across all divisions, but in particular, they were focused on the Corporate Bank, which adversely affected IBCM and GM as well as our credit exposures in Asia Pacific. I think it's clear that given the deterioration in the operating environment, cost management is going to remain critical this year. Our total operating expenses in the first quarter stood at CHF 4 billion, and that's down 6% year-on-year. We're going to remain very disciplined on costs for the whole of 2020 with adjusted operating expenses expected to be around the CHF 16 billion level. Overall, and notwithstanding the substantial reserve build, we generated pretax income of CHF 1.2 billion in the quarter, and that's an increase of 13% year-on-year. As you've noted and as Thomas has already referred to, our effective tax rate for the quarter was negative. That was a result of substantial and positive progress on deductions on our interest cost deductibility with international tax authorities. We benefited from the reassessment of the adverse marginal impact of the BEAT legislation in the United States as well as certain other significant U.S. rule change, which includes a carryback gain for prior years. Now if I look forward to the full year 2020, given this improvement, I'd reduce our guidance for the 2020 tax rate from the 26% to 27% level that I gave at the Investor Day last December to be at the lower range of 20% to 25% for the current year. Net income to shareholders stood at CHF 1.3 billion, and that's an increase of 75% year-on-year and equated to a return of tangible equity of 13.1% for the first quarter. But as Thomas said, if you were to apply that guidance for the tax rate of 20%, 25%, you'd end up with return on tangible equity something in the 9% to 9.5% for the first quarter. Let's turn to the CET1 ratio. So our CET1 ratio for the quarter was 12.1%, and that compares to 12.7% at the end of the fourth quarter of 2019. Now already included in this capital ratio, both at the end of last year and at the end of the first quarter, is a full capital deduction for the full year 2019 dividend, both for the first payment of CHF 0.1388 that our shareholders will vote on at the AGM next week and for the second payment that the Board will review in the autumn and would intend thereafter to propose to an extraordinary general meeting at the beginning of the fourth quarter. Now given market volatility and the overall pressure on the global economy, the Swiss regulator, FINMA, has decided to phase in the CHF 12 billion of RWA inflation from the Bal III reforms, primarily related to SA-CCR and certain other measures, which we briefed you on in the past, over the whole of 2020. Accordingly, we therefore recognized CHF 3 billion in the first quarter rather than the CHF 12 billion that I've guided to before. I'd also note that FINMA, like other major regulators, has introduced certain temporary exemptions relating to backtesting exceptions in the model approach to market risk. Risk-weighted assets overall increased from CHF 290 billion at the end of the fourth quarter to CHF 301 billion at the end of the first quarter. RWA increases relating to net business usage was primarily driven by corporate lending drawdowns and by increased market volatility during the second half of the quarter. There was a CHF 3 billion reduction in RWA due to the strengthening of the Swiss franc. But as you know, we hedged that so that's had a negligible CET1 ratio impact. And clearly, as I've noted already, we also saw a CHF 3 billion increase in RWA from the phase-in of the SA-CCR-related Bal III reforms. Our share buyback program is on hold until at least the third quarter of 2020 when we will then reassess our position, and I would hope that we'll be with better understanding of the impact of the COVID-19 pandemic on the markets and the economies in which we operate. Just in terms of guidance for the CET1 ratio for the balance of 2020. Given the industry- and market-wide increase in risk-weighted assets due to the heightened level of volatility and increased lending drawdowns and adverse migrations, together with the phase-in of the SA-CCR measures, I think it's prudent to say that I would expect us to operate at a CET1 ratio of around 11.5% for the balance of this year rather than the 12% that we previously guided. Let's turn now to leverage, please. So on this slide, I show our CET1 leverage and our Tier 1 leverage ratios. FINMA has decided to allow us and our peers temporarily to exclude cash held at central banks adjusted for any upcoming 2019 dividends from the calculation of leverage ratio. This exclusion applies at least initially until the 1st of July 2020. At the end of the first quarter, excluding CHF 88 billion of net cash held at central banks, by which I mean this has been adjusted for the planned dividend payments as requested by the FINMA's rules, our Tier 1 leverage ratio stood at 5.8%. Now if you were to adjust onto the previous basis and include the cash held at central banks, just to be transparent on this, the ratio would have been 5.3%. So that's a small decline compared to the 5.5% at the end of the fourth quarter of 2019. The CET1 leverage ratio, excluding net cash held at central banks, stood at 4.2% at the end of the first quarter. Now our leverage ratio increased through the quarter on a like-for-like basis due to the market volatility that we saw and the increase in the net cash positions that we held at central banks. But this was then offset by the exclusion of those increased central bank deposits subject to the dividend adjustment as FINMA permits. If you look at the chart, you can see, first, the impact of the strengthening of the Swiss franc, which led to a CHF 10 billion reduction in leverage. Next, the higher levels of cash that we held at central banks at the end of the first quarter resulted in a CHF 15 billion increase. We then saw a CHF 43 billion increase in leverage exposure in certain parts of our businesses in the first quarter and that was primarily in Global Markets and reflects the market volatility, increased margin requirements that we saw in March, increased sales, drawdowns to the Corporate Banking book as well as reduced netting at quarter end. These increases were then offset by the exclusion of the central bank deposits. So that led to an overall reduction in leverage of CHF 40 billion. Now just in terms of the absolute amount of leverage, I would expect the adverse impact on leverage from volatility to largely normalize during the course of 2020. And even including central bank deposits, our CET1 leverage ratio by the end of the year should be in line with our previous guidance to be around 4%. Clearly, if, as other regulators have done, the central bank exclusion is actually extended by FINMA, the ratio will be high, so probably around 4.3%. Okay, let's just turn to look briefly at costs, please, on Page 21. The focus we have on cost efficiency and productivity remains an absolute priority, particularly in these times. During the first quarter, our total operating expenses amounted to CHF 4 billion and that was a decrease of 6% compared to the first quarter of 2019. We've continued to fund various strategic investments for growth across the bank, particularly in our Wealth Management-related divisions as well as investments intended to improve digitalization and to increase the bank's efficiency. But as we've said before, the pace of these investments are dependent on market and our economic conditions. And given the current environment, I want to just reiterate that we will maintain a very high level of focus on cost discipline for 2020. Clearly, COVID-19 and the move to remote working for some -- much of our workforce does provide the potential to reduce our costs in certain areas, but it will increase in others. Just in terms of guidance. As I said, we're going to be very disciplined for 2020 and I think I'd expect adjusted operating expenses to be at around the CHF 16 billion level. Let's turn to tangible book value per share, please. What we show here is the progression of our tangible book value per share since the end of the fourth quarter of 2019. It grew from CHF 15.88 to CHF 18.25 per share at the end of the first quarter. That's an increase of 15%. But let's just focus on the major items. Clearly, one of the most significant components was net income in the quarter. That added CHF 0.54 per share. But clearly, the other major component is the CHF 1.81 per share, resulting from the widening of credit spreads in March. Now just recognizing that this should only be a temporary change, without it, our tangible book value share would have been CHF 16.44, an increase of 4% on the quarter. So let's now turn to credit provisions, please, and look at the overall reserve build that we took in the first quarter. So I think in common with some of our peers, and obviously, it's been mostly the U.S. banks that have reported so far, we thought it would be useful to give an overview of the total of incurred, but as yet unrealized losses related to our credit exposures. And that's both accrual, which comes through in the PCL line; and fair value elected, which comes through in contra-revenues. Now the increase that we're reporting this quarter reflects the adverse impact of the deterioration in the economic environment on our portfolio, the mark-to-market impact of credit spread moves mostly entirely in March and -- mostly in March and the increase in our CECL reserves. You'll see that we show on this slide 2 interrelated charts. Now if we start on the left, we just show the movement in the allowance for credit losses as per our accounts. As you know, Credit Suisse reports under U.S. GAAP, and the first quarter of 2020 marked the introduction of the current expected credit loss rules. Now these are similar, but substantially more conservative than IFRS 9, which was introduced for reporters a year ago. And the difference, there was a number of differences, but the most important one relevant today is that CECL includes a provision for losses over the entire life of a loan, which we continuously assess depending on our assessment of the economic outlook whereas IFRS 9 requires that for only 1 year under most conditions. So if we look at the chart on the left. First, we're reflecting our allowance for credit losses for our loan book. We entered the fourth quarter -- sorry, the -- we ended the fourth quarter 2019 with an allowance for credit losses of CHF 1.15 billion. The adoption of the CECL rules from the 1st of January led to an impact on the CHF 1.15 billion of an additional CHF 72 million. We then built in -- we then took CHF 568 million of credit losses in the first quarter, of which approximately CHF 304 million comes from CECL. Net write-offs and other adjustments, i.e., things we've