UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
UNDER THE SECURITIES EXCHANGE ACT OF 1934
August 28, 2013
Commission File Number 001-15244
CREDIT SUISSE GROUP AG
(Translation of registrant’s name into English)
Paradeplatz 8, CH 8001 Zurich, Switzerland
(Address of principal executive office)
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or
Form 40-F.
Form 40-F.
Form 20-F
Form 40-F 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
No
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CREDIT SUISSE GROUP AG
(Registrant)
Date: August 28, 2013
By:
/s/ Tobias Guldimann
Tobias Guldimann
Chief Risk Officer
By:
/s/ David R. Mathers
David R. Mathers
Chief Financial Officer
For purposes of this report, unless the context otherwise requires, the terms “Credit Suisse,” “the Group,” “we,” “us” and “our” mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the Swiss bank subsidiary of the Group, is substantially similar to the Group, and we use these terms to refer to both when the subject is the same or substantially similar. We use the term “the Bank” when we are only referring to Credit Suisse AG, the Swiss bank subsidiary of the Group, and its consolidated subsidiaries.
In various tables, use of “–” indicates not meaningful or not applicable.
List of abbreviations
Introduction
General
Additional regulatory disclosures
Scope of application
Principles of consolidation
Restrictions on transfer of funds or regulatory capital
Capital deficiencies
Remuneration
Risk management oversight
Capital
Capital structure under Basel III
Swiss requirements
Description of regulatory approaches
Capital metrics under the Basel framework
Capital metrics under Swiss requirements
Reconciliation requirements
Credit risk
General
Credit risk by asset classes
Securitization risk in the banking book
Equity type securities in the banking book
Credit valuation adjustment risk
Central counterparties risk
Market risk
General
Securitization risk in the trading book
Valuation process
Interest rate risk in the banking book
Overview
Management strategy and process
Risk measurement
Risk profile
| A | ||
| ABS | Asset-backed securities | |
| ACVA | Advanced credit valuation adjustment approach | |
| A-IRB | Advanced Internal Ratings-Based Approach | |
| AMA | Advanced Measurement Approach | |
| AVC | Asset value correlation | |
| B | ||
| BCBS | Basel Committee on Banking Supervision | |
| BCN | Buffer capital notes | |
| BFI | Banking, financial and insurance | |
| BIS | Bank for International Settlements | |
| C | ||
| CCF | Credit Conversion Factor | |
| CCP | Central counterparties | |
| CDO | Collateralized Debt Obligation | |
| CDS | Credit Default Swap | |
| CET1 | Common equity tier 1 | |
| CLO | Collateralized Loan Obligation | |
| CMBS | Commercial mortgage-backed securities | |
| CRM | Credit Risk Management | |
| CVA | Credit valuation adjustment | |
| E | ||
| EAD | Exposure at Default | |
| EMIR | European Market Infrastructure Regulation | |
| F | ||
| FINMA | Swiss Financial Market Supervisory Authority FINMA | |
| G | ||
| G-SIB | Global systemically important banks | |
| I | ||
| IMA | Internal Models Approach | |
| IRB | Internal Ratings-Based Approach | |
| IRC | Incremental Risk Capital Charge | |
| L | ||
| LGD | Loss Given Default | |
| M | ||
| MDB | Multilateral Development Banks | |
| N | ||
| NTD | Nth-to-default | |
| O | ||
| OTC | Over-the-counter | |
| P | ||
| PD | Probability of Default | |
| R | ||
| RAR | Risk Analytics & Reporting | |
| RBA | Ratings-Based Approach | |
| RMBS | Residential mortgage-backed securities | |
| RNIV | Risks not in value-at-risk | |
| RPSC | Risk Processes and Standards Committee | |
| S | ||
| SFA | Supervisory Formula Approach | |
| SMM | Standardized Measurement Method | |
| SPE | Special purpose entity | |
| SRW | Supervisory Risk Weights Approach | |
| U | ||
| US GAAP | Accounting principles generally accepted in the US | |
| V | ||
| VaR | Value-at-Risk | |
2
The purpose of this Pillar 3 report is to provide updated information as of June 30, 2013 on our implementation of the Basel capital framework and risk assessment processes in accordance with the Pillar 3 requirements. This document should be read in conjunction with the Credit Suisse Annual Report 2012 and the Credit Suisse 2Q13 Financial Report, which includes important information on regulatory capital and risk management (specific references have been made herein to these documents).
Effective January 1, 2013, the Basel II.5 framework under which we operated in 2012 was replaced by the Basel III framework. As of January 1, 2013, the Basel III framework was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and the regulations thereunder (Swiss requirements). Our related disclosures are in accordance with our current interpretation of such requirements, including relevant assumptions. Changes in the interpretation of these requirements in Switzerland or in any of our assumptions or estimates could result in different numbers from those shown in this report.
The Basel III framework includes higher minimum capital requirements and conservation and countercyclical buffers, revised risk-based capital measures, a leverage ratio and liquidity standards. The framework was designed to strengthen the resilience of the banking sector. The new capital standards and capital buffers will require banks to hold more capital, mainly in the form of common equity. The new capital standards will be phased in from January 1, 2013 through year-end 2018 for those countries that have adopted Basel III. Prior period metrics presented under Basel II.5 are not comparable.
In addition to Pillar 3 disclosures we disclose the way we manage our risks for internal management purposes in the Annual Report.
> Refer to “Risk management” (pages 121 to 148) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 for further information regarding the way we manage risk.
> Refer to “Economic capital and position risk” (pages 125 to 128) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for further information on economic capital, our Group-wide risk management tool.
Certain reclassifications have been made to prior periods to conform to the current period’s presentation.
The Pillar 3 report is produced and published semi-annually, in accordance with Swiss Financial Market Supervisory Authority FINMA (FINMA) requirements.
This report was verified and approved internally in line with our Pillar 3 disclosure policy. The Pillar 3 report has not been audited by the Group’s external auditors. However, it also includes information that is contained within the audited consolidated financial statements as reported in the Credit Suisse Annual Report 2012.
In addition to the Pillar 3 disclosures also refer to our website for further information on capital ratios of certain significant subsidiaries, quarterly reconciliation requirements and capital instruments disclosures (main features template and full terms and conditions).
> Refer to “Regulatory disclosures” under https://www.credit-suisse.com/investors/en/index.jsp
The highest consolidated entity in the Group to which the Basel III framework applies is Credit Suisse Group.
> Refer to “Regulation and supervision” (pages 24 to 36) in I – Information on the company and to “Capital management” (pages 102 to 120) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 for further information on regulation.
For financial reporting purposes, our consolidation principles comply with accounting principles generally accepted in the US (US GAAP). For capital adequacy reporting purposes, however, entities that are not active in banking and finance are not subject to consolidation (i.e. insurance, real estate and commercial companies). FINMA has advised the Group that it may continue to include equity from special purpose entities that are deconsolidated under US GAAP as common equity tier 1 (CET1) capital. We have also received an exemption from FINMA not to consolidate private equity fund type vehicles. These investments, which are not material to the Group, are treated in accordance with the regulatory rules and are either subject to a risk-weighted capital requirement or a deduction from regulatory capital.
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All significant equity method investments represent investments in the capital of banking, financial and insurance (BFI) entities and are subject to a threshold calculation in accordance with the Basel framework.
> Refer to “Note 38 – Significant subsidiaries and equity method investments” (pages 364 to 366) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 for a list of significant subsidiaries and associated entities of Credit Suisse.
> Refer to “Note 3 – Business developments and subsequent events” (page 76) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 1Q13 Financial Report and “Note 3 – Business developments and subsequent events” (page 80) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for additional information on business developments in 6M13.
We do not believe that legal or regulatory restrictions constitute a material limitation on the ability of our subsidiaries to pay dividends or our ability to transfer funds or regulatory capital within the Group.
> Refer to “Liquidity and funding management” (pages 96 to 101) and “Capital management” (pages 102 to 120) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 for information on our liquidity, funding and capital management and dividends and dividend policy.
The Group’s subsidiaries which are not included in the regulatory consolidation did not report any capital deficiencies in 6M13.
The Group implemented Pillar 3 disclosure requirements for remuneration required by the Basel Committee on Banking Supervision (BCBS) as of December 31, 2011.
> Refer to “Compensation” (pages 186 to 220) in IV – Corporate Governance and Compensation in the Credit Suisse Annual Report 2012 for further information on remuneration.
Fundamental to our business is the prudent taking of risk in line with our strategic priorities. The primary objectives of risk management are to protect our financial strength and reputation, while ensuring that capital is well deployed to support business activities and grow shareholder value. Our risk management framework is based on transparency, management accountability and independent oversight.
> Refer to “Risk management” (pages 121 to 148) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 for information on risk management oversight including risk governance, risk organization, risk types and risk appetite and risk limits.
The Group is exposed to several key banking risks such as:
– Credit risk (refer to section “Credit risk” on pages 19 to 40);
– Market risk (refer to section “Market risk” on pages 41 to 49);
– Interest rate risk in the banking book (refer to section “Interest rate risk in the banking book” on pages 50 to 51); and
– Operational risk.
> Refer to “Operational risk” (pages 146 to 147) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for information on operational risk.
4
The BCBS issued the Basel III framework, with higher minimum capital requirements and conservation and countercyclical buffers, revised risk-based capital measures, a leverage ratio and liquidity standards. The framework was designed to strengthen the resilience of the banking sector and requires banks to hold more capital, mainly in the form of common equity. The new capital standards will be phased in from 2013 through 2018 and are fully effective January 1, 2019 for those countries that have adopted Basel III.
> Refer to the table “Basel III phase-in requirements for Credit Suisse” in (page 44) in II – Treasury, risk, balance sheet and off-balance sheet – Capital management in the Credit Suisse 2Q13 Financial Report for capital requirements and applicable effective dates during the phase-in period.
Under Basel III, the minimum CET1 requirement is 4.5% of risk-weighted assets.
In addition, a 2.5% CET1 capital conservation buffer is required to absorb losses in periods of financial and economic stress. Banks that do not maintain this buffer will be limited in their ability to pay dividends or make discretionary bonus payments or other earnings distributions.
A progressive buffer between 1% and 2.5% (with a possible additional 1% surcharge) of CET1, depending on a bank’s systemic importance, is an additional capital requirement for global systemically important banks (G-SIB). The Financial Stability Board has identified us as a G-SIB and requires us to maintain a 1.5% progressive buffer.
The CET1 capital will be subject to certain regulatory deductions and other adjustments to common equity, including deduction of deferred tax assets for tax-loss carry-forwards, goodwill and other intangible assets and investments in banking and finance entities.
In addition to the CET1 requirements, there is also a requirement for 1.5% additional tier 1 capital and 2% tier 2 capital. These requirements may also be met with CET1 capital.
Basel III further provides for a countercyclical buffer that could require banks to hold up to 2.5% of CET1 or other capital that would be available to fully absorb losses. This requirement is expected to be imposed by national regulators where credit growth is deemed to be excessive and leading to the build-up of system-wide risk. This countercyclical buffer will be phased in from January 1, 2016 through January 1, 2019.
Beginning January 1, 2013, capital instruments that do not meet the strict criteria for inclusion in CET1 are excluded. Capital instruments that would no longer qualify as tier 1 or tier 2 capital will be phased out. In addition, instruments with an incentive to redeem prior to their stated maturity, if any, will be phased out at their effective maturity date, generally the date of the first step-up coupon.
As of January 1, 2013, the Basel III framework was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder. Together with the related implementing ordinances, the legislation includes capital, liquidity, leverage and large exposure requirements and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency. Certain requirements under the legislation, including those regarding capital, are to be phased in from 2013 through 2018 and are fully effective January 1, 2019. The legislation on capital requirements builds on Basel III, but in respect of systemically relevant banks goes beyond its minimum standards, including requiring us, as a systemically relevant bank, to have the following minimum, buffer and progressive components.
> Refer to the chart “Swiss capital and leverage ratio phase-in requirements for Credit Suisse” (page 45) in II – Treasury, risk, balance sheet and off-balance sheet – Capital management in the Credit Suisse 2Q13 Financial Report for Swiss capital requirements and applicable effective dates during the phase-in period.
The minimum requirement of CET1 capital is 4.5% of RWA.
The buffer requirement is 8.5% and can be met with additional CET1 capital of 5.5% of RWA and a maximum of 3% of high-trigger buffer capital notes (BCN). The high-trigger BCN are required to convert into common equity or be written off in the event the CET1 ratio falls below 7%.
The progressive component requirement is dependent on our size (leverage ratio exposure) and the market share of our domestic systemically relevant business and is subject to potential capital rebates that may be granted by FINMA. Based on these parameters, FINMA determines the progressive component on an annual basis. For 2013, FINMA set our progressive component requirement at 4.41% compared to our previously reported progressive component of 4.92%. The progressive component may be met with CET1 capital or low-trigger contingent capital, which converts into common equity or is written off latest if the CET1 ratio falls below 5%. In addition, until the end of 2017, the progressive component may also be met with high-trigger BCN.
5
Similar to Basel III, the Swiss requirements include a supplemental countercyclical buffer of up to 2.5% of RWA that can be activated during periods of excess credit growth. In February 2013, upon the request of the SNB, the Swiss Federal Council activated the countercyclical capital buffer, which will require banks to hold CET1 capital in the amount of 1% of their RWA pertaining to mortgage loans that finance residential property in Switzerland beginning on September 30, 2013.
We also measure Swiss Core Capital and Swiss Total Capital. Swiss Core Capital consists of CET1 capital and tier 1 participation securities, which FINMA advised may be included with a haircut of 20% until December 31, 2018 at the latest, and may include certain other Swiss adjustments. Our Swiss Total Capital consists of Swiss Core Capital, high-trigger BCN and low-trigger contingent capital.
> Refer to “Capital management” (pages 102 to 120) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 and “Capital management” (pages 43 to 52) in II – Treasury, risk, balance sheet and off-balance sheet in the Credit Suisse 2Q13 Financial Report for information on our capital structure, eligible capital and shareholders’ equity, capital adequacy and leverage ratio requirements under Basel III and Swiss requirements.
The Basel framework provides a range of options for determining the capital requirements in order to allow banks and supervisors the ability to select approaches that are most appropriate. In general, Credit Suisse has adopted the most advanced approaches, which align with the way risk is internally managed. The Basel framework focuses on credit risk, market risk, operational risk and interest rate risk in the banking book. The regulatory approaches for each of these risk exposures and the related disclosures under Pillar 3 are set forth below.
Credit risk
Credit risk by asset classes
The Basel framework permits banks a choice between two broad methodologies in calculating their capital requirements for credit risk by asset classes, the internal ratings-based (IRB) approach or the standardized approach. Off-balance-sheet items are converted into credit exposure equivalents through the use of credit conversion factors (CCF).
The majority of our credit risk by asset classes is with institutional counterparties (sovereigns, other institutions, banks and corporates) and arises from lending and trading activity in the Investment Banking and Private Banking & Wealth Management divisions. The remaining credit risk by asset classes is with retail counterparties and mostly arises in the Private Banking & Wealth Management division from residential mortgage loans and other secured lending, including loans collateralized by securities.
Advanced-internal ratings-based approach
Under the IRB approach, risk weights are determined by using internal risk parameters and applying an asset value correlation multiplier uplift where exposures are to financial institutions meeting regulatory defined criteria. We have received approval from FINMA to use, and have fully implemented, the advanced-internal ratings-based (A-IRB) approach whereby we provide our own estimates for probability of default (PD), loss given default (LGD) and exposure at default (EAD). We use the A-IRB approach to determine our institutional credit risk and most of our retail credit risk.
PD parameters capture the risk of a counterparty defaulting over a one-year time horizon. PD estimates are based on time-weighted averages of historical default rates by rating grade, with low-default-portfolio estimation techniques applied for higher quality rating grades. Each PD reflects the internal rating for the relevant obligor.
LGD parameters consider seniority, collateral, counterparty industry and in certain cases fair value markdowns. LGD estimates are based on an empirical analysis of historical loss rates and are calibrated to reflect time and cost of recovery as well as economic downturn conditions. For much of the Private Banking & Wealth Management loan portfolio, the LGD is primarily dependent upon the type and amount of collateral pledged. For other retail credit risk, predominantly loans secured by financial collateral, pool LGDs differentiate between standard and higher risks, as well as domestic and foreign transactions. The credit approval and collateral monitoring process are based on loan-to-value limits. For mortgages (residential or commercial), recovery rates are differentiated by type of property.
EAD is either derived from balance sheet values or by using models. EAD for a non-defaulted facility is an estimate of the gross exposure upon default of the obligor. Estimates are derived based on a CCF approach using default-weighted averages of historical realized conversion factors on defaulted loans by facility type. Estimates are calibrated to capture negative operating environment effects.
We have received approval from FINMA to use the internal model method for measuring counterparty risk for the majority of our derivative and secured financing exposures.
Risk weights are calculated using either the PD/LGD approach or the supervisory risk weights (SRW) approach for certain types of specialized lending.
6
Standardized approach
Under the standardized approach, risk weights are determined either according to credit ratings provided by recognized external credit assessment institutions or, for unrated exposures, by using the applicable regulatory risk weights. Less than 10% of our credit risk by asset classes is determined using this approach.
Securitization risk in the banking book
For securitizations, the regulatory capital requirements are calculated using IRB approaches (the RBA and the SFA) and the standardized approach in accordance with the prescribed hierarchy of approaches in the Basel regulations. External ratings used in regulatory capital calculations for securitization risk exposures in the banking book are obtained from Fitch, Moody’s, Standard & Poor’s or Dominion Bond Rating Service.
Equity type securities in the banking book
For equity type securities in the banking book except for significant investments in BFI entities, risk weights are determined using the IRB Simple approach based on the equity sub-asset type (qualifying private equity, listed equity and all other equity positions). Significant investments in BFI entities (i.e. investments in the capital of BFI entities that are outside the scope of regulatory consolidation, where the Group owns more than 10% of the issued common
7
share capital of the entity) are subject to a threshold treatment as outlined below in the section “Exposures below 15% threshold”. Where equity type securities represent non-significant investments in BFI entities (i.e., investments in the capital of BFI entities that are outside the scope of regulatory consolidation, where the Group does not own more than 10% of the issued common share capital of the entity), a threshold approach is applied that compares the total amount of non-significant investments in BFI entities (considering both trading and banking book positions) to a 10% regulatory defined eligible capital amount. The amount above the threshold is phased-in as a capital deduction and the amount below the threshold continues to be risk-weighted according to the relevant trading book and banking book approaches.
