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Credit Suisse Group AG (NYSE:CS)
Q4 2019 Earnings Call
Feb 13, 2020, 2:15 a.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 Full Year and Fourth Quarter 2019 Results Conference Call for Analysts and Investors. As a reminder, all participants are in a listen-only mode and the conference is recorded. You will have the opportunity to ask questions after the presentation. [Operator Instructions]

I will now turn the conference over to Mark Smart, Credit Suisse Investor Relations. Please go ahead, Mark.

Mark Smart -- Investor Relations

Thank you, operator. Before we begin, let me remind you of the important cautionary statements on Slides 2 and 3 including in relation to forward-looking statements, non-GAAP financial measures and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse fourth quarter 2019 earnings release and remind you that our 2019 Annual Report and audited financial statements for the year will be published on or around March 25.

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

Tidjane Thiam -- Chief Executive Officer

Thank you, Mark. Good morning to all. I will present today for the 19th and final time our results as CEO of Credit Suisse. With me, I have David Mathers, our Chief Financial Officer and the whole Executive Board led by Thomas Gottstein our next CEO. We look forward to answering your question at the end of the session and discussing our results in more detail.

So let's start with Slide 5, please. This shows that we have delivered in 2019, a strong performance with a 19% underlying improvement. You will have noticed this morning that there is a number of non-operating items in our results, which I have put on the right side of the slide here with InvestLab, the SIX revaluation on the positive side and major litigation provisions on the negative side. So if you strip that out, reported PTI went from CHF3.6 billion to CHF4.3 billion which is basically 18% profitability improvement, which shows the progress made in the first full year after the end of our three-year restructuring. You can see the same thing on the next slide which shows you our net income. I have had the privilege of leading Credit Suisse for four full years '16, '17, '18, '19. We lost CHF2.7 billion first year. Lost close to CHF1 billion in the second. Made CHF2 billion in the third and more than CHF3 billion in the fourth year, with a return on tangible equity of 9%, which we believe is a creditable performance in the challenging environment for the industry that we experienced last year.

But let's look at '19 in more detail, and this is quite important to me. What we've done here is show you quarter by quarter the delta in revenue year-on-year, so '19 over '18. What you can see is how difficult 1Q was and that 2Q was a stabilization. Things improved in 3Q. And 4Q, I will recognize and admit that it was from a low base in '18, but 4Q shows a huge improvement, a 19% increase in revenue. And it's very important to keep in mind. And some of you who have been in various meetings with me will remember that I've said that, when we talk about the target for costs for the year, I said that we'd go in low because what's spent cannot be unspent and that we would accelerate the spending pace should things improve.

That's what the next slide shows you, which is how we manage costs intra-year. And this is how we run things with the ESD When we saw that Q1 was difficult, we put our foot on the brake, decelerated in costs very strongly in H1 and came back in H2. And I know there are a lot of questions on the Q4 costs, but this explains a big part of that. There is an element of catch-up of the prudence we had in the first three quarters and an element of variable cost increase driven by the 19% increase in revenue.

And the other important thing you will have seen that we gave a very positive outlook for Q1. You will have seen that Q1 started very strongly, we said, in all divisions, and it fits this picture, but this still leaves us with a flat year-on-year total cost. On the bottom right of the slide here, we can see 0%. So this is the intra-year dynamic management of the cost base within still a good outcome which is flat cost year-on-year and revenue up.

Moving on. This is our record of 13 consecutive quarters of posting -- sorry, positive operating leverage. Something we, I think, collectively are proud of and, I'm looking at Thomas here. I know a record he will be very focused on continuing. I have complete confidence in that. It's a very important part of our proposition and our strategy.

Looking at capital, you've seen that we've moved to 12.7% sequentially from 12.4% at the end of Q3. And also, at -- in absolute capital we've continued to accrue. This is actually important because we talked about it at the Investor Day, but I think we are reaching a point where I think running the group will be more -- how I can I say this. I won't say exciting, but we will have a quite a release of the capital constraint under which we've been operating until now. That's really a new environment. We're starting to see it in Q1, where we can actually really invest for growth and increase our growth rate, and that's great place to be. And we -- also during 2019, we got 12.7% CET1 ratio, fulfilled our commitment in terms of dividend and buyback and altogether distributing about CHF1.7 billion of capital to our shareholders. And I will come back to this, but you know that we have a similar commitment for 2020.

So, what I'd like to do at this point is just pause because we're at the end of a period and look back at the strategy we are following at a kind of high level, getting a little bit away from 4Q and the '19 results. You've seen this slide many times. It's a summary of our strategy, a leading wealth manager with strong investment banking capabilities. We had two fundamental assumptions behind this strategy, that there would be continued growth in global wealth and in wealth management, on the left here and also that the global revenue pool in sales and trading would stagnate or decline. And both assumptions have proven correct since 2015, and we think that the strategy we chose was correct and remains correct. We have changed the structure of the bank accordingly. Initially, in '15, we had just two big global divisions. We've broken that down in five divisions because we thought they would be more nimble. The first three, Swiss Universal Bank, which we created, it's a big step for us to have a fully fledged Swiss bank, International Wealth Management, Asia Pacific, focused on wealth management. And then separating IBCM and Global Market. And knowing that Global Market needed a very deep restructuring, which I'll come back to later.

So five themes during all that period. We always told you we wanted to get the bank back to growth, mostly by focusing on wealth management. We wanted our capital level to be adequate, that we would operate with a lot of discipline in costs and generating positive operating leverage, that we would reduce our absolute levels of risk and improve our risk management capabilities and also deal with some significant legacy issues, of which the DOJ and the RMBS issue was the biggest back in 2015.

So, looking at growth, the first block. And I believe, first, because in the end it's the most important, companies must grow. Growth is the reward that your clients give you for doing a good job. I think this slide is interesting. It shows you the growth in NNA per annum. And I will just observe that, if you look at the step-up from 2018 to 2019, NNA grew by CHF25 billion. That's as much NNA as we generated in 2016. So, the increase from '18 to '19 is as much as we used to be able to generate in a year. That's an enormous step-up in growth, and it's really largely the result of the strategy we've driven. In the end, this is the lifeblood of a wealth management business, the ability to grow assets and to attract assets. And the teams of Credit Suisse have delivered very much on this metric and is confirmed by the AUM of the Group. We started at CHF1.2 trillion. We're above CHF1.5 trillion. 6% CAGR in a period that was not particularly favorable is something we think is a good performance.

And if we look at profit because growth without profit is always easy to achieve. What's difficult is to grow both volumes and profits, to be disciplined. That has been very much the case. What we have here is basically the wealth management PTI for SUB, Swiss Universal Bank, IWM, and PB in APAC. So, really the pure wealth management business. You can see that it grew at a 15% CAGR from '15 to '19, going from -- adding CHF2 billion of PTI basically in the period. So, that's a good record.

We've presented many times, at Investor Day, and I won't dwell too long on it, but our model. The key things I'll mention, the regionalized model is very important, the focus on ultra-high-net-worth and entrepreneurs. I've said our strategy could be summarized in three words, a bank for entrepreneurs, providing, at the bottom, institutional quality solutions and capabilities to our clients. And also, an integrated approach between investment banking and wealth management is very important. So a regional model. We actually believe that we have a global business organized regionally. And we've showed you this, that we cover 75% [Phonetic] of global GDP, which we believe is enough to get growth -- enough growth, as the slides before have showed. And we believe that it's a model that's becoming increasingly popular in our industry. It allows you to be close to your clients, to be nimble, and the logic of this market is so different that it makes sense for us to have Switzerland, for instance, and China in two completely separate divisions while extracting the synergies between both businesses.

This is possibly one of the most important slides for us. Remember, it shows you the capital allocation. That is really the heart of the transformation of the bank. We started with 51% in the markets activities. We're now at 28% and with a lower total. And if you do a kind of standard deviation of those income streams, you see that the gray has a 25% volatility, and the blue has a 5% volatility. So, that switch from higher-volatility, more capital-intensive, lower-returning businesses to lower -- sorry. I'm speaking too fast -- lower-volatility, less capital-consumptive, more capital-efficient, higher-return businesses is what's driven largely the improvement in profitability that you have seen.

So we just -- you've seen this slide before, but really this is -- this integration between advisory, underwriting and financing, sales and trading, global market and private banking is -- yes, if there is a secret sauce, it's the secret sauce for us. And that's what we've been driving, with a degree of success, as we'll show you on the following pages. ITS has been really driven by Global Markets as a joint venture with the Swiss Universal Bank and IWM, and it's worked very well. From its creation in '17, revenues are up 27% and 15% -- of which 15% '18 to '19. And we'll just give you some examples of the variety of transactions that we have generated. I'll just make a point here because I think this is really an opportunity for houses with a strong structured products culture. I think it's less accessible to flow shops. We have a set of skills that is absolutely suited to implementing this model, and the track record of flow shops trying to do this is not good. So we're quite convinced that we have a very unique model with a unique capability to implement it well and without taking undue risk, and we think that this will show in the coming quarters and years.

