Credit Suisse Group AG

SIX:CSGN

Earnings Call Transcript 2018-Q2

[Operator]

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group Second Quarter 2018 Results Conference Call for Analysts and Investors. [Operator Instructions] The conference is recorded. [Operator Instructions].At this time, I would like to turn the conference over to Adam Gishen, Group Head of Investor Relations and Corporate Communications. Please go ahead, Adam.

[Adam Gishen, Group Head of Investor Relations]

Okay. Good morning all, and welcome to our second quarter 2018 results call. 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. In this presentation, when we discuss our results, we focus on our adjusted results as it is the way we manage the operating performance of our business. For a detailed discussion on our reported results, we refer you to the Credit Suisse second quarter 2018 financial report.With that, I will hand you over to our CEO, Tidjane Thiam, for a run-through of our numbers.

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

Thank you, Adam. Good morning, everyone, and thank you for joining the call. With me is David Mathers, our Chief Financial Officer. Together, we will present Credit Suisse's results for the second quarter and for the first half of 2018. We look forward to answering your questions at the end of the session and discussing our results in more detail.So let's begin with Slide 3. We have delivered pretax income in the second quarter of CHF 1.3 billion, up 88% year-over-year. This represents our highest absolute level of quarterly profit in the past 3 years, past 12 quarters. These results also reflect the cumulative effect of 2.5 years, 10 quarters, of restructuring work and of continued progress.Let me turn to Slide 4 and talk to you in more detail about our performance. So in Q2 '18, one, we have been able to further accelerate our profitable growth in Wealth Management with CHF 23.5 billion of net asset inflows in 1H '18, resulting in record assets under management. Two, we have continued to generate positive operating leverage by growing revenues and reducing cost. As you know, this has been a central theme for us for many quarters, and I will come back to it in more detail later. Three, we have reached a true milestone in our restructuring as we have already hit our year-end SRU -- our year-end 2018 SRU capital targets. And four and last, we have maintained strong capital ratios and continued to improve our return on tangible equity with a clear path to achieving our 2019 target of between 10% and 11%.With that, let's turn to Slide 5, which you are familiar with now. We've been using it for a few quarters. It shows that Q2 '18 is our seventh consecutive quarter of year-on-year profit growth. Since 4Q '16, identified here by the blue arrow on the right-hand side of the chart, we have grown pretax profits year-on-year every quarter. In 2Q '18, you can see here that we have grown our profits by 88% over 2Q '17, a further acceleration after Q1 '18, on the left, where we delivered a 36% year-on-year profit increase. So let's put the quarter in perspective over a longer period of time. You have a time series here starting in 3Q '15 up to now, which shows you that 2Q '18 is our highest PTI in the last 3 years. Taking the first and second quarter of this year together, the first half of the year, PTI, at CHF 2,492 million, is already 90% of our full year profit in the previous year in 2017. So this is a result largely of our focus on growing revenues and reducing cost, so let's look at that in -- on the next slide, starting with the revenue line and the key drivers of the revenue line. So our continued progress in generating strong net asset inflows, in our mind, is an indication, among others, of the trust which our clients place in our ability to grow and protect their wealth over time. This is why I talk about client-led growth. We have built on a strong first quarter performance at CHF 14.4 billion of NNA and generated an additional CHF 9.1 billion of net inflows in the second quarter; so cumulatively, CHF 23.5 billion of NNA in the first half. That is, we believe, an industry-leading 6% growth rate, especially for a bank of our scale. Our inflows have been broad-based and diversified with growth across all regions and client segments. Looking at these in a little more detail from the second quarter, they included a strong contribution from IWM, at CHF 5.2 billion. And in APAC, we also saw healthy net inflows of CHF 3.4 billion, notwithstanding a more challenging market environment, and I'm sure we'll come back to that. Please also note that these numbers do not include a CHF 17 billion, 1-7, of additional net inflows in our Asset Management business in the first half of '18, which would take our half year total to CHF 40.5 billion, which is a reasonable-sized bank that we've added to this bank in the half year.So turning now to assets under management, AUM, another driver of revenue. Our strong NNA has allowed us to reach record levels of AUM at CHF 784 billion, as you can see here. That is an increase of 21% in 2 years, so since H1 '16, and a CAGR of 10% over the period.Moving on, let's look at the mandate penetration, at the same time, we increased our mandate penetration, reflecting the continued success of our unified bank-wide House View and our continued strong investment performance, which is key to provide value to our clients. Within this, we believe that fee income is a high-quality revenue stream, and that is why increasing our mandate penetration is a core component of our strategy.So strong net inflows, record-high AUM, increasing mandate penetration all contributed to our top line growth that we can see on the next slide. Wealth Management revenues are up 7% year-over-year, largely driving the revenue growth for the group as a whole. And importantly, as we will show later in my presentation, we were also able to improve the quality of these revenues. So, so much for revenues. Let's now move to the second side of operating leverage, cost. Since Q1 '16, measured on an constant FX basis, our cost program has delivered CHF 4.8 billion of gross cost savings or CHF 3.7 billion of net cost savings after significant investments. Allow me to pause here and insist on this point. The program was designed to allow for investments. So we knew how much net cost savings we wanted to generate, and we planned the gross cost savings to make sure that we will continue to invest. So I want to dispel any notion that this program is delivered at the expense of investment. That is simply not true. We have constructed these targets to be able to continue during the restructuring to improve our control framework, to upgrade our technology and infrastructure, and we showed you example of that at the 2017 Investor Day with the new systems we have in compliance or in digitalization, and also attract and retain key talent. Our efficiency efforts have been broad-based. To name a few examples, over the last 12 months, we have decommissioned more than 130 business applications. It's an aside, but one of the features of our bank is there are no BlackBerrys. We're very determined and very disciplined in eliminating applications, and the only way to get rid of the support from BlackBerrys is to not have any. So we -- that's the kind of things will do, and that allow us to close down applications. So we have decommissioned more than 130 business applications. We have reduced additional 2,400 contractors, consultants and outsourced roles, corresponding to 10% of that workforce population. And we're already running 24% of our operating systems on the cloud with the aim to reach 60% by 2020. And my final comment on IT will be that we have a culture of output, not input. Spending on IT is easy. Trust us, we're able to do that, too. What's tough is to get a return on your IT spend, and that is what we are focused on and that is what's driving the profit and the result we show you. For -- to take one example, one reason why Switzerland beat its cost-saving target is that with digitization, which has been implemented with investment, has allowed us to save in general on administrative expenses above and beyond what was targeted. So we believe in outputs, not inputs. Let's move to the next slide. So this slide shows you revenue and cost: on the top part, revenue evolution; on the bottom part, cost evolution. And you can see that, actually, in all quarters but one, Q3 '17, we've been able to increase revenue and reduce cost. And in the only quarter where revenue decreased, cost decreased even more. So this is what we call positive operating leverage. And second quarter '18 was the seventh consecutive quarter of profit generation for us through positive operating leverage. Starting in the fourth quarter of '16, the cumulative effect of [ this growth ], which you can see at the bottom part of the page, has produced CHF 4.4 billion of PTI improvement for the group. So to close this section, we will use a slide you've seen now a number of times, showing the change in our 2018 first half pretax income compared to the same period in '17 and '16. So over that period, revenues have increased by 14%, on the right here, with cost down 11%, while PTI has grown by CHF 2.4 billion.So having talked to you now about our Wealth Management growth, the drivers of our revenue line and our positive operating leverage, I would like now to turn to an issue we have regulate -- regularly updated you on, which is how we are dealing with our legacy. So let's look at the SRU on the next page.We have already achieved our 2018 year-end target of RWA and leverage for the SRU, as you can see here. Considering the scale of our SRU when we started this process in Q1 '16 at $57 billion ex op risk -- ex operational risk, this, for us, marks a significant milestone. We are $10 billion of RWAs, or below the $11 billion target we set. And we're $39 billion of leverage, so below the $40 billion target we set. And over the lifetime of the SRU, it's [indiscernible] in the strategy because it also released close to 6 billion of capital, which really supported both the restructuring of the group and also our growth in Wealth Management, which allowed us to grow revenue during our restructuring. And David will give you more detail on this later. Finally, we have maintained strong capital ratios, absorbing the impact of regulatory-driven inflation, the increase in RWA related to operational risk post the RMBS settlement, you probably remember that, of around 40 basis points and the Q2 delivery of share-based compensation, which cost us 15, 16 basis point also. So we remain well above our medium-term guidance on both CET1 and Tier 1 leverage ratio. Please also note our announcement earlier in the quarter that our U.S. IHC had passed CCAR, both qualitatively and quantitatively, at the first attempt. This is for us an achievement, which reflects our focus on reducing risk, cost and capital usage in our U.S. entity.So to wrap up this section and before we go into our business divisions, I wanted to take a minute to congratulate our teams across our regions as we have received, on the next slide, a number of industry awards across a wide range of divisions and geographies. In Switzerland, which is very pleasing for us, we received both best bank and best investment bank as a Swiss bank; and in IWM, best bank for wealth management in Latin America, Middle East, Western Europe, Central and Eastern Europe; and in APAC, best investment bank. So I will now look more closely at the performance of our divisions on Slide 18, please. Since the start of our restructuring, as you know, we have been allocating increasing amounts of capital towards our more profitable and more capital-efficient Wealth Management and IBCM businesses, which are our businesses with higher capital velocity and shorter payback periods. We have continued this rebalancing, as you can see here, in the first half of '18. And we aim to maintain this capital discipline going forward.So on the next slide, we have been able to simultaneously grow profits, change the composition of our earnings and reduce risk, as you can see the group's VaR at the bottom line of the slide. So I will repeat here what I said last quarter. We have the blue and the gray, and we're driving strategy to grow the blue, and the gray will grow as a consequence of the growth of the blue. Our markets activities, which are here in gray, are an absolutely