Credit valuation adjustment risk
Basel III introduces a new regulatory capital charge designed to capture the risk associated with potential mark-to-market losses associated with the deterioration in the creditworthiness of a counterparty (Credit Value Adjustment (CVA)).
Under Basel III, banks are required to calculate capital charges for CVA under either the Standardized CVA Approach or the Advanced CVA Approach (ACVA). The CVA rules stipulate that where banks have permission to use market risk Value-at-Risk (VaR) and counterparty risk Internal Models Method (IMM), they are to use the ACVA approach unless their regulator decides otherwise. FINMA has confirmed that the ACVA should be used for both IMM and non-IMM exposures.
The regulatory CVA capital charge applies to all counterparty exposures arising from over-the-counter (OTC) derivatives, excluding those with CCPs. Exposures arising from Securities Financing Transactions (SFTs) should not be included in the CVA charge unless they could give rise to a material loss. FINMA have confirmed that Credit Suisse should not include these exposures within the regulatory capital charge.
Exposures below 15% threshold
Significant investments in BFI entities, mortgage servicing rights and deferred tax assets that arise from temporary differences are subject to a threshold approach, whereby individual amounts are compared to a 10% threshold of regulatory defined eligible capital. In addition amounts below the individual 10% thresholds are aggregated and compared to a 15% threshold of regulatory defined eligible capital. The amount that is above the 10% threshold is phased-in as a CET1 deduction. The amount above the 15% threshold is phased-in as a CET1 deduction and the amount below is risk weighted at 250%.
Central counterparties risk
The Basel III framework provides specific requirements for exposures the Group has to central counterparties (CCP) arising from OTC derivatives, exchange traded derivative transactions and Securities Financing Transactions. Exposures to CCPs which are considered to be qualifying CCPs by the regulator will receive a preferential capital treatment compared to exposures to non-qualifying CCPs.
The Group can incur exposures to CCPs as either a clearing member (house or client trades), or as a client of another clearing member. Where the Group acts as a clearing member of a CCP on behalf of its client (client trades), it incurs an exposure to its client as well as an exposure to the CCP. Since the exposure to the client is to be treated as a bilateral trade, the risk-weighted assets from these exposures are represented under “credit risk by asset classes”. Where the Group acts as a client of another clearing member the risk-weighted assets from these exposures are also represented under “credit risk by asset classes”.
The exposures to CCPs (represented as “Central counterparties (CCP) risks”) consist of both the trade exposure and default fund exposure. While the trades exposure includes the current and potential future exposure of the clearing member (or a client) to a CCP arising from the underlying transaction and the initial margin posted to the CCP, the default fund exposure is arising from default fund contributions to the CCP.
Settlement risk
Regulatory fixed risk weights are applied to settlement exposures. Settlement exposures arise from unsettled or failed transactions where cash or securities are delivered without a corresponding receipt.
Other items
Other items include risk-weighted assets related to immaterial portfolios for which we have received approval from FINMA to apply a simplified Institute Specific Direct Risk Weight as well as risk-weighted assets related to items that were risk-weighted under Basel II.5 and are phased in as capital deductions under Basel III.
Market risk
We use the advanced approach for calculating the capital requirements for market risk for the majority of our exposures. The following advanced approaches are used: the internal models approach (IMA) and the standardized measurement method (SMM).
We use the standardized approach to determine our market risk for a small population of positions which represent an immaterial proportion of our overall market risk exposure.
Internal models approach
The market risk IMA framework includes regulatory Value-at-Risk (VaR), stressed VaR, risks not in VaR (RNIV), an incremental risk capital charge (IRC), and Comprehensive Risk Measure.
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Regulatory VaR, stressed VaR and risks not in VaR
We have received approval from FINMA, as well as from certain other regulators of our subsidiaries, to use our VaR model to calculate trading book market risk capital requirements under the IMA. We apply the IMA to the majority of the positions in our trading book. We continue to receive regulatory approval for ongoing enhancements to the VaR methodology, and the VaR model is subject to regular reviews by regulators and auditors. Stressed VaR replicates a VaR calculation on the Group’s current portfolio taking into account a one-year observation period relating to significant financial stress and helps to reduce the pro-cyclicality of the minimum capital requirements for market risk. The VaR model does not cover all identified market risk types and as such we have also adopted a RNIV category which was approved by FINMA in 2012.
Incremental risk capital charge
The IRC model is required to measure the aggregate risk from the exposure to issuer default and migration risk from positions in our trading book. The positions that contribute to IRC are bond positions where we are exposed to profit or loss on default or rating migration of the bond issuer, credit defaults swaps (CDS) positions where we are exposed to credit events affecting the reference entity, and, to a lesser extent, derivatives that reference bonds and CDSs such as bond options and CDS swaptions. Equity positions are typically not included in IRC, but some exceptions exist, such as convertible instruments. Positions excluded from IRC include securitization position and credit correlation products (such as synthetic collateralized debt obligations (CDOs), and nth-to-default (NTD) trades).
The IRC model assesses risk at 99.9% confidence level over a one year time horizon assuming that positions are sold and replaced one or more times. At the same time upon replacement, the model considers credit quality of the old position and assesses the effect of declining or upgrading of credit quality which may lead to changes in the overall assessment of IRC.
The level of capital assigned by the IRC model to a position depends on its liquidity horizon which represents time required to sell the positions or hedge all material risk covered by the IRC model in a stressed market. Liquidity horizons are modelled according to the requirements imposed by Basel III guidelines. In general, positions with shorter assigned liquidity horizons will contribute less to overall IRC.
The IRC model and liquidity horizon methodology have been validated by an independent team in accordance with the firms validation umbrella policy and Risk Model Validation Sub-Policy for IRC and Comprehensive Risk Measure.
Comprehensive Risk Measure
Comprehensive Risk Measure is a market risk capital model designed to capture all the price risks of credit correlation positions in the trading book. Scope is corporate correlation trades, i.e. tranches and their associated hedges and NTD baskets. Scope excludes re-securitization positions. The model is based on a Full Revaluation Monte Carlo Simulation, whereby all the relevant risk factors are jointly simulated in one year time horizon. The trading portfolio is then fully re-priced under each scenario. The model then calculates the loss at 99.9% percentile. Simulated risk factors are credit spreads, credit migration, credit default, recovery rate, credit correlation, basis between credit indices and their CDS constituents. The Comprehensive Risk Measure model has been internally approved by the relevant risk model approval committee and achieved regulatory approval by FINMA. The capital requirements calculated by the Comprehensive Risk Measure model is currently subject to a floor defined as a percentage of the standardized rules for securitized products. The Comprehensive Risk Measure model has been validated by an independent team in accordance with the firms validation umbrella policy and the Risk Model Validation Sub-Policy for IRC and Comprehensive Risk Measure.
Standardized measurement method
We use the SMM which is based on the ratings-based approach (RBA) and the supervisory formula approach (SFA) for securitization purposes (see also Securitization risk in the banking book) and other supervisory approaches for trading book securitization positions covering the approach for nth-to-default products and portfolios covered by the weighted average risk weight approach.
Operational risk
We have received approval from FINMA to use the advanced measurement approach (AMA) for measuring operational risk. The economic capital/AMA methodology is based upon the identification of a number of key risk scenarios that describe the major operational risks that we face. Groups of senior staff review each scenario and discuss the likelihood of occurrence and the potential severity of loss. Internal and external loss data, along with certain business environment and internal control factors, such as self-assessment results and key risk indicators, are considered as part of this process. Based on the output from these meetings, we enter the scenario parameters into an operational risk model that generates a loss distribution from which the level of capital required to cover operational risk is determined. Insurance mitigation is included in the capital assessment where appropriate, by considering the level of insurance coverage for each scenario and incorporating haircuts as appropriate.
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Non-counterparty-related risk
Regulatory fixed risk weights are applied to non-counterparty-related exposures. Non-counterparty-related exposures arise from holdings of premises and equipment, real estate and investments in real estate entities.
Regulatory capital and ratios
Regulatory capital is calculated and managed according to Basel regulations and used to determine BIS ratios. BIS ratios compare eligible CET1 capital, tier 1 capital and total capital with BIS risk-weighted assets.
| BIS risk-weighted assets | |||||||||||||
| Basel III | Basel II.5 | ||||||||||||
| 6M13 | 2012 | ||||||||||||
|
end of |
Ad- vanced |
Stan- dardized |
Total |
Ad- vanced |
Stan- dardized |
Total |
|||||||
| Risk-weighted assets (CHF million) | |||||||||||||
| Sovereigns | 4,194 | 63 | 4,257 | 4,765 | 66 | 4,831 | |||||||
| Other institutions | 855 | 64 | 919 | 1,294 | 93 | 1,387 | |||||||
| Banks | 14,159 | 348 | 14,507 | 14,024 | 358 | 14,382 | |||||||
| Corporates | 85,044 | 209 | 85,253 | 76,257 | 116 | 76,373 | |||||||
| Residential mortgage | 10,675 | – | 10,675 | 10,148 | – | 10,148 | |||||||
| Qualifying revolving retail | 259 | – | 259 | 260 | – | 260 | |||||||
| Other retail | 11,085 | 8 | 11,093 | 9,815 | 8 | 9,823 | |||||||
| Other exposures | – | 4,010 | 4,010 | – | 7,876 | 1 | 7,876 | ||||||
| Credit risk by asset classes | 126,271 | 4,702 | 130,973 | 116,563 | 8,517 | 125,080 | |||||||
| Securitization risk in the banking book | 14,309 | – | 14,309 | 6,908 | 53 | 6,961 | |||||||
| Equity type securities in the banking book | 11,580 | – | 11,580 | 9,877 | – | 9,877 | |||||||
| Credit valuation adjustment (CVA) risk | 16,623 | 152 | 16,775 | – | – | – | |||||||
| Exposures below 15% threshold 2 | – | 12,721 | 12,721 | – | – | – | |||||||
| Central counterparties (CCP) risk | 2,026 | – | 2,026 | – | – | – | |||||||
| Settlement risk | – | 1,272 | 1,272 | – | 305 | 305 | |||||||
| Other items | 349 | 5,503 | 5,852 | 3 | – | 1,456 | 1,456 | ||||||
| Credit risk | 171,158 | 24,350 | 195,508 | 133,348 | 10,331 | 143,679 | |||||||
| Market risk | 42,543 | 444 | 42,987 | 29,010 | 356 | 29,366 | |||||||
| Operational risk | 44,788 | – | 44,788 | 45,125 | – | 45,125 | |||||||
| Non-counterparty-related risk | – | 6,464 | 6,464 | – | 6,126 | 6,126 | |||||||
| Total BIS risk-weighted assets | 258,489 | 31,258 | 289,747 | 207,483 | 16,813 | 224,296 | |||||||
|
1
Includes risk-weighted assets of CHF 3,235 million relating to pension plans which for 2013 are now shown under the category "Other items".
|
|||||||||||||
|
2
Exposures below 15% threshold are risk-weighted at 250%. Refer to table "Additional information" on page 18 for further information.
|
|||||||||||||
|
3
Includes risk-weighted assets of CHF 4,371 million related to items that were risk-weighted under Basel II.5 and are phased in as capital deductions under Basel III. Refer to table
"Additional information" on page 18 for further information. |
|||||||||||||
| BIS eligible capital - Basel III | |||||||||
| Group | Bank | ||||||||
| end of | 6M13 | 2012 | 1 | 6M13 | 2012 | 1 | |||
| Eligible capital (CHF million) | |||||||||
| CET1 capital | 44,430 | 41,500 | 38,943 | 36,717 | |||||
| Total tier 1 capital | 45,989 | 44,357 | 41,400 | 40,477 | |||||
| Total eligible capital | 52,848 | 51,519 | 49,289 | 49,306 | |||||
|
1
Basel III became effective as of January 1, 2013. 2012 amounts, which are presented in order to show meaningful comparative information, are calculated as if Basel III had been implemented in Switzerland at such time.
|
|||||||||
10
> Refer to table “Composition of regulatory capital” on page 16 for further information on the total eligible capital of the Group.
| BIS capital ratios - Basel III | |||||||||||||||||
| Group | Bank | ||||||||||||||||
| 6M13 | 2012 | 1 | 6M13 | 2012 | 1 | ||||||||||||
| end of | Ratio | Requirement | Excess | Ratio | Ratio | Requirement | Excess | Ratio | |||||||||
| Capital ratios (%) | |||||||||||||||||
| Total CET1 2 | 15.3 | 3.5 | 11.8 | 14.2 | 14.0 | 3.5 | 10.5 | 13.0 | |||||||||
| Tier 1 | 15.9 | 4.5 | 11.4 | 15.2 | 14.8 | 4.5 | 10.3 | 14.3 | |||||||||
| Total capital | 18.2 | 8.0 | 10.2 | 17.6 | 17.7 | 8.0 | 9.7 | 17.5 | |||||||||
|
1
Basel III became effective as of January 1, 2013. 2012 amounts, which are presented in order to show meaningful comparative information, are calculated as if Basel III had been implemented in Switzerland at such time.
|
|||||||||||||||||
|
2
Capital conservation buffer, countercyclical buffer and G-SIB buffer requirement is nil as of June 30, 2013.
|
|||||||||||||||||
| BIS eligible capital and ratios - Basel II.5 | |||||
| end of 2012 | Group | Bank | |||
| Eligible capital (CHF million) | |||||
| Core tier 1 capital | 34,766 | 30,879 | |||
| Tier 1 capital | 43,547 | 39,660 | |||
| Total eligible capital | 49,936 | 47,752 | |||
| Capital ratios (%) | |||||
| Core tier 1 ratio | 15.5 | 14.4 | |||
| Tier 1 ratio | 19.4 | 18.4 | |||
| Total capital ratio | 22.3 | 22.2 | |||
Swiss Core and Total Capital ratios
Swiss Core Capital consists of CET1 capital and tier 1 participation securities, which FINMA advised may be included with a haircut of 20% until December 31, 2018 at the latest, and may include certain other Swiss adjustments. Swiss Total Capital consists of Swiss Core Capital, high-trigger buffer BCN and low-trigger contingent capital.
As of the end of 6M13, our Swiss Core Capital and Swiss Total Capital ratios were 15.7% and 17.2%, respectively, compared to the Swiss capital ratio phase-in requirements of 6.0% and 8.1%, respectively.
11
| Swiss risk-weighted assets | |||||||||||||
| Basel III | Basel II.5 | ||||||||||||
| 6M13 | 2012 | ||||||||||||
|
end of |
Ad- vanced |
Stan- dardized |
Total |
Ad- vanced |
Stan- dardized |
Total |
|||||||
| Risk-weighted assets (CHF million) | |||||||||||||
| Total BIS risk-weighted assets | 258,489 | 31,258 | 289,747 | 207,483 | 16,813 | 224,296 | |||||||
| Impact of differences in thresholds 1 | (30) | 743 | 713 | – | – | – | |||||||
| Other multipliers | 707 | – | 707 | 2 | 1,737 | 13,226 | 14,963 | 3 | |||||
| VaR hedge fund add-on | – | – | – | 738 | 4 | – | 738 | ||||||
| Total Swiss risk-weighted assets | 259,166 | 32,001 | 291,167 | 209,958 | 30,039 | 239,997 | |||||||
|
1
Represents the impact on risk-weighted assets of increased regulatory thresholds resulting from additional Swiss Core Capital.
|
|||||||||||||
|
2
Primarily related to equity IRB multiplier.
|
|||||||||||||
|
3
Primarily related to credit non-counterparty-related risk.
|
|||||||||||||
|
4
The VaR hedge fund capital add-on was stress-test-based and was introduced by FINMA in 2008 for hedge fund exposures in the trading book. This is no longer applied following the implementation of the RNIV framework.
|
|||||||||||||
| Swiss Core and Total Capital ratios | |||||||||
| Group | Bank | ||||||||
| end of | 6M13 | 2012 | 1 | 6M13 | 2012 | 1 | |||
| Capital development (CHF million) | |||||||||
| CET1 capital | 44,430 | 41,500 | 38,943 | 36,717 | |||||
| Swiss regulatory adjustments 2 | 1,375 | 2,481 | 2,333 | 2,864 | |||||
| Swiss Core Capital | 45,805 | 43,981 | 41,276 | 39,581 | |||||
| High-trigger BCN 3 | 4,211 | 4,084 | 4,211 | 4,084 | |||||
| Low-trigger contingent capital | – | – | – | – | |||||
| Swiss Total Capital | 50,016 | 48,065 | 45,487 | 43,665 | |||||
| Capital ratios (%) | |||||||||
| Swiss Core Capital ratio | 15.7 | 15.0 | 14.7 | 14.0 | |||||
| Swiss Total Capital ratio | 17.2 | 16.4 | 16.2 | 15.4 | |||||
|
1
Basel III became effective as of January 1, 2013. 2012 amounts, which are presented in order to show meaningful comparative information, are calculated as if Basel III had been implemented in Switzerland at such time.
|
|||||||||
|
2
Consists of tier 1 participation securities of CHF 2.5 billion, additional tier 1 deductions for which there is not enough tier 1 capital available and is therefore deducted from Swiss Core Capital and other Swiss regulatory adjustments.
|
|||||||||
|
3
Consists of CHF 1.6 billion additional tier 1 instruments and CHF 2.6 billion tier 2 instruments.
|
|||||||||
12
The following table presents the Swiss requirements for each of the relevant capital components and discloses our current capital metrics against those requirements.