Another point I'd like to emphasize is that our investment banking capabilities have not suffered from this focus on wealth management. This is an example. We have -- we are doing better in IBCM in Asia than ever before while being focused on wealth management because we have gotten the two to work very well together. And we've gone from a Number 3 rank in '16 when we started, to a Number 1 rank for the first time. And we got Best Investment Bank award. We just had our second highest quarterly gross revenue in 4Q '19. We've told you many times that IBCM contributes a lot of NNA to the private bank, and that's also unique to our model, very significant, depending on the quarter, 40%, 50% of the flows in Asia, but we've gained market share, as we show you here, every year for the last -- no, sorry, for the last four years. Yeah, we got best bank -- Best Asia Bank by IFR and Number 1 in '19. So, a really good story, and we'll give you some color on the next slide, please.

What we see is, basically the Top 75 clients in Asia with revenue per client. You can see that we have some times where we have a lot of revenue. And we show you, during the year, individual investment banking transactions that we've done with them. This is really the kind of living proof that we do what we've been talking to you about and we did it very successfully, that we absolutely are able to translate the relationships we have with them into investment banking revenue streams. And of course, you see India there. You see China. You see Japan. You see Indonesia. You see Korea. It's across the board. And this strategy is working because then -- like Australia, for instance, where we want to grow, we went from Number 4 in IBCM to Number 1 this year. Revenues up 20%. And similar thing in India, where our WMC, Wealth Management & Connected business is up 25%. So, this strategy is effective and working. So moving on. If you look at the revenue growth, the average from '16 to '18 per client, we've increased by 180% in '19. So really a very, very effective strategy.

On the next slide, we show you a theme which I think will come in the coming years and quarters. At the top, you can see APAC. It's CHF220 billion of AUM. By the way, when we started in '15, it was CHF130 billion. So we've added kind of CHF90 billion, with about 65% of that ultra-high. And if you look at the share of strategic clients that have with us advisory and underwriting deals, it's about 85%. Now, look at IWM below. It's bigger than APAC in assets. It's just as much ultras. And if you look at the share of our clients who do advisory and underwriting deals with us, it's 20%. So I see that, and David Miller and Philipp Wehle know that, as a big opportunity if we can bring IWM to a level of what we achieved in Asia. That's a big upside for IBCM, all other things being equal. So, that's for wealth management.

Now, a few words about markets, which was one of our big challenges when we started in this because it's concentrated a lot of capital of the bank. We said that we would first rightsize and derisk the business, but we aim to achieve in the end cost of capital that we've connected to wealth management, but equities in that strategy was key. It was key also for wealth management, and we will drive revenue growth once having rightsized the business.

I'll skip this one. You've seen it too many times, but if you look at what we've done, our RWA down 46%, leverage down 43%, VaR down 52%.

And next slide. This is my favorite. It's really -- if you remember, when we started, the big question was, OK, you're going to cut costs, how about attrition? How much attrition is that going to generate? And this is really credit to Brian and his teams, the fact that once the cost cutting and restructuring was done by '18, we said, in '19, we would grow revenue. And that's exactly what's happened with not only revenue growing, but costs continuing to decrease, very good positive operating leverage and which led to the next slide.

This is interesting. I know you're wondering how well we did in 4Q. Basically in FICC we were up 73% versus, we think, 54% for the peers. And also, in equity sales and trading we believe we were up 10% versus 2% for the peers. And for the whole year, you can see that we did better than market both on the fixed income side and on the equity side, with a number of statistic. We have best leveraged finance trading performance since '16, best investment grade trading year since '12, record asset finance revenue performance. And on the derivatives side, best equity derivatives full-year revenue since '15, gained market share in cash equities. I believe we're Number 6 now. We gained one spot. We're close to our ambition of being Top 5. And prime has made a lot of progress. So, all in all, a really good story which seems to be continuing in Q1 significantly.

So the PTI that's -- associated to that is much higher, close to $1 billion for the year -- and sorry. Can we stay just on the previous one? Yes. Close to $1 billion for the year. And if you look at return on capital, the return on leverage, which was really a big challenge for us, has improved a lot from 1% to 7%. And the return on RWA is now at 11%, so double digits.

So I will pause here and summarize this first section to say that we have had a continued improvement in performance in 2019, with a particularly strong fourth quarter, but we have continued to deepen a key aspect of the strategy which is the collaboration between wealth management and investment banking and that we believe, having achieved 9% now, that consistent growth and continued disciplined execution will drive us to double-digit RoTE, which is our ambition.

And with that, I'll pass to David to continue and take you through the financials.

David Mathers -- Chief Financial Officer

Thank you very much, Tidjane. Good morning, everybody. And I'd now like to take you through our financial results in more detail.

So, as Tidjane has already mentioned, Credit Suisse had a strong year in 2019. To be helpful with comparisons and to better illustrate our financial performance, you'll see that I've included a table on this slide that includes our results excluding the gains related, first, to the transfer of the InvestLab fund platform to Allfunds Group that we reported in the third quarter which totaled CHF327 million. Second, the revaluation of our equity investment in the SIX Group which totaled CHF498 million, which we took in December, and third, the major litigation provisions for both 2019 and 2018 of CHF389 million and CHF244 million, respectively. Overall net revenues in 2019 were CHF22.5 billion, an increase of 7% compared to 2018. This includes the impact of the gains from InvestLab and SIX that I previously mentioned. If we were to exclude these, net revenues for the year would have been CHF21.7 billion, an increase of 4%, including the benefit from reduced funding costs.

Now if we look at our fourth quarter performance, net revenues increased by 29% year-on-year. Excluding the aforementioned items, our revenues would have been up 19% year-on-year in the final quarter. If we look at our major business lines, in 2019, wealth management-related revenues increased by 9% compared to 2018, and that's including the gains from InvestLab and from SIX. And during the fourth quarter, Wealth management-related revenues increased by 23% year-on-year. Again excluding the gains from InvestLab and SIX, Wealth management revenues would have been up 2% for the year and up 8% in the final quarter. I think this growth demonstrates the resilience of our franchise across all three of our wealth management-related businesses.

So, if we look at our other operations, our Investment Banking & Capital Markets activities continued to face significant challenges. Net revenues for the year were down 25% on a US dollar basis, and in the fourth quarter by 8%. The slowdown in deal making in 2019 with fewer completed M&A transactions and lower levels of activity in our historic areas of strength such as sponsors, had a significantly adverse impact on our performance. Our Markets business across GM and APAC continued to see the benefits of the investments that we've made and of the significant restructuring that we concluded at the end of 2018 as well as a more favorable operating environment, with combined revenues increasing by 10% year-on-year in 2019 and by 43% in the fourth quarter, again both stated on a US dollar basis.

Turning to expenses. We remain committed to delivering year-on-year productivity increases across our businesses and our operations. Our total operating expenses in 2019, including the increased provision for major litigation items that we took in the fourth quarter, stood at CHF17.4 billion, an increase of 1% compared to 2018. Our adjusted operating cost base, consistent with our usual definition, which excludes major litigation items, was CHF16.9 billion, an increase of approximately CHF0.5 billion compared to 2018. This was in part due to higher investments in certain strategic business lines, including compensation awards. You will note that we saw a sharper increase of operating expenses in the fourth quarter than for the full year. This is reflective of the fact that our compensation accruals were reduced in the fourth quarter of 2018 due to the adverse market conditions at the end of that year, but were more normal levels in the fourth quarter of this year, reflecting the stronger environment that we saw at the end of 2019. Even so, as Tidjane has already shown, we were able still to deliver positive operating leverage in the quarter.

As I mentioned already, you'll note that we've taken a significant litigation charge in the fourth quarter of 2019. Overall, we had litigation costs for the fourth quarter of CHF413 million, of which CHF326 million was in respect of major litigation items primarily in connection with mortgage-related matters. Correspondingly, we have reduced the aggregate upper range of reasonably possible losses from CHF1.5 billion in the third quarter to CHF1.3 billion in the fourth quarter. Now, the bulk of the litigation costs sit in the corporate center, as they primarily relate to legacy matters previously recorded in the Strategic Resolution Unit.

Overall, we generated a pre-tax income of CHF4.7 billion last year, an increase of 40% compared to 2018. Excluding InvestLab and SIX, as well as the major litigation provisions, our pre-tax income would have been CHF4.3 billion in 2019, an increase of 18% year-on-year. For the fourth quarter, our pre-tax income was CHF1.2 billion, up 104% year-on-year, or up 54% excluding these three items.

