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Credit Suisse Group (NYSE:CS)
Q2 2021 Earnings Call
Jul 29, 2021, 2:15 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Kinner Lakhani -- Investor Relations

Thank you, Sharon. Good morning, everyone. So 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, we refer you to the Credit Suisse second quarter 2021 financial report published this morning.

I will now hand over to our Group CEO, Thomas Gottstein; and our Group CFO, David Mathers, who will run through the numbers.

Thomas Gottstein -- Group Chief Executive Officer

Thank you, Kinner. Good morning. Thank you for joining our call to discuss our second quarter and first half 2021 results.

As part of my introduction, I would like to make a few comments. Firstly, this has been an incredibly challenging first half of the year for our bank and for all our stakeholders, overshadowed by the Archegos and supply chain finance fund matters. We are taking these events very seriously and are determined to learn all the right lessons. We firmly believe we can and will emerge stronger from these events.

Secondly, we have taken action. We have taken action to address many of the issues, and we will continue to do so. Regarding Archegos, we have exited all the remaining positions in early June and today have released the independent investigation report. We have proactively derisked our Prime Services business and overachieved the goals we set ourselves in the first quarter to reduce RWA and leverage exposure in the Investment Bank. We made key hires. We have reviewed our risk appetite across the bank, and we are proactively strengthening the overall risk culture across the group.

Thirdly, our underlying business remains healthy. For the second quarter, we delivered a reported pre-tax income of CHF830 million. And for the first half of 2021, we managed to move back into profitability on a reported basis. We achieved this despite incurring around CHF5 billion in losses related to Archegos. This resilience is a testament to our people, our business and a global franchise that we are confident will continue to drive growth into the future. Furthermore, we strengthened our CET1 ratio to 13.7% from 12.2% at the end of the first quarter.

Fourthly, we have clear priorities for the coming months, including maximizing the cash distributions to our supply chain finance fund investors and continuing to strengthen our first and second line of defense risk approach and governance. Most importantly, we remain fully focused on serving our private, corporate and institutional clients around the world. Let me be clear, we are open for business. In parallel, we shall continue our work around the group strategy review.

Before I move on to the slides, I would like to take this opportunity to thank our clients for the trust they continue to place in us. I would also like to express my immense gratitude to all our employees around the world for the dedication and professionalism. They pulled together in difficult circumstances to deliver great solutions for our clients and to create sustainable value over the long term. I am very proud of what our employees are continuing to achieve every day for Credit Suisse and for all our stakeholders.

With that, let me turn to Page 4. This slide summarizes the key highlights of the second quarter and outlines our resilient financial performance in the context of an enhanced risk approach and ongoing investments. During the second quarter, we reduced risk-weighted assets and leverage exposure in the Investment Bank by $20 billion and $41 billion, respectively. At the same time, we delivered on key investments, including expansion of our Private Banking coverage teams, notably in APAC and specifically China, in technology and in other areas across the bank.

We reported a pre-tax profit of CHF830 million for the second quarter and the net profit attributable to shareholders of CHF253 million. This includes a quarterly loss of approximately CHF600 million relating to Archegos and approximately CHF300 million gain on Allfunds. Adjusted pre-tax profit, excluding significant items and Archegos, was CHF1.3 billion, reflecting the underlying strength of our business.

Assets under management in our Wealth Management franchise increased to a record high CHF853 billion, supporting robust recurring fee growth year-on-year. We saw continued strength in the Swiss Universal Bank, including the successful completion of the Neue Aargauer Bank integration, and continued momentum in the rollout of CSX, our digital retail offering.

Our Investment Bank was resilient in the face of a significant reduction of risk and a less favorable trading environment. On an adjusted basis, excluding Archegos, we achieved a pre-tax profit of $601 million in the second quarter.

We achieved a strong performance in Asset Management, with adjusted pre-tax income up 26% year-on-year. Finally, we significantly improved our capital position. Our CET1 ratio, as already mentioned, was 13.7%. Our Tier 1 leverage ratio was 6%, and our CET1 leverage ratio, 4.2%.

Slide 5, please. Regarding Archegos, I will be clear. The total loss of approximately CHF5 billion is unacceptable, and the independent report pointed to a number of failures. We have learned serious lessons and have taken multiple thorough steps to address these issues across the bank. Appropriate HR-related actions have been taken.

You see here the selected key findings of the independent 160-page report, which we have made available in full on our website. The findings in the report included the failure to effectively manage risk in Prime Services by both lines of defense; a lack of escalation and of controlling limit excesses; a failure to discharge supervisory responsibilities in the Investment Bank and in risk; as well as insufficient prioritization of risk mitigation measures, including moving clients from static to dynamic margining.

However, the investigation also found that this was not a situation where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent, nor was it one where the architecture of risk controls and processes was lacking or the existing systems failed to operate sufficiently to identify critical risks and related concerns.

On the right side of this page are selected recommendations, including investment of additional resources and risk, transitioning of clients to dynamic margining and reexamination of counterparty risk appetite and controls. The recommendations listed have either been completed or are in progress.

Next slide, please. Let me turn to the supply chain finance fund matter. Credit Suisse Asset Management's priority remains the recovery of funds for investors in the four funds. We have an upcoming fourth cash payment planned for the first half of August. Total cash paid out and current cash and cash equivalents stands at 66% of net asset value as of February 25. The expected overall recovery of the non-focus areas is greater than 90%. With regard to the three focus areas, we plan to pursue every possible avenue to maximize recovery and are fully engaged with the respective parties. Finally, we continue to work on filing insurance claims.

Slide 7, please. This slide shows our second quarter and first half results on both a reported and adjusted basis. While supported PTI for the quarter was CHF813 million, our group adjusted pre-tax income, excluding significant items and Archegos, was CHF1.3 billion. For the first half of 2021, our reported pre-tax income was a modest CHF56 million; while the group adjusted pre-tax income, excluding significant items and Archegos, was CHF4.9 billion, reflecting the strong underlying performance of our businesses. David Mathers will provide more details on this shortly.

Slide 8, please. Here, you see the underlying results, how they stack up against the past few years. On the same adjusted basis, the second quarter 2021 pre-tax income of CHF1.3 billion is the second highest second quarter result in the last six years. The first half of 2021 was the best first half over the same period, both in terms of underlying net revenues and pre-tax income.

Next page, please. As I mentioned at the outset, we recognize the critical importance of investing to seize growth opportunities. As you see on the left of the slide, on the business side, we have made significant new hires in APAC to build out our leading franchise. Our relationship manager base rose from 600 to 650 in the first half of 2021. We have further expanded our IWM mid-market M&A advisory capabilities, and we continue to invest in our GTS solutions within the Investment Bank and elsewhere in the Investment Bank. We continued the build-out of our Mainland China presence and deepened our footprint in other faster growth markets. We are making ongoing investments in our CSX digital platform here in Switzerland, and we are prioritizing our investments in cybersecurity.

Next page, please. At Credit Suisse, the health and well-being of our people is a top priority for us. As you can see from the left-hand side of the slide, while we would like to see more of our colleagues come back to the office, we have taken a cautious approach to returning to the office based on conditions in individual countries and regions.

As far as turnover is concerned, after a relatively quiet 2020, a year when everyone was getting used to the new normal of working from home due to the pandemic, industrywide turnover has clearly increased in 2021. This is also true for Credit Suisse, but let me give you a little perspective here. Our turnover is very much in line with the past 7 years. Whilst we have had some regretted departures, notably in capital markets and advisory in the U.S., we have been investing in new hires across all major divisions, including in the Investment Bank and in Asset Management.

Next slide, please. Our groupwide assets under management grew 8% year-to-date to a record CHF1.6 trillion, which should support recurring revenues going forward. Our group NNA number for the second quarter was negative CHF5 billion but stands at a positive CHF24 billion for the first half. We have seen positive market performance in Q2. In addition, we have seen strong growth in mandate penetration to 30% in the second quarter 2021, and we are on track to achieve our medium-term ambition of around 33%.

Next page, please. We have generated strong client business volume growth across our Wealth Management businesses. Our ambition is to grow annual client business volume by mid-single digits for SUB, mid- to high single digits for IWM and double digits in APAC. We comfortably achieved those objectives in the last 12 months, as you can see on this page.