fundamental component of our strategy. They provide our clients with access to capital, quality execution and the ability to design, first, and manufacture, second, best-in-class solutions to institutional, corporate and ultra-high-net-worth clients. They are key to our long-term success, and they actually also, importantly, play a key role in the outperformance you can see in our Wealth Management divisions. So that said, let's take a closer look at Global Markets on the next slide. In Global Markets, we have continued to increase our collaboration with our Wealth Management divisions while maintaining a strict capital, cost and risk discipline. So in Q2, net revenues were 8% lower, a resilient performance taking into account the cap we have on capital and balance sheet usage. Overall, in H1, revenues for the division exceeded USD 3 billion. Looking at the performance in a little more detail, and David will do more on this, but aside from credit, which was impacted by lower client activity levels and a very strong -- uniquely strong comparable, frankly, in 2Q '17, we actually saw good performance across key products, in particular, in equity derivatives, reflecting the investments we have been making in that business over the last 12 months and its strong connection and growing connection to our Wealth Management franchises. We also maintained our focus on reducing total operating expenses, down 2% year-over-year, and are maintaining our CHF 4.8 billion target for the end of 2018 in cost, I mean, yes. Overall, GM produced profitable Q2 with USD 206 million of PTI. But in the past, we have highlighted the importance of ITS, International Trading Solutions, our strategic initiative between GM, IWM and the Swiss Universal Bank, which we'll look at in more detail on the next slide. And I want to give a bit of credit here to Brian Chin because he really believed in this concept, pushed it together with Thomas Gottstein and Iqbal Khan, and we're now starting to see some of the results. We believe that both the client opportunity and future revenue upside potential for this ITS are significant and core to the strategy. We have made very good progress over the past year, connecting some of our best solution ITS capabilities with our ultra-high-net-worth client base through a coordinated and collaborative coverage approach. Increased market uncertainty in Q2, which we've all observed, has actually provided ITS with significant new opportunities to offer our clients hedging and risk management solutions, allowing them to protect their wealth at a time where some of them wish to deleverage and has been really kind of our own hedge against deleveraging. Amongst the highlights in H1, we saw 25% more Wealth Management client interactions in structured products, and we gave you some examples here on the right. And FX client revenues were up 10% in the period. This is really the growth engine now for Global Markets, and this is where a lot of the growth should be in the coming quarters. ITS is working closely with our Wealth Management divisions and has allowed us to adapt our offering effectively to this new phase of the economic cycle, which is a very pleasing development.So let's move now to IBCM. IBCM delivered its best second quarter since 2014, with net revenues up 23%, a very strong performance across the industry. Jim Amine and his team held a top 5 rank in global leveraged finance and ECM. And we significantly outperformed The Street in advisory, driven by substantial M&A closings in the quarter. Our strategy to focus on large cross-border transactions was evident in the quarter, with 8 deals contributing more than half of our 2Q revenues. Looking forward, our pipeline of announced transactions is strong, up more than 100% year-on-year. And on the next slide, you can see how this has translated importantly into [ total ] profits, which are up 53%. Return on regulatory capital, at the bottom, improved by 4 percentage points to 18%, which is well within our target range.So now let's turn to our home market, Switzerland, on the next page. Thomas Gottstein and the team here have achieved their highest quarterly profit since 2013, with 2Q '18, in blue here, achieving both the highest revenue and the lowest cost ever for the business. So we believe that we have fundamentally changed the economics of our Swiss bank over the last 2.5 years. In Q2, we saw continued revenue momentum with our ultra-high-net-worth and Bank for Entrepreneur franchisees while many of the cost actions that we have taken over the past 12 months are increasingly being reflected in our bottom line with a kind of compounding effect. Now if we step back from this quarter-by-quarter view and look at the half year view on the next slide. The next slide, please. Okay. The continuous improvement -- this is all half years. The continuous improvement in SUB's performance and the marked step-up in profit in 2018 become even more visible on this chart. We have consistently improved the return on regulatory capital for the division, which at the half year stage reached 18%, which is really a star performance. So let's move now to IWM. And there, Iqbal Khan and his team delivered a further step change in profits that you can see here. In Q2, revenues were up 6%, and costs were flat, leading to a 22% increase in pretax income year-over-year. For the first half, the division produced a very strong PTI of CHF 935 million. Return on regulatory capital increased to 34%. And if we look at basically, the 2 components in there, Private Banking and Asset Management. In Private Banking, we saw broad-based revenue growth across revenue categories, regions and client segments while remaining prudent, and I insist on that, around risk at this point in the cycle. The division made further progress in leveraging our investment engine through House View-led solutions and achieved, pleasingly, CHF 5 billion of additional mandate sales to both ultra-high and high-net-worth client.And if we look at Asset Management within the division on the next slide, our teams there have delivered another strong quarter, driving returns higher and generating a return of 25% at H1. So now let's turn to Asia Pacific, starting with APAC Wealth Management & Connected businesses on the next slide. And if we look at the performance of Helman and his team since H1 '15, they have grown revenues by 56% while keeping a measured pace of investment spend in a region where the growth potential is huge and where it's crucial to continue to invest. So operating expenses have risen by 30% in the same period, underlining our positive operating leverage, revenue up 56%, operating expense up 30%. We actually believe that about 2/3 of this increase in cost is directly volume related, a byproduct of our success in growing our top line. So in H1 '18, we delivered CHF 464 million of pretax income, driving return on regulatory capital up to 31%. We have achieved significant net asset inflows of CHF 10 billion in H1 and, as I said earlier, CHF 3.4 billion in Q2 in Asia. For the first time, we crossed the CHF 200 billion mark in assets under management in the region, and this will continue to grow. So in Private Banking, we generated record recurring revenues, driven by higher fund volumes, growth in CS Invest sales and discretionary mandates. In IBCM, we gained significant share of wallet across our key products and geographies. And our integrated approach of having a whole division has continued to produce, we believe, excellent collaboration results. Some of the collaboration NNA, that is net new assets, which our investment bankers refer to our private bank, plays a key role in delivering these numbers. So now if we look at APAC Markets on the next slide, we have successfully restructured APAC Markets, which was loss making at this time last year. We have reduced materially our fixed cost base. We have continued to invest in our key client franchises across the region, most notably in Equities, and steadily grown our revenues over the past 12 months. Notwithstanding the more challenging market environment in APAC during Q2 with lower equity volumes, we've produced a strong result particularly in Prime Services and equity derivatives, a key value driver for ultra-high-net-worth clients in the region. And let me pause here to make another comment, which is that some of the WMC, so Wealth Management upside is here. It's in these numbers and markets because a lot of the equity derivatives uptick is linked to the Wealth Management franchise. And this is why we like to look at the division as a whole, as you can see in the next slide, because, fundamentally, the 2 sides very much reinforce each other. And that's what leads to a significant uptick in returns at the half year, up 6 percentage points year-over-year up to 20%. So now if we bring together Switzerland, International Wealth Management and APAC and look at the results, you can see here a breakdown of revenue streams. So at the top, over the past 12 months, we have grown recurring fees and commissions by 7% through higher mandate penetration, better leveraging our investment engine and our bespoke House View-led solutions. We have prudently grown net interest income through higher loan volumes and higher margins while enforcing strict balance sheet and risk discipline, which is very important for us in our lending activity that we keep an eye on risk. As everybody knows, it's very easy to drive loan volumes up if you relax the risk, and that's not what we are doing.Finally, at the bottom, transaction and performance fees have grown by 10% as we have integrated a solutions-based approach to solving the complex financing risk management and hedging needs of our ultra-high-net-worth clients as we are seeing the benefits of the closer collaboration with ITS that I mentioned earlier. So looking at how these revenues have translated into profits, we achieved the step -- a step change in profits. These 3 divisions in '15 together generated CHF 1.6 billion of PTI. In 1H '18, they generated CHF 2.5 billion of PTI, an increase of 58% in 3 years or, in absolute terms, CHF 925 million of additional profit in the first half alone.This is a slide that we've used also a number of times. It allows you to track the progress of our core profitability over time as we drive returns higher across each of our businesses, and that's really the strategy. And as this core profitability increases, which for the first half of '18 reached 15%, and as the drag of the SRU -- not sure why it's in pink, but it's in pink at the bottom. As the drag from the SRU diminishes, we are well positioned to generate profitable growth and create value going forward. So turning to the next slide, you can see the impact of this profit improvement on our group RoTE. We have delivered close to 800 basis point of RoTE improvement for the group in 24 months. And as we highlighted -- this is a slide from the Investor Day in November that I think David presented. As we highlighted then, there are a number of known items which we expect to drive these returns higher, and David will come back to that later. We told you at that time that these known actions could contribute roughly an additional 4.5 percentage point of RoTE uplift by end '19. So these known actions, which are aside any additional business growth, and I hope we showed you that we are generating a lot of business growth. These known actions from our core business give us confidence in achieving our ability to achieve our future RoTE targets of 10% to 11% in '19 and 11% to 12% in '20. And our RoTE is clean. We don't exclude anything from the denominator. It's a number that's entirely comparable to other banks we hope because it's created on the same basis. And it is a reported RoTE, not an adjusted. So when we say 10% to 12%, it's on a reported basis, which is much more demanding, as you all know, than on an adjusted basis. So with that, let me conclude on the following slide. We've completed 10 out of the 12 quarters of our restructuring, and we believe we're on track. We are benefiting, one, from the acceleration of growth in our Wealth Management activities; two, from the compounding effect quarter-after-quarter of driving positive operating leverage; three, of our continued progress in dealing with our legacy; and four, of our ability to accrete capital, thus, increasing tangible book value per share, finally, and growing shareholder returns. So with that, I'll hand over to David.