Now, I previously indicated that we'd expected to reduce our effective tax rate from 40.4% in 2018 to between 28% and 30% for 2019, and I'm pleased to announce today that the rate for last year was 27.4%. This still includes approximately 3 percentage points for the adverse marginal impact of the BEAT legislation in the United States, the expected impact which I summarized at our Investor Day last December. Looking forward to 2020, I'd reiterate the guidance I gave then. We still expect our tax rate to drop to between 26% and 27% for the year, although it may be lower than that in the first quarter of 2020.

Now, including the benefits of the reduction in the tax rate in 2019, our net income attributable to shareholders stood at CHF3.4 billion last year, an increase of 69% year-on-year. That equates to a return on tangible equity of 8.7% for 2019. And you may recall that at the Investor Day we guided to a full-year RoTE in excess of 8%. Now, just excluding the impact of SIX and the major litigation provisions, we'd have ended the year at 8.2%, and just for reference, I've included a slide in the appendix to show this reconciliation.

Let's turn to Slide 39, please, and let's look at the capital base. Our CET1 ratio increased to 12.7% at the end of 2019, up from 12.4% at the end of the third quarter, while our Tier 1 leverage ratio was stable at 5.5%. As you know, we completed our 2019 share repurchase program, buying CHF1 billion at an average price of CHF12.53 per share. Now that's equivalent to a discount of about 20% to our tangible book value per share at the year end. As we announced this morning, the Board intends to propose a dividend of CHF0.2776 per share to our shareholders. That represents a 6% increase compared to our prior year dividend, in line with our stated intentions. Taken with the buyback, that equates to a payout ratio of 51% of net income last year, which is in line with our guidance.

We expect to continue our distribution of at least 50% of net income to our shareholders by increasing ordinary dividend as well as by the share buyback program. We have already begun our 2020 share repurchase program and I would remind you that we intend to buy back at least CHF1 billion worth of shares in 2020, subject to market and economic conditions.

Now if we look at risk-weighted assets, these decreased by CHF12 billion to CHF290 billion, of which CHF6 billion was due to foreign exchange moves, specifically from the strengthening of the Swiss franc against the US dollar at the end of the final quarter of the year. We also saw a CHF7 billion decrease in net business usage in the fourth quarter, reflecting a continued discipline to RWA deployment, particularly in GM and IBCM. As we've noted before, we had a CHF1 billion increase in RWA in the quarter for regulatory-driven model and parameter updates. The net result was a CET1 ratio of 12.7% at the end of the quarter compared to 12.4% at the end of the third quarter. I will just emphasize what we said before. We continue to expect to operate the CET1 ratio of about 12.5% before the Basel III reforms and at a ratio greater than 12% post the first phase of the Basel III reforms in 2020.

Now, turning to leverage, our exposure at the end of the quarter stood at CHF910 billion, slightly down from CHF921 billion at the end of the third quarter. That reflects an FX-driven decrease of CHF13 billion as well as a small increase in business usage of CHF2 billion. As a consequence, our CET1 leverage ratio was 4%, well in excess of the Swiss 2020 requirement of 3.5% and our Tier 1 leverage ratio stood at 5.5% at the end of the final quarter of 2019, stable compared to the third quarter.

Now just a couple of additional points. Our risk density stood at 32% at the end of 2019. We continue to expect to see an approximately CHF12 billion impact from the implementation of the first phase of the Basel III reforms in the first quarter in January, of 2020, which we expect will reduce our capital ratio by about 50 basis points and increase our risk density on a pro forma basis to 33%, close to 35% level at which the Swiss capital regime, the TBTF2 regime, had been calibrated.

Let's turn now to the cost base, please, on Slide 40. The continued focus on cost efficiency and productivity remains a priority for the bank. During 2019, total operating expenses amounted to CHF17.4 billion, an increase of 1% compared to 2018. Our adjusted operating cost base for last year was CHF16.9 billion. As I said already, it's important to understand that we had more normal levels of compensation across fourth quarter this year compared to the same quarter in 2018 which suffered from a very weak close. Throughout the year, we continued to fund strategic investments for growth across the bank, particularly in our wealth management related divisions as well as investments intended to improve digitalization efforts and to boost the bank's level of efficiency, but I would also like to take this opportunity to reaffirm that, as we said at our Investor Day, we would expect to have an adjusted operating cost base of between CHF16.1 billion and CHF16.9 billion for 2020, depending on market conditions. And supporting this, we have a significant measure of cost measures planned for the year. This includes further office rationalization, increased offshoring and the creation of cross-divisional utilities to reduce duplication. This will incur certain realignment costs, but I would expect them to be offset in the period by the resultant level of savings.

Let me turn now to the tangible book value per share. This slide illustrates the progression of our tangible book value per share over the last year. As you can see, it's increased by 4% year-on-year, including the impact of the dividend payment and the accretion from share buybacks, reaching CHF15.88. If we start from the left, we generated CHF3.4 billion of net income attributable to shareholders over the last 12 months. We have also seen accretion in our book value from net share plan accruals and net credit from our UK and Swiss pension funds as well as an increase in retained earnings following the change relating to the accounting of leases. We then saw adverse impacts from tightening credit spreads and from FX moves and particularly the strengthening of the Swiss franc against the US dollar late in 2019. Perhaps more importantly, we also saw a substantial improvement in our credit standing, with tighter credit spreads as a result in the fourth quarter, which had an adverse impact of CHF0.35 on the tangible book value per share. So before distributing capital to shareholders, this led to a tangible book value per share of CHF16.04. Now, growth in our book value remains a key financial indicator, and we're pleased with the progress we've made.

Now, let me just turn now next to the divisional performance. Now, just for the sake of clarity, in order to focus on the underlying operating performance of the divisions, I'm going to focus my discussion primarily in their performance excluding the gains from the InvestLab transfer and the SIX Group equity investment revaluation. For the former, just to remind you, the gain was CHF327 million. And that was split CHF98 million for SUB, CHF131 million for IWM and CHF98 million for APAC. For the latter, the SIX gain, this was CHF498 million, split CHF306 million to SUB and CHF192 million to IWM.

So, let's start with the Swiss Universal Bank, please, Slide 42. Now, excluding the gains from InvestLab and SIX, the Swiss Universal Bank generated CHF5.6 billion of revenues in 2019. As you know, the interest rate environment last year was challenging and our net revenues for SUB including the benefit of real estate gains and higher revenues in the year as a whole from International Trading Solutions, the collaboration between SUB, Global Markets and International Wealth Management. Excluding InvestLab and SIX, SUB generated a pre-tax income for 2019 of CHF2.3 billion, up by 8% year-on-year. Operating expenses were down 3% year-on-year at CHF3.2 billion, leading to a cost/income ratio of 57% for 2019.

Now turning to Private Clients, our pre-tax income excluding the gain from SIX would have been CHF1.2 billion for 2019, an increase of 16%. This was driven by lower costs, gain from real estate disposals allocated to this business as well as the pricing measures that we summarized before which are aimed at addressing the impact of negative interest rates. Net new assets for the year totaled CHF3.4 billion, a growth rate of 2%. Now, if you look at the fourth quarter, you may recall we saw net outflows of CHF1.1 billion in the fourth quarter of 2018, whereas for 2019 that figure was restricted to an outflow on a net basis of CHF0.5 billion. That's a very strong performance given that we limited both the impact of the normal quarterly seasonal outflows and the impact of the deposit pricing measures that we implemented in the final quarter of the year. And one reason for that resilient performance was the solid inflows that we saw in our high-net-worth and ultra-high-net-worth segments.

Corporate & Institutional Clients pre-tax income, excluding the gains, would have been CHF1.1 billion for '19, stable year-on-year. Net revenues, again excluding SIX and InvestLab, would have been down 3% as we continued to see pressure on net interest income and lower Investment Banking revenues in Switzerland. In the fourth quarter, net revenues were down 4% year-on-year, with higher fees from lending activities and wealth structuring solution fees offset by lower net interest income and decreased transactional ITS revenues in the fourth quarter. We saw a substantial pension fund net inflows into our corporate and institutional client business. That totaled CHF45.3 billion of NNA in 2019, and that lifted C&IC assets under management to CHF436 billion at the end of 2019.

Let's turn now to IWM, please. our International Wealth Management division continued its profitable growth momentum in 2019. Revenues for the year excluding InvestLab and SIX were CHF5.6 billion, an increase of 3% in the year. Pre-tax income, again excluding those gains, increased by 6% to CHF1.8 billion. We remain disciplined on costs, with the cost-to-income ratio at 66% compared to 68% for 2018. Asset gathering continued at a solid pace for the division in the last quarter of 2019, led by Asset Management. Total net new assets were CHF8.1 billion, of which CHF0.6 billion was in private banking and CHF7.5 billion was in Asset Management. I think this concluded a successful year as a whole, with net new assets totaling CHF32.5 billion. Overall operating expenses were stable in 2019 compared to 2018 at CHF3.7 billion. And on a quarterly basis, they were up only marginally. I would note that expenses for the year included the cost of the increased number of relationship managers that we hired during 2019.

