Credit Suisse Group AG

SIX:CSGN

Earnings Call Transcript 2018-Q3

[Operator]

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group's Third Quarter 2018 Results Conference Call for Analysts and Investors. [Operator Instructions] The conference is recorded. [Operator Instructions]At this time, I would like to hand 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]

All right. Good morning, and welcome to our third quarter and 9 months 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 numbers and it -- as it is a way we manage the operating performance of our businesses. For a detailed discussion on our reported results, we refer you to the Credit Suisse third quarter 2018 earnings release and remind you of our full quarter 2018 financial report will be published on or around the end of the day.With that, I would pass over to Tidjane Thiam, our CEO.

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

Thank you, Adam. Good morning, everyone, and thank you for joining the call. With me, I have David Mathers, our Chief Financial Officer. Together, he and I will present Credit Suisse's results for the third quarter of 2018 and for the first 9 months of 2018. But before we move to the slides we have provided you with this morning, please allow me to take a minute or 2 to put this quarter in perspective. When we started this restructuring at the end of 2015, we had 3 main objectives: the first one was to address some clear and urgent problems, i.e., our capital position, our absolute level of risk and our fixed cost base, which was too high; second was to define and implement a strategy that would lead us to sustainable compliant profitable growth; and third, to invest in order to significantly upgrade our risk and compliance culture and improve our culture -- and improve our controls.Our goal was to move towards an operating model that would allow us to do well when markets are supportive and to be resilient when markets are more challenging. 2008 (sic) [ 2018 ] so far has given us opportunities to assess the progress we have made in both directions because the first and second quarter were characterized by very favorable markets and by strong client activity levels, which were then reflected in our very strong performance in Q1 and Q2. In the third quarter, however, we have seen more challenging conditions and lower levels of client activity, particularly in July and in August. In addition to the usual seasonal slowdown, markets were impacted by increasing trade tensions, rising U.S. rates, increased emerging market currency volatility and the notable rise in geopolitical uncertainty. In that context, clients have taken a more cautious approach, something we flagged, and adopted a wait-and-see attitude. Against this backdrop, we believe we have delivered our best third quarter in PTI terms since 2014, demonstrating the resilience of our new operating model.So let's go now to the slides and start with Slide 4. We have delivered adjusted pretax income of CHF 856 million, up 38% year-on-year. In our Wealth Management related businesses, the first point here, we can now say at the end of our 3-year program that we have achieved a step change in profitability, with adjusted pretax income of CHF 3.7 billion in the first 9 months of 2018. That is up 26% compared to our full year 2015 results, so not 9 months in '15, but the full year. So we did 26% more when we did in the full year of '15 in the 9 months of '18, with still 1 quarter remaining. Looking at operational leverage, productivity, efficiency, Q3 '18 was our lowest cost quarter in the past 5 years. Since the start of our restructuring, we have delivered cumulative net cost savings of CHF 4 billion or 96% of the CHF 4.2 billion target savings over the lifetime of the program. And finally, on capital, we improved our CET1 to 12.9%, but actually more importantly, our CET1 equity leverage ratio to 4% which is the strongest of any large U.S. -- sorry, Swiss bank, 4%. Very pleased with that because leverage is our historic capital constraint.So let's turn to Slide 5, which you are used to. What it shows you here is a continuation of our trend of consecutive year-on-year profit growth. Since 4Q '16, on the right-hand side of this chart, we have grown pretax profits year-on-year every quarter. How did we manage to do this? A core component is our ability to generate positive operating leverage, which you can see on the next slide. You can see here that we have been able to generate positive operating leverage, positive jaws, in each of the last 8 quarters, including challenging quarters like Q3 '17 and Q3 '18, where you see that our revenues in both years were under pressure and came down. We were able to flex intra-quarter our cost in order to preserve the positive jaws and the bottom line. And you saw that again in Q3 '18. Let me say a few words maybe of how we do this and how we get in that position. We have promoted, since '15, accountability and decentralization by pushing out costs out of the Corporate Center and allocating the responsibility for managing them to the revenue centers. That was fundamental to the restructuring we put in place. When I started in my role, the complaint I heard most often from managers was that they -- most of their costs were allocated to them and that had no say nor control over what or how much was allocated to them. We inverted that logic when we put in place our new structure. We ensured that managers would control and manage at least 60% or more of their costs, and that is one of the reasons we made so much progress on costs. Managers now have a say directly or indirectly on 90% of the costs they are allocated. So in that context, the processes we put in place allow us to react intra-quarter to drop in activities and generate significant savings, allowing us to protect our bottom line and operating expenses. In 3Q '18, we're down 8%. But cost management technology and the quality of information available to us allows us to take cost management decisions in real time and for these decisions to be implemented directly and almost immediately across the organization. This approach has allowed us to proactively generate positive operating leverage quarter after quarter, which since Q4 '16 has delivered cumulative PTI improvement of CHF 4.6 billion.And this has, on the next slide, a compounding effect over time. In the first 9 months of '18, adjusted pretax income for the group stood at CHF 3.3 billion, as you can see in -- down here on the right, and that's an increase of CHF 2.9 billion over '16, so in 2 years. We have achieved over that period an 8% increase in net revenues combined with a 12% decrease in adjusted operating expenses. Looking at the next slide which is also familiar to you, just a reminder of our strategy. You will recall that it is built on 2 pillars: To be a leading Wealth Manager with strong investment banking capabilities. So our next slide looks at the practical translation of these in capital allocation. We have completed, in the blue here, the light blue, the rightsizing of our markets activities and the restructuring of the SRU, and we have been continuously allocating capital towards businesses which generate a higher return with more stable recurring revenues. We have been able to grow significantly those more profitable, more capital efficient activities in dark blue here. And we show some of that on the next slide, which shows you our NNA, our net new assets. In 3Q, we were able to generate strong net new assets of CHF 10.3 billion in the third quarter, with growth across all our Wealth Management divisions, whether it's Switzerland, SUB, IWM or APAC. APAC Private Bank had a particularly strong performance with CHF 6.4 billion of net new assets. That's 45% more than what we did in 2015 at the bank level. So moving on and looking also at Asset Management, for the first 9 months of this year, we have generated cumulative net new assets of CHF 33.8 billion in Wealth Management, which is up year-on-year in a much more challenging environment. And Wealth Management net asset inflows in '18 are 67% higher than what we did in '15. Adding CHF 21.5 billion of Asset Management NNA takes the total at 9 months '18 to CHF 55.3 billion, and that's up 28% compared to the same period in '15, another area where we have managed the step change.So this translates into a total AUM. This strong NNA plus market movements have allowed us to reach record levels of Wealth Management AUM at CHF 785 billion in 9 months '18. That's an increase of CHF 173 billion compared to 9 months '15, 3 years ago. And this corresponds to at a CAGR of 9% over the period, which we believe for a player of our size is creditable, 9% per annum leverage. Now if you look at Asset Management and if you add that, we have reached now CHF 1.2 trillion of assets under management across Wealth and Asset Management. So volume growth and revenue is important, and we're quite happy that we've been able to grow key driver of our revenues in that period. But that only matters if you are able to create actual operating leverage by controlling your costs. So let's look at how this has translated into profits. If we aggregate Switzerland, IWM and APAC, looking at 9 months '15 versus 9 months of '18, we have generated CHF 1.4 billion of incremental profit in the period. So that those businesses have generated, in 9 months '18, 26% more than what we generated in the full year of '15, 3 years ago. And that's why we keep talking about step change, because we believe that is a step change that we can do in 9 months. We can do 26% more in 9 months than we used to do in the full year.So revenue growth, cost control have been central to this, so let's look at cost. You have also seen the slide many times, it shows you our progress in terms of cost. For the third quarter, group operating expenses were CHF 4.0 billion, that is the lowest cost quarter in any quarter of the last 5 years. And traditionally we see, as you can see on this chart, generally we have higher costs in the last quarter of the year. And this chart highlights that our 4Q '18 costs on an FX neutral basis need to be below CHF 4.4 billion for us to achieve our operating cost base target that you're familiar with of less than CHF 17 billion for 2018. If you remember the first time we gave a target it was CHF 18.5 billion. We then took it down to CHF 18 billion. We then took it down to CHF 17 billion. And we are absolutely confident that we will hit that CHF 17 billion target, which was hugely ambitious when we started at CHF 21.2 billion in '15. So that's what we delivered, and David will give you more detail.So if we step back and look at the group, what you see here is that we've made a lot of progress in improving our core profitability. So dark blue here, which is up 50% compared to 2 years ago '16, the bar on the left. In combination, that growth in core profitability, combined with the decrease in the SRU drag, which is down 60%, has created a very positive powerful momentum to grow our total profitability. So we are now in quarter 12 of 12 quarters, so we are at the end of the restructuring process. Allow me to step back and just look at all the objectives we gave in this restructuring program 3 years ago. If you remember in my introduction, I said we had some urgent immediate problems to resolve, that's the top block there -- capital, cost and SRU; that we needed to come up with a new business model that generated profitable growth, that's the central block; and that we needed to improve our controls, and that's the third block down there. And we have tried to give a kind of rough status on what we have underway, right there on the green. I'll spend a minute on the