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

Thank you, Tidjane, and good morning, everybody. I'd also like to thank you for joining our second quarter earnings call this morning. So I will start my part of today's presentation with a summary of our financial results on Slide 39. As usual, we highlight our group numbers on both a reported and an adjusted basis. And these have been prepared under the same definition that we've used in prior quarters. For those who'd like to take a more detailed look, there is a full reconciliation of the adjusted and the reported results on both the group and the divisional lines in the appendix. For the second quarter of 2018, Credit Suisse achieved a pretax income of CHF 1.05 billion on net revenues of CHF 5.6 billion. On an adjusted basis, as per our usual definition, we achieved a pretax income of CHF 1.28 billion on CHF 5.6 billion of revenues, and that's an increase in profits of 88% year-on-year. Restructuring charges were CHF 175 million in the quarter. That included CHF 50 million in respect to the real estate portfolio as well as other reorganization measures. That takes our total restructuring spend from 2015 to 2018, which, as you know, is the end of the restructuring program, to CHF 1.7 billion. We're maintaining our guidance for a total program spent of CHF 1.9 billion by the end of 2018.Separately, we also took legal provisions of CHF 55 million, primarily in respect to the Asian hiring investigation by the U.S. Department of Justice and the SEC, and that cost was taken in the reported results of the APAC Wealth Management & Connected business. We achieved net income attributable to shareholders of CHF 647 million, and that's equivalent to return on tangible equity of 6.9% for the second quarter, up from 3.4% in the same quarter a year ago. And that takes our RoTE, as Tidjane mentioned, to 7.2% for the first half of 2018.Now for the rest of the presentation, I will focus on the adjusted numbers as we continue to believe that they more accurately reflect the operating performance of our businesses.And with that, let's turn to Slide 40 to review our capital and our leverage position. So we completed the second quarter with a look-through CET1 capital ratio of 12.8%, which is above our target to be greater than 12.5%. This CET1 ratio includes a negative 16 basis point quarter-on-quarter impact from the delivery of share-based compensation awards. And our CET1 target ratio post 2018 remains at greater than 12.5% pre-the Basel III reforms. Our CET1 leverage ratio improved to 3.9% at the end of the second quarter. That's up from 3.8% at the end of the first quarter and above the Swiss too-big-to-fail going concern requirement of 3.5% which we need to achieve by 2020. On a look-through basis, our risk-weighted assets increased slightly from CHF 271 billion at the end of the first quarter to CHF 277 billion at the end of the second quarter. This reflects a CHF 4 billion increase from the appreciation of the U.S. dollar against the Swiss franc, CHF 2 billion of growth in the RWA used by our core businesses and CHF 2 billion of adverse external methodology changes. This was then offset by a CHF 2 billion reduction of RWA in the Strategic Resolution Unit. And I'd note that the continued reduction of risk-weighted assets in the SRU means that it is now below the target of USD 11 billion in risk-weighted assets, excluding operational risk that we originally said we'd meet by the end of 2018. So we've achieved our target 2 quarters earlier than we'd anticipated.Our Tier 1 leverage ratio stood at 5.2% at the end of the second quarter. That's up from 5.1% at the end of the first quarter. I would note that while we'd expect the CET1 leverage ratio to remain at or above the end 2Q level of 3.9% in the second half, we would expect to see some reduction in the AT1 buffer given the expected call of the high-trigger contingent convertible bonds that were issued back in 2012 and 2013 by the end of this quarter. This will be partly offset by the USD 2 billion of new AT1 notes that we issued early this month. Nonetheless, looking forward by the end of the year, given our expected capital instrument funding plan and leverage usage, I would expect the Tier 1 leverage ratio to be back in line of our target, which is to be greater than 5%. And I'd make one further point. If we look at the funding plan, the issuance that we made in July is in line with the capital plan that we presented at last November's Investor Day. The spreads on July's issuance were inside the planning assumptions which we used then, and that means that we remain on track for our guidance to have a funding cost reduction of 700 million in 2019 compared to 2018. Now as you can see from the diagram at the bottom of the slide, leverage exposure fell from CHF 932 billion at the end of the first quarter to CHF 920 billion at the end of the second quarter. That's a reduction of CHF 12 billion. Finally, I'd note that we have made further substantial progress in our cross-divisional ITS business during 2018. This business is increasingly focused on supporting the needs of our Wealth Management clients with a lower exposure to wholesale markets, and that includes the reduction in our U.S. rates business that we announced last quarter. Leverage and RWA usage also reflects this, and we have realigned the allocation between GM, IWM and SUB accordingly.Now with that, let's turn to Slide 41, please, to focus on costs. In the third and the final year of our restructuring program, our commitment to reduce costs and increase efficiency remains paramount. As you know, we set a target to reduce our adjusted annual cost base to less than CHF 17 billion by the end of 2018. That's measured in constant 2015 FX rates and using a consistent accounting base. Our cost base on this basis stood at CHF 8.6 billion for the first half of the year. In actual FX rates, it was actually CHF 164 million lower than that at CHF 8.4 billion. We achieved further significant cost savings in the quarter. These were led by further reductions in professional service expenses, but we also saw savings in most of our other expense categories. And that means that in the first half of the year, we've reduced cost by CHF 0.5 billion compared to the same period in 2017 with incremental net savings in the second quarter of a further CHF 236 million. Overall, we've now reduced our expense base by 18% since the first half of 2015, and we continue to target this reaching a 20% reduction by the end of 2018. And I'd like to formally reaffirm our commitment to achieving an operating cost base in constant FX rates of less than CHF 17 billion for the year.Let me now turn to divisional performance, please, and start with the Swiss Universal Bank on Slide 42. The Swiss Universal Bank, which combines retail, private, Corporate & Institutional Clients, delivered another strong performance in the period, with a pretax income up by 15% to CHF 580 million. And that's the 10th consecutive quarter of year-on-year profit growth. Net revenues increased by 1% to CHF 1.4 billion whilst operating expenses fell to CHF 804 million from CHF 865 million in the second quarter of 2017. And as you can see, we've continued to make substantial efficiencies in the Swiss Universal Bank. And I point out that means that operating expenses have now reduced by 21% in this division since the fourth quarter of 2015. And that means that at the end of the second quarter, the Swiss Universal Bank's cost/income ratio stood at 57%, down from 62% the end of the second quarter last year. In the Private Clients segment, net revenues rose by 3% to CHF 757 million compared to the same quarter a year ago, with pretax income rising by 28% to CHF 285 million. And adjusted net margin of 55 basis points, up from 44 basis points in the second quarter of 2017, was the division's highest quarterly level to date. And assets under management increased to CHF 208 billion. That's up by 3% year-on-year, thanks in part to an additional CHF 500 million of net new assets in the quarter. In the Corporate & Institutional Clients segment, pretax income rose by 5% to CHF 295 million. And that was driven by strong demand for FX transactions and institutional mandates.Next, please, on Slide 43, I would like to turn to International Wealth Management. Now building on the strong progression we've seen over a number of quarters, International Wealth Management delivered a further increase in profits in the second quarter. Pretax income of CHF 461 million was a 22% increase on the same quarter in 2017. In the first half of 2018, IWM generated CHF 935 million of pretax income and is on track to meet our target of CHF 1.8 billion for 2018. As with other divisions, cost and efficiency continues to be a focus for IWM, with a cost/income ratio standing at 65% in the second quarter, down from 69% in the same period a year ago. Return on regulatory capital stood at 34% at the end of the quarter as a result of continued capital discipline. In the Private Banking business, net new assets were again strong, standing at CHF 5.2 billion in the quarter, up from CHF 4.6 billion in the second quarter of 2017. This increase was achieved across IWM's operating regions, with a 7% increase from emerging markets on an annualized basis and 6% from Europe. Pretax income in this segment rose by 21% to CHF 372 million with increases in net interest income, recurring