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Credit Suisse Posts Solid Q1 Results Despite Higher Provisions and Mark to Market losses

Credit Suisse Group AG (CSG or the Group) reported CHF 1.3 billion of net attributable income in Q1 2020, up 75% Year-on-Year (YoY). The Group saw 13.1% growth of Income Before taxes (IBP) to CHF 1.2 billion, partly benefitting from certain one-off items and a negative tax rate in the quarter. However, the Covid-19 environment has led to heightened volatility and clearly impacted Q1 results in different ways.

The Group has built-up credit loan loss provisions in the quarter and an increase in market volatility has led to higher YoY mark to market losses on leverage loans and some exposures in APAC. In total, the reserve build up was around CHF 1 billion in Q1.

Risk Weighted Assets (RWAs) were also negatively impacted by the Covid-19 pandemic, resulting in the CET1 reducing to 12.1% in Q1 2020 from 12.7% at end-2019. The Group has given guidance saying that it expects the 2020 CET1 ratio to decrease to around 11.5%. In Q1 RWAs increased 3.6% YoY reflecting an increase in corporate drawdowns, and higher market risk RWAs. The Swiss regulator has announced that banks can phase-in the impact of Basel IV throughout the whole of 2020, which for CSG meant an increase of CHF 3 billion of RWAs in Q1.

Net revenues, however, were up 7.2% YoY benefiting from strong growth of trading activity revenues, continued growth of Private banking revenues and around 6% YoY overall reduction in operating expenses, largely driven by lower compensation expenses in its Global Markets (GM) and Investment Banking divisions (IB&CM). Some of the revenue growth was also driven by a CHF 268 million gain from the final transfer of the Investlab investment to Allfunds recorded in the quarter.

As a result, the Q1 2020 ROTE was 13.1%; significantly higher than the 7.8% ROTE a year ago However, excluding the above mentioned capital gains Q1 2020, ROTE would compare more in line with that reported a year ago. Given the negative 2020 Covid-19 global outlook, we consider it challenging for the Group to achieve a guided ROTE of around 9-9.5% in 2020 (based on 20-25% tax rate).

As one of the largest banking groups in Switzerland CSG is playing an important role in providing liquidity to Swiss Corporates and SMEs, partly making use of the liquidity facilities made available by the Swiss government to Swiss SMEs and Corporates. According to management during Q1 2020, the Group provided CHF 2.4 billion to Swiss SMEs and Corporates under the 80% guaranteed by the Federal Swiss Government.

Allowance for credit losses was CHF 568 million, around 53% of which related to CECL, and was largely related to the corporate lending portfolio across all divisions, albeit slightly higher at GM and IB&CM.

The Group continued to demonstrate strong growth in Private Banking and net revenues (excluding the Investlab gain) were up 9.3% YoY largely driven by strong growth of transaction and performance based fees, some growth of Net interest income and flat recurring commissions YoY. The net revenue growth was largely experienced in APAC and the Swiss Universal bank (SUB). Net new assets totalled CHF 5.8 billion and included a significant outflow in SUB of CHF 4.4 billion, largely related to one single ultra-high net worth client.

Assets under Management (AuMs) were significantly impacted by market volatility and were down 9.1% from Q4 2019 to CHF 1.4 billion, experiencing similar declines across all divisions.