Credit Suisse Group Ag (CS) Q4 2022 Earnings Call Transcript

Credit Suisse Group Ag (CS)
Q4 2022 Earnings Call
Feb 09, 2023, 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 fourth quarter and full year 2022 results conference call for analysts and investors. As a reminder, all participants are in listen-only mode and the conference is recorded.

You will have the opportunity to ask questions after the presentation. [Operator instructions] I will now turn the conference over to Kinner Lakhani, head of investor relations and group strategic development. Please go ahead, Kinner.

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

Thank you, Alice. Good morning. 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 fourth quarter and full year 2022 earnings release that was published this morning. Let me remind you that our 2022 annual report and audited financial statements for the year will be published on or around March 9, 2023. So, I will now hand over to our group CEO, Ulrich Korner, followed by our group CFO, Dixit Joshi, who will run through the numbers.

Ulrich Korner -- Chief Executive Officer

Thank you, Kinner. Ladies and gentlemen, thank you all for joining today. We greatly appreciate your participation and engagement. Let me begin with some opening remarks.

2022 was an extremely challenging year for Credit Suisse with the group posting a net loss of CHF 7.3 billion. Nonetheless, it was also, a year which marked the beginning of the important and necessary transformation for our organization. On October 27, we presented a targeted plan to create the new Credit Suisse, a simpler, more focused bank built around client needs. And today, we reaffirm all of the targets we announced in October.

We are building the new Credit Suisse around our Wealth Management and Swiss Bank franchises complemented by our leading and differentiated capabilities in asset management and markets. We continue to execute our transformation at an accelerated pace and in a determined manner. I will share some details of our progress over the course of the presentation. In line with the update provided on November 23, we reported a pre-tax loss of CHF 1.3 billion and an adjusted pre-tax loss of CHF 1 billion for the fourth quarter.

We have a robust balance sheet, and we are executing on our transformation from a position of strength. We reported a year-end CET1 ratio of 14.1% and a Tier 1 leverage ratio of 7.7%. Our liquidity position also, improved following the impact of the events of October. The average liquidity coverage ratio was at 144% at the end of the fourth quarter with further improvements this year.

At these levels, our capital and liquidity ratios compare favorably to our peers. The board will propose a cash dividend of CHF 0.05 per share for the financial year 2022 subject to AGM approval. This is consistent with our intention to pay a nominal dividend throughout the transformation period. We remain focused on the disciplined execution of our strategy and have made progress in restructuring our investment bank, the creation of CS First Boston and the acceleration of our cost transformation program.

We are confident that our fundamental reshaping of the bank will create value for all our stakeholders. Over the next three years, we will continue to execute at pace, building on our respective global franchise and delivering exceptional service to our clients. Let me turn to the fourth quarter results. The group reported an adjusted pre-tax loss of CHF 1 billion for the fourth quarter, primarily reflecting an adjusted pre-tax loss of $1.3 billion in the investment bank.

Challenging market conditions and lower client activity had a significant impact on our capital markets and advisory businesses. While the strategic actions to derisk and exit certain business lines resulted in lower sales and trading revenues. Now turning to Wealth Management. The division reported an adjusted pre-tax loss of CHF 155 million.

During the quarter, we put in place extensive client outreach program and are already seeing the benefits of our initiatives. We are also, taking proactive steps to reduce the cost base as part of the groupwide cost transformation program. The Swiss Bank division reported an adjusted pre-tax profit of CHF 259 million for the quarter. This demonstrates our resilience and leadership position in our home market.

Overall, the group reported a pre-tax loss of CHF 1.3 billion. This result includes several adjusting items, the largest of which were restructuring expenses related to our cost transformation program, as well as real estate gains. Our new Executive Board remains fully focused on the successful execution of our strategic transformation. And the actions we have taken so far strengthened our business momentum in 2023 and beyond.

Now let me be clear, our teams continue to work relentlessly on serving our clients. Since October, we have proactively engaged with more than 10,000 wealth management clients and over 50,000 clients in the Swiss bank. As previously mentioned, we are seeing the first positive signs, comprehensive global initiatives to regain deposits, as well as assets under management. In January, we saw deposit inflows at group level in Wealth Management and the APAC, as well as net new assets in APAC and to Swiss Bank.

Importantly, clients remain overwhelmingly supportive, and we remain very thankful for that. To remind you of the strength of our Wealth Management business, we are the No. 2 wealth manager outside the U.S. with a deep client franchise balance between ultra and high net risk clients.

We have a very clear plan to restore the Wealth Management division to profitability. We are focused on growing a more stable high net worth business, we increased our focus on recurring revenues and regaining client wallet share among ultra-high net worth clients. And we are undertaking steps to reduce costs and improve efficiency. Let me now update you on what we have achieved since October 27.

We have made significant progress in the transformation and restructuring of the investment bank. Since the end of the third quarter, we have achieved about two-thirds of our securitized products group asset reduction target. In the fourth quarter, we reduced risk-weighted assets and leverage exposure by about $5 billion and around $50 million, respectively, reflecting proactive deleveraging and derisking measures in the noncore unit. That's ahead of the target run rate we set in October.

As announced, our goal is to carve out CS First Boston as a distinct leading independent capital markets and advisory-led business and we are pleased with the acquisition of the investment banking business of M. Klein & Company. This is a significant step forward in realizing CS First Boston's growth potential and creating value for our shareholders. Since our strategy announcement in October, we have strengthened our capital position by raising around CHF 4 billion of equity.

And we have completed around CHF 10 billion of debt issuances while making tangible progress in deleveraging and derisking the group further. This should reduce our funding needs in the future. Our cost transformation is well underway. As previously disclosed, action initiated in the fourth quarter represent approximately 80% of our 2023 cost base reduction target of about CHF 1.2 billion.

I want to make it absolutely clear that me and my management team are relentless in driving our cost base lower. We have made significant progress on our exit from securitized products. We completed the first closing of our transaction with Apollo, that, along with other actions taken, contributed to an overall reduction in securitized products assets by around $35 billion since the end of the third quarter. This is approximately two-thirds of our targeted reduction of $55 billion.

So, we are on track to close the full transaction in the first half of 2023, subject to regulatory approvals. This transaction, together with the potential sale of other portfolio assets is expected to reduce risk-weighted assets, leverage exposure, and other risk metrics over time. These actions are consistent with our strategy to significantly reduce the size of the investment bank and release liquidity and capital to support the bank's core businesses. Turning to the noncore unit.

As you can see on the slide, we are running ahead of schedule on both risk-weighted assets reductions and leverage exposure. Dixit will cover the important progress we have made in more detail. CS First Boston is an attractive value proposition as to shareholders and its carve-out is an important step in our strategic transformation. We are creating a global independent capital markets and advisory-led bank with distinctive capabilities and a unique market position.

It will be headquartered in the U.S. with leadership positions in Europe, Asia, and selected emerging markets. We are confident that our history of innovation, market leadership, and the years of experience of our core teams, together with a simpler operating and regulatory model, will provide a clear competitive advantage. Our execution plan is already underway.

We have announced the acquisition of M. Klein & Company, which will further strengthen CS First Boston's advisory capabilities, and we are rightsizing the business to reduce capital needs and release low-returning capital. In short, CS First Boston will be efficient, agile, and have a comprehensive product offering designed around client needs. Importantly, the new Credit Suisse will maintain a long-term strategic partnership with CS First Boston leveraging our leading market platform while ensuring the close connectivity to our Wealth Management and Swiss Bank businesses.

And we have a strong management team under the leadership of Michael Klein. Mike Klein has established track record in building leading capital markets and advisory-led businesses, as well as four decades of investment banking experience. The acquisition of M. Klein & Company has to create its advisory capabilities and accelerates the creation of an advisory-led CS First Boston.

At the same time, it creates significant revenue opportunities for Credit Suisse. The transaction is at a single-digit price-to-earnings multiple and is expected to be earnings accretive with an anticipated impact on the CET1 ratio of less than 10 basis points. In October, we made a very clear commitment to simplify the group and to reduce our cost base. We intend to cut the total headcount from around 52,000 in 2022 to 43,000 over the next three years.