commissions, transactions and performance-based revenues. The continued implementation of our House View helped to increase mandate penetration to 33% with CHF 5.3 billion of net mandate sales.In Asset Management, net new assets stood at CHF 8 billion in the quarter, up from CHF 2.8 billion of inflows in the second quarter a year ago. That was primarily driven by inflows into our traditional and our alternative funds during the period. Pretax income increased by 25% in the quarter, partly driven by a 10% increase in management fees. Now with that, let's move to the Asia-Pacific region, please, on Slide 44. For Asia Pacific, revenues in the quarter rose by 8% year-on-year to CHF 914 million, helped by the benefits from the restructuring measures that were implemented in its markets division last year. Pretax income rose by 34% from the second quarter last year to CHF 266 million as a result of business growth and the continued focus on costs. As already announced, we've resolved the investigations into our APAC hiring practices between 2007 and 2013, with additional CHF 29 million litigation provisions taken to WMC subsegment in the second quarter, and this is reflected in the reported results for the subsegment. We remain disciplined in our operating expenses. These fell by 1% to CHF 641 million. In APAC's Wealth Management & Connected segment, which unifies our Wealth, Investment Banking & Capital Markets activities in the region, revenues rose by 1% to CHF 564 million with a strong performance in M&A and equity capital markets and recurring commissions and fees in our Private Banking business. This was offset by adverse mark-to-market moves of CHF 21 million in the financing portfolio. Overall, WMC's pretax income increased from CHF 198 million in the second quarter to CHF 208 million in the second quarter this year. In APAC Markets, pretax income improved to CHF 58 million, which compares to CHF 1 million in the second quarter of last year. And that was thanks to a significant rebound in both our Equities and our Fixed Income franchises from the restructuring work last year.We saw continued growth in net new assets in the second quarter with CHF 3.4 billion of net new assets, which took the total for the first half to CHF 9.6 billion, and that's equivalent to an annualized growth rate of 10%. And as a result, assets under management increased to CHF 206 billion by the end of June, and that's a record for the division.Next, let's turn to the Investment Banking & Capital Markets division, please, on Slide 45. Investment Banking & Capital Markets, which delivers advisory and investment banking services in the Americas and in EMEA, produced a strong result in the quarter. Net revenues were up by 23% on the same quarter a year ago, significantly outperforming The Street, according to the data from Dealogic. This result was led by a significant improvement in our M&A business in both the Americas and in EMEA, with advisory and other fees up by 58% on the second quarter last year, ranking us 8th on completed deals. Equity underwriting revenues fell by 3%, reflecting market conditions, but we retained a top 5 ranking in global ECM, whilst debt underwriting increased by 4% on the same quarter in 2017, ranking us in the top 5 globally for leveraged finance.Pretax income stood at CHF 141 million for the quarter compared to CHF 92 million for the same quarter in 2017. And the return on regulatory capital is 18%. That compares to 12% in the first quarter 2018 and 14% in the second quarter of 2017. But at the same time, IBCM's cost/income ratio fell to 76% from 80% at the end of the second quarter in 2017, notwithstanding a 17% increase in operating expenses linked to higher compensation as a result of the improvement in business performance. I would just like to remind you that as I commented a quarter ago, as a result of the U.S. GAAP standard ASU '14-09 on revenue recognition, which requires a change in the gross and the net presentation of certain revenues and operating expense lines, net revenues and operating expenses both increased by USD 21 million in the second quarter.Now if we look at our global advisory and underwriting businesses, now that combines revenues from those booked in IBCM, the Swiss Universal Bank and Asia Pacific, revenues totaled USD 1.2 billion in the quarter, and that was up about 14% on the same quarter last year. Let's turn to Slide 46, please, and focus on Global Markets. And our results in the Global Markets division reflected continued capital discipline and the further development of the ITS business with SUB and IWM. Net revenues for the quarter stood at USD 1.4 billion compared to USD 1.6 billion in the same quarter of last year. We saw a slowdown in client activity in our credit franchise compared to a very strong performance, particularly in securitized products in the same quarter last year. In Equities, revenues improved by 3%, with increased equity derivative revenues offsetting a weak quarter in cash equities. This improvement in equity derivatives continues to reflect the momentum in our ITS business with the increased focus on product creation to support the needs of our Wealth Management clients. Pretax income stood at USD 206 million in the quarter, results benefiting from the efficiency initiatives with respect to operating expenses, which fell by 2% year-on-year. Excluding the ASU '14-09 change in revenue recognition, that was a 3% decline.Now you may remember in our first quarter results that GM reported risk-weighted assets of USD 61 billion and leverage exposure of USD 296 billion. As Tidjane mentioned this morning, our focus in GM is on client business, and we remain very disciplined on capital allocation. Risk-weighted assets stood at USD 59 billion whilst leverage exposure was $268 billion. Of the quarter-on-quarter reduction in leverage exposure of USD 28 billion, $12 billion was -- reflected the alignment of capital usage in ITS to our Wealth Management clients and $16 billion was a like-for-like reduction in usage by our GM businesses. And as I've noted already, this included the downsizing of our wholesale U.S. rates business that we announced last quarter.And with that, I'd like to move on to our final division, the SRU, please, on Slide 46 (sic) [ Slide 47 ]. With 6 months of the year to go, the Strategic Resolution Unit has now beaten 2 of its 3 key targets: for RWA excluding operational risk; and for leverage exposure. And it's on its way to meeting its third, that is the level of losses incurred. It remains our intention to close the SRU as a separate segment at the end of 2018, and the success and the progress to date puts us well on track to achieve this. Risk-weighted assets excluding operational risk stood at USD 10 billion at the end of June. That compares to a year-end target of $11 billion, whilst leverage exposure stood at USD 39 billion against a year-end target of $40 billion. And adjusted pretax losses for the first half of the year was USD 714 million. So that puts us on track for the full year target of approximately $1.4 billion. Now I'd also note that the negative net revenue in the SRU in the second quarter, and by which I mean the adjusted revenues, includes a USD 72 million loss relating to the announced agreement to settle legacy claims with the executives of Lehman Brothers Holdings and certain of its subsidiaries. This settlement was approved in principle by Judge Chapman last week. We also closed out a further significant portion of our life settlements exposure and reduced our derivatives portfolio. Exit cost totaled USD 13 million in the quarter, and that was equivalent to 0.6% of risk-weighted assets, leaving our SRU lifetime-to-date exit costs at less than 1% of RWA, well within our long-term guidance to be closer to 2%.Now as I said at the Investor Day last November, our goal is to ensure that the drag from the residual positions that are carried forward into 2019 incur an adjusted pretax loss of less than USD 500 million, excluding litigation next year. To this end, in the second half, we intend to continue to reduce RWA and leverage balances to further below our published targets, with adjusted pretax losses still expected to be in line with our existing guidance of $1.4 billion for 2018.With that, I'd like to thank you very much for your attention this morning, and I'd to like hand you back to Tidjane. Tidjane?

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

Thank you. Thank you very much, David. So let me leave you with the key messages we have for today. These results demonstrate that we are benefiting from, again, one, the acceleration of growth in our Wealth Management business; two, the compounding effect quarter-after-quarter of positive operating leverage; three, our continued progress in dealing with our legacy; and four, our ability to accrete capital, thus, over time, increasing tangible book value per share and growing shareholder returns. So before the end, I wanted to announce our fourth Investor Day, our 2018 Investor Day, which will be, as you are used to, towards the end of the year on December 12 in London. Adam and the team will be able to provide you with more color in the coming weeks. Thank you for your patience for all these slides and comments, and we are all looking forward to taking your questions now. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Kinner Lakhani of Deutsche Bank.

