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Credit Suisse Group AG, et al. – ‘20-F’ for 12/31/17

On:  Friday, 3/23/18, at 11:57am ET   ·   For:  12/31/17   ·   Accession #:  1370368-18-15   ·   File #s:  1-15244, 1-33434

Previous ‘20-F’:  ‘20-F’ on 3/24/17 for 12/31/16   ·   Next:  ‘20-F’ on 3/22/19 for 12/31/18   ·   Latest:  ‘20-F’ on 3/14/23 for 12/31/22

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/23/18  Credit Suisse Group AG            20-F       12/31/17  216:110M                                   MDD Mgmt Digital … AG/FA
          Credit Suisse AG

Annual Report by a Foreign Non-Canadian Issuer   —   Form 20-F   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report by a Foreign Non-Canadian Issuer      HTML   9.52M 
 2: EX-1        Exhibit 1.3                                         HTML    199K 
 3: EX-9        Exhibit 9.1                                         HTML     52K 
 4: EX-9        Exhibit 9.2                                         HTML     52K 
 7: EX-13       Exhibit 13.1                                        HTML     53K 
 5: EX-12       Exhibit 12.1                                        HTML     56K 
 6: EX-12       Exhibit 12.2                                        HTML     56K 
14: R1          Document and Entity Information                     HTML     84K 
15: R2          Consolidated statements of operations               HTML    128K 
16: R3          Consolidated statements of comprehensive income     HTML     93K 
17: R4          Consolidated balance sheets                         HTML    240K 
18: R5          Consolidated statements of changes in equity        HTML    161K 
19: R6          Consolidated statements of changes in equity        HTML     54K 
                (Parenthetical)                                                  
20: R7          Consolidated statements of cash flows               HTML    201K 
21: R8          Summary of significant accounting policies          HTML    135K 
22: R9          Recently issued accounting standards                HTML     80K 
23: R10         Business developments                               HTML     80K 
24: R11         Segment information                                 HTML    184K 
25: R12         Net interest income                                 HTML     98K 
26: R13         Commissions and fees                                HTML     84K 
27: R14         Trading revenues                                    HTML     85K 
28: R15         Other revenues                                      HTML     79K 
29: R16         Provision for credit losses                         HTML     67K 
30: R17         Compensation and benefits                           HTML     72K 
31: R18         General and administrative expenses                 HTML     81K 
32: R19         Restructuring expenses                              HTML    151K 
33: R20         Earnings per share                                  HTML     77K 
34: R21         Securities borrowed, lent and subject to            HTML     74K 
                repurchase agreements                                            
35: R22         Trading assets and liabilities                      HTML     89K 
36: R23         Investment securities                               HTML    171K 
37: R24         Other investments                                   HTML     76K 
38: R25         Loans, allowance for loan losses and credit         HTML    979K 
                quality                                                          
39: R26         Premises and equipment                              HTML     84K 
40: R27         Goodwill                                            HTML    169K 
41: R28         Other intangible assets                             HTML    119K 
42: R29         Other assets and other liabilities                  HTML    127K 
43: R30         Deposits                                            HTML    103K 
44: R31         Long-term debt                                      HTML    265K 
45: R32         Accumulated other comprehensive income              HTML    219K 
46: R33         Offsetting of financial assets and financial        HTML    367K 
                liabilities                                                      
47: R34         Tax                                                 HTML    333K 
48: R35         Employee deferred compensation                      HTML    308K 
49: R36         Related parties                                     HTML    133K 
50: R37         Pension and other post-retirement benefits          HTML    816K 
51: R38         Derivatives and hedging activities                  HTML    659K 
52: R39         Guarantees and commitments                          HTML    255K 
53: R40         Transfers of financial assets and variable          HTML    736K 
                interest entities                                                
54: R41         Financial instruments                               HTML   3.44M 
55: R42         Assets pledged and collateral                       HTML     80K 
56: R43         Capital adequacy                                    HTML    121K 
57: R44         Assets under management                             HTML     96K 
58: R45         Litigation                                          HTML    155K 
59: R46         Significant subsidiaries and equity method          HTML    461K 
                investments                                                      
60: R47         Subsidiary guarantee information                    HTML    718K 
61: R48         Credit Suisse Group parent company                  HTML     55K 
62: R49         Significant valuation and income recognition        HTML     79K 
                differences between US GAAP and Swiss GAAP banking               
                law (True and Fair View)                                         
63: R50         Summary of significant accounting policies          HTML    214K 
                (Policies)                                                       
64: R51         Business developments (Tables)                      HTML     68K 
65: R52         Segment information (Tables)                        HTML    179K 
66: R53         Net interest income (Tables)                        HTML     99K 
67: R54         Commissions and fees (Tables)                       HTML     83K 
68: R55         Trading revenues (Tables)                           HTML     78K 
69: R56         Other revenues (Tables)                             HTML     77K 
70: R57         Provision for credit losses (Tables)                HTML     66K 
71: R58         Compensation and benefits (Tables)                  HTML     70K 
72: R59         General and administrative expenses (Tables)        HTML     80K 
73: R60         Restructuring expenses (Tables)                     HTML    154K 
74: R61         Earnings per share (Tables)                         HTML     77K 
75: R62         Securities borrowed, lent and subject to            HTML     71K 
                repurchase agreements (Tables)                                   
76: R63         Trading assets and liabilities (Tables)             HTML     91K 
77: R64         Investment securities (Tables)                      HTML    178K 
78: R65         Other investments (Tables)                          HTML     71K 
79: R66         Loans, allowance for loan losses and credit         HTML    976K 
                quality (Tables)                                                 
80: R67         Premises and equipment (Tables)                     HTML     86K 
81: R68         Goodwill (Tables)                                   HTML    162K 
82: R69         Other intangible assets (Tables)                    HTML    123K 
83: R70         Other assets and other liabilities (Tables)         HTML    126K 
84: R71         Deposits (Tables)                                   HTML    101K 
85: R72         Long-term debt (Tables)                             HTML    270K 
86: R73         Accumulated other comprehensive income (Tables)     HTML    229K 
87: R74         Offsetting of financial assets and financial        HTML    362K 
                liabilities (Tables)                                             
88: R75         Tax (Tables)                                        HTML    311K 
89: R76         Employee deferred compensation (Tables)             HTML    303K 
90: R77         Related parties (Tables)                            HTML    121K 
91: R78         Pension and other post-retirement benefits          HTML    794K 
                (Tables)                                                         
92: R79         Derivatives and hedging activities (Tables)         HTML    648K 
93: R80         Guarantees and commitments (Tables)                 HTML    236K 
94: R81         Transfers of financial assets and variable          HTML    701K 
                interest entities (Tables)                                       
95: R82         Financial instruments (Tables)                      HTML   3.39M 
96: R83         Assets pledged and collateral (Tables)              HTML     83K 
97: R84         Capital adequacy (Tables)                           HTML    108K 
98: R85         Assets under management (Tables)                    HTML     90K 
99: R86         Litigation (Tables)                                 HTML     58K 
100: R87         Significant subsidiaries and equity method          HTML    461K  
                investments (Tables)                                             
101: R88         Subsidiary guarantee information (Tables)           HTML    716K  
102: R89         Summary of significant accounting policies          HTML     82K  
                (Details)                                                        
103: R90         Summary of significant accounting policies -        HTML     71K  
                Useful lives (Details 2)                                         
104: R91         Recently issued accounting standards (Details)      HTML    110K  
105: R92         Business developments (Details)                     HTML     67K  
106: R93         Business developments - Share transactions          HTML     67K  
                (Details 2)                                                      
107: R94         Business developments - Registered shares (Details  HTML     86K  
                3)                                                               
108: R95         Segment information - Income statement related      HTML    112K  
                (Details)                                                        
109: R96         Segment information - Balance sheet related         HTML     93K  
                (Details 2)                                                      
110: R97         Net interest income (Details)                       HTML     95K  
111: R98         Commissions and fees (Details)                      HTML     78K  
112: R99         Trading revenues (Details)                          HTML     78K  
113: R100        Other revenues (Details)                            HTML     74K  