realized, charge-offs generated a reduction of CHF 55 million. And that left our allowance for credit losses on loans at amortized cost of CHF 1.7 billion, an increase of CHF 585 million compared to the previous quarter. Now if we move to the second chart, we combined the movement of credit provisions with other unrealized credit-related exposures. Now this is important because Credit Suisse has a higher proportion of fair value-elected assets on its balance sheet than many other banks. So you do need to look at both parts of this together. We take the CHF 585 million from the previous chart and we add to it based on fair value marks at the end of the first quarter, CHF 284 million of unrealized leveraged finance mark-to-market losses and CHF 160 million of unrealized APAC Financing Group mark-to-market moves. And that results in a total reserve build of just over CHF 1 billion for the quarter. Now I'd just like to give you some context for this reserve build. It's important to understand the normal PCLs, pre-CECL, are generally related to specific positions generally. CECL is a broadening and a replacement for FAS 5 and it's a general provision related to our entire accrual-elected loan book. And in order to calculate that, we have to use a range of scenarios against the economies and the markets to which our business is exposed to, to estimate it. So we include a downturn in excess of 20% in U.S. GDP in the second quarter and double-digit levels of U.S. unemployment. We expect to see something similar in the EU markets in the second quarter. And we will see -- we also expect, and quite importantly for us, a smaller fall in the second quarter here in Switzerland. And I think just to be clear, that does mean that we obviously expect a recession in the United States, in the EU and in Switzerland in the full year 2020. Now I think if you've looked at the U.S. banks who reported last week, I think it's very important to understand some similarities, but also some differences. First, we don't have the large exposures to U.S. consumer lending that the major U.S. banks have. We are exposed, as Thomas has already summarized, to a much more resilient Swiss economy, Swiss consumer base, Swiss market. Second, though, if you actually look at our GM and IBCM lending, our reserves represented 0.88%, 88 basis points, which I think is comparable to the marks that we estimate the U.S. banks took, which I think was in a range somewhere between 80 and 90, but IR can give you more details if that would be helpful after this call. So I think having given an overall summary, let's just now turn to the divisional performance, please. And let's start, please, with the Swiss Universal Bank. Now excluding the InvestLab gain, the Swiss Universal Bank generated CHF 1.5 billion of revenues in the first quarter of 2020. That was an increase of 8% year-on-year. On the same basis, i.e., ex InvestLab, pretax income increased by 3% to CHF 564 million. The Swiss Universal Bank saw strong results across all major revenue lines with increased client activity and higher revenues from International Trading Solutions, as you know, the collaboration between SUB, Global Markets and IWM, which benefited from higher volumes and higher market volatility. Operating expenses in SUB were stable with investments in growth offset by ongoing cost discipline measures. Now as Thomas has already said, it's part of our efforts to support our home market, our clients and our communities. We granted bridging loans worth approximately CHF 2.4 billion to support small and medium enterprises as part of the Swiss scheme. Now if we turn to Private Clients, net revenues increased by 8% with increases across all major revenue categories and exceptionally high levels of client activity. For net new assets, we did see continued gross inflows in the period. However, we also recorded net asset outflows of CHF 4.2 billion, mostly driven by a single low-margin outflow in the ultra-high net worth segment. Corporate & Institutional Clients, excluding the gain from InvestLab transfer, reported an 8% increase in net revenues year-on-year, and that was driven by strong ITS and by strong Investment Banking revenues. NNA for C&IC totaled CHF 4.8 billion, reflecting the continued momentum in our pension fund business. Now let's turn to the next slide, Slide 25, please. Now going forward, we're going to give a rolling track record of our divisions against a number of our metrics, as certain of our peers do. I've included that in this presentation for each division for the first time, but I'll not necessarily comment on these metrics. But it's clear for SUB, the charts clearly demonstrate the strength of revenues, the continued positive progression on cost-to-income, the consequent gains in pretax income and the return on capital. Let's turn to IWM. Our International Wealth Management division saw high levels of client activity during the first quarter with resilient asset-based revenues and net interest income, but we did suffer unrealized losses on fund investments within the Asset Management business. As a result, IWM's pretax income, excluding InvestLab, was CHF 319 million, down by 39% year-on-year. Net revenues, excluding InvestLab were down by 9%. If we look at Private Banking, pretax income was down by 7% year-on-year, but that does include the CHF 15 million gain from the InvestLab transfer. But I would note that in the same quarter of last year, we benefited from a CHF 27 million release of major litigation provisions in the first quarter. Net new assets for Private Bank in the first quarter are pretty good, CHF 3.7 billion. That's a 4% annualized growth rate. Just turning to Asset Management. Excluding the CHF 203 million InvestLab gain as well as the unrealized losses on seed money in the asset management funds of CHF 101 million, we made a pretax income of CHF 60 million. And net new assets for Asset Management were broadly stable, I think, up CHF 0.1 billion in the quarter. Let's turn then to Slide 28, please, and look at Asia Pacific. Our Asia Pacific division recorded a pretax income of CHF 227 million, excluding InvestLab, up by 24% year-on-year. Net revenues excluding InvestLab were up by 17% at CHF 1 billion the first quarter and this was largely due to strong results within Private Banking within WMC as well as by APAC markets. This offset unrealized mark-to-market financing losses on the fair valued lending portfolio and our financing businesses and included in WMC. So if you look at WMC, if we exclude InvestLab, pretax income was CHF 60 million and that included CHF 160 million of unrealized mark-to-market moves on our fair valued lending portfolio in the financing businesses and CHF 96 million of provisions against credit losses mainly related to 3 single cases, the largest of which was caused by a single default on a share backed loan linked to a Chinese food and beverage company. We saw record Private Banking revenues this quarter as transaction-based revenues increased by 67% year-on-year. But clearly, that was offset by the adverse impact in the financing portfolio. Net new assets totaled CHF 3 billion. I think that's a stable performance given market conditions. If we turn to APAC Markets, we saw a strong performance with high level of transaction and gains from hedging. Revenues from APAC Markets increased by 60% as both fixed income and equity sales and trading delivered strong year-on-year increases in revenues. Equity sales and trading benefited from higher revenues in prime, partly offset by lower revenues in equity derivatives, whilst fixed income sales and trading benefited from higher revenues of structured products, emerging market rates and FX, partly offset by a weak performance in credit. Okay. Let's turn to Slide 30 now and move to IBCM. IBCM began the year on a strong footing of increased activity in Capital Markets and higher deal flow. Momentum in January and February was, though, offset by the closure of primary markets for most of March. Net revenues was down by 47% year-on-year, driven by mark-to-market losses in leveraged finance and net losses on hedges in respect of IBCM's uncollateralized corporate derivatives exposure. If we were to exclude those, then division will have seen net revenues up by about 4% year-on-year. As I've already said, IBCM's results were adversely affected by negative developments in our Corporate Bank, which is split with Global Markets. These provisions were mainly related to the oil and gas sector. Mostly -- that was the single largest component. More details of our exposure to which, which has fallen significantly since 2015, I've included in the appendix. We also saw an increased provision for credit losses due to borrower drawdowns of approximately USD 11 billion of revolving credit facilities with the related impact under the new CECL rules. This drawdown clearly also increases RWA requirements in the quarter. Let me just conclude then with a few words on Global Markets. I think, as Thomas and I indicated on March 18, the division benefited from the substantial increase in volumes across equity and fixed income markets, and as we said then, I think generally has navigated the market dislocation that we saw in March particularly well. Pretax income in the first quarter increased by 21% year-on-year on a 14% increase in revenues. And as Thomas has already said, we saw robust ITS revenues in the first quarter, reflecting higher volatility and continued momentum with wealth and institutional clients. If we look at the main business lines, fixed income revenues are up by 17% year-on-year with higher trading activity in macro and global credit products offsetting unrealized mark-to-market losses in leveraged finance. Equity revenues were up by 22% year-on-year with a marked increase in equity derivatives, continued momentum in cash and solid prime. As we note, the other line was impacted by a loss on a single name counterparty. Clearly, GM has also suffered its share of the increase in credit provisions in the Corporate Bank, both specific and CCL-linked, which I've already covered. Now as I mentioned before, RWA and leverage exposure for global markets increased due to the significant increase in market volatility in the second half of the quarter. RWA usage stood at USD 72 billion at the end of the first quarter, that's up from USD 58 billion in the same quarter a year ago. With regard to leverage, we saw a similar step-up due to volatility, increased margin requirements, a higher level of sales at the end of March, a GM share of the drawdowns in the Corporate Banking book as well as reduced netting. As I said before, though, I would expect the majority of this to reverse over the next 2 to 3 quarters. With that, I'd like to conclude the finance presentation and hand back to Thomas. Thomas?