[Kinner R. Lakhani, Co]

Tidjane and David, just 2 questions. The first one is on the RoTE target that you've reiterated. I understand that at the end of last year, you suggested that the U.S. tax reform could improve that by 100 basis points, so I just wanted to make sure that nothing's changed on that side. And secondly, just wanted to understand if you're seeing anything by way of rising deposit beta across any of your geographies, any of your client segments within Wealth Management and maybe just where we are in terms of the deposit beta that you're experiencing so far?

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

Okay, thanks a lot, Kinner. David, tax reform in the U.S. RoTE?

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

Thank you, Tidjane. So yes, you're correct, and I think what we said is we intend to reach an RoTE of 10% to 11% for next year and 11% to 12% for the year after. You may recall that includes guidance that we'd expect our tax rate [ to stop at ] something in the mid-20s next year on the assumption that we are not subject to the BEAT tax reforms. I would say, another quarter on, I would still very much regard it as more likely than not that Credit Suisse will not be subject to the BEAT tax reforms. I think if you have watched the repo markets, you'll have seen, for example, we've actually implemented some of the measures I talked about a few months ago in terms of replumbing our flows to reduce our risk exposure there. But I would caution that we're still waiting for final guidance from the U.S. Treasury, which we probably won't get until the fourth quarter, but we'll keep in touch. Certainly, at this point, no evidence that what we said would change that, frankly, at this point.

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

Beta.

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

On the deposit beta, very low. I mean, I think you obviously got to think about the mix of businesses we're in, not a large retail deposit taker globally, only really here in Switzerland. And Switzerland, it's -- it remains extremely low. I mean, I'll probably just answer a probable follow-on question which you may want to ask or somebody will want to ask, which is our guidance for net interest income. That is unchanged from what we actually said a quarter ago, which is on the basis of the current forward curve, we would expect the curve to generate a gain of approximately 200 million next year, 200 million the year after and 200 million the year after that. And just to be very clear on that point, that is not cumulative, it's 200 million in each year, so no change in guidance on our net interest income outlook for the next 3 years.

[Operator]

Your next question comes from the line of Andrew Stimpson of Bank of America.

[Andrew Stimpson, Director and Senior Analyst]

Two questions from me. First one, on the LCR that continues to move higher. It's now at 226%, I think, which is I think it's the highest number I've seen. And does that just continue to move higher because of the legal entity changes? Or what level would that reach on a long-term basis? Because it looks like there could be some boost to the leverage ratio, although I've thought that for several quarters, so I've been wrong. So I just wanted to check what the trajectory is for that ratio, please. And then secondly, the results today were good. You're building your capital ratios. The leverage ratio is higher. And the LCR I've mentioned, which looks too high. And then if you've got the legacy funding maturing at year-end, we're looking at quite a lot of spare cash being thrown off for next year without any real need to build the capital ratios much higher, so that automatically is going to make me and, I'm sure, others start thinking about buybacks. And can you remind us what the mechanics are for you to start a buyback? Do you need to wait for the AGM for next year, or is it more fluid than that? And what kind of capital levels are you looking for as a threshold to start talking to the market about buybacks, please?

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

Thank you, Andy. It sounds like 2 for David, again. David?

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

Thank you, Andrew. So I'd just refer you to -- just on the first point really on the LCR ratio, just refer you to, a, the section in the full earnings report, Page 54 -- or 52 to 54, but 54 in particular; and b, I think to what we've actually said before, which is, firstly, our internal liquidity management is based on our internal barometer, not on the regulatory numbers. And in particular, we are more conservative around that. So for example, we do take a conservative view on prime balances and intra-quarter numbers, which were included in the internal metrics but are not fully reflected in the LCR. And that's why you may note, particularly on Page 52, that you see we actually did disclose that the FINMA have actually taken away the add-on we had for our LCR ratio. That was actually notified to us last quarter. So that does reflect that. And we've actually seen similar moves from our other regulators reflecting this. Now I think in terms of the actual ratio itself, I think what we've said the key thing there for is to actually look at the level of HQLA. If you look at Page 54, you can see that the balance of HQLA on the last business day of 2Q '18 was CHF 172.5 billion, which was about CHF 4.1 billion higher than the swap balance, so it increased slightly in the period. The reason you're seeing the ratio going higher or -- is the weighted number during the period. It was higher during the period really for a couple of reasons. Firstly, we did increase our liquidity later on in the first quarter in the CSH USA, the IHC, and that reflected the -- some of the moves we made, particularly with the primary dealership being moved to the New York branch. And secondly, in the second quarter, you may know that there's been a number of changes going on in the tri-party repo market, and we've migrated our tri-party repo business from JPMorgan to BONY, to Bank of New York Mellon, along with other firms. Now when you're actually doing a business migration and because you don't want to be at risk of open exposure, you do tend to run with extra HQLA. At this point, I expect our HQLA balance to fall by between 10 billion to 15 billion during the course of the third quarter as we actually work off those effects. So you should certainly see the HQLA number down -- coming down, and that should drive the LCR ratio. But I would caution it's probably better to focus on the 2 balances second -- separately. Now on the second point, which related to -- I think there was 2, 3 points there. I mean, I think just on funding costs, I think I said just now, obviously, the capital plan is pretty much bang on schedule. We'd always anticipated issuing the AT1 notes that we actually issued at the beginning of July. And the spreads of those were actually in the guidance that we used in November, which include -- which was the basis for the 700 million drop in our funding cost next year. So I would reaffirm that, no particular surprises around that so far. In terms of dividends and share buybacks, I don't think we're going to update anything that we've said already on this point. On the purely technical matter, in order for -- certainly for a Swiss Bank to actually buy back shares, we need to basically post an authorization to our AGM. And that gives issues key points, such as the size and, I believe, the timing of that period. So that would -- that is a precursor to us being able to do a share buyback. And I think you will note that's the process that UBS went through earlier this year. Did I miss anything, Andrew? Sorry, there were a number of points and questions.

[Andrew Stimpson, Director and Senior Analyst]

Just whether there was a capital threshold that you guys think about as -- I know what the targets are, but is that the threshold, shall we say, that you'd use for just thinking about buybacks as what you'd class as proper excess capital?

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

I think the KPIs that we set were basically driven by our expectations of what our needs would be, what we thought the impact from the Basel III reforms would be, and those haven't changed. I just would note that for a Swiss Bank, the leverage ratio is likely to be more binding for some years to come, probably until, I would guess, in my view of the Basel III reform, sometime in 2023, maybe 2024. So for the foreseeable future, it's really going to be the leverage ratio that's binding. Now just to remind you of what the Swiss minimum are, 3.5% is the required minimum common equity leverage ratio, so obviously, we're very pleased to be at 3.9%. And 5% is the Tier 1 ratio which we have to be at by 2020. And as I've said, we'll see some volatility in that this quarter with the redemptions that we expected from the 2 big contingent capital instrument, but we'd expect to be in excess of 5% by the end of this year. But it is going to be the leverage ratio which I think is going to be binding under the TBTF rules in Switzerland for the next -- as I said, probably for the next 4 to 5 years.

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

Yes, it's hard to overstate the importance of the comment that David just made. It's good guidance, watch the leverage ratio. Because for us, it's a leverage story, not an RWA story, correct.

[Operator]

Your next question comes from the line of Jernej Omahen of Goldman Sachs.

[Jernej Omahen]

I have a question first on Page 18, and I think Page 46 deals with some of the question as well. So Tidjane, you've mentioned that when it comes to the size of your markets operation, that this is now it, and that -- and what remains in the markets business, which is obviously still substantial, is critical to Credit Suisse. On Page 46, we then see that the leverage exposure within Global Markets in this quarter alone was down quite significantly. So I was wondering, when we look at this leverage exposure figure of $268 billion, and we tie this in with the -- with your comments that you like the size of your markets unit as it stands, should we expect this number to now be flat to potentially grow in the future? So that's question number one. Question number two is on the net new money in Asia, and I think you deal with this on Page 44, a much better result than I thought for the net new money in Asia. Tidjane, you talked about deleveraging. I think that the total loans in your Asian operation are down just a touch, so CHF 1 billion. So when you talk about deleveraging, so net new assets of CHF 3.4 billion, is it too simplistic to say that there was CHF 1 billion headwind within that number from loan redemption? Or is there more to that than this? And how should we think about net new money in Asia in the future? And then just a technical question. There was a mention obviously, and we know this, that the prime dealership for rates was moved into the branch in the U.S. Of the total U.S. assets, what is the proportion of assets that are held in the branch, and what's the proportion of the assets that are now held in the IHC?

