Credit Suisse Group (CS) Q2 2022 Earnings Call Transcript

Credit Suisse Group (CS)
Q2 2022 Earnings Call
Jul 27, 2022, 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 Credit Suisse Group's second quarter 2022 results conference call for analysts and investors. [Operator instructions] I will now turn the conference over to Kinner Lakhani, head of investor relations and group strategy and development.

Please go ahead, Kinner.

Kinner Lakhani -- Head of Investor Relations and Group Strategy and Development

Good morning, everyone. Thank you, Alice. Welcome, everyone. 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 second quarter earnings release published this morning. Let me remind you that our second quarter financial report and accompanying financial statements for the period will be published on or around July the 29th. I will now hand over to Axel Lehmann, our group chairman, who will elaborate on the announcements from this morning, followed by group CEO, Thomas Gottstein; and our group CFO, David Mathers, who will run through the numbers.

Axel Lehmann -- Group Chairman

Thank you, Kinner, and good morning, and thank you for joining our analyst call. Today, we announced a series of important changes, most notably a new CEO and a repositioned strategy. Let me spend the next couple of minutes elaborating a little bit more in detail before handing over to Thomas and David for their respective presentation. Credit Suisse is undoubtedly facing a challenging situation, both structurally and via the markets in which we operate.

The need for change was clear before the second quarter results. But the disappointing performance has added a sense of urgency, as well, conviction for our actions. That is why the board of directors has decided to take decisive actions to reposition our bank and to strengthen the performance, the reputation, and credibility of the bank. With conviction, we are now embarking on measures to speed up our transformational course with a clear direction for the bank and a new leadership.

Our goal is to become a stronger, simpler, and more efficient bank with sustainable returns. As announced earlier today, the board of directors accepted the resignation of Thomas Gottstein. Thomas has led the bank through some of its most challenging corporate period, and he has done it with a lot of courage, energy and commitment, as well as huge personal integrity. His absolute dedication and commitment to the bank over the past two decades are beyond commendable.

The board of directors is grateful to Thomas for the leadership he has provided during the global COVID-19 pandemic, as well as in the aftermath of the two incidents in 2021. Thank you, Thomas. And yet, as the bank embarks on a new course, both Thomas and the board of directors agreed that this should be under a new leadership free to steer a new course. Ulrich Koerner will oversee the detailed work required as part of the comprehensive strategic review with the full trust and support of the board of directors.

Ulrich is an experienced transformational leader with excellent judgment and has demonstrated it to the board of directors that he understands the urgency of the task and the need to build trust across our stakeholder base. Ulrich has significant and highly relevant experience as CFO, COO, and a business CEO from his previous 11 years at Credit Suisse, including as an executive board member. At UBS, he was also a business CEO and the group COO, as well as a group executive board member. Since returning to Credit Suisse, he has rebuilt the asset management business with a new strategic direction and a high-performing team.

He's one of the few executives in the industry with both front-to-back and back-to-front leadership experience. I personally value him as a strategic thinker with a solution-oriented approach and a clear focus on execution and delivery. He has highly relevant experience in all our core businesses and in structural cost-based transformation for corporate functions. You will shortly hear from both Thomas and David on our second quarter results.

They clearly do not reflect the strengths and the potential of our global franchise. Our reported pre-tax loss of 1.2 billion was partially impacted by major litigation provisions as part of our approach to proactively resolve legal cases. At the same time, we reported an adjusted pre-tax loss of 0.4 billion. This is disappointing, and we will address that step by step over the coming months and quarters.

The board of directors, together with senior management, has been conducting a strategic review of the bank's businesses, with the goal to shape a more focused, agile group with a significant, lower, absolute cost base capable of delivering sustainable returns for all stakeholders and first-class service to clients. The board of directors' strategic review will recommend a new model for Credit Suisse with the following objectives: first, to strengthen the world class global wealth management franchise leading universal bank in Switzerland and multi-specialist asset management business; secondly, to transform the investment bank into a capital-light, advisory-led banking business and a more focused markets business that complements the growth of the wealth management and Swiss bank franchises; thirdly, to evaluate strategic options for the securitized products business, which may include attracting third-party capital; and fourthly, to reduce the group's absolute cost base to below 15.5 billion in the medium term, executed with prudence while remaining focused on improving risk management and risk culture. In short, the priority of the strategic review will be to enhance our positions in wealth management, Swiss bank, and asset management by considering options for fundamentally reshaping the investment bank into a highly competitive banking and more sustainable markets business. The development and implementation of the new strategy will be overseen by the full board of directors and supported by a board-led ad hoc investment bank strategy committee with Michael Klein as chair, and also including Mirko Bianchi, Richard Meddings, and Blythe Masters.

In closing, we remain focused on improving risk management, as well as the risk culture across the group. We remain focused to speed up our transformation and disciplined execution. And I'm absolutely convinced that under the leadership of our new CEO, Ulrich Koerner, and the rest of our strong executive board, we have the right leadership team in place to transform and to deliver. We will provide further details on the progress, including specific performance goals with our third quarter 2022 results.

Thanks for your attention. And with this, I would like to hand it over now to Thomas. Thomas?

Thomas Gottstein -- Chief Executive Officer

Thank you, Axel, and thank you for your kind words. And thank you all for joining our second quarter 2022 results presentation. I will share some personal remarks before the Q&A at the end. We have reported, as we just heard also from Axel, an adjusted pre-tax loss of 0.4 billion Swiss franc and a reported pre-tax loss of 1.2 billion Swiss franc.

Clearly, the broader economic and geopolitical environment remain difficult over the first half of the year. Financial markets enter 2022 dealing with some of the highest inflation rates in the generation, putting strain on household spending and most financial assets. Nonetheless, this is clearly disappointing and does not reflect, as Axel also said, the strength and potential of our world-class franchise. This makes it imperative for us to take further solid actions to turn the bank around.

We must, and we believe we will, restore Credit Suisse to its premium position in global finance. Let's turn to Page 4, please. As you can see on this slide, our adjusted PTI of 0.4 billion Swiss franc was primarily driven by a $0.9 billion dollar adjusted pre-tax loss in the investment bank. And our reported pre-tax loss of 1.2 billion Swiss franc was further impacted by major litigation provisions, Allfunds-related losses, and restructuring charges totaling 0.7 billion Swiss francs.

At the same time, we maintained the strong capital position with a CET1 capital ratio of 13.5%, which is in line with our guidance; a CET1 leveraged ratio of 4.3%; and a Tier 1 leveraged ratio of 6.1%. I'm also pleased to say that we already achieved our year-end 2022 ambition of releasing more than $3 billion in allocated capital from the investment bank by the end of this quarter. We have launched a groupwide comprehensive review with the objective to strengthen our world-class wealth management, leading universal bank in Switzerland, and multi-specialist asset management business. At the same time, our plan is to transform our investment bank with the aim of achieving a less complex, capital-light, advisory-led banking business and a more connected markets business that further supports the growth of our wealth management and Swiss bank divisions.

We are also assessing strategic options for our market-leading securitized products business. We think there are exciting opportunities to accelerate growth and to further strengthen its competitiveness by attracting third-party capital. Additionally, we are targeting an absolute cost base for the group of below 15.5 billion Swiss francs in the medium term, supported by a broader cost efficiency and digital transformation. Strengthening risk management and risk culture, as well as addressing legacy issues, remain an absolute priority.

We are also focused on working through our regulatory remediation program, supported by the strategic regulatory remediation committee, chaired by David Wildermuth, who will oversee delivery of our programs. Next slide, please. For the first half, we reported a group adjusted pre-tax loss of 0.1 billion Swiss francs with the robust performance of the Swiss bank, a positive contribution of our wealth management and asset management businesses, offset by a challenged performance from the investment bank. The reported pre-tax loss of 1.6 billion Swiss francs was primarily driven by major litigation expenses of 1.1 billion, as part of our approach to proactively resolved legacy cases, as well as a loss on Allfunds of 0.5 billion Swiss francs.

Next slide, please. The performance of our wealth management division reflected higher net interest income, benefiting from rising interest rates, which was more than offset by lower recurring commissions and fees and transaction revenues impacted by the adverse market environment. Our operating expenses in the second quarter were 80% higher due to higher groupwide technology risk and compliance costs, as well as investments in relationship managers in China. While we attracted inflows in APAC and the Americas in the second quarter, reflecting our franchise strength, we reported moderate net outflows overall, mainly due to outflows from Switzerland and the EMEA region.