114: R101        Provision for credit losses (Details)               HTML     65K  
115: R102        Compensation and benefits (Details)                 HTML     68K  
116: R103        General and administrative expenses (Details)       HTML     77K  
117: R104        Restructuring expenses (Details)                    HTML    103K  
118: R105        Restructuring provision - Rollforward (Details 2)   HTML    103K  
119: R106        Earnings per share (Details)                        HTML    103K  
120: R107        Securities borrowed, lent and subject to            HTML     77K  
                repurchase agreements (Details)                                  
121: R108        Trading assets and liabilities (Details)            HTML     76K  
122: R109        Trading assets and liabilities - Cash collateral -  HTML     66K  
                netted (Details 2)                                               
123: R110        Investment securities (Details)                     HTML     60K  
124: R111        Investment securities by type (Details 2)           HTML    128K  
125: R112        Investment securities - Proceeds/realized           HTML     66K  
                gains/losses (Details 4)                                         
126: R113        Investment securities - Maturities of amortized     HTML    107K  
                costs/FV/Avg yield (Details 5)                                   
127: R114        Other investments (Details)                         HTML     84K  
128: R115        Loans, allowance for loan losses and credit         HTML    125K  
                quality (Details)                                                
129: R116        Loans, allowance for loan losses and credit         HTML    146K  
                quality - Allowance roll-forward (Details 2)                     
130: R117        Loans, allowance for loan losses and credit         HTML    176K  
                quality - Counterparty rating (Details 3)                        
131: R118        Loans, allowance for loan losses and credit         HTML    216K  
                quality - Aging analysis (Details 4)                             
132: R119        Loans, allowance for loan losses and credit         HTML    153K  
                quality - Impaired loans (Details 5)                             
133: R120        Loans, allowance for loan losses and credit         HTML    146K  
                quality - Impaired loans details (Details 6)                     
134: R121        Loans, allowance for loan losses and credit         HTML    179K  
                quality - Impaired loans details (Details 7)                     
135: R122        Loans, allowance for loan losses and credit         HTML     94K  
                quality - Restructured loans (Details 8)                         
136: R123        Premises and equipment (Details)                    HTML     87K  
137: R124        Goodwill (Details)                                  HTML    141K  
138: R125        Other intangible assets (Details 1)                 HTML    115K  
139: R126        Other assets and other liabilities (Details)        HTML    149K  
140: R127        Deposits (Details)                                  HTML     88K  
141: R128        Long-term debt (Details)                            HTML     72K  
142: R129        Long-term debt - Maturities (Details 2)             HTML    261K  
143: R130        Accumulated other comprehensive income (Details)    HTML    130K  
144: R131        AOCI - Additional share information (Details 2)     HTML     93K  
145: R132        AOCI - Significant reclassification adjustments     HTML    108K  
                (Details 3)                                                      
146: R133        Offsetting of financial assets (Details)            HTML    236K  
147: R134        Offsetting of financial liabilities (Details 2)     HTML    263K  
148: R135        Tax - Income statement related/reconciliation of    HTML    258K  
                tax rate (Details)                                               
149: R136        Tax - Balance sheet related (Details 2)             HTML    235K  
150: R137        Tax - Net deferred tax assets/liabilities by type   HTML     91K  
                (Details 3)                                                      
151: R138        Deferred compensation expense (Details)             HTML    111K  
152: R139        Estimated unrecognized deferred compensation        HTML     81K  
                (Details 2)                                                      
153: R140        Share-based awards (Details 3)                      HTML    265K  
154: R141        Cash-based awards (Details 5)                       HTML    127K  
155: R142        Other variable compensation (Details 8)             HTML     87K  
156: R143        Related parties - Executive Board/Board of          HTML     87K  
                directors loans (Details)                                        
157: R144        Related parties - Liabilities to own pension funds  HTML     61K  
                (Details 2)                                                      
158: R145        Related parties - Tier 1 capital instruments        HTML     81K  
                (Details 3)                                                      
159: R146        Related parties - Bank (Details 4)                  HTML     96K  
160: R147        Pension and other post-retirement benefits -        HTML    459K  
                Obligation and funded status (Details)                           
161: R148        Pension and other post-retirement benefits -        HTML     86K  
                PBO/ABO/Fair value (Details 2)                                   
162: R149        Pension and other post-retirement benefits - Plan   HTML    283K  
                assets measured at fair value (Details 3)                        
163: R150        Pension and other post-retirement benefits - Plan   HTML    217K  
                assets measured at fair value roll-forward                       
                (Details 4)                                                      
164: R151        Pension and other post-retirement benefits -        HTML    121K  
                Weighted-average assumptions (Details 5)                         
165: R152        Pension and other post-retirement benefits -        HTML     78K  
                Estimated future benefit payments (Details 6)                    
166: R153        Pension and other post-retirement benefits -        HTML     59K  
                Contributions (Details 7)                                        
167: R154        Pension and other post-retirement benefits -        HTML     89K  
                Mortality tables and life expectancies (Details 9)               
168: R155        Pension and other post-retirement benefits - PBO    HTML     64K  
                Models/Approaches (Details 10)                                   
169: R156        Derivatives and hedging activities - Fair value -   HTML    276K  
                balance sheet related (Details)                                  
170: R157        Derivatives and hedging activities - Movements      HTML     97K  
                (Details 2)                                                      
171: R158        Derivatives and hedging activities - Contingent     HTML     99K  
                credit risk (Details 3)                                          
172: R159        Derivatives and hedging activities - Credit         HTML    169K  
                protection sold/purchased (Details 4)                            
173: R160        Derivatives and hedging activities - Credit         HTML     66K  
                derivatives (Details 5)                                          
174: R161        Guarantees and commitments - Guarantees maturity    HTML    105K  
                (Details)                                                        
175: R162        Guarantees and commitments - Other guarantees       HTML     59K  
                (Details 2)                                                      
176: R163        Guarantees and commitments - Lease commitments      HTML     93K  
                maturity (Details 5)                                             
177: R164        Guarantees and commitments - Sale-leaseback         HTML     69K  
                transactions (Details 6)                                         
178: R165        Guarantees and commitments - Other commitments      HTML    103K  
                maturity (Details 7)                                             
179: R166        Transfers of financial assets (TFA) -               HTML     84K  
                Securitizations (Details)                                        
180: R167        TFA - Principal amounts outstanding / total assets  HTML     71K  
                - continuing involvement (Details 2)                             
181: R168        TFA - Key economic assumptions at time of transfer  HTML    120K  
                (Details 3)                                                      
182: R169        TFA - Key economic assumptions at balance sheet     HTML    140K  
                date (Details 4)                                                 
183: R170        TFA - Carrying amounts for sale treatmen not        HTML     70K  
                achieved (Details 5)                                             
184: R171        TFA - Accounted for as sales - by transaction type  HTML    105K  
                (Details 6)                                                      
185: R172        TFA - Transfer of certain financial assets          HTML    115K  
                accounted for as secured borrowings (Details 7)                  
186: R173        Variable interest entities (VIE) - Consolidated     HTML    217K  
                (Details 8)                                                      
187: R174        VIE - Non-consolidated (Details 9)                  HTML    113K  
188: R175        Financial instruments (FI) - Assets measured at     HTML    359K  
                fair value on recurring basis (Details 2)                        
189: R176        FI - Liabilities measured at fair value on          HTML    274K  
                recurring basis (Details 3)                                      
190: R177        FI - Roll-forward of assets measured at fair value  HTML    491K  
                on recurring basis (Details 4)                                   
191: R178        FI - Roll-forward of liabilities measured at fair   HTML    287K  
                value on recurring basis (Details 5)                             
192: R179        FI - Roll-forward of net assets measured at fair    HTML     95K  
                value on recurring basis (Details 6)                             
193: R180        FI - Gains/losses on assets/liabilities using       HTML     74K  
                unobservable inputs (Details 7)                                  
194: R181        FI - Non-recurring fair value changes (Details 8)   HTML     61K  
195: R182        FI - Difference between fair value and unpaid       HTML    115K  
                principle balances (Details 9)                                   