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

Okay, thanks a lot, Jernej. Leverage in the -- in Global Markets, I mean, you're correct in interpretation of what we said on the strategy. Overall, we like the size. We like what we have. We actually think it was a decent quarter because if you take credit out, everything was up in Global Markets in spite of constraint on capital. On leverage, David went over it quickly in his comments, but there is a mix of business reduction and transfer to ITS. Do you want to comment on that, David?

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

Well, I think as Tidjane said, I think the strategy for GM is very much to support clients. We're not tracing trading -- we're not chasing trading income. What you saw in the quarter is we did substantially reduce our residual U.S. rates business. That was something which was publicly announced. I think people are aware of that. That obviously did reduce leverage in its own right. But also, if we looked at ITS, which is, unsurprisingly, as we move away from the initial contributing mix of businesses into this venture towards something which is much more aligned to our Wealth Management businesses, that we've essentially aligned the capital allocation to the split between those entities. So as I said, that basically resulted in a reduction in leverage of 12 billion in Global Markets and an increase of 6 billion in each of IWM and SUB. And just for completeness, there was about a 2 billion reduction in RWA and 1 billion increase as a consequence of that as well. Are we happy with this level of leverage? I think yes, I think we are. I think everyone knows that GM is more leverage constrained than it is RWA constrained. There's always been a slight imbalance between those 2 things, but I think we're happy where it stands at this point.

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

Yes, I think that's correct. Is that okay on leverage, Jernej?

[Jernej Omahen]

Perfect.

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

Okay, then the NNA in Asia, it's a combination of factors. I think the points you made are correct. Frankly, we were pleased with the CHF 3.4 billion. Yes, there has been deleveraging. It's almost entirely concentrated in Greater China. Southeast Asia was actually quite strong. And I mean, think about it this way. I think we do different things at different points in the cycle. What we've seen -- and that comes through in RWA, where there was the growth deleveraging as well, as well as in SUB, is that we just do different things for the clients as they start worrying much more about downside protection and get nervous about the markets. This is where the ITS idea is very powerful because ITS comes up with a lot of ideas that the clients embrace. So that's one mitigant. The other mitigant is the integrated model. Remember, last quarter, we gave some numbers on the referrals into the private bank from the IBCM bankers. And that has continued. It's quite material in the second quarter. We haven't given the number. But in my mind, more or less, it was as -- it was actually bigger than the deleveraging. So net, you get a number that was very decent. Kind of forward guidance on NNA, probably not something I'm keen to do. It's a very hard number to predict quarter-by-quarter. This is impacted by so many things. I think what we can say is that, yes, we want to grow assets in Asia. We're very pleased to go over the 200 billion. This is something I've been joking with Helman for a long time, so we're pleased to be above that. I think when we started, we were like 130 billion, something like that, so it's a good progression in 2 years. It will fluctuate, but we're very confident, given the RM base we have, given the quality of relationships we have, that we can continue to drive decent levels of NNA, but that will fluctuate. And keep in mind that, again, in Asia, a lot of our NNA is with existing clients, and that's why we're relatively confident. The quality of relationships allows us to drive that. But we were pleased with the CHF 3.4 billion, yes. The branch in the U.S.?

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

Yes, we don't -- and we've -- and I think the IHC's leverage is disclosed, where you can see it in the Y-9C filings, but we don't normally disclose branch-by-branch positions. I'm not going to do it now, basically. I think it's certainly true that a number of the foreign banks have chosen to move their dealership into the branch and away from the IHC holding companies, and that obviously is unsurprising given the CCAR process, which we're obviously, as just to reiterate what Tidjane said, very happy to have passed both quantitatively and qualitatively this year.

[Operator]

Your next question comes from the line of Giulia Miotto of Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Two questions on my side. So the first one, on Global Markets, you mentioned that credit was a bit weak in the quarter. I was wondering if you can give more detail on why that was the case and how do you think your Credit Suisse business can do if spreads widen from here. So any impact that you would expect there? And then always on Global Markets, so the guidance for 2018 was 6 billion top line, 4.8 billion on the cost side. Is that still the guidance now? Or you think perhaps the top line will be lower?

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

Okay, thank you. Thank you, Giulia. Look, again, Global Markets, for us, we think our business is not very comparable to that of our peers because we don't -- to be fair to all our Global Market teams, we don't ask them to do the same thing. We have put a cap on the capital, and we really are driving it towards the Wealth Management, and that's working. Credit, I think it's mostly a securitized product story. Securitized products had an amazing Q2. So even if you put back the Capital One transaction that we had that we announced publicly, we're still at a very tough comparable. But actually, if you look at Global Markets, actually, sequentially, it's not a bad quarter at all even on a relative basis compared to peers, so it's a good performance. Equities, we've said that we were reforming it. And it's -- I mean, reforming, restructuring it, and it's a really good performance there, too. We're quite pleased with the plus 3% we saw. So on the overall, we're happy with the business. Now in terms of targets, we're also very clear, we've always been very firm on cost targets. And I think I've said in my remarks that we confirm the CHF 4.8 billion of cost that we completely control. But the slightly funny characteristic of market-dependent activities is that they are market dependent. So we like to call them market-dependent activities because they are market dependent. And our ability of selling my -- modestly my ability to predict the behavior of markets is quite finite. So we -- the 6 billion is an ambition, but certainly not -- 6 billion of revenue, Giulia, is an ambition but not a commitment because we simply don't control that line. We did 3 billion in the first half, which is comforting. It means the 6 billion is not completely unreasonable. But I think the commitment we have from this team is a CHF 4.8 billion. And of course, Brian and his team will push as hard as possible to drive the revenue up. But the good news is that the numbers are, what, this quarter, CHF 1.3 billion, 200 million in Global Market. The strategy has been successful in making less -- our results less dependent on the market-dependent activities, which I look at more as an upside than anything else.

[Operator]

And your next question comes from the line of Anke Reingen, Royal Bank of Canada.

[Anke Reingen, Analyst]

Two questions, please. First is on the costs, and you just reiterated the [ CHF 4.8 billion ] cost target for Global Markets. If the revenues are not coming in, in line with what your ambition was, shouldn't there be room to bring the cost below the [ CHF 4.8 billion ]? Or is that not really realistic to assume? And then secondly, on the SRU, I was just wondering, the minus 500 million for 2019, did you reiterate that? Or in light of the faster reduction in the exposure, could that potentially be lower?

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

Okay, thank you. Thank you for your question. That's an interesting point. I mean, really, again, the way we're running the bank is to optimize the total result. We're very, very pleased with the CHF 1.3 billion. We are not in sub-optimization of a division, so we are not in a strategy to particularly focus on the Global Market PTI. I said in my comments that Global Market was making a huge contribution to the other divisions. And the CHF 1.3 billion has largely been achieved, thanks to Swiss Universal Bank and IWM, we did very, very well. But in their numbers, there is a lot of GM. There are transactions that we wouldn't do with the clients if we didn't have GM. So the way we run this is -- I understand we're focused on GM, but I think it's a bit a legacy of the past. But with respect, I would suggest that it's not totally justified, because, today, really, the stand-alone GM numbers are not what we optimize for. We really manage for the total. So we gave you a cost target for GM. That's the only division where we did that. Because it was such a big restructuring, and the number was so big, that we gave you that. But we really aim to get out of this sub-targets mood. We did that because during the restructuring, we couldn't give you an ROE target, and we needed to give you some guidance. But that is not how we want to run the bank post '18. We'll want you to judge us on the RoTE target, and that's what we've given you for next year. So we're going to drive to the CHF 4.8 billion, but it's not letting -- let me be careful with what I say. It is important, but it's not [ the alpha and omega outcome ]. We want to hit the CHF 17 billion for the bank. Whether we're a bit above or below the CHF 4.8 billion, what's going to count is really the CHF 17 billion; and after '18, get out of the kind of micro discussion of cost and revenue by division, we hope. SRU, we are confirming the guidance for 2019. It was based on assuming that the unit was wound down at the end of '18. And we're actually doing -- this is exactly the plan. We're going to do a lot of things in H2 to actually ensure that is 500 million. I don't know if you want to give more color, David, but...

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

No, that's exactly the case. I mean, I think clearly, at this point, we'd certainly -- certain that the RWA and the leverage at the end of 2018 is going to be below target because we're already below target. And we'll obviously be working in the second half of this year to ensure we drop below -- further below the $11 billion RWA and $40 billion of leverage. And that will obviously mean we will be releasing capital to the rest of Credit Suisse to support their growth for that period. So that's going to be continuing. But no I think 500 million I think is still good guidance for next year, and we'll obviously update that when we get to the Investor Day in December.