In addition, in the first half, we attracted positive net new assets of 3.4 billion Swiss francs, which included Russia-related outflows of 1.9 billion Swiss francs. Our investment bank performance was impacted by substantially lower ECM and leveraged finance market activity, as well as leveraged finance mark-to-market losses. At the same time, we delivered higher advisory revenues and strong equity derivatives macro trading benefiting from increased market volatility. Our Swiss bank continued to show a resilient performance, with net revenues up 3% across all major line items, partly offset by normalized provisions for credit losses and higher operating expenses.

The return on record of the capital was 12%. Our asset management division was impacted by the challenging market environment with net asset outflows of 6.1 billion Swiss francs, driven by outflows across both traditional and alternative investments, only partially offset by inflows from investments and partnerships. David will explain the divisional performance in more detail. Slide 7, please.

Let me spend a few minutes on the performance of the investment bank. In this context, it is important to remember that our franchise mix, which particularly benefited us in a year like 2021, has been much less supportive in the recent environment, given our much more limited exposure to macro and rates, as well as commodities. In addition, we still have a very significant negative PTI drag in equities from exiting prime services as we have lost 98% of revenues but still have a large part of the costs. Our strong positions across both ECM and leveraged finance were impacted by the substantial slowdown in market activity.

In addition, we also experienced leveraged finance mark-to-market losses of $245 million. However, we saw an increase in advisory revenues of 37% from a year earlier, and we were also involved in five of the six top IBCM events. We have a market-leading franchise and securitized products. And while our financing pipeline is robust, revenues were lower than a year earlier in the context of widening credit spreads.

Our second quarter equity derivatives performance was the best in recent history. Next slide, please. In our wealth management division, we report an increase in net interest income, driven by higher interest rates. In this context, we expect higher rates to add about 800 million Swiss francs to the wealth management net interest income by 2024 versus 2021.

In the context of challenging markets, our recurring commissions and fees were lower, reflecting weaker AUM and broadly stable margins, while our transaction-based revenues were impacted by the risk-averse client sentiment. We continue to invest in relationship managers, in technology, and in risk and compliance. Next slide, please. We are a top two global wealth manager outside the United States with 1.2 billion Swiss francs client business volume and strong exposure to higher growth markets.

We have world-class investment bank franchises across, among others, IBCM securitized products and equity derivatives. We are also a leading universal bank in Switzerland with the No. 1 position in investment banking and in institutional clients, and top two positions in corporate banking and wealth management. We are also a multi-specialist asset manager with distinct strength.

As I highlighted before, we are taking strategic actions to further strengthen our wealth management, Swiss bank, and asset management divisions, and to transform our investment bank with the aim of achieving a less-complex, capital-light, advisory-led, and more connected business that further supports the growth of our wealth management and Swiss bank divisions. Next slide, please. Over the past seven years, we have significantly strengthened our balance sheet and capital ratios. We maintained a resilient capital base with our CET1 ratio at 13.5% in line with our guidance.

And our CET1 leverage ratio stands at 4.3%. Our Tier 1 leverage ratio of 6.1% is among the highest in our peer group, if not the highest. Next one, please. Let me briefly touch on our ongoing digital transformation, led by our chief technology and operations officer, Joanne Hannaford, which we expect will open up new opportunities, and drive and accelerate change across the entire bank.

These efforts should contribute together with our broader cost-efficiency program to reducing group-adjusted operating expenses to below 15.5 billion Swiss franc in the medium term as I previously mentioned. Next page, please. We have come to the conclusion, and as Axel explained before, that we need to consider alternatives to go well beyond last year's strategic review, particularly given the challenging market environment. We are currently conducting this strategic review to evaluate ways to further strengthen our wealth management, Swiss bank, and asset management divisions and to extend their leadership positions.

We are assessing a further transformation of our investment bank into a capital-light, advisory-led banking business, and a more focused and connected markets business that complements the growth of the wealth management and Swiss bank franchises. We are also evaluating strategic options for our market-leading securitized products, which may include attracting third-party capital into this high-return platform and potentially freeing up additional resources for the bank's growth areas. This highly profitable global franchise, which employs around 20 billion of risk-weighted assets, has significant untapped growth opportunities. And lastly, we have embarked on an ambitious new plan to significantly reduce our absolute cost base to below the 15.5 Swiss franc -- 15.5 billion Swiss franc, which I mentioned before, in the medium term.

David will talk more about this plan in his section. And with this, I would like to hand it over to David. And I will come back after his presentation. Thank you.

David Mathers -- Chief Financial Officer

Thank you, Thomas, and good morning to everybody. I'd like to go through now the key financials and get some more details on our performance at the group and the divisional levels. Quite clearly, as Thomas has summarized, the very difficult macroeconomic environment, which has been characterized by the rapid increase in interest rates, has resulted in a disappointing quarter for the group. Let me then with the group numbers.

We have achieved an adjusted pre-tax loss of 442 million Swiss francs for the quarter, compared to an adjusted pre-tax income of 1.31 billion Swiss francs for the same period of last year. At a reported level, the pre-tax loss was 1.17 billion Swiss francs. I will take you through the walk in more detail on the next slide. But this reported figure includes a further valuation loss of 168 million Swiss francs on the mark-to market moves in the publicly listed Allfunds Group, as well as major litigation provisions totaling 434 million Swiss francs.

These primarily related to two matters: first, to our investigations into recordkeeping requirements relating to business communications sent over unapproved devices; and second, in respect of a previously disclosed legacy legal matter. Now if it is focused on the adjusted loss of 442 million Swiss francs, this comprises adjusted net revenues of 3.82 billion Swiss francs and adjusted operating expenses of 4.2 billion Swiss francs. Now, to be clear, these adjusted revenues include $245 million mark-to-market losses in respect of our leverage finance underwriting book, the majority of which are unrealized. We've also taken 100 million Swiss francs of impairments and charges, nonoperational charges, in our wealth management business, all of which are reflected in the adjusted pre-tax loss number.

Provisions for credit losses in the quarter was 64 million Swiss francs compared to a release last year. We were able to write back some of our nonspecific provisions that were taken during the COVID pandemic. Now, in terms of our effective tax rate, as you know, we have set nondeductible items, such as funding and litigation costs, together with our constraints on our ability to recognize further deferred tax assets in certain jurisdictions. That means that we do have an absolute tax charge even though the bank is reporting a loss for the quarter.

The overall effect, therefore, is that our net loss attributable to shareholders for the quarter was 1.59 billion Swiss francs. Next slide, please. What we show here is the impact that our adjusting items had on our underlying performance, both in the second quarter and in the context of the first half. Now, I'm not going go into detail on every item, but it's going from left to right, along the top line representing the second quarter.

Now, you can see the impact of the fall in the market value of Allfunds of 168 million, which I've mentioned already, the charge of 13 million Swiss francs relating to some of the ongoing work around Archegos, 80 million Swiss francs of restructuring costs, and, most importantly, the 434 million in respect of major litigation provisions. There was a small element of gains from real estate totaling 7 billion Swiss francs in the quarter. And we also had a small goodwill impairment relating to the transfer in the second quarter of a portion of AFG to the investment bank, which cost us $23 million. Now, if we look at the reconciliation for the first half, you can see that the reported pre-tax loss of 1.6 translates into an adjusted pre-tax loss of 1.42 million Swiss francs -- 142 million Swiss francs.

The key point I'd make is that if you take together the major litigation provisions and the valuation loss on our investment in Allfunds, that accounts for more than the total pre-tax loss. While the loss of more than half a billion Swiss francs in Allfunds is a function of the company's share price portfolio, the provisions for major litigation, though clearly significant, are indicative of the progress that we are making to resolve these issues. Now, as Thomas has already summarized in the context of the comprehensive view of our strategy, both the executive board and the board of directors have concluded that given the significant change in the operating environment, which may well be sustained for some time, our cost base needs to be lowered. We're, therefore, looking to accelerate a digital transformation program, including a further simplification of our front-to-back processes, reduction of manual data handling and duplication, and increased use of scalable cloud-based infrastructure.