196: R183        FI - Gains/losses on financial instruments          HTML    105K  
                (Details 10)                                                     
197: R184        FI - Fair value, unfunded commitments, term of      HTML    162K  
                redemption conditions (Details 11)                               
198: R185        FI - Transfers between levels 1 and 2 (Details 14)  HTML    105K  
199: R186        FI - Qualitative information about level 3 assets   HTML    450K  
                at fair value (Details 15)                                       
200: R187        FI - Qualitative information about level 3          HTML    320K  
                liabilities at fair value (Details 16)                           
201: R188        FI - Carrying value and fair value not held at      HTML    122K  
                fair value (Details 17)                                          
202: R189        FI - Own credit gains/(Losses) on Fair Value        HTML     90K  
                Option Elected Instruments (Details 18)                          
203: R190        Assets pledged and collateral (Details)             HTML     71K  
204: R191        Capital adequacy (Details)                          HTML    113K  
205: R192        Assets under management (Details)                   HTML     66K  
206: R193        Assets under management - Change (Details 2)        HTML     68K  
207: R194        Litigation (Details)                                HTML    251K  
208: R195        Significant subsidiaries and equity method          HTML    584K  
                investments (Details)                                            
209: R196        Subsidiary guarantee information - Income           HTML    156K  
                statement related (Details)                                      
210: R197        Subsidiary guarantee information - Comprehensive    HTML    119K  
                income related (Details 2)                                       
211: R198        Subsidiary guarantee information - Balance sheet    HTML    202K  
                related (Details 3)                                              
212: R199        Subsidiary guarantee information - Cash flow        HTML    218K  
                related (Details 4)                                              
213: R200        Significant valuation and income recognition        HTML     62K  
                differences between US GAAP and - Swiss GAAP                     
                banking law (Details)                                            
215: XML         IDEA XML File -- Filing Summary                      XML    420K  
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‘20-F’   —   Annual Report by a Foreign Non-Canadian Issuer
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Definitions
"Sources
"Cautionary statement regarding forward-looking information
"Explanatory note
"Part I
"Item 1. Identity of directors, senior management and advisers
"Item 2. Offer statistics and expected timetable
"Item 3. Key information
"Item 4. Information on the company
"Item 4A. Unresolved staff comments
"Item 5. Operating and financial review and prospects
"Item 6. Directors, senior management and employees
"Item 7. Major shareholders and related party transactions
"Item 8. Financial information
"Item 9. The offer and listing
"Item 10. Additional information
"Item 11. Quantitative and qualitative disclosures about market risk
"Item 12. Description of securities other than equity securities
"Part II
"Item 13. Defaults, dividend arrearages and delinquencies
"Item 14. Material modifications to the rights of security holders and use of proceeds
"Item 15. Controls and procedures
"Item 16A. Audit committee financial expert
"Item 16B. Code of ethics
"Item 16C. Principal accountant fees and services
"Item 16D. Exemptions from the listing standards for audit committee
"Item 16E. Purchases of equity securities by the issuer and affiliated purchasers
"Item 16F. Change in registrants' certifying accountant
"Item 16G. Corporate governance
"Item 16H. Mine Safety Disclosure
"Part III
"Item 17. Financial statements
"Item 19. Exhibits
"Signatures
"Annual Report 2017
"Interview With the Chairman and the Chief Executive Officer
"Message from the Chairman and the Chief Executive Officer
"Credit Suisse at a glance
"Strategy
"Divisions
"Regulation and supervision
"Risk factors
"Operating and financial review
"Operating environment
"Credit Suisse
"Swiss Universal Bank
"International Wealth Management
"Asia Pacific
"Global Markets
"Investment Banking & Capital Markets
"Strategic Resolution Unit
"Corporate Center
"Assets under management
"Critical accounting estimates
"Treasury, Risk, Balance sheet and Off-balance sheet
"Liquidity and funding management
"Capital management
"Risk management
"Balance sheet, off-balance sheet and other contractual obligations
"Corporate Governance overview
"Shareholders
"Board of Directors
"Executive Board
"Compensation
"Letter from the Chair of the Compensation Committee
"Compensation design at a glance
"Compensation governance
"Executive Board compensation for 2017
"Revised Executive Board compensation design for 2018
"Board of Directors compensation
"Group compensation
"Report of the Statutory Auditor
"Consolidated financial statements -- Credit Suisse Group
"Report of the Independent Registered Public Accounting Firm
"Consolidated financial statements
"Consolidated statements of operations
"Consolidated statements of comprehensive income
"Consolidated balance sheets
"Consolidated balance sheets (continued)
"Consolidated statements of changes in equity
"Consolidated statements of changes in equity (continued)
"Consolidated statements of cash flows
"Consolidated statements of cash flows (continued)
"Supplemental cash flow information
"Notes to the consolidated financial statements
"1 Summary of significant accounting policies
"2 Recently issued accounting standards
"3 Business developments, significant shareholders and subsequent events
"4 Segment information
"5 Net interest income
"6 Commissions and fees
"7 Trading revenues
"8 Other revenues
"9 Provision for credit losses
"10 Compensation and benefits
"11 General and administrative expenses
"12 Restructuring expenses
"13 Earnings per share
"14 Securities borrowed, lent and subject to repurchase agreements
"15 Trading assets and liabilities
"16 Investment securities
"17 Other investments
"18 Loans, allowance for loan losses and credit quality
"19 Premises and equipment
"20 Goodwill
"21 Other intangible assets
"22 Other assets and other liabilities
"23 Deposits
"24 Long-term debt
"25 Accumulated other comprehensive income and additional share information
"26 Offsetting of financial assets and financial liabilities
"27 Tax
"28 Employee deferred compensation
"29 Related parties
"30 Pension and other post-retirement benefits
"31 Derivatives and hedging activities
"32 Guarantees and commitments
"33 Transfers of financial assets and variable interest entities
"34 Financial instruments
"35 Assets pledged and collateral
"36 Capital adequacy
"37 Assets under management
"38 Litigation
"39 Significant subsidiaries and equity method investments
"40 Subsidiary guarantee information
"41 Credit Suisse Group parent company
"42 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)
"Parent company financial statements -- Credit Suisse Group
"Parent company financial statements
"Statements of income
"Balance sheets
"Notes to the financial statements
"1 General information and subsequent events
"2 Accounting and valuation principles
"3 Other financial income
"4 Other operating income
"5 Financial expenses
"6 Personnel expenses
"7 Other operating expenses
"8 Other short-term receivables
"9 Accrued income and prepaid expenses
"10 Financial investments
"11 Participations
"12 Short-term interest-bearing liabilities
"13 Accrued expenses and deferred income
"14 Long-term interest-bearing liabilities
"15 Share capital, conditional, conversion and authorized capital of Credit Suisse Group
"16 Credit Suisse Group shares held by subsidiaries
"17 Purchases and sales of treasury shares held by Credit Suisse Group
"18 Significant shareholders
"19 Contingent liabilities
"20 Assets and liabilities with related parties
"21 Subordinated assets and liabilities
"22 Shareholdings of the Board of Directors, Executive Board and employees
"Proposed appropriation of retained earnings and capital distribution
"Consolidated financial statements -- Credit Suisse (Bank)
"13 Securities borrowed, lent and subject to repurchase agreements
"14 Trading assets and liabilities
"15 Investment securities
"16 Other investments
"17 Loans, allowance for loan losses and credit quality
"18 Premises and equipment
"19 Goodwill
"20 Other intangible assets
"21 Other assets and other liabilities
"22 Deposits
"23 Long-term debt
"24 Accumulated other comprehensive income
"25 Offsetting of financial assets and financial liabilities
"26 Tax
"27 Employee deferred compensation
"28 Related parties
"29 Pension and other post-retirement benefits
"30 Derivatives and hedging activities
"31 Guarantees and commitments
"32 Transfers of financial assets and variable interest entities
"33 Financial instruments
"34 Assets pledged and collateral
"35 Capital adequacy
"36 Assets under management
"37 Litigation
"38 Significant subsidiaries and equity method investments
"39 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)
"Parent company financial statements -- Credit Suisse (Bank)
"Off-balance sheet transactions
"Statement of changes in equity
"1 Business activities, developments and subsequent events
"3 Risk management, use of derivative financial instruments and hedge accounting
"4 Net income from interest activities
"5 Net income/(loss) from trading activities and fair value option
"7 General and administrative expenses
"8 Increase/(release) of provisions and other valuation adjustments, losses and extraordinary income and expenses
"9 Taxes
"10 Assets and liabilities from securities lending and borrowing, repurchase and reverse repurchase agreements
"11 Collateral and impaired loans
"12 Trading assets and liabilities and other financial instruments held at fair value
"13 Derivative financial instruments
"14 Financial investments
"15 Other assets and other liabilities
"16 Assets pledged
"17 Pension plans
"18 Issued structured products
"19 Unsecured senior debt and structured notes
"20 Provisions and valuation adjustments
"21 Composition of share capital, conversion and reserve capital
"22 Significant shareholders and groups of shareholders
"23 Shareholdings of the Board of Directors, Executive Board and employees and information on compensation plans
"24 Amounts receivable from and amounts payable to related parties
"25 Total assets by country rating
"26 Fiduciary transactions
"27 Assets under management
"Proposed appropriation of retained earnings
"Statistical information
"Other information
"Appendix
"Selected five-year information
"Selected information -- Group
"Selected information -- Group (continued)
"Selected information -- Bank
"List of abbreviations
"Glossary
"Investor information
"Financial calendar and contacts