We have already achieved a 4% reduction in the fourth quarter 2022. And we intend to continue to reduce third-party costs, including spending on contractors and consultants in a targeted and decisive manner. We are determined to deliver on our cost reduction target of CHF 1.2 billion in 2023 and CHF 2.5 billion by 2025. These targets are on a like-for-like basis exclude the impact of business exits.

We are making progress on our cost transformation and will be relentless in identifying opportunities to move further and faster. Rest assured, our cost initiatives will not impact the investments in risk management and technology, including digitization, as well as our targeted business growth. To sum up, we are well advanced on our journey to deliver a new, simpler, more focused Credit Suisse built around client needs. We have a new executive board with relevant experience and a strong track out of execution in similar situations.

We are building a unified culture from the top of the organization with a strong focus on risk management, collaboration, and accountability. We remain disciplined on strategic execution, strengthening and reallocating capital delivering our cost ambitions, and most importantly, supporting our clients globally. As I mentioned, we have acted decisively to address the impact of the outflows experienced in the fourth quarter, and we have seen deposit inflows at the group level, in wealth management and APAC, as well as net new assets in APAC and the Swiss Bank. We are also, making progress with the carve-out of CS First Boston and are creating a more focused markets business that will deliver innovative solutions and products for our Wealth Management and our institutional clients.

In short, we are determined to make this transformation a success, restore trust with all stakeholders and ultimately create sustainable value for our shareholders. With that, I hand it over to Dixit. 

Dixit Joshi -- Chief Financial Officer

Thank you, Ulrich, and good morning, everyone. I'm going to start today with the financial overview for the fourth quarter and the full year and then provide some details on assets under management, given the outflows that we saw in the quarter. After that, I'll go through the divisional performances before setting out some of the key themes for the group. Before I begin, I'd point out that this is the last time we will be discussing our results under our current financial reporting structure.

As of the first quarter of 2023, we will be publishing our earnings under the new structure that we outlined in October, comprising the four key business divisions and the Corporate Center plus the Capital Release Unit. We will provide a restated time series at the beginning of April along with other relevant information, and of course, we plan to provide regular updates detailing our progress as we execute on our strategy. Please note that unless I state otherwise, for example, with the investment bank, you can assume that whenever I give a currency figure, it's in Swiss francs. So, let's start with the group overview.

The group took clear strides forward despite the challenging fourth quarter. We delivered the strategy update alongside our third quarter earnings and started immediately on implementation. We made good progress reducing noncore-related exposures on cost reduction measures and on balance sheet reductions relating to the Capital Release Unit. We proactively managed our liquidity position following the outflows in the fourth quarter.

We executed a successful series of capital and funding measures, including raising around CHF 4 billion in equity and completing around CHF 6 billion of debt issuance in the fourth quarter. We strengthened our CET1 ratio to 14.1%, and we remain resolutely focused on execution and on supporting our clients. As you can see from this morning's announcement regarding the acquisition of the Investment Banking business of M. Klein & Company and the completion of the first closing of our securitized products transaction with Apollo, we are executing rapidly on the strategy and were ahead of plan.

In terms of our financial performance, the net asset and deposit outflows in the fourth quarter reduced our net interest income and recurring revenues, notably in wealth management. The investment bank experienced another tough quarter with lower client activity the impact of our strategic actions, as well as the events of the fourth quarter, all contributing to the reduced revenues in sales and trading. Revenues in our capital markets and advisory businesses were also, lower and more in line with the industrywide slowdown. Overall, fourth quarter reported net revenues for the group were 33% lower year on year at CHF 3.1 billion, and reported operating expenses were 31% lower at CHF 4.3 billion.

Provisions for credit losses amounted to 6 basis points of net loans at the year-end, mainly relating to specific provisions taken in the Swiss Bank and the investment bank. This resulted in a reported pre-tax loss for the quarter for the group of CHF 1.3 billion in line with the guidance that we gave at the end of November of a loss of up to CHF 1.5 billion. Our reported results include a number of adjusting items with a cumulative net impact on our fourth quarter results of CHF 300 million. A detailed breakdown can be found in the earnings release.

However, Notable adjusting revenue items included CHF 191 million of real estate gains and a CHF 75 million loss relating to the disposal of our remaining stake in all funds. In total, adjusted net revenues for the fourth quarter were 32% lower year on year at CHF 3 billion. Reported operating expenses for the quarter included CHF 352 million of restructuring expenses, broadly in line with our guidance of CHF 300 million and CHF 34 million of major litigation provisions. We continue to make good progress in resolving our outstanding legacy issues.

Adjusting for these items, operating expenses were 3% lower year on year at CHF 3.9 billion, resulting in an adjusted pre-tax loss for the quarter of CHF 1 billion. The income tax expense for the fourth quarter was CHF 82 million, resulting in a net loss attributable to shareholders of CHF 1.4 billion. The reason we have a tax charge for the quarter, despite the overall reported pre-tax loss, is driven by the fact that we earn taxable income in legal entities, which cannot be offset by tax losses elsewhere in the group. We expect this to continue to be the case in 2023 as we execute on our transformation program.

I'd like briefly to mention Corporate Centre, which booked an adjusted pre-tax income of CHF 104 million in the fourth quarter compared to a loss of CHF 172 million in the same period last year. This was largely driven by treasury results. Turning back to the group. For the full year, reported revenues were 34% lower compared to 2021 at CHF 14.9 billion.

Reported operating expenses were 5% lower at CHF 18.2 billion, leading to a reported pre-tax loss for the year of CHF 3.3 billion. The third quarter deferred tax impairment of CHF 3.7 billion resulted in a reported net loss of CHF 7.3 billion for 2022. Let me make a brief comment on compensation, which for the full year was down 2%. The fourth quarter total for the group decreased by 4% year on year.

However, it was 8% higher compared to the third quarter. This was a function of structural changes we've made to compensation over the course of the last year. As a result, some of the divisions show increases in the compensation line for the fourth quarter. Compensation is one of our key levers for controlling costs.

And I'd note that the total variable compensation pool for 2022 was 50% lower than in 2021 as we took actions commensurate with the decline in the group performance. Now before we turn to the performance of our business divisions, which I will discuss, as usual, on an adjusted basis, I'll touch on the impact of the client asset outflows during the fourth quarter on Slide 15. Our assets under management were impacted by significant net asset outflows early in the quarter which affected both our revenues and our liquidity position for the fourth quarter. Approximately two-thirds of the net asset outflows in the fourth quarter occurred in October, and they reduced considerably in November and December.

Group assets under management were around 8% lower on quarter at CHF 1.3 trillion, largely reflecting net asset outflows of CHF 111 billion. Deposit outflows made up around 60% of wealth management and Swiss Bank net asset outflows in the quarter. In total, net asset outflows represented 8% of assets under management at the end of September. Since the start of the fourth quarter, we strengthened our balance sheet, including through the capital raises to set the group on a stronger trajectory.

We're now three months into our transformation journey and we saw the first signs of the benefits of these and other proactive initiatives in January with positive deposit inflows at the group level and specifically in wealth management. Net asset flows in the Swiss Bank were positive and the net asset outflows in wealth management in January were at a reduced level compared to December with net asset inflows in Asia Pacific. Moving on to the divisional overviews, we'll start with wealth management. Lower assets under management and deposits, as well as subdued client activity resulted in lower revenues.

This led to a loss in wealth management, as we had indicated in our outlook statement in November. Net interest income declined 17% year on year with lower loan income and higher funding costs offsetting the benefit of rising interest rates on deposit income, albeit on lower deposit volumes. Similarly, lower average assets under management resulted in a 17% year-on-year fall in recurring commissions and fees. Transaction-based revenues were 20% lower reflecting reduced levels of client activity and mark-to-market losses of CHF 31 million on financing exposures.

Total net revenues were down 18% year on year. Operating expenses were 5% higher, mainly due to higher general and administrative expenses, reflecting higher allocated corporate function costs. I would note that a number of the measures that we took in the fourth quarter should reduce costs for the division in 2023. Overall, the division delivered an adjusted pre-tax loss for the quarter of CHF 155 million.