I'm sure you recall that in last month's investor deep dive, we identified at least 650 million Swiss francs of savings in the CTO function. We'll look to build on this and take alongside our broader cost-efficiency initiatives. We expect this digital transformation program to play a critical part in reducing our adjusting operating expenses to our new target to be below 50.5 billion Swiss francs in the medium term. This program is extensive and far-reaching.

We've done a lot of work with outside consultants on our benchmarking, and the savings will be significantly larger than those which we summarized back in June. Clearly, this will constitute a new cost program under the SEC rules, which associated guidance we provided around the expected incremental restructuring costs. And I'll give more details on that when we report our third quarter earnings at the end of October. Now, just to be crystal clear, this is a net expense ambition.

That is net of investment spend that we continue to allocate to our core businesses. Therefore, the growth ambition that we'll give in October is likely an excess of the new guidance and reduction in costs of 1.25 billion Swiss francs. Now, just in the interim, our adjusted operating expenses for the first half totaled 8.4 billion Swiss francs on an FX-neutral basis. And if you analyze that, that comes out at 16.8 billion Swiss francs, which is clearly in line with our existing guidance of 16.5 billion to 17 billion Swiss francs.

And that does include significant incremental investments relating to the implementation of the group strategy, as well as increased remediation spend on compliance and infrastructure, which totaled about 331 million Swiss francs in the first half of the year. Let's turn now to client business volume, please. Now, clearly, we have seen a significant sell-off in the markets across most asset classes in the second quarter. And this is accounted for the bulk of the 6% quarter-on-quarter decline in client business volumes to 1.16 trillion Swiss francs.

Now, within this fall, we saw a reduction of 53 billion Swiss francs in assets under management, primarily due to market moves, and falls of 4 billion and 18 billion Swiss francs in net loans and custody assets, respectively. Now, in regard to net new assets, we saw net asset outflows totaling 1.8 billion Swiss francs across wealth management and private banking Switzerland in the quarter. These primarily occurred in the EMEA region, largely related to nonsanctioned Russian clients, totaling 1.4 billion Swiss francs and certain Middle Eastern clients totaling 2 billion Swiss francs. I'm pleased to note, though, that the Asia Pacific region, having delivered positive inflows in the first quarter, has now continued this momentum in the second quarter.

And you may recall that we did comment on deleveraging in Asia Pacific last year. So, the total net new asset inflow for the first half was 2.8 billion Swiss francs. Can we turn to the next slide, please? So, let me just give some more detail, please, into the impact of the significant upward move on interest rates, both in the short term and through the forward curve. I would anticipate that the benefit to Credit Suisse in 2024 will be approximately 1 billion Swiss francs compared to 2021.

Now, the majority of this, as we said back in June, will flow through the wealth management division as it has the greatest exposure to U.S. dollars. But we'd also expect to see some benefit in this division from the moving euro rates. One point that I would note is that the benefit that we expect to see from the upward move in the U.S.

dollar and euro curves will be partly offset by the move in Swiss franc rates toward zero. I think, as you know, the major Swiss banks have an exemption threshold, which is maintained by the Swiss National Bank, which has given us a benefit of around 400 million Swiss francs per year, while rates were set at minus 75 basis points. And I think you're aware that similar structures exist with in Europe, with the ECB, for example. Now, what does that mean? It means as Swiss interest rates converge toward zero, that benefit is being and will continue to be eroded until we start to see a credit when rates move into positive territory.

Now, one final point. Just for the sake of completeness, we have seen an increase in the cost of our capital instruments. These are the movement in credit spreads in the course of this year. And I would expect this to very partly offset the benefit the upward trend in interest rates by about 200 million Swiss francs in 2022 compared to 2021.

Next slide, please. Now, despite the challenging environment, our capital and leverage ratios remain resilient. As we guided the beginning of June, our CET1 capital ratio at the end of the second quarter was 30 basis points lower than the end of the first quarter at 13.5%. Our risk-weighted assets increased by 1 billion Swiss francs to 274 billion Swiss francs.

And as you can see from the slide, FX moves was largely offset by a 4 billion Swiss franc reduction in RWA usage across our business lines. Our CET1 leverage ratio and AT1 leverage ratio were both unchanged at 4.3% and 6.1%, respectively. Our leverage exposure overall were about 15 billion Swiss francs in the quarter, primarily due to reductions in business usage across all divisions. The 13 billion Swiss franc reduction in the IB that you see there includes $6 billion from the exit from prime, which is now largely complete.

Just looking forward, as we've said in our media release today, we'd expect CET1 ratio to be in the range of 13% to 14% for the balance of the year. Just a brief comment on Swiss, CET1 ratio for Credit Suisse AG, the parent, this was 40 basis points lower quarter on quarter at 11.4%, driven both by the net losses but also by adverse FX impacts because we cannot fully neutralize both parent and group for FX moves and particularly the strength in the U.S. dollar. That was partly offset by some continued progress on our capital repatriation program, which included a $1.2 billion capital distribution from the UK entity, Sasol, Credit Suisse Securities Europe Limited to Credit Suisse AG.

And I'd reiterate what I said about this program at the end of April, which is that we continue to execute our dividend and our capital repatriation plans for '22. Although, clearly, the progress in these plans do remain subject to regulatory approval. And I would expect the bulk of them to materialize, though, in the second half of the year. Now, with respect to additional Tier 1 capital, we expect to issue between 2 billion to 4 billion Swiss francs of AT1 capital this year, of which $1.65 billion has been issued already.

This is both to maintain our Tier 1 ratios, but also to pre-fund AT1 redemptions that are actually scheduled for 2023. Let me now turn to the different business divisions, which we report as usual on an adjusted basis, unless stated otherwise. And let me start with wealth. Now, the wealth management division continue to see a challenging environment in the second quarter, albeit with adjusted pre-tax income adversely affected by certain asset impairments and nonoperational charges.

I'd like to call out four factors please, which all included, just to be clear, in the adjusted numbers. First, revenues were adversely affected by impairments of 17 million Swiss francs relating to certain third-party assets. Second, the ongoing fee waiver program relating to the supply chain finance matters reduced revenues by another 24 million Swiss francs. Third, we saw mark-to-market losses in APAC financing of 21 million Swiss francs.

And finally, the cost line was negatively impacted by 38 million Swiss franc write-off in respect of certain IT-related assets related to the digital program for the wealth management division. We have, as I've noted already, begun to see the significant benefit from the rise in interest rates, which helped net interest income to increase by 4% year on year and by 9% quarter on quarter to 558 million Swiss francs. The 14% year on year reduction in recurring commissions and fees reflected the lower assets under management, albeit at broadly stable margins. The more cautious sentiments among clients which adversely affected brokerage and structured product fees contributed to an 11% reduction in transaction-based revenues.

And overall, therefore, net revenues for the wealth management division declined by 7% to 1.44 billion Swiss francs. With regard to expenses within the wealth management division, these increased year on year from 1.14 billion to 1.34 billion Swiss francs. This was due to the investments that we're making in business growth, including in China, as well as higher groupwide technology risk and compliance costs. It also includes, just to be clear, the 38 million Swiss franc IT-related impairment.

Now, adjusted pre-tax income was therefore 74% lower year on year at 114 million Swiss francs. And if you include the valuation loss on our investment in Allfunds, which is booked to this division, the reported figure was a pre-tax loss of 96 million Swiss francs. As I said already, we saw net asset outflows of 1.4 billion Swiss francs division with net outflows from EMEA and Switzerland, partly offset by net inflows in APAC and in the Americas. For the first half of the year, net new assets division was positive 3.4 billion Swiss francs.

Now, let me turn now to investment bank. I think, quite clearly, this was a disappointing quarter for the investment bank. This reflects the combination of a mix in business lines, which was partly affected by the heightened market volatility resulting from the moving interest rates, together with significantly lower client activity. I think, as you can see from the slide, this was most notable in capital markets, which saw a 96% decline year on year to $38 million.

But you should note that this figure does include the markdowns of $245 million on our leveraged finance portfolio to which I referred earlier. And just to be clear on that point, those marks are largely unrealized. Our accounting policy is to mark those commitments, to mark when as we actually see them on. And I think that is the prudent and correct thing to do.

