Credit Suisse Group AG (CS) Q3 2019 Earnings Call Transcript

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Credit Suisse Group AG (CS)
Q3 2019 Earnings Call
Nov 8, 2019, 3:15 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group's Third Quarter 2019 Results Conference Call for Analysts and Investors. [Operator Instructions]

I will now turn the conference over to Adam Gishen, Group Head of Investor Relations and Corporate Communications. Please go ahead, Adam.

Adam Gishen -- Group Head of Investor Relations and Corporate Communications

Okay. Thank you, operator. Before we begin, let me remind you of the important cautionary statements on Slide 2, including the statements on non-GAAP financial measures and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse third quarter 2019 financial report.

With that, I will now hand over to Tidjane, who will run through the numbers.

Tidjane Thiam -- Chief Executive Officer

Thank you, Adam, and good morning, everyone, and thank you all for joining our call. With me, I have the Executive Board of Credit Suisse. Together, David Mathers, our Chief Financial Officer, and I will present Credit Suisse's results for the third quarter and the first nine months of 2019. We look forward to answering your questions at the end of the session and discussing our results in more detail as we go.

So let's start with our key messages. After three years of deep restructuring from 2015 to 2018, it was our belief that during 2019 you would be able to see a continued improvement in performance across our key metrics. We believe that our 2019 results year-to-date support this assertion notwithstanding the fact that Q3 is, for us, typically a seasonally weak quarter.

So in Q3, we generated pre-tax income of CHF1.1 billion, up 70%, 70%, and net income of CHF881 million, up 108% year-on-year, leading us to a return on tangible equity, an RoTE of 9%, double the RoTE of the same quarter one year ago which was 4.5%.

We have been able to grow our tangible book value, and we have continued our share buyback program, leading to an increase in tangible book value per share, and more on that later. But first, let's look at the context in which we operated during the third quarter on the next slide.

The interest rate environment, on the left here, has continued to be a headwind for some of our clients and has weighed, on the one hand, negatively on market sentiment and investment decisions while being, on the other hand, supportive of debt refinancing and debt issuance. Credit spreads, on the right, have remained at somewhat elevated levels, while we saw continued lower activity levels in ECM, Equity Capital Markets, and leveraged finance, products where we have historically enjoyed a leading market position.

In 3Q, going into some of the geographies, we have seen a slowdown in Asia primary and M&A activity, primarily in Greater China with one of the lowest-activity quarters in the last five years in terms of market fee pool. We have taken, in that context, a number of proactive measures across the Board to engage with our clients in this period, which we will highlight later in this presentation. So overall not a particularly supportive environment.

You are familiar with the next slide, which shows you the evolution of our quarterly PTI over time, and we have wanted here to visually distinguish the restructuring from the past restructuring period which is a more BAU period in blue here. So in 3Q '19, we achieved a PTI of CHF1.1 billion, up 70% year-on-year. This marks the third successive quarter of this year with PTI exceeding CHF1 billion and our twelfth consecutive quarter of year-on-year profit growth.

Please note that this figure includes two material non-operating items which have been disclosed. It reflects, on the one hand, gain from the InvestLab transfer to Allfunds, which has broadly offset by the negative impact of accounting volatility on our structured notes portfolio. And David will come back to this. So we will use this reported PTI number as a reasonable proxy for the underlying performance of the Group.

Next slide, please. Although we have officially gone back to BAU mode since we announced the end of restructuring at the end of '18, we have been able in this new period, post-restructuring, to maintain our discipline around costs while growing our revenues. We have delivered our twelfth consecutive quarter of positive operating leverage in the challenging environment of the third quarter, with revenue up 2%, on the left here, and costs down 1% year-on-year.

So moving now to net income on the next slide. We have generated CHF881 million of net income, more than doubling our 3Q '18 net income.

And on the next slide, you can see the RoTE, which has reached 9%, up from about 4% in 3Q '18.

So on the next slide, we look at our capital position. We have been able, as we see here, to grow our CET1 capital, which is very important for us, the absolute level of capital we have, of CHF37.4 billion at 3Q '19, and that's up CHF1.8 billion year-on-year and up -- more importantly, up 29% since we started in 3Q '15. Overall, the bank holds more absolute capital, which as you have seen for a restructuring, less absolute risk. So we closed the quarter with a CET1 ratio of 12.6% before a 20 basis point adjustment for an update of a time period where we apply certain stress tests, which took it to 12.4%, and David will come back to this too. We finished the quarter with a Tier 1 leverage ratio of 5.5% at 3Q '19, which is up 160 bps since 3Q '15, and we maintain our guidance of 12.5% for the end of 2019 CET1 ratio.

So moving on to tangible book value on the next slide. At our 2018 Investor Day back in December, we said we would aim to grow our tangible book value per share as we went back to BAU. The cost of the SRU wind down, the restructuring charges, legacy fines and litigation expenses as well as capital raises, which were both key and indispensable elements of the restructuring, had led to a significant reduction in tangible book value between 2015 and 2018, and that was the strategy.

Since the start of '19, though, we have been able to achieve a material increase in profit, and therefore, in the first nine months of this year, we have been able to increase our tangible book value, the absolute tangible book value, by CHF1.2 billion, and to grow our tangible book value per share at a 9% CAGR, taking it above CHF16. And so far, we have returned CHF695 million year-to-date from our share buyback program and we expect to return at least CHF300 million more in the balance of the fourth quarter toward our CHF1 billion target. Overall, we have returned about CHF1.4 billion year-to-date to our shareholders through our share buyback program and dividends.

So this completes the section of my presentation devoted to the overall group performance. What I'd like to do now is to give you a few highlights on the performance of our key divisions. As you know, you're familiar with this slide too, our strategy is to be a leading wealth manager with strong investment banking capabilities. I'm going to look at our wealth management performance now before turning later to the Investment Banking performance.

Growing our Assets Under Management or AUM, over time, is an explicit and important objective for us. As we do this with discipline, generating positive operating leverage and in a compliant manner, we believe that this will generate over time significant growing and recurring value for our shareholders. In nine months '19, we have attracted net new assets of CHF72 billion across wealth and asset management, an increase of 28% compared to the same period last year.

Looking at our individual wealth management focused businesses, which is SUB private client, IWM private bank and APAC private bank, we have grown assets respectively as you see on the right here at nine months at 3%, 4% and 7% rate, a strong performance for a player of our scale. Our discipline and our focus on operating leverage have allowed us to grow AUM without diluting net margins.

Looking at our performance over a longer period of time, the same remains true, as we show on the next slide. Since the end of '15, we have attracted more than CHF190 billion of NNA, which is roughly equivalent to the asset base of a mid-size private bank. We feel that, although there is often an understandable focus on our ability to save costs, we have also delivered on our growth agenda for those activities that we choose to grow.

So on the next slide, we're giving you some insights on the components of our wealth management revenue. So we saw during the third quarter interest rates move lower and we experienced increased volatility.

So starting with NII, net interest income, on the left. We used a number of levers to offset many of our pressures on our NII as yields moved lower. David will talk about this in more detail, but we have continued our prudent approach to loan growth and we have also taken measures to protect our deposit margin through repricing.A particular bright spot for us was our transaction-based revenues, up 19%, 19 -- 19% in APAC private bank and 16% in IWM and about 12% year-on-year in total, particularly driven by the continued strength in ITS. This is an area where we believe our Investment Banking capabilities, and ITS in particular, are a differentiating factor for our wealth management activities -- sorry. Let me repeat this. This is an area where we believe our Investment Banking capabilities and ITS in particular are a differentiating factor for our wealth management activities. So over time, we are benefiting from the positive effects of scaling up our asset base and growing the AUM with inflows that I described a few moments ago. So overall, on the right here, we have increased our wealth management revenue by 3% year-on-year in a challenging quarter.

So let's now turn to our divisions, starting with SUB, the Swiss Universal Bank. Here we have delivered a record PTI, ex the impact of the Allfunds transaction, of CHF1.7 billion in the first nine months, with a solid contribution in the third quarter in spite of adverse movements in the Swiss franc interest rate curve. We are growing our institutional businesses in Switzerland, and we have now seen several consecutive quarters with large institutional flows. This combined with the strength of our private client and Private Banking franchise, brought our total divisional nine-month NNA to a record level of CHF47 billion this year.