While we expect the division to report a loss for the first quarter, we are determined to return wealth management profitability, and Ulrich has highlighted some of the specific actions that we're taking to achieve this. Let's turn to the Swiss Bank on Slide 17. Swiss Bank had a resilient fourth quarter. Net revenues were 10% lower year on year, but quarter on quarter, revenues held up well, 3% lower.

Net asset outflows were CHF 8.3 billion, primarily from private clients. The reduction in the threshold benefit from the Swiss National Bank, given rising interest rates in Switzerland, negatively impacted net interest income, though this was partially offset by higher deposit income. NII was 11% lower year on year and flat compared to the third quarter. As a reminder, the loss of the SMB threshold benefits is now in the quarterly run rate, and we expect the year-on-year impact, which was CHF 78 million in the fourth quarter, to bottom out by the middle of this year.

Recurring commissions and fees were 10% over year on year, mainly due to lower average assets under management. These were flat compared to the end of the third quarter and 12% lower year on year, primarily the result of declining markets. Transaction-based revenues were 18% lower year on year, mainly driven by the impact of equity investments. Excluding these, lower client activity accounted for an 8% reduction.

A 6% year-on-year increase in operating expenses mainly reflected the structural changes to compensation that I referred to earlier. Provisions for credit losses were CHF 28 million compared to a release of CHF 4 million in the fourth quarter last year. equivalent to 7 basis points of net loans. Overall, the division reported a pre-tax income of CHF 259 million, 41% lower year on year.

Turning to asset management. Market conditions in the fourth quarter were challenging for the asset management division. Net revenues were down 28% year on year, driven primarily by lower performance, transaction and placement fees, as well as reduced management fees. Management fees were 19% lower, reflecting a decline in assets under management of CHF 74 billion, CHF 50 billion of which was due to FX and market effects.

Net asset outflows in the quarter were CHF 11.7 billion across both traditional and alternative investments, as well as outflows from investments and partnerships. Operating expenses were 3% lower year on year, primarily due to lower costs relating to the supply chain finance funds matter and reduced commission expenses, partly offset by higher compensation and benefits expenses. In total, the division booked an adjusted pre-tax loss of CHF 15 million for the quarter. Let's now turn to the Investment Bank on Slide 19.

Clearly, this was not a normal quarter for the group and in particular, for the Investment Bank, where revenues were down 74% year on year. Revenues were directly impacted by first, our restructuring actions, including the steps taken to derisk and exit certain business lines; second, actions we took in response to the group's deposit outflows in the fourth quarter; and third, reduce client activity as capital market conditions remained challenging. Operating expenses were 15% lower year on year, mainly reflecting lower compensation and benefits, resulting in an adjusted pre-tax loss for the quarter of $1.3 billion. Our sales and trading businesses were impacted both by our restructuring and lower client activity, resulting in an 89% year-on-year decline in revenues.

We estimate that the impact of the accelerated deleveraging, including that linked to our strategic actions accounted for around 40% of the year-on-year decline. Our continued strength in macro was offset by a substantial decline in securitized products and global credit products, largely due to our strategic actions. And consequently, fixed income revenues were 84% lower year on year. Equity sales and trading revenues were affected by the impact of our strategic actions, reduced client activity and less favorable market conditions on the equity derivates business.

The exit of Prime Services also had a year-on-year effect on cash equities. Overall, equities revenues were 96% lower year on year. For those business lines less directly impacted by our restructuring, the performance was more resilient with capital markets and advisory revenues, 59% lower year on year, in line with the reduced industry fee pool. The reported pre-tax loss of $1.5 billion included restructuring expenses of $214 million for the fourth quarter, part of which was related to the headcount reduction program.

We also booked major litigation expenses of $43 million. Looking forward, our strategic actions and the ongoing challenging market backdrop mean we would also, expect the Investment Bank to report a loss in the first quarter of 2023. However, we have taken decisive action on the structure of the division, and these measures are important steps in the creation of the new Credit Suisse. I'll now take you through our progress on some of our key financial metrics starting with capital on Slide 20.

We ended the fourth quarter with a CET1 ratio of 14.1%, up around 150 basis points quarter on quarter. Our successful capital increases added 147 basis points underpinning our capital strength as we continue to execute on our strategic transformation. Business RWA reductions benefited the CET1 ratio by 80 basis points, partially offset by 53 basis points attributable to the net loss for the quarter and by 24 basis points due to other CET1 movements including FX and model and parameter updates. Overall, RWAs declined by CHF 23 billion quarter on quarter, mainly due to the reductions in the investment bank of around CHF 5 billion and around CHF 9 billion in Wealth Management in Swiss Bank with a further CHF 10 billion due to FX.

Our parent capital ratio was around 250 basis points higher compared to the end of September at 12.2%. I should also, note that as we reduce RMBS exposures and activity as part of our announced strategy toward a managed exit from the securitized products business and to derisk the bank, we anticipate, based on ongoing regulatory discussions that operational risk RWAs associated with historical RMBS activity will decrease. Turning to leverage. For the fourth quarter, we ended a Tier 1 leverage ratio of 7.7% compared to 6% in the prior quarter.

Clearly, this ratio was higher than the level we'd normally expect to maintain, primarily because of the reduced size of the balance sheet, which resulted from the events early in the fourth quarter. Production in high-quality liquid assets mainly from the deposit outflows and business deleveraging contributed 102 basis points and 59 basis points, respectively, with the capital raises contributing 47 basis points. This was partly offset by a 17-basis-point impact resulting from the reported net loss for the fourth quarter. Leverage exposure was CHF 186 billion lower quarter on quarter at CHF 651 billion.

primarily driven by CHF 118 billion drop in HQLA, as well as deleveraging notably in the investment bank. Let's now look at these deleveraging and derisking measures in more detail on Slide 22. As part of our strategic transformation announced in October, on the 1st of January, we established the Capital Release Unit, which includes the noncore units for nonstrategic assets. The CRU will be a separate reporting division and will provide a more detailed breakdown when we publish our restated financials in early April.

We made a strong start in the fourth quarter in advance of the formal establishment of the CRU. Proactive deleveraging, derisking and market moves reduced RWAs by around $5 billion and leverage exposure by around $15 billion, excluding the impact from reductions in HQLA allocations. We are running ahead of schedule, and I'd add that derisking also, generated an estimated $10 billion of liquidity in the fourth quarter. We intend to continue to execute on the rundown of assets to release capital and liquidity, as well as targeting cost reductions, as you can see, we are well on track to reach our RWA and leverage exposure targets of around $25 billion and around $92 billion, respectively, by the end of this year.

Moving on to our liquidity coverage ratio. Although the group's liquidity position was impacted by deposit outflows in the fourth quarter, our average liquidity coverage ratio at the end of December stood at 144%, well above the group's minimum regulatory requirements and comparing favorably with our peer group. This represents an improvement from the lower levels in the quarter and was a result of a series of proactive measures, including the capital raises, debt issuances, and deleveraging. We have continued to see the improvement in the ratio since the start of the year and we remain focused on maintaining our LCR at a prudent level.

The disciplined execution of our strategy, including our simplification program should lead to further liquidity improvements and more efficient liquidity management across the group. Moving now to funding on Slide 24. A major consequence of our strategic transformation is that the group's future funding needs and related costs should reduce considerably over time due to the simplification of our business model. This should result in a more efficient group balance sheet.

You can see that in 2023, as a result of the balance sheet deleveraging driven by our strategic actions, redemptions should exceed our estimated debt issuance plan for the year. This reverses the situation of recent years, and I would expect this trend to continue over the next three years. I would plan for the current financial year is around CHF 17 billion, less than the expected redemptions of CHF 22 billion. Reduced holdco funding needs means we expect issuance of around CHF 2 billion and AT1 issuance of around CHF 4 billion.

In January, we completed nearly half of our planned CHF 9 billion opco issuance for the year and around 1/4 of the overall full year funding plan. Let's move on to net interest income sensitivity and guidance for funding costs. I would expect the cumulative revenue benefit based on current forward curves to be around CHF 900 million for the next three years versus year-end 2022 with the largest benefit coming from higher U.S. dollar rates.