Fixed income sales and trading revenues were 32% lower year on year at $622 million, primarily due to lower emerging markets, trading and financing activity, as well as reduced securitized product trading activity. Although that does compare to what was a very strong quarter in 2021, as well as reduced credit revenues with lower primary issuance and reduced trading volumes. As has been the case in previous quarters, reduced adjusted equity revenues, which were 33% lower, $340 million, was primarily due to the exit from the most of our prime service businesses. Taken as a whole, net revenues for the division was 55% lower year on year at $1.15 billion.

Now, just against this weak picture, I would note that we did see higher revenues due to strong equity derivatives and macro trading activity resulting from the increased market volatility, albeit this was partly offset by lower emerging markets trading and financing activity. We also saw a strong performance in advisory with significant deal closing for revenues 37% higher to $190 million. Net operating expenses were flat year on year at $1.95 billion, as reduced revenue-related expenses was offset by higher technology risk and compliance costs. The provision for credit losses of $57 million reflects an increase in both specific and nonspecific provisions, compared to a net release of $56 million in the second quarter of last year.

[Inaudible] RWA was down by 8% and leverage was down by 4% quarter on quarter. Let me turn now to asset management. The asset management division's performance was adversely affected by the sell-off in markets in the second quarter and the corresponding reductions in the market value of assets. But we did also see a reduction in client-risk appetite.

Now, net revenues was 25% lower year on year at 311 million Swiss francs, primary driver being performance, transaction and placement revenues, which were 94% lower at 5 million Swiss francs. The 9% fall in recurring management fees was primarily driven by the 9% year-on-year drop in assets under management, which was due to market and FX effects in large amount. We are disappointed, though, at the level of net asset outflows which totaled 6.1 billion Swiss francs in the second quarter. This was driven by outflows across both traditional and alternative investments, partly offset by inflows from investments and partnerships.

But I would note this net new asset performance does in part reflect the role of profile of funds within the portfolio, as well as the decline in client-risk appetite. Operating expenses division were 278 million Swiss francs, which was 5% lower year on year. The release of certain provisions relating to the supply chain finance funds matter was partly offset by higher technology risk and compliance cost, as well as increased cash accruals for compensation with normalized deferral levels. Overall, adjusted pre-tax income was 75% lower year on year at 31 million Swiss francs.

Now, let me just conclude then with a few words on the Swiss bank. I think it's quite clear that the Swiss bank has continued to perform well amid the wider market turbulence. At 1.05 billion Swiss francs, net revenues is higher both sequentially and year on year, with a 3% increase compared to the second quarter of 2021. We saw solid improvements in net interest income, recurring commissions and fees, and transaction-based revenues with higher deposit income and high revenues from FX transactions.

And we continue to benefit from the post-COVID recovery at Swiss Guard. As I mentioned before, though, we do expect the net interest income for the third quarter will decrease sequentially due to the Swiss National Bank's decision to increase interest rates from minus 75 basis points to minus 25 basis points. Our provision for credit losses was higher than a year ago when we were able to release certain nonspecific provisions taken during the early stage of the pandemic. But they're clearly lower than the first quarter of the year.

And our provisioning does remain at consistently low levels at less than 5 basis points of our net loan total. Now, of the 18 million Swiss franc provision that we took in the quarter, about 13 million was in respect of Russia exposure. Operating expenses were 6% higher year on year at 627 million Swiss francs. That increases reflect both increased cash accruals, the compensation due to normalized deferral levels, as well as higher technology risk and compliance costs, and additional spending on advertising and marketing campaigns.

This increase more than offset the higher revenues, leaving the Swiss bank group reporting an adjusted pre-tax income of 402 million Swiss francs, about 10% lower year on year, but 4% higher than in the previous quarter. Our client business volume was 6% lower year on year, mainly due to decreased assets under management due to market measures. And in terms of net new assets, we did see outflows in the quarter, mainly driven by outflows of 1.2 billion Swiss francs of institutional clients and 400 million Swiss francs from our private client business. But I'll just remind you that for the first half, the division has attracted 4.4 billion Swiss francs of net new assets, again, primarily from institutional clients.

Now, with that, let me hand it back to Thomas, and then we can move to Q&A. Thank you very much.

Thomas Gottstein -- Chief Executive Officer

Thank you, David. I would like to close with some personal remarks. As you will have seen by now, it is with regret that I announce my stepping down as CEO after two and a half years. It has been an absolute privilege and honor to serve Credit Suisse over the past 23 years.

Ever since I joined the firm in investment banking in London in 1999, my passion always was to serve clients with care and discipline, but also with the famous Credit Suisse entrepreneurial spirit which we must preserve and never lose. I'm immensely proud of what we have achieved together since I joined the executive board in 2015, initially as the CEO of the SUB division and later as group CEO. Despite the challenges of the global COVID-19 pandemic in 2020, the two major incidents which Credit Suisse had to face in 2021, and then the Ukraine invasion and market downturn this year, we made significant progress in strengthening our bank, recruiting an excellent leadership team, starting the transformation of our investment bank, reducing risk overall, and fundamentally improve our risk culture. In the last few weeks, I had several discussions with Chairman Axel Lehmann about the future of the bank in the context of the already-mentioned challenges and in light of my own situation.

Based both on personal and health-related considerations, I concluded that now would be the right time to step aside, clearing the way for a new leadership to fully embrace the series of game-changing initiatives announced this morning, all of which I wholeheartedly support. I know that our disappointing first half results don't reflect the inherent strength and potential of the powerful global Credit Suisse brand. But I'm convinced that we are on the right path to restore Credit Suisse to its premium position in global finance. This is a formidable institution with world-class client franchises in the markets in which we operate.

And this is a testament to the quality of our over 50,000 colleagues globally and our exceptional talent pool, many of whom have become friends over the last 23 years. And we will stay in touch. I'm very happy that Ulrich has agreed to take over the baton as group CEO and lead the executive board at this important juncture in time. He's excellently positioned to take this bank to the next level, given his analytical skills, his experience, and his knowledge of Credit Suisse from both his most recent engagement, but also his previous work at our firm.

I will work closely with Ulrich over the coming weeks to ensure a smooth transition. And with that, I would like to hand it back to Kinner, who actually has his birthday today. OK?

Kinner Lakhani -- Head of Investor Relations and Group Strategy and Development

OK. So, we will now begin with the Q&A part of the conference. Can I ask everybody to stick to a maximum of two questions, please, so that we can give everybody a chance? Alice, it would be great if we could open the line, please. Thank you.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Jeremy Sigee with BNP Paribas. Please go ahead, sir.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Good morning. Thank you. And thank you in particular to Thomas, and best wishes for the team taking the group forward from here. I've got two questions.

One is on the strategy review. I realize we need to wait to hear the conclusions, but I wanted to hear about how that review is being framed. And in particular, the cost target you're indicating seems to be a relatively limited change in the scope of the group. It's described more in terms of efficiencies rather than a change in scope.

So, I just wondered whether you're effectively ruling out significant changes in the shape and the scope of the group as you go into that review. And then my second question is more a numbers question for David. If you could just walk us through -- you talked about the delay in movements, but I wondered if you could talk us through the capital movements because capital reduced quite a lot less than the loss for the quarter. So, I just wondered if you could talk us through the moving parts and what helped capital in the quarter.

Thank you.

David Mathers -- Chief Financial Officer

So, I can probably take the second one first, which I think, Jeremy, I think you probably just need to look at moves because there was a notable strengthening in the U.S. dollar in the second quarter. As we hash forward about 65% of our equity into U.S. dollars, you'll see an appreciation to capital base.

So, it's the point I referred to in my script. We neutralized the group CET1 ratio. The parent has a different ratio. We can't neutralize both at the same time, so that will boost the underlying group equity.

I'm sure I'd have a start on that. The first question, Thomas and Axel, then perhaps [Inaudible] I mean, I think the cost and the cost reduction program is an absolute priority for the board and for executive management. We are perhaps more advanced with this than the other work because we actually started a very extensive benchmarking work in the first quarter. I think therefore on that basis we can say, you know, two or three things.

Firstly, we look at the current perimeter, the current of the bank. Then we believe that it's perfectly possible to operate this on the basis analysis we done at less than 50.5 billion in the medium term. Clearly, we need to do the remediation programs. Those are clearly critical.