| Swiss capital requirements and coverage | |||||||||||||||||||||
| Group | Bank | ||||||||||||||||||||
| Capital requirements | Capital requirements | ||||||||||||||||||||
|
end of |
Minimum component |
Buffer component |
Progressive component |
Excess |
6M13 |
Minimum component |
Buffer component |
Progressive component |
Excess |
6M13 |
|||||||||||
| Risk-weighted assets (CHF billion) | |||||||||||||||||||||
| Swiss risk-weighted assets | – | – | – | – | 291.2 | – | – | – | – | 280.2 | |||||||||||
| 2013 Swiss capital requirements 1 | |||||||||||||||||||||
| Minimum Swiss Total Capital ratio | 3.5% | 3.5% | 1.1% | – | 8.1% | 3.5% | 3.5% | 1.1% | – | 8.1% | |||||||||||
| Minimum Swiss Total Capital (CHF billion) | 10.2 | 10.2 | 3.2 | – | 23.6 | 9.8 | 9.8 | 3.1 | – | 22.7 | |||||||||||
| Swiss capital coverage (CHF billion) | |||||||||||||||||||||
| Swiss Core Capital | 10.2 | 9.2 | – | 26.4 | 45.8 | 9.8 | 8.7 | – | 22.8 | 41.3 | |||||||||||
| High-trigger BCN | – | 1.0 | 3.2 | – | 4.2 | – | 1.1 | 3.1 | – | 4.2 | |||||||||||
| Low-trigger contingent capital | – | – | – | – | – | – | – | – | – | – | |||||||||||
| Swiss Total Capital | 10.2 | 10.2 | 3.2 | 26.4 | 50.0 | 9.8 | 9.8 | 3.1 | 22.8 | 45.5 | |||||||||||
| Capital ratios (%) | |||||||||||||||||||||
| Swiss Total Capital ratio | 3.5% | 3.5% | 1.1% | 9.1% | 17.2% | 3.5% | 3.5% | 1.1% | 8.1% | 16.2% | |||||||||||
|
Rounding differences may occur.
|
|||||||||||||||||||||
|
1
The Swiss capital requirements are based on a percentage of risk-weighted assets.
|
|||||||||||||||||||||
| Swiss capital requirements - Basel II.5 | |||||
| end of 2012 | Group | Bank | |||
| Swiss capital requirements | |||||
| Required capital (CHF million) 1 | 19,200 | 18,388 | |||
| Capital requirement covering ratio (%) | 260.1 | 259.7 | |||
|
1
Calculated as 8% of total risk-weighted assets.
|
|||||
13
Balance sheet
The following table shows the balance sheet as published in the consolidated financial statements of the Group and the balance sheet under the regulatory scope of consolidation. The reference indicates how such assets and liabilities are considered in the composition of regulatory capital.
| Balance sheet | |||||||
| Balance sheet | |||||||
|
end of 6M13 |
Financial statements |
Regulatory scope of consolidation |
Reference to composition of capital |
||||
| Assets (CHF million) | |||||||
| Cash and due from banks | 56,584 | 54,621 | |||||
| Interest-bearing deposits with banks | 1,563 | 2,642 | |||||
| Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions | 173,404 | 171,571 | |||||
| Securities received as collateral, at fair value | 21,675 | 21,675 | |||||
| Trading assets, at fair value | 245,834 | 238,050 | |||||
| Investment securities | 3,546 | 3,372 | |||||
| Other investments | 11,628 | 8,394 | |||||
| Net loans | 246,186 | 250,383 | |||||
| Premises and equipment | 5,459 | 5,458 | |||||
| Goodwill | 8,554 | 8,554 | a | ||||
| Other intangible assets | 237 | 237 | |||||
| of which other intangible assets (excluding mortgage servicing rights) | 198 | 198 | b | ||||
| Brokerage receivables | 72,247 | 72,246 | |||||
| Other assets | 72,986 | 49,472 | |||||
| of which tax charges deferred as other assets related to regulatory adjustments | 1,082 | 1,082 | c | ||||
| of which deferred tax assets related to net operating losses | 1,857 | 1,857 | d | ||||
| of which deferred tax assets from temporary differences | 4,742 | 4,742 | e | ||||
| of which defined-benefit pension fund net assets | 930 | 930 | f | ||||
| Total assets | 919,903 | 886,675 | |||||
14
| Balance sheet (continued) | |||||||
| Balance sheet | |||||||
|
end of 6M13 |
Financial statements |
Regulatory scope of consolidation |
Reference to composition of capital |
||||
| Liabilities (CHF million) | |||||||
| Due to banks | 29,440 | 30,093 | |||||
| Customer deposits | 328,389 | 336,998 | |||||
| Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions | 99,073 | 99,161 | |||||
| Obligation to return securities received as collateral, at fair value | 21,675 | 21,675 | |||||
| Trading liabilities, at fair value | 89,917 | 90,036 | |||||
| Short-term borrowings | 20,976 | 16,526 | |||||
| Long-term debt | 133,505 | 117,793 | |||||
| Brokerage payables | 91,404 | 91,578 | |||||
| Other liabilities | 56,117 | 37,227 | |||||
| Total liabilities | 870,496 | 841,087 | |||||
| of which additional tier 1 instruments, fully eligible | 1,569 | 1,569 | g | ||||
| of which additional tier 1 instruments subject to phase out | 6,049 | 6,049 | h | ||||
| of which tier 2 instruments, fully eligible | 2,638 | 2,638 | i | ||||
| of which tier 2 instruments subject to phase out | 5,063 | 5,063 | j | ||||
| Common shares 1 | 64 | 64 | |||||
| Additional paid-in capital 1 | 27,196 | 27,244 | |||||
| Retained earnings | 30,405 | 30,371 | |||||
| Treasury shares, at cost | (62) | (62) | |||||
| Accumulated other comprehensive income/(loss) | (15,201) | (15,220) | |||||
| Total shareholders' equity | 42,402 | 42,397 | |||||
| Noncontrolling interests 2 | 7,005 | 3,191 | |||||
| of which additional tier 1 instruments subject to phase out | 3,151 | 3,151 | k | ||||
| Total equity | 49,407 | 45,588 | |||||
| Total liabilities and equity | 919,903 | 886,675 | |||||
|
1
Eligible as CET1 capital.
|
|||||||
|
2
The difference between the accounting and regulatory scope of consolidation primarily represents private equity fund type vehicles, for which the Group has received an exemption from FINMA not to consolidate for regulatory purposes.
|
|||||||
15
Composition of regulatory capital
The following tables provide details on the composition of regulatory capital and details on CET1 capital adjustments subject to phase-in as well as details on additional tier 1 capital and tier 2 capital.
| Composition of regulatory capital | |||
| end of | 6M13 | ||
| Eligible capital (CHF million) | |||
| Shareholder’s equity (US GAAP) | 42,402 | ||
| Regulatory adjustments | (659) | 1 | |
| Adjustments subject to phase in | 2,687 | ||
| CET1 capital | 44,430 | ||
| Additional tier 1 instruments | 1,569 | ||
| Additional tier 1 instruments subject to phase out | 9,221 | ||
| Deductions from additional tier 1 capital | (9,231) | ||
| Additional tier 1 capital | 1,559 | ||
| Total tier 1 capital | 45,989 | ||
| Tier 2 instruments | 2,642 | ||
| Tier 2 instruments subject to phase out | 4,583 | ||
| Deductions from tier 2 capital | (366) | ||
| Tier 2 capital | 6,859 | ||
| Total eligible capital | 52,848 | ||
|
1
Includes regulatory adjustments not subject to phase-in, including a cumulative dividend accrual.
|
|||
16
The following tables provide details on CET 1 capital adjustments subject to phase in and details on additional tier 1 capital and tier 2 capital. The column “Transition amount” represents the amounts that have been recognized in eligible capital as of June 30, 2013. The column “Amount to be phased in” represents those amounts that are still to be phased-in as CET 1 capital adjustments through year-end 2018.
| Details on CET1 capital adjustments subject to phase in | |||||||||||||
|
end of 6M13 |
Balance sheet |
Reference to balance sheet |
1 |
Regulatory adjustments |
Total |
Transition amount |
Amount to be phased in |
||||||
| CET1 capital adjustments subject to phase in (CHF million) | |||||||||||||
| Adjustment for accounting treatment of defined benefit pension plans | – | – | – | 2,606 | 2 | (2,606) | |||||||
| Common share capital issued by subsidiaries and held by third parties | – | – | – | 81 | (81) | ||||||||
| Goodwill | 8,554 | a | (69) | 3 | 8,485 | 0 | (8,485) | 4 | |||||
| Other intangible assets (excluding mortgage-servicing rights) | 198 | b | (27) | 5 | 171 | 0 | (171) | 4 | |||||
| Deferred tax assets that rely on future profitability (excluding temporary differences) | 2,939 | c, d | – | 2,939 | 0 | (2,939) | 6 | ||||||
| Shortfall of provisions to expected losses | – | – | – | 0 | (629) | 7 | |||||||
| Gains and losses due to changes in own credit risk on fair valued liabilities | – | – | – | 0 | (461) | 8 | |||||||
| Defined-benefit pension fund net assets | 930 | f | (206) | 5 | 724 | 0 | (724) | 6 | |||||
| Expected loss amount for equity exposures | – | – | – | 0 | (66) | 7 | |||||||
| Other adjustments 9 | – | – | – | 0 | 28 | 4 | |||||||
| Amounts above 10% threshold | 4,742 | (4,187) | 555 | 0 | (555) | ||||||||
| of which deferred tax assets from temporary differences | 4,742 | e | (4,187) | 10 | 555 | 0 | (555) | 6 | |||||
| Amounts above 15% threshold | – | – | – | 0 | 0 | ||||||||
| Adjustments subject to phase in to CET1 capital | 2,687 | (16,689) | |||||||||||
|
1
Refer to the balance sheet under regulatory scope of consolidation in the table "Balance sheet" on pages 14 to 15. Only material items are referenced to the balance sheet.
|
|||||||||||||
|
2
Represents the effect of the Basel II.5 treatment for defined benefit pension plans which will be phased out over five years starting January 1, 2014.
|
|||||||||||||
|
3
Represents related deferred tax liability and goodwill on equity method investments.
|
|||||||||||||
|
4
Deducted from additional tier 1 capital.
|
|||||||||||||
|
5
Represents related deferred tax liability.
|
|||||||||||||
|
6
Risk-weighted.
|
|||||||||||||
|
7
50% deducted from additional tier 1 capital and 50% from tier 2 capital.
|
|||||||||||||
|
8
CHF 255 million related to debt instruments deducted from additional tier 1 capital.
|
|||||||||||||
|
9
Includes investments in own shares and cash flow hedge reserve.
|
|||||||||||||
|
10
Includes threshold adjustments of CHF (4,443) million and an aggregate of CHF 256 million related to the add-back of deferred tax liabilities on goodwill, other intangible assets and pension that are netted against deferred tax assets under US GAAP.
|
|||||||||||||
17
| Details on additional tier 1 capital and tier 2 capital | |||||||||||
|
end of 6M13 |
Balance sheet |
Reference to balance sheet |
1 |
Regulatory adjustments |
Total |
Transition amount |
|||||
| Additional tier 1 capital (CHF million) | |||||||||||
| Additional tier 1 instruments 2 | 1,569 | g | 1,569 | 1,569 | |||||||
| Additional tier 1 instruments subject to phase out 2 | 9,200 | h, k | 21 | 3 | 9,221 | 9,221 | |||||
| Total additional tier 1 instruments | 10,790 | ||||||||||
| Transitional deductions from additional tier 1 capital | (9,231) | ||||||||||
| of which goodwill | (8,485) | 4 | |||||||||
| of which other intangible assets (excluding mortgage-servicing rights) | (171) | 4 | |||||||||
| of which shortfall of provisions to expected losses | (315) | ||||||||||
| of which gains/(losses) due to changes in own credit risk on fair valued financial liabilities | (255) | ||||||||||
| of which expected loss amount for equity exposures | (33) | ||||||||||
| of which other adjustments 5 | 28 | ||||||||||
| Deductions from additional tier 1 capital | (9,231) | ||||||||||
| Additional tier 1 capital | 1,559 | ||||||||||
| Tier 2 capital (CHF million) | |||||||||||
| Tier 2 instruments | 2,638 | i | 4 | 3 | 2,642 | 2,642 | |||||
| Tier 2 instruments subject to phase out | 5,063 | j | (480) | 6 | 4,583 | 4,583 | |||||
| Total tier 2 instruments | 7,225 | ||||||||||
| Significant investments in BFI entities | (18) | ||||||||||
| Transitional deductions from tier 2 capital | (348) | ||||||||||
| of which shortfall of provisions to expected losses | (315) | ||||||||||
| of which expected loss amount for equity exposures | (33) | ||||||||||
| Deductions from tier 2 capital | (366) | ||||||||||
| Tier 2 capital | 6,859 | ||||||||||
|
1
Refer to the balance sheet under regulatory scope of consolidation in the table "Balance sheet" on pages 14 to 15. Only material items are referenced to the balance sheet.
|
|||||||||||
|
2
Classified as liabilities under US GAAP.
|
|||||||||||
|
3
Includes the reversal of gains/(losses) due to changes in own credit spreads on fair valued capital instruments subject to phase out that will be deducted from CET1 once Basel III is fully implemented as well as investments in own capital instruments.
|
|||||||||||
|
4
Net of related deferred tax liability.
|
|||||||||||
|
5
Includes investments in own shares and cash flow hedge reserve.
|
|||||||||||
|
6
Primarily includes the impact of the prescribed amortization requirements as instruments move closer to their maturity as well as the reversal of gains/(losses) due to changes in own credit spreads on fair valued capital instruments subject to phase out that will be deducted from CET1 once Basel III is fully implemented and investments in own capital instruments.
|
|||||||||||
| Additional information | |||
| end of | 6M13 | ||
| Risk-weighted assets related to amounts subject to phase in (CHF million) 1 | |||
| Adjustments for accounting treatment of pension plans | 3,298 | ||
| Defined-benefit pension fund net assets | 724 | ||
| Deferred tax assets | 349 | ||
| Risk-weighted assets related to amounts subject to phase in | 4,371 | ||
| Amounts below the thresholds for deduction (before risk weighting) (CHF million) | |||
| Non-significant investments in BFI entities | 3,151 | ||
| Significant investments in BFI entities | 607 | ||
| Mortgage servicing rights | 39 | 2 | |
| Deferred tax assets arising from temporary differences | 4,443 | 2 | |
| Exposures below 15% threshold | 5,089 | ||
|
1
Represents items that were risk-weighted under Basel II.5 and are phased in as capital deductions under Basel III.
|
|||
|
2
Net of related deferred tax liability.
|
|||
18
Credit risk consists of the following categories:
– Credit risk by asset classes
– Securitization risk in the banking book
– Equity type securities in the banking book
– CVA risk
– Exposures below 15% threshold
– CCP risk
– Settlement risk
– Other items
> Refer to “Credit risk” (pages 135 to 146) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for information on our credit risk management approach, ratings and risk mitigation and impaired exposures and allowances.
For regulatory purposes, we categorize our exposures into broad classes of assets with different underlying risk characteristics including type of counterparty, size of exposure and type of collateral. The asset class categorization is driven by regulatory rules from the Basel framework. The credit asset classes under the Basel framework are set forth below and are grouped as either institutional or retail.
Institutional credit risk
– Sovereigns: exposures to central governments, central banks, BIS, the International Monetary Fund, the European Central Bank and eligible Multilateral Development Banks (MDB).
– Other institutions: exposures to public bodies with the right to raise taxes or whose liabilities are guaranteed by a public sector entity.
– Banks: exposures to banks, securities firms, stock exchanges and those MDB that do not qualify for sovereign treatment.
– Corporates: exposures to corporations (except small businesses) and public sector entities with no right to raise taxes and whose liabilities are not guaranteed by a public entity. The Corporate asset class also includes specialized lending, in which the lender looks primarily to a single source of revenues to cover the repayment obligations and where only the financed asset serves as security for the exposure (e.g., income producing real estate or commodities finance).
Retail credit risk
– Residential mortgages: includes exposures secured by residential real estate collateral occupied or let by the borrower.
– Qualifying revolving retail: includes credit card receivables and overdrafts.
– Other retail: includes loans collateralized by securities, consumer loans, leasing and small business exposures.
Other credit risk
– Other exposures: includes exposures with insufficient information to treat under the A-IRB approach or to allocate under the Standardized approach into any other asset class.