Let's turn now to Asia Pacific. Our Asia Pacific division saw improved full-year profitability with a strong finish to 2019. Net revenues, excluding the InvestLab contribution in the third quarter, were up by 3% year-on-year at CHF3.5 billion in 2019. Now on the same basis, pre-tax income was up 21% year-on-year from CHF664 million to CHF804 million. We also had a record fourth quarter in terms of pre-tax income at CHF235 million, largely due to momentum in Wealth Management & Connected, with particular strength in advisory, underwriting and financing.

Now, if we look at WMC, net revenues for 2019 were also supported by higher private banking revenues with increased net interest income and higher transaction-based revenues. Advisory, underwriting and financing revenues for APAC for the year grew by 2% year-on-year but were up by 43% in the fourth quarter, reflecting the strong close to the year across the industry in Asia Pacific. If I exclude InvestLab, we made pre-tax income of CHF790 million in WMC for 2019, an increase of 14% compared to 2018.

Turning to net new assets, we did see some deposit outflows in the period primarily due to continued pressure on margins. Net new assets totaled CHF8.7 billion in 2019 and CHF700 million in the fourth quarter.

Looking at markets, a significantly stronger finish to the year compared to 2018 as well as higher tangible benefits from the Asia Pacific Trading Solutions venture enabled us to breakeven for this business in 2019 in APAC. Revenues for the fourth quarter are up by 75% against a weak comparative for 4Q '18, within which equity sales and trading revenues increased by 32%.

Let's turn to IBCM, please. Our Investment Banking & Capital Markets business had a challenging 2019. Difficult and uncertain markets, fewer completed M&A transactions, as well as lower Street activity in our historic areas of strength, leveraged finance and financial sponsors, had an adverse impact on our performance. Now, if we look including the broader franchise, that is including the contributions from the Swiss Universal Bank and from APAC, we did maintain a good position in debt and equity underwriting. We ranked Top 5 in IPOs globally, second in leveraged finance, and Number 1 position in sponsors. And as we've said before, in the second half of 2019, we have invested and we're going to continue to invest in areas of advisory that we feel are central to the division's strategy.

Net revenues for 2019 were down by 25% at $1.7 billion. Whilst we continued to be disciplined on costs across the division, IBCM reported a pre-tax loss of $161 million for 2019 compared to a pre-tax gain of $350 million in 2018. I would note, though, that expenses for 2019 included severance costs of $29 million, of which $16 million were taken in the fourth quarter as well as real estate exit costs of $31 million, of which $18 million were taken in the fourth quarter. These severance costs in the fourth quarter followed news by the new Head of IBCM, David Miller, to drive further efficiencies in this division. Compared to the fourth quarter of last year, IBCM revenues were down by 8% as a result of lower M&A and corporate bank results, partly offset by better underwriting activity. Provision for credit losses increased in our corporate lending portfolio, reflecting adverse developments on a single counterparty as well as certain exit losses from non-core asset lending.

IBCM remained disciplined in terms of capital usage. RWA and leverage exposure in the fourth quarter were down compared to the end of the third quarter of 2019, including the impact from certain position exits that we executed in the corporate bank. We remain very confident that the changes that David introduced, the investments in the tech and healthcare coverage, as well as the strong pipeline, particularly in underwriting, will drive incremental revenue growth in IBCM.

Now let me just conclude then with the performance of Global Markets. If we look at the fourth quarter, it's very important to note that the weak comparative in 2018 compared to the same quarter in 2019 does lead to some significant increases in revenues. Nonetheless, we believe that the division delivered a particularly strong quarter, with net revenues increasing by 38%, fixed income revenues by 40% and equity revenues by 11%. And I think those figures compare well with those of our peers who've already reported. In terms of expenses for the quarter, there was a year-on-year increase of 8%, reflecting the more normal compensation accruals in the fourth quarter of 2019 compared to the reduced levels in the fourth quarter of 2018.

Now let me look at the 2019 as a whole. We had a strong performance in the division with positive operating leverage and significant pre-tax income growth following the restructuring measures that we implemented between '15 and '18. This performance, strong performance, and the market share gains we've seen were supported by a significantly more favorable environment, particularly in the fourth quarter, after the slow start to the year, but we are pleased to see the progress as we continue to execute against the strategic initiatives of the division. Overall, total revenues for the year increased by 13% to $5.8 billion, resulting in a pre-tax income of $960 million, and that compares to a pre-tax income of $169 million in 2018.

Just by the major business lines, fixed income revenues were up by 15% year-on-year at $4.1 billion, driven by growth across our market-leading credit franchise and by the financing and trading businesses in ITS. Equity revenues increased by 3% year-on-year at $2 billion, reflecting growth in prime services and equity derivatives but partly offset by lower cash equity results given the reduced marketwide levels of turnover.

Total operating expenses were down by 3% year-on-year, with GM remaining very disciplined in use of resources, while RWA reduced by 2%, notwithstanding the higher levels of business activity. Overall, therefore, we achieved a return on RWA at 11% post-tax and a return on leverage and therefore regulatory capital of 7% for 2019.

And with that, I'd like to conclude and hand back to Tidjane, please. Thank you.

Mark Smart -- Investor Relations

We will now begin the question-and-answer part of the conference...

Tidjane Thiam -- Chief Executive Officer

Sorry, sorry. Sorry. I'll just say a few words before that, if we can have the next slide, please. Yes.

Just to wrap up. We are focused on five key themes, growth, capital, operating leverage, risk and legacy. I just wanted to summarize on one page on the next slide some of the key KPIs, net income, you can see at the top, from minus CHF2.9 billion to CHF3.4 billion. Wealth management-related PTI increased by CHF2 billion. NNA almost doubled in four years, AUM growing from $1.2 trillion [Phonetic] to $1.5 trillion [Phonetic]. CET capital up, CET1 10.2% to 12.7%. And you know these are not comparable. On the new basis, the 10.2% is more like an 8%. Cost base down from almost CHF21 billion to CHF17 billion. VaR down a lot. Level 3 assets down a lot. And leverage, which was a big, big, big problem for us, down a lot too. So, this is some of the things that have been accomplished in the last four years.

This is about return on capital. And you can see here the reasons why we believe return on capital is going to increase. And as return on capital increases, you will see on the next page our approach to return of capital. We said 10% RoTE in 2020, expecting to distribute 50% of these, at least CHF1 billion of share buyback and a sustainable ordinary dividend increasing by at least 5% per annum and you see in our announcement today our position on that.

So just to wrap up on this story. There's a background to this, which is a number of beliefs we had when we started. We've always believed in the importance of being strong at home and that has been all the strategy behind developing the Swiss Universal Bank, creating it, setting it up and growing it the way we've had under Thomas's leadership. We also believed in the importance and growing importance of emerging economies. That's an inescapable truth, and we've driven that part of the strategy very well. And we always believe that there was a missed opportunity in terms of entrepreneurs and ultra-high and that we are -- we were uniquely positioned to leverage our investment banking and global market capabilities to drive profit growth and this is why we are quite confident in the future.

I will pause here and then effectively, Marc, move to Q&A.

Mark Smart -- Investor Relations

We'll now begin the question-and-answer part of the conference. Operator, let's open the line.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Andrew Stimpson from Bank of America. Please ask your question.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Good morning, everyone. Two questions from me, please. Firstly, on the buyback. I mean you caveated on the buyback of at least CHF1 billion you said, due to or depending on market and economic conditions. Is that a reference to where the shares trade relative to tangible book? Or is that something that you're considering when deciding whether to buy back the shares or not? Or can you clarify what that caveat means, please? And then secondly, I'm just wondering about client confidence on the wealth side. It did seem to start the year very strongly, but I'm just wondering what impacts you've seen, so far, from the virus effects in the APAC region, specifically. The outlook does say it's all good, so far, but any caveats to that, that we might need to place on that statement there, please? Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay, good morning, Andy, and thank you for your questions. Look, on the buyback, we've been very clear that we believe that, as long as we trade below book, tangible book value, it's accretive. So, we wish to do as much of it as is reasonable. So, that's certainly a consideration, but also the global economic environment is a consideration and this is why we prefer a buyback to a dividend because it gives us the flexibility, should there be a major unexpected disruption impacts. I think that's really what we can say reasonably. I mean we don't expect that to happen, but it's a prudent way to manage the capital position of the bank and protect ourselves from downside, yeah.

David Mathers -- Chief Financial Officer

I wouldn't read too much into, Andy. I think it's an appropriate caveat, and I think we are going to say the same thing last year...

Tidjane Thiam -- Chief Executive Officer

Yes, we said the same thing...