But on the basis of the current structure of the bank, we think a cost target less than 50.5 billion is perfectly achievable. That clearly does not preclude, and I pass back to Axel and Thomas, any changes in the perimeter. Clearly, if we change the premise to the bank, that cost target would actually change. So, that's, as you might say, Jeremy, a like-for-like view in terms of what can be achieved.

Axel Lehmann -- Group Chairman

Yeah. Maybe -- this is Axel, Axel Lehmann, Just to complement on the cost target, yes, we did that benchmarking. And I think it's quite the notching up from what we said last November as we commit to an absolute cost target based on the current perimeter of the group. And what I said earlier, you know, we are in this strategic review with a clear plan and the objective to make that group even more focused on the course of this business wealth management, asset management, and a highly focused, highly competitive banking and a better-aligned markets business.

And as we go now through the third quarter, we will develop the detailed plan, and then give you, you know, the details also on the performance targets, and all the targets that we will communicate to the market. And Ulrich is now obviously in charge. Thomas was fantastic, helping us to bring us to the point where we are. And now, we go into kind of a third and in the fourth quarter, speeding up, speeding up our overall transformation.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

That's very helpful. Thank you. And as I say, best wishes for all the work that's underway. Thank you.

David Mathers -- Chief Financial Officer

Oh. Jeremy, one point. You might also want to look at OCI moves, although they don't have the same capital relevance, but just to complete it. Mostly, it's FX there.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Perfect. Thank you.

Operator

The next question comes from the line of Magdalena Stoklosa with Morgan Stanley. Please go ahead.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thanks. Thanks very much, and good morning. Well, of course, firstly, Thomas, I would also like to extend my thanks to you for the years we all worked together and wish you all the best for the future as well. I've got two questions, one still on strategy another one on costs.

[Audio gap] very carefully, kind of last year as well. And maybe, in more detail, you know, what are the kind of theoretical options, particularly with extended capital option for the securitized products platform, just so that we get a sense of what type of changes may come. And maybe on costs, and that's particularly on wealth. And I'm going to kind of concentrate on what's happening kind of currently.

Could you run us through kind of what sort of cost pressures you're actually likely to see in the short term, particularly on the compensation side, on the retention side, and, of course, on some of the IT investments that are already coming through. Thanks very much.

Thomas Gottstein -- Chief Executive Officer

So, first of all, thank you, Magdalena, for your kind words. I suggest you start, David, with the second question on costs, the short-term pressures, and then maybe, Axel, you will take the options for the investment bank.

David Mathers -- Chief Financial Officer

Well, look, I think, as I said before, there's been quite a lot of work that's been put into the cost program, and it's actually a very detailed benchmarking at every aspect of the bank to actually support this analysis. You know, I think that has indicated significant potential, even absent the strategy review. And I think, quite clearly, Thomas has very much led this, I think, you know, we actually have outsourced our procurement function. And, you know, I think what has been clear from that outsourcing is that there are significant potential for savings in some of our supplier relationships.

And that does include some of our managed servicing arrangements. So, I guess brutally maximizing, you know, we're paying too much. And I think as part of the pressure around the procurement function outsourcing, you know, we do see savings there. And that will give us the ability to offset to a degree at least because one has to recognize the inflationary pressures in the system what we're seeing outside.

And, you know, that's -- I guess it's a problem. But in that sense, it's an opportunity to actually achieve that. I think the second point and Johanna Hannaford spoke eloquently about this at the investor day back in June, you know, I think we've made the right and brave decision to put IT and operations back together as a single function. That's transformational in terms of what it can actually drive us in terms of scale benefits.

But I think beyond that, I think it brings back centralized IT control, which is the right thing to do and the ability to actually drive our IT much more effectively. So, as you can guess, I'm very supportive about this. And I think it does give us potential. So, I'm not decrying the cost pressures we see in the system, but I think we can -- I can see two large levers there.

And when I look at the much more detailed work that we've done across the rest of the bank, I can see how we can drive toward the 1.25 billion total for our current perimeter. And as we said, I think that really takes us in two directions. One is access, and Thomas has had already, in terms of the strategy view. And I think, two, basically, we will obviously need to deliver growth savings in excess of that net target in order to allow for our investment plan and to agree to offset the inflationary factors you're referring to, Magdalena.

Axel Lehmann -- Group Chairman

And so, they say, this is Axel speaking, Magdalena, to the strategy, you know, first of all, we will leverage all the work, the good work that the group has done last year. We also feel from a senior executive, also from a board perspective, encouraged by the progress on strategy. Implementation, execution day, it was reporting that we overachieved already now our target is to shift 3 billion capital from the IB to other businesses. But we clearly came to the conclusion, among others also, you know, accentuated by the current market environment.

But not only that, you know, a choice we can execute and that [Audio gap] want to refocus and even speed up our [Audio gap] of the group. And we won't allow those businesses to get back on their growth path. So, we are really fundamentally looking to what are the core strengths in particular that we have in our investment bank, reshape, offer opportunities for some other parts, and then also go rigorously after the cost base as that is an issue for the investment bank, but for the group as a whole.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

So, Axel, are we supposed to -- are we kind of -- can we consider even a further shrinkage of the investment bank that was communicated last time around with a strategy review, particularly as you talk about the kind of the capital lightness of the model of your kind of new model going forward?

Axel Lehmann -- Group Chairman

Oh, look, what we said, we come up with the details in Q3. We have exited. We have done what we said we are going to do. And, yes, we are going to transform.

And we are looking and enabling, you know, parts of the business to grow and to prosper. And the details will be disclosed with the Q3 results. So, bear with me.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much.

Operator

The next question comes from the line of Andrew Coombs with Citi. Please go ahead.

Andrew Coombs -- Citi -- Analyst

Good morning. A couple of questions. Firstly, just on the structured products business, the plans for that. You talk about seeking third party capital.

Anything elaborate there in terms of what partnership or kind of partnership you are looking for? To an extent, how much of this will be an exit of assets, as if it's just a third-party participation in this business line. And also, if there's anything you can provide on the revenues and costs of that business as well, that would be appreciated, I think, given the other brands and leverage exposure, but nothing on the P&L metrics. And then my second question would just be on the outflows, Middle East, Russian-sanctioned individuals as well, you flagged out. Do you think that has now run its course? I'm interested to know if you can -- if there's anything more to go maybe you can say in July, given what UBS said yesterday.

Thank you.

David Mathers -- Chief Financial Officer

Well, first, I would take the two questions order. I think -- look, I think we've given the numbers around the risk-weighted assets and leverage exposed with securities products. I'm not going to go into detail, P&L and cost metrics today. What I would say is this is a business that Credit Suisse has a long track record in.

Clearly, its origins lie in mortgage securitization, but it's expanded well beyond that into asset finance. That is a business that is seeing structural growth. I'm particularly with the growth in private debt. There's a lot of appetite for those types of products.

I think our ability to actually finance that in-house clearly has limits, notwithstanding the sustained profitability of this business and its high returns. And I think, therefore, it is the right thing to do to actually consider third-party capital for this to allow us to basically maximize the potential of this franchise and I think without basically distorting our overall asset allocation. So, we like this business, but there has to be a limit to how much capital we can actually organize. And I think there will be demand for this.

And I've already received one email this morning already. I think -- it does -- it has -- this is a sustainably profitable business which does cover a very broad range of asset financing. I think just quickly on the Russian-rated outflows, look, I think we've had outflows in both in respect of sanctioned clients, which we obviously do treat as a structural change because the money is locked. And then in terms of nonsanctioned clients, we had about a 1.4 billion outflow.

You know, I'm not going to comment. I think clearly it's an evolving situation or obviously very changeable geopolitical situation, very uncomfortable, and very difficult. I just note that we saw that in terms of those numbers. I mean, yes, I think in terms of the third quarter.

And looked, brutally, we're only three weeks into the third quarter. I'm not going to comment on new asset outflows three weeks into the quarter. We'll see how this quarter develops. Just do note, we've had positive inflows for the first half of the year in, I think, you know, clearly in what is a very challenging environment.

Andrew Coombs -- Citi -- Analyst

Thank you. And I'll pass it on.

Operator

The next question comes from Daniele Brupbacher from UBS. Please go ahead.