To be clear, our forward net interest income assumptions are based on the static balance sheet at the end of the year. The benefit going forward will be a function of actual loan and deposit balances. Now turning to funding costs. The widening of our credit spreads over the course of 2022 has resulted in an increase in the cost of our funding, and I would expect this to continue to be the case, partially offsetting the benefit of higher interest rates over the next three years.

For 2023, I expect that increase to be in the region of CHF 100 million compared to 2022. However, as I mentioned earlier, we expect our funding needs and costs to reduce as we progress our transformation. Turning now to costs. Adjusted operating expenses for the year were CHF 16.2 billion, broadly flat compared to 2021 and below our previous guidance of around CHF 16.5 billion to CHF 17 billion, reflecting our disciplined approach to costs, including compensation, which I touched on earlier.

Looking forward, our ambition to reduce the cost base to no more than CHF 15.8 billion in 2023 and to around CHF 14.5 billion by 2025 on a constant perimeter basis, remains unchanged. What I mean by this is that as we complete the securitized products transaction and execute on other disposals, we'll adjust our cost and headcount targets downward accordingly. We are on track to deliver on our cost ambition. And as we've previously disclosed, the actions that we have already initiated in the fourth quarter are expected to represent 80% of the savings required to achieve our 2023 cost target.

We will, of course, be looking for additional opportunities to eliminate duplication and drive operating efficiencies across the group. In terms of restructuring costs, for the fourth quarter, we booked CHF 352 million, and I would reiterate our previous guidance for restructuring costs of CHF 1.6 billion and CHF 1 billion for 2020 and 2024, respectively. Touching briefly on headcount. Our overall target is to reduce this by 9,000 to around 43,000 by the end of 2025 on a constant perimeter basis.

And actions that we've taken in the last three months have enabled us to achieve around a 4% head count reduction since the end of September. To summarize, our financial performance for the fourth quarter reflects the decisive actions we have taken against a difficult market backdrop. Looking forward, we expect that the strategic actions taken to reduce the group's risk profile and the challenging market conditions will continue to be reflected in our financial results. I would expect the group to report a loss before tax 2023 given the adverse revenue impact of the exit of noncore businesses and exposures and of course, the restructuring charges related to our transformation.

We are now well into the execution phase of our strategic transformation and have clear priorities for the weeks and months ahead as we work toward achieving the financial targets that we set out on October 27. Let me remind you what they are. On groupwide costs, we expect to reduce our cost base on a constant perimeter basis to no more than CHF 15.8 billion in 2023 and to around CHF 14.5 billion by the end of 2025. With regard to the group CET1 ratio, we expect this to be at least 13% throughout the transformation period and above 13.5% at the end of 2025 and pre-Basel III reforms.

And by 2025, we are targeting a core return on tangible equity that is excluding the Capital Release Unit of greater than 8% and around 6% for the group as a whole. Thank you very much. And with that, I'll hand back to Kinner.

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

Thanks, Dixit. We will now begin the Q&A conference. May I ask everybody to stick to two questions, please? Alice, please open the line, please. 

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Andrew Coombs with Citi. Please go ahead.

Andrew Coombs -- Citi -- Analyst

Good morning. I guess my first question, I'd just like to come back to your commentary around being proactive on flows and winning back some of the client money. Thank you for the comments on January about Asia Pacific and Swiss bank. I guess my question would be more broadly as part of your proactive approach.

Could you provide any kind of color on what you're doing in terms of pricing? Are you putting through cuts to fees? Are you offering higher rates on the deposits? How are you going about winning back that business? So, that would be my first question. My second question is on what's left of your fixed income and equities business post the SPG divestment. What is the plan for that business overall? How much is expected to be moved in with CSFB versus how much of that market's business is to be retained by the broader CS Group? And I'd just like an idea of any thoughts on what the revenue contribution of that market's franchise could be. You've obviously given the $2.5 billion number for CSB, but presumably, that's mainly around origination and advisory retail.

Any thoughts on the markets franchise going forward? Thank you.

Ulrich Korner -- Chief Executive Officer

Thanks, Andrew. Let me start the first question. So, as we are alluding to, and I'd like to reiterate that because it's really, I think, important for where we are now, where we are going throughout the year. So, this client outreach program, which I was talking about is really unprecedented.

That is at least what the colleagues here in the firm tell me being here longer than 30 years. And I think it has shown, has developed very good momentum and hence, the figures I gave for January. You asked concretely about pricing. So, we try to be competitive, call it, like many of our competitors as well, So, to be in the game, but we are not buying assets, just to be clear because that would not be very smart going forward as well.

So, what is the fact, and I think that is something which all my colleagues in the bank and myself felt in the many, many clients in the actions which we had nearly on a daily basis, I would say that the client support which we get from them is really overwhelming. And I mean this I'm saying, which is absolutely for me and my colleagues is absolutely fantastic. So, the clients, in other words, the clients want us to be successful, and that is something which we can feel and therefore, we are So, focused on delivery.

Dixit Joshi -- Chief Financial Officer

Andrew, I'll take the second and thank you for joining the call. The SPG transaction, as you know, from our previous announcements, are part of our strategy to reshape and rightsize the investment bank. That portfolio had in the region of around 75 billion approximately of assets at the end of September. We've derisked two-thirds of that portfolio overall through a combination of transactions with Apollo and the first close yesterday and other third parties in the market.

And so, we're making rapid progress in reshaping the investment bank, starting with the SPG portfolio and we'll continue to enforce capital efficiency and balance sheet efficiency in the investment bank. The other leg of that stool is, of course, the Capital Release Unit, which, as I mentioned in my remarks, came into being on the 1st of January. We've moved with pace in advantage in the fourth quarter to derisk as well. Regarding your question on First Boston, CS First Boston.

CS First Boston, we are reshaping that business as we speak, to be capital-light balance sheet efficient, as well as rightsizing headcount, as Ulrich had mentioned as well. And so, to the extent that we have synergistic businesses, they, of course, will fit well in Credit Suisse First Boston, but I would use those criteria at the outset, which is looking at cost efficiency and balance sheet efficiency as two main criteria for which businesses would fall into SPG -- into Credit Suisse is Boston. The second point I'd make is that with our macro and our markets businesses, we have rightsized those businesses, we've refocused them and, of course, align them toward our Wealth Management and our Swiss Bank franchise, which is a key pillar of our strategy at the outset. We will, of course, reflect our restate financials once we set up the CRU, So, you'll have a better idea at that stage of the relative split and what our new segmentation looks like.

That should be in April. I hope that's helpful. 

Andrew Coombs -- Citi -- Analyst

Yes, I look forward to seeing the new split. Thank you both.

Ulrich Korner -- Chief Executive Officer

Thank you.

Operator

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

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much, and good morning. And I'm going to go back to the wealth management and to the flow situation. And I have to say, you're commenting on a clear plan to restore wealth through profitability. So, could we just hear what's in your business flow-wise for 2023? But like broader from a customer business perspective, when we look at kind of flows, deposits, custody assets, loans, how do you see those developing, let's just say, over the next 12 months on top of what you told us on APAC and kind of year-to-date numbers? So, that's question number one.

And question number two really is about the mix of your cost savings in 2023 as well. You've given us kind of very -- you've given us points on a Slide, I think, 11, let me just go back on Slide 11 from the perspective, what your priorities are. But could you give us a sense which of those points that you have detailed there actually have the biggest impact on that cost base reduction So, that at least we get a sense kind of where to look at because, for example, on the professional services side, you've already did a lot on the contractor side kind of workforce mix, you've already done a lot in the fourth quarter? Thanks very much.

Ulrich Korner -- Chief Executive Officer

Magdalena, thanks for the question. So, I would say with respect to your Wealth Management question, what is important, that's why we gave these indications from January. The group overall, as I said, is positive on deposits, Wealth Management, globally, positive on deposits, Asia Pac, positive on deposits. And I'm reiterating that because as you are fully aware of, the deposits are these kind of assets, So, to say, which leave first and have the fungibility to reenter first.