David Mathers -- Chief Financial Officer

So, it's just an appropriate caveat. That's not intended -- you shouldn't infer anything more to it than that.

Tidjane Thiam -- Chief Executive Officer

It's nothing new. It's really -- it was there before.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

But you wouldn't be halting the buyback if you go above tangible book suddenly.

David Mathers -- Chief Financial Officer

I don't -- I mean I think that's -- I think we've said that we intend to buy back at least CHF1 billion of shares this year, subject to market and our conditions. I don't really want to add to that. Clearly, that would be a quality issue to have to deal with.

Tidjane Thiam -- Chief Executive Officer

I hope you have that discussion soon in the coming quarters. So that's all. On the coronavirus, I am not a medical expert, so I have to caveat anything I say with that. It's -- I mean, we all read about it. Current confidence is very strong. January in some divisions is the best since Q1 '15. It's been a really, really strong January. That's a fact. Across the board, current confidence is strong, but really I mean it's completely impossible to predict the path of the coronavirus from here. You've seen the announcements from the changes of leadership in the Hubei province overnight. The top three officials were removed by the central Chinese government. Actually I see that as a good sign because it means again there's real focus on this and that it's going to be managed. So, I remain among the people who think that this is going to be managed, but clearly if it lasts a long time, it will have an impact on sentiment and client, consumers, but we have not seen that yet.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Okay. Great. So maybe there's an impact, but you haven't seen anything yet.

Tidjane Thiam -- Chief Executive Officer

Exactly, exactly.

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Perfect, thank you very much and good luck.

Tidjane Thiam -- Chief Executive Officer

Thank you, Andy. Thank you.

Operator

Your next question comes from the line of Jeremy Sigee from Exane. Please ask your question.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

[Technical Issues] all the clarity you gave on the costs because I was wondering why they haven't flexed down like last year...

Tidjane Thiam -- Chief Executive Officer

Jeremy, sorry -- Jeremy, we missed the first part. I think we took you -- you were already speaking, so could you just, please, apologies, but start from the top again? Thank you.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Sure. No problem. IBCM, I was just saying thank you for the clarification around one-off items that were burdening the fourth quarter because I was a bit surprised how heavy the costs were. My question is, are those done now, the real estate exit costs and the severance costs are those finished as of 4Q, or is there a bit more of that continuing in the first part of 2020? So, that's the first question.

Second question, I just wanted to pick up on your outlook statement where you talked about strong start to the year and in particular get a view on what you're seeing on the Investment Banking side both in Global Markets and IBCM in terms of activity levels as we're sort of about halfway through the first quarter.

Tidjane Thiam -- Chief Executive Officer

Okay, thank you, Jeremy. Do you want to take ICBM, David?

David Mathers -- Chief Financial Officer

Yeah. I think we took certain real estate exit costs. And I think actually, just for the help of everybody, I'd refer you to the earnings release page on the reconciliation of adjusted to reported. Those are actually in respect of the next phase of the London and New York real estate strategy, where we actually got to the point where we did decide to actually impair those leases as we've actually compressed space. That's been planned for a couple of years now in terms of there would come a point when this will be the right thing to do. I don't think about anything particularly planned in the near future, but we obviously do continue to look carefully at our level of real estate usage, particularly in high-cost locations.

And the page reference, by the way, Jeremy, would be Page 8 of the media release, which has -- the earnings release, which has the reconciliation because it's -- there's obviously gains in the Swiss Universal Bank and IWM and then there's obviously exit losses in both GM and IBCM.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Okay. So the -- from what you're saying, it sounds like those do fall away. Those do reduce coming into the new quarter.

David Mathers -- Chief Financial Officer

Right.

Tidjane Thiam -- Chief Executive Officer

Yeah, OK. So, I'll pick up the outlook and just start with IBCM since we're on it. There is a -- I mean you know it. You always have to be careful is my famous words, but so far, Q1 has been strong in IBCM. And I think we've indicated in various communications that, if you look at M&A, which had been a really challenging spot last year, the announced deals are up 90% year-on-year and that's very significant. And IBCM is doing much better. Part of the problem in '19 was, coming in '19, the pipeline was very soft. It was mostly conversation. The expected deals were -- say this is a much harder pipeline.

So, we're quite positive on the prospects in IBCM. Global market is doing well. Brian will not like me saying this, but doing really well. Equities is up very strongly. Equity derivatives is up even more. Fixed income is a bit under pressure, but the total is strongly positive on the previous year between -- remember '19 was challenging also in the first quarter. Now it's good. And the indications we have in the Swiss Universal Bank, from Thomas, his team are positive in terms of revenue growth. IWM is also doing well. And APAC, Wealth Management's doing very well in Asia. And so, yeah, it's the best start of a year we've seen in a while, but you guys have to caveat that with potential discontinuities, etc, but so far, so good.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Great, thank you very much

Tidjane Thiam -- Chief Executive Officer

Okay, thank you.

Operator

Your next question comes from the line of Magdalena Stoklosa from Morgan Stanley. Please ask your question.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much. I've got two questions. The one is about how do you see the balancing act for the operating cost management from here. Because, of course, we have gone through the restructuring with billions of costs being taken out of the base. You now are kind of much more confident talking about strategic investments but also the infrastructure savings, as David mentioned a little earlier. And of course, at the same time, you still communicated the absolute range of costs between that CHF16.1 billion and CHF16.9 billion. So, how shall we think about your binding constraint here? Is it the positive jaws at all times or the absolute guidance that you have given us? So, that was my question number one. And question number two...

Tidjane Thiam -- Chief Executive Officer

Last point. Could you -- Magdalena, sorry. Could you repeat your last point? Sorry. I missed it, about -- yeah, investments, yeah.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Of course. So when you take all of the things into account, your savings plans, but also your strategic investments now, how shall we think about the binding constraint on the costs? Is it, would you manage to positive jaws at all times or the absolute cost guidance that you have given us?

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

And the question two is about the Investment Bank overall. If we look at the Global Markets and the IBCM, of course, we have seen very strong end to a year in one and the strong beginning to the year in both, but when you think about it overall, what's the acceptable range of return on regulatory capital that you show that you would accept going forward for those two businesses?

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you, Magdalena. I'll take those but probably need some help from Thomas, because a lot of that is also for him. On the costs, look, we've been quite clear that the central piece is productivity improvement, not cost reduction. And we've put out this number of 2% to 3% per annum, and that will happen no matter what. What is then flexed is the investment basically. And that's what you see if you look at our intrayear pattern on the slide I showed in '19. That's kind of what you see, but we have the ability to slow down or push, depending on the economic environment. So -- and positive jaws are an aspiration and are there to stay, but on a given quarter, they may not be there [Indecipherable]. That's fine, but long term, yes, they are necessary because, if you're improving your productivity and growing your top line, that should be the case. And we have plenty of growth available. And the absolute cost is a kind of year-on-year guidance. It's really a one-year guidance to give you some visibility on the next 12 months. So I don't know, Thomas, if you want to say more.

Thomas P. Gottstein -- Chief Executive Officer, Swiss Universal Bank and Credit Suisse (Schweiz) AG

Yes. I hope you can hear me. So thank you, Tidjane. So first of all, I would like to welcome you also from my side. And I want to take this opportunity to thank the Board for entrusting me with this mandate and obviously, thank Tidjane for his leadership and his partnership over the last 4.5 years.

Now clearly cost management will continue to be extremely important. As you know, we managed to improve our pre-tax income in Switzerland by CHF600 million in the years '16, '17, '18. And that was largely achieved by reducing costs by CHF500 million, so I've seen it in my division, how important it is. And it will continue to be important. In -- at our Investor Day in December, we said we want to stay below the CHF17 billion cost. And depending on how strong revenue is, it will be closer to CHF17 billion or, if it's a weaker environment, closer to CHF16 billion. So absolute cost will continue to be very important. And from that perspective, nothing has changed since our December statements to that effect.

Tidjane Thiam -- Chief Executive Officer

Okay. And I think your next question was on GM and IBCM. Look, we've been clear on GM that we want a double-digit return on regulatory capital and we're getting quite close to that, which mean that's achievable. Considering the return on all the other parts of the business and the way we allocate capital, we think that, that group allow us to continue to grow RoTE. And IBCM has historically been actually comfortable in the mid-teens. First years did 14%. So we've seen '19 as an outlier. And we think that on average it should be able to hit 14%, 15% return on capital.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you.

Tidjane Thiam -- Chief Executive Officer

Yes, thank you.