19
| Gross credit exposures by regulatory approach and risk-weighted assets | |||||||||||||
|
A-IRB |
Stan- dardized |
Total |
Risk- weighted assets |
1 | |||||||||
| PD/LGD | SRW | ||||||||||||
|
end of |
Pre- substitution |
2 |
Post- substitution |
|
|
|
|
||||||
| 6M13 (CHF million) | |||||||||||||
| Sovereigns | 59,643 | 58,825 | – | 6,016 | 64,841 | 4,257 | |||||||
| Other institutions | 5,105 | 4,746 | – | 290 | 5,036 | 919 | |||||||
| Banks | 44,201 | 47,645 | 33 | 941 | 48,619 | 14,507 | |||||||
| Corporates | 188,368 | 186,101 | 685 | 595 | 187,381 | 85,253 | |||||||
| Total institutional credit exposures | 297,317 | 297,317 | 718 | 7,842 | 305,877 | 104,936 | |||||||
| Residential mortgage | 97,905 | 97,905 | – | – | 97,905 | 10,675 | |||||||
| Qualifying revolving retail | 692 | 692 | – | – | 692 | 259 | |||||||
| Other retail | 63,420 | 63,420 | – | 8 | 63,428 | 11,093 | |||||||
| Total retail credit exposures | 162,017 | 162,017 | – | 8 | 162,025 | 22,027 | |||||||
| Other exposures | – | – | – | 7,682 | 7,682 | 4,010 | |||||||
| Total gross credit exposures | 459,334 | 459,334 | 718 | 15,532 | 475,584 | 130,973 | |||||||
| 2012 (CHF million) | |||||||||||||
| Sovereigns | 64,930 | 63,378 | – | 6,165 | 69,543 | 4,831 | |||||||
| Other institutions | 5,737 | 5,431 | – | 433 | 5,864 | 1,387 | |||||||
| Banks | 46,403 | 50,822 | 23 | 1,122 | 51,967 | 14,382 | |||||||
| Corporates | 177,115 | 174,554 | 1,014 | 505 | 176,073 | 76,373 | |||||||
| Total institutional credit exposures | 294,185 | 294,185 | 1,037 | 8,225 | 303,447 | 96,973 | |||||||
| Residential mortgage | 96,425 | 96,425 | – | – | 96,425 | 10,148 | |||||||
| Qualifying revolving retail | 156 | 156 | – | – | 156 | 260 | |||||||
| Other retail | 57,768 | 57,768 | – | 8 | 57,776 | 9,823 | |||||||
| Total retail credit exposures | 154,349 | 154,349 | – | 8 | 154,357 | 20,231 | |||||||
| Other exposures | – | – | – | 14,164 | 14,164 | 7,876 | |||||||
| Total gross credit exposures | 448,534 | 448,534 | 1,037 | 22,397 | 471,968 | 125,080 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
|
2
Gross credit exposures are shown pre- and post-substitution as, in certain circumstances, credit risk mitigation is reflected by shifting the counterparty exposure from the underlying obligor to the protection provider.
|
|||||||||||||
| Gross credit exposures and risk-weighted assets | |||||||||||||
| 6M13 | 2012 | ||||||||||||
|
End of |
Monthly average |
Risk- weighted assets (Basel III) |
End of |
Monthly average |
Risk- weighted assets (Basel II.5) |
||||||||
| Gross credit exposures (CHF million) | |||||||||||||
| Loans, deposits with banks and other assets 1 | 316,797 | 314,358 | 73,720 | 323,411 | 351,806 | 75,371 | |||||||
| Guarantees and commitments | 65,371 | 65,762 | 26,709 | 68,168 | 63,919 | 24,246 | |||||||
| Securities financing transactions | 39,072 | 39,056 | 10,020 | 26,445 | 28,358 | 4,435 | |||||||
| Derivatives | 54,344 | 57,773 | 20,524 | 53,944 | 64,382 | 21,028 | |||||||
| Total | 475,584 | 476,949 | 130,973 | 471,968 | 508,465 | 125,080 | |||||||
|
1
Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.
|
|||||||||||||
20
| Geographic distribution of gross credit exposures | |||||||||||
|
end of |
Switzerland |
EMEA |
Americas |
Asia Pacific |
Total |
||||||
| 6M13 (CHF million) | |||||||||||
| Loans, deposits with banks and other assets 1 | 153,787 | 80,023 | 57,582 | 25,405 | 316,797 | ||||||
| Guarantees and commitments | 13,903 | 19,588 | 29,915 | 1,965 | 65,371 | ||||||
| Securities financing transactions | 3,359 | 14,015 | 19,701 | 1,997 | 39,072 | ||||||
| Derivatives | 5,833 | 26,495 | 16,588 | 5,428 | 54,344 | ||||||
| Total | 176,882 | 140,121 | 123,786 | 34,795 | 475,584 | ||||||
| 2012 (CHF million) | |||||||||||
| Loans, deposits with banks and other assets 1 | 154,942 | 84,140 | 60,326 | 24,003 | 323,411 | ||||||
| Guarantees and commitments | 15,562 | 20,185 | 28,424 | 3,997 | 68,168 | ||||||
| Securities financing transactions | 2,165 | 10,431 | 12,114 | 1,735 | 26,445 | ||||||
| Derivatives | 5,400 | 28,599 | 15,093 | 4,852 | 53,944 | ||||||
| Total | 178,069 | 143,355 | 115,957 | 34,587 | 471,968 | ||||||
|
The geographic distribution is based on the country of incorporation or the nationality of the counterparty, shown pre-substitution.
|
|||||||||||
|
1
Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.
|
|||||||||||
| Industry distribution of gross credit exposures | |||||||||||
|
end of |
Financial institutions |
Commercial |
Consumer |
Public authorities |
Total |
||||||
| 6M13 (CHF million) | |||||||||||
| Loans, deposits with banks and other assets 1 | 17,105 | 127,122 | 118,129 | 54,441 | 316,797 | ||||||
| Guarantees and commitments | 4,186 | 55,046 | 2,888 | 3,251 | 65,371 | ||||||
| Securities financing transactions | 9,143 | 23,009 | 25 | 6,895 | 39,072 | ||||||
| Derivatives | 14,334 | 29,085 | 2,386 | 8,539 | 54,344 | ||||||
| Total | 44,768 | 234,262 | 123,428 | 73,126 | 475,584 | ||||||
| 2012 (CHF million) | |||||||||||
| Loans, deposits with banks and other assets 1 | 15,768 | 128,172 | 115,779 | 63,692 | 323,411 | ||||||
| Guarantees and commitments | 4,280 | 55,923 | 3,815 | 4,150 | 68,168 | ||||||
| Securities financing transactions | 9,167 | 13,717 | 24 | 3,537 | 26,445 | ||||||
| Derivatives | 17,741 | 25,045 | 1,461 | 9,697 | 53,944 | ||||||
| Total | 46,956 | 222,857 | 121,079 | 81,076 | 471,968 | ||||||
|
Exposures are shown pre-substitution.
|
|||||||||||
|
1
Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.
|
|||||||||||
21
| Remaining contractual maturity of gross credit exposures | |||||||||
|
end of |
within 1 year |
1 |
within 1-5 years |
Thereafter |
Total |
||||
| 6M13 (CHF million) | |||||||||
| Loans, deposits with banks and other assets 2 | 175,741 | 92,321 | 48,735 | 316,797 | |||||
| Guarantees and commitments | 24,118 | 39,360 | 1,893 | 65,371 | |||||
| Securities financing transactions | 38,829 | 229 | 14 | 39,072 | |||||
| Derivatives | 51,386 | 1,894 | 1,064 | 54,344 | |||||
| Total | 290,074 | 133,804 | 51,706 | 475,584 | |||||
| 2012 (CHF million) | |||||||||
| Loans, deposits with banks and other assets 2 | 188,017 | 91,884 | 43,510 | 323,411 | |||||
| Guarantees and commitments | 30,920 | 35,245 | 2,003 | 68,168 | |||||
| Securities financing transactions | 26,430 | 0 | 15 | 26,445 | |||||
| Derivatives | 19,317 | 32,159 | 2,468 | 53,944 | |||||
| Total | 264,684 | 159,288 | 47,996 | 471,968 | |||||
|
1
Includes positions without agreed residual contractual maturity.
|
|||||||||
|
2
Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.
|
|||||||||
Portfolios subject to PD/LGD approach
Rating models
Rating models are based on statistical data and are subject to a thorough review before implementation. Credit rating models are developed by Credit Risk Management (CRM) Credit Risk Analytics and independently validated by Risk Model Validation prior to use within the Basel III regulatory capital calculation, and thereafter on a regular basis. To ensure that ratings are consistent and comparable across all businesses, we have used an internal rating scale which is benchmarked to an external rating agency using the historical PD associated with external ratings.
At the time of initial credit approval and review, relevant quantitative data (such as financial statements and financial projections) and qualitative factors relating to the counterparty are used by CRM in the models and result in the assignment of a credit rating or PD, which measures the counterparty’s risk of default over a one-year period.
New or materially changed rating models are submitted for approval to the Risk Processes and Standards Committee (RPSC) prior to implementation. RPSC reviews the continued use of existing models on an annual basis.
CRM is an independent function with responsibility for credit analytics and models, approving credit ratings and limits, monitoring and managing individual exposures and assessing and managing the quality of the segment and business area’s credit portfolios. Risk Analytics & Reporting (RAR) is an independent function with responsibility for risk reporting, systems implementation, model validation and risk and policies. CRM and RAR report to the Chief Risk Officer.
Descriptions of the rating processes
For the purposes of internal ratings, we have developed a set of credit rating models tailored for different internal client segments in both Investment Banking and Private Banking & Wealth Management (e.g., international corporates, financial institutions, asset finance, small and medium-sized entities, commodity traders, residential mortgages, etc.) and transaction types.
Counterparty and transaction rating process – Corporates (excluding corporates managed on the Swiss platform), banks and sovereigns (primarily in the Investment Banking division)
Internal ratings are based on the analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed are dependent on the type of counterparty. The analysis emphasizes a forward looking approach, concentrating on economic trends and financial fundamentals. Credit officers make use of peer analysis, industry comparisons, external ratings and research and the judgment of credit experts.
22
For structured and asset finance deals, the approach is more quantitative. The focus is on the performance of the underlying assets, which represent the collateral of the deal. The ultimate rating is dependent upon the expected performance of the underlying assets and the level of credit enhancement of the specific transaction. Additionally, a review of the originator and/or servicer is performed. External ratings and research (rating agency and/or fixed income and equity), where available, are incorporated into the rating justification, as is any available market information (e.g., bond spreads, equity performance).
Transaction ratings are based on the analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed include seniority, industry and collateral. The analysis emphasizes a forward looking approach.
Counterparty and transaction rating process – Corporates managed on the Swiss platform, mortgages and other retail (primarily in the Private Banking & Wealth Management division)
For corporates managed on the Swiss platform and mortgage lending, the statistically derived rating models, which are based internally compiled data comprising both quantitative factors (primarily loan-to-value ratio and the borrower’s income level for mortgage lending and balance sheet information for corporates) and qualitative factors (e.g., credit histories from credit reporting bureaus). Collateral loans, which form the largest part of “other retail”, are treated according to Basel III rules with pool PD and pool LGD based on historical loss experience. Most of the collateral loans are loans collateralized by securities.
The combined use of a rating model and credit analysis will lead to the following Credit Suisse grades, which can be mapped to external ratings of the three major credit rating agencies. This table also reflects the qualitative assessment in terms of PD for the corresponding grade and the current PD bands.
| Credit Suisse counterparty ratings | |||||||||||||
| Ratings | PD bands (%) | Definition | S&P | Fitch | Moody's | Details | |||||||
| AAA |
0.000 - 0.021 |
Substantially risk free |
AAA |
AAA |
Aaa |
Extremely low risk, very high long-term stability, still solvent under extreme conditions |
|||||||
|
AA+ AA AA- |
0.021 - 0.027 0.027 - 0.034 0.034 - 0.044 |
Minimal risk |
AA+ AA AA- |
AA+ AA AA- |
Aa1 Aa2 Aa3 |
Very low risk, long-term stability, repayment sources sufficient under lasting adverse conditions, extremely high medium-term stability |
|||||||
|
A+ A A- |
0.044 - 0.056 0.056 - 0.068 0.068 - 0.097 |
Modest risk |
A+ A A- |
A+ A A- |
A1 A2 A3 |
Low risk, short- and mid-term stability, small adverse developments can be absorbed long term, short- and mid-term solvency preserved in the event of serious difficulties |
|||||||
|
BBB+ BBB BBB- |
0.097 - 0.167 0.167 - 0.285 0.285 - 0.487 |
Average risk |
BBB+ BBB BBB- |
BBB+ BBB BBB- |
Baa1 Baa2 Baa3 |
Medium to low risk, high short-term stability, adequate substance for medium-term survival, very stable short term |
|||||||
|
BB+ BB BB- |
0.487 - 0.839 0.839 - 1.442 1.442 - 2.478 |
Acceptable risk |
BB+ BB BB- |
BB+ BB BB- |
Ba1 Ba2 Ba3 |
Medium risk, only short-term stability, only capable of absorbing minor adverse developments in the medium term, stable in the short term, no increased credit risks expected within the year |
|||||||
|
B+ B B- |
2.478 - 4.259 4.259 - 7.311 7.311 - 12.550 |
High risk |
B+ B B- |
B+ B B- |
B1 B2 B3 |
Increasing risk, limited capability to absorb further unexpected negative developments |
|||||||
|
CCC+ CCC CCC- CC |
12.550 - 21.543 21.543 - 100.00 21.543 - 100.00 21.543 - 100.00 |
Very high risk |
CCC+ CCC CCC- CC |
CCC+ CCC CCC- CC |
Caa1 Caa2 Caa3 Ca |
High risk, very limited capability to absorb further unexpected negative developments |
|||||||
|
C D1 D2 |
100 Risk of default has materialized |
Imminent or actual loss |
C D |
C D |
C |
Substantial credit risk has materialized, i.e. counterparty is distressed and/or non-performing. Adequate specific provisions must be made as further adverse developments will result directly in credit losses. |
|||||||
|
Transactions rated C are potential problem loans; those rated D1 are non-performing assets and those rated D2 are non-interest earning.
|
|||||||||||||
23
| Institutional credit exposures by counterparty rating under PD/LGD approach | |||||||||
|
end of 6M13 |
Total exposure (CHF m) |
Exposure- weighted average LGD (%) |
Exposure- weighted average risk weight (%) |
1 |
Undrawn commit- ments (CHF m) |
||||
| Sovereigns | |||||||||
| AAA | 26,138 | 7.74 | 1.29 | 80 | |||||
| AA | 21,824 | 12.54 | 3.56 | 29 | |||||
| A | 1,451 | 44.19 | 6.59 | – | |||||
| BBB | 8,917 | 47.12 | 24.33 | – | |||||
| BB | 87 | 36.31 | 88.21 | – | |||||
| B or lower | 165 | 39.94 | 156.89 | – | |||||
| Default (net of specific provisions) | 243 | – | – | – | |||||
| Total credit exposure | 58,825 | – | – | 109 | |||||
| Exposure-weighted average CCF (%) 2 | 99.83 | – | – | – | |||||
| Other institutions | |||||||||
| AAA | – | – | – | – | |||||
| AA | 3,261 | 43.06 | 9.91 | 1,811 | |||||
| A | 757 | 38.50 | 20.89 | 87 | |||||
| BBB | 563 | 46.63 | 33.85 | 123 | |||||
| BB | 55 | 53.15 | 84.17 | 11 | |||||
| B or lower | 110 | 20.93 | 80.33 | – | |||||
| Default (net of specific provisions) | – | – | – | – | |||||
| Total credit exposure | 4,746 | – | – | 2,032 | |||||
| Exposure-weighted average CCF (%) 2 | 67.08 | – | – | – | |||||
| Banks | |||||||||
| AAA | – | – | – | – | |||||
| AA | 7,780 | 48.25 | 13.69 | 967 | |||||
| A | 23,209 | 52.56 | 21.16 | 1,730 | |||||
| BBB | 8,990 | 42.11 | 38.36 | 377 | |||||
| BB | 7,005 | 44.41 | 43.62 | 140 | |||||
| B or lower | 440 | 45.76 | 147.71 | 13 | |||||
| Default (net of specific provisions) | 221 | – | – | – | |||||
| Total credit exposure | 47,645 | – | – | 3,227 | |||||
| Exposure-weighted average CCF (%) 2 | 94.49 | – | – | – | |||||
| Corporates | |||||||||
| AAA | – | – | – | – | |||||
| AA | 35,733 | 45.58 | 11.84 | 8,060 | |||||
| A | 39,914 | 42.60 | 18.73 | 10,713 | |||||
| BBB | 46,634 | 37.64 | 36.51 | 12,360 | |||||
| BB | 46,791 | 36.37 | 65.84 | 7,275 | |||||
| B or lower | 15,678 | 35.55 | 120.40 | 4,934 | |||||
| Default (net of specific provisions) | 1,351 | – | – | 38 | |||||
| Total credit exposure | 186,101 | – | – | 43,380 | |||||
| Exposure-weighted average CCF (%) 2 | 76.34 | – | – | – | |||||
| Total institutional credit exposure | 297,317 | – | – | 48,748 | |||||
|
1
The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
|
|||||||||
|
2
Calculated before credit risk mitigation.
|
|||||||||
24
| Institutional credit exposures by counterparty rating under PD/LGD approach (continued) | |||||||||
|
end of 2012 |
Total exposure (CHF m) |
Exposure- weighted average LGD (%) |
Exposure- weighted average risk weight (%) |
1 |
Undrawn commit- ments (CHF m) |
||||
| Sovereigns | |||||||||
| AAA | 28,379 | 13.54 | 2.66 | 16 | |||||
| AA | 25,923 | 9.47 | 1.58 | 15 | |||||
| A | 4,876 | 52.11 | 30.68 | – | |||||
| BBB | 3,614 | 54.57 | 33.42 | – | |||||
| BB | 141 | 42.74 | 89.79 | – | |||||
| B or lower | 98 | 42.46 | 154.80 | – | |||||
| Default (net of specific provisions) | 347 | – | – | – | |||||
| Total credit exposure | 63,378 | – | – | 31 | |||||
| Exposure-weighted average CCF (%) 2 | 98.99 | – | – | – | |||||
| Other institutions | |||||||||
| AAA | – | – | – | – | |||||
| AA | 4,044 | 50.99 | 14.81 | 1,800 | |||||
| A | 597 | 44.56 | 24.60 | 128 | |||||
| BBB | 555 | 47.97 | 36.21 | 782 | |||||
| BB | 53 | 50.79 | 84.48 | 10 | |||||
| B or lower | 182 | 34.42 | 125.90 | – | |||||
| Default (net of specific provisions) | – | – | – | – | |||||
| Total credit exposure | 5,431 | – | – | 2,720 | |||||
| Exposure-weighted average CCF (%) 2 | 69.23 | – | – | – | |||||
| Banks | |||||||||
| AAA | – | – | – | – | |||||
| AA | 10,677 | 47.76 | 11.32 | 56 | |||||
| A | 27,032 | 49.53 | 19.03 | 705 | |||||
| BBB | 8,766 | 40.47 | 34.37 | 191 | |||||
| BB | 3,315 | 47.50 | 82.79 | 153 | |||||
| B or lower | 841 | 33.65 | 109.95 | 12 | |||||
| Default (net of specific provisions) | 191 | – | – | – | |||||
| Total credit exposure | 50,822 | – | – | 1,117 | |||||
| Exposure-weighted average CCF (%) 2 | 93.66 | – | – | – | |||||
| Corporates | |||||||||
| AAA | – | – | – | – | |||||
| AA | 29,728 | 43.42 | 12.04 | 8,578 | |||||
| A | 36,684 | 38.51 | 15.64 | 12,543 | |||||
| BBB | 47,125 | 37.08 | 34.61 | 11,830 | |||||
| BB | 45,937 | 36.17 | 66.37 | 6,906 | |||||
| B or lower | 13,403 | 31.20 | 105.20 | 3,922 | |||||
| Default (net of specific provisions) | 1,677 | – | – | 44 | |||||
| Total credit exposure | 174,554 | – | – | 43,823 | |||||
| Exposure-weighted average CCF (%) 2 | 75.60 | – | – | – | |||||
| Total institutional credit exposure | 294,185 | – | – | 47,691 | |||||
|
1
The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
|
|||||||||
|
2
Calculated before credit risk mitigation.