top part. For capital, we believe it's completed, with 12.9% CET1, 4% CET1 leverage ratio. That's good we passed the CCAR in the U.S. Cost, we can't say completed, but with very high chance of completion. As I explained earlier, we will hit the CHF 17 billion that we gave you. SRU is basically done. We are beyond the point at which we said we would wind it down. Then moving on to -- so it's important that we've done well on that block because it was crucial. Moving down to the central part, if you step back at 9 months, we've done CHF 1.7 billion of PTI in SUB. Objective is CHF 2.3 billion, we're confirming that objective. IWM, CHF 1.3 billion. Objective is CHF 1.8 billion, we're confirming that, too. APAC WMC, 60 -- CHF 650 million. CHF 850 million is the target, and we confirm that as well. And IBCM is 15% return on capital. At 14%, we're confirming that target. Global Markets, we had several objectives there. One was to rightsize the business. We've done that for the RWA. But more importantly this quarter, and this explains some of what you've seen in the numbers, we've cut leverage again. So it is down 12% year-on-year. And leverage has been our biggest and most severe constraint in that business. So that's actually quite transformational. So that is completed. The operating expenses, we started at $6.5 billion. We said we'd hit $4.8 billion, highly confident we will hit it. The ember here, no point hiding it, is the revenues. It is what it is. And it is a distance away from what we had wished for, which was $6 billion. But we will come back to that.Controls is important. Compliance headcount is up 42%. We have a single client view, which we believe is industry leading and unique, we believe, say for regulators that we develop. And we've also invested a lot in risk. So I'll come back to this page, but we believe it's kind of a scorecard of everything that's been achieved in this bank in the last 3 years.So allow me now to just talk about the business a little bit in more detail, and I'll start with a theme that really was at the start of all this, which is in Wealth Management. There are 3 sources of income, it's, as you know, net interest income, commissions and recurring and transaction. And from the start, we have set out to drive forward the 2 most important sources for us and more stable and which has -- which have the highest quality earnings, which are net interest income and fees, and considering that transaction is mostly market dependent. So this shows you how we've done in terms of revenues over our 3 Wealth Management divisions from '15 to today. We have basically added CHF 1.1 billion of revenue in 3 years. But importantly, we've been able to improve, we believe, the quality and resilience of our revenue mix by focusing on growing our net interest income, up CHF 791 million here; and recurring fees, up CHF 366 million. In contrast over that period, transaction revenues, which are inherently more volatile and market dependent, are slightly down. So what we've done on the next slide is really just plot this quarter-by-quarter. And on this graph, we have put together net interest income and the recurring commissions and fees for the last 12 quarters. And I have 2 comments to make on this chart. First, as we have grown our asset base, a key driver of our profitability, the AUM, AUM growth. With our lending volumes and increased mandate penetration, we have been able to grow quarterly NII and recurring revenue -- this is quarterly, yes, not annualized, quarterly -- from about CHF 2 billion per quarter to CHF 2.3 billion per quarter. So we have added incremental revenues of CHF 3.3 billion over that period. So the 2 pillars of this strategy, one, the lending strategy have worked and delivered; and 2, the mandates or the mandate penetration have also worked and delivered together with the AUM growth, and we were quite pleased with this.Second comment is that this revenue stream, as you know, is very stable, and measured simply by the standard deviation. Standard deviation is about 2%. I will also point out, because the gray is plus and 1 -- plus 1% standard deviation, minus 1% standard deviation compared to the trend. You will see that I called 3Q is a kind of -- what I call a repeat outlier. As you can see, that it's more than 1% standard deviation away from the average. And it's one more reason why Q3 -- one should not read too much into Q3 because it is a statistical outlier by every statistical definition. Now that's for net interest income and fees. And then if you move to transaction, a completely different picture as you can see here. And you can see why we have more appetite for the former than for the latter. The standard deviation is about 4x larger than for net interest income and fees. And you will note that on this chart, too, the third quarter is again a technical outlier, outside 1% standard deviation. So our strategy has been to grow the stable source of income. We will continue to follow this approach and we're confident that it will continue to produce positive results, which, over time, should be recognized and attract a higher multiple. So let's now look now at each of our divisions, and as much as possible I'll also give you a look through that lens of NII recurring and transaction division by division. So let's start with Switzerland. Switzerland has delivered its 11th consecutive quarter of year-on-year profit growth with adjusted pretax income of CHF 523 million in 3Q. Net revenues pleasingly are up this time year-on-year in the third quarter despite the more difficult market backdrop. Thanks to our focus on recurring fees and commissions across the franchise, which has been successful. Costs were down 10% year-over-year for continued discipline on comp and noncomp expenses. And please note that we achieved these cost reductions whilst continuing to invest in developing our digital capabilities. So in the first 9 months of 2018, we have increased adjusted PTI by 31% compared to 2015. And if you look at full year 2015 on the right here, we have now produced in Switzerland more profits in 9 months than we did during the whole of '15. So our progress in cost efficiency, with Thomas and his team, I think it's well understood. We just wanted on the next slide to illustrate something which is important for us and which is a measure of, if you wish, activity volume growth in Switzerland. And for that, we use a metric that we call internally total client business volume. In this, we add assets under custody, AUC, at the top; asset under management, AUM, in the middle; and net loans. It's a good way to measure the level of activity of a bank. Now if you take 9 months '15, on the left here, total volume in our Swiss Private Client business have grown about 16% or at a CAGR of 5%. So this growth in the AUM will translate over time, we believe, in high-quality annuity-like income streams. And over time, we are also able to move a portion of the AUC into AUM. To take an example, if -- typically, an entrepreneur will have some securities reversed in the middle section in AUM and he also has a big liquid ownership in the company. And when -- if he sells or he retires, that will move for us from AUC to AUM, and we'll end up managing that. So this is a way to counter the perception that you sometimes have there. But what we've done in Switzerland is cut cost. We've cut cost, but there's been also a lot of business development with our E&E strategy and the investments we've made across Switzerland, and they're paying off here. So let's move now to IWM. IWM delivered another strong quarter in Q3, notwithstanding the usual summer slowdown. And with total profits at the level -- absolute profits at CHF 411 million at the level of our best quarter last year. So our lowest quarter of this year is as much as our best quarter last year, that's the pace of progression in IWM. And we have achieved positive net asset flows across all regions. In the first 9 months, we generated CHF 1.3 billion of pretax income. That is a 71% increase compared to the same period in '15. And we have already exceeded by a margin our full year '15 results, and with a return on capital of 33%. I'm just going to cover after this PB and Asset Management within IWM. So if you look at our Private Bank in IWM, which is here, we've grown revenues by about CHF 500 million since 2015. This performance was driven by the continued growth of NII and recurring revenues, the dark blue here as I was saying earlier. And the CAGR there, that you can see on the right, is 9%. So again, 9% per annum. Very, very good for a player of this size.Compared to 9M '17, we have seen a particular strength in transaction-related revenues in our Private Banking business, up 15% year-on-year. This is a bright spot because, really, IWM has been engaging proactively with clients, linking investment and risk management solutions during a choppy quarter, to still manage a very decent level of transaction revenue.If we move now to Asset Management, where we feel we don't talk about enough maybe. The teams have delivered another strong quarter here, too. In Q3 '18, we delivered PTI of CHF 103 million, and this was driven by an 11% increase in management fees and a 10% decrease in operating expense. So again, positive operating leverage.So this trend is evident on the next slide, which just shows you the revenue quality in Asset Management. Here, too, explicitly when we started, we wanted to drive management fees which are recurring and high-quality earnings up. And you can see at the bottom they went from 67% of our earnings to 77% of a bigger bar of earnings. And here again, a CAGR of 8%. So this goes to say that we have been driving proactively these numbers. And in addition to comparing the absolute PTIs, it's good to also think about the mix and the fact that we are producing more profit of higher quality, and that's really central to the story we are telling here. So let's move now to Asia. Asian markets have, we all know this, endured a significant correction. We put some equity market indexes here on the left, and that's quite telling, it's tells a story by itself. And we put on the right some currency movements in Q3. So in particular, in China, the U.S.