Credit Suisse Group (CS)

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Credit Suisse Group (CS)

Q1 2010 Earnings Conference Call

April 22, 2010 10:00 am ET

Executives

Brady Dougan - CEO

Renato Fassbind - CFO

Analysts

Derek de Vries - Bank of America Merrill Lynch

Fiona Swaffield - Execution

Huw Van Steenis - Morgan Stanley

Philipp Zieschang - UBS

Kian Abouhossein - JPMorgan

Georg Kanders - WestLB

Jon Peace - Nomura

Rainer Skierka - Bank Sarasin

Jacques-Henri Gaulard - Autonomous Research

Florence Taj - MFS Investment Management

Presentation

Brady Dougan

Welcome everybody to our first quarter results call. I’m joined by Renato Fassbind, our CFO and after I make some introductory remarks, Renato will take you through the detail of the results. We’ll then take your questions and after that I will sum up.

From our point of view there are really two ways to look at our first quarter results. The first is as an industry leading set of results; CHF 2.1 billion of net income produced with industry low levels of risk, 22.3% return on equity, a tier 1 ratio of 16.4%, net client inflows of CHF 26 billion.

The second way to look at this is business as usual at Credit Suisse. A consistent execution of our strategy, consistent performance, consistently high quality earnings; CHF 2.1 billion in net income in the first quarter, means that we averaged almost CHF 2 billion in operating net income per quarter over the last five quarters. 22.3% return on equity in the first quarter of 2010, means that we averaged around the 21% operating ROE over the last five quarters.

We had an industry leading tier 1 ratio of 16.4% at the end of the first quarter of this year with an average tier 1 ratio above 15% during those quarters. With net client inflows of CHF 26 billion in the first quarter, we averaged CHF 14 billion in net new client assets per quarter over the last five quarters. So you can see these are both industry leading results and business as usual at Credit Suisse.

We had a strong overall performance in the first quarter in fact that the operating level it was better than the strong first quarter last year. These results provide further evidence of how our client focused capital efficient strategy can generate attractive and sustainable returns for shareholders.

In particular, I would highlight the fact that our industry leading return on equity up over 22% has been achieved with one of the lowest levels of risk-weighted assets in the industry. And what exactly does earning at 21% operating return on equity over the last five quarters mean? Well, if we could continue to produce those kinds of returns excluding dividends we would double our book value over the next four years and at a constant price to book, this would also mean doubling our market cap.

Of course I am hoping that this consistency of performance will be appropriately reflected in a higher earnings multiple. The first quarter results also demonstrate continued momentum in our client franchise. This is shown by the very strong level of net new asset inflows of CHF 18.6 billion in private banking with very strong inflows from Swiss and emerging markets client in particular.

It’s also demonstrated by the high quality client driven results in investment banking where we achieved strong pretax return on economic capital of 37%, sustained market share gains across securities businesses and a strong underwriting and advisory pipeline.

In asset management, we saw continued improvement in the operating results and we also had encouraging net new asset flows of CHF 11 billion. At the end of the first quarter, we maintained our industry leading capital strength with a tier 1 ratio of 16.4% and a conservative liquidity position. The fact that Credit Suisse is in such a strong position today reflects the decisive size of action we took to prepare for the challenges of the new environment.

For example, we entered the credit and financial market dislocation with a strong liquidity position which we’ve maintained and in fact strengthened through open market funding ever since; obviously incurring significant additional cost as a result. But this has positioned us well to meet the new rules for quantitative and qualitative liquidity management announced yesterday by the Swiss regulator FINMA when they become affected at the end of the second quarter of 2010.

Our strong performance as a credit to the dedication of our people, their hard work will drive long-term value for our shareholders and clients. The continuity of our people in key positions including in our control functions has been extremely helpful throughout and sense the crisis. Attracting, retaining and developing talented people remain a key area focus for us and we remain advantaged in that respect. So far this year our retention rates are very high and we continue to attract the best people to our platform.

Looking ahead, we are confident that we will further improve our profitability in private banking when markets and the demand for comprehensive solutions recover. We also expect to benefit significantly from a higher interest rate environment. We are positioned to perform well in the changing regulatory environment in cross-border banking as we have been building a multi-shore business for many years with a robust compliance framework.

We will continue to invest in strengthening and expanding our international presence. We believe that we have a significant opportunity to extend our market share gains across our investment banking businesses as we build our distribution platform and expand our client base.

We believe that asset management will benefit further from the strategic measures we undertook last year and will be a significant contributor of value to the bank and to our clients in 2010 and beyond. We are focusing on core fee generating businesses in which we believe we can excel asset allocation, the Swiss businesses and alternative investment strategies.

Market condition so far this quarter have remained similar to those in the first quarter and we remain confident that our business model will enable us to continue to generate high quality results as well as in more challenging market conditions. We are acting from a position of strength and can focus on the execution of our clear defined strategy and on serving our clients. Having carefully made the foundations by building a robust franchise we have an exceptional opportunity ahead of us to press our advantage home. We will double our efforts to drive our market share higher and set a benchmark for our industry in providing exceptional advice and service to our clients. Now, I’ll hand it over to Renato who will take you through the results in more detail.

Renato Fassbind

Thank you Brady and good morning. I will start my presentation on Slide 5 with an overview of the first quarter financial highlights. The first quarter 2010 performance continues to demonstrate that our strategy is working well and that our business model provides sustainable high quality and less volatile earnings. We achieved revenues of CHF 9 billion and the net income of CHF 2.1 billion. Diluted earnings per share stood at CHF 1.63 for the quarter. The cost income ratio improved slightly to 69% compared to the first quarter of 2009. The after tax return on equity stood at 22% for the quarter. Total net new asset inflows of CHF 26 billion showed a strong improvement compared to each of the four quarters of last year. Looking at the bottom of the slide you will see the underlying results.

Overall, net revenues were at CHF 8.9 billion, the same level as the first quarter of 2009, but with an improved pretax income result of CHF 2.8 billion. The underlying return on equity stood also at 22%. We have consistently achieved an industry leading return on equity over the last 15 months, achieved while running a low risk profile compared to our peer group.

Let me turn to slide 6 for an overview of our divisional results. This shows our first quarter 2010 divisional results side by side against the fourth and first quarter of last year. With the pretax income of CHF 892 million, Private Banking reported an improvement on the fourth quarter of 2009 and a similar result in the first quarter of last year when adjusting for captive insurance settlements. We experienced higher levels of assets under management, reflecting better markets in general than a year ago and the pretax margin showed some improvement from the first quarter of 2009.

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