So after SUB, let's move now to International Wealth Management, where we had a good quarter. We have delivered strong performance in both Private Banking and Asset Management. We have taken proactive measures to generate higher client activity with a very decisive client outreach, driving an increase of 12% in transaction and performance-based revenues in 3Q '19. Loan growth was stronger and we took measures to protect deposit margins, offsetting the impact from adverse interest rate movements. In the PB, we have continued to enjoy strong asset-gathering momentum, with a third quarter '19 NNA of CHF3.6 billion versus CHF3 billion last year, bringing the nine months total to over CHF10 billion of NNA. The successful collaboration with ITS continues to produce strong results.

In addition to an increase in sizable or landmark transactions year-over-year, we have been able to significantly increase a more regular pipeline of full transactions to complement these as we scale our offering more broadly across our client base. And I want to salute here our IWM teams; and Philipp Wehle, for his first quarter as CEO of IWM, and who produced very good results.

We have also performed strongly in our Asset Management franchise, as we can see on the next slide, which we want to give more emphasis to this time in these results because it's -- maybe a part of the business we haven't talked enough about in the past. In Asset Management, we have delivered our 11th consecutive quarter of year-on-year growth in management fees in the third quarter of '19 as we are strongly growing our business. We attracted over CHF14 billion, 14, CHF14 billion of NNA in nine months '19. That's a 5% annualized growth rate, resulting in record AUM of CHF426 billion. This has driven an uplift in PTI of 22% year-on-year to CHF111 million in 3Q '19. That's about what Asset Management used to do in a year a few years ago, has delivered in a quarter now. Our Asset Management franchise is one of the highest-returning businesses at Credit Suisse, with a return on regulatory capital of 33%.

So let's look now at APAC Wealth Management & Connected on the next slide. Our Private Banking business in Asia has actually had a very strong quarter with double-digit revenue growth year-on-year to reach the third highest quarterly revenues ever, I think, revenue growth was 13%. We have also reached record AUM levels at CHF222 billion. We have the third highest RM productivity quarter. i.e., we track RM productivity and this was their third most productive quarter ever. And we are adding senior talent to the platform, with the net number of RMs up by 25 since the end of last year. So overall, it's the highest PTI quarter ever for our private bank in Asia.

In addition, looking at IBCM, we hold the Number 1 market share in APAC underwriting and advisory this year at October 15. It's a great achievement in a market that's been under pressure. So yes, we have -- the revenues have gone down but much less so than the market, and we actually gained share of wallet.

So now let's talk about wealth management. Let's turn to IBCM and to Global Markets, IBCM on the next slide. Our IBCM business is core to our strategy. It brings many benefits to our divisions but are not always reflected in its P&L. We have delivered three years of market-leading growth and strong results since the announcement of the strategy in '15. That said, our performance in 3Q '19 was unsatisfactory. We underperformed The Street, driven by continued weakness in M&A and fewer completed IPOs. We have talked to you in the past about our desire to invest in the tech and the healthcare sectors and as these are the fastest-growing sectors with bigger fee pools.

Some of our 2019 strategic hires in these two growth areas seem to be producing some effect, as we've gained share of wallet in both of those crucial sectors. Looking forward, our IBCM teams believe that their improved pipeline will lead over time to an improvement in our performance versus The Street.

Next comes a slide that we've used a few times with you, at the 2018 Investor Day, moving on to Global Markets, we presented a path to improving our returns in Global Markets and identified a number of revenue initiatives to achieve this, as we felt that a priority after the deep restructuring was to grow revenue: increasing collaboration with wealth management through ITS, benefiting from a reinvigorated Equities platform and lower funding cost, which is a big benefit because GM has no natural funding and we carried for a number of years very expensive funding, of which GM was the main -- was carrying the weight of, if you wish. So really the improvement in funding is actually strategic and has really been a great and legitimate benefit to global market.

So let's look at what happened to revenue on the next slide. In 3Q '19, revenues in global market are up 34%, with broad based strength across both trading and financing, so well diversified strategy and well executed.

Getting into more detail on the next slide and toward ITS for a second. We have strongly grown ITS revenues, they're up 43% year-on-year. So it's a big contributor to the GM performance, putting us on track to achieve our ambition set out on the earlier slide at our 2018 Investor Day where we said we'd add $300 million to $400 million of collaboration revenues across Equities and ITS by 2020.

So on the next slide, we show you fixed income and Equities performance. In 3Q '19, we have been able to grow revenues and outperform The Street in both Global Markets fixed income and equity sales and trading. We have seen growth across most of our businesses, with particular strength in global credit and securitized products, so a great beneficiary of low interest rates and equity derivatives. In prime, we have been able to continue to improve our return on asset, and that's the third consecutive quarter where we do so.

Simply put, we are generating more revenues in Global Markets with less balance sheet, and we believe that we continue to gain market share and increase our share of wallet without mobilizing more capital. The strength of Global Markets is also evident, if you look at the nine-month performance on the next slide. After completing the restructuring, we have seen a marked improvement in the performance. In the first nine months of '19, we generated nearly USD1 billion in PTI, delivering a return on regulatory capital if we take leverage as the binding constraint of 9% or 14% on RWA.

Perhaps the most important slide for me in history is actually the next one, which looks at capital. We have significantly reduced since '15 both the RWA and leverage exposure, the binding capital constraints in Global Markets during the deep restructuring. And we have continued to maintain, as we can see here, a disciplined approach to capital allocation, operating more profitably within the threshold we have set out. So GM has been able to generate this performance without taking more risk in absolute terms and by making also the capital work harder, they have significantly increased in particular capital velocity, which has been a big area of focus, with very good results.

So looking at our aggregated Investment Banking footprint. As you know, we do provide more segmental disclosure on our individual Investment Banking businesses compared to our peers before -- because we think that that is the right management structure to manage a business well, as some of these results show, but in order to assess the overall progress that we have achieved across the franchise, it is helpful to look at the aggregate global IB performance beyond the existing divisions. So bringing together global market, IBCM, APAC markets, APAC advisory, underwriting and financing. So what you see here is that we have grown our global IB revenues by 8%. We believe this is a good performance.

And as primary and secondary markets have bifurcated, the strengths in our sales and trading businesses have more than offset the lower primary market activities, which you can see here went down 21%. So this proves also the value of a diversified business model by geography and product capabilities. Significantly lower funding costs and the completion of the restructuring provide a continued tailwind for our global IB franchise going forward.

So before I hand over to David, I'd just like to summarize our performance this quarter on the next slide. We have delivered continued year-on-year improvement in returns, as we are growing profitably in wealth management, and we have significantly improved our Global Markets' performance after three years of deep restructuring. We have grown tangible book value per share at a 9% CAGR since 2018 and we have returned CHF1.4 billion of capital to our shareholders in the first nine months of the year.

And with that, I will now hand over to David.

David Mathers -- Chief Financial Officer

Thank you, Tidjane. Good morning, everybody, and I'd now like to take you through our financial results in some more detail.So for the third quarter, Credit Suisse had net revenues of CHF5.3 billion, an increase of 9% compared to the same quarter of last year, that includes the initial benefit of CHF327 million relating to the first phase of the transfer of InvestLab, our open architecture B2B investment fund platform, to the Allfunds Group. And I would like to confirm today that we would expect to receive a second similarly sized gain during the course of 2020. Now if we exclude the initial gain from the transfer, our revenues totaled CHF5.0 billion, which was an increase of 2% year-on-year.

If we look at our business lines. Our wealth management-related revenues increased by 2% compared to the third quarter of 2018. Clearly [Phonetic] including the gain from the first phase from the InvestLab transaction, these revenues grew by 12%. I think this growth demonstrates the strength and the resilience of our franchise across all three of our wealth management-related businesses.