-China trade rhetoric has been turning into reality and exerting pressures on client risk appetite, on asset prices and on activity volumes. And this has, of course, impacted our performance, which you can see on the next slide. But we think that in this challenging environment, our performance has been actually very strong. Our clients have entrusted us in the first 9 months of '18 with CHF 16 billion of net new assets, CHF 6.4 billion of which came in the third quarter alone. So let's look at the business that generated this APAC Wealth Management & Connected. In this risk of environment, APAC Wealth Management & Connected generated CHF 184 million, you see it in the central bar on the top, median of pretax profit in Q3. That's up 3% year on year. As a result of the strategy to grow our lending and asset-based financing to ultra-high-net-worth clients alongside our investment solutions, our revenue mix here, too, has improved over time, with an increase of net interest income and recurring fees. For the first 2 quarters of this year -- or first 3 quarters of this year, the pretax income we generated in APAC WM&C has almost tripled compared to the same period in '15. And return on regulatory capital stands at 28% as you can see at the bottom here from 14% in '15. So now looking at the revenue mix in more detail on the next slide. Our growth in APAC Private Banking has been driven by NII and recurring fees, which are up 48% in 9 month '18 compared to '15, and there is a 14% CAGR, you can see on the right here. So comfortably double-digit CAGR for our preferred revenue streams. And during that period, transaction revenues actually went up 32% as we have added millions of additional revenue in APAC PB. Let's turn now to IBCM and financing, which are 2 activity that we put together with PB when we showed you the WMC numbers just to give you a sense of what we have achieved. APAC IBCM and AFG achieved their eighth consecutive quarter, with more than CHF 200 million in gross revenues as we advise our clients on their corporate transactions, help by monetize their liquid wealth -- illiquid wealth and provide financing for them to grow their enterprises. We really think that this unique integrated model with the PB, IBCM and financing group working closely together explains a lot of our performance in Asia. APAC IBCM has consistently increased its share of wallet over the last 2 years. You can see that it went from 4.5% to 6.8%. That's a huge increase. And we're now #2 in Asia Pacific ex Japan and ex China onshore. So this integrated approach has also produced excellent results in terms of collaboration results and what we call collaboration NNA, that is net new assets which our investment bankers refer to our private bankers, have exceeded 10 billion in the first 3 quarters. And again, explain a lot of our performance. But let me say a word maybe in this risk of markets about the quality of our loan book, which has some time been a concern, and our credit experience in AFG, our Asia Financing Group. During a quarter of exceptional volatility across all asset classes, we suffered no loss events in the quarter as a consequence of our proactive risk management of the almost 80% syndication rate of transactions which we originate. 3Q, with the emerging market dislocation we saw, provided, we believe, a reasonable stress test of our approach. So despite the current market uncertainties, liquidity continues to be strong, as there continues to be substantial dry powder on the sidelines looking for a market entry point at the right time. So we remain positive about this, so part of our activity. Let's now talk about APAC Markets. APAC Markets was impacted very directly by the challenging market backdrop I described earlier and by the risk of environment, particularly in our fixed income business, which we point. In the first 3 quarters in '18, we are delivering higher returns with revenue growth of 2% and 8% operating expense reduction year-on-year. So revenue growth of 2%, 8% expense reduction has allowed us to overrule the profitable over 9 months. But it is no -- there's no doubt that the third quarter was extremely challenging for our market activity.So having covered Switzerland, IWM, APAC, please allow me now to move to IBCM, our Investment Banking division, on Slide 33. IBCM delivered a very strong performance in the third quarter. We have continued to take market share and been able to outperform the Street in all of our core products. In terms of net revenue, at the 9-month mark, M&A advisory were up 20%, with the Street down 4%. In ECM, we are up 10%, with the Street down 5%. And in DCM, we are down 3% year-on-year, with the Street down 4%, and we all know DCM was a difficult segment in 2018. So in aggregate, this has allowed us a 14-point outperformance year-on-year since we are, on the right, up 9% versus the Street down 5%.If we look at profitability, in the third quarter, we generated a PTI of $90 million, which is up 67% versus the third quarter '17. We were able to advise on more than 35 cross-border deals. We closed more than 450 transactions, including the $27 billion sale of Dr Pepper Snapple to Keurig, and the close to $7 billion KKR acquisition of Unilever's global spreads business. And we have also seen a further acceleration of collaboration and referrals between IBCM and our Wealth Management divisions as we deliver our strong Investment Banking capabilities to our global franchise. PTI in IBCM for the first 9 months increased to $325 million at 90% versus 2015. And importantly, looking ahead, the level of current dialogue remains strong, with a healthy pipeline of transactions expected to close before year-end but which, as always, will depend on end markets remaining constructive.Now if we look at our performance since 2015 when we launched this strategy since the Investor Day, we believe that revenue in IBCM have increased more than for any of our global peers over a period, up 25%, which leads us on the next slide to what we consider a good position globally. This is 3Q global underwriting and advisory. You can see that we are basically the sixth-largest player globally and that we are significantly ahead of our European peers. And if you allow us, on the next slide, we'll show you a comparison of '15 and '18. It is commonly said that European banks are losing ground against American banks. That is not our case as this chart shows you. You can see that in '15 we're at about the same level in 3Q as many of our European peers, but we have pulled ahead. And that's largely a result of the unique strategy we have put in place, a big contribution from the U.S. but also from Asia to this. And the integrated model we have been promoting, we believe, has generated superior results across regions because we've been able to be strong in each of our key regions. I said #2 in Asia, we're #1 in Switzerland, we're also #4 or #5 in the U.S. and improving our ranking in Europe. So that is, for us, a very satisfactory part of the strategy.So moving on finally to Global Markets, as you know here also, we have taken a differentiated approach to many of our peers. We have limited the RWA and leverage usage of the division, the absolute size of the division during this period of restructuring. We also reduced the cost base as well as our risk budget by existing businesses which did not generate, we believe, adequate returns for the cycle or were not in strategy. And as you can see from this chart, we've made significant progress in that restructuring. Risk-weighted assets are down 47%. Leverage exposure is down 42%, and I said earlier is down 12% year-on-year. This is an explanation from some of the numbers we had in Q3, which we've cut leverage further. And value at risk is down 57%.Let me maybe take this opportunity to address more -- with more granularity this issue of risk in our Global Market division because we often get questions or concerns about our level of inventory. Since year-end 2015, we made a conscious decision to run our business with significantly lower inventory across our credit franchise. In leverage finance, specifically in subinvestment grade and below, our inventory levels are 40% lower. I repeat, are 40% lower, 4-0. With higher deal flex pricing and also shorter average days to de-risk. And that's a fundamental transformation of our risk profile. Also, trading inventories in credit are down almost 60%, 6-0, 60%, and more than 40% in securitized products. So there's been a massive de-risking of the business.So the next slide and that's really a place where I'd like to pay credit to our teams in Global Markets because they've been able to go through this massive de-risking and restructuring whilst protecting our franchisees, which will remain strong. In many cases, we are in fixed income #1 or #2. And in equities, top 5. So really, that gives us a lot of confidence for the future that this restructured, slimmer, less-risky platform has also been able to protect its franchise.So moving on to the third quarter, which is the topic of the day. This quarter reflects the tail end of our restructuring measures. It includes, in particular, the impact of additional rationalizations measures we decided to take after our strategic review in the quarter and which impacted rates and emerging market macro, and which were executed over the quarter. We have also, as you know, made a number of important recruitments and investments, most notably in our equities franchise in derivatives and in AES to regain market share, grow absolute revenues and rebalance the division between equities and fixed income. So if you correct the numbers we're showing you, which is equities plus 1%, fixed income minus 20% for the restructurings during the quarter, which cost us about $79 million in revenue, equities revenues are actually on the like-for-like basis up 6%, reflecting continued momentum. And I'd like to emphasize that within that equity derivatives, we're up 70% year-on-year, 70% year-on-year, and it's something we have invested in, recruited for and which is core to the strategy. So the delivery there has been nothing but very good.In fixed income, revenues were down 15%, again if you correct for the restructuring we did intra-quarter, and that really reflects a challenging quarter in Securitized Products versus a very strong comparable period in 2017. And we can come back to later to why Securitized Products was under pressure this quarter. But I'd also like to emphasize that even at this level, it is still accreting and value creating, and has a return on capital around 20% at this low point.So the other big thing for Global Market was to deliver on the cost reductions and that has been done well. Operating expenses are down 17% since 9 month '15, and that has been driven by continued progress on efficiency. And we are firmly on track to achieve the 2018 ambition $4.8 billion of total operating expenses. This is a key objective in this restructuring, because what it does is lower the breakeven point. And this is one of the things that allowed us to do better than we used to in the environment like that of the third quarter '18. So more importantly, let's look at the future of Global Market. As we look ahead to 2019, this will be the first year in 3 years for GM without restructuring. And that's the first point we put here on the page, which is stability, and it's something we are looking forward to and something they are looking forward to. And we expect that revenues in GM will benefit from the investments we have made in equities. You saw that we're up 6%. That will continue. The increased collaboration with Wealth Management for ITS is also continuing. I believe it's up 11% year-on-year. And last but not least, we've talked to you about the funding. David will come back to that. But we expect Global Market to have a benefit of at least $250 million of lower funding, if you wish, which will really significantly improve the economics of that division and allowing it to reach a higher level of return on capital. Remembering also that it's been exhibiting a low return on leverage, because the return on RWS has been actually quite high, and that we have shrunk the leverage. So between the reduction of leverage in that division plus the additional revenue or contra revenue that comes from the $250 million, we think that the returns will increase and get closer to what we wish. So on the next page, which you've also seen before, we have been able to drive returns on capital up in all divisions. And as we finish this restructuring and close the SRU, we believe that the return on capital will reach the levels we are targeting. So in summary, this 3Q was our best adjusted PTI quarter since 2014. It illustrated a lot of resilience of our operating model. We have had continued strong momentum in Wealth Management with our highest 9 months NNA since 2013. IBCM has delivered a very strong performance in 3Q. Global Market is executing forward with discipline. We are making continued progress in reducing operating expenses and are ahead on our cost-reduction program. And finally, we have strengthened our capital position, particularly on leverage. And with that, I will hand over to David.