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Thank you, David. I would now like to close the formal part of today's call with 2 final slides. Chart 35 shows how we have managed to increase the tangible book value per share over the last 9 quarters as well as our profitability measured by return on tangible equity. And as you can see in the table below, we achieved this profitability increase while maintaining strong capital ratios and further increasing our risk density towards 35%, a level commensurate with the expectations of FINMA and the Swiss National Bank when they calibrated the too big to fail capital requirements as part of the Swiss approach to adopting the Basel III capital rules. Final slide, please. Let me reiterate one message that is of particular importance for me during this challenging time. We understand our responsibility towards our employees, clients and the communities we operate in and take it very seriously. We will continue to do that, and we will do everything in our power to limit the impact this severe crisis has on all of our stakeholder groups. Amidst this profound market dislocation and despite significant reserve building, we delivered solid first quarter financial results and saw good revenue momentum in private banking as well as in our sales and trading business. However, the scale of the adverse economic impact of the COVID-19 crisis is still difficult to assess, and we would caution that we might see a further reserve build in the coming quarters particularly affecting our corporate bank as well as other loans, particularly outside Switzerland. We might also record further impairments relating to our asset management investments. Additionally, we would caution that the recovery in underwriting and advisory fees might be limited, at least in the short term until COVID-19 pandemic eases and the global economy begins to recover. Crédit Suisse, however, has entered this crisis with a number of key strengths and advantages, which are depicted on the right side of this slide. First, we have high dependency on the strong and resilient Swiss economy. Second, we have a very stable and growing private banking franchise, contributing significantly to our revenues and pretax income of the group. Third, over the past years and through our restructuring, we have significantly reduced our cost base and risk exposure in our market businesses. Fourth, we have a robust capital and liquidity position. We are well prepared to continue to serve our clients, and we believe we can maintain a resilient financial performance through the crisis. Thank you all for your attention. I will now hand back to Kinner for Q&A.