If we look at our other operations. Our IBCM division continue to face difficulties, with some loss of share in certain key sectors, as Tidjane has already highlighted. Furthermore, weakness in primary issuance as well as a global slowdown in deal-making dampened performance, leading to a 21% reduction in revenues year-on-year. In Global Markets, however, as Tidjane has highlighted already, we have continued to see the benefits of the investments that we've made into this business and of the substantial restructuring that we finished by the end of 2018 as well as a favorable operating environment, which led to revenues increasing by 34% year-on-year.

We remain very committed to delivering year-on-year productivity increases across our businesses and our operations, as well as to careful resource management. Our total operating expenses in the third quarter stood at CHF4.1 billion, down by 1% compared to the same quarter a year ago and down by 3% compared to the second quarter of 2019.

Just finally, with regard to the Corporate Center, you will note there has been a CHF181 million drag due to through life mark-to-mark accounting volatility. Just to be clear, this is accounting volatility on the fixed income structured notes portfolio and does not represent an economic loss. Indeed, if Credit Suisse were to report under IFRS rather than under US GAAP, this volatility would not be evident in our P&L. Economically, the effect to Credit Suisse is neutral.

Now overall, including both of the significant non-operating items, we generated a pre-tax income of CHF1.1 billion in the third quarter, an increase of 70% compared to the third quarter of 2018. Excluding the first-phase gain from InvestLab but including the structured note volatility, our pre-tax income was CHF815 million for the third quarter, an increase of 21% year-on-year.

Our effective tax rate for the third quarter dropped to 22% and also benefited from the InvestLab transfer, and that 22% takes our accumulative tax rate for the year to 27%. I would expect that, for 2019 as a whole, our tax rate will be at the lower end of our guidance of between 28% and 30%. That continues to include an estimate of 2 percentage points for the marginal impact of the BEAT legislation in the United States. And I would caution that we continue to await the final guidance on BEAT, publication of which has been further delayed but is still expected by the end of the year. Now including the benefit from the reduced tax rate, our net income attributable to shareholders stood at CHF881 million in the third quarter, an increase of 108% year-on-year, that equates to a return on tangible equity of 9% for both the third quarter and for the nine months to the end of September.

Next, let's turn to Slide 32, please, and look at capital. We saw continued capital generation in the quarter, increasing our CET1 capital to CHF37.4 billion from CHF36.4 billion at the end of the second quarter even after the continuation of the share buyback program. Just to remind you, as at the end of October, we've repurchased CHF695 billion worth of shares at an average price of CHF12.28 per share.

Now if we look first at risk-weighted assets. These increased by CHF11 billion to CHF302 billion, of which CHF2 billion was due to foreign exchange moves, specifically the strengthening in the quarter of the US dollar compared to the Swiss franc. Of the balance, we saw an CHF8 billion increase in business usage, but I would note that CHF6 billion of this CHF8 billion increase was due to a change in the three-year time period applied in the capital calculations resulting from the redemption of certain legacy SRU Eurozone exposures. Finally, we also had CHF1 billion of regulatory-driven model and parameter updates. I would note that, for 2019, we continue to expect FINMA-related model and parameter updates to have an adverse impact of approximately CHF6 billion to CHF7 billion in 2019, of which CHF5.8 billion has been absorbed during the first nine months of the year.

The net result was a CET1 ratio of 12.4% at the end of the quarter compared to 12.5% at the end of the second quarter, but I would note that this would have been 12.6% absent the update in capital calculations due to the Eurozone exposure runoff that I mentioned before.

Now if we turn to leverage. Our exposure at the end of the quarter stood at CHF921 billion, up from CHF898 billion at the end of the second quarter, that reflects an increase in business usage of CHF17 billion, primarily in our wealth management-focused operations, but also an increase due to FX moves, the strengthening of the dollar against the Swiss franc, as I mentioned before, of CHF7 billion. That equates to a CET1 leverage ratio of 4.1%, while in excess of the Swiss requirement for next year to be at 3.5%, while our Tier 1 leverage ratio increased to 5.5% at the end of the third quarter. Incidentally, that means that our risk density currently stands at 33%, approaching the 35% of which the Swiss capital regime has been calibrated.

Now I did just want to provide a follow-up to the announcement that we gave on the 2nd of October regarding our decision to continue to report our financial results on overall basis in Swiss francs but to start calculating our operational risk RWA in US dollars, with effect from the beginning of the fourth quarter. You may recall this reflects the fact that the majority of our historic losses underpinning the op risk RWA calculation have been incurred in US dollars. We've now completed this change and realigned our capital hedging strategy, which leads to a higher proportion of our capital being held in US dollars rather than in Swiss francs.

Given the spread that exists in the interest rate curve between US dollars and Swiss francs, that is expected to lead to an initial gain of approximately CHF60 million of additional net interest income in the fourth quarter of the current year. Just looking forward, I'd also remind you that we expect this NII benefit to continue into the future, with an estimated 50 basis point contribution to the return on tangible equity in 2020.

Let's turn to costs, please, on Slide 33. Continued resource discipline remains a core focus for us. During the third quarter, total operating expenses amounted to CHF4.1 billion, and for the first nine months of the year, total operating expenses were CHF12.6 billion, down by 4% compared to the CHF13.2 billion in the first nine months of 2018. Throughout this period, we've continued to fund strategic investments for growth across the bank as well as further investments intended to improve front-to-back digitalization efforts and to boost our overall productivity.

Let me turn to tangible book value per share please on Slide 34. This slide illustrates the progression of our tangible book value per share over the last year. As you can see, it's increased by 10% year-on-year, including the reduction from the dividend payment and the enhancement from the share buyback program reaching CHF16.24. Now if we start from the left, we generated CHF2.8 billion of net income attributable to shareholders over the last year. We've also seen accretion to our book value from net share plan accruals and net credit from our UK and Swiss pension funds, as well as a credit from the movement in credit spreads. So before distributing capital to shareholders, that led to a tangible book value per share of CHF16.42.

As Tidjane said already, growth in book value is a key financial indicator, and we're pleased with the progress in this over the last year. We then distributed CHF1.4 billion to our shareholders through a combination of CHF695 million in dividends, and just coincidentally, CHF695 million from our share buyback program forced [Phonetic] a discount to book, which itself strengthens the tangible book value per share. Just by the way, that results in a payout ratio approximately 50% year-to-date, in line with the guidance that we've given at our Investor Days.

Now let me turn to divisional performance. Now for the sake of clarity and just in order to focus on the underlying operating performance of the divisions, I will focus the bulk of this discussion on their performance excluding the gains from InvestLab. Just to be clear, these amounted to CHF98 million for the corporate and institutional client business in the Swiss Universal Bank, CHF131 million for Private Banking in IWM and CHF98 million for Private Banking within Wealth Management & Connected in the Asia Pacific division.

Let's start with the Swiss Universal Bank please, on Slide 35. Now without the gain from InvestLab, the Swiss Universal Bank generated CHF1.3 billion, a reduction of 2% year-on-year, driven by lower net interest income as a result of adverse movements to the Swiss franc curve, primarily in our corporate and institutional client business.

I'd also highlight that, in the third quarter of 2018, i.e., last year, we booked a CHF15 million gain from the sale of real estate in this division. Whilst the interest rate environment remains challenging here in Switzerland, I'm pleased to say that our transaction activities, although seasonally lower than the second quarter, shows an improvement on last year's level, while recurring revenues were stable. And in particular, SUB's collaboration with Global Markets and IWM, International Trading Solutions or ITS made an increased contribution to the division's revenue performance.

Now if you exclude InvestLab, pre-tax income was stable at CHF509 million in the third quarter of 2019. Operating expenses were down by 2% year-on-year at CHF782 million, with a cost/income ratio of 55% and a return on regulatory capital of 18%, including InvestLab.

Turning to net new assets. In Private Clients, our NNA for the year so far has totaled CHF3.9 billion, an annualized growth rate of 3%. We did see a couple of larger idiosyncratic outflows in the third quarter, and that combined with the usual seasonal slowdown, resulted in a small net outflow of CHF600 million for the third quarter alone. In September, in common with certain other Swiss banks, we informed our Private Banking and our corporate clients with deposits greater than CHF2 million that they would start to incur a negative interest rate as a result of the continued negative rate environment in our home country.