And I think that is important to bear in mind. As you immediately understand Magdalena, we do not give your business plan figures, but you can assume that in the best mention is a fair chunk of rewinning lost volumes lost business with our clients. And important to note here is as well that we hardly lost any client. I think that is also, important that shows you something about what I said before in terms of the relationship which we may have with our clients.

Seems to be, for me, very important. In terms of the cost, and Dixit, you might add, a couple of points from my side. With respect to the 1.2 billion target, which we stick to, as you are aware of, for 2023, 80% of this cost reduction has been initiated, and this in execution already in the fourth quarter. So, I think that is something very positive which you need to bear in mind.

So, you will see the effects coming in, obviously, quarter by quarter as we speak in 2023. To better understand, I would say, the overall program. I mean we are doing in forcefully, as I said, everything which we would do in that situation to reduce the cost with the more, call it, classical measures as we were alluding to getting more efficient, therefore, less headcount reducing content, consultant spend and there is room to go. This is absolutely no question.

We are looking at the usual things which you apply like how many levels in the organization, how many direct reports, all these kind of things we are working on. Having said that, and I'm saying that because this is what I would think is, call it, the first phase to get into new Credit Suisse. And then obviously, and we are working in parallel on that one is that we are asking ourselves and developing our new operating model for new Credit Suisse that it some more work over the next few months. But I think that is important for the second phase of cost reduction because the new operating order in itself we designed in a way that is much more agile and much more simpler.

That's why we talked about that in connection with new Credit Suisse with several times.

Dixit Joshi -- Chief Financial Officer

Ulrich, just to add, I mean, those, and Magdalena, good questions. I think as we reduce complexity and as we simplify the company as part of the move toward the new Credit Suisse, I think that creates large efficiencies for us, of course, that we need to crystallize. The second we make is we will keep focusing on optimizing our legal entity structure, which also, has upside for our cost base. And the third point I'd make is that I mentioned in my remarks that our cost targets are very much on a constant perimeter basis.

And so, for example, as we progress toward the final close of the securitized products transaction, we will, of course, once that's closed, also, then adjust our targets accordingly. So, I think what you're going to see from us is a management team is that we will leave no stone unturned. We have levers at our disposal to drive cost. And we're hence, confident, as you can hear from myself and all his remarks that we're confident on delivering on the cost target.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much.

Operator

The next question comes from the line of Jeremy Sigee with BNP Paribas Exane. Please go ahead.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Thank you very much. Good morning. Can I just kind of clarify further the outflow and the flow situation? And sort of two questions very specific on that. You said that the 4Q outflows were two-thirds in October.

Could you give us an idea of the remaining one-third? How was that split between November and December? Was it sort of even across both of those months? That's my first question. And then the second question you said -- again, it's not a similar topic. You said that you'd had further outflows in Wealth Management in January but at a reduced level. I just wondered how we should interpret what you mean by reduced level.

Is that relative to 15% in 4Q or relative to where you were in December? That would be very helpful just to understand what you mean by a reduced level of outflows.

Ulrich Korner -- Chief Executive Officer

Thank you very much for the question. Both very good questions. First one, we said like two-thirds in October. If you look into October and November together, it's more than 85% and of the outflows stemming from these two months, and that was exactly the reason.

And you are aware of before our strategy up at end of October, we are not in a situation to communicate that made it so, hard in October. And that's why we started immediately. At October 27, literally, our client outreach program, which travels with us -- traveled with us throughout the whole year and travels with us right now and as we speak, so, it has not stopped. So, more than 85% from October and November, which tells you now how the development was also, in the last quarter.

With respect to your second question, net new assets, in particular, we said we are positive, which is very good because that's a very proactive region, growth region, we are positive in APAC with a good number for January also, in comparison to other years. We are positive in Switzerland, also, with a good number overall here. We are positive in a couple of smaller other geographies, but we are also, still having some outflows in other regions, and that's why we gave this guidance. Say, look, it's not at the moment, the case yet that we can say we are all over in every market and in every region already positive on net new assets.

That's how you should read it. But again, as I said, in my eyes, the situation has completely changed from last year.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Thank you very much.

Operator

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

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

Yeah. Thank you and good morning. So, Slides 24 and 31, if I could, please. So, Slide 31, you've now this very, very large surplus to your going and gone concern capital requirements.

And as you said, Dixit, there's 30 basis points uplift in CET1 from securitized products. And then as this operational risk RWA reduction. So, it seems that you'll have really quite striking surpluses and in particular, in the debt and the subordinated debt stack. So, going about Slide 24, I can very much say why you might under issue.

Is there a possibility you might under issue by more if you're able to execute on the deleveraging plan that you've laid out? Thank you.

Ulrich Korner -- Chief Executive Officer

Alistair, thank you for the question. And I'm glad you've noted that because it is a change from, as you can see on the chart from the previous years, certainly the last two years, where we've had a greater issuance requirement than we've had redemptions. As we simplify the balance sheet and as we execute on our strategy, and I hope you're seeing that now in the fourth quarter, certainly, as we've taken the size of the balance sheet down, the intentional pieces where we've delevered the SPG transaction, the early start of the noncore unit, you're starting to now see some of those funding efficiencies come through, and that's now reflected in this. We set out, we said up to CHF 17 billion.

Of course, the funding plan is dependent on the evolution of the balance sheet through the year, and one has to be somewhat responsive and nimble as you get through the year. But at CHF 17 billion of indicated issuance versus CHF 22 billion redemption, we're starting to now really turn the corner and start setting ourselves up on a trajectory eventually reduce our funding costs through time. A couple of things I'd highlight. In response to what you've just said around Slide 31, it does lead to the reduced holdco issuance and which is at CHF 2 billion, much less than our expectations would have been, let's say, at some point during last year for this year.

And again, that's a reflection of the strategic actions that we're taking. On opco, we'll be opportunistic, as you'd expect through the course of this year, but we've already issued CHF 4 billion of an indicated CHF 9 billion. And then of the overall issuance plan, we've come out of the gates quite fast with an issuance of around 25% of the entire full year plan in January. So, we'll be responsive, but what you're going to see is a much more efficient balance sheet over time as a result of the strategic intended actions that we're taking.

I hope that's helpful.

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

Yeah. Thank you. Can I just -- as a sort of supplemental, So, I appreciate you'd expect to grow the balance sheet somewhat as you get deposits and inflows back, but those very large buffers that you've ended up with perhaps through shrinking faster than you'd expected. Is it fair to assume that if you can execute, you wouldn't need buffers that big, So, that sort of capital requirement goes down but also, some of those buffers that you ended up with, in particular, that sort of 900 basis point buffer in holdco debt might be able to come down?

Ulrich Korner -- Chief Executive Officer

An important observation. I mean what I'd say is if you look at the comments that I made on operational risk, as a result of setting out the strategy and then beginning to execute on it and then demonstrating that we're able to derisk especially in the mortgage-related portfolios, as you can see, I'm giving fairly clear guidance there that in dialogue with our regulators, we would expect a lower OR requirement. Now when it comes to really AT1 and holdco, of course, this is in the list of our regulators. That said, we will continue transforming the balance sheet in a manner that I think would be conducive toward lower issuance needs.

But of course, that's in the hands of our regulators as well. It will be an active dialogue that we will continue having. But I think what's in our hands right now is to continue to drive the balance sheet efficiency that puts us in a position to be able to have that dialogue.

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

Thank you.

Operator

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

Kian Bouhossein -- JPMorgan Chase and Company -- Analyst

Yeah. Thanks for taking my questions. The first one is on wealth management again, but maybe slightly differently, could you talk about the RM decline of 5% quarter on quarter, year on year by region and also, how you see RM development through '23. And in that context, could you talk about the cost as well, which clearly has continuously increased in WM and how you see cost development on an absolute level within the wealth management business? And then the second question is on SPG is, can you give us a little bit of an idea of our modeling how we should think about the revenues and the costs that are coming out of the disposal of SPG?

Ulrich Korner -- Chief Executive Officer

OK. Let me start with the first question. You mentioned the RM decline. We had certainly, if you look into last year's somewhat heightened attrition.