[Kinner R. Lakhani, Head of Group Strategy & Development]

Thank you. We will now begin the question-and-answer part of the conference. Operator, let's open the line.

[Operator]

[Operator Instructions] Your first question comes from the line of Magdalena Stoklosa from Morgan Stanley.

[Magdalena Lucja Stoklosa, Managing Director]

I've got 2 questions, one about the capital walk kind of this year in 2020 and one about kind of your thoughts about the reserve build, and I do appreciate there's a lot of uncertainty in both. So let's start with the capital conversation. You've implied to us that you think that you're going to end 2020 or kind of throughout with a CET1 ratio of 11.5%. Could you help us kind of run through the components of the move from the current 12.1% to the 11.5%? You've given us some. Of course, we've got still the CHF 9 billion of the regulatory inflation to come through in the remaining 3 quarters. You've kind of given us a little bit of an overview on the market risk-weighted assets, i.e., your expectations that they're going to come down with volatility. But how do you see the credit side of the equation and also the operational side of the equation on the risk-weighted assets as you have got a little bit of a relief on the model in the 1Q from that side as well? Just to kind of give us a sense of the moving parts on the risk-weighted asset side as you see it.

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

Magdalena, very good to speak to you. Thank you very much for the question. Seems a long time since March 18, and I'm very glad that I'm not on video today, so you can't see my haircut or lack of haircut, shall we say. Look, I think we wanted to be as clear and transparent as possible. I think if we look at the CET1 ratio that we reported for the end of the first quarter of 12.1%, I mean, it was similar to what we guided to back on the 13th of February, when we did our end -- year-end numbers. But obviously, the components were notably different because rather than CHF 12 billion of SA-CCR and related impacts, we only had CHF 3 billion, and yet you end up with the same number. And that does give you an idea of the inflation or the increase in RWA that we have seen from the volatility in March and how that actually flows through into some of our bar numbers. The adverse CVA migrations you're actually seeing, and clearly, the drawdown on the corporate loan book, which actually does increase both RWA and result in a CECL provision in respect to that. Reality is most of the RWA increase was actually due to that measure. There wasn't a great deal of discretionary business increases in the RWA. It was due to the market impact. And I mean, let's be clear. I mean, I think you've seen very similar drops amongst the U.S. banks last week, and I'm not particularly surprised. I think looking forward to the second quarter, I think it's worth remembering, as you know, as Mel and I do, that a lot of these metrics and changes are only actually averaged in during the whole of the quarter. So you've only seen some of the impact of that volatility within the RWA numbers you see now. And I would expect to see a significant increase in both CVA and market-related -- market risk-related RWA as that actually flows through the time series. I think drawdowns have pretty much come to a halt in the last few -- last week or so. But I think we are going to see migration impacts as credit ratings and rating agencies catch up with the events of the last month and start to make estimates of what we're going to see, economic-wise, over the next quarter or so. So I think I have to warn you, I think we will see an increase in credit-related RWA as a consequence of that. And then, obviously, you have the mathematical consequence of CHF 3 billion of SA-CCR related. But essentially, that would obviously take you down from 12.1 down to about 11.9, 12.0. So the rest, as you might say is an estimate, which I think will be partly offset by our own actions to actually reduce that of that inflation in the first quarter. So I mean, I just would caution. Generally, in the past, we've been very precise around CET1 numbers. I think due given the level of volatility around this process at this point, I think when I said around, I meant around. And I think when I spoke at your conference, Magdalena, I said around 12%, I do mean around in that sense. I think there's a degree of unpredictability here. And I think quite clearly as well, we also do respect, and it's very important to us that we look after our clients at this moment, and that's obviously led to some RWA increases in the first quarter. So we will see some consequence, and that's another factor as to thinking. So I think around 11.5% is my broad guidance, basically. And I would probably expect us to be at around 11.5% by the end of the second quarter because by that point, you should see it fully phased in.

[Magdalena Lucja Stoklosa, Managing Director]

That's very clear, David. And my second question is largely connected because, of course, you've mentioned the kind of migration impact, the credit migration impact on the capital. But of course, we're going to have it on the impairment side as well. So when you think about your kind of impairments and potential for marks going forward, how should we think about the kind of the levels there?

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

Okay. Yes, it's been a complex month, shall we say. There's one point I just want to make clear to, Magdalena, is that -- and I think I did refer to this middle of last year at some point, which is the capital deductions under the IRB approach for credit losses actually exceeds the CECL effect. So therefore, the increase in CECL reserves that we took at the end of the first quarter, and indeed, the transition at the end -- the 1st of January did not have any meaningful CET1 deduction effect. And that will be the case, provided any further CECL increases that we see in the balance of this year and second quarter, I think, is obviously the focus, do not exceed the IRB allowance. And that's got to be a little more helpful. There's a couple of hundred million left before you -- before the CECL numbers would actually exceed IRB, plus/minus. So that might be helpful to you, Magdalena. If you're thinking about CECL, which to me reminds me of an old-fashioned general provision, it isn't. It's a completely different accounting concept, but perhaps I'm feeling my age. Obviously, PCL is more specific because that doesn't fall into that. So the PCL component, to the extent we see an increase in specific provisions in the second quarter as we see how this -- the economic effects of COVID-19 pans out, would be capital relevant. The CECL would not be provided. It doesn't exceed more than a couple of hundred million, at which point we would actually exceed the IRB calculation and then move forward. So I hope that's helpful, Magdalena.

[Operator]

And your next question comes from the line of Daniele Brupbacher, UBS.

[Daniele Brupbacher]

I wanted to ask about the RoTE ambition, which you disclosed at the Investor Day and I think reiterated with Q4 results, the 10%, how you think about that at this stage, whether you're happy to reiterate that at this point.And then, secondly, on the mid-March, 19th of March, I think you -- I mean, you gave us very helpful numbers and you talked about the first 2 months. If I now look at the PBT of CHF 1.2 billion, strip out all funds, pretax profit was probably just around above CHF 900 million. So how can I just link today's numbers with what you said back then? I guess, the big explanation is some of these risk costs and mark-to-market moves. But if I strip that out, was March still loss making? Or what was sort of the picture in March? And then very lastly, more a strategy question on the IB. I mean, assuming the world remains a challenging and somewhat volatile place, how you think about your IB franchises in that context and in terms of resourcing, head count, balance sheet usage. I mean, it's obvious that it produces some volatility in the results. I mean, obviously, the environment is extreme, but how you think about it as being part of your overall portfolio that's -- what's the positioning in there? And just very lastly, sorry, the CVA/DVA on credit, I mean, I see the CHF 78 million benefit in the comp line on Slide 46. But can you tell us what the impact was on the revenue side?