We believe this is the appropriate balance in terms of continuing to shield our retail customers here in Switzerland from negative interest rates while also protecting the overall profitability of our franchise for shareholders.

We saw substantial pension fund inflows into our corporate and institutional client business totaling CHF6.3 billion of net new assets in the third quarter, and these inflows lifted C&IC assets under management to CHF425 billion by the end of the third quarter.

With that, let's turn to Slide 36 please, to look at IWM. Our International Wealth Management division delivered resilient revenue growth despite the typical seasonal slowdown in the quarter. Revenues excluding InvestLab were CHF1.3 billion, an increase of 5% year-on-year. Our pre-tax income, again excluding the contribution of InvestLab, increased by 8% to CHF408 million for the quarter. Asset gathering continued at a solid pace for the division this quarter, as net new asset inflows totaled CHF9.5 billion. Private Banking delivered net new assets of CHF3.6 billion, while Asset Management CHF5.9 billion.

Overall operating expenses increased by 4% to CHF908 million, including the cost of the increased number of relationship managers who we've hired during the year. Excluding InvestLab, Private Banking revenues increased by 2% year-on-year. We saw particular strength in transaction and performance-based revenues, which increased by 12%, again including the strong contribution from ITS. Recurring revenues were stable and net interest income was also resilient, with loan growth offsetting the pressure from the fall in the US dollar curve as well as a negative interest rate environment within the EU. The CHF3.6 billion of net new assets equates to an annualized growth rate of 4%.

In Asset Management, we again saw strong net new asset inflows, totaling CHF5.9 billion, and those came into our fixed income, index solutions, credit and real estate products. Revenues increased by 12% year-on-year, driven by higher performance in placement revenues and as well as by increased management fees due to the sale in part of -- sorry, due to -- in part to the sale of investment by one of our private equity funds. Similarly, the increasing costs is primarily due to the crystallization of related compensation awards related to that sale.

Let me turn to Slide 37, Asia Pacific. Net revenues in our Asia Pacific division excluding InvestLab fell by 3% year-on-year to CHF788 million. On the same basis, PTI fell year-on-year from CHF176 million to CHF149 million but with differing performances between the sub divisions. If we look first at Wealth Management & Connected. Net revenues were supported by higher Private Banking revenues but also reflected increased net interest income and higher transaction-based revenues. In fact, transaction-based revenues in Private Banking rose by 19% compared to the third quarter of 2018. And even without InvestLab, our PB revenues were up by 13% in total. However, advisory, underwriting and financing revenues for Asia Pacific fell by 18% year-on-year, reflecting the significantly lower M&A and equity underwriting activities across the industry in APAC.

And I'd also note that the WM&C business saw an increase in credit provisions to CHF20 million in the quarter, including a final provision relating to the default last year of an Indian infrastructure company. Ex InvestLab, we got a pre-tax profit of CHF183 million in WM&C for the third quarter, up 2% compared to same quarter of last year.

In Private Banking, we saw net new assets of CHF2.6 billion, following on from the CHF7.8 billion that we received in the first half, to take the total to CHF10.4 billion for the first three quarters of the year. However, our Markets business in Asia Pacific continued to be adversely impacted by the weakness in trading volumes across Asia and by difficult conditions generally.

On a US dollar basis, equity sales and trading revenues fell by 11% year-on-year, approximately in line with our understanding of market performance, but our fixed income business saw a much sharper fall in revenues to only $17 million in the quarter. And as a consequence, the APAC Markets sub division made a loss of USD34 million in the third quarter of the year.

Let me turn now to Slide 38 and IBCM. Our Investment Banking & Capital Markets division continues to suffer from difficult and uncertain markets and from delays in completions in our M&A pipeline, including some loss of share. However, we did see improvements elsewhere, most notably in our technology franchise. The net result was a drop in revenues of 21% to USD428 million. Whilst we continue to be extremely disciplined on costs across the division this year, IBCM recorded a pre-tax loss of USD16 million for the quarter compared to a pre-tax gain of USD72 million in the same quarter of last year.

As we've previously highlighted, we are encouraged by the progress that's being made in technology and healthcare, and we expect to hold on this as we develop our plans to develop incremental revenue growth over the next few years within the division.

Let me conclude then with a few words on the performance of Global Markets. It's very evident that the strong momentum that we saw in the first half of the year has continued into the third quarter notwithstanding usual seasonal trends. And it's also great, just the progress that's been made against strategic initiatives for this division. Total revenues for Global Markets increased by 34% year-on-year to USD1.4 billion, delivering a pre-tax income USD272 million, which compares to a pre-tax loss of $97 million in the same period of last year. Global Markets pre-tax income for the first nine months this year now amount to USD914 million, a 150% increase compared year-on-year.

As we said already, we've continued to see a strong performance in our ITS collaboration, with higher revenues from increased wealth management activity. Volumes across the market were generally lower in the third quarter than a year ago, but our equity revenues increased by 7% with gains in both prime services and equity derivatives. Our fixed income business saw a very strong performance across the credit franchise, with revenues increasing by 43%. This has been combined with a continued sharp focus on resource management, with operating costs down marginally year-on-year at USD1.1 billion.

We've also remained very disciplined with the deployment of capital to the division, with RWA and leverage usage similar to the levels that we saw in the third quarter of 2018. As a result, we have achieved a return on regulatory capital of 9% for the first nine months of 2019, and 14% in terms of the return on risk-weighted assets.

And with that, I would like to hand back to Tidjane to close our presentation. Tidjane?

Tidjane Thiam -- Chief Executive Officer

Thank you, David. To summarize, we are delivering continued year-on-year improvement in returns. We are growing tangible book value per share and returning capital to our shareholders.

So before we proceed to the Q&A, I would like to take the opportunity to remind all of you of our upcoming annual Investor Day on December 12th in London. Please don't hesitate to get in touch with our Investor Relations team, who are happy to provide you with more details.

So with that, we are happy as usual to take your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from the line of Andrew Stimpson from Bank of America Merrill Lynch. Please go ahead. Your line is now open.

Andrew Stimpson -- BofA Merrill Lynch -- Analyst

Thank you. Good morning, everyone. On APAC markets, what's the plan going to be there longer-term? I mean, it's been three years where that unit's sort of been breaking even, I suppose. I know that the current environment isn't great, but what can you really do there now? Is it more cost cuts? I think the balance sheet has sort of stabilized there, so I'm not sure if you can do more there or I know you're looking for more progress on cross-selling derivatives into wealth there, but I'm just wondering if you can help us quantify what difference that can really make and kind of what the blue sky scenario can really be for the APAC markets.

And then secondly, in IWM, have you got more hiring planned there? Is -- what we've seen in 2Q and 3Q, is that it, or is there more planned for 4Q and into next year and whether there is more -- any more retention payment inflation we might expect for 4Q and beyond, please. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Good morning, and thank you for the questions. I'll take the one on APAC markets. Look, our long-term view on Asia, as you know, is very positive. You've also seen that PB has had a really outstanding results with revenue up 13% in a very difficult environment, record AUM. And we think that having a sales and trading capability in Asia is a core part of the strategy long-term. So that will be my first point.

So the second point and you're right. We've had also, honestly, a very difficult environment and that started in the summer of '15 and it's been a issue after issue in that business, but the long-term plan is reasonably clear. We have created ATS, which is a kind of equivalent of ITS, which is led by Yves-Alain Sommerhalder. And there is a lot of work going on on different products. For instance, in prime, there was a meeting, I can't remember, two or three weeks ago in London between the two teams led by Helman and Brian, and we are really exploring all the opportunities of working better together across clients.

And I have to confess that was not always the case in the past, but we're very, very focused on that having now restructured prime in Global Markets and we told you we had three consecutive quarters of return on assets increases. We're now optimizing the relationship with prime in Asia. There's a big upside there.