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

Thank you, Tidjane, and good morning to everybody. I'd also like to thank you for joining our third quarter earnings call this morning. And I'm going to be taking you through the second part of the presentation.You may have already noticed from looking at the slide deck that we've made some changes to the way that we explain our business this quarter. I would discuss the results in general, followed by a focus on capital, funding costs, expenses and on the Strategic Resolution Unit. But I will not, as in quarters past, run through each of our 5 main operating divisions in detail, but the slides for each division and for the SRU can still be found in the appendix section. What we intend is this change will reduce the length of today's presentation and allow also more time for questions. So I'll just start with the usual results overview slide, which many of you, I'm sure, will become used to. As usual, we summarize 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's a full reconciliation of the adjusted and the reported results on both the group and the divisional lines in the appendix. For the third quarter of 2018, Credit Suisse generated a pretax income of CHF 671 million on net revenues of CHF 4.9 billion. On an adjusted basis, again as per our usual definition, we achieved a pretax income of CHF 856 million on CHF 4.9 billion of revenues, and that's an increase in profits of 38% year-on-year.If you look at the first 9 months of the year, we've made an adjusted pretax income of CHF 3.3 billion, which is an increase of 53% against the same period last year. And as part of our continued focus on improving operating leverage, we have further reduced our cost-to-income ratio. We removed in positive jaws now totaling 8% for the first 9 months of 2018 compared to the first 9 months of 2017. We have grown revenues by 3%, whilst reducing costs by 5% on a reported basis.I would discuss our efficiency program in more detail shortly, but as you can see, we've made further substantial progress in the third quarter. Indeed, we've now achieved cumulative net cost savings a totaling CHF 4.0 billion since the end of 2015. That's 96% of our end 2018 target. The restructuring program that we announced in 2015 would be complete by the end of this year and is expected to deliver cumulative net cost savings of at least CHF 4.2 billion. I would expect the fourth quarter to include a restructuring charge of around CHF 200 million, taking the total restructuring cost to CHF 2 billion over the life of our restructuring program.We achieved net income attributable to what shareholders of CHF 424 million, which takes our net income to CHF 1.8 billion for the first 9 months of 2018, 54% higher than in the same period in 2017, and that equates to return on tangible equity of 6.3% for the first 9 months.Finally, the effective tax rate for the third quarter is 38.9%, reflecting the fact that our profitability is still suppressed by the restructuring program and by the SRU losses. And my expectation for the full year 2018 is that tax rate will be approximately 37%.Now for the rest of the presentation, I will focus on the adjusted numbers. We continue to believe that these more accurately reflect the operating performance of our businesses. And with that, let's turn to Slide 47 to look at capital and leverage. We completed the third quarter with a look-through CET1 capital ratio of 12.9%, above our 2018 target to be an excess of 12.5% and an increased compared to the 12.8% that we achieved at the end of the second quarter. As Tidjane has already said, our CET1 leverage ratio improved to 4.0% at the end of the third quarter. That's up from 3.9% at the end of the second quarter and well above the Swiss Too Big to Fail going concern requirement of 3.5% for 2020. You'll note that we've completed the refinancing of our AT1 buffer during the third quarter and our Tier 1 leverage ratio remained above 5.0%. Indeed, the exact ratio was 5.14% at the end of the third quarter. On a look-through basis, our risk-weighted assets were stable from the end of the second quarter to the end of the third quarter at CHF 277 billion. In the Strategic Resolution Unit, the continued reduction of the residual portfolio cut RWA by another CHF 1 billion -- sorry, USD 1 billion to USD 9 billion, excluding operational risk. The continued reduction of RWA in the SRU means, as I highlighted a quarter ago, that it is now below the target of USD 11 billion in RWA, excluding operational risk that we originally expected to meet by the end of 2018.Now as you may recall when we spoke on July 31 for our second quarter numbers, we said we expect to reduce HQLA usage by approximately CHF 10 billion to CHF 15 billion in the third quarter. I'm pleased to report that leverage exposure overall decreased by CHF 35 billion compared to the prior quarter, of which CHF 27 billion came from lower HQLA usage. This HQLA reduction reflected a number of factors, including the optimization of business usage in our Global Markets division and the stabilization of liquidity requirements in our New York branch. We would expect these reductions in HQLA to be sustained during the fourth quarter.So let's turn to Slide 48, please, for an update on our funding cost guidance. Now during the third quarter, as you are aware, we substantially restructured our AT1 buffer. First, we called and redeemed CHF 290 million of low-trigger Swiss franc denominated Tier 1 instruments. Second, we issued irrevocable call notes in August on a further CHF 5.9 billion of U.S. dollar and Swiss franc denominated high-trigger Tier 1 capital. The first optional redemption data for these instruments was October 23 and that means, as a result, these have now been redeemed.As the slide shows, we've also issued CHF 3.7 billion of new Tier 1 instruments, comprising CHF 3.5 billion of new Tier 1 U.S. dollar instruments in 2 issues in July and in September, and a CHF 300 million in the Swiss franc issue in August. Now as you may recall from last year's Investor Day, in anticipation of this refinancing, we estimated a reduction in funding cost for the 2019 compared to 2018 of USD 700 million. With the completion of this refinancing, together with other legacy redemptions within the Strategic Resolution Unit, which have also now been completed, I would like to confirm the $700 million estimate for 2019. Now with that, let's turn to Slide 49 to review expenses. In the third and the final year of restructuring, our commitment to reduce costs and increase efficiency remains paramount. As you know, we set a target to reduce our adjusted operating cost base to below CHF 17 billion by the end of 2018. That's measured in constant 2015 FX rates and using a consistent accounting basis. Our adjusted operating cost base stood at CHF 12.6 billion for the first 9 months of the year, having achieved CHF 800 million of savings in this period compared to the same period last year. These savings came across all expense types and divisions, as well as from the continued wind down of the SRU.And as you can see from the slide, since the restructuring program began at the start of 2016, there has been a step change downwards in our operating cost base, which I would remind you, and as Tidjane mentioned, stood at CHF 21.2 billion in 2015. Since the start of 2016, we've now delivered CHF 4.0 billion of cost savings and are on track to exceed CHF 4.2 billion over the life of this program. I think this compares well to the restructuring costs that we expect to have incurred of CHF 2 billion over the last 3 years in order to achieve these savings. And as we said before, this is measured in a constant FX basis and on the same accounting basis as in 2015.Finally, let me just talk briefly about the SRU for a few minutes. So the third quarter of 2018 was one of continued progress for the Strategic Resolution Unit, which has already achieved 2 of its 3 end 2018 targets for RWA excluding operational risk and for leverage exposure. In the third quarter, we reduced the negative revenue drag on Credit Suisse from the SRU by USD 107 million compared to the third quarter of 2017. We also reduced the adjusted operating expense of the SRU by another $114 million compared to last year. So the third quarter adjusted pretax loss was cut to USD 275 million compared to USD 484 million in the third quarter of last year.Now if we look back over the last 3 years, you can see that RWA, excluding operational risk, has been reduced to USD 9 billion by the end of the third quarter, USD 2 billion less than our end-of-year target for 2018 and 84% fall from the end of the third quarter of 2015 when we started this restructuring. Our leverage exposure stood at USD 34 billion at the end of the third quarter, $6 billion less than our end-year target and 83% reduction from the end of the third quarter of 2015.So just if we look forward to the remainder of the year, our objective remains to continue to sell off as much as possible of the remaining SRU assets, bringing the division still further below the end-year capital targets. With regard to the pretax losses, I think you can see that we're very much on track to beat our adjusted pretax loss target of approximately USD 1.4 billion of drag in the current year. And that clearly positions us to meet our guidance for 2019, which, as I'd remind you, is to have a residual drag from the assets that we're running off of approximately USD 500 million excluding litigation next year.And with that, I'd like to thank you for listening and hand back to Tidjane for the presentation. Tidjane?

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

Thank you. Thank you, David. I'd like to go back to the slide which I used earlier and which is a way to capture our progress in our restructuring program. On the first group of objectives we had on capital, cost and SRU, we are well on track and have completed most of these tasks. As far as driving the business forward, SUB is well on track to its target, so is IWM, so is APAC WMC and so is IBCM. Global Market has delivered the part of this restructuring that was under its control and remains challenged on revenues, as we showed here. And the investment in controls have had a major impact, we believe, on the way our bank functions. Overall, this draws we believe a positive picture.Let me, before we move to our Q&A session, say a few words about the Investor Day. That's coming on December 12 in London. And just outlining some of the key themes we'd like to cover. We'll show you where we think continued, profitable, compliant growth can come from in Wealth Management or any opportunities there. We believe that is a huge opportunity still ahead of us. We will show you, because there's been a lot of questions sometimes on whether we had cut cost at the expense of investment, we believe that we've had actually made very good investments and very interesting innovations. So we will show you some of the new tools we have developed and are using to improve client satisfaction, efficiency and compliance, and these have all been developed during the period of cost reduction that we just went through. We will also illustrate for you, as the third point here, how we believe the business will behave through the cycle from leverage finance to credit risk to some of the items in various portfolios around the world. And we'll also talk to you about capital management. So with that, we look forward to that Investor Day and also to taking your questions this morning, which we will do now. Thank you.

[Operator]

[Operator Instructions] And your first question comes from the line of Daniele Brupbacher from UBS.

[Daniele Brupbacher]

I had to 2 things. I mean, firstly, on Global Markets. If I recall correctly, the 3 main units, GCP, Securitized Products and equities, generated around 1/3, 1/3, 1/3 of total revenues. And I was just wondering how you see these 3 key areas developing given the current market environment and probably going into '19. And then bigger picture, it seems like revenues will be quite a bit below the original 6 billion target, and you clearly have mentioned that as well. On the other hand, costs will probably come in at around this $4.8 billion level. Is that just telling me you are still optimistic and you are just investing and you think this is probably just a temporary situation at the moment and that the outlook remains, for all 3 revenue streams, very positive that you could probably even grow them further? And then secondly, Tidjane, on Slide 19 and 20, I think you used the word technical or statistical outliers. And then at the same time, you also said trade wars rhetoric clearly turned into reality. Now I guess it's fair to assume that this whole situation will be here for some time. And I was just wondering how you think about managing resources against this. Are you in observation mode? Do you envisage more cost-cutting structural, technical cost cutting? I will just be interested to hear your views now.