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

It's an important point. Because you've see in this strategy, I think maybe uniquely, we've really driven revenue up as we were doing -- driving cost down. So we've been -- finding sources of capital for the Wealth Management units to grow, has been a constant focus throughout this restructuring. And the SRU has played a key role there. And you could say, "Well, why don't you stop now with the SRU since you hit your capital targets?" And part of the answer is, well, we're going to need that capital for Q2 -- sorry, Q3 and Q4. So that growth doesn't stall in the Wealth Management side, and we keep the great momentum we've built. Okay? Thank you, Anke.

[Operator]

Your next question comes from the line of Kian Abouhossein of JPMorgan.

[Kian Abouhossein]

Thanks for taking my 2 questions. The first one is related, again, to transaction revenues in APAC. You mentioned the slowdown in Greater China, and we clearly heard that from some other competitors as well. I'm just trying to understand cyclical versus structural, is this trade war related? If it is, I'm a bit surprised that it's coming through the ultra-high-net-worth, high-net-worth business already. Just trying to understand how we should think about transaction revenues in APAC. And in this context, could you tell us how much of your Wealth Management business in APAC and in IWM is ultra high net worth in percentage in terms of net new money? And the second question is more strategic. When I look at my numbers, and I assume consensus as well, you've already assumed that you're reaching your ROE target over the next 2 years. You're clearly well on track on a group basis on your targets. And I'm just wondering what is next for the group. Is it more of a revenue story? Is it more of we make a good ROE as we guided to, and it's more you get a big payout over time? How should we think about CS in '21, '22 in terms of the future, in terms of either more growth, more ROE or more of a cash flow return?

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

That's a great, great question -- 2 great questions. David, do you want to talk about transaction revenue? And I'll pick up the rest.

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

In APAC, yes, I think the point to note is, I think as Tidjane summarized in his outlook comment, there's no doubt that we are seeing more market uncertainty in Asia Pacific in the second quarter. One would suspect that's related to the trade war issues. And I think it is worth remembering that a majority of our business is ultra high net worth in Asia Pacific, so these are clients who are very much switched on to watch actually what's going on in that market. So when you talk about deleveraging, that essentially is clients taking off -- reducing their leverage and their exposure to markets and, therefore, reducing their transaction activity. And I think the key points we've already said, we've seen about 1.5 billion of deleveraging in Asia Pacific, yet we've still delivered net new assets over 3 billion, which shows I think momentum in the franchise. But I think straight -- taking on straight lending to generate transaction growth, I think what -- that you are seeing more uncertainty amongst client confidence. Now I think the other point which Tidjane has made already is, in this type of market environment, clients then become increasingly interested in other sorts of transactions. So they're interested in hedging, they're interested in derivative structures to basically protect their interests in a more volatile market environment, which is what we are actually seeing. And that's very much coming through more in the APAC market side, which is just to go back to what we said at the beginning, you've got to look at APAC overall because, certainly, in Asia Pacific, that is a revenue flow we'll see much more in the market side than in WMC side. So just to be clear on that point basically.

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

Yes, all correct. Correct. Strategy question you -- no, you also asked the share of ultras. It's about around 60%, call it, 60%, 61%, 62%, both in APAC and IWM, possibly a bit higher in APAC, but that's distinctive and geared to emerging markets in both cases. Yes, what's next for Credit Suisse? First of all, I'm really pleased, Kian, that you're asking the question. It's in itself a positive. Look, I think our vision was always that there's a great -- there are great franchises in this bank that, for a variety of reasons, we had a lot of legacy that was stopping that franchise to express itself. So the goal of the 3 years was really to deal kind of once and for all and decisively, quickly with that legacy. We think as you said kindly, we're well on track in terms of doing that. What we're left with is a great franchise. And frankly, I think I've said many times my enthusiasm for the Wealth Management proposition, the growth of wealth across regions. The concentration at -- of wealth at the top, it's absolutely the right strategic positioning to be a Bank for Entrepreneurs, a bank that serves the people who create wealth across regions. And when I think about that, I still see a lot of upsides. I mentioned the awards we've got, but take Latin America, I still see a lot of upside there. We're doing well in Mexico. We're doing much better this year in Brazil. But there's still other countries there. There's Peru, Chile, Colombia that we can serve, so I see a lot of growth within the markets where we already are but also beyond that. If you take the Middle East, same thing, we're very well positioned. And we can do more there. You've seen us grow onshore in Saudi and the developments we are as -- the same way we went onshore in Mexico and the upside there. Central and Eastern Europe, we're doing very well. Western Europe, we're doing very well. Africa, we have a real presence, and there is a big upside there, I think, definitely. And when you go to Asia, we're already, I think, clearly #1 in Southeast Asia, and that's been a source of strength. You saw it this quarter counterbalance for the challenges we had in China. And the other big one is China. And you've seen the regulation change there. You've seen that we want to go to 51% in our joint venture with founders. But more importantly, for a bank like us, with our scale, the China onshore market is a huge upside, which really we have not even touched. We have ICBC CS, which is #2, I think, in the asset management -- second-largest asset management in China, once again, we have 20% of that. That's our biggest exposure to Chinese economy, but we absolutely want to pull -- you say, punch our weight? Pull, punch, how do you say it in English, punch our weight?

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

Punch our weight.

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

Punch our weight in China onshore. And the numbers there over 5, 10 years can be very, very, very large. So I think what's next, I guess I've kind of answered, but yes, it's a revenue story because for me, ultimately, revenue is a necessary condition for success. It's not sufficient, but it's necessary. If you don't have revenue growth, ultimately, very difficult -- very, very difficult. So it's a necessary condition for success. We -- it's why I like the Wealth Management story, it really gives us that. We saw plus 7% revenue growth, it's a bit unusual in our sector, in Q2 '18. And then, of course, the cost discipline. The cost discipline. The cost discipline. But I look at some of my colleagues listening to this call, they've heard me a million times saying that cost efficiency is like breathing. If you don't breathe, you don't make it, but breathing is not a life strategy. So cost is necessary. It's necessary, it's a right to play, okay? You have to be cost efficient. But ultimately, if you don't have a strategy, if you don't have a vision, it doesn't work. It's the revenue that take you there. It was interesting, I told you, in Asia, revenue was up 53% over 2 years; and cost, up 30%. And that's -- for me, those positive draws are very important. We're not saying that well, we grew because it has to go down. We're just saying that it has to go up less than revenue. And then I'm also looking forward to the time when we have just more profit because there are a lot of things that we can do better, that we can do faster. For me, the improvement never stops. If you remember the Investor Day, we spent a lot of time showing you the new systems we had in compliance, what we're developing with Palantir, et cetera. There's so much more we can do in terms of exploiting the data we have to give a better service to our clients. Technology is a huge one, and you -- Kian, you probably have rarely heard me talk about technology, but frankly, these 3 years, that was not the primary topic for us given the magnitude of our issues to talk about. But again, it doesn't mean we're doing nothing. We're doing an enormous amount in technology, whether it's with Brian in the electronic trading, whether it's using big data, et cetera, we're doing an enormous amount to transform the bank. So I see excitement and really exciting things all over the board. We've -- collectively, as a team, we've worked, I believe, very hard for 3 years to clean things up, but this is when it gets interesting. I really believe that Credit Suisse is well positioned to be absolutely one of the winners in the banking industry.

[Kian Abouhossein]

If I may just follow up very briefly, in terms of -- you mentioned some of the potential growth areas geography-wise. Do you expect -- do you -- does it also mean we should see maybe an acceleration again in terms of net new hires of advisers? And just on APAC transaction, is that a trend -- this deleveraging trend, is this just an adjustment that we have seen? Or do you see that as a continuous trend going forward considering the uncertainty around trade war?

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

Look, we've hired a few people in Asia in Q2, I think 16. I'm hesitating to answer because we don't want to give quantitative examples. What we have showed is that we can -- if you've got the number of RMs, it's been more or less flat at 610, 610-ish for the last 2, 3 years. We have showed that we can produce NNA without necessarily growing RM because I know the conventional wisdom in the industry is very much that to grow -- to attract NNA, you have to add RMs. I know a number of our peers say that. We actually don't agree. The collaboration has given us a real good avenue to grow NNA without growing RMs. But if you think medium term, yes, I think we're going to hire. We're going to recruit. It's not huge numbers, but we are -- the beauty of our position is we're quite opportunistic. We've had some high-profile successes and attracted some really top people in Asia, and we'll continue to pick and choose. So it is really quality more than quantity. The deleveraging, it's an interesting one. Long term, I have no doubt that it's cyclical because -- anyway, most companies can't -- I was just reading yesterday about somebody in China who just IPO-ed his company and made 1 billion. But kind of billionaire-producing machine is not going to stop. The productivity gains in the Chinese economy and the ability of that economy to produce new billionaires is not going to go away. Now once they have reached that level and they're multibillionaires, how they have allocated their portfolio and the fact that, given kind of interest rate scenario, they deleverage a little bit, for me, that's completely noise. It doesn't detract from the long-term story. I'm unable to predict how many quarters that will last, but I'm convinced that medium term, if you got 3, 4, 5 years, that's not really going to be as significant [ anyway ]. It will be swamped by the positive side of the story, which is the economic growth, for me, I believe.