The other thing we are doing is really the connection with the ultra-high-net worth. We have a number of initiatives there which actually are starting to produce some positive results. We had in Q3 the first transaction between ATS and wealth management, and we still have work to do there. There is also -- we have this AFG business in Asia, that distributes loans. And there is the idea of using the Markets infrastructure to syndicate AFG loans, which is also working very well.

And there's another avenue that's extremely promising, really good start: securitized products. We always talk about the asset finance business. And I've been, you know that, you've been following us for a while, defending it very strongly in '15. It's turned out now to be a wonderful hedge against lower interest rates. We've seen it in the numbers in Q3, but also I've always argued that securitization will come to Asia. And the huge optionality is to be number one in securitization in the US. We did a phenomenal transaction with an ultra-high-net worth in Australia in securitized products, extremely profitable. Jay Kim, who runs the team, is spending more and more of his time in Asia. And there is a huge upside there. If you think about what that franchise has done for us in the US, you can imagine in Asia. So relatively -- and I could continue the list, but you can see that we follow this closely. We have a team in place. We have Yves-Alain, who's a very good leader of business. When you see what he's done with ITS, you can have confidence that he's going to come with ATS.

And there's also one last thing, the synergies between ITS and ATS. What we keep talking about internally is how to get the benefits of local while being global. And it's kind of a secret sauce. It's not easy to do. Anyway, you have to choose a structure, and that structure is regional. And the challenge we have collectively as a management is how to make it work seamlessly although we are in a regional structure. And I have to say a big part of that is people and culture. And it's happening, if you look at how IBCM is working, for instance, with other regions. It's a clear example of that.

And my final point on the business will be the contributions that APAC Markets makes to the rest of -- it's not a number we disclose. I know the number. It's very material. i.e., Asian clients brought by APAC Markets to our other business lines. Some companies report that in the Asia P&L. We don't. So when we look at the Asia P&L, we don't just see the loss that you see. We look at it in the world, and then it's actually quite a strategic business for us. So sorry for the long answer, but it's -- so we're doing all those things. It's going to take time. You saw GM, the skepticism on GM. It took three years, four years to get where we are. It's going to take time on APAC Markets, but we are -- it's still a CHF10 billion, CHF11 million RWA business, OK? So we can carry it. The total return on capital in Asia, even including this supposed underperformance, is reasonable. So we're working hard on it, but again to your question, the answer is more revenue than costs. Because that's kind of also the question you were asking, yes.

Andrew Stimpson -- BofA Merrill Lynch -- Analyst

Got it. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you. IWM, more recruiting. Look, IWM is a growth business, so we're always going to somehow be recruiting. Now the balance is more how much of that is self-funded versus how much appears externally. And I can say really what you've seen in the numbers here is not retention. It's real investments in people. We've hired more people, and the performance has been very good. We really see huge growth opportunities there -- just back from Brazil. We've done very well there. And I'm -- I've got Philipp here, but there are more opportunities. And I know he's working on very significant transactions there.

If you look at the revenues from large transactions -- we told you the total is up 12% for transaction revenue. Revenue from large transactions in IWM is up 44% in Q3 versus Q2. So we're doing even more large transactions than before, and that's very promising across geographies. So you could expect moderate cost increase because our approach as a team is to, as much as possible, self-fund that growth from a model that is self-funding, basically, so that you get some operating leverage. It's something we talked in the -- about in the slides, but you don't want to just grow AUM without generating operating leverage. That's a big risk, I think, for us and for management of operations that we've been able to do.

Andrew Stimpson -- BofA Merrill Lynch -- Analyst

Perfect. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you.

Operator

Your next question comes from the line of Jernej Omahen from Goldman Sachs. Please go ahead. Your line is now open.

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah. Good morning from my side as well. I have only a couple of very brief questions today. So the first one is on Page 34, on the capacity of CS to compound its tangible book value per share. And I think that's a good slide and a good focus. I was just wondering. So if operationally Credit Suisse continues as is now, so essentially a healthy close-to-near double-digit return, and if there's scope to increase distribution of capital to shareholders, how are you thinking about the balance between dividends and buybacks and -- if such incremental distributions, where you need to materialize? And then the second question again I have is on Page 35. David, I think you highlighted [Technical Issues] of deposits to which Credit Suisse now applies negative --

Tidjane Thiam -- Chief Executive Officer

Sorry, Jernej, we lost you for 10 seconds, so can you just go back to the question on Slide 35, please? Sorry. We --

Jernej Omahen -- Goldman Sachs -- Analyst

Yes. So on Slide 35, David was saying that Credit Suisse has increased the scope of deposits to which negative rates are now applied. And I was just wondering what the percent -- or what's the proportion of total Swiss deposits for which Credit Suisse now applies a negative rate, just broadly? And then what is that negative rate? So if somebody has, I don't know, CHF3 million in your bank account, what is the actual rate that you -- that he incurs, he or she incurs? And then the last question I wanted to ask, so when it comes to this US dollar conversion of your operating risk. So the way we should think about that is literally, from the next quarter onwards, we just apply CHF60 million of incremental pre-tax profits to the group, right, as simple as that? Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you. Thank you. Thank you, Jernej, yes. For tangible book value per share, I think -- and thank you for supporting the approach we take there. We do believe that it's a core objective for our bank to grow tangible book value per share. And that, in the end, that will create value for our shareholder. In terms of your question, we said we would have -- start with a reasonably -- with an affordable dividend that will be growing, and that's now the guidance we gave. So we cut it. We start from a low base. And we'll grow it, add a few percent per annum. And for the rest, we use buybacks. I think really, until we reach book value, we see buybacks as accretive, and we intend to continue using them. And once we reach book value, we'll have to reconsider this, but until that point, we intend to continue using it, yes.

David Mathers -- Chief Financial Officer

I would also be clear that we do intend to increase the dividend by at least 5% per annum from that base.

Tidjane Thiam -- Chief Executive Officer

Yes. We said 5% per annum. On the negative, we charge, and I'm looking at Thomas here, 75 basis point, but we have not disclosed the proportion by level. I'm sorry. So yes. I understand why you ask, but it's an information we haven't shared openly. And the last one, on...

David Mathers -- Chief Financial Officer

On the third point. The answer, Jernej, is essentially yes. We -- I think, as soon as we announced it, which obviously was a market significant transaction, we executed both the currency swaps and the term-out within the following, I think, three days. As I said, the impact on net interest income is CHF61 million for the fourth quarter of the year. And as I said, I think, on October 2nd, you should expect that to be allocated approximately in line with the operational risk RWA usage, which we disclose by division in our accounts. And as to 2020, as I said, we've termed it out for at least two years. And I won't comment beyond that and -- but I mean the numbers were in line with what you said. And that equates to a boost to return on tangible equity slightly in excess of 50 basis points for 2020.

Operator

And your next question comes from the line of Kian Abouhossein from JPMorgan. Please go ahead. Your line is now open.

Kian Abouhossein -- JPMorgan -- Analyst

Yes, hi. Thanks for my -- taking my questions. Wealth management Asia, can we talk a little bit about environment in terms of cash holding, deleveraging process and also investor appetite and -- for taking risk and transacting with you both on the lending side as well as on -- clearly on the transaction side on the traditional business?

And then secondly, on the Investment Bank, you clearly make a very strong point here of Investment Banking improvement and particularly in fixed income business, but the ROE is still below 10% if I would add the Global Markets business on top -- sorry, the Investment Banking business that's loss making, Asia loss making. So if you compare to peers, which would be on a pro forma basis, then you're well below 10% in an environment which actually feels pretty damned good. So can you explain to me how you look at it from a pro forma perspective, about the future of the business overall?

Tidjane Thiam -- Chief Executive Officer

Okay. Well, thank you, thank you, Kian. I'll start with the wealth management in Asia. I mean, as you've seen, the performance has been good, but we've done quite a few proactive things. In terms of cash holdings, they are about stable. They -- if you take our AUM, it's about -- oscillating between 25%, 26%, 27%. It was 25% in 3Q '18. It's 27% in 2Q '19, 26% now. So it's moves around. It's not -- nothing drastic there. Deleveraging, yes, there is. There has been deleveraging in the third quarter last year when it calmed down, then also gain in the third quarter. So the number you see for us is net of deleveraging. The only thing I will say here is that we caution against comparisons across firms because, as we dig into AUM definitely and NNAs, it's really not comparable because we have very different definitions from one firm to another. But yes, there's been deleveraging. And investor appetite is -- I mean you know the global context. It's moderate. We've seen more actions on the fixed income side than on the Equities side.