|
|||||||||
25
| Retail credit exposures by expected loss band under PD/LGD approach | |||||||||
|
end of 6M13 |
Total exposure (CHF m) |
Exposure- weighted average LGD (%) |
Exposure- weighted average risk weight (%) |
1 |
Undrawn commit- ments (CHF m) |
||||
| Residential mortgages | |||||||||
| 0.00%-0.15% | 90,707 | 15.89 | 7.94 | 1,327 | |||||
| 0.15%-0.30% | 4,378 | 28.47 | 28.86 | 119 | |||||
| 0.30%-1.00% | 2,364 | 29.07 | 49.31 | 62 | |||||
| 1.00% and above | 221 | 26.86 | 93.68 | – | |||||
| Defaulted (net of specific provisions) | 235 | – | – | 1 | |||||
| Total credit exposure | 97,905 | – | – | 1,509 | |||||
| Exposure-weighted average CCF (%) 2 | 97.51 | – | – | – | |||||
| Qualifying revolving retail | |||||||||
| 0.00%-0.15% | – | – | – | – | |||||
| 0.15%-0.30% | – | – | – | – | |||||
| 0.30%-1.00% | 471 | 50.00 | 23.35 | – | |||||
| 1.00% and above | 220 | 20.00 | 60.59 | – | |||||
| Defaulted (net of specific provisions) | 1 | – | – | – | |||||
| Total credit exposure | 692 | – | – | – | |||||
| Exposure-weighted average CCF (%) 2 | 99.99 | – | – | – | |||||
| Other retail | |||||||||
| 0.00%-0.15% | 57,924 | 50.60 | 12.60 | 1,174 | |||||
| 0.15%-0.30% | 686 | 47.27 | 30.36 | 99 | |||||
| 0.30%-1.00% | 2,337 | 41.44 | 46.82 | 143 | |||||
| 1.00% and above | 2,263 | 35.82 | 53.64 | 45 | |||||
| Defaulted (net of specific provisions) | 210 | – | – | 2 | |||||
| Total credit exposure | 63,420 | – | – | 1,463 | |||||
| Exposure-weighted average CCF (%) 2 | 93.86 | – | – | – | |||||
| Total retail credit exposure | 162,017 | – | – | 2,972 | |||||
|
1
The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
|
|||||||||
|
2
Calculated before credit risk mitigation.
|
|||||||||
26
| Retail credit exposures by expected loss band under PD/LGD approach (continued) | |||||||||
|
end of 2012 |
Total exposure (CHF m) |
Exposure- weighted average LGD (%) |
Exposure- weighted average risk weight (%) |
1 |
Undrawn commit- ments (CHF m) |
||||
| Residential mortgages | |||||||||
| 0.00%-0.15% | 88,421 | 16.46 | 7.39 | 1,433 | |||||
| 0.15%-0.30% | 4,946 | 26.49 | 27.39 | 137 | |||||
| 0.30%-1.00% | 2,575 | 28.81 | 46.88 | 40 | |||||
| 1.00% and above | 251 | 29.82 | 96.97 | 2 | |||||
| Defaulted (net of specific provisions) | 232 | – | – | 1 | |||||
| Total credit exposure | 96,425 | – | – | 1,613 | |||||
| Exposure-weighted average CCF (%) 2 | 97.45 | – | – | – | |||||
| Qualifying revolving retail | |||||||||
| 0.00%-0.15% | – | – | – | – | |||||
| 0.15%-0.30% | – | – | – | – | |||||
| 0.30%-1.00% | – | – | – | – | |||||
| 1.00% and above | 155 | 60.00 | 157.31 | – | |||||
| Defaulted (net of specific provisions) | 1 | – | – | – | |||||
| Total credit exposure | 156 | – | – | – | |||||
| Exposure-weighted average CCF (%) 2 | 99.78 | – | – | – | |||||
| Other retail | |||||||||
| 0.00%-0.15% | 51,782 | 48.45 | 14.28 | 1,095 | |||||
| 0.15%-0.30% | 576 | 46.71 | 29.67 | 92 | |||||
| 0.30%-1.00% | 2,889 | 41.88 | 34.84 | 120 | |||||
| 1.00% and above | 2,247 | 21.55 | 32.43 | 14 | |||||
| Defaulted (net of specific provisions) | 274 | – | – | 2 | |||||
| Total credit exposure | 57,768 | – | – | 1,323 | |||||
| Exposure-weighted average CCF (%) 2 | 93.93 | – | – | – | |||||
| Total retail credit exposure | 154,349 | – | – | 2,936 | |||||
|
1
The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.
|
|||||||||
|
2
Calculated before credit risk mitigation.
|
|||||||||
27
Portfolios subject to the standardized and supervisory risk weights approaches
Standardized approach
Under the standardized approach, risk weights are determined either according to credit ratings provided by recognized external credit assessment institutions or, for unrated exposures, by using the applicable regulatory risk weights. Less than 10% of our credit risk is determined using this approach. Balances include banking book treasury liquidity positions.
Supervisory risk weights approach
For specialized lending exposures, internal rating grades are mapped to one of five supervisory categories, associated with a specific risk weight under the SRW approach.
Equity IRB Simple approach
For equity type securities in the banking book, risk weights are determined using the IRB Simple approach, which differentiates by equity sub-asset types (qualifying private equity, listed equity and all other equity positions).
| Standardized and supervisory risk weighted exposures after risk mitigation by risk weighting bands | |||||||||
|
end of |
Standardized approach |
SRW |
Equity IRB Simple |
Total |
|||||
| 6M13 (CHF million) | |||||||||
| 0% | 9,078 | 137 | 0 | 9,215 | |||||
| >0%-50% | 2,648 | 32 | 0 | 2,680 | |||||
| >50%-100% | 3,806 | 534 | 0 | 4,340 | |||||
| >100%-200% | 0 | 15 | 1,957 | 1,972 | |||||
| >200%-400% | 0 | 0 | 2,146 | 2,146 | |||||
| Total | 15,532 | 718 | 4,103 | 20,353 | |||||
| 2012 (CHF million) | |||||||||
| 0% | 11,477 | 966 | 0 | 12,443 | |||||
| >0%-50% | 3,740 | 23 | 0 | 3,763 | |||||
| >50%-100% | 7,180 | 34 | 0 | 7,214 | |||||
| >100%-200% | 0 | 14 | 2,208 | 2,222 | |||||
| >200%-400% | 0 | 0 | 1,562 | 1,562 | |||||
| Total | 22,397 | 1,037 | 3,770 | 27,204 | |||||
Credit risk mitigation used for A-IRB and standardized approaches
Credit risk mitigation processes used under the A-IRB and standardized approaches include on- and off-balance sheet netting and utilizing eligible collateral as defined under the IRB approach.
Netting
> Refer to “Derivative instruments” (pages 144 to 146) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Credit risk and to “Note 1 – Summary of significant accounting policies” (pages 234 to 235) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 for information on policies and procedures for on- and off-balance sheet netting.
> Refer to “Note 20 – Offsetting of financial assets and financial liabilities” (pages 102 to 106) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on the offsetting of derivatives, reverse repurchase and repurchase agreements, and securities lending and borrowing transactions.
Collateral valuation and management
The policies and processes for collateral valuation and management are driven by:
– a legal document framework that is bilaterally agreed with our clients; and
– a collateral management risk framework enforcing transparency through self-assessment and management reporting.
For collateralized portfolio by marketable securities, the valuation is performed daily. Exceptions are governed by the calculation frequency described in the legal documentation. The mark-to-market prices used for valuing collateral are a combination of firm and
28
market prices sourced from trading platforms and service providers, where appropriate. The management of collateral is standardized and centralized to ensure complete coverage of traded products.
For the Private Banking & Wealth Management mortgage lending portfolio, real estate property is valued at the time of credit approval and periodically afterwards, according to our internal directives and controls, depending on the type of loan (e.g., residential, commercial) and loan-to-value ratio.
Primary types of collateral
The primary types of collateral are described below.
Collateral securing foreign exchange transactions and OTC trading activities primarily includes:
– Cash and US Treasury instruments;
– G-10 government securities; and
– Corporate bonds.
Collateral securing loan transactions primarily includes:
– Financial collateral pledged against loans collateralized by securities of Private Banking & Wealth Management clients (primarily cash and marketable securities);
– Real estate property for mortgages, mainly residential, but also multi-family buildings, offices and commercial properties; and
– Other types of lending collateral, such as accounts receivable, inventory, plant and equipment.
Concentrations within risk mitigation
Our Investment Banking division is an active participant in the credit derivatives market and trades with a variety of market participants, principally commercial banks and broker dealers. Credit derivatives are primarily used to mitigate investment grade counterparty exposures.
Concentrations in our Private Banking & Wealth Management lending portfolio arise due to a significant volume of mortgages in Switzerland. The financial collateral used to secure loans collateralized by securities worldwide is generally diversified and the portfolio is regularly analyzed to identify any underlying concentrations, which may result in lower loan-to-value ratios.
> Refer to “Credit risk” (pages 135 to 146) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for further information on risk mitigation.
| Credit risk mitigation used for A-IRB and standardized approaches | |||||||
|
end of |
Eligible financial collateral |
Other eligible IRB collateral |
Eligible guarantees/ credit derivatives |
||||
| 6M13 (CHF million) | |||||||
| Sovereigns | 247 | 0 | 2,371 | ||||
| Other institutions | 11 | 136 | 833 | ||||
| Banks | 2,993 | 0 | 1,105 | ||||
| Corporates | 4,483 | 30,698 | 15,513 | ||||
| Residential mortgages | 3,621 | 78,531 | 52 | ||||
| Other retail | 51,250 | 2,840 | 216 | ||||
| Total | 62,605 | 112,205 | 20,090 | ||||
| 2012 (CHF million) | |||||||
| Sovereigns | 241 | 0 | 1,929 | ||||
| Other institutions | 10 | 131 | 565 | ||||
| Banks | 5,303 | 0 | 1,673 | ||||
| Corporates | 6,667 | 28,456 | 16,282 | ||||
| Residential mortgages | 3,565 | 73,441 | 38 | ||||
| Other retail | 47,195 | 2,778 | 160 | ||||
| Total | 62,981 | 104,806 | 20,647 | ||||
|
Excludes collateral used to adjust EAD (e.g. as applied under the internal models method).
|
|||||||
29
Counterparty credit risk
Counterparty exposure
Counterparty credit risk arises from OTC derivatives, repurchase agreements, securities lending and borrowing and other similar products and activities. The subsequent credit risk exposures depend on the value of underlying market factors (e.g., interest rates and foreign exchange rates), which can be volatile and uncertain in nature.
We have received approval from FINMA to use the internal model method for measuring counterparty risk for the majority of our derivative and secured financing exposures.
Credit limits
All credit exposure is approved, either by approval of an individual transaction/facility (e.g., lending facilities), or under a system of credit limits (e.g., OTC derivatives). Credit exposure is monitored daily to ensure it does not exceed the approved credit limit. These credit limits are set either on a potential exposure basis or on a notional exposure basis. Secondary debt inventory positions are subject to separate limits that are set at the issuer level.
> Refer to “Credit risk” (pages 135 to 146) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for further information on counterparty credit risk, including transaction rating, credit approval process and provisioning.
Wrong-way exposures
Correlation risk arises when we enter into a financial transaction where market rates are correlated to the financial health of the counterparty. In a wrong-way trading situation, our exposure to the counterparty increases while the counterparty’s financial health and its ability to pay on the transaction diminishes.
Capturing wrong-way risk requires the establishment of basic assumptions regarding correlations for a given trading product. We have multiple processes that allow us to capture and estimate wrong-way risk.
Credit approval and reviews
A primary responsibility of CRM is to monitor counterparty exposure and the creditworthiness of a counterparty, both at the initiation of the relationship and on an ongoing basis. Part of the review and approval process is an analysis and discussion to understand the motivation of the client and to identify the directional nature of the trading in which the client is engaged. Credit limits are agreed in line with the Group’s risk appetite framework taking into account the strategy of the counterparty, the level of disclosure of financial information and the amount of risk mitigation that is present in the trading relationship (e.g., level of collateral).
Exposure adjusted risk calculation
Material trades that feature specific wrong-way risk are applied a conservative treatment for the purpose of calculating exposure profiles. The wrong-way risk framework applies to OTC, securities financing transactions and centrally cleared trades.
Wrong-way risk arises if the exposure the Group has against a counterparty is expected to be high when the probability of default of that counterparty is also high. Wrong-way risk can affect the exposure against a counterparty in two ways:
– The mark-to-market of a trade can be large if the counterparty’s PD is high.
– The value of collateral pledged by that counterparty can be low if the counterparty’s PD is high.
Two main types of wrong-way risk are distinguished:
– “General wrong-way risk” arises when the likelihood of default by counterparties is positively correlated with general market risk factors.
– “Specific wrong-way risk” arises when future exposure to a specific counterparty is positively correlated with the counterparty’ probability of default due to the nature of the transactions with the counterparty.
There are two variants of specific wrong-way risk:
– If there is a legal connection between the counterparty and the exposure, e.g. the Group buying a put from a counterparty on shares of that counterparty or a parent/subsidiary of that counterparty or a counterparty pledging its own shares or bonds as collateral.
– More general correlation driven specific wrong-way risk.
The presence of wrong-way risk is detected via automated checks for legal connection and via means of stress scenarios and historical time series analyses for correlation.
For those instances where a material wrong-way risk presence is detected, limit utilization and default capital are accordingly adjusted.
Regular reporting of wrong-way risk at both the individual trade and portfolio level allows wrong-way risk to be identified and corrective action taken in the case of heightened concern by CRM. Reporting occurs at various levels:
– Country exposure reporting – Exposure is reported against country limits established for emerging market countries. Exposures that exhibit wrong-way characteristics are given higher risk weighting versus non-correlated transactions, resulting in a greater amount of country limit usage for these trades.
– Counterparty exposure reporting – Transactions that contain wrong-way risk are risk-weighted as part of the daily exposure
30
calculation process, as defined in the credit analytics exposure methodology document. This ensures that correlated transactions utilize more credit limit.
– Correlated repurchase and foreign exchange reports – Monthly reports produced by CRM capturing correlated repurchase and foreign exchange transactions. This information is reviewed by relevant CRM credit officers.
– Scenario risk reporting – In order to identify areas of potential wrong-way risk within the portfolio, a set of defined scenarios are run monthly by RAR. The scenarios are determined by CRM and involve combining existing scenario drivers with specific industries to determine where portfolios are sensitive to these stressed parameters, e.g. construction companies / rising interest rates.
– Scenario analysis is also produced for hedge funds which are exposed to particular risk sensitivities and also may have collateral concentrations due to a specific direction and strategy.
– In addition, and where required, CRM may prepare periodic trade level scenario analysis, in order to review the risk drivers and directionality of the exposure to a counterparty.
The Front Office is responsible for identifying and escalating trades that could potentially give rise to wrong-way risk.
Any material wrong-way risk at portfolio or trade level should be escalated to senior CRM executives and risk committees.
Effect of a credit rating downgrade
On a daily basis, we monitor the level of incremental collateral that would be required by derivative counterparties in the event of a Credit Suisse ratings downgrade. Collateral triggers are maintained by our collateral management department and vary by counterparty.
> Refer to “Credit ratings” (page 42) in II – Treasury, risk, balance sheet and off-balance sheet – Liquidity and funding management in the Credit Suisse 2Q13 Financial Report for further information on the effect of a one, two or three notch downgrade as of June 30, 2013.
The impact of downgrades in the Bank’s long-term debt ratings are considered in the stress assumptions used to determine the conservative funding profile of our balance sheet and would not be material to our liquidity and funding needs.
> Refer to “Liquidity and funding management” (pages 96 to 101) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2012 for further information on liquidity and funding management.
Credit exposures on derivative instruments
We enter into derivative contracts in the normal course of business for market making, positioning and arbitrage purposes, as well as for our own risk management needs, including mitigation of interest rate, foreign currency and credit risk. Derivative exposure also includes economic hedges, where the Group enters into derivative contracts for its own risk management purposes but where the contracts do not qualify for hedge accounting under US GAAP. Derivative exposures are calculated according to regulatory methods, using either the current exposures method or approved internal models method. These regulatory methods take into account potential future movements and as a result generate risk exposures that are greater than the net replacement values disclosed for US GAAP.
As of the end of 6M13, no credit derivatives were utilized that qualify for hedge accounting under US GAAP.
> Refer to “Credit risk” (pages 135 to 146) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management for further information on derivative instruments, including counterparties and their creditworthiness.
> Refer to “Note 24 – Derivative and hedging activities” (pages 110 to 115) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on the fair value of derivative instruments.