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Okay. I will take the first and the third question, and maybe, David, you can take the second and the fourth question. So starting with RoTE, it's clear that this quarter's 13.1% benefited from a very low, actually negative tax rate. But as we said, if you adjust it to our new guidance, it's still 9% to 9.5%. But also, if you take a bigger picture and if I refer you to Page 35, actually, if you look over the last 4 quarters and you take the average, we're actually at or above the 10%. So -- and we had very high tax rates in 2Q, 3Q and 4Q. So I think on average, it's now over those 4 quarters, 18%, which is not significantly below our guidance. So I think we have proven, actually, over the last 4 quarters that we have a franchise that can deliver something around 10%. And it's gotten very clear to me that continues to be our target, at least in the midterm. But it's also clear that in the short term, over the next 2, 3 quarters with COVID-19 and the impact of it, the RoTE is going to be challenged, but it's still clearly our goal to be at or above the 10% because that's where we think in a normalized world the cost of equity is of our business, and we want to earn in excess of that. Maybe I will hand over to David for the risk cost, then I will take the IB franchise question and then the fourth question around own credit back to David.

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

Okay. I'm not going to give you an exact number for March, but perhaps putting myself in your shoes, perhaps the way I'd think about this is, obviously, Thomas and I said on the 18th of March is that our profit through the end of February excluded -- exceeded the CHF 1.062 billion that we made in the whole of the first quarter of 2019. So just setting that as a minimum, basically, you take the CHF 1.062 billion. You drop out -- as a starting point, you take our number of CHF 1.201 billion and you deduct CHF 268 million, you'd end up with a number ex InvestLab of CHF 933 million. So at the limit, and obviously, there was a degree of comfort on what we said on March 18, you'd be talking about a loss between CHF 1.062 billion and CHF 933 million, which I think is CHF 129 million. Now -- so if we then look at the various provisions we actually took, you really have got the mark-to-market move in the leveraged finance book, which was CHF 284 million. That was taken entirely in March. If you look at the APAC CHF 160 million, that was taken partially perhaps mostly in March. And if you look at the CECL adjustments, the add-on, the day 2 component we've given before, that was taken -- over CHF 300 million that was actually taken almost entirely in March as well. So I think you can see that pre-reserve build, March would have been very substantially profitable, even allowing for what I've not told you, which is the degree of buffer that Thomas and I had when we actually made our statement on the 18th. Is that helpful, Daniele?

[Daniele Brupbacher]

That's exactly what I was looking for.

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Okay, Daniele. So as we come to your question on investment banking, the way I look at our investment banking franchise globally, we obviously have sales and trading in global markets, but we also have sales and trading in APAC markets. And in addition to that, in IBCM, you have to really look at our investment banking capabilities also within APAC wealth management connected as well as in the SUB, Swiss Universal Bank. And if you look at Page 13, you can actually see that we have had a very positive trend, both in fixed income, sales and trading, and equity sales and trading, which on this page actually includes APAC market. And if we look at advisory and underwriting, excluding mark-to-market losses, we are actually also on a positive trend. So just because we have some mark-to-market losses in our left fin book doesn't really change my view on that and quite the opposite. If you look at the composition of our advisory and underwriting fees, revenues, actually in the first quarter, we have been up compared to the first quarter '19 in each of debt capital markets, equity capital markets, M&A and fixed income derivatives. So -- and so that's the first point. The second point I want to make, I'm convinced that our strength of ultra-high-net-worth clients and family offices can only be further strengthened if we continue to provide investment banking type of additional services beyond what pure-play private banks can offer, be it in the sales and trading environment, be it through advice related to M&A, IPOs or otherwise. So my conviction very much is that the differentiating factor from Crédit Suisse to other private banks is that we can actually offer these services. I hope that answers the question.

[Daniele Brupbacher]

Yes, absolutely.

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Final question was actually on CVA and DVA, basically. I think that was your fourth question. I don't have a complete answer to that question, but perhaps we should just look briefly at Page 36 of the earnings release, which does give you some useful disclosure around the corporate center. So I think if we actually look there, you can see that we saw losses of CHF 279 million with respect to own credit spread moves in the corporate center. So that was there. But I think you should also note just clearly that this was largely offset by other gains that we actually saw in the period. So I don't think you should be walking around adding that back in. You can see we had CHF 179 million of fair value money market instrument gains. We had CHF 94 million relating to the fair value option volatility on own debt. So I wouldn't encourage you to add that back. But I don't know if you've seen that, but that is useful disclosure. And just to clear up any other points, that is not related to the issue around structured notes, which I discussed at length in previous quarters. Actually, the hedge on the accretive force of the structured notes actually worked almost perfectly in the first quarter, and there's was almost nil impact from that at this point. And we've also extinguished part of that portfolio in what was obviously a fairly extreme interest rate mark move basically. So that's -- it's something quite separate. So I think that's probably, strictly speaking, most of the answer to your question, Daniele, basically, but please don't go back adding things up in that sense. I think there's gains and there's losses in this whole thing. And you're right, there is the DVA gain of CHF 78 million relating to the credit spread widening on the compensation instruments to which we award our employees, and I would expect that to reverse clearly in the course of 2020 as our credit spread narrows.

[Operator]

And your next question comes from the line of Andrew Coombs, Citigroup.

[Andrew Philip Coombs, Director]

If I could just follow up on some of the idiosyncratic loss numbers. I think you've gone into detail -- in quite a lot of detail. But on the unrealized fair value mark, if I could start there, let's break it down to 3 parts, the unrealized fair value mark first. The U.S. bank, obviously, took similar. Some of the U.S. banks flagged potential -- for that potentially to reverse in the second quarter given subsequent credit spread movements. So then if you could just elaborate on any thoughts there on the impact in 2Q based on movements to date. Second part would be with regard to the asset management loss on seed money, CHF 101 million a quarter, and you said there's a risk of further losses here in your outlook statement. Is there any way you can help us frame the magnitude, the potential impact there? So how much of your AUM is seed money? How much investment is there in place? And then, finally, on global markets in the revenues and the other items, there's a loss on a single name counterparty. Can you just elaborate on exactly what that relates to? Is it acting as a clearing member? Or is that a credit exposure that you book through there? Just we can get a feel for whether that's potentially recurring as well.