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

Very good. Thank you. Thank you, Daniele, and thanks for your question. Yes, it's important to see more or less what happened in Q3. I mean, there's clearly a drop in revenue compared to what you expected from Global Markets, and it's important to see where it's coming from. There is about -- and I think I gave the number during my speech. There was about CHF 79 million coming from that restructuring that we mentioned. And -- to think about it, that's CHF 20 million in equities and CHF 59 million in fixed income, okay? And also from 1 billion-ish, 1.1 billion of revenue and 76 points of growth. And this is why we corrected that 19% decrease to 13%. And so it's 5 point on equities, and that's why we corrected the plus 1% in equities to plus 6%. And it's about 4, 5 points in fixed income, which we corrected to minus 15%. The rest of -- most of the rest of a decrease is really SP. It's SP for more than 100 million, kind of 120 million-ish comes out of SP. So it would be wrong to assume there's a huge contagion there. It's very concentrated. It's for very specific reasons. And I can take you from the various blocks, but the biggest decrease is in the agency segment, where we really the flattening of the yield curve led to weaker client activity. And I think I certainly heard several of our peers in the U.S. commenting on that. It's not unique to Credit Suisse. It was -- you can see it in the results of our peers. But we were overweight SP, so we were very impacted by that. And also, derisking and sector repricing in the U.S., which has surprised everybody. What's happened is the U.S. borrower has been behaving in a way that it was not expected. With the increase of house prices, what they've been doing is taking equity out and releveraging themselves at a higher rate. It's a bit counterintuitive and was not forecast by the models and has led to a major repricing in the sector. So that's pretty idiosyncratic. And it has impacted SP in a disproportionate way. So out of 120 million, about 70 million is that, 70 million, 72 million exactly. Then you've got in the non-agency some decrease, because we had a unique transaction in Q3 '17, which brought us 41 million. And the difference there is quite material. So it's quite explainable. It is very idiosyncratic. It is very specific to SP. And we believe that the rest is in line. So that's why, to your question, we think that this is unique. This is idiosyncratic. And the thing also about GM very different from the past, I don't see these as losses. Lower revenue is not a loss in the traditional technical sense of the term. The mandate we've given to Brian and his team is to really run this business without idiosyncratic losses. Activity levels, we control them to a certain extent, but if the phone doesn't ring, the phone doesn't ring. But that's part of the model. And the other message we've also given them is don't chase revenue in moments like this because that's really how sometimes bad risk is taken. So we're quite comfortable with having taken the platform to a level where it's efficient, having taken the capital and the risk to a level where we're comfortable. But revenue will fluctuate. And this quarter, it illustrates that. We have done some restructuring, as I said, it cost us CHF 79 million of revenue. But it will have a cost benefit. That ensures that we will hit the $4.8 billion. And more importantly, going forward, there is a big benefit in the funding. We said $250 million. That's a conservative number. That's a $250 million PTI uplift in 2019. So David, I don't know if you want to add anything to it.

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

No, I think that's -- I practically agree with Tidjane. Nothing to add really.

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

So that's the story. The -- sorry?

[Daniele Brupbacher]

That's very useful. Is it fair to say that revenue momentum wise, probably equities for you for idiosyncratic reasons should be the one that shows the highest momentum given you're investing there or am I wrong assuming it?

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

At this point in the cycle, I think that's a fair assumption to make. Mike Ebert, who runs the equity derivatives. We've got Ross Mtangi, who runs the exotic derivatives, who's been doing a great job, had some great days since he arrived. We've got Hippolyte Agkpo joining also in London. We've really got a first rate team now driving equity derivatives. We -- and I mentioned it was 70% up year-on-year. That's a transformational difference in terms of level of performance. And we expect the turnaround that Mike Stewart is leading to work. And frankly, that's part of why Brian and I went to get Mike a while ago because we knew that, at some point, the cycle would turn and that we needed to rebalance the portfolio between equities and credit. And our thought was always to use the good times in credit to invest in equities, so that equities pick up when there is a relative weakness in credit. That was the strategy, and it's working, okay? And yes, it's also very good question on Slide 19 and 20. Look, we're very cautious. If you step back and look at the bank, it's been de-risked massively. I talk about Level 3 assets going from 31 billion to 15 billion. The VaR has been reduced massively. And that's not by coincidence. I've been quite bearish. I've been on the record many times saying that the exit of QE would be difficult, and I want us to be in a conservative, prudent position going into '19. So all the work we've done to lower the breakeven point shows its value in difficult times, okay? Because where we used to have losses, we maybe have lower profits and not losses. We're profitable in the quarter, thanks to the fact that we dropped down our breakeven point and our fixed cost base very significantly. And the way we're thinking about the budget for 2019 is really to be back-end loaded. I want to go into Q1, Q2 quite prudently in terms of investment and cost, and see how the year unfolds. If our fears don't materialize, then we'll be able to invest more. But if the environment doesn't change materially or doesn't improve, we'll remain in a relatively cautious stance. And you've heard me often talk about the 2%, 3% productivity improvement that I want to continue to generate once we've reached our desired efficiency level. I see that as a flex to manage uncertainty. Ideally, what I'd like is to use that to invest because we have very good return opportunities. You've seen, in parts of the portfolio, 30% return, 33% return. But it also gives me the latitude to watch how things develop before making those investment decisions. So I don't know if that answers to your second question, but...

[Daniele Brupbacher]

Absolutely. No, it shows your thinking. Very useful.

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

Okay. Okay. Thank you, Daniele.

[Operator]

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

[Jeremy Charles Sigee, Research Analyst]

Two questions from me, please. First is on the funding cost savings for 2019, $700 million. You're mentioning that $250 million of that is going to show up in Global Markets. Is the rest predominately in SRU? Or are there meaningful amounts in any of the other operating divisions? That's my first question. And then the second question is I just wondered if I could get you to talk a bit more about the restructuring that you undertook in the quarter within Global Markets of rates and macro? Just around what drove your thought process there. So why now, what evaluation criteria caused you to take that action. And if you could talk a bit about what you've actually exited, that would be helpful as well.

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

Okay. Thank you, Jeremy. I think the short answer to your first question is yes. But David, do you...

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

I think yes is the answer. The SRU is allocated to a significant slice of the AT1 instruments given the volatility that it has, as well as its past capital usage. In addition, as I think you may know, Jeremy, there were a number of other funding instruments within the SRU which were actually not B3 compliant, but B2 compliant, which we redeemed partly during the course of the third quarter and completely since the beginning of the fourth quarter. So essentially, the bulk of the savings is split between GM and SRU.

[Jeremy Charles Sigee, Research Analyst]

And de minimis in the other businesses.

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

Not de minimis, but the bulk is definitely in GM and in SRU.

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

Okay. And on the restructuring, look, this -- it's a -- Global Markets is a big business and the restructuring has gone in several ways. So we did very big things early, which had a big impact. And as time passes, you get to smaller and smaller issues, which were always on the radar but, frankly, we hadn't tackled. So some of what happened -- a big chunk is really that we reduced the rates for the U.S. and the EMEA rates business. And in particular, we eliminated trading services for low-margin clients. So in a way, you could consider that normal business. But really -- and this is something we've been doing in prime, et cetera, taking the clients and eliminating the clients -- eliminating, sorry, low-margin clients and refocusing on high-margin electronic clients and also some of our internal clients. That was one thing. We also did quite a few things in Brazil. We reduced some of the FX and rates options traders. We closed down one equity loan trouble -- I mean, I could go on and on, but it's things like that. We've also rationalized our local presence in Russia. So it's a number of things that we had on the list, but we knew we needed to do before the end of the restructuring and the timing is kind of fortuitous. It's just we're getting to the end of the restructuring and some things that we had maybe deprioritized, we're just trying to do before this restructuring is over.

[Operator]

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

[Andrew Stimpson, Director and Senior Analyst]

I guess just one main point I want to make or one big question, I guess. I see the revenues in Global Markets have disappointed. But the balance sheet reduction in Global Markets is, at least in my view, good and I think many shareholders won't mind that. But how does Brian Chin and the management team and the staff of the IB feel about that? Do they think that the balance sheet cuts they've made from those areas you've mentioned, in EM and macro, are going to be reinvested, i.e., the benefit eventually comes back to them? Or are they clear that the benefit stays with shareholders in a better capital allocation and trying to further improve the look of Slide 9 of your presentation pack going forward? That's all for me.

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

Thank you, Andrew. It's a great point. I think Brian Chin and his team, there is a slide that we'd use sometimes, we didn't put in this time after Slide 9, which from memory, I believe, is the capital allocation one. Yes? It should be. That's the one you have in mind, yes, showing markets where -- yes, exactly, exactly. No, no. Yes, that's it. We're showing you the PTI. My fundamental view to them is that as the dark blue grows, the light blue can grow, okay? So I think that the balance we have is quite good now, okay? We've taken GM down. We didn't want to take it further down because there's a point where it's not viable anymore. It has a certain level of volatility, but we believe that the rest is getting big enough to absorb that volatility. That's really central to the way we are thinking. So we understand we're focused on GM this morning, but we think it's possibly a bit overdone, because the $21 million loss and making 520 in SUB, where we used to make 300; and making 400 in IWM, where we used to make 200; and we're making close to 200 in Asia, where we used to make 60. So we believe that the profit increases that we've showed you in the rest completely pays for these and leaves us in a position to absorb that volatility. That's how I talk about it with Brian's team. And they understand that, that there is plenty of upside in the Wealth Management for them. And the collaboration, I think I said the collaboration revenues were up 11% year-on-year. They don't have another segment of their activity that's up 11%. The fastest-growing activity they have right now is the support to the Wealth Management. So the -- if you will, the feedback loop from the Wealth Management growth into Global Markets is real. And I will say investment is necessary, and that's something we agree on with them. We've made already a number investments in people. And some of the kind of number I gave you from the funding there is a bit of a net number. And it's net of quite a bit of investment in GM for Brian and his team, the $250 million I mentioned, yes.