> Refer to “Note 20 – Offsetting of financial assets and financial liabilities” (pages 102 to 106) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on netting benefits, netted current credit exposures, collateral held and net derivatives credit exposure.
| Derivative exposure at default after netting | |||||
| end of | 6M13 | 2012 | |||
| Derivative exposure at default (CHF million) | |||||
| Internal models method | 44,415 | 32,717 | |||
| Current exposure method | 9,929 | 21,227 | |||
| Total derivative exposure | 54,344 | 53,944 | |||
31
| Collateral used for risk mitigation | |||||
| end of | 6M13 | 2012 | |||
| Collateral used for risk mitigation for the internal models method (CHF million) | |||||
| Financial collateral - cash / securities | 35,381 | 36,896 | |||
| Other eligible IRB collateral | 707 | 794 | |||
| Total collateral used for the internal models method | 36,088 | 37,690 | |||
| Collateral used for risk mitigation for the current exposure method (CHF million) | |||||
| Financial collateral - cash / securities | 2,707 | 4,620 | |||
| Other eligible IRB collateral | 315 | 358 | |||
| Total collateral used for the current exposure method | 3,022 | 4,978 | |||
| Credit derivatives that create exposures to counterparty credit risk (notional value) | |||||||||
| 6M13 | 2012 | ||||||||
|
end of |
Protection bought |
Protection sold |
Protection bought |
Protection sold |
|||||
| Credit derivatives that create exposures to counterparty credit risk (CHF billion) | |||||||||
| Credit default swaps | 841.5 | 786.2 | 851.0 | 808.1 | |||||
| Total return swaps | 5.9 | 0.4 | 4.9 | 1.1 | |||||
| First-to-default swaps | 0.0 | 0.0 | 0.4 | 0.0 | |||||
| Other credit derivatives | 42.3 | 20.3 | 20.0 | 8.9 | |||||
| Total | 889.7 | 806.9 | 876.3 | 818.1 | |||||
Allowances and impaired loans
The following tables provide additional information on allowances and impaired loans by geographic distribution and changes in the allowances for impaired loans.
| Geographic distribution of allowances and impaired loans | |||||||||||||
|
end of |
Specific allowances |
Inherent credit loss allowances |
Total allowances |
Loans with specific allowances |
Loans with inherent credit loss allowances |
Total impaired loans |
|||||||
| 6M13 (CHF million) | |||||||||||||
| Switzerland | 557 | 186 | 743 | 1,309 | 61 | 1,370 | |||||||
| EMEA | 21 | 11 | 32 | 59 | 1 | 60 | |||||||
| Americas | 48 | 19 | 67 | 160 | 9 | 169 | |||||||
| Asia Pacific | 50 | 8 | 58 | 74 | 0 | 74 | |||||||
| Total | 676 | 224 | 900 | 1,602 | 71 | 1,673 | |||||||
| 2012 (CHF million) | |||||||||||||
| Switzerland | 581 | 187 | 768 | 1,252 | 116 | 1,368 | |||||||
| EMEA | 24 | 15 | 39 | 67 | 34 | 101 | |||||||
| Americas | 41 | 17 | 58 | 124 | 68 | 192 | |||||||
| Asia Pacific | 50 | 7 | 57 | 68 | 0 | 68 | |||||||
| Total | 696 | 226 | 922 | 1,511 | 218 | 1,729 | |||||||
|
The geographic distribution of impaired loans is based on the location of the office recording the transaction. This presentation does not reflect the way the Group is managed.
|
|||||||||||||
32
| Changes in the allowances for impaired loans | |||||||||||||
| 6M13 | 6M12 | ||||||||||||
|
in |
Specific allowances |
Inherent credit loss allowances |
Total |
Specific allowances |
Inherent credit loss allowances |
Total |
|||||||
| Changes in the allowances for impaired loans (CHF million) | |||||||||||||
| Balance at beginning of period | 696 | 226 | 922 | 650 | 260 | 910 | |||||||
| Net additions/(releases) charged to income statement | 72 | (3) | 69 | 65 | (14) | 51 | |||||||
| Gross write-offs | (153) | 0 | (153) | (87) | 0 | (87) | |||||||
| Recoveries | 36 | 0 | 36 | 31 | 0 | 31 | |||||||
| Net write-offs | (117) | 0 | (117) | (56) | 0 | (56) | |||||||
| Provisions for interest | 13 | 0 | 13 | 12 | 0 | 12 | |||||||
| Foreign currency translation impact and other adjustments, net | 12 | 1 | 13 | 11 | 0 | 11 | |||||||
| Balance at end of period | 676 | 224 | 900 | 682 | 246 | 928 | |||||||
> Refer to “Loans” in “Note 1 – Summary of significant accounting policies” (pages 236 to 238) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 for further information on definitions of past due and impaired loans.
> Refer to “Note 16 – Loans, allowance for loan losses and credit quality” (pages 89 to 97) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on allowances and impaired loans by industry distribution and the industry distribution of charges and write-offs.
33
The following disclosures, which also considers the “Industry good practice guidelines on Pillar 3 disclosure requirements for securitization”, refer to traditional and synthetic securitizations held in the banking book and regulatory capital on these exposures calculated according to the Basel III IRB and standardized approaches to securitization exposures.
> Refer to “Note 32 – Transfers of financial assets and variable interest entities” (pages 316 to 326) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 and “Note 26 – Transfers of financial assets and variable interest entities” (pages 121 to 126) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on securitization, the various roles, the use of SPEs, the involvement of the Group in consolidated and non-consolidated SPEs, the accounting policies for securitization activities and methods and key assumptions applied in valuing positions retained/purchased.
> Refer to “Securitization risk in the banking book” in section “Capital” on page 7 for further information.
A traditional securitization is a structure where an underlying pool of assets is sold to a special purpose entity (SPE) which in return issues tranched securities that are collateralized by, and which pay a return based on the return on, the underlying asset pool. A synthetic securitization is a tranched structure where the credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or guarantees that serve to hedge the credit risk of the portfolio. Many synthetic securitizations are not accounted for as securitizations under US GAAP. In both traditional and synthetic securitizations, risk is dependent on the seniority of the retained interest and the performance of the underlying asset pool.
The Group has both securitization and re-securitization transactions in the banking book referencing different types of underlying assets including real estate loans (commercial and residential), commercial loans and credit card loans. The key risks retained are related to the performance of the underlying assets. These risks are summarized in the securitization pool level attributes: PDs of underlying loans (default rate), severity of loss (LGD) and prepayment speeds. The transactions may also be exposed to general market risk, credit spread and counterparty credit risk.
The Group classifies securities within the transactions by the nature of the collateral (prime, sub-prime, Alt-A, commercial, etc.) and the seniority each security has in the capital structure (i.e. senior, mezzanine, subordinate etc.), which in turn will be reflected in the transaction rating. The Group’s internal risk methodology is designed such that risk charges are based on the place the particular security holds in the capital structure, the less senior the bond the higher the risk charges.
For re-securitization risk, the Group’s risk management models take a ‘look through’ approach where the behavior of the underlying securities or constituent counterparties are modeled based on their own particular collateral positions. These are then transmitted to the re-securitized position. No additional risk factors are considered within the re-securitization portfolios in addition to those identified and measured within securitization risk.
The Group is active in various roles in connection with securitization, including originator, investor and sponsor. As originator, the Group creates or purchases financial assets (e.g., residential mortgages or corporate loans) and then securitizes them in a traditional or synthetic transaction that achieves significant risk transfer to third party investors. The Group acts as liquidity provider to Alpine Securitization Corp. (Alpine), a multi-seller commercial paper conduit administered by Credit Suisse.
In addition, the Group invests in securitization-related products created by third parties and provides interest rate and currency swaps to SPEs involved in securitization activity.
Retained banking book exposures for mortgage, ABS and CDO transactions are risk managed on the same basis as similar trading book transactions. Other transactions will be managed in line with their individual structural or parameter requirements. The Group has also put in place a set of key risk limits for the purpose of managing the Group’s risk appetite framework in relation to securitizations and re-securitizations. The internal risk capital measurement is both consistent with securitization transactions and with similar structures in the trading book.
There are no instances where the Group has applied credit risk mitigation approaches to banking book securitization or re-securitization exposures.
In the normal course of business it is possible for the Group’s managed separate account portfolios and the Group’s controlled investment entities, such as mutual funds, fund of funds, private equity funds and other fund linked products to invest in the securities issued by other vehicles sponsored by the Group engaged in securitization and re-securitization activities. To address potential conflicts, standards governing investments in affiliated products and funds have been adopted.
34
| Securitization exposures purchased or retained – banking book | |||||||||||
| On-balance sheet | Off-balance sheet | ||||||||||
| end of | Traditional | Synthetic | Traditional | Synthetic | Total | ||||||
| 6M13 (CHF million) | |||||||||||
| Commercial mortgages | 876 | 0 | 0 | 0 | 876 | ||||||
| Residential mortgages | 2 | 0 | 0 | 0 | 2 | ||||||
| CDO/CLO | 3,541 | 26,918 | 0 | 0 | 30,459 | ||||||
| Other ABS | 700 | 1 | 12,935 | 0 | 13,636 | ||||||
| Total | 5,119 | 26,919 | 12,935 | 0 | 44,973 | ||||||
| 2012 (CHF million) | |||||||||||
| Commercial mortgages | 1,507 | 0 | 0 | 0 | 1,507 | ||||||
| Residential mortgages | 106 | 0 | 0 | 0 | 106 | ||||||
| CDO/CLO | 2,438 | 20,147 | 0 | 0 | 22,585 | ||||||
| Other ABS | 782 | 1 | 10,264 | 0 | 11,047 | ||||||
| Total | 4,833 | 20,148 | 10,264 | 0 | 35,245 | ||||||
| of which subject to capital requirements | 34,709 | ||||||||||
| of which subject to deductions | 536 | ||||||||||
All low rated securitizations previously deducted are now risk-weighted under Basel III.
Synthetic structures predominantly represent structures where the Group has mitigated its risk by selling the mezzanine tranche of a reference portfolio. Amounts disclosed, however, are the gross exposures securitized including retained senior notes.
The following table represents the total amounts of banking book loans securitized by the Group that fall within the Basel III Securitization Framework and where the Group continues to retain at least some interests. As of the end of June 30, 2013 and December 31, 2012, the Group’s economic interests in these securitizations were CHF 41.0 billion and CHF 32.2 billion, respectively.
| Exposures securitized by Credit Suisse Group in which the Group has retained interests – banking book | |||||||||||||||||
| 6M13 | 2012 | ||||||||||||||||
| Traditional | Synthetic | Traditional | Synthetic | ||||||||||||||
| end of | Sponsor | Other role | Other role | Total | Sponsor | Other role | Other role | Total | |||||||||
| CHF million | |||||||||||||||||
| Commercial mortgages | 0 | 3,753 | 0 | 3,753 | 0 | 4,096 | 0 | 4,096 | |||||||||
| Residential mortgages | 0 | 0 | 0 | 0 | 0 | 379 | 0 | 379 | |||||||||
| CDO/CLO | 0 | 389 | 30,207 | 30,596 | 0 | 423 | 23,524 | 23,947 | |||||||||
| Other ABS | 12,935 | 1,047 | 13,982 | 10,264 | 845 | 0 | 11,109 | ||||||||||
| Total | 12,935 | 5,189 | 30,207 | 48,331 | 10,264 | 5,743 | 23,524 | 39,531 | |||||||||
| of which retained interests | 41,001 | 32,200 | |||||||||||||||
35
| Losses related to securitizations recognized during the period – banking book | |||||||||
| Traditional | Synthetic | ||||||||
| in | Sponsor | Other role | Other role | Total | |||||
| 6M13 (CHF million) | |||||||||
| Commercial mortgages | 0 | 4 | 0 | 4 | |||||
| CDO/CLO | 0 | 0 | 12 | 12 | |||||
| Total | 0 | 4 | 12 | 16 | |||||
| 2012 (CHF million) | |||||||||
| Commercial mortgages | 0 | 68 | 0 | 68 | |||||
| CDO/CLO | 0 | 0 | 22 | 22 | |||||
| Total | 0 | 68 | 22 | 90 | |||||
| Impaired or past due assets securitized – banking book | |||||||||||||||||
| 6M13 | 2012 | ||||||||||||||||
| Traditional | Synthetic | Traditional | Synthetic | ||||||||||||||
| end of | Sponsor | Other role | Other role | Total | Sponsor | Other role | Other role | Total | |||||||||
| CHF million | |||||||||||||||||
| Commercial mortgages | 0 | 3,505 | 0 | 3,505 | 0 | 3,809 | 0 | 3,809 | |||||||||
| Residential mortgages | 0 | 0 | 0 | 0 | 0 | 21 | 0 | 21 | |||||||||
| CDO/CLO | 0 | 0 | 1,026 | 1,026 | 0 | 0 | 1,342 | 1,342 | |||||||||
| Other ABS | 0 | 0 | 0 | 0 | 75 | 0 | 0 | 75 | |||||||||
| Total | 0 | 3,505 | 1,026 | 4,531 | 75 | 3,830 | 1,342 | 5,247 | |||||||||
| Securitization and re-securitization exposures by regulatory capital approach – banking book | |||||||||||||
| Securitization exposure | Re-securitization exposure | Total | |||||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 | ||||
| 6M13 (CHF million) | |||||||||||||
| Ratings-based approach (RBA) | 6,404 | 2,189 | 8,664 | 3,726 | 15,068 | 5,915 | |||||||
| Supervisory formula approach (SFA) | 28,374 | 6,777 | 1,531 | 1,617 | 29,905 | 8,394 | |||||||
| Total advanced approaches | 34,778 | 8,966 | 10,195 | 5,343 | 44,973 | 14,309 | |||||||
| Total | 34,778 | 8,966 | 10,195 | 5,343 | 44,973 | 14,309 | |||||||
| 2012 (CHF million) | |||||||||||||
| Ratings-based approach (RBA) | 4,353 | 512 | 10,511 | 3,278 | 14,864 | 3,790 | |||||||
| Supervisory formula approach (SFA) | 17,663 | 1,549 | 2,076 | 1,569 | 19,739 | 3,118 | |||||||
| Total advanced approaches | 22,016 | 2,061 | 12,587 | 4,847 | 34,603 | 6,908 | |||||||
| Standardized approach 2 | 106 | 53 | 0 | 0 | 106 | 53 | |||||||
| Total | 22,122 | 2,114 | 12,587 | 4,847 | 34,709 | 6,961 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
|
2
Positions under the standardized approach are risk weighted at 50%.
|
|||||||||||||
36
| Securitization and re-securitization exposures under RBA by rating grade – banking book | |||||||||||||
| Securitization exposure | Re-securitization exposure | Total | |||||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 | ||||
| 6M13 (CHF million) | |||||||||||||
| AAA | 2,841 | 211 | 7,825 | 2,587 | 10,666 | 2,798 | |||||||
| AA | 1,123 | 111 | 57 | 41 | 1,180 | 152 | |||||||
| A | 2,172 | 300 | 665 | 128 | 2,837 | 428 | |||||||
| BBB | 110 | 66 | 41 | 133 | 151 | 199 | |||||||
| BB | 54 | 202 | 20 | 133 | 74 | 335 | |||||||
| B or lower or unrated | 104 | 1,299 | 56 | 704 | 160 | 2,003 | |||||||
| Total | 6,404 | 2,189 | 8,664 | 3,726 | 15,068 | 5,915 | |||||||
| 2012 (CHF million) | |||||||||||||
| AAA | 3,439 | 255 | 9,488 | 2,703 | 12,927 | 2,958 | |||||||
| AA | 412 | 35 | 713 | 101 | 1,125 | 136 | |||||||
| A | 377 | 43 | 153 | 59 | 530 | 102 | |||||||
| BBB | 92 | 56 | 96 | 201 | 188 | 257 | |||||||
| BB | 33 | 123 | 61 | 214 | 94 | 337 | |||||||
| Total | 4,353 | 512 | 10,511 | 3,278 | 14,864 | 3,790 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
| Securitization and re-securitization exposures under SFA by risk weight band – banking book | |||||||||||||
| Securitization exposure | Re-securitization exposure | Total | |||||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 | ||||
| 6M13 (CHF million) | |||||||||||||
| 0%-10% | 26,185 | 1,816 | 0 | 0 | 26,185 | 1,816 | |||||||
| >10%-50% | 1,491 | 315 | 831 | 159 | 2,322 | 474 | |||||||
| >50%-100% | 114 | 87 | 309 | 250 | 423 | 337 | |||||||
| >100%-650% | 72 | 197 | 327 | 597 | 399 | 794 | |||||||
| >650%-1250% | 512 | 4,362 | 64 | 611 | 576 | 4,973 | |||||||
| Total | 28,374 | 6,777 | 1,531 | 1,617 | 29,905 | 8,394 | |||||||
| 2012 (CHF million) | |||||||||||||
| 0%-10% | 17,160 | 1,201 | 776 | 129 | 17,936 | 1,330 | |||||||
| >10%-50% | 153 | 18 | 1 | 0 | 154 | 18 | |||||||
| >50%-100% | 199 | 133 | 967 | 835 | 1,166 | 968 | |||||||
| >100%-650% | 39 | 168 | 238 | 371 | 277 | 539 | |||||||
| >650%-1250% | 112 | 29 | 94 | 234 | 206 | 263 | |||||||
| Total | 17,663 | 1,549 | 2,076 | 1,569 | 19,739 | 3,118 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
37
| Deductions from eligible capital related to securitization and re-securitization exposures – banking book | |||||||
| 2012 | |||||||
|
end of |
Credit enhancing interest only strips |
Other exposures |
Total |
||||
| CHF million | |||||||
| CDO/CLO | 0 | 418 | 418 | ||||
| Other ABS | 0 | 118 | 118 | ||||
| Total | 0 | 536 | 536 | ||||
All low rated securitizations previously deducted are now risk-weighted under Basel III.
Securitization activity
The Group securitized a synthetic collateralized loan portfolio of CHF 5.4 billion as replacement for the maturing Clock Finance transaction that referenced originated loans within Corporate & Institutional Clients. Other ABS activity related to liquidity facilities extended to third party asset backed securitizations.
The following table represents new securitization activity during the period.
| Securitization activity – banking book | |||||||||
| 6M13 | 6M12 | ||||||||
|
in |
Amount of exposures securitized |
Recognized gain/(loss) on sale |
Amount of exposures securitized |
Recognized gain/(loss) on sale |
|||||
| CHF million | |||||||||
| CDO/CLO - traditional | 0 | 0 | 264 | 0 | |||||
| CDO/CLO - synthetic | 5,385 | 0 | 15,160 | 0 | |||||
| Other ABS - traditional | 3,477 | 0 | 385 | 6 | |||||
| Total | 8,862 | 0 | 15,809 | 6 | |||||
Securitization subject to early amortization
The aggregate outstanding amount of securitized revolving retail exposures is CHF 835 million, of which CHF 251 million represents the originator’s interest and CHF 584 million (categorized as other ABS) the investor’s interest. The associated capital charges incurred by the Group under the standardized approach are CHF 4.7 million and CHF 7.9 million, respectively.