Daniele Brupbacher -- UBS -- Analyst

Yeah. Good morning, and thank you. And all the best to you, Thomas, as well from my side. Can I ask on capital first? And I mean, at this point in time, are you ready and able to exclude capital increase to -- if you go into this strategic review? Or does it really ultimately depend on the measures you take and probably, also, the impact or expected impact on parent bank, given that restructurings often result in impairments there? And secondly, just on profitability, obviously, grow guest, how to go to profile looks like over the next three months.

But I mean, you mentioned the 15.5 billion like-for-like cost base, you had the 10% drop to target in the past. One could argue that the business will be even more capital-light going forward, so it should actually be higher than that. So, I mean, you know, taking a 40 billion TNS that was probably implied like a net profit of 4 billion or revenues north of 20 billion, which you probably think could be a sustainable base given the current profile. Is that a fair way of looking at it? Or is that too much assumptions in there?

David Mathers -- Chief Financial Officer

Perhaps, I'll just kick off on capital and then hand it over to Axel and Thomas in terms of strategic review. I think the first point I'd make is, I've been CFO for 12 years and 13.5% CET1 is one of the highest CET1 ratios we've actually ever reported. So, you know, we are in a strong capital position. And our leverage ratio is equally strong in terms of that.

So, I think the bank is well founded in terms of that. What I have said in the course of this morning is that I do have continued AT1 plans. I think you may note that I've given guidance of 2 to 4 billion of AT1 issuance this year, of which I've only issued 1.65. So, clearly we are looking to add to AT1 capital, if that's helpful, Daniele, in terms of your thinking and analysis.

I think in terms of the parent capital ratio, the drop from 11.8% to 11.4% is primarily due to effects, and I'm happy to expand on that if you like, Daniele. But just quickly, we clearly neutralize for the group and therefore moves in the dollar against the Swiss franc in particular do not have an impact on the group ratio. But because the weighting of the parent is different from that of the group, that means that a higher dollar tends to reduce the parent capital ratio. So, if we'd had FX rates similar to where they were at the end of the first quarter, it would have been probably closer to 11.6 or 11.7.

And then the balance, basically, reflects the net losses. But as you note here, I've actually seen about 1.8 billion of capital repatriations and dividends, of which 1.2 billion came from the U.K. entity, Sasol, which I've talked about before, Daniele, which you know very well, basically. There is an ongoing repatriation request in respect of Sasol.

And that's something we are clearly, you know, discussing with regulators. I'm not going to comment on that. There clearly is excess capital in Sasol because it is now a nonmaterial legal entity. And you know, our plan is to repatriate the bulk of that, the CS AG in due course.

I think in terms of strategy, I think, Axel there's not much we can really add, but --

Axel Lehmann -- Group Chairman

No. Daniele, thanks for your question. Look, we will inform you about the full market in Q3. I think to Dave indicate, yes, it will be bold, it will be deep, far-reaching, but it will be prudent in a reasonable way.

And we are really looking to set up parts of the investment bank also for growth in the banking business. We said we are going to better align the markets business. We give you an example, with SP, that is somewhat delivered -- guiding also our thinking. And we will now go through a three months intense, very detailed work.

And we will disclose the details of that work with the Q3 result.

Daniele Brupbacher -- UBS -- Analyst

Thank you very much.

Operator

The next question comes from the line of Stefan Stallman with Autonomous Research. Please go ahead.

Stefan Stallman -- Autonomous Research -- Analyst

Good morning, gentlemen. And, also, all the best to the future, Thomas. And happy birthday, Kinner. I wanted to follow up with one question on the strategic direction.

And I appreciate how very early. But it seems that the savings that you outline are indeed largely targeting tech procurement, deficiency issues. Is it fair to assume that those savings will be spread across the divisions? And how does this cost efficiency drive help to transform the investment bank into a less complex and more capital-light entity? And also, does it come fast enough, given that the unit is losing about a billion underlying pre-tax in the first half of this year? And the second question is a numbers question, going back to the capital trajectory. You mentioned in the earnings release that there has been a positive CET1 impact from regulatory adjustments of DTIs.

Has it been a material factor, please? Thank you very much.

David Mathers -- Chief Financial Officer

I think on the second point, I think that's just completing the CET1 where, basically, as I said, there's been a number of moves them, both FX and ATIs. So, that's useful but not material. I mean, I think just on the tax charge, it's fairly not clearly not desirable that I have to report a tax charge at the same time as report a group loss. But that does reflect the tax structure of the group.

And my limited ability to actually achieve deferred tax offsets at this particular time. So, there's a limit to what I can actually do, Stefan, in terms of DTI, I'm afraid. I think we're taking a prudent approach around tax. I think on the first question, look, I think -- fair point.

So, you know, I think as we said, this cost program is an absolute priority for the board and for the and for the executive management of Credit Suisse. It has to happen. The work on this is advanced. But I think it's clear, given what Jo said at the Investor Day in June, that, you know, that's probably most advanced in terms of our technology operations.

And I think she gave a very good summary of what can be achieved there in terms of the efficiency of our IT programs, the integration of IT, and what she's actually bringing to this job. And I think it's got off to a very good start in terms of actually providing very effective and clear leadership. The Cabinet program, as I said before, is something the outsourcing of which something which Thomas was very much behind in terms of driving this. And I think that's heading in the right direction.

You know, I think it's perhaps a little bit embarrassing. The savings are what they are, but I guess it's an opportunity. But I think we do want to make the point that this cost program is not limited to technology or procurement, which just -- to answer your question specifically, Stefan, does accrue across the whole group because essentially, you know, majority, this is the corporate functions and it flows out through the allocations. But it is not limited just to those things.

It is a complete review of the costs of all divisions and all corporate functions of the bank and will include savings across all of those.

Thomas Gottstein -- Chief Executive Officer

Yeah. And if I may add, you know, we did a really a benchmarking of cost income ratios across the businesses and for the whole group. And we have identified cost reduction potential in every single division and in every single corporate function. So, this will be broad-based.

And as David said, we think we are just at the beginning here, and we see significant opportunities.

Stefan Stallman -- Autonomous Research -- Analyst

OK. Thank you.

Operator

The next question comes from the line of Kian Abouhossein with J.P. Morgan. Please go ahead.

Kian Abouhossein -- J.P. Morgan -- Analyst

Yeah. First of all, Axel, Thomas, Ulrich, thanks for the sober assessment of the bank today and going forward. Again, I also would like to thank Thomas for dealing with issues not caused by his management and operation but by previous management within the group. And thank you for your open, regular communication and dealing with us, analysts, who clearly, over the last 18 months, have been very demanding.

Questions. First of all -- first of all, good luck on finding third-party money. Now, let's assume that it's not going to happen, what is the second alternative in terms of exiting the securitization platform? And then the second question is, have you had discussions with FINMA and how would FINMA see potentially capital going below 13%? And if I could add one more quick one, restructuring costs related to the cost-saving plan that you're going to be outlining in more detail, could you give us an idea if 100% of cost savings is roughly the right magnitude as we have seen in past restructuring? Thank you.

Thomas Gottstein -- Chief Executive Officer

Maybe if I start with the SP. So, look, we have already started this a couple of weeks ago and we have reasons to believe that there is tremendous interest in our world-class securitized product business from third-party capital providers. So, I'm very confident that this is a business that attracts a lot of interest. On the FINMA capital side, you know, clearly, as it was said by David, the 30.5% is a very solid capital base.

We have a board of directors risk appetite of 13% to 14% for the rest of the year. And that's what we are doing. We are obviously always also in contact with FINMA. But this is very consistent with the spirit there.

I don't know whether -- Axel, you want to add anything?

Axel Lehmann -- Group Chairman

The question obviously, you know, with FINMA, we are in very close contact and I think half their support on the general strategic direction and our intent. We also informed in the appropriate way, the core college. So, of course we don't do that in an isolated way, and we are in a constant dialogue in particular with FINMA.

David Mathers -- Chief Financial Officer

I think your point about restructuring costs. Look, I think this -- I think we've been clear. We've scoped out the program. We can see the opportunities.

We're moving to implementation quickly on this point. But we are only going to provide further details on the new SEC U.S. GAAP restructuring program once we get to the end of the third quarter. And I think that's the time to do that.

I'm not sure I would make the assumption you make about 100%, Kian. You know, I think it is certainly true that -- you know, there are certain steps that can take which, you know, perhaps, impact contractors permanently differently. But, you know, as I said, I think we'll give you further details in due course.