As you also can see from the bottom of the chart, we are also showing the quarterly NNA numbers for the three Wealth Management businesses. Given the overall circumstances as well as various derisking measures, we did see net asset outflows in the second quarter, notably in APAC. However, over CHF4 billion of these APAC outflows were due to proactive derisking measures related to a small number of clients. We have also continued to see solid gross inflows across all three of our Wealth Management businesses. For the first half of the year, Wealth Management NNA stands at a positive CHF7 billion.

Slide 13. Wealth Management-related adjusted revenues, excluding significant items, rose 1% year-on-year in the first half of 2021. On the same basis, strong year-on-year growth in recurring commissions and fees and slightly higher transactional activity more than offset lower net interest income.

Slide 14, please. The underlying strength of our Wealth Management-related business was demonstrated by the 32% growth in adjusted pre-tax income, excluding significant items in the first half of 2021 compared to the first half of 2020. The strength was seen across businesses, notably APAC. Return on regulatory capital in our Wealth Management-related businesses on the same basis was 24% in the first half of 2021, up from 19% 1 year earlier.

The Asia Pacific region on the next page, we are providing some details on the APAC division. The APAC region is absolutely core to Credit Suisse's growth strategy. And as you can see on this slide, the region accounted for 19% of the group's adjusted net revenues, excluding significant items in the first half of the year. Adjusted pre-tax income, excluding significant items in the first half of 2021, increased 75% year-on-year with a return on regulatory capital of 35% on the same basis.

Slide 16, please. As you know, we established Asset Management as a separate division effective 1st of April 2021. We're emphasizing the strategic importance of this business by doing so for the bank and its clients. Its results underscore the importance of this division. In the first half of 2021, adjusted Asset Management revenues, excluding significant items, were up 31%, driven by recurring management fees and performance and placement revenues. Pretax income on the same basis grew nearly fivefold year-on-year. AUM increased 11% year-on-year to CHF470 billion, and net new assets increased solidly to CHF11.6 billion in the first half of the year with contributions across index, equities and credit.

Slide 17, please. The underlying performance of our Investment Bank has been resilient in the face of the Archegos matter, a more conservative approach to risk management and normalization of sales and trading revenues after an exceptional second quarter of 2020. Sales and trading saw a significant normalization in revenues from the first quarter 2021 performance. We saw multiple strength in securitized products, particularly our #1 ranked asset finance franchise. Whilst our M&A revenues declined in the second quarter, we have a strong M&A advisory pipeline up both sequentially and notably on a year-on-year basis. And our pipeline across equity capital markets and leveraged finance are also very healthy.

Slide 18. In the second quarter, Investment Bank revenues, excluding Archegos, were down 23% from exceptional prior year levels. However, for the first half of 2021, revenues on the same basis grew 21% year-on-year, driven in particular by capital market and advisory revenues which were up 82% year-on-year.

Slide 19. Given the additional Archegos charge in the second quarter, Investment Bank pre-tax income was negative $86 million, However, adjusted pre-tax income, excluding Archegos in Q2, was $601 million. And for the full first half, adjusted pre-tax income on the same basis stood at $2.8 billion.

Slide 20, please. It was roughly 1 year ago that I announced the launch of our Sustainability, Research & Investment Solutions function, SRI, to help deliver on our ambition to be a sustainability leader. In the last year, SRI has made excellent progress executing its strategy and delivering value to clients and stakeholders.

On the right side of this slide, you see a few highlights. These include CHF133 billion in assets managed accordingly to -- according to sustainability criteria at the end of the second quarter, which is an increase of 13% quarter-on-quarter. A great highlight for the second quarter for both SRI and the bank as a whole was our inaugural Sustainability Week. We hosted around 5,000 virtual attendees over the course of the summit that began in late June. We welcomed around 70 speakers to share ideas on how to drive sustainable growth. I was delighted to participate along with Lydie Hudson, Marisa Drew and members of the Board of Directors, and we are looking forward to future summits.

Page 21, please. Before I hand over to David, let me summarize our key priorities for the months ahead. As previously discussed, we are continuing progress in cash distributions to the supply chain finance funds with the investigation expected to be concluded in the third quarter. We are recalibrating our risk appetite at both the group and divisional levels, are strengthening our key risk management processes and risk and control infrastructure.

In terms of governance, we have announced two important executive appointments related to technology and risk: Joanne Hannaford as Chief Technology and Operations Officer; and David Wildermuth as Chief Risk Officer, both starting in early 2022. I'm proud to have been able to recruit two such high-caliber talents for our executive team. We are more focused than ever to provide best-in-class service and advice to our private, corporate and institutional clients globally.

And finally, we initiated a joint group strategy review by the Board of Directors and the Executive Board with the goal to clearly define and articulate a long-term vision and a midterm plan expected to be finalized by the end of the year.

With that, I would like to turn over to David.

David Mathers -- Group Chief Financial Officer

Thank you very much, Thomas, and good morning, everybody.

Now before I take you through the financial results in more detail, I'd just like to second Thomas' comments. Our priority this quarter has been to ensure that we deal with and mitigate the challenges posed by the default of Archegos and by the supply chain finance matter. A core part of this has been to do whatever we can to ensure that there's no repetition of these events. We've taken a number of steps in this regard, and there will be more to come this year as we work our way through the strategic review.

Fundamentally, we prioritized a more conservative approach to risk in both the first and the second lines of defense. This has been most apparent in the Investment Bank, where as you can see, we've substantially reduced the size of our Prime Service business and ensure that client accounts in this business have been fully migrated to dynamic margining, and that was completed by the end of the second quarter. And it's clearly one of the key lessons learned from the Archegos matter.

That said, while we've been very focused on ensuring that we have a resized Prime Services and we have conducted a thorough and full risk review across the whole bank, we've also continued and sustained a number of the core investments that we've spoken about before, most notably in Wealth Management. We have significantly expanded the number of relationship managers in our APAC business, and we continue to build on our investments in onshore China.

Now against this backdrop and accepting that these results are marred by the impact on shareholders from the second quarter Archegos loss of CHF594 million, I think the firm has nonetheless delivered a resilient underlying performance. As Thomas has already outlined, both total assets under management and our Wealth Management client business volumes have risen to new highs of CHF1.63 trillion and CHF1.36 trillion, respectively. On an underlying basis, excluding the Archegos loss but also excluding other significant items such as the gain relating to the Allfunds transaction, we have delivered an adjusted profit of CHF1.31 billion, close to last year's figure of CHF1.48 billion.

But I'd also like to highlight the progress that we've made in strengthening our capital ratios. These are well above the levels that I targeted at the end of the first quarter, with our CET1 ratio increasing to 13.7% and our leverage ratio to 4.2% in terms of the CET1 ratio and 6% in terms of the Tier 1 ratio.

With that, let me turn, please, to Slide 23. I'll start with the reported numbers, and I'll deal in more detail on the next slide in terms of the reconciliation between the reported and the adjusted totals. Reported net revenues for the second quarter were 18% lower than in 2020 at CHF5.1 billion. That includes a small increase in Wealth Management-related revenues driven by the strength in recurring fees, but this was more than offset by the 41% decline in Investment Bank revenues, which is due to a combination of the Archegos losses, the reduction in the size of our Prime Service business and the less volatile trading environment compared to the second quarter of last year and the first quarter of this year. Clearly, one positive note for this quarter has been the improvement in the macroeconomic environment, which has resulted in us releasing a further CHF168 million in CECL-related charges.

With regard to the tax charge, when we reported our numbers for the first quarter, I advised that the effective tax rate for the year was likely to remain significantly elevated before returning to a more normal level in 2022. The rate for the second quarter was 70%, similar to the 69% ratio that we incurred in the first quarter. I think just to remind you, the reason for this higher tax charge is due to the fact that while the whole of the Archegos tax loss -- the Archegos loss is tax deductible and will remain available for the group to offset against net income in future years. In terms of financial reporting, I can only recognize just over half of that Archegos tax credit on the balance sheet in the current financial year. Reported net income attributable to shareholders as a consequence, therefore, stood at CHF253 million, which equates to a return on tangible equity of 2.6%.

Let me turn now to the next slide. Just let me give you some more detail, please, on the difference between the adjusted and the reported numbers for both the second quarter of this year and the same period last year. The second quarter of 2020 only had a small number of significant adjusting items, a CHF134 million gain on our stake in the Pfandbriefbank and offset by a major litigation charge of CHF61 million. Now the second quarter of 2021 saw three substantial adjusting items. First, the CHF594 million loss on Archegos, of which CHF493 million related to revenues, CHF70 million to credit provisions and CHF31 million related to additional associated expenses, including those relating to the Archegos investigation itself. As Thomas has already confirmed, we exited all of our remaining positions resulting from the Archegos issue during the course of the second quarter.