We also saw quite a bit of action in FX. FX has been good for us in the third quarter. FX was up quite a bit. Structured products was up quite a bit. Funds were up quite a bit because we sold a lot of funds. And if you think of transaction revenue, we said it was up 19%, and it's really a mixture of what I just indicated. Fixed income was up a lot, and structured products was up a lot. FX was up a lot. And Equities was weak. So it's kind of -- shows you also diversification. It's a mix, but the net-net was positive and we're quite happy with the performance there.

The IB. Look, the reality there is -- we showed you the numbers for Global Markets. You have them. Return on leverage has improved. Return on RWA is where it is. It's really IBCM that is a pressure point at this point. And you just have to keep in mind that, the last three years, they had above 14% return on capital. That's my main answer to your question. So you have a business that's been generating 14%-plus for three years that is having a tough year, no question, but it doesn't put into question the whole strategy. And you had a business that was in kind of low single digits coming now in high single digits with upsides that we have described. So, we think that in the overall strategy, with an RoTE of 9% in a really tough quarter coming out of a restructuring, this portfolio is defensible and works.

Kian Abouhossein -- JPMorgan -- Analyst

If I may just ask on Asia. This is kind of first level of trade agreement, it looks like. Do you think that engagement with those clients is increasing, or do you feel that there's still a lot of uncertainty within the Asian client base and you clearly see a lot of those clients in the ultra-high net worth space in terms of investment? And maybe also just on lending, if you could just give us a short update on lending penetration.

Tidjane Thiam -- Chief Executive Officer

Okay. Now we think that dialog with clients is very good. There's been really no change. We're still really discussing very -- various opportunities at all point in time. We have very, very active dialogues. So we -- no, we don't see anything there. And, sorry, I -- can you just repeat your other question, around clients lending -- yes. No, lending has no major evolution ever. It's -- it hasn't grown particularly or decreased particularly. It's such a usual part of the dialogue, so nothing dramatic there. The big changes in Asia have been in the Markets side in Greater China. That's where you've seen a decrease of something like 39% but not on the PB side.

Kian Abouhossein -- JPMorgan -- Analyst

Thank you very much.

Tidjane Thiam -- Chief Executive Officer

And maybe just one final one, just reflecting on a discussion we just had on the environment. I'm not completely convinced that this is a really very good environment for Investment Banking activities. If you look at the -- my first slide, which was giving you the usual, primary, fee pools and leveraged finance -- and a lot of things are down here. So that's also why we feel that the performance of that business is a good performance considering that context, yes. Okay?

Kian Abouhossein -- JPMorgan -- Analyst

Thank you.

Tidjane Thiam -- Chief Executive Officer

Thank you.

Operator

Thank you. We will now take our next question, and the question comes from the line of Magdalena Stoklosa, Morgan Stanley. Please go ahead. Your line is open.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much, and good morning. I've got two questions. One is about costs, and another one about the evolution of NII. So on the costs side, and I think it's quite clear on Slide 33, your continuing cost efficiency, it's -- restructuring, it was much easier for us to kind of pinpoint specific projects as to kind of where the cost savings were coming from, but now when you're in kind of business-as-usual mode, the costs kind of continue declining even in absolute kind of terms. Could you give us a sense more operationally where the savings are generated or which investments that you have kind of put through over the last couple of years are actually yielding those efficiencies? And also a small kind of sub question to that: your head count. Your Q-on-Q head count increased by over 1,000. And I was just wondering what's driving that increase, whether it's the underlying business or the shifting of the workforce in-house.

And my second question on NII, very resilient performance kind of year-on-year. Your loans have grown within wealth quite nicely. If we look it up, it was 10%; IWM 7%, but how should we look at your NII evolution into 2020? I'm kind of more interesting -- interested in what you think about the kind of defense against the lower rate from here; the impact of the depo tiering in Switzerland; and of course, your repricing of deposits. I assume -- you've talked about Swiss deposits. I assume similar things happening in euros as well. And of course, how do you see the USD stock of your NII into next year too? Sorry. There's a lot of questions in two.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you, Magdalena. Maybe I'll let David handle the cost question.

David Mathers -- Chief Financial Officer

Fine. I think -- I mean, I think, we talked about it a lot at the Investor Day last December and that we wanted to have a culture in which every year both our business divisions and operating functions generate cost savings. And we typically target between 2% and 3%. So I mean, to give examples of that, I mean, I'll pick finance because it's closest to heart. We have a very substantial program around automation, robotics and machine learning, which is substantially simplifying our processes. And it is reducing the actual number of head count we have in that business. I mean, frankly, from an offshoring point of view, we actually completed all of that move some years ago. So it's really sort of an automation-type move.

I think, if I -- looking at Thomas, I think the SUB has a very substantial digitalization process, which is intended to deliver both better client service because many of our clients do prefer to interact with us digitally rather than in person, as well as actually improving our -- moving away from paper-based processing of transactions toward front-to-back digitalization. So these are the type of things we're actually talking. And I think you may also remember the presentation that Lara gave at a past Investor Day around the single client view technology, which enables us to actually see our customers much more clearly. So, I mean, our compliance efforts therefore do not revolve just around having more compliance offices or anything like that. It revolves around using technology to actually do this in a much more consistent way.

So it's -- those are the sorts of initiatives we're actually looking at. And I think what you're seeing is the maturing of the efforts that have been focused on this over the last four years, but just rest assured that's exactly going to be our focus in the foreseeable future. I think Tidjane said once that, while it was very good to achieve CHF4.2 billion of cost reductions between 2015 and 2018, in many ways, we shouldn't have had the costs in the first place. And what we now have to do is to deliver year-on-year reductions. So I think that's the point I'd make on the first one.

I think, in terms of the specific point on head count, I think, Magdalena, you touched on the right points really. There are two substantial in-sourcing projects within technology within HR in which we're seeing, I think, somewhere around about 500 people to 600 people being brought onto our head count from managed services, not from contractors but from managed services. So you see an increase in the number of permanent head counts, but you're not -- it comes out of managed service costs. So it is essentially a cost beneficial move, but you -- what you're seeing there is a rise in the permanent head count.

And the other change you see, there's a couple of hundred relating to our deployment initiatives actually within IT because, when we actually move people to IT, you have briefly a pickup in head count because you're doing it in two locations simultaneously. And then, thirdly, this is obviously a third quarter is when we see the pickup in the number of apprentice and graduate recruits coming onboard. And then last but not least, and you've seen that in disclosures particularly in IWM, you can see that we've actually added a number of RMs this year. So not only do you have the heads associated with that but with the -- but I would say that generally speaking that's a minority in terms of the quarter-on-quarter head count move.

Tidjane Thiam -- Chief Executive Officer

Yes. And the next question was on NII.

David Mathers -- Chief Financial Officer

NII. So I think, Magdalena, your question was about how we saw it in 2020, but let me just roll back and give the complete analysis. And I can just revise what I -- what people actually said on the 2nd of October. So, what I said on the 2nd is that our total expected increase in net interest income across both wealth management and the Markets businesses for 2020 would be approximately CHF350 million compared to 2018. And that reflects the combination of the US dollar denomination, which we touched on before in answer to Jernej's question, which is clearly the largest part of that; an increase in our net interest income resulting from the change in the SNB exemption threshold which was announced, I think, back in September; and then obviously a much smaller component related to the forward curve from the various countries in which we actually operate.

Just to help out, because I think there was a question on October 2nd as to how much we'd actually seen in 2019 compared to 2018, it was about CHF100 million. So essentially, if you're thinking '19 compared to '18, it goes back to generate just about CHF100 million. And if you're thinking '20 compared to '19, it's about CHF250 million basically in terms of those components. But Magdalena, sorry. I -- you asked a number of questions. I may have missed something. Is -- have I answered all parts?