Kian Abouhossein -- J.P. Morgan -- Analyst

And may I just follow up on the third-party platform. If you don't achieve third-party money on the platform, would that mean as an alternative an exit of the business?

Axel Lehmann -- Group Chairman

Look, I don't want to speculate at that point about anything. This is a highly profitable, highly success, No. 1 business in the marketplace. Trust me, we will do the right steps.

Kian Abouhossein -- J.P. Morgan -- Analyst

Thank you.

Operator

[Operator instructions] The next question comes from the line of Ahmed Goel with Barclays. Please go ahead.

Amit Goel -- Barclays -- Analyst

Hi. Thank you. And, again, my thanks as well, Thomas, for all the help that you've provided. And so, I've got two questions.

The first one on the SP business. I think you gave some balance sheet color in terms of [Inaudible] and leverage consumption. Could you give us a bit of color in terms of the profitability of that business and perhaps how that's evolved in recent periods? And then, secondly, just understanding the CET1 targets, I think previously you said you're anticipating it around 13.5% and for the -- in the next six months or so. Now that the range has kind of widened to 13% to 14%, just would like to understand what's driving that increase and I guess volatility for the CET1 ratio.

Thank you.

David Mathers -- Chief Financial Officer

Well, I think -- look, I think I did answer a similar question on securitized products before, Amit. And, you know, I'm not going to give detailed profitability numbers at this point. I think that's not appropriate. I would merely restrict myself to saying that the returns on this business have consistently exceeded the cost of capital over a very extended period of time.

So, I probably should stop there in terms of what I say about it. It's a very strong business that's got excellent leadership, and it's got a very good history of entrepreneurship and innovation. I think in terms of the capital guidance, look, I think, you know, we're operating in a volatile environment. I think, you know, you've seen the radical move in interest rates so far.

You know, I think the whole Russian-Ukrainian situation cannot be described as stable. You know, it's not stable in any sense of the word. And I think it does seem prudent to give a range for the guidance for capital. Not saying anything beyond that, but I think that's the context in which we've set the 13% to 14%, Amit.

Amit Goel -- Barclays -- Analyst

OK. Thank you. And just given the first question, I guess, had been partially answered before, just maybe one follow-up. Just in terms of the commentary about the 15.5 billion and that being within the current perimeter.

If you were to make further cuts or changes to the IB, then would you then be looking at a number below 15.5?

David Mathers -- Chief Financial Officer

Yes. Seems to be logical. Yes, Amit.

Amit Goel -- Barclays -- Analyst

Yes. No, just to check. Thank you.

Operator

The next question comes from the line of Alastair Ryan from Bank of America. Please go ahead.

Alastair Ryan -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning. And thank you, Thomas. And just really, it's hard for us on the outside to judge how you are progressing with remediation of the control issues that emerged, you know, a year and a half ago or so.

Many of which were backward-looking, but clearly, a constraint on, you know, how you take risk on a daily basis. And I think, David, you alluded to they're quite expensive. Can you give us any sense of how you're working through those? What point has been kind of giving you a clean bill of health on the thing that you highlighted at the investor day last month? Thank you.

Thomas Gottstein -- Chief Executive Officer

Yeah. I mean, maybe I can start off. As I said in my comments, we have made a substantial progress in our remediation program, organization and leadership under the leadership of David Wildermuth. We have been in very close contact with the core college of all three regulators across a large regulatory remediation book of work, which we have agreed priorities with them, which is roughly a dozen major programs.

They include, among others, the Archegos, Read Across. It includes the supply chain fund, Read Across. It includes FRTB and other projects. So, I think we are very well-organized now.

We have a very constructive dialog with all three regulators. Clearly there's still a lot of work left, but we are moving definitely in the right direction. And under David Wildermuth's competent leadership, I feel that we are moving in the right direction.

Alastair Ryan -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

The next question comes from the line of Chris Hallam with Goldman Sachs. Please go ahead.

Chris Hallam -- Goldman Sachs -- Analyst

Yeah. Morning, everybody. And first of all, just to echo everybody's comments, Thomas, I've certainly appreciated both your thoughts and perspectives in recent months. Two quick questions for me.

Just first on compensation costs and headcount. They were both up year over year in the quarter. And I know you've talked about the deferred comp impact here in 2022. But is it fair to see that considerations on headcount and on comp costs feed into the 15.5 billion landing points in opex? And, also, you know, as part of the ongoing pivoting the IB into the more capitalized activities.

So, that's the first question. And then, secondly, and maybe I missed this in your prepared remarks, David, but just on the 235 million of mark-to -market losses in the quarter and leveraged finance, would that be meaningfully different where we are now in late July.

David Mathers -- Chief Financial Officer

It's a good question. Thanks, Chris. Just to take the two in turn. But I think in terms of compensation costs, Chris, I think you know that last year as a consequence of our response, particularly to Archegos, we did go for a much higher level of deferral.

That was an appropriate decision we made in conjunction with -- which we made. And clearly, this year, we are actually going back to much more normal levels of deferral. So, therefore, the CV, the cash component of the awards is substantially higher than before. I think in terms of the outlook for compensation costs overall, I think, clearly, it's a radically different investment banking environment this year than it was last year.

I'm not going to prejudge how this year closes out, but, you know, it doesn't seem to me like it's going to be as good a year for bonuses in 2022 as it was in 2021 across the industry. So, yes, we'll look at it, basically. But the year-on-year change is primarily due to deferral changes. Clearly, we have looked at this as part of our program, but it's not the primary driver in terms of what we need to do.

We're talking about sustainable improvements in efficiency that we need to achieve that go far beyond compensation changes. I think your second question in terms of the mark-to-market on the unrealized in particular component of the leverage finance. It was $245 million. Would it be better in July? Well, look, yeah, you're right in the sense the indices have obviously routed in the first few weeks of July.

But I think, you know, I think a lot of wood to chop in terms of market volatility before one could make these comments. And I would be inclined to be still prudent about this. As I've said, you know, we clearly take our marks continuously. It's not just on the end, of course, on a regular basis.

And that reflects both deals that they've actually funded already where we've exited, but also mark-to-market against future funding commitments. So, you know, I think that's a protocol which, I have to say, I've followed since 2007. And I think it's the prudent way to think about it. You're right, the indices have narrowed.

But, you know, just history from the past basically says, you know, you can't always judge specific trades by moves and indices, basically. So I would still be cautious, Chris, in terms of this. I think, you know, I think there's we're still in the course of a very difficult market environment with very radical changes in the interest rates structure.

Chris Hallam -- Goldman Sachs -- Analyst

Thanks very much.

David Mathers -- Chief Financial Officer

Yeah. And clearly, Chris, you know, as I said in my prepared remarks, that does have to be a much increased chance of a significant recession at some point in the next 12 months.

Chris Hallam -- Goldman Sachs -- Analyst

Clear. Thanks.

Operator

The next question comes from the line of Anke Reingen with Royal Bank of Canada. Please go ahead.

Anke Reingen -- RBC Capital Markets -- Analyst

Thank you very much for taking my question. And, also, for me, thank you, Thomas, and all the best. And happy birthday, Kinner. I just had a question on Slide 18 about the interest rate sensitivity, the higher funding cost comment.

I assume that's not included in the potential benefit from higher rates. And I was wondering, you give us the 200 million for '22. But given your issuance comments, should that ramp up into '23? And then secondly, just on the strategic changes, I mean, I guess I can imagine it must be quite unsettling across your number of divisions of your bank. And I just wonder how you sort of like try to manage that situation and not, you know, impacting staff morale.

Is the view to do this relatively quickly, which might be more costly? Or is it more gradual? Just wonder how you managed your staff through, you know, the announced changes. Thank you very much.

David Mathers -- Chief Financial Officer

Well, just taking the first point first in terms of the benefit from high dollar and euro rates and the offset from the move toward zero in Switzerland, which, as you say, is on Page 18, I did think that it was appropriate to, you know, give full guidance around this. So, we've given the benefit we'd expect from current forward curves. And incidentally, just in terms of my interest rate and treasury management, I do have the ability to actually turn out a significant proportion of this to actually lock in that benefit. And those are trades which my treasury function has actually been conducting.