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  20-F  
As filed with the Securities and Exchange Commission on March 23, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F
   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-15244
Credit Suisse Group AG
(Exact name of Registrant as specified in its charter)
Canton of Zurich, Switzerland
(Jurisdiction of incorporation or organization)
Paradeplatz 8, CH 8001 Zurich, Switzerland
(Address of principal executive offices)
David R. Mathers
Chief Financial Officer
Paradeplatz 8, CH 8001 Zurich, Switzerland
david.mathers@credit-suisse.com
Telephone: +41 44 333 6607
Fax: +41 44 333 1790
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Commission file number: 001-33434
Credit Suisse AG
(Exact name of Registrant as specified in its charter)
Canton of Zurich, Switzerland
(Jurisdiction of incorporation or organization)
Paradeplatz 8, CH 8001 Zurich, Switzerland
(Address of principal executive offices)
David R. Mathers
Chief Financial Officer
Paradeplatz 8, CH 8001 Zurich, Switzerland
david.mathers@credit-suisse.com
Telephone: +41 44 333 6607
Fax: +41 44 333 1790
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

[THIS PAGE INTENTIONALLY LEFT BLANK]

Securities registered or to be registered pursuant to Section 12(b) of the Act: 
Title of each class of securities    Name of each exchange on which registered
 
Credit Suisse Group AG 
American Depositary Shares each representing one Share  New York Stock Exchange
Shares par value CHF 0.04 * New York Stock Exchange *
 
Credit Suisse AG 
Credit Suisse FI Enhanced Europe 50 Exchange Traded Notes (ETNs) due September 10, 2018
   Linked to the STOXX Europe 50® USD (Gross Return) Index  

NYSE Arca
Credit Suisse FI Large Cap Growth Enhanced ETNs due June 13, 2019
   Linked to the Russell 1000® Growth Index Total Return  

NYSE Arca
VelocityShares™ VIX Medium Term ETNs
   Linked to the S&P 500 VIX Mid-Term Futures™ Index due December 4, 2030  

The Nasdaq Stock Market
VelocityShares™ VIX Short Term ETNs
   Linked to the S&P 500 VIX Short-Term Futures™ Index due December 4, 2030  

The Nasdaq Stock Market
VelocityShares™ Daily 2x VIX Medium Term ETNs
   Linked to the S&P 500 VIX Mid-Term Futures™ Index due December 4, 2030  

The Nasdaq Stock Market
VelocityShares™ Daily 2x VIX Short Term ETNs
   Linked to the S&P 500 VIX Short-Term Futures™ Index due December 4, 2030  

The Nasdaq Stock Market
VelocityShares™ Daily Inverse VIX Medium Term ETNs
   Linked to the S&P 500 VIX Mid-Term Futures™ Index due December 4, 2030  

The Nasdaq Stock Market
VelocityShares™ Daily Inverse VIX Short Term ETNs
   Linked to the S&P 500 VIX Short-Term Futures™ Index due December 4, 2030  **

The Nasdaq Stock Market
**
VelocityShares™ 3x Long Gold ETNs
   Linked to the S&P GSCI® Gold Index ER due October 14, 2031  

The Nasdaq Stock Market
VelocityShares™ 3x Long Silver ETNs
   Linked to the S&P GSCI® Silver Index ER due October 14, 2031  

The Nasdaq Stock Market
VelocityShares™ 3x Inverse Gold ETNs
   Linked to the S&P GSCI® Gold Index ER due October 14, 2031  

The Nasdaq Stock Market
VelocityShares™ 3x Inverse Silver ETNs
   Linked to the S&P GSCI® Silver Index ER due October 14, 2031  

The Nasdaq Stock Market
VelocityShares™ 3x Long Natural Gas ETNs
   Linked to the S&P GSCI® Natural Gas Index ER due February 9, 2032  

NYSE Arca
VelocityShares™ 3x Inverse Natural Gas ETNs
   Linked to the S&P GSCI® Natural Gas Index ER due February 9, 2032  

NYSE Arca
Credit Suisse X-Links® Gold Shares Covered Call ETNs due February 2, 2033  The Nasdaq Stock Market
Credit Suisse X-Links® Silver Shares Covered Call ETNs due April 21, 2033  The Nasdaq Stock Market
Credit Suisse S&P MLP Index ETNs due December 4, 2034
   Linked to the S&P MLP Index  

NYSE Arca
Credit Suisse X-Links® Multi-Asset High Income ETNs due September 28, 2035  NYSE Arca
Credit Suisse X-Links® WTI Crude Oil Index ETNs due February 8, 2036  NYSE Arca
Credit Suisse X-Links® Monthly Pay 2xLeveraged Alerian MLP Index
   ETNs due May 16, 2036  

NYSE Arca
Credit Suisse X-Links® Monthly Pay 2xLeveraged Mortgage REIT
   ETNs due July 11, 2036  