38
Overview
The classification of our equity type securities into trading book and banking book is made for regulatory reporting purposes. The banking book includes all items that are not classified in the trading book.
Most of our equity type securities in the banking book are classified as investment securities whereas the remaining part is classified as trading assets.
For equity type securities in the banking book except for significant investments in BFI entities that are subject to a threshold treatment as outlined in “Exposures below 15% threshold” in section “Capital” on page 8, risk weights are determined using the IRB Simple approach based on the equity sub-asset type. Where equity type securities represent non-significant investments in BFI entities, a threshold approach is applied, that compares the total amount of non-significant investments in BFI entities (considering both trading and banking book positions) to a 10% regulatory defined eligible capital amount. The amount above the threshold is phased-in as a capital deduction and the amount below the threshold continues to be risk-weighted according to the relevant trading book and banking book approaches.
The numbers below present the balance sheet value of banking book equity investments and the regulatory exposures to which capital is applied. The main differences are the scope of consolidation (deconsolidation of private equity investments for capital adequacy purposes as we do not have a significant economic interest) and regulatory approaches such as the net-long calculation and the look-through approach on certain equity securities.
Risk measurement and management
Our banking book equity portfolio includes positions in hedge funds, private equity and other instruments that may not be strongly correlated with general equity markets. Equity risk on banking book positions is measured using sensitivity analysis that estimates the potential change in value resulting from a 10% decline in the equity markets of developed nations and a 20% decline in the equity markets of emerging market nations.
> Refer to “Market risk” (pages 128 to 134) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 for further information on risk measurement and management of our banking portfolios.
Valuation and accounting policies of equity holdings in the banking book
> Refer to “Note 1 – Summary of significant accounting policies” (pages 234 to 236) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 for information on valuation and accounting policies of investment securities and trading assets.
| Equity type securities in the banking book | |||||
| end of / in | 6M13 | 2012 | |||
| Equity type securities in the banking book (CHF million) | |||||
| Balance sheet value of investments at fair value | 10,044 | 10,350 | |||
| Regulatory exposures 1 | 4,103 | 3,770 | |||
| Fair value of regulatory exposures | 4,118 | 3,783 | |||
| Realized gains/(losses) 2 | (162) | 259 | |||
| Cumulative unrealized gains/(losses) 2 | (499) | (662) | |||
| Cumulative unrealized gains/(losses) included in tier 1 capital 2 | (514) | (675) | |||
|
1
Primarily privately held.
|
|||||
|
2
Gains/(losses) are reported gross of tax.
|
|||||
We actively manage our net CVA risk in accordance with the regulatory rules for eligible hedges.
The Group can incur exposure to central counterparties (CCPs) as either a clearing member (house or client trades), or clearing through another member. Qualifying CCPs are expected to be subject to best-practice risk management, and sound regulation and oversight to ensure that they reduce risk, both for their participants and for the financial system. Most CCPs are benchmarked against standards issued by the Committee on Payment and
39
Settlement Systems and the Technical Committee of the International Organization of Securities Commissions, herein collectively referred to as “CPSS-IOSCO”.
The existing credit review process includes annual review of qualitative and quantitative factors for all counterparty types, including CCPs. As part of the credit review of each CCP counterparty, CRM conducts due diligence and based on assessment by the Legal and Compliance Department determines whether (i) the CCP is a qualifying CCP and (ii) the collateral posted is considered bankruptcy remote.
The CRM CCP Guidelines provide detailed guidance on how these flags should be assigned against the standards issued by “CPSS-IOSCO”. These include a review of collateral bankruptcy remoteness and that the CCPs holds securities in custody with entities that employ safekeeping procedures and internal controls that fully protect these securities. The review will include analysis of the CCPs policies with respect to account segregation and use of custodians. The determination is made in the context of “Authorization of CCP” (European Market Infrastructure Regulation (EMIR), Article 10) and “Third Countries” (EMIR, Article 23). This information will be appropriately reflected in the risk weightings within the capital calculations.
The Group monitors its daily exposure to the CCP as part of its ongoing limit and exposure monitoring process.
40
Market risk is managed under the IMA approach and under the approved securitization methodologies.
The following table shows risk-weighted assets for all market risk measures including the standardized approach.
> Refer to “Market risk” (pages 128 to 134) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2012 and “Market risk” (pages 55 to 58) in II – Treasury, risk, balance sheet and off-balance sheet – Risk management in the Credit Suisse 2Q13 Financial Report for further information on market risk, including information on risk measurement and VaR.
| Risk-weighted assets for market risk | |||||
| Basel III | Basel II.5 | ||||
| end of | 6M13 | 2012 | |||
| Risk-weighted assets for market risk (CHF million) | |||||
| Total internal models approach | 28,870 | 25,464 | |||
| of which regulatory VaR | 3,205 | 3,691 | |||
| of which stressed VaR | 13,701 | 13,079 | |||
| of which risks not in VaR | 6,181 | 2,731 | |||
| of which incremental risk capital charge | 5,676 | 5,813 | |||
| of which Comprehensive Risk Measure | 107 | 150 | |||
| Total standardized measurement method | 13,673 | 3,546 | |||
| of which ratings-based approach | 13,336 | 3,247 | |||
| of which supervisory formula approach | 0 | 0 | |||
| of which other supervisory approaches | 337 | 299 | |||
| Total advanced approach | 42,543 | 29,010 | |||
| Total standardized approach | 444 | 356 | |||
| Total risk-weighted assets for market risk | 42,987 | 29,366 | |||
| Regulatory VaR, stressed VaR, incremental risk capital charge and Comprehensive Risk Measure | |||||||||
|
in / end of |
Regulatory VaR |
1 |
Stressed VaR |
1 |
IRC |
2 |
Compre- hensive Risk Measure |
3 | |
| 6M13 (CHF million) | |||||||||
| Average | 30 | 120 | 144 | 6 | |||||
| Minimum | 21 | 76 | 92 | 4 | |||||
| Maximum | 58 | 226 | 175 | 9 | |||||
| End of period | 24 | 99 | 92 | 9 | |||||
| 2012 (CHF million) | |||||||||
| Average | 43 | 135 | 145 | 25 | |||||
| Minimum | 22 | 57 | 77 | 8 | |||||
| Maximum | 69 | 248 | 268 | 73 | |||||
| End of period | 37 | 128 | 93 | 9 | |||||
|
Regulatory VaR, stressed VaR and IRC exclude trading book securitizations, in line with BIS guidance.
|
|||||||||
|
1
For regulatory and stressed VaR, one-day VaR based on a 99% confidence level is presented, which is a ten-day VaR adjusted to a one-day holding period.
|
|||||||||
|
2
Based on daily calculations.
|
|||||||||
|
3
Comprehensive Risk Measure numbers are model-based covering the period from implementation in July 2012. These numbers may not necessarily be aligned with the risk-weighted assets reported in the table "Risk-weighted assets for market risk" as for the calculation of risk-weighted assets the standard rules floor is applied.
|
|||||||||
41
The following disclosures on trading book securitization exposures were adopted prospectively as of January 1, 2011 in connection with the implementation of Basel II.5.
> Refer to “Note 32 – Transfers of financial assets and variable interest entities” (pages 316 to 326) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 and “Note 26 – Transfers of financial assets and variable interest entities” (pages 121 to 126) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on securitization, the various roles, the use of SPEs, the involvement of the Group in consolidated and non-consolidated SPEs, the accounting policies for securitization activities, methods and key assumptions applied in valuing positions retained/purchased and gains/losses relating to RMBS and CMBS securitization activity in 6M13.
> Refer to “Market risk” in section “Capital” on pages 8 to 9 for further information.
Roles in connection with trading book securitization
Within its mortgage business there are four key roles that the Group undertakes within securitization markets: issuer, underwriter, market maker and financing counterparty and the Group is actively involved in all four activities. The Group holds one of the top trading franchises in market making in all major securitized product types and are a top issuer and underwriter in the re-securitization market in the US as well as being one of the top underwriters in ABS securitization in the US. In addition the Group also has a relatively small correlation trading portfolio.
Securitization and re-securitization activities
The Group’s key objective in relation to trading book securitization is to meet clients’ investment and divestment needs by making markets in securitized products across all major collateral types, including residential mortgages, commercial mortgages, asset finance (i.e. auto loans, credit card receivables, etc.) and corporate loans. The Group focuses on opportunities to intermediate transfers of risk between sellers and buyers.
The Group is also active in new issue securitization and re-securitization. The Group’s Asset Finance team provides short-term secured warehouse financing to clients who originate credit card, auto loan, and other receivables, and the Group sells asset-backed securities collateralized by these receivables to provide its clients long-term financing that matches the lives of their assets.
The Group purchases loans and bonds for the purpose of securitization and sells these assets to sponsored SPEs which in turn issue new securities. Re-securitizations of previously issued RMBS securities occur when certificates issued out of an existing securitization vehicle are sold into a newly created and separate securitization vehicle. Often, these re-securitizations are initiated in order to repackage an existing security to give the investor a higher rated tranche.
Risks assumed and retained
Key risks retained while securities or loans remain in inventory are related to the performance of the underlying assets (real estate loans, commercial loans, credit card loans, etc.). These risks are summarized in the securitization pool level attributes: PD of underlying loans (default rate), the severity of loss and prepayment speeds. The Group maintains models for both government-guaranteed and private label products. These models project the above risk drivers based on market interest rates and volatility as well as macro-economic variables such as housing price index, projected GDP and inflation, unemployment etc.
In its role as a market maker, the Group actively trades in and out of positions. Both Front Office and Risk Management continuously monitor liquidity risk as reflected in trading spreads and trading volumes. To address liquidity concerns a specific set of limits on the size of aged positions are in place for the securitized positions we hold.
The Group classifies securities by the nature of the collateral (prime, sub-prime, Alt-A, commercial, etc.) and the seniority each security has in the capital structure (i.e. seniors, mezzanine, subordinate etc.), which in turn will be reflected in the transaction risk assessment. Risk Management monitors portfolio composition by capital structure and collateral type on a daily basis with subordinate exposure and each collateral type subject to separate risk limits. In addition, the internal risk methodology is designed such that risk charges are based on the place the particular security holds in the capital structure, the less senior the bond the higher the risk charges.
For re-securitization risk, the Group’s risk management models take a ‘look through’ approach where they model the behavior of the underlying securities based on their own collateral and then transmit that to the re-securitized position. No additional risk factors are considered within the re-securitization portfolios in addition to those identified and measured within securitization risk.
With respect to both the wind-down corporate correlation trading portfolio and the on-going transactions the key risks that need to be managed includes default risk, counterparty credit risk, correlation risk and cross effects between spread and correlation. The impacts of liquidity risk for securitization products is embedded within the firm’s historical simulation model through the incorporation of market data from stressed periods, and in the scenario framework through the calibration of price shocks to the same period.
Both correlation and first-to-default are valued using a correlation model which uses the market implied correlation and detailed market data such as constituent spread term structure
42
and constituent recovery. The risks embedded in securitization and re-securitizations are similar and include spread risk, recovery risk, default risk and correlation risk. The risks for different seniority of tranches will be reflected in the tranche price sensitivities to each constituent in the pools. The complexity of the correlation portfolio’s risk lies in the level of convexity and cross risk inherent, for example, the risks to large spread moves and the risks to spread and correlation moving together. The risk limit framework is carefully designed to address the key risks for the correlation trading portfolio.
Monitoring of changes in credit and market risk of securitization exposures
The Group has in place a comprehensive risk management process whereby the front office and Risk Management work together to monitor positions and position changes, portfolio structure and trading activity and calculate a set of risk measures on a daily basis using risk sensitivities and loss modeling methodologies.
For the mortgage business the Group also uses monthly remittance reports (available from public sources) to get up to date information on collateral performance (delinquencies, defaults, pre-payment etc.).
The Group has implemented a Comprehensive Risk Measure model for its corporate correlation and first-to-default trading positions which incorporates a number of risk factors including hazard rate, default, migration and recovery rates, and correlation measures.
The Group has also put in place a set of limits for the purpose of managing the Group’s risk appetite framework in relation to securitizations and re-securitizations. These limits will cover exposure measures, risk sensitivities, VaR and capital measures with the majority monitored on a daily basis. In addition within the Group’s risk management framework an extensive scenario analysis framework is in place whereby all underlying risk factors are stressed to determine portfolio sensitivity.
Re-securitized products in the mortgage business go through the same risk management process but looking through the structures with the focus on the risk of the underlying securities or constituent names.
Risk mitigation
In addition to the strict exposure limits noted above, the Group uses a number of different risk mitigation approaches to manage risk appetite for its securitization and re-securitization exposures. Where true counterparty credit risk exposure is identified for a particular transaction, there is a requirement for it to be approved through normal credit risk management processes with collateral taken as required. The Group also may use various proxies including corporate single name and index hedges to mitigate the price and spread risks to which it is exposed. Hedging decisions are made by the trading desk based on current market conditions and will be made in consultation with Risk Management, requiring approval under the Group’s pre-trade approval governance process. International investment banks are the main counterparties to the hedges that are used across these business areas.
In the normal course of business, we may hold tranches which have a monoline guarantee. No benefit from these guarantees is currently included in the calculation of regulatory capital. In addition we have purchased AA rated counterparty protection on USD 395 million of re-securitization exposures.
Affiliated entities
Funds affiliated with the Group may invest in securities issued by other vehicles sponsored by the Group that are engaged in securitization and re-securitization activities. These funds include mutual funds, fund of funds and private equity funds. Standards governing investments in affiliated funds and products have been adopted to address potential conflicts.
43
| Securitization exposures purchased or retained – trading book | |||||||||||||
| On-balance sheet | Off-balance sheet | ||||||||||||
| Traditional | Synthetic | Synthetic | |||||||||||
| end of | Long | Short | Long | Short | Long | Short | |||||||
| 6M13 (CHF million) | |||||||||||||
| CMBS | 2,425 | 756 | 0 | 0 | 393 | 293 | |||||||
| RMBS | 6,063 | 59 | 0 | 0 | 71 | 179 | |||||||
| CDO/CLO | 1,436 | 0 | 0 | 0 | 11 | 172 | |||||||
| Nth-to-default | 0 | 0 | 0 | 0 | 96 | 1,287 | |||||||
| Other ABS | 728 | 0 | 516 | 0 | 0 | 0 | |||||||
| Total | 10,652 | 815 | 516 | 0 | 571 | 1,931 | |||||||
| 2012 (CHF million) | |||||||||||||
| CMBS | 2,344 | 333 | 0 | 0 | 620 | 421 | |||||||
| RMBS | 5,379 | 58 | 0 | 0 | 38 | 192 | |||||||
| CDO/CLO | 1,356 | 0 | 0 | 0 | 19 | 166 | |||||||
| Nth-to-default | 0 | 0 | 0 | 0 | 53 | 949 | |||||||
| Other ABS | 736 | 0 | 713 | 0 | 8 | 0 | |||||||
| Total | 9,815 | 391 | 713 | 0 | 738 | 1,728 | |||||||
| Outstanding exposures securitized by the Group - trading book | |||||||||||
| Traditional | Synthetic | Total | |||||||||
| end of | Sponsor | 1 | Originator | 1 | Sponsor | 1 | Originator | 1 | |||
| 6M13 (CHF million) | |||||||||||
| CMBS | 8,177 | 18,877 | 0 | 0 | 27,054 | ||||||
| RMBS | 2,851 | 71,024 | 0 | 0 | 73,875 | ||||||
| Other ABS | 0 | 0 | 0 | 0 | 0 | ||||||
| Total | 11,028 | 89,901 | 0 | 0 | 100,929 | ||||||
| 2012 (CHF million) | |||||||||||
| CMBS | 8,064 | 10,512 | 0 | 0 | 18,576 | ||||||
| RMBS | 2,877 | 70,941 | 0 | 0 | 73,818 | ||||||
| Other ABS | 0 | 133 | 0 | 0 | 133 | ||||||
| Total | 10,941 | 81,586 | 0 | 0 | 92,527 | ||||||
|
Amounts disclosed from January 1, 2010 onwards following the publication of the Pillar 3 requirements in 2009.
|
|||||||||||
|
1
Where the Group is both the sponsor and sole originator, amount will only be shown under originator. Originator is defined as the entity that transfers collateral into an SPE, including third party collateral transferred into the SPE via the entity's balance sheet.
|
|||||||||||
44
| Outstanding exposures securitized in which the Group has retained interests - trading book | |||||||
| Exposures securitized | Total | ||||||
| end of | Traditional | Synthetic | |||||
| 6M13 (CHF million) | |||||||
| CMBS | 46,863 | 850 | 47,713 | ||||
| RMBS | 72,752 | 229 | 72,981 | ||||
| CDO/CLO | 17,129 | 125 | 17,254 | ||||
| Other ABS | 2,681 | 0 | 2,681 | ||||
| Total | 139,425 | 1,204 | 140,629 | ||||
| 2012 (CHF million) | |||||||
| CMBS | 46,884 | 919 | 47,803 | ||||
| RMBS | 59,253 | 216 | 59,469 | ||||
| CDO/CLO | 12,235 | 0 | 12,235 | ||||
| Other ABS | 27 | 0 | 27 | ||||
| Total | 118,399 | 1,135 | 119,534 | ||||
| of which subject to capital requirements (refer to table "Exposures under standardized measurement method - trading book") | 11,360 | ||||||
| of which subject to deductions (refer to table "Deductions from eligible capital related to securitization exposures - trading book") | 808 | ||||||
All low rated securitizations previously deducted are now risk-weighted under Basel III.