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

I think I'd just make a couple of points, I think, just in support of what Tidjane said. I think certainly, development of lending has been critical as part of our business offer over the last 3 years. And I think you'd see the benefits from that. And that clearly is going to remain the case. But I think what you will see and I think you have seen in these results is it's about the pivot towards offering a broader offer of service to these clients because clients essentially are coming to us because it's not just lending, it's the ability to hedge and do other transactions as well. And I think that is where the business model we have in Wealth Management generally and in Asia Pacific particularly we have that flexibility. And I think that's the unique competitive advantage, and it's very much core to the strategy, I think.

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

Yes. David, yes, it's going to be driving the business long term. If you remember, Kian, you probably do, 2 years ago, when we talked about lending, we were quite criticized. And we've seen, sometimes, people who criticized us now lend more than we do. So what we believe in is just steady as you go. If you look at our slides, they are very similar. Our presentation doesn't change every 3 months. We're driving the strategy. We'll present to you the results every 3 months. This is what we're trying to do. This is what it looks like. This is where we've done well. This is where we haven't done well. That's really what we do. And same thing, with lending, was possibly more emphasized at a given point in the cycle. I really believe it is prudent at this point in the cycle, and credit worries are not to be at the top of the lending league. And we believe in having a broad platform because you never want to be a one-trick pony, to use a common expression. Different circumstances call for different sets of skills. And sometimes, we're asked why we've maintained this specialty or that specialty in the Global Market. Well, it's because as soon as we -- it's like why do you have an umbrella, because sometimes it rains. As soon as the economy changes, well, suddenly, you discover that, yes, your equity derivatives which were a drag that we carried for 2 years when volatility was desperately low, I mean, it looked like a bloodbath. The numbers were horrible. Suddenly, they turn into the heroes and they're driving these numbers that we have. And I guarantee you, in the future, someday, volatility will go down again, and the demand will move elsewhere. So we like this setup we have. We like the broad footprint. We like the geographic footprint. We like the broad platform. And we're happy to drive it forward.

[Operator]

Our next question comes from the line of Andrew Coombs of Citi.

[Andrew Philip Coombs, Director]

Could I ask one on your restructuring costs and then one on buybacks? On restructuring costs, you said that you've done CHF 1.7 billion of the CHF 1.9 billion in 2018. Just a couple hundred million for the second half. Could I just ask you to give more guidance on 2019, please, and what's embedded into the 10% to 11% [ term ] target in terms of additional restructuring cost? And then my second question would be on capital return. You've previously indicated that your net income over 2019 to 2020, 50% would be distributed back, 20% would be used for Wealth Management growth, 30% for IWM inflation. What we've consistently seen since you've given that guidance is RWA inflation has been less than anticipated. You know that FRTB has been pushed back now. So does that mean that you have more flexibility on that capital return? Could it -- rather than be 50%, could it be 60% or 70% even?

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

Thank you, Andy. David?

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

I'll take the first one. The restructuring program is a qualifying restructuring program that the SEC rules, so it has a start date, which is when we announced it back in October 2015. It has an end date at the end of 2018. So only items for which decisions are actually made in the '15 to '18 period actually qualify for restructuring treatments. So that's it basically. At the end of this year, we reach our total. And as you said, we spent CHF 1.7 billion. We've given guidance CHF 1.9 billion, with a couple hundred million. That will mark formally the end of the restructuring program. Clearly, if it does mean that if there are further reorganizations or -- which we don't necessarily anticipate, those will not be taken as restructuring. They go through the normal lines at that point, just to be clear on that point. No, I think it's -- I think, a, that's how U.S. GAAP works; and I think, b, I think it's very important to actually mark the end of a restructuring program. I think too many European banks in particular, it seems to be an ongoing issue. But just formally, that's how it works.

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

Yes, and I think that's right. And Andy, I think you had asked a little earlier about buybacks. I just wanted to add, because I'm told here that basically, you don't need AGM approval for announcing a buyback if you stay below 10%. But you need AGM approval, to be precise, to destroy the repurchased shares and reduce your share capital. That's the technicality. And then you also need FINMA approval before you announce. So that's how it works, yes.

[Andrew Philip Coombs, Director]

And is there any reason why the capital returns should still be limited to the 50% you've previously guided to given that the RWA inflation now looks like it's going to be less than you expected, and your commentary has also been around the leverage ratio as the binding strength?

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

Look, in the end, we run the company for the shareholders, for the owners. I think the 50% is a guidance. We will always return as much capital as it is safe to do and preserve the profit-making ability -- capability of the company. So there's no magic number. But I guess -- I mean, I have a track record as a CEO. I've never been a holder of capital in my -- if you look at my previous job, what I did in terms of redistribution of capital. If I have no profitable uses for capital, there's no point holding it. So I think that's kind of the answer. This is why we're hedging because we don't know what the opportunities for capital usage will be when that time comes. But you can count on us to -- not on an ego trip or anything, to really simply give back to the shareholder all the capital we don't need and that it is used to give back -- I'm sorry, it is safe to give back.

[Andrew Philip Coombs, Director]

So with that in mind, you're presumably, as and when you come out with an announcement, committed to a 1-year buyback program as opposed to committing to a multiyear program. You'd like to leave the option open for growth. Is that fair?

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

I don't want to -- I'm going to take -- I'm not -- tempting as it is, I'm not going to really answer. But we will always behave in such a way that is prudent and safe and preserve long-term interest of the shareholders and gives us flexibility so that we're not a hostage of fortune either.

[Operator]

And our last question comes from the line of Patrick Lee from Santander.

[Patrick Lee, Equity Analyst]

I just have a couple of question on this ITS strategic initiative that you have been talking about for some time now and, related to that, what it means for revenues. On Slide 21, you give some indication on the high growth in that division, which is -- or that subsegment within GM which is clearly growing ahead of the GM division as a whole. So while I appreciate you don't want to give specifics in terms of numbers, et cetera, et cetera, can you give us some ballpark figures on how big this is for GM and how we should think about the size of this revenue opportunity? And related to that, and I think you always emphasize your belief in this link between GM and Wealth Management, would you say that ITS has played a big part in your gross margin resilience so far in terms of structured product penetration, et cetera, et cetera? And looking ahead, whether we can see this as some sort of a margin expansion driver in the medium term?

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

Thank you, Patrick. I understand really your -- why you would ask. And you can imagine we discussed a lot internally whether to disclose the number on Page 21 or not. What I'm willing to say is that it's material. It's material. And again, I was giving credit to Brian because he really believed in this. He carried it. There was a lot of skepticism even internally at the beginning, and it's already become material. And it will be material for Global Market. When you see the growth rates with Iqbal and Thomas and the work they are doing together and with the clients, it's got -- I mean, anything that grows at 17% in life is bound to be material, yes? We can probably agree on that. Because even if you start very small, you're going to double every 3 or 4 years or so. It's -- looking at my colleagues here, I think it's something we should talk to you more at the Investor Day about. It's a very good topic. But certainly, it's one of the things I'm really, really excited about. It's a different way of doing the business. It's really working. You have to meet the people. I mean, I've gone to meetings, et cetera, who are in there, they're among the most excited people in the bank right now, the people in ITS. They're really happy. They're having a ball. They're creating new products. They're going to see clients. They're being very successful, which is really what makes people happy. So I'll say watch that space. But we also don't want you to jack up all your numbers everywhere based on this, so we'll find a reasonable balance between our excitement and disclosing too much. So is that okay, Patrick?

[Patrick Lee, Equity Analyst]

Yes, that's fine. And I guess what it means for the Wealth Management, that's the other question, whether you think...

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

Sorry, say that again. There is something along the line. I couldn't get much.

[Patrick Lee, Equity Analyst]

I mean, that related to that, I think you always say, you especially, you always emphasize the importance between GM and Wealth Management and in the medium term, whether we can look at this ITS as some sort of a margin expansion driver. And this might be a bit optimistic, but it is something that we can look forward to?

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

I think it's material. I think absolutely, I think it will contribute in the long term to margin expansion. I think that's true. And it's a very defensible model, and it just makes sense. It's very defensible. And it's what we said, is providing institutional-like services, products to ultra high net worth is a really good proposition, and it's working. Okay, thank you very much for listening to our presentation. And I think we'll probably see you again at Q4 and then at the Investor Day. So thank you again.

[Operator]

Thank you. 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.