NYSE Arca
Credit Suisse X-Links® Crude Oil Shares Covered Call ETNs due April 24, 2037  The Nasdaq Stock Market
AxelaTrader™ 3x Long Brent Crude Oil ETNs
   Linked to the S&P GSCI® Brent Crude Oil ER due September 14, 2037  

NYSE Arca
AxelaTrader™ 3x Inverse Brent Crude Oil ETNs
   Linked to the S&P GSCI® Brent Crude Oil ER due September 14, 2037  

NYSE Arca
 
*
Not for trading, but only in connection with the registration of the American Depositary Shares
**
On February 21, 2018, Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Act”), was filed on Form 25 with respect to the VelocityShares™ Daily Inverse VIX Short Term ETNs Linked to the S&P 500 VIX Short-Term Futures™ Index due December 4, 2030. The withdrawal from listing on The Nasdaq Stock Market was effective March 5, 2018. The withdrawal from registration under Section 12(b) of the Act is expected to be effective no later than 90 days from February 21, 2018.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of
December 31, 2017: 2,550,254,054 shares of Credit Suisse Group AG
Indicate by check mark if the Registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
   Yes      No   
If this report is an annual or transition report, indicate by check mark if the Registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
   Yes      No   
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days.
   Yes      No   
Indicate by check mark whether Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
   Yes      No   
Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, non-accelerated filers, or emerging growth companies. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
   Large accelerated filers    Accelerated filers 
   Non-accelerated filers    Emerging growth companies 
If emerging growth companies that prepare their financial statements in accordance with U.S. GAAP, indicate by check mark if the Registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark which basis of accounting the Registrants have used to prepare the financial statements included in this filing:
   U.S. GAAP      International     Other   
         Financial Reporting Standards
         as issued by the
         International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
   Item 17      Item 18   
If this is an annual report, indicate by check mark whether the Registrants are shell companies
(as defined in Rule 12b-2 of the Exchange Act)
   Yes      No   


Definitions
Sources
Cautionary statement regarding forward-looking information
Explanatory note
Part I
Item 1. Identity of directors, senior management and advisers.
Item 2. Offer statistics and expected timetable.
Item 3. Key information.
Item 4. Information on the company.
Item 4A. Unresolved staff comments.
Item 5. Operating and financial review and prospects.
Item 6. Directors, senior management and employees.
Item 7. Major shareholders and related party transactions.
Item 8. Financial information.
Item 9. The offer and listing.
Item 10. Additional information.
Item 11. Quantitative and qualitative disclosures about market risk.
Item 12. Description of securities other than equity securities.
Part II
Item 13. Defaults, dividend arrearages and delinquencies.
Item 14. Material modifications to the rights of security holders and use of proceeds.
Item 15. Controls and procedures.
Item 16A. Audit committee financial expert.
Item 16B. Code of ethics.
Item 16C. Principal accountant fees and services.
Item 16D. Exemptions from the listing standards for audit committee.
Item 16E. Purchases of equity securities by the issuer and affiliated purchasers.
Item 16F. Change in registrants’ certifying accountant.
Item 16G. Corporate governance.
Item 16H. Mine Safety Disclosure.
Part III
Item 17. Financial statements.
Item 18. Financial statements.
Item 19. Exhibits.
SIGNATURES
20-F/5

Definitions
For the purposes of this Form 20-F and the attached Annual Report 2017, unless the context otherwise requires, the terms “Credit Suisse Group,” “Credit Suisse,” the “Group,” “we,” “us” and “our” mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the direct bank subsidiary of the Group, is substantially similar to the Group, and we use these terms to refer to both when the subject is the same or substantially similar. We use the term the “Bank” when we are referring only to Credit Suisse AG and its consolidated subsidiaries.
Abbreviations and selected terms are explained in the List of abbreviations and the Glossary in the back of the Annual Report 2017.
Sources
Throughout this Form 20-F and the attached Annual Report 2017, we describe the position and ranking of our various businesses in certain industry and geographic markets. The sources for such descriptions come from a variety of conventional publications generally accepted as relevant business indicators by members of the financial services industry. These sources include: Standard & Poor’s, Dealogic, Institutional Investor, Lipper, Moody’s Investors Service and Fitch Ratings.
Cautionary statement regarding forward-looking information
For Credit Suisse and the Bank, please see Cautionary statement regarding forward-looking information on the inside page of the back cover of the attached Annual Report 2017.
Explanatory note
For the avoidance of doubt, the information appearing on pages 4 to 10, 222 to 225 and A-4 to A-12 of the attached Annual Report 2017 is not included in Credit Suisse’s and the Bank’s Form 20-F for the fiscal year ended December 31, 2017.
20-F/6

Part I
Item 1. Identity of directors, senior management and advisers.
Not required because this Form 20-F is filed as an annual report.
Item 2. Offer statistics and expected timetable.
Not required because this Form 20-F is filed as an annual report.
Item 3. Key information.
A – Selected financial data.
For Credit Suisse and the Bank, please see Appendix – Selected five-year information – Group on pages A-2 to A-3 and – Bank on page A-3 of the attached Annual Report 2017. In addition, please see X – Additional information – Other information – Foreign currency translation rates on page 558 of the attached Annual Report 2017.
B – Capitalization and indebtedness.
Not required because this Form 20-F is filed as an annual report.
C – Reasons for the offer and use of proceeds.
Not required because this Form 20-F is filed as an annual report.
D – Risk factors.
For Credit Suisse and the Bank, please see I – Information on the company – Risk factors on pages 44 to 52 of the attached Annual Report 2017.
Item 4. Information on the company.
A – History and development of the company.
For Credit Suisse and the Bank, please see I – Information on the company – Credit Suisse at a glance on page 12 and – Strategy on pages 13 to 18 and IV – Corporate Governance – Corporate Governance overview – Corporate governance framework – Company details on page 184 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 3 – Business developments, significant shareholders and subsequent events and Note 4 – Segment information in VI – Consolidated financial statements – Credit Suisse Group on pages 273 to 276 of the attached Annual Report 2017 and, for the Bank, please see Note 3 – Business developments, significant shareholders and subsequent events and Note 4 – Segment information in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 427 to 428 of the attached Annual Report 2017.
B – Business overview.
For Credit Suisse and the Bank, please see I – Information on the company – Divisions on pages 19 to 27 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 4 – Segment information in VI – Consolidated financial statements – Credit Suisse Group on pages 275 to 276 of the attached Annual Report 2017 and, for the Bank, please see Note 4 – Segment information in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 428 of the attached Annual Report 2017.
C – Organizational structure.
For Credit Suisse and the Bank, please see I – Information on the company – Credit Suisse at a glance on page 12, – Strategy on pages 13 to 18 and II – Operating and financial review – Credit Suisse – Differences between Group and Bank on page 66 of the attached Annual Report 2017. For a list of Credit Suisse’s significant subsidiaries, please see Note 39 – Significant subsidiaries and equity method investments in VI – Consolidated financial statements – Credit Suisse Group on pages 383 to 385 of the attached Annual Report 2017 and, for a list of the Bank’s significant subsidiaries, please see Note 38 – Significant subsidiaries and equity method investments in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 492 to 494 of the attached Annual Report 2017.
20-F/7

