Credit Suisse Group AG (
Q3 2010 Earnings Call Transcript
October 21, 2010 3:00 am ET
Brady Dougan – CEO
David Mathers – CFO
Huw Van Steenis – Morgan Stanley
Fiona Swaffield – Execution Noble
Derek De Vries – Bank of America
Kian Abouhossein – JPMorgan
Kinner Lakhani – Citi
Jernej Omahen – Goldman Sachs
Jon Peace – Nomura
Kilian Maier – NZB
Philipp Zieschang – UBS
Daniel Zulauf – Basler Zeitung
Matt Clark – KBW
Jeremy Sigee – Barclays Capital
Robert Murphy – HSBC
Previous Statements by CS
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Good morning, this is the conference operator. Welcome and thank you for joining the Credit Suisse Group third quarter 2010 results conference call. As a reminder, all participants are in a listen-only mode and the conference is recorded. You have the opportunity to ask questions directly after the presentation.
At this time, I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead, Mr. Dougan.
Thank you. Welcome everybody, good morning. Welcome to our third quarter results call. I’m joined by our CFO, David Mathers who took over from Renato Fassbind on October 1st.
As usual, I’ll make some brief introductory remarks. David will take you through the detail. We’ll then obviously entertain your questions, and then I’ll sum up.
With underlying net operating income of CHF 1 billion and all divisions being profitable, I think we’ve delivered a good result in a challenging quarter characterized by low market volumes and subdued client activity.
We continue to make disciplined investments in client-focused, capital-efficient, high-return businesses. These are already producing strong net new assets. And we’ve also grown our market share.
We had an encouraging performance in Private Banking, with additionally strong net new assets of 12.4 billion in Wealth Management. We saw inflows in all regions, and a particularly strong performance in Asia Pacific with annualized growth of over 20%.
Our gross margin is 118 basis points reflect the fact that revenues remained subdued. The industry is near cyclical low, and the current low interest rate environment which is compounded by reduced levels of client activity.
However, the prospects for growth in Wealth Management remain very attractive with our integrated model. We’re poised to capitalize on improving markets, thanks to our disciplined investment in our global platform, our advisory process and our Swiss corporate and institutional business, which is an important provider of financing and services to the Swiss economy, had a good quarter with a strong pre-tax profit and a continued high pre-tax margin.
In Investment Bank, we are encouraged by our continued market share momentum, fixed income and our underwriting and our advisory business achieved a solid performance, reflecting our improving competitive position.
In equities, the performance of our client-focused business was in line with industry volumes. Equities has also shown lower overall revenue volatility in the industry in the first nine months, which underscores our strong client position.
In Asset Management, we were pleased with the strategic progress, the solid result and strong net new asset inflows of CHF 3.6 billion and this is the fifth successive quarter in which we have seen positive inflows.
The acquisition of the minority stake in York Capital is an important next step in the continuing implementation of a strategy focused on high margin, capital-efficient businesses, able to leverage our global platform.
Our results for the first nine months, with an underlying return on equity of 15% and net new assets of CHF 55 billion, underscore that our business model is able to produce strong returns over the cycle. Should the current challenges persists, our capital-efficient strategy will enable us to manage them well.
We anticipated much of the regulatory change, both in terms of capital requirements and the new cross-border regime. That means that we are well placed to meet these new requirements and at the same time, compete and deliver attractive returns to our shareholders.
I will now like to hand over to David, who is going to give you some more detail on the results and also talk about how we see our capital structure developing over the next few years. David?
Thank you, Brady, and good morning. I will start my presentation on slide #5 please with an overview of the third quarter financial highlights. On a headline basis, we achieved revenues of CHF 6.3 billion and net income was CHF 600 million, equivalent to an after-tax return on equity of 7% for the quarter.
Total net new assets in the quarter were CHF 14.6 billion, reflecting a continuing strong contribution from our Wealth Management business.
As per our normal practice, we incur the underlying result. Overall, net revenues on this basis was CHF 6.9 billion, pre-tax income CHF 1.4 billion and on our underlying tax rate of 28% the net income result was CHF 960 million.
The underlying return on equity so far this quarter was 11%, and now stands at cumulative 15% for the first nine months of the year. We include, as usual, a detailed reconciliation of the underlying results in the appendix of the slide deck.
Let now turn to slide #6, for an overview of our divisional results. In the Private Bank, we continued to demonstrate momentum in our industry-leading multi-shore business model with strong net new asset inflows. These totaled CHF 12.4 billion in Wealth Management in line of our 6% target and benefiting from a 20% growth rate in net new assets from Asia Pacific.
In the first nine months, net new asset inflows was CHF 37.2 billion of Wealth Management and CHF 45 billion for all of Private Banking. That means we’ve already exceeded the net asset inflows for the whole of 2009, when we recorded CHF 35.3 billion and CHF 41.6 billion, respectively.
Private Banking’s underlying pre-tax income of CHF 880 million was slightly ahead of the second quarter and the third quarter of 2009.
Wealth Management’s gross margin remained resilient compared to the first half of the year at a cyclically low 118 basis points, reflecting client cautiousness and low levels of activity.
We continued to capitalize on our competitive position this quarter as we increase relationship managers by net 60, and a total of 140 in the quarter; around 55% of which was senior relationship managers.
Let me continue now with Wealth Management on side seven. Revenues were down 5% quarter-on-quarter, reflecting continued risk-averse client sentiment and the usual seasonal slowdown, which result in lower brokerage fees.
However, the underlying pre-tax income for Wealth Management, excluding 44 million litigation provision stood at CHF 656 million, and increased over to 4% over the second quarter with overall expenses declining 8% quarter-on-quarter. The underlying pre-tax income margin was 28%.
Let me now turn to slide #8. We had strong net new assets inflows of CHF 12.4 billion in the quarter, equivalent to an annualized growth rate of 6.2%; we regard this as a significant outperformance in a challenging market.
The balanced regional contribution that we showed here, demonstrates the strength of our platform and the trust that our clients have in Credit Suisse. Inflows have been particularly strong in EMEA and in Asia Pacific so far this year.
On the right hand side of the slide, the quarterly gross margin comparisons for 2010 shows a stable picture in a period of subdued revenue levels.
Let’s turn to slide #9. We are readily asked about the sustainability of the gross margin, given the changing business environment. So, we thought it would be useful to show analysis of our net new asset inflows and gross margin to help better explain the dynamics of the business.
This slide shows a booking center analysis of our net new asset inflows and the related gross margins. This is for our Swiss platform and for our international platform exclude United States, which operates in a slightly different business model to the rest of the Private Bank.
From this top of the slide downwards, we’ve listed out major booking centers in descending order of breadth, depth and maturity of product and service offering.
From left to right, we show the net new assets for fiscal year 2009, and for the first nine months of 2010. We then show the gross margin for the same periods.
Out of CHF 32 billion of asset inflow so far this year, the blue box shows the asset inflows into our Swiss Booking Center of 12 billion. This includes ultra high-net-worth, high-net-worth, affluent and retail within Swiss onshore, as well as our mature markets and emerging markets offshore businesses.