Second, we had a gain on Allfunds, which I think you know we successfully listed at the beginning of this quarter. We continue to hold a reduced 9.4% interest in the company and have made a gain in the second quarter of further CHF298 million on that interest.

Finally, just in terms of substantial items, we've taken a further CHF159 million in net major litigation provisions. Now to be clear, these relate entirely to pre-existing litigation matters and are not in respect of either Archegos or the supply chain finance matter. Given that the cases for which we've taken these provisions are subject to ongoing legal discussions, I will not be able to give any further details beyond what we've included in the financial report today.

Now with regard to the other items in the reconciliation, you can see a charge of CHF45 million for restructuring expenses, primarily relating to the completion of the measures that we announced last year.

Next slide, please. Let me turn now to our capital ratios. I'll focus first on the RWA and leverage numbers and then give some more details on the reconciliation in the following slide. With regard to RWA usage, you may recall that at the end of the first quarter, we said that by the end of 2021, we would reduce Investment Bank RWAs to below end 2Q -- sorry, end of 2020 levels and reduce leverage exposure in the Investment Bank by at least $35 billion, primarily through reductions in our Prime Service businesses. As you can see, we exceeded that objective in the second quarter.

With regard to the Investment Bank, we've reduced RWAs by CHF19 billion since the end of the first quarter and reduced leverage exposure by CHF40 billion. At the same time, while we have been conducting a thorough risk review across the entire bank, we have broadly maintained levels of RWA and leverage in our Wealth Management businesses. Overall, this has brought RWAs down from CHF303 billion at the end of the first quarter to CHF284 billion at the end of the second quarter. You'll note that with regard to leverage, we've continued to take a conservative view on liquidity, with HQLA increasing by CHF21 billion quarter-on-quarter.

I'll talk about the capital ratios in more detail on the next slide, but you can see that our CET1 ratio has improved by 150 basis points from the end of the first quarter to 13.7% now, and our CET1 leverage ratio has improved by 40 basis points to 4.2%. Our Tier 1 leverage ratio was 50 basis points higher at 6%.

Now let me just walk through the numbers in a little bit more detail. We ended the first quarter of the year with a CET1 ratio of 12.2%. I said at that time that we expect to see further losses of approximately CHF600 million with regard to the Archegos matter, which has proved to be the case. And this has reduced the CET1 ratio by 20 basis points. However, the elimination of the risk positions from Archegos has removed the temporary add-on relating to these positions, which was imposed at the end of the first quarter, which has improved the ratio by 24 basis points.

Now moving across the Allfunds gain, combined with the opportunity to reduce our position in the company to less than 10% of the IPO has led to an improvement of 28 basis points. The mandatory convertible note capital raise of CHF1.7 billion has added 55 basis points. And I would note that FINMA has now confirmed this can be treated as part of our common equity base. The reduction in Investment Bank RWAs though has delivered the most substantial improvement, totaling 67 basis points and taking us to the 13.7% that I've already mentioned. Now I'm not going to go through the corresponding points in respect to the CET1 leverage ratio, but as you can see here, the action we've taken have improved our position from 3.8% to 4.2% at the end of the second quarter.

Now let me turn to financial performance. Clearly, one of the strongest points has been the growth in assets under management and in client business volume within our Wealth Management businesses over the course of the last year. We've seen continued growth in overall client business volume in SUB Private Clients, in IWM and in APAC. Within SUB Private Clients, client business volume has increased by 9%, in IWM by 20% and in APAC by 24%. Whilst we have seen net asset outflows of CHF7.3 billion across these businesses during the second quarter, $4.2 billion of this was due to certain derisking actions that we have taken in APAC. And I think that the progress in AUM and in client business volume demonstrates the momentum in the Wealth Management franchise.

Now in terms of business performance, we saw a drop in net interest income compared to the first quarter of the year, which reflected lower treasury revenues as well as costs relating to the MCN issuance program. Recurring commissions and fees have grown strongly, reflecting the growth in the AUM base and increased mandate penetration, which now stands at 30% compared to 28% in the same quarter of last year and on track to achieve our ambition of approximately 33%. We have seen, though, a reduction in transaction-based revenues. This reflects lower levels of client activity and lower market volatility in the second quarter compared to what we saw a year ago and indeed in the first quarter of this year.

Let me now turn to operating expenses. We saw earlier that operating expenses were down 1% year-on-year, and what I show here are the adjusted numbers, excluding significant items and excluding Archegos across the business divisions and the Corporate Center for both the quarter and for last year. Now if we look at the second quarter, the total on a constant currency basis is 5% lower year-on-year at CHF4.06 billion. As was the case in the first quarter, the main driver across the divisions is a significant reduction in the compensation and benefits line, driven by reduced levels of variable compensation. As you'd expect, this mainly reflects the impact on our shareholders of the Archegos losses that we took in the first and the second quarters and our response to that.

You'll note that costs have risen in both APAC and in Asset Management in the quarter. In the case of APAC, this reflects the investments in the franchise, including in our China onshore presence and in the expansion of our Private Banking coverage teams. With regard to Asset Management, the increase primarily reflects three factors: first, certain severance costs that do not qualify for restructuring treatment; second, the realization of investments in partnerships and the associated costs for that; and third, the cost of our internal investigations into the supply chain finance matter.

Next slide, please. Now here, I provide an update on our provision for credit losses, both specific and CECL-related over the course of the last two quarters. You'll remember that we ended the first quarter with a total allowance for credit losses of CHF6.3 billion, of which CHF4.43 billion was related to Archegos. During the second quarter, we took CHF143 million of non-CECL-related provisions, but this was more than offset by a release of CECL-related provisions of CHF168 million. We saw net write-offs of CHF92 million in the quarter, and FX and other matters reduced the total by CHF80 million to an overall total of CHF6.14 billion by the end of June.

Now I'd now like to turn to the divisional summaries, please. And unless I state otherwise, just for clarity, I will be referring to the adjusted numbers, excluding significant numbers, items and the Archegos loss. And I'd like to start, as usual, with the Swiss Universal Bank.

Net revenues for the quarter were 1% lower year-on-year, CHF1.33 billion. This was driven by higher recurring revenues on the back of expanded client business volumes, albeit offset by reductions in GTS revenues and in deposit income. Our mandate penetration increased to 39%, and that compares to 36% for the same quarter of last year. SUB benefited from further reductions in credit provisions as the macroeconomic environment continued to improve. We took CHF26 million of new provisions in the quarter, consistent with levels for the first quarter of the year, and that was more than offset by CHF47 million in CECL-related provision leases.

Operating expenses were 4% lower year-on-year at CHF758 million, helped by continued synergies from the completion of the integration of Neue Aargauer Bank, which resulted in an adjusted pre-tax income, excluding significant items, of CHF592 million, up 13% year-on-year.

With regard to net new assets, our Private Clients business saw net outflows of CHF0.9 billion in the quarter, offset by net inflows of CHF1.5 billion for the quarter in our corporate and institutional client businesses. For the first half, these business lines saw net inflows of CHF1.3 billion and CHF5.4 billion, respectively.

I'd now like to turn to International Wealth Management, which, as you know, we report separately to Asset Management. Net revenues for the division were 11% lower, CHF803 million, and this was primarily due to lower transaction-based revenues which were 33% down year-on-year, driven by lower client activity and reduced GTS revenues as well as by a fall in net interest income, which was adversely impacted by the weaker U.S. dollar against the Swiss franc. Net interest income was 14% lower year-on-year, partly due to FX moves and partly due to lower rates on deposit income, but this was, to a degree, offset by income from higher loan volumes.

Against this, recurring commissions and fees improved by 16% year-on-year, driven by a 20% increase in client business volume. Mandate penetration for the division was steady at 34%. A release of CHF50 million for CECL-related provisions more than offset new provisions for credit losses of CHF25 million in the quarter. And total operating expenses for the period improved by 7%, driven by lower variable compensation accruals. And this resulted in an adjusted pre-tax income, excluding significant items, of CHF225 million, marginally higher than for the same quarter of last year. But I would point out, this does include an adverse currency impact on translation of CHF14 million.

Now with regard to net new assets, we saw net outflows totaling CHF0.3 billion for the division, with net new money from Western European clients, offset by outflows in emerging markets. For the first half, IWM saw net inflows of CHF6.9 billion, equivalent to a growth rate of 4%.