That's right, as you say. Nevertheless, part of that is also, to be seen in the light of increasing productivity goes without saying. So, looking ahead, I would say, very much depending on how we develop step by step to coming back into was management profitability and, most importantly, into growth, which we will. I think that might then turn around and we might add again on the RM side to the equation into wealth management.

Let me also, clearly say, we have -- I must say, we have no issues to hire, be it on the AM side, be it another very significant and important positions if we feel we need to hire. We have no issues to hire. A lot of people also, outside from Credit Suisse are strongly buying into that story of new Credit Suisse and where we are going. And I think that is important and helpful.

In terms of cost, the overall development, which you are alluding to in 2022, certainly not where it should go. I was also, saying before, we have reduced headcount by 4% already in the fourth quarter. And the cost program, which we are running within Wealth Management is obviously an important part of the overall cost transformation program. So, if you look into 2023 and beyond, certainly 2023, you can expect lower costs in wealth management both if it comes to direct costs, but also, when it comes to allocated costs from corporate center functions.

Dixit Joshi -- Chief Financial Officer

Kian, if I may address the second question on, and specifically your question on cost and modeling, I think it's part of a whole host of associated benefits for the firm, and it should be put in light of the wider derisking, as well as the repositioning of the investment bank and resizing of the investment bank. So, SPG, of course, is one part of, call it, capital release and business repositioning. The other is the noncore unit as well. And on both those counts, we will be giving you clearly more visibility as we do the restatements.

And in the case of SPG, once we get to the final close of the transaction, which we're anticipating in the second quarter of this year. We've given some highlights on the elements that we're able to. The first one being the capital benefit yesterday as a result of the gain on sale, which approximately is in the region of 30 basis points. The second is the OR reductions that as I mentioned, some clear guidance on the forward trajectory without being able to give you the magnitude as at the state given that would be an active regulatory dialogue, but we have, as I mentioned, strong expectation on the direction there.

The third benefit would be liquidity and funding efficiencies, and you've already seen that come through over the last quarter as we've been derisking in the SPG portfolio, and there'll be some further efficiencies through the course of the next quarter. And then lastly, I'd mention that the -- really, the reduction or the impact on our financial plan from the exit of the SPG business was built into the ROTE target that we had set out on October 27 last year. And I would also, mention that our cost targets will get amended accordingly as we progress toward the final close on the transaction. So, a number of moving pieces that we will give you more clarity on as we get to the close and as we complete the transaction.

Kian Bouhossein -- JPMorgan Chase and Company -- Analyst

Thanks. Just one more quick one. You mentioned the losses from the noncore in the IB. I missed that.

Could you just repeat how it breaks down within the IB?

Dixit Joshi -- Chief Financial Officer

Sure, Kian. We, as we haven't resegmented, of course, it's been, and IB reporting for Q4 under the old segment. The noncore, of course, will be south when you see the results in April in the time series, but also, we'll be reporting Q1 in our new market structure. We, of course, did in advance of the noncore unit taking shape on the 1st of January we have been disciplined on executing on our exits of products or exposures to free up capital in a manner that will benefit the shareholder.

And you're seeing that come through in the fourth quarter. As I mentioned, that's about --

Kian Bouhossein -- JPMorgan Chase and Company -- Analyst

Sorry, I'm referring to the P&L. Can you, just a simple question. Can you give me the breakdown of the losses in the P&L within the IB?

Dixit Joshi -- Chief Financial Officer

No, not yet, Kian, as I said, once you get the restatement -- once we restate in the new segment, then we'll be able to provide more visibility around that. Of course, in the Q4 -- as you point out, of course, in the Q4 in the IB segment, we have losses related to intentional derisking and especially accelerated derisking that we've absorbed in the fourth quarter, which is what you're seeing coming through in the results as well.

Kian Bouhossein -- JPMorgan Chase and Company -- Analyst

Thank you.

Operator

The next question comes from the line of Daniele Brupbacher with UBS. Please go ahead.

Daniele Brupbacher -- UBS -- Analyst

Yeah. Good morning and thank you. I wanted to ask about the liquidity coverage ratio of 144%, which is a three-month average. Can you tell us where spot levels were year-end or probably now? And historically, that was closer to 200%.

There was probably some reasons behind that. How should we think about it? But you can also, structurally change some of the funding bearing in mind legal entity constraints. So, that's one. And then secondly, also, on the capital situation, I mean, I guess the U.S.

business was running at 24% CET1 Q3. I don't know where it was in Q4, but how do you think about the capital distribution within the group and things you can optimize in that regard, how you're going to do that in the context of the carve out of CSF? Are you going to use that legal entity? And what's the possibility to repatriate some of that capital to then really have a benefit at the parent or the group level? That would be interesting. Thank you.

Ulrich Korner -- Chief Executive Officer

Thanks, Daniele. With respect to LCR, 144% at the end of last year, as you said. So, what we do not do is giving spot rates here. But that's why we said, and that's how you should think about it.

That's why I said it has improved since then. And if you put that all together, what I said about the overall flow situation and so, on should be pretty clear. What we are -- and hence, a good question. So, assume throughout this year, we are rebuilding further the LCR ratio to next different levels.

which is obviously, as it's immediately clear to you, driven by the whole derisking deleveraging, which we are doing and Dixit was talking about. What we have not yet fully defiance to say what should be with respect to new Credit Suisse an adequate and sensible target ratio for the long term. This is certainly something which we will do once but not yet too early in this year because as you also, immediately understand, it has a lot of questions tied into legal entity structure and so, on, where we are also, working on. And once we are more progressed on this kind of talk, then we will be certainly in a position to say, look, and very sensible, very comfortable target for LCR should be to X or should be Y.

I think that's the current situation. So, we are rebuilding further.

Dixit Joshi -- Chief Financial Officer

And then on capital, I'm glad you brought that up because if you look at the U.S. entities, in particular that you mentioned, with the exit of the SPG business and the work that we're doing toward a carve-out of Credit Suisse First Boston and our legal entity structure, our legal entity balance sheet will look quite different in places like the United States. And it's not just the U.S., but it's elsewhere as well. As we look at simplifying the organization, the derisking and simplification will lead to further opportunities for capital repatriation and efficiency.

You've seen that, for example, in the U.K. entities over the last few years, where we've created much capital efficiency as we execute on our legal entity simplification program. The other is I'd point you to the parent capital ratio, which as you saw was at 12.2%, partly as a function of some of the simplification benefits we've seen over the years. So, it's something that we're highly focused on, and that we're going to continue driving efficiencies on.

Daniele Brupbacher -- UBS -- Analyst

Super helpful. Thank you.

Ulrich Korner -- Chief Executive Officer

Pleasure.

Operator

The next question comes from the line of Amit Goel with Barclays. Please go ahead.

Amit Goel -- Barclays -- Analyst

Hi. Thank you. I've got two main questions. One, I think, obviously, you mentioned in 2023, you anticipate a fairly substantial loss, just, I appreciate there's a lot of moving parts, and obviously, there's a lot of things to be seen for the year.

But I mean is there any chance you can give us a bit more of a sense of how substantial is that largely centered in the IB but just some sort of order of magnitude there? And then secondly, there have been a number of articles about various changes to compensation plans, different incentives being put in place. I just wanted to get a sense of how all these things add up. And also, how do they get expensed? So, are they generally being expensed in 2023 or in future years and basically have some of these things work? Thank you.

Dixit Joshi -- Chief Financial Officer

Amit, yeah, on 2023, I mean, I'll try to give you some of the building blocks, again, not in a position to give you full guidance for '23 in detail. But I'll point you to a couple of important data points. One is that the Capital Release Unit has targets for this year. Pleased that we've been able to reduce the quantum of capital market funding that we have.

But as you can see, it's 17 billion out of much larger balance sheet. And so, we're pretty comfortable that we're setting ourselves on a path to reduce our funding costs through time as our balance sheet evolves.

Amit Goel -- Barclays -- Analyst

Great. Thank you very much.

Dixit Joshi -- Chief Financial Officer

My pleasure.

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 thank you for taking my questions. The first is essentially a bit of a follow-up to Magdalena and Kian's question earlier. One of the key pillars on the strategic update at Q3 was the pivoting of the business back to profitable core.