D – Property, plant and equipment.
For Credit Suisse and the Bank, please see X – Additional information – Other information – Property and equipment on page 558 of the attached Annual Report 2017.
Information Required by Industry Guide 3.
For Credit Suisse and the Bank, please see X – Additional information – Statistical information on pages 538 to 551 of the attached Annual Report 2017. In addition, for both Credit Suisse and the Bank, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk review and results – Credit risk review – Loans and irrevocable loan commitments on page 169 of the attached Annual Report 2017. For Credit Suisse, please see Appendix – Selected five-year information – Group on pages A-2 to A-3 of the attached Annual Report 2017.
Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934
As stated in our Form 20-F for the year ended December 31, 2014, in 2005 and earlier, Credit Suisse AG, through a business line operating in Switzerland, entered into export finance credit facilities involving Iranian parties, through bilateral contracts and as a member of lending syndicates. Credit Suisse AG loaned funds under these credit facilities for project finance activities in Iran that did not support or facilitate Iran’s nuclear weapons proliferation efforts, its acquisition of other military items, or its support of terrorism. Our participation in these credit facilities was legal under applicable law. The Iranian parties involved in certain of these credit facilities entered into between 2001 and 2005 subsequently were designated Specially Designated Nationals or Blocked Persons pursuant to an Executive Order of the President of the United States, or fall within the US government’s definition of the government of Iran (which includes government-controlled entities). These credit facilities are supported by a guarantee of the Iranian Ministry of Economic Affairs and Finance and export financing insurance provided by European export credit agencies.
Credit Suisse AG does not generally calculate gross revenues or net profits from individual export finance credit facilities of this type; however, Credit Suisse AG estimates that it recognized approximately CHF 0.1 million in interest income in 2017 on these credit facilities and believes that it has not earned any related net profit over the life of these credit facilities. While Credit Suisse AG ceased providing funds to any Iranian parties pursuant to any of these credit facilities several years ago, it has continued, where possible, to receive repayment of funds owed to it. In 2017, Credit Suisse AG received payments totaling CHF 0.2 million from the Swiss governmental export credit agency, payments totaling CHF 0.8 million from financial institutions acting as agents of lending syndicates and payments totaling CHF 23.5 million from Iranian parties, all in payment under certain of these credit facilities. As of December 31, 2017, the foregoing credit facilities have been repaid, with no further amounts outstanding.
During 2017, Credit Suisse AG processed a small number of de minimis payments related to the operation of Iranian diplomatic missions in Switzerland and to fees for ministerial government functions such as issuing passports and visas. Processing these payments is permitted under Swiss law and is performed with the consent of Swiss authorities, and Credit Suisse AG intends to continue processing such payments. Revenues and profits from these activities are not calculated but would be negligible.
Credit Suisse AG also continues to hold funds from two wire transfers to non-Iranian customers which were blocked pursuant to Swiss sanctions because Iranian government-owned entities have an interest in such transfers. Such funds are maintained in blocked accounts opened in accordance with Swiss sanctions requirements. Credit Suisse AG derives no revenues or profits from maintenance of these blocked accounts.
Item 4A. Unresolved staff comments.
None.
Item 5. Operating and financial review and prospects.
A – Operating results.
For Credit Suisse and the Bank, please see II – Operating and financial review on pages 53 to 108 of the attached Annual Report 2017. In addition, for both Credit Suisse and the Bank, please see I – Information on the company – Regulation and supervision on pages 28 to 43 of the attached Annual Report 2017 and III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Shareholders’ equity and share metrics – Foreign exchange exposure and interest rate management on page 138 of the attached Annual Report 2017.
B – Liquidity and capital resources.
For Credit Suisse and the Bank, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Liquidity and funding management and – Capital management on pages 110 to 138 of the attached Annual Report 2017. In addition, for Credit Suisse, please see
20-F/8

Note 24 – Long-term debt in VI – Consolidated financial statements – Credit Suisse Group on pages 295 to 296 and Note 36 – Capital adequacy in VI – Consolidated financial statements – Credit Suisse Group on page 372 of the attached Annual Report 2017 and, for the Bank, please see Note 23 – Long-term debt in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 442 and Note 35 – Capital adequacy in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 490 of the attached Annual Report 2017.
C – Research and development, patents and licenses, etc.
Not applicable.
D – Trend information.
For Credit Suisse and the Bank, please see Item 5.A of this Form 20-F. In addition, for Credit Suisse and the Bank, please see I – Information on the company – Divisions on pages 19 to 27 of the attached Annual Report 2017.
E – Off-balance sheet arrangements.
For Credit Suisse and the Bank, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Balance sheet, off-balance sheet and other contractual obligations on pages 178 to 180 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 31 – Derivatives and hedging activities, Note 32 – Guarantees and commitments and Note 33 – Transfers of financial assets and variable interest entities in VI – Consolidated financial statements – Credit Suisse Group on pages 324 to 343 of the attached Annual Report 2017 and, for the Bank, please see Note 30 – Derivatives and hedging activities, Note 31 – Guarantees and commitments, Note 32 – Transfers of financial assets and variable interest entities in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 460 to 471, and Note 13 – Derivative financial instruments in IX – Parent company financial statements – Credit Suisse (Bank) on pages 523 to 525 of the attached Annual Report 2017.
F – Tabular disclosure of contractual obligations.
For Credit Suisse and the Bank, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Balance sheet, off-balance sheet and other contractual obligations – Contractual obligations and other commercial commitments on page 180 of the attached Annual Report 2017.
Item 6. Directors, senior management and employees.
A – Directors and senior management.
For Credit Suisse and the Bank, please see IV – Corporate Governance – Board of Directors, – Board Committees, – Biographies of the Board Members, – Executive Board and – Biographies of the Executive Board Members on pages 190 to 215 of the attached Annual Report 2017.
B – Compensation.
For Credit Suisse and the Bank, please see V – Compensation on pages 226 to 250 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 10 – Compensation and benefits in VI – Consolidated financial statements – Credit Suisse Group on page 278, Note 28 – Employee deferred compensation in VI – Consolidated financial statements – Credit Suisse Group on pages 307 to 312, Note 30 – Pension and other post-retirement benefits in VI – Consolidated financial statements – Credit Suisse Group on pages 314 to 323, Note 6 – Personnel expenses in VII – Parent company financial statements – Credit Suisse Group on page 406 and Note 22 – Shareholdings of the Board of Directors, Executive Board and employees in VII – Parent company financial statements – Credit Suisse Group on pages 412 to 413 of the attached Annual Report 2017. For the Bank, please see Note 10 – Compensation and benefits in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 429, Note 27 – Employee deferred compensation in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 450 to 452, Note 29 – Pension and other post-retirement benefits in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 453 to 459, Note 6 – Personnel expenses in IX – Parent company financial statements – Credit Suisse (Bank) on page 519, Note 17 – Pension plans in IX – Parent company financial statements – Credit Suisse (Bank) on page 527 and Note 23 – Shareholdings of the Board of Directors, Executive Board and employees and information on compensation plans in IX – Parent company financial statements – Credit Suisse (Bank) on pages 531 to 533 of the attached Annual Report 2017.
C – Board practices.
For Credit Suisse and the Bank, please see IV – Corporate Governance on pages 181 to 220 of the attached Annual Report 2017.
20-F/9