[Andrew Stimpson, Director and Senior Analyst]

Okay. But sticking to the balance sheet, you think that the -- so the -- I guess, because you've reduced the balance sheet. So are you saying that -- actually, you could see that'll grow back up again?

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

I think marginally and opportunistically. David, you want to...

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

No, I there's a few points which I think -- and just to support what Tidjane said. I think we talked a little bit about this on July 31 that we said that we had seen the removal of liquidity buffers here in Switzerland. We also basically saw removal of liquidity buffers elsewhere in the U.K., and that reflect the improvements in liquidity management that we've eventually achieved over the first year -- first -- last year or so. Now what we -- as a consequence of that, we were able to actually reduce the HQLA. On top of that, we also -- I think you knew we had some increase in HQLA from the IHC New York branch at the end of last year, and that's now been stabilized as well. That is mostly GM related, and therefore what Brian's saw was a reduction in his HQLA balance, most of it comes through to GM given the booking entities. But I think Tidjane's point is absolutely correct. What we've done we've taken out unproductive HQLA through these means, and the actual business usage is less than that. But I think your point, it did makes sense. I think in terms of HQLA usage, I wouldn't expect it to be going back up again in the fourth quarter. Clearly, in terms of anything else we did beyond that, it would be opportunistic, I think, Tidjane.

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

Yes, it's opportunistic. I mean, you should expect that the absolute levels we have are about right. All I'm saying is there's absolutely no flexibility before. And I'm saying, as Wealth Management becomes bigger, we can be a bit more pragmatic in how we manage Global Markets. But the general shape of having a very predominantly Wealth Management driven capital allocation is there to stay given the differences in return between the 2 businesses is fully justified. All we're saying is that GM does play a role in supporting Wealth Management, and that can punctually allow us to invest in GM where it makes sense. Just to give an example, but I'm just thinking aloud here, the rate of internalization is still quite weak, i.e. quite a bit of our Wealth Management is executed outside. Really quite a bit, way too much. So the notion that when we are competitive with the best quote in the market, it should come inside is very easy to understand. And things like that will drive growth in Global Market without even any change in the external markets, just that discipline of saying that, look, let's internalize a higher proportion of the trades we do for the Wealth Management clients, is something that will allow Global Market to grow, increase revenue without taking any additional risk. So opportunities like that exist. This is why I'm not putting a straitjacket and saying, "No, we're not going to grow," because we may -- There may be very, very good reasons and very good opportunities to grow as we collaborate more between Wealth Management and Global Markets.

[Andrew Stimpson, Director and Senior Analyst]

Okay. But for me, it's probably slower than Wealth.

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

Sorry?

[Andrew Stimpson, Director and Senior Analyst]

Probably slower than Wealth.

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

Oh, yes. Yes, yes, yes. Definitely. Because it's opportunistic and it's on specific products and specific locations.

[Operator]

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

[Kian Abouhossein]

The first question is regarding targets. You clearly outlined again the CHF 17 billion below target, but you're not discussing the CHF 16.5 billion to CHF 17 billion that you set for '19 and 2020. And considering that your run rate looks you will be well below the CHF 17 billion going into next year, I'm just trying to understand how we should think about the CHF 17 billion and CHF 16.5 billion since you're doing a great job on cost. The second question is related to Private Banking. And here, I just wanted to understand a bit better the transaction banking margin pressure or transaction banking revenues, I should say, for Asia IWM. Can you run us through what -- is any structural issues here that we should think about going forward, a trend that's developing? And also, just the NII pressure in SUB that you highlight is due to deposits, if you could discuss a little bit deposit pressure and how we should think about that going forward. And if I can put one more sneaky one in, Global Markets, you mentioned CHF 79 million lower revenues due to restructuring, how much is the cost impact?

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

Okay. Thank you. This is a good list. Let me try and address those with David. Look, the CHF 17 billion -- kind of I'm pleased we're having this conversation because that's a target that was not always believed. So you're right, we are going to come into '19 with a very good run rate. I talked a little bit about the CHF 16.5 billion. I think you're a bit unfair. I talked about 2%, 3% continued improvement in productivity. That's where the CHF 16.5 billion was, and that remains. And what I said also is that we kept the, how can he say, the option of using some of that for investment in 2019 depending on market conditions. And I think that's the best answer I can give you at this point. So we have the capability to get there, how we use that headroom. It's going to be a bit market dependent. But look, to be here talking about CHF 16.5 billion or CHF 17 billion for this bank is having more or less kept revenue is, I think, a good problem to have. PB transaction revenue, APAC, there's no real -- I mean, I could get undercover for you a little bit, but it's really driven by the clients. I can tell you it's more -- we have now restructured North Asia, South Asia. It's more North Asia than South Asia. So it's more a Chinese thing than a non-Chinese thing, if you will, Southeast Asia versus China. And a lot of it is fixed income. A lot of it is fixed income, that's where you've seen the most -- that's where we've seen the most drop in transaction revenue. I hope that gives you some color. But it's really -- I think it's nothing structural. I mean, structurally, as you can see from our disclosures, transaction revenues are a higher proportion of our PB revenues in Asia than elsewhere. And significantly higher. This is why you've seen the impact you've seen in our numbers this quarter, because both SUB and IWM are less transaction revenues dependent. This is just customer behavior. We know that people in Asia are ultra high net worth, like to trade and trade a lot. So that's been impacted a lot. But -- so to give you a breakdown of the drop in transaction revenues, you've seen it's a little bit in Southeast Asia and a lot in North Asia. Does that answer your question on this, Kian?

[Kian Abouhossein]

Does it -- any structural changes or -- no.

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

No, no. I have Helman shaking his head vigorously there, and the CFO, no, no. No, no. No really, it's a reflection -- I was in Asia 3 times this quarter in Q3. I've seen tens of clients. The sentiment -- it's a reflection of the sentiment universally. All the clients you talk to raise the same issues, concerns, et cetera. It's sentiment. It's paradox where the trade has not really had an impact on the real economy, it hasn't, you don't see it in the growth rates. It has an impact on sentiment, and sentiment is very connected to trading. But what you've seen in past cycles is that doesn't last forever. People sit on the sidelines and some of them come back. And they'll come back with different ideas and do different things, and we're doing an enormous amount of work with Helman, with the team, almost daily, to come up with a trading ideas, to come up with new trading strategies. Acknowledging how they feel, saying, "Fine. That's how you feel. What is it we can do very that is smart and that would make you trade?" So it's -- we've always seen it bounce back in the past. So we don't believe it's true.

[Kian Abouhossein]

And sorry, SUB deposit margin pressure you discussed on WM.

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

Yes, I think what you're referring to is the comment on Page 19 of the financial report in which we refer to a slight decrease in deposit margins in the bottom left. I think 2 points to make. It's actually temporary because what you're actually seeing there is stable client deposit margins, but actually a drop in the central treasury contribution, which was related to the AT1 refinancing we actually did. So I think you probably should see that actually going up in the fourth quarter. So I wouldn't be reading more into it than that. There are certainly no particular questions around deposit margin pressure here in Switzerland. And I think you then had a final question, I think, on the cost impact of the macro in emerging -- EM equity restructuring that we did in the second quarter. I mean...

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

I think...

[Kian Abouhossein]

Yes, the equivalent of the CHF 79 million, yes.

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

Yes, yes. Look, in the full year, you should think about it as CHF 80 million of saving. It's a 1-year payback, which is cost reduction there is good. So yes, you'll have a little bit in Q3, a little bit in Q4 and full year '19, CHF 80 million.

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

Yes, I mean, I think the point would be we were very focused on bringing our breakeven down to below the $4.8 billion number. You can see we're actually well below the $1.2 billion per quarter. I think exiting and downscaling these businesses was exactly the right thing we had to do in order to reduce the breakeven point for GM and hit the $4.8 billion target. And I think these were exactly the right targets.

[Kian Abouhossein]

And this 80 is included in your guidance.

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

Yes, yes.

[Operator]

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

[Jernej Omahen]

I just got 2 questions left, but the first one is on Page 64. And you show that the Asia Pacific Wealth Management had a drop in leverage exposure sequentially from CHF 60 billion to CHF 56 billion Q-on-Q. And I was just wondering what is this because, sort of seeing a strong net new money number in Asia, one would assume that embedded is that -- is some growth in leverage as well, but it seems the opposite is happening. So if you could just explain whether this is the right way to look at it, that there was net redemptions of some loans or that I am missing something. And the second question is on Page 68, so the Global Markets. And I guess the question falls into 2 categories. So one, as you pointed out, Tidjane, the cut in leverage exposure was quite meaningful. So it's down CHF 13 billion quarter-on-quarter. Can we get a bit more insight into what this CHF 13 billion actually encompasses? It just seems to be a high number. And I was wondering, so the second question will be this. So markets was loss making this quarter. This was a reasonably strong quarter for your global peers in their markets businesses. Given the composition of the markets business, and so as you point out on Page 39, right, so your FICC is asset finance, U.S. RMBS, leveraged finance and high yield. I was just wondering when you look at that number and you see a loss in Q3 and with the leading indicators on the horizon for the credit-intense FICC businesses that Credit Suisse have. And I'm just wondering how you feel about this business. Is there scope to cut it back further, or are you committed to keeping capacity?