Let me turn now to Asia Pacific. After the strong start to the year, APAC saw net revenues declined by 8% year-on-year to $770 million, primarily due to a 22% decline in transaction-based revenues. This was largely driven by lower GTS and IBCM revenues, partly offset by substantially lower mark-to-market losses and improved levels of Private Clients activity.

As in the other two Wealth Management divisions, we saw strong growth in recurring commissions and fees which were 39% higher year-on-year at $115 million, with mandate penetration higher at 15% compared to 12% in the same period of last year as well as by increased fund volumes. Net interest income was 2% higher year-on-year at $276 million, with lower deposit margins partly offset by growth in deposit volumes and net loans.

A release in CECL-related provisions of $19 million resulted in a net $6 million in provision for credit losses in the quarter. Total operating expenses were 7% higher year-on-year at $586 million, largely due to the investments in the franchise that I mentioned before, with the weakening of the U.S. dollars also having an adverse impact on translated Swiss franc costs into APAC. The result was a decline in adjusted pre-tax income, excluding significant items, of 13% year-on-year to $178 million.

In terms of net new assets, while the outflows of $6.7 billion was disappointing, this was primarily driven by $4.2 billion of outflows resulting from the deliberate derisking measures that we implemented in the second quarter. These outflows mean that the NNA figure for the first half was a negative $1.3 billion.

Let me turn now to Asset Management. Now first, I'd like to reiterate that Credit Suisse Asset management's top priority remains the return of cash to those of our clients who are invested in the Greensill supply chain finance funds, which we started to wind down at the beginning of March. As we highlighted earlier, we're planning our fourth cash distribution to fund investors. To date, the total cash position, including payments already made and cash recovered and remaining in the funds, is approximately $6.6 billion or 2/3 of the fund's net asset values at the end of February.

Now while work on the supply chain finance funds continues at pace and remains a key priority, the division has delivered a good quarter. Net revenues were 12% higher year-on-year at CHF404 million, driven by a 38% increase in performance and placement fees but partly offset by investment and partnership income, which was 15% lower year-on-year.

Although as I mentioned before, total operating expenses were 8% higher at CHF297 million, the division still generated an adjusted pre-tax income of CHF106 million, an increase of 26% year-on-year. Now notwithstanding the supply chain finance matter, we had positive net new asset inflows of CHF1.3 billion into our Asset Management division for the quarter, which contributed to the assets under management total at the end of the second quarter increasing to CHF471 billion, 11% higher year-on-year. And then by the way, in the last four quarters, the Asset Management division has seen inflows of CHF22.9 billion.

Now let me just conclude then, please, with a few words on the Investment Bank. Clearly, the results from the Investment Bank were adversely affected by the loss relating to the exit of our remaining Archegos positions in the second quarter. As I've mentioned already, these totaled $542 million in revenue losses, $77 million in credit provisions and $33 million in related expenses.

A second factor in our performance was the resizing of the Prime Service business and the more conservative approach to risk that we have been taking across the bank. We said in the first quarter that we would reduce leverage exposure in the Investment Bank by at least $35 billion, and we have, in fact, reduced it by $41 billion or 11% quarter-on-quarter, notwithstanding higher HQLA. We have also reduced RWAs in the Investment Bank by $20 billion quarter-on-quarter. Now I think unsurprisingly, this resizing of the Prime Service business has had an adverse impact on revenues within the equity sales and trading businesses, where adjusted revenues, excluding the Archegos loss, of $514 million, 17% lower year-on-year.

But I think separate from these measures, we have delivered a more resilient performance elsewhere in our Investment Bank. Whilst we have seen some declines in certain business lines compared to a year ago, we have also seen continued outperformance in securitized products and a 23% increase in capital markets revenues, excluding the mark-to-market gains that we saw in leveraged finance in the second quarter of 2020.

Advisory revenues were 34% lower at $123 million, primarily due to the delayed deals closings, with a number of transactions being pushed back into the next quarter. As Thomas has already commented, the pipeline, both in capital markets and in advisory, is at high levels as we go into the second half of 2021.

Now as with the other divisions, we saw a net release of provisions for credit losses, in this case, of $61 million, of which $58 million were CECL-related. Our adjusted operating expenses were 5% lower year-on-year at $1.76 billion, primarily due to reduced compensation costs.

In terms of profitability in the Investment Bank, as I've said before, the completion of the exit of the Archegos position has resulted in a pre-tax loss for the second quarter of $86 million on a reported basis. Now excluding Archegos and making the other usual adjustments, our pre-tax income was $601 million compared to $979 million a year ago.

With that, I would like to conclude my part of this morning's presentation and hand back to Thomas. Thank you very much.

Thomas Gottstein -- Group Chief Executive Officer

I actually suggest we directly go into Q&A.

Kinner Lakhani -- Investor Relations

So we will now begin the question-and-answer part of the conference. At the end of the Q&A, Thomas will provide some concluding remarks. [Operator Instructions] Sharon, let's open the line, please.

Questions and Answers:

Operator

[Operator Instructions] Your first question today comes from the line of Magdalena Stoklosa from Morgan Stanley.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

I've got two questions, and they're both on the deleveraging particularly, kind of quarter-on-quarter. So really, my first question is about the Investment Bank because, of course, you have kind of shown higher, I suppose, deleveraging numbers than we expected. And of course, part of it or a large part of it was Prime Services. But is there any other kind of some business line or any other, yes, business that you would like to highlight from the perspective of the residual of that deleveraging to be coming from?

And my second question is really around the risk-weighted assets fall quarter-on-quarter also within wealth. We have seen your risk-weighted assets coming down. We have seen your loans coming down quarter-on-quarter, particularly in APAC as well. Could you give us a sense what was happening kind of there apart from your kind of derisking that you have mentioned?

And then so could you give us a sense, when you talk about this reduction in risk appetite currently, what does it actually mean? What sort of constraints are you operating on from a risk perspective?

David Mathers -- Group Chief Financial Officer

Thank you very much, Magdalena, and thank you very much for the question. I think in terms of deleveraging, the primary focus was the resizing of the prime business within the Investment Bank. And as you know, it was partly offset by an increase in HQLA, but there's nothing else particularly to highlight, Magdalena.

I think in terms of risk-weighted assets, within -- across the bank overall, I'd just refer you back to the table which we showed on Page 27 of the deck basically. So what you see here is, obviously, is -- and this is in Swiss franc terms, is a CHF19 billion reduction in the Investment Banking RWA and a CHF3 billion increase in SUB, IWM, APAC, Asset Management and CC. But you are correct because the CC number includes, as we've noted, opposite, a CHF6 billion increase in operational risk RWA, which we've warned about before and flowed through. So net-net, the Wealth Management division was slightly down year-on-year.

I mean, I don't think there's anything specific I'd like to highlight. I mean, I think one point I did bring out was the fact that we did review very carefully the businesses across the entire bank. There's been a very thorough risk review, which is being conducted by the tactical crisis committee of the Board of Directors. And that has included the Wealth Management operations as well as the Investment Bank. And we did basically result -- that did result in $4.2 billion of net new asset outflows within APAC, relating to certain clients where we did decide to significantly restrict our activities.

But there was nothing broad in terms of that. I think it was fair and appropriate that I think following both the Greensill episodes and the Archegos issues, that we did do a thorough review of our risk appetite, which was led by our interim Chief Risk Officer, Jo Oechslin, and in conjunction with the tactical crisis committee of the Board, and we then continued a thorough risk review across the bank. And I think that taking that more conservative approaches has been the right thing to do in the second quarter. But clearly, the bulk of the reductions have clearly been borne by prime and by the Investment Bank.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

And David, are we likely to see more of those kind of reviews of clients into the third and fourth quarter, similar thing that you've described happened in APAC in the second quarter? Or would you think that, that process is largely complete?

David Mathers -- Group Chief Financial Officer

That process is largely complete. I think you can understand that given the events of February and March, and this was done on an accelerated basis immediately after that. And as I said, the tactical crisis committee has been going through our business portfolio one by one, and obviously, Zeth [Phonetic] is an executive member of that committee, and I think it has been a good and thorough process, but the bulk of that has now been completed.

I mean, I think just generally speaking, in terms of groupwide RWA and leverage, I think you should probably assume that the levels pertaining at the end of the second quarter where I roughly expect to operate for the third quarter, if that's of some help, Magdalena.