Operator

Your next question comes from the line of Andrew Coombs from Citi. Please ask your question.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Good morning. If I could ask one to David and one to Tidjane, please. And first question, on the CHF326 million litigation provision for mortgage-related matters, can you just clarify exactly what that is for? I think there are some civil claims in RMBS outstanding related to the Home Equity Asset and Mortgage Trust Series. So did you see it hits with that? Or if hit separately through the monoline in dispute or if it's through a combination of both. If you could just update just on where we are with the trials relating to those cases, I would appreciate it. And then second question, to Tidjane. With the benefit of hindsight, is there any part of your strategy over the past few years you'd change or you'd wish you'd executed earlier or faster? And do you have any advice you'd publicly like to share for Mr. Gottstein going forward as well? Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay.

David Mathers -- Chief Financial Officer

Shall I take...

Tidjane Thiam -- Chief Executive Officer

Yes, take it from the first.

David Mathers -- Chief Financial Officer

So, Andrew, thank you for asking the question. And I'm probably not going to add a great deal to what I've actually said already because we obviously do not comment on specific court or legal issues. What I'd always really say is that we do review regularly our litigation provisions relating to the book of cases which we, I think you've seen, are pretty well clipped [Phonetic] or disclosed. And as we looked at the end of 2019 as part of that process, what we've done essentially is we've reduced the reasonably possible loss exposure, so the upper end of the range, which you may recall was CHF1.5 billion at the end of the third quarter, to CHF1.3 billion. And we've increased the so-called major litigation provisions, which as I said before is predominantly in respect to cases which sit within the former SRU and therefore in the corporate center, by CHF329 million in the corporate center and by CHF326 million net. On the Page 8 and 9 I referred to before, you'll see that reconciliation. And just to give you one more helpful number. That equates to total litigation provisions, which you'll see when we publish our annual reports in due course, around about CHF900 million. But I'm not going to comment beyond that. This is clearly -- this increase in provision is primarily mortgage related.

Tidjane Thiam -- Chief Executive Officer

Okay, yes. And then you asked me a tough question, yes. I think, if we look back, it was quite open. I think the basic thrust of the strategy was correct, is correct, the focus on wealth management and leveraging Investment Banking. I think, in our first -- we developed the strategy in December of '15. And if you remember, it was a very positive climate. Even -- people often referred to the share price in July, when I arrived. All banks were at a high in July '15, and the outlook was very positive. So strategy is always a mix of deep analysis long term, medium term but also where you are in the cycle. And I think, when we came out in October, we announced the strategy and was very much reflecting that environment. And actually, within a few weeks, the environment deteriorated severely. We had a major of drop [Phonetic] of markets in Q4 '15. And frankly, we had a tough decision to make, which is do we just stay the course or do we reconsider. And I think we made the right call, which was to reconsider, and took quite a bit of courage.

We had the famous GMAR, global market accelerated restructuring. We said kind of February, March, look, this is just not going to work. The environment has completely changed. And that led to a lot of downpour of criticism, but if we had not done that, we wouldn't be where we are. So I think a big part of what I would say is, yes, be strategic, but be pragmatic. Don't have too much pride, yes. It's what matters in the end is to be right and to do the right thing for the Company. The same thing when we announced the regional model, we heard a lot of recriminations saying no bank is organized regionally. I think the number of banks organized regionally is increasing now. So on that, we also stuck to our guns.

We executed and we were able to achieve some progress. And there's been a lot of discussion on the targets. I think it's good to have ambitious targets because you at least land in a good place. We say -- when I said CHF2.3 billion for Thomas and Swiss Universal Bank, it was at CHF1.6 billion, and they did CHF2.2 billion. That, for me, was a huge success and rather than saying CHF1.9 billion and achieving CHF1.9 billion. So it's that extra oomph, the CHF1.2 billion to -- CHF1.9 billion to CHF2.2 billion, that you get from pushing hard and being ambitious. That's not universally understood. Sometimes, culturally it leads to misunderstanding because in my management culture the CHF2.2 billion is a huge success. For some, it's a failure because it's not CHF2.3 billion. So that's for people to judge, but I think -- yes, I think that worked.

I think the investment in -- I mean we did an Investor Day on compliance. You came here and many of you. I think that's been also a great area of progress with Lara, first, and now Lydie of saying we need to strengthen our compliance. The primary source of value disruption in this Company have been compliance issues. The numbers are staggering in terms of fines, etc, etc. And it's not so much that the bank has not created value in its operations. It's that those issues have cost us very, very, very dearly. So I think this whole team was focused and remain focused and will remain focused on -- I'm not going there.

I think in the U.S. GM did a great job executing. IBCM did a great job. In Asia it's a long-term story. I think the fact that IBCM is Number 1, the integration between IBCM and [Indecipherable] the fact that they generate flows for the private bank was also a new concept that has worked well. So I think the main bump on the road was really kind of 4Q '15 really; and having to rejig everything, reload the SRU, which was also I think the real cutting point, have a bigger SRU and wind it down, knowing that it would cost a lot of losses. And I will say swallowing the losses of '16 and '17 and staying the course I don't know. I'm looking at David here. You have more distance. You've been around longer than I have. What will you say?

David Mathers -- Chief Financial Officer

No, I think, I will just second what you said. I think the most tricky period was the transition between '15 and '16 and particularly the sell-off in markets and some of the strangest liquidity patterns we saw at the end of '15 and the need for GMAR, frankly. I think -- though, I think once that was identified, I think, we as a management team took very decisive action to increase the size of the SRU and to complete the GMAR program. And I'm looking at Lydie in front of me as well. I mean it was a big team effort in terms of executing that. And I think the SRU team, I think, took on the mandate and, I think, executed very well against that. So I think one has to sort of stick to the principles, stick to the targets, stick to the strategy, but you do need to respond when something like that emerges. And you have to react quickly.

And it will be easier to say, that's it, we're done. But I think, having made that decision, I think we made the right decision. I think ITS and the collaboration between SUB, IWM and Markets, I think, is a huge differentiator for Credit Suisse and I would definitely put down as one of the key achievements in the last few years. I think greater internalization of flow; the ability to offer our clients better, more complex services at better prices different hedging services, I think, is all part of the evolution of wealth management and Private Banking. And I think it's been, I think, just -- I mean Asia, the wealth management thing, I think, has been -- I think that Number 1 in IBCM is remarkable, but ITS is really very important for how we actually organize our bank.

Tidjane Thiam -- Chief Executive Officer

Yes, absolutely.

Andrew Coombs -- Citi -- Analyst

Well, thank you very much for your detailed answer and for the past 18 quarters as well. And all the best.

Tidjane Thiam -- Chief Executive Officer

Thank you, Andrew. Thank you.

Operator

Your next question comes from the line of Anke Reingen from Royal Bank of Canada. Please ask your question.

Anke Reingen -- Royal Bank of Canada -- Analyst

Yes. Thank you very much. I'm sorry, I just have more number-related questions. The first was on costs, and I was wondering about the quarterly progression and the CHF16.1 billion to CHF16.9 billion range. Given the strong start to the year, should we expect that you would start the year on a higher level on the full term on cost run rate? Or should we expect something similar to last year, with the cost ramp-up seen in Q4?

And then secondly, just on the litigation provisions. I always consider this comment in the quarterly report, the CHF1.5 billion, now CHF1.2 billion, as having a very low probability, but the fact that you now compare the CHF300 million to the CHF1.5 billion, maybe I'm just wrong on the probability. I'm not sure if you can give any more detailed wording around it, but I just feel maybe I'm a bit wrong on the probability. Thank you very much, and thanks for everything. Thanks.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you, Anke. And for you, David.

David Mathers -- Chief Financial Officer

Thank you. Well, I think it's an important balance to walk. And I think, we come into 2020 with, as Tidjane and Thomas already said, a very strong start to the year. That said -- and I, we do think that the markets are well supported by economic fundamentals. I think we felt some of the concerns last year were a bit overdone, but against that, we obviously do have the U.S. election in the second half of this year. We have the sort of slightly abnormal impact of the coronavirus, so I think that does argue for a very cautious approach to expenses in the first quarter. Protecting and preserving the initiatives which we began in 2019, whether that's RMs or some of the banking group, or some of the other strategic investments we've actually made but, I think, not really accelerating beyond that. I don't think I want to give detailed quarter-by-quarter guide at this point, but I think we're definitely going to be taking a conservative approach to expenses in the first quarter to ensure we maintain that balance and remain on track for our full year guidance.

I think, on the litigation point, I mean, I'm afraid the RPL does stand for reasonably possible losses and is a required U.S. GAAP disclosure of reasonably possible losses. So when we said CHF1.5 billion of -- that's what we meant. And clearly we would prefer not to incur those costs, but we do look at that balance in terms of our provisions and our reasonably possible losses, and that's the assessment we've actually reached at this point. As I said before, a number that's not in the earnings release but will be in the annual report is the actual provisions. And just to give you an idea: As I said before, that's going to be around CHF900 million of actual provisions we have against that book, and the RPL will drop to about CHF1.3 billion.

Anke Reingen -- Royal Bank of Canada -- Analyst

Okay. Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you.