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

Okay, thank you, Jernej. So I think, on the first point, it's mostly deleveraging that you see going through. Think about it as there's been about CHF 6 billion or CHF 5.5 billion of deleveraging, and it's now 3 North Asia and 2.5 South Asia. So this is why we're so pleased with CHF 6.4 billion NNA, because...

[Jernej Omahen]

Yes. So the CHF 6.4 billion number needs to be grossed up for the deleveraging and...

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

It's much more. Thank you. It's much more, exactly. So this is why we -- absolutely. Thank you. It's absolutely we -- this is why we're so pleased with it. It's really in -- it was very intense deleveraging. It's a really good number. Your second question, let me just maybe step back. It's something I've said before. We have really changed the business. I kept saying during my presentation, look, we've done more in 9 months '18 than in full year of '15. We've done more in 9 month of '18 than in full year of '15. It's a recurring line because we've changed the scale of the Wealth Management business. Every analysis we do shows that the 10% to 11% RoTE target we gave you for next year is not sensitive to the global market's performance. So one has to keep that in mind, with all the focus on core market today and absolutely a business which is strategically important which we'd like to have and we're driving forward. This was Slide 9 that I think Andy Stimpson mentioned. The capital allocation shows you that really the shape of the group has changed. That is not the single driver of our economics anymore, whereas it maybe was 4,or 5 years ago, but it's just not. The 10% to 11% RoTE is quasi not dependent on the global market result. Now that being said, yes, there was a loss in Q3, but again when you say it was a favorable market environment, yes, for some of our peers, yes, but look at our footprint. We have SPE, which is a very good business and which gives us a unique profile. And SPE was hit very hard this quarter. That's a fact, and I kind of gave a breakdown where it came from. So -- but even after that, I also said that the return on capital in SPE was strong, even at this low point in Q3. So we're comfortable with the footprint. At the strategic level, we really are driving we need to have a stronger equities presence, and thus be strategic. And we've hired and we've made investment we're making in order to grow there. And we will have this big uplift that's coming in '19, a lot of which will benefit Global Markets. So I think that in '19 we are looking at a very different picture than the one we've had during this restructuring, which really started in earnest kind of late '16 when Brian took over. So we are kind of 2 years into it. And it's going to take 1 more year, I think, so that you'll see it in the numbers.

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

I think, just to emphasize what Tidjane said on your question on GM leverage. That is more than entirely due to the HQLA reduction, just to be clear on that point, that CHF 12 billion. Recall I said that the HQLA level actually dropped by CHF 27 billion in the second quarter to a third quarter move.

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

So it's HQLA, yes, but it's helpful because, yes, leverage was a huge constraint for us in that business, absolutely.

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

And clearly, at $255 billion leverage, that means you've got allocated equity of 8.9 billion in GM. So it's it balances the business better.

[Operator]

And your last (sic) [ next ] question comes from the line of Giulia Miotto, Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Just a couple of follow-ups at this point. So number one, on LCR capital. And of course, we had a good reduction in HQLA in the quarter, but actually LCR remains quite high when compared to peers at 202%. Some peers are even as low as 120%. So I was wondering if there is scope for this to improve. And then the other question is with regard to the Investment Banking but in Asia this time. So we have talked a lot about GM, but actually the Investment Banking in Asia was also more or less breakeven, up 2 million PBT in the quarter. How do you see that evolving? And is the 10% to 15% return on allocated equity target realistic for perhaps next year, or do you need to take further restructuring actions here?

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

I think, on the first point, the LCR ratio clearly did drop between the second and the third quarter. Just to recall, the HQLA reduction is end quarter to end quarter. And as the HQLA actually dropped during the course of the third quarter, you're going into the fourth quarter at a low level. And that -- I think that's why I indicated when I spoke that, with regard that HQLA reduction is sustainable, it's not going to be -- it's not going to reverse. So you will see therefore the LCR ratio should drop in the fourth quarter just mathematically. And I think your second question was on the outlook for the APAC Markets.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Yes.

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

I mean I'll pass to Tidjane, but I mean I think the first point to make, and I'm probably guilty as everybody else, I think we tend to look at the U.S. markets. I think it's -- as Tidjane summarized in his presentation, I mean, it's clearly been a very, very difficult market environment to actually operate against. And I think that does need to be taken into account. Certainly, Tidjane, I think, if we look at the performance in Asia Pacific for the first 9 months, one key point to know is the fixed income business is relatively small. And you see volatility in the mark-to-market positions. In fact, if you actually look at the 9 month fixed income revenues for APAC Markets, they were actually marginally up compared to 9 months a year ago. It's a bit of a law of small numbers in terms of the trends you're actually seeing there. I don't know if you want to add.

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

No. I think that's exactly right because some of optical underperformance you see in Q3 in Asia fixed income is a reversal of some outperformance in Q2. So it's kind of small numbers moving up and down, which have a disproportionate impact because we do give you a lot of disclosure. And you have to see that APAC market is a 10 billion, 11 billion RWA business. It will be a kind of desk in our global market business in New York, and we don't give you that level of granularity. So sometimes and because we want it to be transparent -- but going into a kind of overanalysis of that is difficult because you've got a relatively small number that can move around a lot. I mean the year-to-date profit is $95 million on the scale of the group. With all respect to our group, our teams there do a great job. On the scale of the group, that's a relatively small number. And it will move around, but it won't have a material impact on the group's economics, yes.

[Operator]

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

[Andrew Philip Coombs, Director]

A couple, please. Just first one is to labor the point on Global Markets. $4 billion of revenues for 9 months '18. You said the $6 billion target is no longer realistic. It looks like you're going to be closer to $5 billion. If we think about the run rate going into 2019, we can add the $250 million for the funding cost benefit, but we also need to take the annualized impact of the business rationalizations that you've done. So it looks like you're talking about kind of low $5 billion, unless I stand corrected. So more broadly, what does that mean for the returns for the division? Because you're running at 7%. The 10 to 15 target looks very ambitious even going into next year and beyond, so should we just assume that Global Markets standalone is a drag versus the cost of equity but as the -- as a division supports the wider group? Or do you still think this is a division that can make its cost of equity stand alone? And then my second question, a very quick one on capital given the further reduction you've had in leverage exposure. If I look at your core Tier 1 ratio at 12.9%, your core Tier 1 leverage at 4%, it actually looks like the core Tier 1 ratio is now the binding capital constraint when you're thinking about capital return. Is that fair?

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

Perhaps on that second point. I think yes. I think that's I mean I think -- to be clear, I think that's true for all major Swiss banks given the calibration of the Swiss capital regime. That has been the case, I think, for some time. And I think, just reiterating what I said at the end of the second quarter, I think, if we look at the Basel III reforms, I would expect leverage to remain the binding constraint for some years to come. But I think we're very happy to be at 4.0% common equity tier leverage ratio. 3.5% is the requirement, but 4% is the highest for as Swiss G-SIFI, so that's good.

[Andrew Philip Coombs, Director]

Do you still think sort of leverage is the binding capital constraint?

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

Yes. All right, perhaps I'm missing the point, but the answer is, well, yes. Leverage is, and it will remain so for some years to come until the B3 reforms were phased in, I will say, I think, at least 2022, '23.

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

But it is lesser than it used to be. We will. That's -- yes...

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

Sure. Sure, sure, sure, yes, absolutely. Yes. I mean let's be clear. I mean we're at 4% against 3.5%, so we've got a significant buffer against the Swiss requirements. But that is more binding than RWAs is the point, Andrew.

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

Yes. And also, yes, okay, your first question was on GM and profitability. Look, I will just say -- the $6 billion, I wouldn't say it's not realistic and it's not achievable. I think it was a realistic number in a normal market environment, but really conditions have been such given our footprint that it is not achievable. And we've considered that at Q2 actually, yes. We were very well saying that. Now looking forward, yes, we have $250 million-plus coming. We have a continued progress in equities, which also adds. Yes, we're losing some revenue because of normalization, but we're also going to gain some revenue in equities. When I sit down with [ Joachim ], who runs SPE, he has a very good plan for next year. He's been surprised by some of the movements this year, but we're also repositioning the business for '19. So I don't expect in SPE what you've seen this year. Credit is continuing. Leveraged finance is very strong. So we think we have a fighting chance of anywhere north of $5.5 billion on the new basis, $5.6 billion, $5.7 billion, $5.8 billion. You've got a $4.8 billion there as a cost, so you're talking $800 million to $1 billion, something like that, so high single digits. Which we think, when we look at our peers, in spite of the so-called great performance in Q3, et cetera -- I've seen the lot of single-digit returns, when you look at other banks. I've heard a lot of debate in calls over that. It's high single digit, but in the context of a group where basically the lowest-returning wealth division is at 17%, which is Switzerland, it was an extraordinary performance. And to the extent that this supports the rest -- we gave you a lot of divisional visibility during this restructuring period. If you remember the very beginning of all this, you criticized us for not giving you an ROE target. And my position was, look, we're going to go through such a transformation with an SRU of 75 billion RWA. "I am not going to start talking about an ROE target." We then moved into the -- move forward in the restructuring. Things got better, and we gave you a ROE target last year, an RoTE target. And really that's what matters in the end. Hopefully, after this period, we're going to run the group as a whole to hit the RoTE target for the group. And yes, in a portfolio of businesses you will always have some that have a lower profitability, but cutting the tail risk in that business was key. What was not acceptable and before was a relatively low profitability with a high tracking error, if you wish, with a high standard deviation. That's -- that cannot be, but a high single-digit return which is in a very narrow range which is controlled doesn't create risk for us in the down part of the cycle and supports a bunch of businesses which are north of 20% return on capital. And give you 10% to 11% in '19 and give you 11% to 12% in '20, I think, when I look at the banking industry, is defensible, with plenty of upside beyond 2020. So that's the model we have. I mean we can debate forever the single profitability of a single division, but that's not the objective of what we were doing. The objective of what we were doing is to drive for profitability of the whole up consistently. That's what we've been doing since '16. I don't know. We're at what, 6.3% now, 6.3% RoTE? Coming from much lower and going up. And our commitment to you is that we are going to deliver that. So yes, GM is the lowest-returning division in the company. In every portfolio you will have a lowest-returning division. The matter, question is really does the whole work. And does the whole generate good returns? Which we think it's going to be, especially next year.