D – Employees.
For Credit Suisse and the Bank, please see IV – Corporate Governance – Corporate Governance overview – Corporate Governance framework – Employee relations on page 184 of the attached Annual Report 2017. In addition, for both Credit Suisse and the Bank, please see II – Operating and financial review – Credit Suisse – Employees and other headcount on page 63 of the attached Annual Report 2017.
E – Share ownership.
For Credit Suisse and the Bank, please see V – Compensation on pages 226 to 250 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 28 – Employee deferred compensation in VI – Consolidated financial statements – Credit Suisse Group on pages 307 to 312, and Note 22 –Shareholdings of the Board of Directors, Executive Board and employees in VII – Parent company financial statements – Credit Suisse Group on pages 412 to 413 of the attached Annual Report 2017. For the Bank, please see Note 27 – Employee deferred compensation in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 450 to 452, and Note 23 – Shareholdings of the Board of Directors, Executive Board and employees and information on compensation plans in IX – Parent company financial statements – Credit Suisse (Bank) on pages 531 to 533 of the attached Annual Report 2017.
Item 7. Major shareholders and related party transactions.
A – Major shareholders.
For Credit Suisse, please see IV – Corporate Governance – Shareholders on pages 185 to 189 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 3 – Business developments, significant shareholders and subsequent events in VI – Consolidated financial statements – Credit Suisse Group on pages 273 to 274, Note 16 – Credit Suisse Group shares held by subsidiaries in VII – Parent company financial statements – Credit Suisse Group on page 409, Note 17 – Purchases and sale of treasury shares held by Credit Suisse Group in VII – Parent company financial statements – Credit Suisse Group on page 410 and Note 18 – Significant shareholders in VII – Parent company financial statements – Credit Suisse Group on page 410 of the attached Annual Report 2017. Credit Suisse’s major shareholders do not have different voting rights. The Bank has 4,399,680,200 shares outstanding and is a wholly owned subsidiary of Credit Suisse. See Note 22 – Significant shareholders and groups of shareholders in IX – Parent company financial statements – Credit Suisse (Bank) on page 530 of the attached Annual Report 2017.
B – Related party transactions.
For Credit Suisse and the Bank, please see V – Compensation on pages 226 to 250 and IV – Corporate Governance – Additional information – Banking relationships with Board and Executive Board Members and related party transactions on page 216 of the attached Annual Report 2017. In addition, for Credit Suisse, please see Note 29 – Related parties in VI – Consolidated financial statements – Credit Suisse Group on pages 312 to 313 and Note 20 – Assets and liabilities with related parties in VII – Parent company financial statements – Credit Suisse Group on page 411 of the attached Annual Report 2017. For the Bank, please see Note 28 – Related parties in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 453 and Note 24 – Amounts receivable from and amounts payable to related parties in IX – Parent company financial statements – Credit Suisse (Bank) on page 533 of the attached Annual Report 2017.
C – Interests of experts and counsel.
Not applicable because this Form 20-F is filed as an annual report.
Item 8. Financial information.
A – Consolidated statements and other financial information.
Please see Item 18 of this Form 20-F.
For a description of Credit Suisse’s legal and arbitration proceedings, please see Note 38 – Litigation in VI – Consolidated financial statements – Credit Suisse Group on pages 374 to 382 of the attached Annual Report 2017. For a description of the Bank’s legal and arbitration proceedings, please see Note 37 – Litigation in VIII – Consolidated financial statements – Credit Suisse (Bank) on page 491 of the attached Annual Report 2017.
For a description of Credit Suisse’s policy on dividend distributions, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Shareholders’ Equity and Share Metrics – Dividends and dividend policy on page 138 of the attached Annual Report 2017.
20-F/10

B – Significant changes.
None.
Item 9. The offer and listing.
A – Offer and listing details, C – Markets.
For information regarding the price history of Credit Suisse Group shares and the stock exchanges and other regulated markets on which they are listed or traded, please see X – Additional information – Other information – Listing details and – Closing prices and average daily trading volumes for shares and ADS on page 557 of the attached Annual Report 2017. Shares of the Bank are not listed.
B – Plan of distribution, D – Selling shareholders, E – Dilution, F – Expenses of the issue.
Not required because this Form 20-F is filed as an annual report.
Item 10. Additional information.
A – Share capital.
Not required because this Form 20-F is filed as an annual report.
B – Memorandum and Articles of Association.
For Credit Suisse, please see IV – Corporate Governance – Corporate Governance overview – Corporate Governance framework, – Shareholders and – Board of Directors on pages 182 to 195 of the attached Annual Report 2017. In addition, for Credit Suisse, please see X – Additional information – Other information – Exchange controls and – American Depositary Shares on page 553 of the attached Annual Report 2017. Shares of the Bank are not listed.
C – Material contracts.
Neither Credit Suisse nor the Bank has any contract that would constitute a material contract for the two years immediately preceding the date of this Form 20-F.
D – Exchange controls.
For Credit Suisse and the Bank, please see X – Additional information – Other information – Exchange controls on page 553 of the attached Annual Report 2017.
E – Taxation.
For Credit Suisse, please see X – Additional information – Other information – Taxation on pages 553 to 556 of the attached Annual Report 2017. The Bank does not have any public shareholders.
F – Dividends and paying agents.
Not required because this Form 20-F is filed as an annual report.
G – Statement by experts.
Not required because this Form 20-F is filed as an annual report.
H – Documents on display.
Credit Suisse and the Bank file annual reports on Form 20-F and furnish or file quarterly and other reports on Form 6-K and other information with the SEC pursuant to the requirements of the Securities Exchange Act of 1934, as amended. These materials are available to the public over the Internet at the SEC’s website at www.sec.gov and from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 (telephone 1-800-SEC-0330). SEC reports are also available for review at the offices of the New York Stock Exchange, 20 Broad Street, New York, NY 10005. Further, our reports on Form 20-F, Form 6-K and certain other materials are available on the Credit Suisse website at www.credit-suisse.com. Information contained on our website and apps is not incorporated by reference into this Form 20-F.
In addition, Credit Suisse’s parent company financial statements, together with the notes thereto, are set forth on pages 399 to 414 of the attached Annual Report 2017 and incorporated by reference herein. The Bank’s parent company financial statements, together with the notes thereto, are set forth on pages 497 to 536 of the attached Annual Report 2017 and incorporated by reference herein.
I – Subsidiary information.
Not applicable.
20-F/11

Item 11. Quantitative and qualitative disclosures about market risk.
For Credit Suisse and the Bank, please see I – Information on the company – Risk factors on pages 44 to 52 and III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management on pages 139 to 177 of the attached Annual Report 2017.
Item 12. Description of securities other than equity securities.
A – Debt Securities, B – Warrants and Rights, C – Other Securities.
Not required because this Form 20-F is filed as an annual report.
D – American Depositary Shares.
For Credit Suisse, please see IV – Corporate Governance – Additional information – Other information – Fees and charges for holders of ADS on page 219 of the attached Annual Report 2017. Shares of the Bank are not listed.
Part II
Item 13. Defaults, dividend arrearages and delinquencies.
None.
Item 14. Material modifications to the rights of security holders and use of proceeds.
None.
Item 15. Controls and procedures.
For Credit Suisse’s management report and the related report from the Group’s independent auditors, please see Controls and procedures and Report of the Independent Registered Public Accounting Firm in VI – Consolidated financial statements – Credit Suisse Group on pages 397 to 398 of the attached Annual Report 2017. For the Bank’s management report and the related report from the Bank’s independent auditors, please see Controls and procedures and Report of the Independent Registered Public Accounting Firm in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 495 to 496 of the attached Annual Report 2017.
Item 16A. Audit committee financial expert.
For Credit Suisse and the Bank, please see IV – Corporate Governance – Board of Directors – Board committees – Audit Committee on pages 196 to 197 of the attached Annual Report 2017.
Item 16B. Code of ethics.
For Credit Suisse and the Bank, please see IV – Corporate Governance – Corporate Governance overview – Corporate governance framework on pages 182 to 184 of the attached Annual Report 2017.
Item 16C. Principal accountant fees and services.
For Credit Suisse and the Bank, please see IV – Corporate Governance – Additional information – External audit on page 217 of the attached Annual Report 2017.
Item 16D. Exemptions from the listing standards for audit committee.
None.
20-F/12