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

Thank you very much, Andrew. So let's just take those 3 questions in turn. So if we look at -- I mean, probably Page 23 as the use was anything else as an aide-mémoire for this, you have CHF 284 million of leveraged finance mark-to-market losses and you have CHF 160 million relating to the AFG financing group. I think if you look at our slide deck, I think in the first page, I believe it was in the appendix, I actually also included the leveraged finance exposure numbers, which I think we did give at the MS conference last month. But just to give you an idea, essentially, oil and gas exposure, there was CHF 9.1 billion in the fourth quarter of '15, CHF 7.7 billion now, of which CHF 2.9 million is non-investment grade, which I think is the most important component. Leverage finance exposure was CHF 11.7 billion at the end of the fourth quarter '15, down to CHF 7.3 billion. So that gives some degree of background around this. I think if we just go back to Page 23, again, basically, let me just talk around those different components. Firstly, the leveraged finance mark-to-market, these are underwriting commitments that we had coming in during the quarter. Now I think under -- these are fair value elected. So even though these deals have not yet financed in large part, I would caution, the -- we have to estimate at the end of March what the market would have been, had they been financed at the end of March on a probability-based metric. And essentially, as the widening of high-yield credit spreads in the course of March had actually gone through flex and through the margin, you actually end up with a potential loss in respect to those underwriting commitments. Now obviously, as you rightly say, since the end of the March -- end of March, you've seen significant normalization on those spreads. And the Federal Reserve Bank, as you know, has actually been buying some of these assets, which has clearly contributed to that narrowing. So yes, there is clearly potential for that. These are unrealized losses. But I think just a word of caution, I think these deals are not yet closed. So they will close at some point in the next few months. So it will depend on what the credit spreads are at that point. And I think if markets continue to normalize, then you would expect to see recovery, at least in part of that MtM number. And if they weren't, then you wouldn't, basically, Andrew. And I think it's a little bit dangerous to make forward-looking comments in the slightly stressed environment that we still see. I'm just -- obviously just looking at what happened in the WTI market over the course of the last 72 hours. And actually, APAC mark-to-market is actually almost simpler. We have a CHF 4 billion portfolio of fair value elected financing positions there. Most of those have been marked to proxies, emerging market loans. Those are often very liquid and somewhat distressed markets, but we mark against those. It's not that we've actually seen defaults against them, it's just essentially you see a mark-to-market effect. So you would expect to see that normalize again, clearly subject to how these markets evolve and develop over the course of the next 6 months. And that's why I thought I want to be super clear about breaking that number out. So hopefully, that answers those 2 points in terms of that component, the reserve build. I think on the asset management point I made before, there's about CHF 100 million of impairments, of which around 2/3 relates either to seed money or to joint ventures with partners. As you know, our asset management business, really oversimplifying a bit, consists of an equity and a long fixed income and a real estate business closely associated with our wealth management business, particularly here in Switzerland, and then the alternatives business in the United States. So this really relates to the seed money in the alternatives business. And that -- it was in respect of that, about 2/3 was due to that. And just to be clear, just to be transparent, the other 1/3 was in respect to the 5% retention in CLOs you have to hold under European rules, not U.S. rules, which we also mark. So those are those 2 components. I mean, I think we've just been cautious. In terms of investments that asset management has, it's around about CHF 2.4 billion, of which half is in external asset managements and about half basically is in these types of seed money investments. I think we'll need to see how these investments perform in the balance of the second quarter. But I think it was worth being explicit because I think it's important to be transparent about these things that this is obviously a risk for the second quarter. Final point then in terms of the GM other revenue number, there's not much I'm going to add. I mean, essentially, the increase in the other revenue loss between the first quarter of 2019 and the first quarter of 2020, as I've said, is in respect of a single counterparty, and it's clearly not something I've included in the reserve build. So that says something as well to you. But it was a single counterparty. And obviously, it was a distressed position, and we've marked it appropriately.

[Thomas P. Gottstein, Member of the Executive Board & CEO]

And just if I can add on the left fin book, we have observed the reversals in the first few days. Whilst it's difficult, obviously, to predict the future in the current market, but the leverage loan index is 165 basis points tighter now compared to the end of March and the yield has reduced from 880 to 715 basis points. So clearly going in the right direction, but it's very difficult to predict the future.

[Operator]

And your next question comes from the line of Stefan Stalmann, Autonomous.

[Stefan-Michael Stalmann]

I have 3 questions, please. In your CET1 capital waterfall, you have a negative, roughly CHF 600 million impact from what you call goodwill reversal. And in fact, your deduction for goodwill now is higher than the goodwill that you carry in the balance sheet. Could you explain what happened there, please? The second point regarding your exposures, and I hope I haven't missed a previous question on this. But you have CHF 7.7 billion oil and gas and you have CHF 7.3 billion leveraged finance. Is there an overlap between those 2 exposure buckets, please? And how big would that be? And the third question inspired, I guess, by what we have seen from some American banks. Do you book any significant funding valuation adjustments during the quarter? And if so, where would I find them, please?

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

Thank you very much, Stefan. So let's just take those 3 questions in turn. I think just for the benefit of everybody, I think you are referring to Page 43 of the earnings release and the CET1 walk across where you see a reversal of goodwill in intangible assets of CHF 618 million. That is in respect of the second phase of the InvestLab transfer because there is a significant amount of intangible assets associated with that. Whilst that generates a gain under our equity and under -- for that matter, in a total equity base, that is not CET1 eligible. Therefore, we actually deduct it at this point. So that's what's actually driving it in terms of the numbers. So you see a gain, but the second phase actually results in that intangible being deducted from CET1. I think the second question is straightforward. I don't think there's any particularly material overlap -- actually, probably no overlap between the leveraged finance and the oil and gas exposure. So 2 separate numbers, although it's a very good question, Stefan. But there isn't any. In terms of FVA or we tend to call it XVA because of the number of different derivative adjustments, I think you note -- you should note, obviously, that we did disclose, I think it was on the IBCM page. So let me just get you that page number. Thank you. It's actually on Page 30, that we've taken net losses of CHF 51 million for hedges on uncollateralized corporate derivative exposure. That is, I think, we'd call our XVA loss because it relates to the derivative -- the funding components of this. That is the largest component. There is also a smaller component, I think, within the APAC business. But the majority -- that's where it is. I'm afraid I don't have the APAC number to mind, I'm afraid, but it was, I think, slightly less than the IBCM one.