And at the time, you mentioned the wealth management franchise as sort of an 18% to 20% RoTE business within those 2025 targets. But given the reduction in AUMs and you've highlighted the business is expected to be loss-making in the first quarter, is there a sort of a strategic decision to be made as to whether to either sort of a, run the business as a profitable franchise at current AUM levels or b, to try and regain assets and deliver the level of absolute profit contribution, which was embedded in that strategic plan? I appreciate the comments you made earlier on this topic, but I just wondered whether those two options are essentially mutually exclusive from a cost perspective. So, that's my first question. And then the second one is just on the strategic update, you had the objective of around $3 billion of revenues in the markets business.

And I just wonder whether that's still an objective now.

Ulrich Korner -- Chief Executive Officer

OK. Chris, let me start with the first one. Thanks for the question. So, we laid out very clearly as part of the transformation, three main blocks of actions, by the end of October, as you might remember.

The first one, as you put it, the radical restructuring of the investment bank, and we talked about some various important elements over the last few minutes here. The second one is the cost transformation program with a very clear guidance on the cost reduction targets. Again, as Dixit was saying excluding exits and all these kind of things that comes on top of it. And that's important to bear in mind.

And the last one, which we very clearly said is we want to do that transformation out of a position of capital strength, hence the capital raise, which was successfully and other measures, which was successfully concluded in November, as you are fully aware. And we are executing currently against all of these main blocks of measures. And as we said, very focused, very decisively. And you see that we are in many, many aspects.

If you go through the presentation, we are ahead of our plan. Second point to make here is, and that is something, as I was alluding to at least something we are also, in parallel working on is to really fill these new Credit Suisse how we put a bank, which will evolve here over the next couple of years with content. And then obviously, doing the same with CS First Boston the other side. And this is something which we owe you So, to say, but it needs a bit more time we are traveling to 2023.

And once we are there, we will update you in terms of what it means than really going forward. Having said that, and that's intuitively clear to you if new Credit Suisse is based on, our wealth management business, our very strong businesses in Switzerland, complemented by asset management and by the markets business in a resized form. I think it's intuitively clear where this business, if it runs, So, to say, in the way we want to run it going forward, will end up in terms of shareholder returns. So, there must be a very, very good proposition for our shareholders.

Wealth management, I think it's -- if I understood the question correctly, it's not -- it's a tricky question. I would say, if you allow me. So, it's not the idea to say, OK, we lost these assets and then we take what we have and therefore, resized the wealth management but to make it reasonably profitable again. I think we do two things.

We do all what is necessary on the cost side. And there's room, as I said before on the other hand, wealth management is the growth engine or one of the growth engines of today Credit Suisse but also, of the new Credit Suisse. And that is why I said we have a relatively clear plan the client outreach initiative, which we started is part of that certainly in the short term, i.e., last year in 2022. I said it has started to create good momentum.

So, we want to win back all the assets, and if not more, which we lost, that goes without saying. Secondly, the growth focus in wealth management, strategically spoken is very clearly on the stable high net worth business. Secondly, recurring revenues, and there is enough room for us to improve, goes without saying. And then last but not least, and you know that we have super strong positions in different geographies of the world here, also, regaining the ultra-high net worth wallet share.

So, I think that's the overall package we are working on. And that's the way how we push back Wealth Management into profitability and into growth mode.

Dixit Joshi -- Chief Financial Officer

Chris, if I could just answer the second question that you mentioned around the markets business. I would say, look, not to look really at the fourth quarter, given that was an exceptional quarter for the company with all of the challenges that were there. Together with the intentional repositioning and restructuring-related actions that we undertook in the fourth quarter. The Markets business is an important alignment to our wealth management franchise.

As a management team, we're moving pretty quickly to take the actions that were necessary to restore that to the bottom line in that business. And we're confident in the actions that we've been taking in that franchise.

Chris Hallam -- Goldman Sachs -- Analyst

OK. Thank you very much. That's very clear.

Operator

The next question comes from the line of Anke Reingen with RBC. Please go ahead.

Anke Reingen -- RBC Capital Markets -- Analyst

Yeah. Good morning and thank you for taking my question. I just wanted to follow up on your -- on the benefit of higher interest rates. If I remember correctly, at the strategic update, you said around half of the 5 percentage point uplift in the RoTEs coming from higher interest rates.

And I think that would imply a higher number than you show us today on the CHF 900 million prefunding costs. So, I just wondered how this squares. And then on following up Amit's question on the substantial loss in '23. Is it fair to assume that you also, think there's a loss at the underlying level, and I think you made some comments on the news wires about 2024, if you can please clarify? Thank you very much.

Dixit Joshi -- Chief Financial Officer

Sure. I'll, let me run through the first. On higher NII, on October 27, when we indicated, I think we said in the region of around CHF 900 million to CHF 1 billion for 2025 as a result of the current term structure and market implies at the time. I think interest rates right now are slightly higher than where we were on October 27.

But of course, we have a lower deposit base as a result of the events in October. On balance, it comes out roughly to a wash with around, still around CHF 900 million for the three-year period. And that's very much what was embedded into our RoTE work as well. On the second point, on the loss for '23 as I said, look, we're focused on really restructuring our businesses.

We want to take as many of the actions that we need to create the new Credit Suisse early on in our transition path. We're three months into the restructuring. We've already started, as you can see, in the fourth quarter results as well, largely premeditated intentional actions to execute on our strategy, and you're seeing that come through in the results. We'll, of course, be doing that during the course of the year in a way that as sensitive and capital accretive as possible or economically responsible for our shareholders, but we do want to move as quickly as we can on repositioning and restructuring the firm.

Ulrich, if you want to add.

Ulrich Korner -- Chief Executive Officer

No, I think that's all right.

Anke Reingen -- RBC Capital Markets -- Analyst

On 2024, I think you said you expect to be profitable. Is that correct? And is that at the reported level? Thank you.

Dixit Joshi -- Chief Financial Officer

That's correct. That's right. As we look at the planning assumptions that we've made, that's our current assumption.

Anke Reingen -- RBC Capital Markets -- Analyst

Thank you.

Operator

Your next question comes from the line of Andrew Lim with Societe General. Please go ahead.

Andrew Lim -- Societe Generale -- Analyst

Hi, good morning. Thanks for taking my questions. Firstly, on the core markets business that you're mapping out there. You've talked about a net revenue expectation of CHF 3 billion.

But how do you expect the costs to develop for this division? You've talked about cost reductions across the whole group, but I'm just trying to zero in on the markets division here and seeing what the core profitability might be if you take to account the cost expectations. And then CSFB obviously, a lot of work to be done here to carve it out. Is your expectation as you carve it out to -- what's your anticipation of the CET1 ratio impact as you complete that carve-out?

Dixit Joshi -- Chief Financial Officer

Andrew. Look, on the first on really markets and your question on the cost base, as I mentioned before, the initiatives that we're undertaking as part of our cost transformation program are really across the horizontals. And so, of course, at the one level, we have the strategic rising that we've done with the exit of the SPG business. We'll have the carve-out of the Credit Suisse First Boston business.

So, we have a simpler mix and we'll exit cost a long journey. But then we have really all of the horizontal initiatives that we've been driving for cost reduction, which will also, impact the investment bank. So, I think what you'll see -- as you're starting to see through from last year, is you're starting to see the efficiencies slowly come through because the headcount reductions that we've undertaken in the fourth quarter will feed through into the bottom line and going to the cost base. as the quarters go along but won't be visible in the immediate quarter necessarily.

What I would say is that we're committed to taking the actions that we needed to as you're seeing, and to move with speed on those to rightsize these as well in response to the revenue environment that we've seen as well. On the second point, on CS First Boston, we can't give you a specific capital impact today. Suffice to say, one of the pillars of the strategic reasoning here is very much capital efficiency, as well as to generate and free up capital for the organization and for the shareholder. And that's certainly the path we're on as we work toward a carve-out and an eventual IPO for that business.

Step one for us was to ensure that we commenced on the initial planning for the carve-out which we're now doing is underway. Step two, as we've announced, was the acquisition of M. Klein & Company, which we announced this morning as well, which was an important pillar on this part of the carve-out and we'd love to give you more details as we progress on this journey.