Operator

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

Benjamin Goy -- Deutsche Bank -- Analyst

Two questions, please, also one on Wealth Management and one on the Investment Bank. In Wealth Management, transaction-based revenues were down and also underperforming peers. So just wondering on some thoughts. How much is lower risk appetite? How much was client derisk taking? And how this fits into your strategic review? Should we assume once that is done for a division, so to say they can be more capital allocated even before it's formally announced in end of the year?

And then secondly, in the Investment Bank, you mentioned the $100 million impact from the prime reduction. So is Q2 the new run rate, of course, with all the moving parts in the market? Or do you think there could be a knock-on effect into the second half further impacting revenues here?

Thomas Gottstein -- Group Chief Executive Officer

Yes. It's Thomas here. I will take the first question, and then David will take the second question. So as you can see on Page 13, we did have weaker transactional revenues in the second quarter, which was primarily driven by the reduction in RWAs and risk and has been obviously driven by also lower client activity. But at the same time, as you can see, for the first full half, we are actually up in terms of transactional revenues, and we expect this to normalize again as we go into the second half of the year. Recurring has been on a positive trend given our increase in assets under management, and we continue to expect that. And we expect net interest income to stabilize where we are. Also, net interest income has been obviously impacted short term to some extent from our more conservative risk approach.

David Mathers -- Group Chief Financial Officer

Yes. I think on the second point, I mean, I don't particularly want to add to the outlook statement that we've actually made already. And as I said though, I think, to an answer to the previous question, I would expect the bank to offer at roughly constant levels of RWA and leverage through the third quarter.

I think a few points really. As I've indicated, the drop in transaction activity in the Wealth Management business was primarily driven by GTS-related revenues, where we saw us much lower levels of client activity, but also given the importance of derivative products within GTS, a substantial fall in volatility in markets in which we actually operate in the second quarter of this year compared to the second quarter a year ago, which has a significant impact on GTS revenues. And I think I did note earlier that within the Wealth Management-related revenues in APAC, the IBCM component of that was actually down as well.

So I think just looking forward, I said I'm not going to add to the outlook statement. I would point out that the third quarter is normally seasonally lower than what you'd normally see, and we'll see how that seasonal pattern actually develops, but it's always just worth remembering that. And I would also point out that while we do expect to see a more normalization in that, our transaction revenues per unit in Asset Management do remain comparatively high as a consequence of our business model. So I think that's just worth keeping in mind.

Operator

Your next question comes from the line of Amit Goel from Barclays.

Amit Goel -- Barclays -- Analyst

So yes, I'll ask two questions as well. The first one, just trying to get a sense, I appreciate you don't prejudge the outcome, but -- so the strategic review, just if we can get a bit more color in terms how the process works, how that's being conducted, how decisions will be made and the kind of trade-offs and the processes involved in that, that would be helpful.

And secondly, just coming back to the Slide 10 in terms of the, I guess, employee hiring and attrition. I'm just curious, if you were to cut back instead of total employees but rather just looking at, for example, MDs or material risk takers, does it give the same picture? Or is it then slightly different?

Thomas Gottstein -- Group Chief Executive Officer

Okay. Thank you, Amit. So with the strategic review, as we disclosed a couple of weeks ago, we did-we kicked off the process with a strategic offsite where the full Board of Directors and the full Executive Board participated, and this is now ongoing. We are looking at, obviously, our businesses, the strength and weaknesses, our portfolios. And this is a process that we will do very carefully and we'll-we have a new Chairman on board who has been not even three months with this bank, which is 165 years old. So we are determined to come out with a clear long-term vision for this bank and a concrete 3-year plan. And this is something that we are doing together with the Board of Directors and Executive Board. We are having detailed sessions among the ExB as well on these different divisions and business areas. And the clear goal is to come out with an articulated and clear plan at the latest by the end of the year. So that is about the process.

In terms of the employees, to your question, yes, absolutely, this is the full picture of all employees. If you look MDs, we do have a slight negative net movement in terms of MDs joiners versus leavers. But again, we are very much focused on investing in the business. We are replacing people through internal candidates and talents and, where needed, through external talents.

Operator

Your next question comes from the line of Daniele Brupbacher from UBS.

Daniele Brupbacher -- UBS -- Analyst

Yes. Just briefly again on the $4.2 billion derisking in APAC. Can you describe to us a little bit what the tactical crisis committee and generally, you, as a management team, didn't like about these positions? Was it LTVs, the liquidity of collateral counterparty, concentration, size of these positions? Just be interested to hear what you didn't like about these positions.

And then secondly, on the supply chain finance situation, is there -- and you mentioned the 66%. Is there a, call it, a critical threshold you have in mind, above which you feel comfortable having limited side effects, even like litigation issues and stuff? Like is this -- I mean, we are at 66% now. Is it 70%, 80%, 90%? Or how should -- do you have a view on that one? That would be helpful.

Thomas Gottstein -- Group Chief Executive Officer

Yes. On the $4.2 billion NNA outflows in APAC, these were linked to situations where we wanted to exit clients either for risk or for other reasons. And this is a small number of clients, but we feel very good about that, having exited those positions. But there are various considerations where I would not like to go into the details. But this was a one-off move that we had to do and wanted to do, and I do not really want to comment more on individual clients.

And on supply chain front, we really want to work through the pipeline of both the focus as well as the non-focus areas. As we say on our page that we have more than 60 internal and external experts working through this pipeline. We are in discussions with the obligors. We are in discussions with insurance. And this is quite a lot of work, but we are making steady process, and we will update you as we make progress. And there's not really one particular number we have in mind. We just want to go through the entire book and make sure that we maximize the cash proceeds for the investors and really pursue all avenues to maximize recovery.

Operator

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

Andrew Coombs -- Citi -- Analyst

Perhaps, a follow-up on the net new money. You've obviously flagged the $4.2 billion derisking in Asia. But perhaps outside of that, you could talk a bit more about the customer flows that you're seeing in the three different segments. And in particular, I'm interested in what the month-to-month progression was. So was it a case that you saw this improve as you move through the quarter? Did it deteriorate as you go through the quarter? What does the momentum look like on the underlying customer flows across the three segments? That would be my first question.

Second question is more broadly on your outlook statement. You talk about a more conservative approach to risk in the near term, while you're finalizing your long-term vision and your midterm plan. In terms of the next couple of quarters, you've alluded that the prime balance reduction is done, but should we expect ongoing revenue attrition given some of the steps you're taking with your approach to risk?

Thomas Gottstein -- Group Chief Executive Officer

Okay. Thank you, Andrew. I will take the first one, and then maybe David can take the second one. So we did see positive inflows in the third month of the quarter, so in June. So April, May was really -- were two months where we had outflows and where we also proactively addressed some of the client situations that I was alluding to also in APAC. But actually, June was positive inflows in all three divisions. And so the momentum into the end of the quarter was very positive.

So look, this is something we had to do. We wanted to work through. We clearly also had some side effects from our more cautious approach to lending volumes. We had clear targets for each of the divisions, including Asia, including SUB and including IWM in terms of RWA and leverage for the end of the second quarter because we were determined to achieve our targets that we have set ourselves. And that is obviously one of the side effects that some of the NNA or AUMs that were linked to lending volumes also came down.

But as I said, the momentum into the end of the quarter was positive. And if you look at the first half as a whole, we are at around CHF7 billion now for Wealth Management and CHF24 billion if you include the institutional Asset Management business. So absolutely decent NNA flow for year-to-date.

David Mathers -- Group Chief Financial Officer

Yes. I think, obviously, a lot of curiosity around the outlook statement. I don't think there's much I can really add. I mean, I think, first, I'd just reiterate usual seasonality to just-let's not overlook at that point.

Secondly, although in terms of the Prime Service impact, the $100 million that Thomas mentioned-alluded to in terms of the second quarter impact, I mean, let's just be clear. After the Archegos incident, Credit Suisse, we moved, we focused extremely hard on, a, the resizing of the prime portfolio; and b, shifting any clients who are on static margining to dynamic margining. And those two things were the priority for the business during the quarter, and we moved as fast as possible in terms of that. So I think you've seen the revenue impact in the second quarter.

We're obviously not going to be resizing the prime business upwards going forward. So I think we've moved it to a new lower steady state basically. But I mean, this wasn't a steady process during the quarter. We executed on this. It was fairly obvious what needed to be done, and we executed on that resizing as fast and as quickly as possible in terms of that.