[Operator]

And your next question comes from the line of Jernej Omahen, Goldman Sachs.

[Jernej Omahen]

Can you hear me well?

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

We can hear you, sir.

[Jernej Omahen]

Okay. Wonderful. I had some problems with the line before. Well done on the results, particularly in the investment bank. I have 3 questions, please. So the first 2 are just of a technical nature. The first question is on collateral management and your lombard loan book. Can you please give us a sense what the change of total lombard loans for the group outstanding was during the first quarter of the year? And just to confirm, right, so if there's a recall of some of the lombard loans that comes towards the net money outflow, if I'm not mistaken. And then the second question I have on levered loans. So can you maybe just ask the question this way, what is the notional amount of levered loans that the mark that you've taken relates to? And then, finally, I have a question more of a conceptual nature and I think it falls into 2 parts. So the first question is, I think I understood from your presentation well what you're not afraid of as Credit Suisse Group and what type of scenarios don't scare you and what type of scenarios do you think are manageable. But Thomas, I would like to ask you, what does scare you at this point in time? And the reason why I ask this question is I look at the pretax profitability, which is fine. It gets you underlying through, as you point out, an 8%, 9% ROE. On an annualized basis, that's 40 basis points of leverage exposure, 120 basis points of risk-weighted assets. I mean, does it take much imagination if the current environment persists, would see those profits disappear, and Credit Suisse, they're loss-making?

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

Let's just take those questions in order then. So I think on collateral and lombard loan exposure, to mind, I don't actually have an exact number on the lombard move quarter-on-quarter. Maybe we can get that and give it to you later, Stefan, but I'll refer to my IR colleagues on that. What I would say is that, that was not, to my knowledge at least, any material component of net new asset moves that we actually saw in the quarter. Obviously, the biggest thing was this transfer of a single, low-margin, ultra-high-net-worth mandate from Crédit Suisse to a different bank, which was the bulk of what you actually saw in SUB, and that was definitely not related in any way to a leveraged loan. I think we have seen some deleveraging, as you'd expect, in the face of these markets. And if you actually look at the components of assets under management, it's up to about 32% cash now across all 3 of our private banking deficits. So there definitely has been some deleveraging as part of that. But that's all I'd say at this point.I think your second question was on the leverage finance exposure. I'm not really going to add more to what I've said before. The marks that we've taken are in respect of the CHF 7.3 billion book. Clearly, some of those positions will have a higher mark than others, but I'm not going to sort of break it down any further. I think you should just assume it's in respect of that entire book basically. I think your third question, perhaps I prefer to Thomas and says what are we worried about?

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Before I get to the third question, I mean on the collateral management and the lombard loan question, the first one, I mean, if you look also at our loans in the 3 private banking-led divisions, you can see actually the increase in Switzerland, but it went down both IWN and in APAC, and that really is, as David said, a result of some deleveraging we saw there. But at the same time, a lot of our clients are now positioning themselves to reengage as they see the lockdowns in various countries, especially in Europe, to ease and they are taking increasingly positive views on the market, obviously, in a cautious way. That leads me to what scares me. Well, first of all, I can say I can sleep well. And it's -- I think probably the worst scenario would be if we all went back to the offices too quickly, lockdowns too fast and then we have a second wave of infections, and that would then result in prolonged crisis, and I think that would be bad for the economy and indirected end for us and capital markets generally. So that is certainly something that we all have to factor into our scenarios as well. But broadly seen, I'm actually taking a lot of comfort of how we have managed at least so far through this crisis. If I look at our capital, if I look at our liquidity, if I look at our earnings growth in Private Banking, if I look at our ability in trading, be it equity or fixed income, to navigate the markets have been very encouraged by that. So I can assure you that we are very cautious. We are very aware of the overall slowdown in the economy. We expect, as it was mentioned also by David, a recession, not only in the U.S., but also in Europe and Switzerland. But I'm not losing any sleep. So thanks for asking.

[Operator]

And your next question comes from the line of Kian Abouhossein from JP Morgan.

[Kian Abouhossein]

The first question is regarding CECL. Can you just run us a little bit to how you forecast CECL in terms of how you do the modeling? And in that respect, I think I missed some of the assumptions. Could you just repeat and maybe add not just to the assumptions, I think you mentioned the U.S., but just the GDP and unemployment numbers for some of the key regions for 2020 as well as 2021 that you're assuming in CECL? And lastly, on CECL, are you using a phased-in approach? And if you do so, what would be the fully loaded impact on your CET1?The second question I have is, it was partially discussed. But if I look at your valuation, you're roughly at 0.5x tangible book, and mainly, I would say it's because of your IB concerns by the market or market concerns on the IB, not your concern, clearly. I was trying to understand how you square your view around why this is a good business in the long term, especially, I assume in ITS, and maybe you can share that with us, you sell basically no credit products to your private banks, why you need a credit business considering post restructuring, it again made losses. Why you need a credit business, i.e. the investment bank, in light of a wealth management business? And thirdly, if I may ask one more question. In respect to your capital ratio, at what level would you be uncomfortable doing a buyback?

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

Perhaps if I take the first question and then hand over to Thomas, really, on the -- in terms of your question around the credit business, I believe, within the wholesale operations. I think the number of questions is really about CECL. So I think the approach that we take is similar -- the same, as I understand, that the U.S. banks take. We have a significant number of models, which we apply across our different businesses, both IB related and wealth management related. Those include a different range of inputs, which we actually probability weight in order to actually calculate the outturn. In terms of the key assumptions, I think what I said was that if we think about the U.S., then we are assuming a quarter-on-quarter reduction in excess of 20% for the second quarter. We are expecting something not dissimilar in the year '27, but a lower impact in Switzerland. In terms of unemployment in the U.S., we're assuming double digit, which I think is similar to what most of the U.S. banks are actually also assuming. And in terms of -- I mean -- and clearly, we expect all 3 of the economies I've just mentioned to be in recession for the whole of 2020, and we do not really expect to see a recovery until the first quarter '21, i.e., positive GDP growth. So those are our set of assumptions that we made. And I think those are probably the most -- the key ones to actually think about, not the only ones, but the key ones, basically. So hopefully, that helps, Kian. Now in terms of the capital impact, as I said in response to an earlier question, the capital reduction for CECL, we'd have no significant capital reduction for CECL because we already did make a capital deduction in respect of the IRB capital model, which exceeds the CECL provision. So we already have a greater deduction. So therefore, increasing the CECL does not, therefore, reduce our capital. And as I said before, I think to be helpful, there's about another CHF 200 million of buffer that CECL would have to increase by before it exceeds the IRB buffer. And then at that point, you get into these interesting questions around phase and everything else, but that's just not relevant at this point, and hopefully, does not become relevant in the future in terms of capital reductions. So that's what I'd say to your technical question, Kian, I think. Thomas?