Operator

Your next question comes from the line of Benjamin Goy from Deutsche Bank. Please ask your question.

Benjamin Goy -- Deutsche Bank -- Analyst

Yes. Hi, good morning. Two questions, please. First, on net new assets. Your growth rate slowed a bit in 2019. I know it's probably the headline number is a bit one I mentioned anyway, but maybe you can share your thoughts on this metric in this interest rate environment in particular. And then secondly, on collaboration, maybe just a quick number on the structured product penetration you have achieved in the fourth quarter and also the cross-selling with advisory and underwriting in IWM. So it's much lower penetration, but what is realistic to -- what is the realistic increase given potentially different client types and segments? Thank you.

Tidjane Thiam -- Chief Executive Officer

Okay. Thanks, Benjamin. Good morning. David, do you want to talk about NNA a little bit or...

David Mathers -- Chief Financial Officer

Sure, yes. I mean I would like just to refer to Slides 56 and 57 in our earnings deck. And then what we show here is the NNA progression for the last five quarters. And I think the -- there's a number of important points to actually take away from this. The first thing is, if you actually look at the fourth quarter, that's always the seasonally lower. It's always the seasonally lower, fourth quarter. That's when we see the last step. So if you actually look at Slide 56, you can see that in the fourth quarter of 2018 we had CHF0.9 billion inflows in APAC, CHF0.5 billion in IWM; and an outflow of minus CHF1.1 billion. So if you look at the fourth quarter of 2019, you see a similar progression. So our APAC NNA was broadly similar at CHF0.7 billion. IWM was broadly similar at CHF0.6 billion.

And I think -- the point I made in my speech, I think the SUB performance is really very good. And the -- we haven't -- I wasn't actually asked the question yet about the repricing of deposits. That was a big number -- a number of questions on that in the third quarter. That's been a very successful process in the course of the fourth quarter, which does bode well for the first quarter of 2020 and indeed for 2020 as a whole, but to actually manage that degree of repricing while having a low level of seasonal outflows in the fourth quarter compared to the fourth quarter of 2018, I think, is a remarkable achievement, frankly. And I think, for the year as a whole, I think I would say we did see some deposit-related outflows, particularly in Asia Pacific. And our net new asset inflows became more driven by our financing and underwriting businesses. And that's a point where we are actually managing the pricing of our business against the net new asset inflows.

So that's why probably then look at Page 57, which shows the net and the gross margin progressions. Because you can see, if we look at the fourth quarter, that our net margin in APAC was 26 bps against 19 bps. Net in IWM was 33 bps against 33 bps, excluding SIX and InvestLab. And our net for SUB was actually 64 bps against 54 bps. So it is a balance between those two things. And last but not least, I would say that we do maintain a very conservative and, I will say, appropriately conservative definition of net new asset recognition. So I think it is important that we are very disciplined on what we actually do recognize. So I think we struck the right balance, but I would just -- I mean a very important point there about SUB and the repricing. I think it's been -- it's gone remarkably well, I think. I think the second question was actually over the...

Tidjane Thiam -- Chief Executive Officer

Structured products. I can take.

David Mathers -- Chief Financial Officer

Okay.

Tidjane Thiam -- Chief Executive Officer

Okay. I can take that one. Sorry. I think, if you look at structured products, I mean, first of all, remember we always said that we aspired to be a top-quartile player. Based on kind of external analyses, we saw that at around 6.6% and close -- or close to 7%. In '17, we're at 2.9%, and in '19 at 4.5%. So that's an increase of almost 55%, if you think about it. And it's largely driven by ITS; connectivity between ITS, the relationship managers and the CRU to create products that will enable our clients to achieve their investment goals. And we want to increase continuously the distribution of the structured lending product to ultra-highs and grow -- we like it because it's kind of annuity-based revenues and income.

And more generally, if we go back -- I think Slide 27. If we go back to Slide 27, I really felt I would show this because the reality is, if you take APAC, we have a unique franchise of entrepreneurs. And it's really up to us to do those transactions because, many of them, they will do, anyway. And the next slide, which was on IWM, I think -- no. That's Slide 29, yes. That's really important to me because my view is that we -- it's not that different if you look at the type of clients in Brazil, for instance; in some of those IWM countries; even in the release [Phonetic] We have real entrepreneurs, whether in retail, in electronics, in technology, mobile, telephony, yes. And my point is, the transactions that are on 27, we are doing them today. They're just not doing them with us.

And that's really -- when we talk about internationalization, it's always kind of a same theme. So it's less about drumming up new business but just getting our natural share of that business and making the investment banking capabilities available to the IWM clients so they don't go to some of our dear peers but do business with us. And it's across the board, if you look at ATS, what Yves-Alain has been doing in Asia. ATS in high-yield trading has gone up many ranks in our internal business. So it's really about getting those platforms to really be the first port of call for business that our clients do rather than that business goes to others. And that's a relatively low-hanging fruit and it's very profitable, so that's why we're talking about it. And we think that there is a significant opportunity there. Well, it doesn't happen overnight. When we started ATS in '17, it had a lot teething issues, a lot to sort out there. So it's not going to jump up in a quarter or two, but over time, medium term, we're convinced that there is a big opportunity there. And I believe David Miller and Philipp Wehle, more importantly, are convinced of that as well.

Benjamin Goy -- Deutsche Bank -- Analyst

Thank you very much, and all the best.

Tidjane Thiam -- Chief Executive Officer

Thank you, Benjamin.

Operator

Your next question comes from the line of Jernej Omahen from Goldman Sachs. Please ask your question.

Jernej Omahen -- Goldman Sachs -- Analyst

Yes. Good morning, from my side as well. I've got a few questions. So firstly, on this litigation charge that was booked in the quarter -- or litigation reserve, rather, David, can you just give us a bit more detail as to what this actually is? Because I think we were certainly under the impression that these U.S. mortgage issues have been settled a while back. Is this related to this settlement? Is this new? So it's I'm not asking you to make any predictions. I'd just like to understand what the charge actually relates to.

And then the second question I have is -- kind of is atypical for me, I guess, a detailed numbers question. So a number of your peers in Europe now, David again, expect to be allowed not to deduct intangibles relating to IT, to software from their core Tier 1. And just checking this for Credit Suisse, it seems to me that CS is already there, that the broadly 6 billion of intangibles are not currently deducted from Core Tier 1. Can you just confirm whether that's true or not?

And then the final question I have; Tidjane, when you came in at the beginning, I know that one of your expectations was that the Swiss market is going to consolidate and that CS is going to play an active role in that process. And I was wondering how you would assess the state of the Swiss banking market now; and whether the pace of consolidation, or the lack of it, I guess, is something that surprised you. Thank you very much.

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you, Jernej. David?

David Mathers -- Chief Financial Officer

So let's take them in order. I mean there's not much I can really add to what I've said already but a couple of things. I think, firstly, just to be explicit, there are no new cases in this. These are legacy cases which were originally included within the SRU book of work, which we obviously set up in 2015, and actually predate that by some years. So there's no new cases per se. And I think I will just help you a little bit and say these are predominantly civil cases. So I think, if you were thinking about anything else, you may remember the RMBS settlement and which was a couple of years ago basically back in 2017, three years ago now, but this is predominantly the civil cases there but nothing new. And it's always represented the bulk of the reasonably possible losses and that remains the case now in terms of our provisions, but I can't really comment beyond that. But hopefully, that would address the questions you were asking there. I think, on the -- sorry.

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah, sorry. Just a follow-on on this one. So, I mean, you say it's nothing new, but it's a substantial number, and I don't think anybody was expecting it. So, it's certainly new to me. So, I was just wondering when you think about how much of additional charges could stem from this source because I was certainly under the impression that this item was settled and done with. Now that doesn't seem to be the case. I mean, do you -- so, let me rephrase. Is it possible, in your view, that there is a substantial additional litigation charge relating to the same item over the course of this year?

David Mathers -- Chief Financial Officer

Well, I think, Jernej, that's a little on the specific nature. I think, I can only really say what I've said before, which is we've consistently disclosed the major cases. It's in all of our filings that we had a reasonably possible loss provision, or not provision, sorry, disclosure of the upper range of reasonable possible losses of CHF1.5 billion, of which the bulk was related to residential mortgage cases and that has been the case for some years now. I think we do always assess on how these cases progress and what we expect. And then on the back of that, we decided to increase those provisions at the end of 2019 by a groupwide CHF326 million and that's what's you're seeing disclosed now. The RPL is CHF1.3 billion. So that gives you our estimation of the upper end of the reasonably possible losses. And the balance of that, we'll see how it actually develops, but certainly that is our assessment, at the end of 2019, how we actually see that sort of cases. And there's nothing much more I can really add at this point, frankly, Jernej, but I think it's not a new development per se. Shall I take the intangibles question?