I think beyond that, as I said, I think in terms of the capital reduction reallocation process, we did complete that during the quarter. And as I said, I would expect to operate a broadly unchanged levels during the third quarter. And I think you'll see more normal levels of activity beyond that. But I think certainly, second quarter, the priority was dealing with Archegos. It was dealing with the Greensill-related supply chain funds. That's unfortunate, but I think it was the right thing to do on behalf of the shareholders, on behalf of the bank overall.

Operator

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

Jeremy Sigee -- Exane -- Analyst

Just a couple of follow-ups on that last point, actually, the restructuring, et cetera. So two questions really on it. The first is that the RWA reduction being bigger than expected, it's also actually bigger than what I thought the whole of the prime brokerage was in terms of RWAs. So I just wondered what sort of decisions that involved in terms of going further than targeted? And particularly, what decisions it involved in other areas outside prime, if it did?

And then the second question relating to IB. Just sort of on the people side, we've seen a lot of reports about departures and also you'd announced retention packages. So I just wondered, are people leaving despite retention returns? Or is it that the retention effort is more focused on critical areas or something like that?

Thomas Gottstein -- Group Chief Executive Officer

Maybe, David, do you want to take the first question? I'll take the second.

David Mathers -- Group Chief Financial Officer

Yes. So I think you're right. I mean, look, just to be clear, Jeremy, in terms of the deleveraging impact, as I said to Magdalena, that was driven by prime. And I think that was appropriate. It was the resizing in the prime business. In terms of the RWA impact. As you know, prime is a relatively risk -- low-risk density business, notwithstanding experience of Archegos. But we obviously did take a conservative approach to risk across the bank and particularly within the Investment Bank in the second quarter. And that did lead to some RWA reductions elsewhere, which clearly contributed to the RWA decline that we achieved in the second quarter.

As I said, look, I think the Greensill matter closely followed by the Archegos matter, I think, necessitated a conservative approach to risk, necessitated a resizing of the risk appetite by our interim Chief Risk Officer and by the tactical crisis committee at the beginning of the second quarter. And I think that clearly has resulted in reductions in RWA beyond the prime financing business. But that said though, I just would say it before I said really now, that in terms of the third quarter level, I think I don't expect to see radical increases or decreases in terms of overall RWA and leverage for either the Investment Bank or for the group as a whole in the third quarter.

Thomas Gottstein -- Group Chief Executive Officer

And on your second question, as I mentioned before, we are fully focused on investing in the Investment Bank and within that in capital markets and advisory, where we have seen indeed a higher attrition level, especially on a senior level. If you look at Page 18, you see that year-to-date, we are up 82%, but it's also a fact that we lost CHF5 billion to one client in the Investment Bank. And this is not the year where Credit Suisse will be paying as high as you would maybe see in other firms at the moment. So we are clearly not the high payer of the street, if we want. But at the same time, we are fully focused. We have retention. And at the end of the day, we are investing in people internally, in young people. We have good talents internally to take these positions. And if needed, we will go externally and replace these people.

Operator

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

Anke Reingen -- Royal Bank of Canada -- Analyst

The first is with respect to capital and just trying to reconcile to the capital path you helpfully given us with the first quarter. So are we basically through the operational risk model updates, which you previously indicated 30 to 35 basis points, which I think you had 25 in Q2, but is that part basically done? And on the asset sales, you indicated in combination with the IB risk-weighted asset reduction of 40 to 50 basis points. Are there more benefits from asset sales to come?

And then secondly, on costs, you're running underlying at around CHF15.9 billion in the first half. And I mean, I understand things have changed, but you've previously given us the CHF16.2 billion to CHF16.5 billion for '21. So I was just thinking about what should we expect for the second half in terms of cost step-up for investment, cost savings, or also the operational costs related to the investigations.

David Mathers -- Group Chief Financial Officer

Anke, let me take both of those questions. Firstly, with regard to the operational risk update, that -- those process in that calculation was completed in the second quarter, and that added CHF6 billion of RWA in the second quarter, and that is certainly complete. There is potentially another CHF2 billion of methodology changes and updates, which might, but not certainly, might materialize later this year, and that would account for the reconciliation to the number you gave before the 35 basis points, I believe. But I wouldn't regard that as certain at this point. It's more of a prudence buffer I think about in terms of my capital planning. But clearly, either which way, I think the bulk has been done in the second quarter.

In terms of asset sales, quite clearly, the largest asset sale was the reduction in the Allfunds position where we dropped below the 10% threshold. So what you see in Allfunds really is a number of factors. Firstly, we had a further gain on Allfunds post the IPO of CHF298 million recorded across our Wealth Management businesses. Second, we've actually -- we sold down to below 10% in the IPO process itself. And thirdly, you're obviously fully aware that once you drop below 10% under the Basel III rules, the capital treatment changes from being deduction process to being an RWA weighted process basically. So that contributes or that -- those three factors resulted in the 28 basis point improvement in the CET1 ratio as a consequence of Allfunds, and that's clearly a very large single disposal-related type event. We do expect to realize further asset sale gains, particularly real estate-related later in the year, and that is still to come, I think, in terms of your planning and thinking.

I think the second point then, just in terms of cost guidance, I think it's just fair to say that while we will continue to invest across the bank, and obviously, we were pleased to see a 50 net additions in terms of RMs in APAC, which I think is the largest single increase in RMs we've ever achieved and I think demonstrates the investments in the franchise. And we're obviously continuing to invest in our onshore China platform.

Nonetheless, I think given that we will be taking a prudent approach to variable compensation awards in light of the loss that our shareholders suffered in respect to Archegos, I think it's fair to say that we will be at the bottom end of the range of the CHF16.2 billion to CHF16.5 billion cost guidance that we gave at the Investor Day last year. So I hope that answers those questions, but please, is that helpful, Anke?

Anke Reingen -- Royal Bank of Canada -- Analyst

Yes, yes. No, that was very clear.

Operator

Your next question comes from Jernej Omahen from Goldman Sachs.

Jernej Omahen -- Goldman Sachs -- Analyst

I have so many questions. I don't know how to limit it down to 2. But let's kick it off here. Thomas, I listened to your opening statement very carefully. And I managed to find one of the passages that you quoted in this report that you published today. And it says here and you quoted is that this is not a situation where the business and risk personnel engaged in fraudulent or illegal conduct, nor is one where the architecture of risk controls and processes was lacking, or the existing risk systems failed to operate sufficiently to identify critical risks.

And I just wonder how that tallies with the bulk of what you have been communicating today. Because one of the key communications that I understood is that Credit Suisse immediately changed, for example, the way you margin in your prime brokerage, went from static to dynamic, and yet the report seems to suggest that systems are fine. Is that correct?

Thomas Gottstein -- Group Chief Executive Officer

Is it your first question? And what's your second?

Jernej Omahen -- Goldman Sachs -- Analyst

Yes, that's the only question.

Thomas Gottstein -- Group Chief Executive Officer

Okay. Well, as we have tried to summarize also on our slide, so just to give you the example on dynamic and static margining. This was already discussed by the teams in September, October. They had agreed that they would move some of the clients, including Archegos, from static to dynamic. It was rediscussed in early March. And if you read the report, they were in the process of actually doing that and reaching out to the client. But it was just not prioritized the way it should have been.

So this is, to a large extent, really a series of human errors and failures by the teams. They didn't effectively manage this situation, and whether it was lack of escalation or also limit -- control of limits, which had numerous occasions being breached, but they did not act on it even though they discussed it and were supposed to do it.

So this was clearly a series of failures, which is regrettable and which we have now addressed with a new team both on the first line of defense in Prime Services, Prime Services risk and on the risk management side. So that's really how I would answer this question.

David Mathers -- Group Chief Financial Officer

And one addendum and just to second what Thomas -- yes, just to second what Thomas is -- Jernej, sorry, just to second what Thomas is saying. It is clear and the report makes clear that the appropriate escalation protocols were in place in both the business and in the second line and in the CPOC committee, which you'll see described there, but they were not operated by the individuals. So the protocols were there, but they were not followed.

It's clear that while we obviously can improve in our data systems, we can prove in the timeliness of those data systems. Nonetheless, the first and second line data systems did demonstrate the risks to Credit Suisse of Archegos. And again, those were not basically followed up as part of it. So I think that is the basis -- or part of the basis for the distinction that the independent counsel to the Board has made in their report.

Jernej Omahen -- Goldman Sachs -- Analyst

But can I just go back to -- Thomas, just to get your assessment of this, do you agree with this conclusion here, that the architecture of risk controls and processes is fine?

