DBRS Ratings Unchanged After Q1 Earnings of Credit Suisse Group; Senior at AA

DBRS has today commented that its ratings of Credit Suisse Group (Credit Suisse or the Group) and related entities, including its Senior Unsecured Long-Term Debt rating of AA, are unchanged following the release of the Group’s Q1 2009 results. The trend on all ratings remains Negative. For the quarter, the Group reported solid results including net income of CHF2.0 billion and an ROE of 22.6%, a strong rebound from a sizable CHF6.0 billion fourth quarter loss. Net revenues in the quarter were CHF8.1 billion as compared to negative CHF4.5 billion in Q4 2008.

The Investment Bank (IB) had a strong quarter. Pre-tax segment income was CHF2.4 billion on net revenues of CHF6.4 billion. Key client businesses, those flow businesses on which the repositioned IB will focus, performed well in the quarter, generating net revenues of CHF6.3 billion. For the IB as a whole, strong trading results allowed the segment to absorb CHF1.7 billion of revenue marks, driven by writedowns of CHF1.4 billion on CMBS. Consistent with industry trends, fixed income trading results benefited from strength in rates, FX and high grade credit as net revenues of CHF3.9 billion were up CHF6.8 billion from the difficult fourth quarter. The Group also noted strength in U.S. RMBS trading. Equity trading (net revenues of CHF2.3 billion) reflected strength in cash equities and prime brokerage, as well as a better quarter for convertibles.

Credit Suisse’s core Private Banking business, including Wealth Management and the Group’s Swiss Corporate & Retail Banking operations, remains a relatively consistent performer and is an important stabilizing factor underpinning the Group’s ratings. Despite weaker transaction-based revenues and lower asset-based fees, Private Banking reported pre-tax income of CHF992 million on revenues of CHF2.9 billion. Relative to Q4 2008, revenues declined 8% while pre tax income (when the CHF456 million ARS charge is excluded from Q4 2008) was up 2%. Net new asset inflows were a solid CHF11.4 billion in Private Banking, largely reflecting market share gains. Credit quality in Corporate & Retail Banking deteriorated somewhat in the quarter, as evidenced by increased provisioning. However, with its commercial and retail lending focused in Switzerland, the Group is benefiting from this country’s relatively moderate economic slowdown.

The Group’s other segment, Asset Management had a pre-tax loss of CHF490 million in the quarter primarily due to CHF387 million of writedowns on private equity investments. Lower asset values due to market declines continued to impact fee-based revenues in the quarter as well. Excluding investment-related losses and losses on securities purchased from money market funds, segment net revenues of CHF414 million increased roughly 3% from Q4 2008.

Credit Suisse’s capitalization and funding remain strong. The Group has solid capital and continues to reduce risk. At 31 March 2009, the Group’s Tier 1 ratio was 14.1%, up from 13.3% at year end, and its core tier 1 ratio was 9.3% at the end of the first quarter. Credit Suisse continued progress in de-risking the Investment Bank. Dislocated asset balances in the IB (primarily CMBS) declined to CHF8 billion. Total IB risk weighted assets were reduced 6% in the quarter to USD154 billion. The Group’s customer deposit base of CHF287 billion at the end of the first quarter continues to fund the entire CHF239 billion (gross) loan portfolio.

Credit Suisse has generally fared better than many financial institutions with significant capital markets businesses and is viewed as a strong and stable counterparty. The Negative trend reflects the challenges that Credit Suisse may face as a major participant in the capital markets in view of the still uncertain markets across its global franchise and the abruptness of the slowdown across economies globally. In DBRS’s view, any significant deterioration in the Group’s performance in the coming quarters that indicates a sustained weakening in its prospects or a decline in its franchise strength, could lead to a downgrade. Alternatively, should Credit Suisse continue to report solid results in upcoming quarters and maintain the IB’s profitability in an improving operating environment, the trend could revert to Stable.

Notes:
All figures are in Swiss francs unless otherwise noted.

This rating is based on public information.

The applicable methodologies are, Analytical Background and Methodology for European Bank Ratings, Second Edition and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (financial institution) rating.