You are correct, although the size you gave is too much. I'm not sure I've disclosed it or not. I will check, but it's certainly not -- you're correct that for, I think, I don't know, most of the last decade, perhaps all the last decade, the Swiss rules around the capitalization of IT costs allow those to be included in the CET1 ratio rather than being deducted. And as you say, basically we have seen moves in other jurisdictions too toward that same treatment. So, it's exactly what we've always said. We think it's been exactly the right treatment and we're seeing other regimes moving in line with that, but it is not a CHF6 billion capital benefit. It's a fraction of that, but I do need to just check whether we've actually disclosed that before, as opposed to making an ad hoc comment today.

Jernej Omahen -- Goldman Sachs -- Analyst

Okay, thank you very much.

Tidjane Thiam -- Chief Executive Officer

Okay -- sorry.

David Mathers -- Chief Financial Officer

It may -- yeah. There are other intangibles which are not treated the same way, I guess, is the point.

Tidjane Thiam -- Chief Executive Officer

Okay. And the first -- sorry, the third question, consolidation in Switzerland. Yes, I was always of a mind that it should happen. And I have not changed my mind because those things take time, but I think you should step back and look at the market. It is bound to be transactions. I think that's a certainty. It's more a question of when, but Thomas, you probably can comment on that.

Thomas P. Gottstein -- Chief Executive Officer, Swiss Universal Bank and Credit Suisse (Schweiz) AG

Yeah, sure. I agree. I hope you can hear me. I agree that consolidation will continue. I mean, if you look back, since 2000s, we went from 370 banks in Switzerland to 260, so 110 banks disappeared in 20 years, 19 years. And I think directionally, with the negative interest rates, with continuous need to invest in digital and in compliance, the pressure continues to be on. And directionally, I think, consolidation will continue, but besides traditional takeovers, also some other forms of consolidation by collaboration and back office will happen. We expect that to happen more and more.

And finally, also on the external asset managers side, I think, now with the introduction of FIDLEG and FINIG here in Switzerland, we expect that market to consolidate as well. So, generally I think there is an expectation and a need of consolidation but not only in Switzerland, but I think it's true for most European countries.

Tidjane Thiam -- Chief Executive Officer

And I think, thanks to the good work of Thomas and his team, Antoine and others, we are well positioned in that context because in any case, you want to be the low-cost producer, which is the position we got ourselves into, cost/income ratio of 57%. So, we're very well positioned in that context, I think.

Jernej Omahen -- Goldman Sachs -- Analyst

Okay thank you very much. And Tidjane, thank you, and all the best for the future.

Tidjane Thiam -- Chief Executive Officer

Thank you, Jernej, appreciate it.

Mark Smart -- Investor Relations

Last question...

Operator

Your final question comes from the line of Kian Abouhossein from JPMorgan. Please ask your question.

Kian Abouhossein -- JPMorgan -- Analyst

Yes. hi. Thanks for taking my questions. We are seeing -- first question is, we are seeing a lot of pressure -- or not pressure, I should say, but a lot of investments being done by peers in the private banking space. You go to the US players. You go to the European players. And I'm just wondering if you can talk a little bit about, within Asia and as well as within Europe, pressure within the private banking compensation levels and fighting for talent and, in that context, breakeven points of new advisors that you hire and how we should think about net expansion of those.

And then the second question is to, Tidjane, to your comments about environment that you gave earlier where you indicated wealth management Asia is very strong so far, this year. And FICC, you mentioned, looks weaker, as I understood it. Can you just give a bit of a color of what you're seeing both in wealth, but also in FICC which comes to that conclusion?

Tidjane Thiam -- Chief Executive Officer

Okay. Thank you. Thank you, Kian. It's a great team. I know we're getting to the end, so I'll try to compress my thoughts. First of all, personally, I like a strategy, the strategy that we have already validated. So, I do not necessarily see the fact that others are doing the same thing as a problem. It's a bit the same when other companies move to a regional model. You do something. It's very unique, and then others copy it -- it's kind of intellectual validation. And it sets a better context for the industry. Yes, there is a lot of investment, but really if you look at all the slides I went through about our strategy, I never really talked about number of RMs. I talked about capabilities, clients and how we build the relationship with them and how much of that is secret sauce. I think that to do what we're doing successfully the -- our financing group in Asia, for instance, is very well -- often, people have challenges on the profitability of APAC markets, but APAC market is key to the velocity of capital in AFG. We distribute through APAC markets, and that doesn't really come in their P&L.

Now, if you try to do an AFG by hiring a few people from our team, it's not going to work because if you don't have the distribution that APAC market brings, what you've done is hire a few people. So, I think people sometimes miss the value of the integrated capabilities, how much it allows us to do for our clients. It allows us to be nimble. It's allows us to customize solutions, and the two are important. So, it's not just an RM game. And if you remember, I said that we had CHF130 billion -- CHF140 billion, CHF130 billion, of AUM when we started this in Asia. We have CHF220 million, so we grew by CHF90 million, CHF80 billion. And the number of RMGs was same, more or less, OK? So the productivity of the RMs and that new model is very strong.

So, we don't see the name of a game as a fight for RMs. We like to hire strong RMs. They bring us a lot. We track their productivity when we hire them, but we've never believed that this is, certainly in the space where we play because of the ultra-highs, but this is a question of number of RMs. I think that logic is more true when you go down in market to the mid and lower market. There it's very much a -- I don't want to make a wrong comparison. It's not like insurance. It's more insurance you have, the more you sell, but that's not where we compete in the ultra high market, in the billionaire market. It's much more a question of skill. So we don't see that same inflation.

And if you look at our returns, we've been quite robust in the context where we will claim that there is a secular decrease in margin. I think that's true at the lower end where there are no barriers to entry. Digital is extremely important, and there is a continued erosion of margins. I don't think -- it's a number we've always debated disclosing internally, but if you think about that Slide 27 that I showed, I can tell you that the -- take -- let's call it a multi-million-dollar threshold of revenue per annum that we use internally, the number of clients above that threshold has doubled in the last three years.

So, what we do is we increase share of wallet in clients that pay us multi-million dollars of fees per annum. So, it's a completely different game than just hiring RMs. I think it's defensible. I think it is consistent with our history, who we are, what we're good at. And so, I'm never complacent. I really look at the competition very closely and everything they are doing, but our model is very difficult to replicate. And I actually think it's unique. So sorry. It's a long answer, but I think it's an important one.

So -- then, you were asking about, yeah, environment. Yeah, I think actually I went too fast in my comments. Sorry. I have to correct that. FICC is fine. I was actually thinking of a different portion of our portfolio where a bit of pressure, but this is relatively small business. At a high level, equity is very strong. Equity derivatives is very strong, and FICC is also fine. And I said [Indecipherable] APAC is fine, but -- yeah. I've always had a friendly relationship with Thomas. I'm not going to trip him up by inflating expectations for Q1, but -- I'm not that type of outgoing CEO. So it's -- but it's a good start. I'm really pleased. On a more personal level, it's a great way for the company to say goodbye to me. As I said, my job description is not to make myself indispensable. It's to build a successful company, and we're in a good place. So any more questions?

Mark Smart -- Investor Relations

No. I think we'll leave it there.

Kian Abouhossein -- JPMorgan -- Analyst

No. Thank you very much, Tidjane. And all the best for the future.

Tidjane Thiam -- Chief Executive Officer

Thank you, Kian. I really appreciated the dialogue always.

Maybe I'll just say a few words to wrap up. Look, I think it's been a very good journey. I think it's not without bumps, but that's life. Someone coming from insurance, I certainly enjoyed running a bank. I think that the story will return, will continue. I want to end with thanks to the Board that gave me, and the Chairman, this opportunity to run CS. For clients, I always say this, lifeblood of the company, for all of us I look at the ESD here as kind of the best part of the job. That's why we do what we do.

For colleague, because we've been through a real tough and quite deep restructuring for three years, and it's really good. But '19, which is our first kind of clean year out of that, is really a good year. Thank the investors, without whose support this wouldn't be possible. Thank you very much. I wish everybody well. I wish the company well. I wish Thomas well. He's a great successor. I couldn't wish for a better person to come after me. And I hope that you will be as supportive of him as you've been of me.

And I say goodbye to all, and thank you.

Duration: 100 minutes

Call participants:

Mark Smart -- Investor Relations

Tidjane Thiam -- Chief Executive Officer

David Mathers -- Chief Financial Officer

Thomas P. Gottstein -- Chief Executive Officer, Swiss Universal Bank and Credit Suisse (Schweiz) AG

Andrew Stimpson -- Bank of America Merrill Lynch -- Analyst

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Andrew Coombs -- Citi -- Analyst

Anke Reingen -- Royal Bank of Canada -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Kian Abouhossein -- JPMorgan -- Analyst

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