Thomas Gottstein -- Group Chief Executive Officer

Yes. Well, this is the independent investigators' view, and it was discussed also within Credit Suisse, within also the Executive Board and the Board of Directors, and we collectively absolutely agree with that, yes.

David Mathers -- Group Chief Financial Officer

Clearly, this report was not written by Credit Suisse. This was written by an external council, Paul, Weiss. It's an extremely thorough process they actually prepared. They prepared it under the aegis of the Board and specifically the Chair of the Audit and Risk Committee. And it was written by them. It's independent -- so the firm is independent of the Board. And I think they've conducted a thorough view. And I think we do agree with their conclusions, but it is their report.

Jernej Omahen -- Goldman Sachs -- Analyst

Right. And then maybe just to -- just in the scheme of things of the various investigations that are being conducted into this, where does this report fit in? Because I'm assuming that there's various streams of investigation by various regulators in the regions of your operations that are going through this. So what -- when we look at this, it's a really chunky report, 140-plus pages, I think. But where does it fit in?

Thomas Gottstein -- Group Chief Executive Officer

Well, this is the independent investigation report which was mandated by our Board of Directors, and that was now concluded. In parallel, you're absolutely right. There are regulatory investigations, by the way, not only into Credit Suisse, but pretty much every other prime service -- prime broker to Archegos that was involved. There are at least six or seven of them. They are all being investigated, and there is various regulatory activity in the U.S., in Switzerland and in the U.K., and we are fully cooperating and collaborating with them. And that's really all I can say to that.

Jernej Omahen -- Goldman Sachs -- Analyst

And realistically, when should we expect those processes to conclude?

Thomas Gottstein -- Group Chief Executive Officer

Well, it's always difficult to predict how fast regulators are operating. But...

David Mathers -- Group Chief Financial Officer

Look, I think-I don't think we can really comment. And I think the Board decided to commission this independent review. They obviously brought in Paul, Weiss to do a fully independent review. I think that is the appropriate governance. I think the Board decided and I think rightly that in-given the magnitude of the Archegos loss for Credit Suisse, it was fully appropriate to publish the entire review, which, by the way, I think, is 163 pages. And I think that was the right thing to do. I think it's important to be transparent to our investors, to our stakeholders basically about these events. And I would imagine this report will be read closely by all the regulators as part of their work.

Operator

Your next question comes from the line of Daniel Regli from Octavian.

Daniel Regli -- Octavian -- Analyst

My question go a bit in the direction of -- I mean, your results in Q2 have clearly been impacted still by Archegos and all the second and first order impact. But what is your mood when you talk to your clients? Or what is the mood of your clients when you talk to them going forward, particularly with regards to how shall we think about net new money generation and new wealth management? Do you expect these instances or these issues you had to continue to impact your ability to generate positive net new money going forward? Or have you may be seen now everything of it?

And then maybe the second question is on Greensill. Can you give us kind of a time line until when you expect the Greensill issue to be completed?

Thomas Gottstein -- Group Chief Executive Officer

Okay. So on the mood of clients, we are fully engaged with our clients. One thing that I wanted to also add to the one of the previous questions on NNA momentum within the quarter and toward the end of the quarter is that the gross NNA flows are actually very similar to previous years. So clients are fully involved and active in the rare situations or in some of the situations of ultra-high-net worth clients who have asked for, for example, incremental lending, where we have been maybe more cautious. They fully understand that. They don't see that as an issue. You would also see that our assets under custody have increased. So in certain situations where we had a reduction of lending, the underlying collateral, it stayed with us.

So we have very positive feedback about the way we have addressed some of these issues with respect to the risk-weighted asset reductions, the fact that we raised the capital immediately at the end of April and the read across from the lessons learned. So investors take a lot of -- sorry, clients take a lot of comfort from the fact also that we are increasing our capital ratio. So the client reaction is very constructive.

Clearly, there are some clients, for example, those who were invested in supply chain funds that are having active dialogue with us, and we are keeping them updated on the cash redemptions, and we will continue to improve that situation. But they also understand that this is a process that will take some time.

And that really brings me to your second question on the timetable of Greensill. We are paying out now another tranche, as we said, and we will continue to work through the book of work, both for the focus and the non-focus areas. The focus areas involves much more negotiations and also a number of people involved in these discussions, and this will also take a longer time.

In parallel, we are engaging with insurers, and that's a process that will certainly continue over the next few months and quarters. We are keeping our clients fully informed about this, and they basically understand the process. And whenever they need any other support, we are there to do that.

Daniel Regli -- Octavian -- Analyst

Very helpful, particularly the comment about gross flows in Wealth Management.

Operator

Your next question comes from the line of Kian Abouhossein from JPMorgan.

Kian Abouhossein -- JPMorgan -- Analyst

Yes. The first question is about capital. I mean, you're clearly running well above your target level that you gave at the first quarter stage. And just wondering, should we assume that the bank will increase capital ratios further, considering there could be some hits coming your way, regulatory write-downs, litigation, et cetera? Should we think about 14%, even 14-plus? Or should we think that this kind of level is the level you want to run rate until you have potential impacts coming against your capital?

And the second question is just taking a top-down view. Listening what we're hearing today and having a strategic update in December potentially, I'm not exactly clear what the update is about because on the one hand, it sounds like you have derisked, you're happy with the derisking, and now it's more seasonal adjustment to revenues and business. And please correct me if that's wrong, but that's kind of the impression I get from the call, the majority is done.

And then secondly, in respect to the IB, where clearly there are a lot of questions. Clearly, you are investing as you have said, and you say that, I think, in an article, Thomas, at Bloomberg interview, it's absolutely core part of the business. So just wondering, why a strategic update considering you have mitigated the issue from your perspective and it's business as usual?

Thomas Gottstein -- Group Chief Executive Officer

Why don't you start -- David, why don't you start with the capital question? And I'll...

David Mathers -- Group Chief Financial Officer

I will start, yes. Look, I think, firstly, I think I did guide at the end of the first quarter that I wanted to increase the CET1 ratio to at least 13% and ideally in excess of 13%. I think we have taken a very thorough approach to capital utilization, as I've outlined already, both in terms of the reset, the risk appetite and the bankwide risk review, and I think that's been right and appropriate. And that has led to the CET1 ratio increasing to 13.7%. And that does, by the way, include the accrual for a dividend in respect to 2021, although the level of that will only be set by the Board of Directors as a recommendation to shareholders at the beginning of next year.

And I just think that operating the bank above 13%, I think, is the prudent and the correct thing to do. I have to say I think the scale of the Archegos loss was shocking, a disappointment and clearly a cost to our shareholders. And I think it's an appropriate response. And I would certainly expect to operate in excess of 13% for at least the balance of this particular year basically.

I think beyond that, I mean -- and by the way, the leverage ratio is always as important as the CET1 ratio. So the fact we're operating at 4.2% and 6% against the Swiss minimum requirements is as important as the RWA ratio. And I would just reiterate, I would expect to operate north of 4% for the leverage ratio for at least the balance of 2021.

I think in terms of our longer-term capital guidance, I think we will provide a proper update to that as part of the conclusion of the strategic review once it's completed by the end of this year. But I don't think it's appropriate for me to actually add further at this moment.

Thomas Gottstein -- Group Chief Executive Officer

Yes. And on the group strategy review, as part of the discussions, it's always a question of what do we learn from these two events. Is it just the how, how we are doing things that we need to change? Or is it the what -- what we are going to change? And these are the discussions that have been going on and are going on. And it's also very clear that you should never waste a crisis, and that's why we also want to take the right decisions on the basis of what we have seen now in the first two quarters on the back of both Archegos and supply chain fund.

And that's why I'm not going to start to give piecemeal strategic insights on our thinking. We will go through the process, as I said. Together with the Board of Directors and the Executive Board, we are focused on clearly designing and articulating a long-term vision for the bank and a concrete midterm plan, and we will present those when we are ready to do so. And as I said, this will be at the latest by the end of the year.

David Mathers -- Group Chief Financial Officer

And I'll just reiterate what Thomas is saying. This is -- the bank is 160 years old. I think it's only appropriate that we think about what we want to achieve, where we want to be over the long term and how we want to prioritize investments over that period of time. And I think this is a good moment to do that.

Kian Abouhossein -- JPMorgan -- Analyst

If I may just ask, but do you feel that -- I mean, listening to you again, and maybe I'm interpreting it wrongly, and that's why I'm asking the question. It sounds like you're on the right path strategically, i.e., top-down, you feel that you're on the right path based on the statement that you make so far. So this sounds to me like the strategic review is more an execution rather than a material top-down change in the way the business looks like, and it comes back to the how and the what. But that's kind of my interpretation from the call today.