Andrew Lim -- Societe Generale -- Analyst

Great. Thank you very much.

Operator

The next question comes from the line of Tom Hallett with KBW. Please go ahead.

Tom Hallett -- Keefe, Bruyette and Woods -- Analyst

Good morning, guys. So, I was wondering if you could bucket the discussions around flows of client. You have over 90 billion of outflows in Wealth Management. What do you see as a realistic number to come back? And what is unlikely to and what is somewhere in the middle? And I guess what I'm trying to get to is what clients are open to returning based upon what they see in terms of progression around your restructuring plan.

What others are interested in things like reductions, an increase in deposit rates or something like that, and others that are probably unlikely to return? That's for me. Thanks.

Ulrich Korner -- Chief Executive Officer

OK. Tom, let me take that. So, as we said or as I said earlier, we feel that the declines are overwhelmingly supportive. What we have observed, I would say, since October, in particular, and then early November on all these clients' meetings, at least where I was participating and doing, as I said, typically several a day.

I would say there are three groups of clients. The one which we started to come back very quickly already last year. So, after a successful capital raise, they came back, they brought money back and so, on. A second group, which I tend to believe is a very large group.

At the end of the day, which was a bit more careful, So, I look -- let's look at that, look at how you are doing, how you are executing and so, on, which will come back over time, I'm not saying in a run, but over time. And there's a third group I would think relatively smaller group, which says, look, we stick with you with what we have now. After reductions, we like you, but we want to observe you a little bit longer than just let's say, the next, whatever, a few months. So, I think that's what I felt at least from client meetings.

So, to your concrete question, how much is coming back, I would like to know that as well, as you can imagine. As I said, the wealth management colleagues are pretty hopeful that we bring a fair part of the outflows back already in 2023. And the rest will come later. And as I said also, earlier, obviously, our target is to bring all and everything back and then go beyond that.

Tom Hallett -- Keefe, Bruyette and Woods -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of Adam Terelak with Mediobanca. Please go ahead.

Adam Terelak -- Mediobanca -- Analyst

Good morning. Thanks for the questions. Lots of questions on flows. I want to see more detail on deposits.

Clearly, they're down more than a third Q-on-Q. Can you give us any sort of color around that by division, that by term viruses site deposits? And then the assumption around deposit costs in the NII guide through 2025 and what that might mean particularly for wealth management, NII quarter on quarter into the beginning of this year given the repricing outreach program that is ongoing? And then secondly, back to credit. The language around the 81 seems to indicate that the preference will be to kind of call and reissue this year's first call date. Is that the right way of reading it? Thank you.

Dixit Joshi -- Chief Financial Officer

Adam, hi, sure. We would have traditionally breakdown deposits necessarily within term site, et cetera. I mean what I'd say is, look, we're looking at deposit efficiency, of course, on our balance sheet. One for us was really ensuring that where we still confidence with our clients and customers, and you're starting to see -- for Ulrich's remarks, you're starting to see that come through.

a core part of that was to ensure that we tapped the capital markets, undertook private transactions, restored CET1 to a higher level. All of the actions that I mentioned that we did in the fourth quarter and that's now starting to come back. I would point you to the LCR ratio. Look, that's ultimately a combination of both deposits and other measures lead to us managing the LCR ratio.

An LCR ratio, as you see, is up from the lows in the quarter to an average of 144% for the quarter. And as we've indicated, has improved in January as well. So, we're three months into the restructuring. We're taking all the necessary steps, and we're starting to see, as you can see, positive momentum on deposits in January.

The second question was really on really deposit costs. And I would say in the NII guide in the first quarter, it's partly why we've guided to a loss in the first quarter for Wealth Management as well is we have a reduced deposit base compared to what we had in September. You see that impacting the NII, of course, in Q4 as well, and that will also, have a knock-on impact into Q1 as well. That said, the evolution from here will depend, of course, on both factors, both volume of deposits, but the other is also, the evolution of interest rates through the course of this year.

The corollary to this is also, funding cost where, as I've indicated, we're working hard on optimizing the balance sheet, and ensuring that we can squeeze as much as we can out of it and reduce our funding cost. And step one on that path was to derisk in order to reduce our funding needs and then to be able to issue less in the capital markets, which you're now seeing through our issuance plan as well. So, a combination of all of those would lead to NII efficiency.

Adam Terelak -- Mediobanca -- Analyst

And just a quick follow-up. The guide for NII is on a static balance sheet. The deposits you're bringing on board January to date, does that increase or decrease the NII guidance?

Dixit Joshi -- Chief Financial Officer

We would look, depending on the NII evolution, we'd always amend our modeling and our calculations. That's normally what we do. In fact, in October, we've made assumptions, forward assumptions on the reduced balance sheet given the events in the first three weeks in October, which effectively reduced even from the static balance sheet that we had at the end of September, obviously, reduced the NII, which in the numbers that I've given you in October really factored in a reduced balance sheet as well. Today, when we remodel our balance sheet, we have lower balances, actual balances at the end of the year, but rates are slightly higher and the net outcome is roughly the same at around CHF 900 million for NII uplift.

But look, as we evolve our balance sheet, we'll give you further updates and guidance on that.

Adam Terelak -- Mediobanca -- Analyst

But no comment on the January cost of deposits?

Dixit Joshi -- Chief Financial Officer

No. On deposits, as Ulrich mentioned, we're, it's still our cheaper source of funding. We're competitive. As we've said, there's been more competition from deposits from the rest of the industry through the course of last year.

And as always, it's an important part of our funding mix. We'll continue to remain as competitive as we need to be there.

Adam Terelak -- Mediobanca -- Analyst

Great. Thank you.

Dixit Joshi -- Chief Financial Officer

Sure.

Operator

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

Piers Brown -- HSBC -- Analyst

Good morning. My question is actually on short-term wholesale funding. We've talked a lot on the call about the long-term debt issuance plan and also, the positive developments in terms of deposit flows. But if I look at the quarterly report, you've got some quite negative word in around the impact of the November credit rating downgrades on your access to short-term funding.

And I wonder if you could just address that in terms of what you're seeing more recently on access and cost of short-term funding and the impact on the IB financing derivatives businesses? Thanks.

Dixit Joshi -- Chief Financial Officer

Sure, Piers. And I'm glad you brought that up. Look, we've been reducing our reliance on short-term funding for the course of the last year. And most importantly, the few initiatives that we've launched around restructuring the Investment Bank, derisking in the capital release unit, getting the SPG transaction done, which, as you can see, we've moved really, really quickly on and with -- we are around two-thirds of the target reductions already having happened, all of those reduce our reliance on short-term wholesale funding and create more funding efficiencies as well.

There's no question, of course, as we -- as we're transparent about that with the credit rating downgrade, certain facilities would have been affected. But that said, we have other tools at our disposal. We were able to do private placements and other bilateral financing as well. And ultimately, what you should look to is the LCR ratio which we're managing too, which is effectively an amalgam on a risk basis of short-term and other medium-term measures in the calculation.

Hope that's helpful.

Piers Brown -- HSBC -- Analyst

OK. Thank you.

Operator

I now hand back to Kinner Lakhani for closing remarks. Kinner.

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

Great. Well, thank you, everybody, for joining us this morning. Thank you, really [Inaudible]. Of course, if you have any more questions, feel free to reach out to IR, and have a great day.

Thank you.

Ulrich Korner -- Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

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

Ulrich Korner -- Chief Executive Officer

Dixit Joshi -- Chief Financial Officer

Andrew Coombs -- Citi -- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Jeremy Sigee -- Exane BNP Paribas -- Analyst

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

Kian Bouhossein -- JPMorgan Chase and Company -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Amit Goel -- Barclays -- Analyst

Chris Hallam -- Goldman Sachs -- Analyst

Anke Reingen -- RBC Capital Markets -- Analyst

Andrew Lim -- Societe Generale -- Analyst

Tom Hallett -- Keefe, Bruyette and Woods -- Analyst

Adam Terelak -- Mediobanca -- Analyst

Piers Brown -- HSBC -- Analyst

More CS analysis

All earnings call transcripts