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Yes. So on...

[Kian Abouhossein]

Sorry. Just...

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Please go ahead, Kian.

[Kian Abouhossein]

Apologies. Just on CECL, can you just highlight what assumptions you make for GDP and unemployment in 2021? Actually, that's more interesting from my perspective, at least. Should we just use consensus numbers on Bloomberg as a good indicator? Or are you different from that assumption?

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

I think it's not that different. I mean, it's closely aligned to, but not quite the same as the house view we give externally. So we expect a 2%, 3% GDP growth in '21 across actually the U.S. and Swiss markets basically has recovered from that. I don't have the -- well, yes, and I -- yes, we do expect to see U.S. unemployment reduce, but it's still going to be well above trend in our numbers in 2021.

[Kian Abouhossein]

And just on CECL, the CHF 200 million is on a phased-in basis or fully loaded, the buffer?

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

I think we don't have a phased-in question at this point, Kian. I think we have a -- we already have under the FINMA's IRB model, a capital reduction, which exceeds that from a CECL one. If our CECL losses were to increase by CHF 200 million at some subsequent quarter from the level they are now, then basically, we would start to see a capital reduction and then we -- then I think that's when the phasing question actually kicks in, but it's not relevant at the moment, Kian. Sorry, I think -- the way I think, we have a full deduction ready. There's no phased-in effect.

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Okay. So your other 3 questions on valuation, on the credit business and the buyback. So first, on valuation, I very much believe in the correlation between return on tangible equity and price to tangible book value. And I think there is a clear dislocation at the moment from where we are against that line and where we are trading. So I think it's our task to deliver quarter-on-quarter to get as close as possible to that line. At the moment, we are clearly way below our tangible book value, which is not a Credit Suisse idiosyncratic problem. I think most banks suffer from the same, but we just have to prove quarter-over-quarter that we can deliver on our returns, and that's how I look at valuation. Secondly, on the credit business, I have to say that don't quite understand your question because our credit business is actually profitable. If I look in global markets, it has had actually an excellent quarter as part of our fixed income, and this is even after absorbing their share of the unrealized markdowns. Now if you refer to more the LevFin business, clearly, it was an extraordinary difficult quarter, not only for us, but also for the U.S. banks that are mainly our competitors in that market. But over a mid- to long-term cycle, we very much believe that the private equity-related business will continue to be a main driver of investment banking fees going forward. If you look at our CHF 7 billion exposure in the context of our CHF 300 billion loan book, I think it's a small exposure. We have significantly reduced it in -- after the financial crisis, this was -- I think from the peak, we went down 85%. So clearly, LevFin had a bad quarter, but I think we are well positioned in that business. And it has actually also -- in many cases, relates also to M&A, for example, where we have a lot of clients now approaching us about public to private with the low valuations, and you can only discuss that if you also have people at the table that understands LevFin markets. And from that perspective, I'm actually very clear of the opinion that it fits well with our overall strategy. On the buyback, very clear, we have suspended it in March, and we are now observing the market. We are, in the first instance, focused on the second part of the dividend, of the 2019 dividend to be paid in the fourth quarter. Secondly, we are focused on paying a dividend for the year 2020 and then only in the third instance on the share buyback. So that's how I look at it. Thank you.

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

And then to your first question, sorry, Kian. I think the confusion or the points I'm going to have to clarify really comes down to IRB, the standard models. So the IRB model, as approved by the FINMA, is extremely conservative, and that's why the capital reduction exceeds the CECL number. If we were operating under a standardized approach as opposed to an IRB approach, then I understand what you mean at that point because at that point, CECL would then be more closely aligned to capital. But we're operating under IRB. The approved model for that is very conservative, and that's why we have a buffer. So just to be clear, that's the core reason for the difference between Credit Suisse and any other CECL banks you've looked at.

[Kian Abouhossein]

I see. No, I get it. That's very clear. If I may, just very quickly...

[Operator]

Your last question comes from the line of Jeremy Sigee, Exane.

[Jeremy Charles Sigee, Research Analyst]

Just 3 quick follow-ons. Firstly, just clarifying a comment that you made a moment ago, Thomas. You talked about the full year 2020 dividends. Did you say -- are you accruing a dividend in these 1Q numbers? That's my first question. Secondly, again, a clarification. When you warned the further asset management loss risks, would that require folds in the market level from today? Or would it even be risk of losses even at today's market levels?And then my third question is, do you see any loss risks around ETFs that you operate? For instance, I saw that you're closing a small oil ETF with a loss of client money. Is there a risk that either on that or other ETFs that the bank loses money or is subject to litigation risks?

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

Jeremy, could you just repeat the first question? At one point, I'd just been...

[Thomas P. Gottstein, Member of the Executive Board & CEO]

Accruing 2020 dividend was the question. The answer is, yes, we are accruing not only the full dividend for '19, but also accruing for '20 dividend, yes.

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

And I think on the second question in terms of AM losses, yes, it's partly dependent on market levels, but it is an alternative franchise. So you have a number of complex assets there, which are not directly linked to long equities. And I think that's -- I think we will have to assess that in the course of the second quarter. We're seeing, obviously -- despite, obviously, the reduction in volatility since mid-March, there is still quite a lot of, should we say, unusual market events going on at this point. And I think it's only appropriate to warn that there is risk exposure there, I think, Jeremy. Was there a third question, Jeremy?

[Jeremy Charles Sigee, Research Analyst]

Yes, ETFs, any risk of losses? You're closing an oil ETF.

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

ETFs, nothing. We wouldn't expect anything material, Jeremy.

[Kinner R. Lakhani, Head of Group Strategy & Development]

I think we'll leave it here. Many thanks to all for your time this morning. And if you have any further questions, please feel free to follow up with the IR team. 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.