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Yes, of course. So there was -- there is also a kind of more of a business question from the perspective of the defense of the NII into 2020, of course, as we're kind of living in that lower-for-longer time. Your lending performance, so far in 2019, has been actually quite strong. How should we think about it into next year? Your repricing of deposits, of course, you've mentioned the threshold in Switzerland, but what's happening on the euro side? The thresholds have also been moving. So anything that can give us a sense of the moving parts would be helpful.

David Mathers -- Chief Financial Officer

Well, I think the SNB exemption threshold is largely mechanical, and you know how that works. I think we were asked a question earlier about the percentage of our deposits which were subject to repricing here in Switzerland. Yes, I won't repeat what I said. We are charging customers with over CHF2 million in deposits minus 75 basis points. And that will go in effect late this quarter, but you won't see much impact for 2019. That will come through in 2020. I think -- on lending, I mean, I think there clearly is continued demand for lending from our PB clients. I think we've been absolutely clear on these at multiple points that a wealth management business needs to include these days not just deposit and asset management. It needs to include a lending product, and it needs to include the business -- the ability to offer products that we generate in ITS. That's what a full-service wealth management business needs in this type of environment. So I would expect to see continued growth, but I think one always has to be cautious about lending. And I think we'll continue to do it in a very prudent manner.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you.

Tidjane Thiam -- Chief Executive Officer

Yes. Thank you, Magdalena.

Operator

Thank you. And your next question comes from the line of Jeremy Sigee, Exane. Please go ahead. Your line is open.

Jeremy Sigee -- Exane -- Analyst

Thank you very much. And just two questions from me, please. Firstly, circling back on IBCM, which I know we've talked about a bit, just whether you view that as a problem that needs addressing in some way, or it's just a question of the revenues are what they are at different points in the cycle, and that's just the bit that needs to become better. And sort of linked to that, I'm again a little bit surprised at the lack of cost flex. If I look at the adjusted costs in that division, they're really moving very, very little year-on-year compared to some quite big revenue swings. And if I think about independent boutiques engaged in the primary business, you'd have much more alignment with sort of costs and revenues than we seem to have in that division. So first question.

And then the second question is on the capital ratio, just whether are there any specific actions or dependencies that need to happen for you to get the CET1 ratio back to 12.5% by year-end; and then looking beyond that, where you see that ratio going in 2020 given that your medium-term plan seemed to imply that, that ratio needed to be building up to anticipate FRTB and that kind of thing.

Tidjane Thiam -- Chief Executive Officer

Okay. Thanks a lot, Jeremy. On IBCM, I think mostly, yes, we see this as a kind of cyclical variation of a fundamentally good franchise, but there was action taken by the business. I mean, year-to-date operating expenses went down 11%. There was also quite a bit of reduction in capital usage quarter-on-quarter. They conducted also a RIF to rationalize the head count, reviewed the comp accruals to take them down and -- but they're also investing, as we all agreed, in technology to generate some efficiencies but doesn't come in 2020, 2021; and also focusing on growth.

And it's really what we said about healthcare, taken healthcare. I mean that's material because really, if you can grab some of that growth, you can really make a big difference to the bottom line. And also really the collaboration, which I think in fairness is something that is probably, if you look at what GM has done with ITS, still has a big upside, I think, in IBCM. And that's really something we intend to focus on very much going forward. So there's been quite a bit of work on the costs, the flexing of cost base, but as you know, it's a people business. So there is always kind of limited flex there, but we -- the team has done what they can there and also really driving revenue up and making sure that we'll focus on the right sectors. David, do you want to talk about capital and stuff like that?

David Mathers -- Chief Financial Officer

Sure. Thank you very much. I mean, I think a few points to make really. So, I think the first point is we did see, as we said, continued strong capital generation in the third quarter, up at CHF37.4 billion of CET1, which I think is the most important point. And absent the change in the three-year window, which I'll come back to in a minute, we would have been at a CET1 ratio of 12.6% at the end of the third quarter. I think, on the window, it's a slightly unusual piece of mathematics. And the SRU had a significant exposure to certain Eurozone swaps. That exposure was redeemed at the end of its life and that technically changes the balance of risk across our portfolio. And that actually moves the three-year window to which the capital calculations are applied from the Eurozone crisis in 2011, '12 back to 2008. So you get this slightly, I think, perverse result from the mathematics in which a reduction in risk, because I'm very happy we have redeemed those Eurozone exposures, actually leads to about a CHF6 billion increase in RWA in the third quarter. And that was the background to that mathematics.

But I think, looking at the year-end, I mean, we've given clear guidance that we would expect the CET1 ratio to be 12.5% at the end of the year, and that very much remains our intention. I think we also said earlier in the year that we wanted to have the ability to flex RWA usage up and down to take advantage of whatever business opportunities are actually available, and we've done that during the course of that. So our CET1 guidance for the end of this year remains unchanged. I think, looking forward into 2020 -- well, we do have an Investor Day on the 12th of December, so I won't foreshadow what we'll say there, but I think you will know that we have the SA-CCR change which comes in on the 1st of January 2020; and that we would expect the SA-CCR, by itself, to result in an RWA increase of about 10 billion. And that number's the same as I gave last December and, I think, actually for the previous two Decembers beyond that. So that still remains in planning. But I would point out that, that is actually no change in risk. It's merely an upward RWA calibration. It's the first phase of the B4 changes -- or the B3R changes, but we'll come back to this on the 12th.

Jeremy Sigee -- Exane -- Analyst

Thank you very much.

Tidjane Thiam -- Chief Executive Officer

No, I think it's an Investor Day topic. And I made this comment previously, but it's interesting to see the divergence between leverage and CET1 ratio. What you see is a leverage ratio that keeps going up. And you see banks that have more absolute capital, less absolute risk with a decreasing CET1 quarter-after-quarter. So there is something there that doesn't work on a logical basis. And that's just for -- intended for resi and the team to compute our CET1 today on a 2015 basis. And it's something like 15.5%. So there is a regular redefinition trend of CET1 that means that CET1 optically goes down when the bank actually is getting stronger with more capital and less risk. So at some point, that logic needs to be tackled. And it seems to me that a big part of the answer should be some kind of recalibration as the definition of RWA changes. 12% is not 12%, or even with 12.5% in 2019 is certainly not 12.5% in 2015. That's a debate, I think we need to have. And we can have it in more -- in a more expansive manner at Investor Day. I mean that is something we should come back to.

David Mathers -- Chief Financial Officer

All right. Just to just follow up with that part: I think I did reference in my comments that, that take -- the current moves put us in a risk density of 33%. The importance of that is, when the Swiss Too Big To Fail regime was calibrated back in 2015, it was calibrated to a risk density of 35%. So we're now getting very close to the -- ending of a leverage backstop. And it is noteworthy that the leverage ratio of major Swiss banks is much higher now than that of other banks across Europe and is actually approaching the level of US banks notwithstanding the fact that the balance sheet structure of US banks is different because mortgages are actually taken on to the agencies Fannie and Freddie.

Tidjane Thiam -- Chief Executive Officer

That's great. That's OK, Jeremy?

Jeremy Sigee -- Exane -- Analyst

Yes. Thank you. And I guess, logically with that sort of 10 billion, if I just add in that 10 billion SA-CCR impact to this quarter, your ratio would be down around 12.0. So I don't know. Again, I guess it's to the Investor Day just how much you're willing to see the headline ratio come down even accepting that it's technical, etc. Maybe it's a question for December.

David Mathers -- Chief Financial Officer

As I said, I mean, we'll come back December, but the numbers haven't actually changed versus since we spoke last December, so...

Jeremy Sigee -- Exane -- Analyst

All right. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you.

Operator

Thank you. We will now take our next question, and the question comes from the line of Benjamin Goy, Deutsche Bank. Please go ahead. Your line is open.