| Securitization exposures under the Comprehensive Risk Measure | |||||||||
| On-balance sheet | Off-balance sheet | ||||||||
|
EAD purchased/ retained (long positions) |
EAD (short positions) |
EAD purchased/ retained (long positions) |
EAD (short positions) |
||||||
| 6M13 (CHF million) | |||||||||
| Securitization positions | 0 | 14 | 31 | 1,064 | |||||
| 2012 (CHF million) | |||||||||
| Securitization positions | 0 | 16 | 31 | 1,751 | |||||
| Risk-weighted assets for securitization risk under the Comprehensive Risk Measure | |||||
| Basel III | Basel II.5 | ||||
| end of | 6M13 | 2012 | |||
| CHF million | |||||
| Default risk | 91 | 41 | |||
| Migration risk | 40 | 69 | |||
| Correlation risk | (24) | (8) | |||
| Total Comprehensive Risk Measure 1 | 107 | 102 | |||
| Regulatory risk-weighted assets 2 | 107 | 150 | |||
|
1
Reflects the spot Comprehensive Risk Measure as of the end of the period. In order to show a representative breakdown, default, migration and correlation risk are calculated as the average of the top 1% loss scenarios over the last three weeks.
|
|||||
|
2
Reflects the twelve week average of the Comprehensive Risk Measure. For regulatory purposes, the higher of the spot Comprehensive Risk Measure, the twelve week average of the Comprehensive Risk Measure and spot standard floor is used.
|
|||||
45
| Exposures under standardized measurement method – trading book | |||||||||||||
| Securitization exposure | Re-securitization exposure | Total | |||||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 | ||||
| 6M13 (CHF million) | |||||||||||||
| Ratings-based approach (RBA) | |||||||||||||
| CMBS | 2,635 | 2,245 | 183 | 256 | 2,818 | 2,501 | |||||||
| RMBS | 5,781 | 2,135 | 292 | 214 | 6,073 | 2,349 | |||||||
| CDO/CLO | 669 | 769 | 778 | 1,086 | 1,447 | 1,855 | |||||||
| Other ABS | 628 | 240 | 616 | 6,391 | 1,244 | 6,631 | |||||||
| Total RBA | 9,713 | 5,389 | 1,869 | 7,947 | 11,582 | 13,336 | |||||||
| Supervisory formula approach (SFA) | |||||||||||||
| CDO/CLO | 0 | 0 | 0 | 0 | 0 | 0 | |||||||
| Total SFA | 0 | 0 | 0 | 0 | 0 | 0 | |||||||
| Other supervisory approaches | |||||||||||||
| Nth-to-default | 1,287 | 286 | 0 | 0 | 1,287 | 286 | |||||||
| RMBS 2 | 62 | 51 | 0 | 0 | 62 | 51 | |||||||
| Total other supervisory approaches | 1,349 | 337 | 0 | 0 | 1,349 | 337 | |||||||
| Total | 11,062 | 5,726 | 1,869 | 7,947 | 12,931 | 13,673 | |||||||
| 2012 (CHF million) | |||||||||||||
| Ratings-based approach (RBA) | |||||||||||||
| CMBS | 2,767 | 1,286 | 155 | 86 | 2,922 | 1,372 | |||||||
| RMBS | 5,135 | 805 | 207 | 50 | 5,342 | 855 | |||||||
| CDO/CLO | 431 | 177 | 905 | 641 | 1,336 | 818 | |||||||
| Other ABS | 689 | 186 | 55 | 16 | 744 | 202 | |||||||
| Total RBA | 9,022 | 2,454 | 1,322 | 793 | 10,344 | 3,247 | |||||||
| Supervisory formula approach (SFA) | |||||||||||||
| CDO/CLO | 6 | 0 | 0 | 0 | 6 | 0 | |||||||
| Total SFA | 6 | 0 | 0 | 0 | 6 | 0 | |||||||
| Other supervisory approaches | |||||||||||||
| Nth-to-default | 949 | 247 | 0 | 0 | 949 | 247 | |||||||
| RMBS 2 | 61 | 52 | 0 | 0 | 61 | 52 | |||||||
| Total other supervisory approaches | 1,010 | 299 | 0 | 0 | 1,010 | 299 | |||||||
| Total | 10,038 | 2,753 | 1,322 | 793 | 11,360 | 3,546 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
|
2
The weighted average approach is applied to these positions.
|
|||||||||||||
46
| Securitization and re-securitization exposures under RBA by rating grade – trading book | |||||||||||||
| Securitization exposure | Re-securitization exposure | Total | |||||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 |
EAD purchased/ retained |
Risk- weighted assets |
1 | ||||
| 6M13 (CHF million) | |||||||||||||
| AAA | 6,654 | 534 | 374 | 75 | 7,028 | 609 | |||||||
| AA | 614 | 71 | 502 | 140 | 1,116 | 211 | |||||||
| A | 755 | 163 | 130 | 73 | 885 | 236 | |||||||
| BBB | 1,080 | 777 | 239 | 498 | 1,319 | 1,275 | |||||||
| BB | 379 | 1,494 | 88 | 501 | 467 | 1,995 | |||||||
| B+ or lower | 231 | 2,350 | 536 | 6,660 | 767 | 9,010 | |||||||
| Total | 9,713 | 5,389 | 1,869 | 7,947 | 11,582 | 13,336 | |||||||
| 2012 (CHF million) | |||||||||||||
| AAA | 7,153 | 566 | 563 | 145 | 7,716 | 711 | |||||||
| AA | 495 | 60 | 535 | 167 | 1,030 | 227 | |||||||
| A | 334 | 76 | 114 | 90 | 448 | 166 | |||||||
| BBB | 657 | 491 | 62 | 130 | 719 | 621 | |||||||
| BB | 383 | 1,261 | 48 | 261 | 431 | 1,522 | |||||||
| Total | 9,022 | 2,454 | 1,322 | 793 | 10,344 | 3,247 | |||||||
|
1
6M13 risk-weighted assets are based on Basel III whereas 2012 risk-weighted assets are based on Basel II.5.
|
|||||||||||||
| Securitization exposures under SFA by risk weight band – trading book | |||||||||
| 6M13 | 2012 | ||||||||
| Securitization exposure | Securitization exposure | ||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets (Basel III) |
EAD purchased/ retained |
Risk- weighted assets (Basel II.5) |
|||||
| CHF million | |||||||||
| 0%-10% | 0 | 0 | 1 | 0 | |||||
| >10%-50% | 0 | 0 | 5 | 0 | |||||
| >50%-100% | 0 | 0 | 0 | 0 | |||||
| >100%-650% | 0 | 0 | 0 | 0 | |||||
| >650%-1250% | 0 | 0 | 0 | 0 | |||||
| Total | 0 | 0 | 6 | 0 | |||||
47
| Exposures under other supervisory approaches by risk weight band – trading book | |||||||||
| 6M13 | 2012 | ||||||||
| Securitization exposure | Securitization exposure | ||||||||
|
end of |
EAD purchased/ retained |
Risk- weighted assets (Basel III) |
EAD purchased/ retained |
Risk- weighted assets (Basel II.5) |
|||||
| CHF million | |||||||||
| 0%-100% | 1,335 | 310 | 929 | 266 | |||||
| >100%-200% | 0 | 0 | 41 | 4 | |||||
| >200%-300% | 9 | 24 | 36 | 26 | |||||
| >300%-400% | 5 | 3 | 4 | 3 | |||||
| Total | 1,349 | 337 | 1,010 | 299 | |||||
|
Risk weight bands represent the risk weight percentage relevant to the position prior to the application of 80% and partial offsets and capping of shorts to the maximum loss.
|
|||||||||
| Deductions from eligible capital related to securitization exposures – trading book | |||||||
| 2012 | |||||||
|
end of |
Credit enhancing interest only strips |
Other exposures |
Total |
||||
| CHF million | |||||||
| CMBS | 0 | 367 | 367 | ||||
| RMBS | 0 | 57 | 57 | ||||
| CDO/CLO | 0 | 375 | 375 | ||||
| Other ABS | 0 | 9 | 9 | ||||
| Total | 0 | 808 | 808 | ||||
All low rated securitizations previously deducted are now risk-weighted under Basel III.
| Securitization activity – trading book | |||||||||
| 6M13 | 6M12 | ||||||||
|
in |
Original amount of exposures securitized |
Recognized gain/(loss) on sale |
Original amount of exposures securitized |
Recognized gain/(loss) on sale |
|||||
| CHF million | |||||||||
| CMBS - traditional | 8,237 | 1 | 5,165 | 23 | |||||
| RMBS - traditional | 10,241 | 2 | 11,761 | (2) | |||||
| Other ABS - traditional | 0 | 0 | 0 | 0 | |||||
| Total | 18,478 | 3 | 16,926 | 21 | |||||
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Other information
As of June 30, 2013 the Group intends to securitize the following positions: agency CMBS in value of USD 4.5 billion, agency RMBS in value of USD 4.8 billion and residential whole loans in value of USD 1.2 billion. There is no difference in the valuation of positions intended to be securitized.
The Basel capital adequacy framework and FINMA circular 2008/20 provide guidance for systems and controls, valuation methodologies and valuation adjustments and reserves to provide prudent and reliable valuation estimates.
Financial instruments in the trading book are carried at fair value. The fair value of the majority of these financial instruments is marked to market based on quoted prices in active markets or observable inputs. Additionally, the Group holds financial instruments which are marked to models where the determination of fair values requires subjective assessment and varying degrees of judgment depending on liquidity, concentration, pricing assumptions and the risks affecting the specific instrument.
Control processes are applied to ensure that the reported fair values of the financial instruments, including those derived from pricing models, are appropriate and determined on a reasonable basis. These control processes include approval of new instruments, timely review of profit and loss, risk monitoring, price verification procedures and validation of models used to estimate the fair value. These functions are managed by senior management and personnel with relevant expertise, independent of the trading and investment functions.
In particular, the price verification function is performed by Product Control, independent from the trading and investment functions, reporting directly to the Chief Financial Officer, a member of the Executive Board.
The valuation process is governed by separate policies and procedures. To arrive at fair values, the following type of valuation adjustments are typically considered and regularly assessed for appropriateness: model, parameter, credit and exit-risk-related adjustments.
Management believes it complies with the relevant valuation guidance and that the estimates and assumptions used in valuation of financial instruments are prudent, reasonable and consistently applied.
> Refer to “Fair valuations” (pages 66 to 67) in II – Operating and financial review – Core Results, to “Fair value” (page 88) in II – Operating and financial review – Critical accounting estimates, to “Note 33 – Financial instruments” (pages 327 to 353) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2012 and “Note 27 – Financial instruments” (pages 126 to 151) in III – Condensed consolidated financial statements – unaudited in the Credit Suisse 2Q13 Financial Report for further information on fair value.
| Risk-weighted assets for market risk under the standardized approach | |||||
| end of | 6M13 | 2012 | |||
| Risk-weighted assets for market risk under the standardized approach (CHF million) | |||||
| Interest rate risk | 17 | 9 | |||
| Equity position risk | 1 | 2 | |||
| Foreign exchange risk | 421 | 341 | |||
| Precious metals risk | 3 | 3 | |||
| Commodity risk | 2 | 1 | |||
| Total | 444 | 356 | |||
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We have systems and controls in place to manage interest rate risk in the banking book. Risk sensitivity figures are provided for the impact of a one basis point change in interest rates, which is one of the primary ways in which these risks are assessed for internal risk management purposes. In addition, we confirm that the economic impacts of an adverse parallel shift in interest rates of 200 basis points and a statistical 1 year, 99% confidence adverse change in yield curves are significantly below the threshold of 20% of eligible regulatory capital used by regulators to identify banks that potentially run excessive levels of non-trading interest rate risk. Given our low levels of interest rate risk in the banking book, we do not have any regulatory requirement to hold capital against this risk.
The interest rate risk exposures in our non-trading portfolios arise from a number of sources, including funding maturity mismatches, money market activities, long-term debt issuance, liquidity holdings, equity investment strategy and exposures to credit spreads.
Most material non-trading interest rate risk arises from the financial intermediation activities of the Private Banking & Wealth Management division, resulting in non-trading directional interest rate risk embedded in the balance sheet. Those risks are transferred from the originating businesses to Treasury. Treasury then manages the risk position centrally within approved limits using hedging instruments such as interest rate swaps.
While the risks associated with fixed maturity transactions are transferred to Treasury by individual back-to-back transactions, certain products such as variable rate mortgages or savings deposits cannot be transferred in this way as those products do not have direct market-linked interest rates or contractual maturities. The interest rate risk associated with these products, referred to as non-maturing products, is estimated using the methodology of replicating portfolios and transferred to Treasury on a pooled basis. Based on the past behavior of interest rates and volume changes, this methodology assigns the position balance associated with a non-maturing banking product to several time bands. The methodology is based, where possible, on the principle of finding a stable relationship between the changes of client rates of the non-maturing product and an underlying investment portfolio. Where this is not possible, the maturity of the product is assessed based on volume stability only. These schedules can then be used to evaluate the product’s interest rate sensitivity. The structure and parameters of the replicating portfolios are reviewed periodically to ensure continued relevance of the portfolios in light of changing market conditions and client behavior. The methodology, maximum tenor and allocation of tranches in the replicating portfolios are ratified by the RPSC.
Interest rate risk also arises from the foreign exchange and interest rate positioning strategy with respect to our equity balance. The respective allocation strategy is defined by the Capital Allocation & Risk Management Committee and implemented by Treasury.
While the majority of our non-trading interest rate risk resides with Treasury or arises in conjunction with the interest rate positioning of our equity balance, some branches, subsidiaries and businesses also take on non-trading interest rate risk, which is managed within approved limits.
The risks associated with the non-trading interest rate-sensitive portfolios are measured, monitored and limited using a range of tools, including the following key measures:
– Interest rate sensitivity (DV01): Expresses the impact of a one basis point (0.01%) parallel shift in yield curves on a portfolio’s fair value. DV01 represents a transparent and intuitive (non-statistical) indicator of outright directional interest rate risk.
– VaR: Statistical indicator of the potential fair value loss, taking into account the probability of interest rate movements and observed correlations across yield curve tenors and currencies. In addition, VaR takes into account yield curve risk, spread and basis risks, as well as foreign exchange and equity risk. VaR is based on a one-day holding period with a 98% confidence level for risk management.
– Economic capital: Similar to VaR, economic capital represents a statistical risk indicator, taking into account market risks and other sources of risk, including counterparty exposure. Economic capital is calibrated to a 1-year holding period with a 99% confidence level for risk management purposes.
– Economic value scenario analysis: Expresses the impact of a severe instantaneous change in interest rates on a portfolio’s fair value. In particular, we assess compliance with regulatory requirements regarding appropriate levels of non-trading interest rate risk by estimating the economic impact of adverse 200 basis point parallel shifts in yield curves and adverse interest rate shifts calibrated to a 1-year holding period with a 99% confidence level and then relating those impacts to the total eligible regulatory capital. This analysis is performed for the
50
Group and our major legal entities, including the Bank, on a monthly basis.
The measures listed above focus on the loss potential on a fair value basis taking into account the present value of all future cash flows associated with the current positions. Since non-trading books are not marked-to-market through earnings, the related accrual accounting impacts generally differ from the fair value impacts. In order to assess the risk profile in a manner consistent with the accounting basis, we periodically perform risk calculations of net interest income.
The following table shows the impact of a one basis point parallel increase of the yield curves on the fair value of interest rate-sensitive banking book positions as of the end of 6M13 and 2012.
| One-basis-point parallel increase in yield curves by currency - banking book positions | |||||||||||||
| end of | CHF | USD | EUR | GBP | Other | Total | |||||||
| 6M13 (CHF million) | |||||||||||||
| Fair value impact of a one-basis-point parallel increase in yield curves | (1.9) | 8.7 | 2.3 | 0.0 | 0.5 | 9.6 | |||||||
| 2012 (CHF million) | |||||||||||||
| Fair value impact of a one-basis-point parallel increase in yield curves | (1.9) | 9.0 | 1.8 | 0.0 | 0.5 | 9.4 | |||||||
This risk is monitored on a daily basis. The monthly analysis of the potential impact resulting from a significant change in yield curves indicates that as of the end of 6M13 and 2012, the fair value impact of an adverse 200 basis point move in yield curves and adverse interest rate moves calibrated to a 1-year holding period with a 99% confidence level in relation to the total eligible regulatory capital, was significantly below the 20% threshold used by regulators to identify banks that potentially run excessive levels of non-trading interest rate risk. This was true for the Group and all legal entities covered in the assessment process, including the Bank.
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52
Cautionary statement regarding forward-looking information
This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:
– our plans, objectives or goals;
– our future economic performance or prospects;
– the potential effect on our future performance of certain contingencies; and
– assumptions underlying any such statements.
Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements except as may be required by applicable securities laws.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:
– the ability to maintain sufficient liquidity and access capital markets;
– market and interest rate fluctuations and interest rate levels;
– the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular the risk of continued slow economic recovery or downturn in the US or other developed countries in 2013 and beyond;
– the direct and indirect impacts of deterioration or slow recovery in residential and commercial real estate markets;
– adverse rating actions by credit rating agencies in respect of sovereign issuers, structured credit products or other credit-related exposures;
– the ability to achieve our strategic objectives, including improved performance, reduced risks, lower costs and more efficient use of capital;
– the ability of counterparties to meet their obligations to us;
– the effects of, and changes in, fiscal, monetary, trade and tax policies, and currency fluctuations;
– political and social developments, including war, civil unrest or terrorist activity;
– the possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;
– operational factors such as systems failure, human error, or the failure to implement procedures properly;
– actions taken by regulators with respect to our business and practices in one or more of the countries in which we conduct our operations;
– the effects of changes in laws, regulations or accounting policies or practices;
– competition in geographic and business areas in which we conduct our operations;
– the ability to retain and recruit qualified personnel;
– the ability to maintain our reputation and promote our brand;
– the ability to increase market share and control expenses;
– technological changes;
– the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;
– acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets;
– the adverse resolution of litigation and other contingencies;
– the ability to achieve our cost efficiency goals and cost targets; and
– our success at managing the risks involved in the foregoing.
We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, as well as the information set forth in I – Information on the company – Risk factors in the Credit Suisse Annual Report 2012.