[Operator]

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

[Anke Reingen, Analyst]

Yes. Sorry to come back to Global Markets. And in a way, we obviously have been very successful in capital management, costs. The focus has been on Wealth Management, so I can understand you must be a bit disappointed. Or I mean, must we continue to discuss the Global Markets performance? So how much of your patience has actually left in terms of -- I mean I understand it's a small part of the group, but the return is obviously below what you aim to deliver. Is it that a certain part of the risk-weighted assets is just not running at your target, first? Or like can you say what percentage of capital allocated delivers a "below cost of equity" return, and is it just basically that part? And you indicated that internalization from the Wealth Management operations could be -- would be supportive to the Global Markets division. Could you just say how material that will be for improving the return of the Global Markets division?

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

Well, thank you. Thank you, Anke. I -- you -- I don't know if you can see, but I was smiling when you were talking about my patience. Let's just say it's a quarterly exercise in improving my ability to be patience -- patient because, frankly, look, I understand. It's the nature of the game that people focus on things that don't work. And out of that slide on the 2018 -- yes, okay, it's like 6, 7, 10, 13, 14. I count 17 lines. And that's the line that's yellow. So I do accept that. I try not to show impatience when I'm asked about it because you have to respect every question. We say in French there is no such thing as a stupid question. There are only stupid answers. So every question is legitimate, and it's my job to answer them. What I can do in the answer, though, is point people to the other 17 lines -- 16 lines, sorry, and say, well, look, this is a program. It's working reasonably well. There's a lot of green on that page. Yes, there is one number. Perfection is not of this world. God, I -- know I wish I had 17 greens. I don't. 16 works for me. We've not been complacent. And I think we've talked about GM. You've seen now the real focus on it. I follow it personally. I'm very close to it with Brian. We're driving it up, but it was a big challenge. I actually think, if you think about all the restructuring stories out there, we've done okay, as I said. And you mentioned that, and thank you, Anke, for saying it, the cut, the level of cut in RWA, in leverage, in cost, in risk. I mentioned the numbers on the inventory, how much we've taken down the inventory. We don't carry that risk anymore. Honestly, it's remarkable. And the franchise is still there. If you remember, 3 years ago, when we talked about these types of targets, everybody said, "You're going to destroy the franchise." There was going to be attrition, okay? And we're not sitting here talking about a franchise that has been destroyed. We're still #1, #2 in some key specialties, with 47% less risk. So honestly, I can't fault the teams. Honestly, I think they've done a really good job. Now the notion that in a group what matters is that your group return on capital should be above the group cost of capital, I don't think that business of capitalism -- or capitalism requires that every single part of a group should be above its own cost of equity or cost of capital if the whole works and if the whole is going up. And what we believe, and we've illustrated that, is that with our focus on ultra high net worth, the capabilities that we have in IBCM and Global Markets are very important. And I'll point you to IBCM. I think IBCM is a really good story, okay? If you go back to that slide where we show you -- okay, great, 37, where we show you a picture in '15, when we were not so focused on Wealth Management; and the picture in '18, when we're very focused on Wealth Management. I can't derive from this, but IBCM has been hurt by our focus on Wealth Management. On the contrary, the total performance adding IBCM across regions, we've pulled away from our peers. In '15, we were about the same size. We're materially bigger now. So my contention again is that on the back of the success in Wealth Management there is an upside from businesses like IBCM and Global Markets. And you pointed to internalization. I know the number. We just -- we don't disclose it, but it's very low, the level of internalization. Even if I benchmark it internally, there are divisions where there's a big upside there. It's material, okay? It's not -- so that's one. ITS, I said the collaboration revenues are up 11%. We gave you at the beginning of this the penetration. It was 2%, penetration of ITS. And we told you about some of our peers have up to 14% and that we average around 7%. So you can at least treble what we are doing today. So this is not a 1-quarter story or even a 1-year story. What we're saying is that keeping GM as a platform, with all its strengths, and connecting it to the Wealth Management, we believe in the potential of this business over the coming quarters to take advantage of these opportunities and show a very good picture. And I'll finish on the capital return by business line slides, if I can have it. Yes, this one: SUB 18%, IWM 23%, APAC 18%. I don't think any would argue that this business is not covering cost of capital. IBCM has gone up in 15%. Yes, you do have that 5%. It's on $60 billion of RWA, and it's going to go up. It's going to go up to single digits. And I think that leaves you with a bank that has in the sector today a good return on tangible equity, with a lot of upside from all the opportunities we discussed in Wealth Management. So I don't know if that answers your point, but...

[Anke Reingen, Analyst]

And the return on equity. I think there was a misunderstanding. I meant within Global Markets. Is that like 30% of the equity is allocated to business that doesn't deliver sufficient return? Or what will be a -- yes, the right answer basically? It's just within Global Markets.

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

Yes. I mean I can say I think the point is clear. We're very focused. 6.3% is our return on tangible equity the first 9 months. I -- we're targeting 10% to 11% for next year. That's the group returns. If we actually think about what we're trying to achieve in Global Markets, part of it is to align it very closely to the Wealth Management business. And that's clearly what we're coming -- seeing coming through in ITS. And we'll see those returns boosting the overall return on tangible equity. So as Tidjane said, our focus is to ensure that the group's return on tangible equity gets up to the 10% to 11% next year and we're delivering on our targets. That's clearly above the cost of capital for a Swiss Bank, and I think that's -- will be well received by certainly us. I think, in terms of GM itself, I think we touched on the key points there. I mean clearly the ITS joint venture has momentum, but as Tidjane said, there's ample potential for increased internalization. I think the momentum we've built in equities. I think you've seen equity derivatives seen elsewhere, but I think I'll also just point to the denominator, my point about leverage. $255 billion in leverage. The denominator is 8.9. If you look at $60 billion of RWA, it's $6 billion. Actually the returns of our Global Markets business on RWA are far more acceptable, and that's my point about balancing leverage in RWA. That's there's a number of ways you can actually improve this, and it's worth keeping an eye on that.

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

Yes. There is work on that. I mean you -- much work -- there's still work on improving on prime business, which is the biggest consumer of leverage. Same thing in Asia also. So there is still room for improvement in GM, and we're not done there.

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

I think we think that, yes, they're all numbers. We should just step back. In 9 months, we've made 26% more profit in Wealth Management than we did it in the whole of 2015. If you look at the SRU, I don't think -- I think there's a lot of skepticism that the SRU goals would be met by 2018. I think you can see we've met 2 of the 3. And I think you can expect us to beat the third one because we've beaten every other target. So I think there's a lot of progress made up -- around the group, and that's what's going to drive our RoTE up to the 10% to 11% next year.

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

Yes. And I think it's when we -- I'll keep repeating it. I'm not going to run out of patience. We are different from the others. People are right to interrogate many of our peers, throughout the call, on their GM equivalent because that's where the battleground is for them. That is not the case for us. We have taken it down in size. The rest is growing. As David just said, 26% more in 9 months in '18 than in '15, that's an enormous pace. We talk about 9% CAGRs, 11% CAGRs, 14% CAGRs, okay. And we're sitting here discussing global market, which I'm happy to do, but in the case of Credit Suisse, that is not, how can I say this, the main driver of the story that we are writing. It's an important division. It plays a key role in supporting the rest. But look at vehicle. We've still got the numbers, 20 billion of loss, again; [ 5 23, 4 12, 1 84 ]. It's you just -- you can do the maths yourselves. And if these other numbers keep growing, as we've been able to make them grow, we think we'll get to a good place. I really think that we are being impacted by the fact that most of you look at us understanding Investment Banking very well and Global Markets. And that's what we discuss with our peers, and that's what they really are very familiar with. And we're a bit of a weird animal because in our case it's not driving the plan we have. Maybe it used to, pre restructuring Credit Suisse, but it's not anymore. So I won't run of -- out of patience and I'll keep repeating that as long as necessary.

[Operator]

Thank you. I would now like to hand back to Adam Gishen to close the call.

[Adam Gishen, Group Head of Investor Relations]

Okay, well, that concludes our Third Quarter Call. And I thank you all very much for joining. With that, we conclude.Thank you.

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

Thank you.

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

Thank you.

[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 and you may now all disconnect.