Benjamin Goy -- Deutsche Bank -- Analyst

Yes, hi. Good morning, and two questions, please, from my side. First, in Global Markets and your fixed income franchise. You showed us in December and before that the mix has significantly shifted toward financing over trading. So just wondering whether Q3 is still pretty much in line with this shift. And then, secondly, maybe you can elaborate on the initial discussions, I know it's early days, of your relationship managers with clients that are being charged negative rates; and more broadly, with less-attractive cash holdings globally, how these discussions are going to moving into higher-margin product for you? Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay, thank you, thank you, Benjamin. On Global Markets, it's -- really it's interesting because, financing and trade, actually both have increased, if you look at the year-on-year evolution, and increased materially. Just trading has increased a bit more than financing, but they have both increased. It's the underwriting that has suffered, as we've indicated. And the second question was the reaction in Switzerland. It's certainly too early to tell. I mean those conversations have started recently in September. What we are hearing, I think people understand why we are doing this. I mean a lot of these people are business people themselves, so they understand why we have to do this and somehow share the pain with them. Really the dialogue is very much around what else can they do, switching into other currencies to have a better yield curve, swaps, alternative investments, money-like investments, mandates. So that's really the discussion we're having rather than people putting down their assets. I think it has led them to ask themselves questions about the level of cash they carry.

Benjamin Goy -- Deutsche Bank -- Analyst

Very clear. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you.

Operator

Thank you. And your next question comes from the line of Anke Reingen, Royal Bank of Canada. Please go ahead. Your line is open.

Anke Reingen -- Royal Bank of Canada -- Analyst

Yes. Thank you very much. I had two questions on your outlook statement, please. I guess you'll probably discuss it at the Investor Day, but I just wanted to understand when you say the challenges with 2019. Obviously seasonality would -- could we also think about the 16.4 billion cost number, especially in light of the relatively limited flexibility you've shown so far in IBCM, a sort of potential room to bring this in lower? And then on the 2021 outlook, it sounds very cautious. Are you suggesting the ROE targets will no longer stand? I mean, I understand that's probably something that will be discussed at the Investor Day, but as the outlook statement is there. And then just a very small question on the NII and Asia. The treasury income, is that a one-off, or is this a running number in NII? Thanks a lot.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you. Thank you, Anke. Maybe we can deal with the NII in Asia immediately. You can take that one.

David Mathers -- Chief Financial Officer

Very short answer. The answer is it's an ongoing gain basically, so I wouldn't expect that to change. So it will be a benefit and you should factor it per se into your model.

Tidjane Thiam -- Chief Executive Officer

Okay. And the outlook. Look, I absolutely understand the question. A bit difficult to answer it today. I think it's more a discussion, again, for the Investor Day, but yes, we are cautious. It's just the dialogue with clients. Just back from a conference yesterday. I mean everybody you meet is cautious. We have a US election coming, which is a big factor next year. We have the US China trade issue that is not going away. We have tensions in the Middle East. So the general phase and visibility on 2021 is very limited. And a lot of the decisions we're talking about involves 2021 and 2022, and so you're seeing the impact on -- of that. You see it on M&A, very large M&A. I mean Chinese M&A has stopped basically and for understandable reasons, large, large-scale M&A. So yes. I mean there's no question that we are cautious, and we need to see then, by the time we come to Investor Day, what it means more precisely for 2020.

Anke Reingen -- Royal Bank of Canada -- Analyst

Thank you very much.

Tidjane Thiam -- Chief Executive Officer

Okay.

David Mathers -- Chief Financial Officer

I think one point I would -- I'm sorry. One point which I'd like just to make on that really, I think. Just in terms of the RoTE, I think it is worth noting that we are at 9% for the first nine months of this year. And I did do the usual adjustments. I think we gave guidance that we expected to be at 10% on the basis of flat revenues. If you actually add back the revenue move, most of which was incurred in the first quarter, we're actually at 10.4%. So just for that in context, I think.

Tidjane Thiam -- Chief Executive Officer

We had that view in a very strong quarter for us traditionally, in just Q1, so that's quite painful. And yes, we'd be comfortably above 10% with flat revenues.

Anke Reingen -- Royal Bank of Canada -- Analyst

Thank you.

Tidjane Thiam -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Patrick Lee from Santander. Please go ahead. Your line is open.

Patrick Lee -- Santander -- Analyst

Hi, all, and thanks for taking my question. My question really relates to the wealth managements across all the geographies of the wealth management division. And in particular, I want to know your thoughts about the very strong transaction revenues in this quarter in particular. I guess, in the context of what is now a usual warning on geopolitical risk, global economic outlook, I don't think like the third quarter saw a significant change or improvement on that front.

So with that in mind, does the transaction revenue performance reflect any improvement in investor sentiment, investor agility, or I'm wondering if the whole discussion of low interest rate, charging deposit have push investors into buying more investment products in this particular quarter, whether extra million dollars into deposits versus extra million into investment products. And I guess, whether it's some sort of one-off panic buying event in this quarter and that would change from next quarter onwards. And also on that point, what products are they buying, if they are buying extra products? I mean, do you see obvious bias toward favor on lower-margin products? So that's my question.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you. Thank you, Patrick. You're right to note the increase in transaction revenue. First of all, you've seen it in Asia and in IWM, which is interesting. It was 19% in Asia, I think; and 12% in IWM. In both cases it's really the result of proactive engagement. We've encouraged -- there's been like strategic sessions with the RMs thinking about these contexts of the low interest rates; what equity markets are doing, obviously, with high valuation but low conviction, high valuation with low trading volumes; and what we can advise the clients to do in that context. And yes, the dialogue has been quite productive.

In the case of IWM, they have actually -- sorry, APAC, they have actually created a number of products for this environment which have been quite successful in FX. And they have campaigns almost weekly, campaigns with outreach to the clients, and the clients booked. In IWM, it's the same thing. It's really the house view that you -- we've talked to you about, reaching proactively to the clients and delivering them solution that work in this environment. So, I don't think it's a one-off. I think it's also ITS. A lot of -- again, I mentioned that actually the volume of large deals in IWM was up year-on-year. And there is a will there to -- initially when we started this process, it was a bit of case by case and kind of -- I don't know. And what Philipp and the team are trying to do is to industrialize that so that we have a stronger pipeline more organized and also less volatile from one month to another. And we've seen early signs of that in Q3, and it's quite promising in just -- and it's continued in Q4 actually.

So continuing our traditional strength on large transactions and amplifying that, and also of ITS, but also on the kind of flow, more standard transactions, being also more organized and more structured. And so in this first quarter, they've been able to drive both up, which was actually quite pleasing. So, I think we focus on what we can control in this environment. So the same logic applies on NII, where we've seen pushing the loan growth; repricing deposits, natural deposit; moving people into our products; and transactional reviews have been the same. Unless if you want to add...

David Mathers -- Chief Financial Officer

No. I think that's a perfect summary. I mean I think, Tidjane, you highlighted the 43% growth in ITS. And that was obviously a significant contributor to GM's performance, SUB's performance and IWM's performance. And then I think, as you said, Tidjane, even with as our work on ITS is still ongoing, 19% increase in PB transactions in the third quarter.

Tidjane Thiam -- Chief Executive Officer

Yes. So I don't see that as a one-off. I mean it will vary from one quarter to another, but we're focused on transaction revenues is good and it fits our clientele preference.

David Mathers -- Chief Financial Officer

And I think -- I don't think we can really make that a market comment. I mean I think ITS clearly is something which has been built by Credit Suisse and is particular to Credit Suisse. I think the work that's been done by the team in Asia Pacific in terms of activating clients and what clients need in these volatile environments, I think, is self-help, I think, in this context, OK?

Tidjane Thiam -- Chief Executive Officer

Okay.

Operator

[Operator Closing Remarks]

Duration: 0 minutes

Call participants:

Adam Gishen -- Group Head of Investor Relations and Corporate Communications

Tidjane Thiam -- Chief Executive Officer

David Mathers -- Chief Financial Officer

Andrew Stimpson -- BofA Merrill Lynch -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Kian Abouhossein -- JPMorgan -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Jeremy Sigee -- Exane -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

Anke Reingen -- Royal Bank of Canada -- Analyst

Patrick Lee -- Santander -- Analyst

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