So, we are beginning to lock that benefit in. It's not just a forward-curve projection. But I did want also to basically disclose that, clearly, given the moving credit spreads across the market, across the banks, and Credit Suisse for that matter, it seemed prudent to basically guide to the adverse impact of funding costs as a consequence, both of those moves and, of course, the increase in the AT1 guidance which I've given this morning. You know, clearly what the funding costs will be in '23 or '24 will obviously depend critically on what our credit spreads are at the time we actually issued.

So, that's a comment in terms of my issuance plan for '22. And that's all I'd say at this point. It becomes a little bit forward-looking there afterwards.

Anke Reingen -- RBC Capital Markets -- Analyst

OK. So, the 1 billion is pre, I mean, potential increase in funding costs? Just one number.

David Mathers -- Chief Financial Officer

That's right.

Anke Reingen -- RBC Capital Markets -- Analyst

OK.

David Mathers -- Chief Financial Officer

They are separate things because, you know, one is getting exposure to myself as equity, my deposit strategy, my application strategy. The other is the increase in funding costs, which comes largely from in our AT1 issuance plan.

Anke Reingen -- RBC Capital Markets -- Analyst

OK. Thank you.

Thomas Gottstein -- Chief Executive Officer

Staff morale and attrition is concerned, it's clear that changes in strategic directions, etc. always create a certain insecurity. But on the other hand, from all my conversations I've had and that we will continue to have going forward, there is a broad-based recognition and support that we have to take some further actions. There is a lot of frustration around allocated calls to tether, also, calls to initiatives is broadly supported by everybody.

And also we are very focused, back quickly within a quarter with clarity for everybody. So, we are very much focused on this. And we are having a lot of support by our direct reports and end minus tools across the bank.

Anke Reingen -- RBC Capital Markets -- Analyst

OK. Thank you.

Operator

The next question comes from the line of Andrew Lim with Societe Generale. Please go ahead.

Andrew Lim -- Societe Generale -- Analyst

Hi. Morning and best wishes to you, Thomas. And credit to you for managing to bank through challenging times which have arisen through no fault of your own. So, onto my questions.

First of all, how do you think about the stability of the CET1 ratio at 13.5%? The reason I ask is, number one, had you not had 5 billion of you deleveraging, you would have been 30 basis points lower. And then, number two, how long do the FX hedges stay in place? Do they roll over at some point? So, I guess my question is, if you keep making losses, what would you see your CET1 ratio drop lower? So, that's my first question. And then my second question is on retention packages that have hit the headlines lately. Could you explain in detail how these are expense through the P&L? Is it on awarding of these packages or on investment? Thank you.

David Mathers -- Chief Financial Officer

Well, firstly, I think just in terms of the CET1 ratio, I mean, I think, clearly, you know, there's clearly a number of moving parts there. Obviously, we did reduce our business usage. And that was clearly part of the plan we actually had last year. So, I think that's to be expected on primarily in the IB, clearly.

But I think, you know, clearly we also had the leverage finance losses in the period and the overall performance of the banks and increased litigation charges. So, there clearly has a number of volatile items within that. I think it seems prudent to give a range of 13% to 14%. You know, I'm not really going to add to it beyond that.

As I said, I think it is a very high capital ratio for the bank, certainly compared to historic norms. And indeed, we did include a comparison at the back of the deck against many of our peers. So, I think that is worth keeping in mind. On the FX point, we continuously roll the roughly 65% of our CET1 forward, so they don't have an expiry date in terms of that.

It's just part of our normal treasury management. We've run it continuously on that basis. That's separate from my term-out strategy for the shareholder's equity, which I mentioned before, which I think you may be alluding to, where we have been keeping it relatively short for the last couple of years, typically around two and a half years. I think, whether, right to these sorts of events are coming at some point, although they've been pretty much, much more marked than I would have expected.

And we have been seeking -- we have been terming that out in the course of recent months. Basically, as interest rates have actually moved up to actually lock that in. And those are typically turned out to be somewhere between four and five years. Andrew answered that question.

But they are two separate things. One is my term-out strategy for the equity. The other is my FX exposure management. Oh, sorry.

And you asked a technical question around retention recognition. Well, look, I think this, you know, I don't think it had too much in terms of details. If I talk about the program we did last year, to give you some idea, typically speaking, those were three-year instruments and they vest roughly a third, a third, a third, basically. So, it's a time-weighted basis.

So, it's if they were rewarded for six months would be a sixth, the third, third, one sixth, you know, depending on when they're actually awarded, that's how they work.

Andrew Lim -- Societe Generale -- Analyst

Great. Thank you.

Operator

The next question comes from the line of Piers Brown from HSBC. Please go ahead.

Piers Brown -- HSBC -- Analyst

Yeah. Good morning. Thanks for taking my questions. I just got a couple.

On litigation, so you put 434 million this quarter. I think, if I'm not mistaken, just looking at the quarterly reports, the number you give for the range of reasonably possible losses, it has gone slightly higher. I think you're quoting 1.6 billion versus 1.4 billion last quarter. So, if you could just talk to what you're seeing in terms of sort of inflow of new cases into that number versus work out of existing cases.

And I guess you've mentioned this quarter, the communication record-keeping issue, which is a new case, I guess. But just the effect of those two items. And then secondly, on the securitized products business, I mean, when you think about that business and if we got to a point somewhere down the road where you looked either to do a disposal, or have or some form of exit, do you think there are inter linkages with other parts of the idea that you intend to maintain as in their current format? And I guess the reason I ask the question is because we've sort of seen with the exit of prime services that there can be unintended consequences for businesses that you retain in terms of spillover effects. So, just how you think about securitized products and how discrete or siloed of that business that is in the context of the overall IP franchise? Thanks.

David Mathers -- Chief Financial Officer

We're taking those in turn. Just in terms of litigation. But I think your comments are absolutely correct. I mean, the RPO did increase to 1.6 billion.

Notwithstanding the fact that we took major litigation provisions of 434 million in the quarter. Why? I mean, as you say, basically, you know, we were not anticipating the $200 million charge in respect of unapproved electronic communications. I think you've obviously seen that across the industry, but I wasn't expecting that at the end of the first quarter. So, that was a new case.

It had no appeal associated with it and doesn't have any RPO associated now. So, unfortunately, I've had to increase my provisions by 200 with no impact on IPO. I think 00 the balance, I mean, I think, you know, that Markus Diethelm took office as our general counsel. He's been doing a full review of our legal case.

He has made and continues to make substantial progress in resolving a number of these cases. And that really flowed from that review of those cases. There's nothing particularly new that's popped up to drive the IPO number. I think on the second question, just on SP, you know, I just would guide you against from kind of assuming that, you know, this is an exit from securitized products.

This is a very successful platform. It has it's been called the bank for a very long time indeed. Firstly, in mortgages and now in terms of asset financing. There's a lot of potential to actually grow this business if you had to deploy more capital.

We do have some limits on what we can do to actually support it. It's a great team, and that's really what we're looking to actually do here, frankly. So I just would caution against, you know, this is an exit from SP. It's not.

You know, this is a business where we do see the potential to basically grow an investor, albeit with third-party support for this operation. I don't know, Thomas, if you want to comment.

Thomas Gottstein -- Chief Executive Officer

No, I think you summarized it well.

Piers Brown -- HSBC -- Analyst

OK. Thanks very much. And, Thomas, very best wishes for the future.

Thomas Gottstein -- Chief Executive Officer

Thank you very much.

Operator

Back to Kinner, for closing comments. Kinner?

Kinner Lakhani -- Head of Investor Relations and Group Strategy and Development

Great. Well, thanks everyone, for your interest. And if you do have any further questions, feel free to contact the IR team. And have a good day.

Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Kinner Lakhani -- Head of Investor Relations and Group Strategy and Development

Axel Lehmann -- Group Chairman

Thomas Gottstein -- Chief Executive Officer

David Mathers -- Chief Financial Officer

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Andrew Coombs -- Citi -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Stefan Stallman -- Autonomous Research -- Analyst

Kian Abouhossein -- J.P. Morgan -- Analyst

Amit Goel -- Barclays -- Analyst

Alastair Ryan -- Bank of America Merrill Lynch -- Analyst

Chris Hallam -- Goldman Sachs -- Analyst

Anke Reingen -- RBC Capital Markets -- Analyst

Andrew Lim -- Societe Generale -- Analyst

Piers Brown -- HSBC -- Analyst

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