Thomas Gottstein -- Group Chief Executive Officer

It's a good try. You're trying to get more out of it, but I have to ask for your patience. We will present our long-term vision and our strategic plan when we are ready to do so. And until then, I have to ask you to show some patience. I'm sorry.

Operator

Your next question comes from the line of Eoin Mullany from Berenberg.

Eoin Mullany -- Berenberg -- Analyst

Apologies if I missed it, but I heard you say you saw inflows in April and May and inflows in June across your Wealth Management business. Can I just confirm that you're continuing to see inflows in July? Apologies if I missed it.

And then just secondly, on the dividend. Previously, you said you want to pay the canceled portion of the FY '20 dividend and restore your dividend to previous levels. And does that still stand? And should we think about that as more likely now given where your capital ratio is after this quarter?

Thomas Gottstein -- Group Chief Executive Officer

I'll take the first one, and maybe, David, you take the second one. Look, we are not starting to give intra-months NNA numbers. As a matter of fact, many of our competitors are not showing NNA numbers anymore. And as you know from previous calls, I'm much more focused on mid- to long-term flows in terms of client business volumes. We did, in this specific situation, provide some color because the question was asked how in the second quarter the monthly NNA development was, but we are not going now to answer questions on intra-months or weekly NNA developments. By the way, for me, it's absolutely irrelevant now how the last two or three weeks were in terms of NNA. It's for me much more the longer-term trends, and the longer-term trend is very positive.

David Mathers -- Group Chief Financial Officer

And I think on dividend, there's nothing I'd really want to add to what I've said already, which is we've continued to accrue pro rata for a dividend in respect to 2021. But the absolute level will depend upon the review by the Board of Directors and their decision as a recommendation to shareholders, of course, who actually approved the dividend, and that decision will only be taken very early next year.

Operator

Your next question comes from the line of Piers Brown from HSBC.

Piers Brown -- HSBC -- Analyst

Yes. First is on the credit rating. I'm just conscious that in the risk section of the quarterly report, you referred to, I think, the wording is there can be no assurance that a further downgrade of the credit rating will not be material to us. Could you just give a little bit of an idea as to what sort of conversations are going on with the rating agencies and how real you view that risk?

And the second question is on Greensill and insurance claims, which I think you mentioned you're pursuing. And alongside that, I think, in the July update on Greensill, you talked about having about $2.3 billion of late payments. So far on the underlying note, I presume those are the notes on which insurance is being pursued. Can you just give us a little bit of an idea how realistic it is you may get some insurance cover on those late payments and what practical difficulties you're actually encountering in terms of pursuing insurance?

David Mathers -- Group Chief Financial Officer

Perhaps if I take the first question, and Thomas, you take the second. I mean, I think, look, I think quite clearly, the Archegos loss and the Greensill supply chain funds have caused reviews of our credit ratings by all the major agencies. And I think at least one of them actually has us on negative watch. And I think Moody's, as you know, did downgrade certain of our instruments early this month, although that was partly in the connection with a technical change relating to their treatment of certain AT1 instruments in terms of the subordination and treatment as equity or debt between the different layers of the bank.

Now that's going to be, obviously, an ongoing process. And I imagine they'll be reviewing these results and also the Archegos report just as you are basically. And I think it's only appropriate, we do list that as a risk factor. I mean, as a matter of practicality, I would say, basically, if you look at the moves in certain management such as CDSs, they're really basically priced in such a downgrade some months ago basically. And the rating agencies now have to make their own decisions about this whole thing.

But I think it's appropriate we list it as a risk factor just because it clearly is a risk factor. But I think it's probably priced in already. And I guess, we shall see and depend on -- and see how they choose to react to this report. Clearly, the capital ratios, in particular, are substantially higher than I think anybody was actually expecting, and that's obviously a key factor in terms of this. And I think it is worth bottom line in terms of pre-tax income on an underlying basis, it's about 11% lower than what was a very strong period a year ago. So I think there are some reassurance factors there, but that's a decision ultimately that the rating agencies will need to make on their own.

Thomas Gottstein -- Group Chief Executive Officer

And on the insurance, on Greensill, as you probably know, the insured party was not-were not the funds, but was the Greensill entity, Greensill Bank, principally. And we are, together with Greensill Capital, and there is a clear process where-because the funds are only payees, loss payees. And this is a process that has to go through a certain protocol, which means that there is a certain delay until when we can even post the claims. And this is now starting to happen for some of the outstanding payments, and it's really now starting, and we will update our investors as we go on over the next few months in terms of the insurance claims reactions by the insurers.

Operator

Your next question comes from the line of Patrick Lee from Santander.

Patrick Lee -- Santander -- Analyst

I just have a couple related to Archegos again, but more specifically, what were the remedy means in the longer term. I guess, if I look at the independent review on individual accountability, I think, in there, you mentioned that you actioned on 23 individuals, 9 got fired, but the clawback of CHF70 million. If I do the arithmetic, these people on attrition, around CHF3 million of bonus to be clawed back. So is it fair to say that these are relatively senior, well-paid or overpaid individuals? And what did you do to the 14 people that you did not remove from the position? And I guess, is there a risk that you are now rapidly losing the good people to competitors, and somehow, the bad actors are still around? And related to that, is this a 2Q-only event? Or would that be a longer-term tail impact as well on that?

Thomas Gottstein -- Group Chief Executive Officer

Yes. Actually, what we have disclosed ourselves and what was disclosed in the report is really as far as we would like to go in terms of disclosure, and we will not go into individuals. All I can say is that -- and confirm is that out of the 23 individuals, 9 were terminated, and the CHF70 million relates to all 23 and included, to a large extent [indecipherable] deferred compensation and, in some instances, clawback on -- already paid out. And it includes various seniorities, members of Prime Services, first line of defense, members of second line of defense, certain members of committees. And this is really all we can say to this, and we do not want to go into more details.

David Mathers -- Group Chief Financial Officer

I may make one point, Patrick. I think you referred to this a 2Q event. Strictly speaking, the report was finalized actually in July, and the decisions were actually made by the respective compensation remuneration committees in July, which is in the third quarter. So it's announced today, but strictly speaking, it's actually a 3Q event.

Operator

I will now hand the call back over to Kinner.

Kinner Lakhani -- Investor Relations

Thank you, Sharon. I will hand over to Thomas for some concluding remarks.

Thomas Gottstein -- Group Chief Executive Officer

Yes. Thank you, Kinner. And I'd like to maybe draw your attention to Slide 37 of the pack.

Since the occurrence of the Archegos and supply chain finance fund matters, which we are taking very seriously, as I said, we have taken decisive actions around capital and risk management. We have learned and will continue to learn the lessons from these events, and we will ensure that we emerge stronger by improving our capital ratios and strengthening risk, compliance and control foundations.

We have market-leading positions and strong capabilities across our client franchises in Wealth Management, Asset Management and in the Investment Bank as evidenced by the solid underlying results in the first half of the year. Our Swiss-anchored bank enjoys leading positions in our home market as well as in fast-growing economies around the world, and our integrated model should position us well to capture growth opportunities going forward.

Finally, and most importantly, we value our deep pool of talented and dedicated employees, who are fully committed to serving our clients, whether corporate, institutional or wealth. They fill me and my colleagues on the ExB with confidence for our future, and I thank them immensely for the dedication and hard work.

And with this, I would like to thank you again for your participation and would like to conclude this session. Thank you very much.

Kinner Lakhani -- Investor Relations

Well, if you have any further questions, feel free to reach out to IR. Thank you.

Operator

That concludes today's conference call for analysts and investors. A recording of the presentation will be available about two hours after the event on the Credit Suisse website. Thank you for joining today's call. You may all disconnect.

Duration: 109 minutes

Call participants:

Kinner Lakhani -- Investor Relations

Thomas Gottstein -- Group Chief Executive Officer

David Mathers -- Group Chief Financial Officer

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

Amit Goel -- Barclays -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Andrew Coombs -- Citi -- Analyst

Jeremy Sigee -- Exane -- Analyst

Anke Reingen -- Royal Bank of Canada -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Daniel Regli -- Octavian -- Analyst

Kian Abouhossein -- JPMorgan -- Analyst

Eoin Mullany -- Berenberg -- Analyst

Piers Brown -- HSBC -- Analyst

Patrick Lee -- Santander -- Analyst

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