Item 16E. Purchases of equity securities by the issuer and affiliated purchasers.
For Credit Suisse, please see III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Shareholders’ Equity and Share Metrics – Share repurchases on page 137 of the attached Annual Report 2017. The Bank does not have any class of equity securities registered pursuant to Section 12 of the Exchange Act.
Item 16F. Change in registrants’ certifying accountant.
None.
Item 16G. Corporate governance.
For Credit Suisse, please see IV – Corporate Governance – Additional Information – Other information – Complying with rules and regulations on page 218 of the attached Annual Report 2017. Shares of the Bank are not listed.
Item 16H. Mine Safety Disclosure.
None.
Part III
Item 17. Financial statements.
Not applicable.
Item 18. Financial statements.
Credit Suisse’s consolidated financial statements, together with the notes thereto and the Report of the Independent Registered Public Accounting Firm thereon, are set forth on pages 251 to 398 of the attached Annual Report 2017 and incorporated by reference herein. The Bank’s consolidated financial statements, together with the notes thereto (and any notes or portions thereof in the consolidated financial statements of Credit Suisse Group referred to therein) and the Report of the Independent Registered Public Accounting Firm thereon, are set forth on pages 415 to 496 of the attached Annual Report 2017 and incorporated by reference herein.
20-F/13

Item 19. Exhibits.
1.1 Articles of association (Statuten) of Credit Suisse Group AG as of June 6, 2017 (incorporated by reference to Exhibit 3.1 of Credit Suisse Group AG’s registration statement on Form F-3 (No. 333-218604) filed on June 8, 2017).
1.2 Articles of association (Statuten) of Credit Suisse AG as of September 4, 2014 (incorporated by reference to Exhibit 1.2 of Credit Suisse Group AG’s and Credit Suisse AG’s annual report on Form 20-F for the year ended December 31, 2014 filed on March 20, 2015).
1.3 Organizational Guidelines and Regulations of Credit Suisse Group AG and Credit Suisse AG as of February 8, 2018.
2.1 Pursuant to the requirement of this item, we agree to furnish to the SEC upon request a copy of any instrument defining the rights of holders of long-term debt of us or of our subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
4.1 Agreement, dated February 13, 2011, among Competrol Establishment, Credit Suisse Group (Guernsey) II Limited and Credit Suisse Group AG (incorporated by reference to Exhibit 99.1 of Credit Suisse Group AG’s and Credit Suisse AG’s current report on Form 6-K filed on March 12, 2013).
4.2 Agreement, dated February 13, 2011, among Qatar Holding LLC, Credit Suisse Group (Guernsey) II Limited and Credit Suisse Group AG (incorporated by reference to Exhibit 99.2 of Credit Suisse Group AG’s and Credit Suisse AG’s current report on Form 6-K filed on March 12, 2013).
4.3 Amendment Agreement, dated July 18, 2012, among Competrol Establishment, Credit Suisse Group (Guernsey) II Limited, Credit Suisse Group AG and Credit Suisse AG, acting through its Guernsey Branch (incorporated by reference to Exhibit 99.3 of Credit Suisse Group AG’s and Credit Suisse AG’s current report on Form 6-K filed on March 12, 2013).
4.4 Purchase and Underwriting Agreement, dated as of July 17, 2012, between Credit Suisse AG and Competrol Establishment (incorporated by reference to Exhibit 4.4 of Credit Suisse Group AG’s and Credit Suisse AG’s annual report on Form 20-F for the year ended December 31, 2012 filed on March 22, 2013).
4.5 Purchase and Underwriting Agreement, dated as of July 18, 2012, between Credit Suisse AG and Qatar Holding LLC (incorporated by reference to Exhibit 4.5 of Credit Suisse Group AG’s and Credit Suisse AG’s annual report on Form 20-F for the year ended December 31, 2012 filed on March 22, 2013).
4.6 Agreement, dated October 10, 2013, among Qatar Holding LLC, Credit Suisse Group (Guernsey) II Limited, Credit Suisse Group AG and Credit Suisse AG, acting through its Guernsey Branch (incorporated by reference to Exhibit 4.6 of Credit Suisse Group AG’s and Credit Suisse AG’s annual report on Form 20-F for the year ended December 31, 2013 filed on April 3, 2014).
7.1 Computations of ratios of earnings to fixed charges of Credit Suisse and of the Bank are set forth under X – Additional Information – Statistical information – Ratio of earnings to fixed charges – Group and – Ratio of earnings to fixed charges – Bank on page 552 of the attached Annual Report 2017 and incorporated by reference herein.
8.1 Significant subsidiaries of Credit Suisse are set forth in Note 39 – Significant subsidiaries and equity method investments in VI – Consolidated financial statements – Credit Suisse Group on pages 383 to 385, and significant subsidiaries of the Bank are set forth in Note 38 – Significant subsidiaries and equity method investments in VIII – Consolidated financial statements – Credit Suisse (Bank) on pages 492 to 494 of the attached Annual Report 2017 and incorporated by reference herein.
9.1 Consent of KPMG AG, Zurich with respect to Credit Suisse Group AG consolidated financial statements.
9.2 Consent of KPMG AG, Zurich with respect to the Credit Suisse AG consolidated financial statements.
12.1 Rule 13a-14(a) certification of the Chief Executive Officer of Credit Suisse Group AG and Credit Suisse AG, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 Rule 13a-14(a) certification of the Chief Financial Officer of Credit Suisse Group AG and Credit Suisse AG, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certifications pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Credit Suisse Group AG and Credit Suisse AG.
101.1 Interactive Data Files (XBRL-Related Documents).
20-F/14

SIGNATURES
Each of the registrants hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
                           CREDIT SUISSE GROUP AG
                           (Registrant)
                           Date: March 23, 2018
/s/ Tidjane Thiam                                 /s/ David R. Mathers
Name: Tidjane Thiam                            Name: David R. Mathers
Title: Chief Executive Officer                 Title: Chief Financial Officer 
                           CREDIT SUISSE AG
                           (Registrant)
                           Date: March 23, 2018
/s/ Tidjane Thiam                                 /s/ David R. Mathers
Name: Tidjane Thiam                            Name: David R. Mathers
Title: Chief Executive Officer                 Title: Chief Financial Officer 
20-F/15



Key metrics
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Credit Suisse (CHF million, except where indicated)   
Net income/(loss) attributable to shareholders (983) (2,710) (2,944) (64) (8)
Basic earnings/(loss) per share (CHF) (0.41) (1.27) (1.65) (68) (23)
Diluted earnings/(loss) per share (CHF) (0.41) (1.27) (1.65) (68) (23)
Return on equity attributable to shareholders (%) (2.3) (6.1) (6.8)
Effective tax rate (%) 152.9 (19.5) (21.6)
Core Results (CHF million, except where indicated)   
Net revenues 21,786 21,594 23,286 1 (7)
Provision for credit losses 178 141 187 26 (25)
Total operating expenses 17,680 17,960 22,869 (2) (21)
Income before taxes 3,928 3,493 230 12
Cost/income ratio (%) 81.2 83.2 98.2
Assets under management and net new assets (CHF billion)   
Assets under management 1,376.1 1,251.1 1,214.1 10.0 3.0
Net new assets 37.8 26.8 46.9 41.0 (42.9)
Balance sheet statistics (CHF million)   
Total assets 796,289 819,861 820,805 (3) 0
Net loans 279,149 275,976 272,995 1 1
Total shareholders' equity 41,902 41,897 44,382 0 (6)
Tangible shareholders' equity 36,937 36,771 39,378 0 (7)
Basel III regulatory capital and leverage statistics   
CET1 ratio (%) 13.5 13.5 14.3
Look-through CET1 ratio (%) 12.8 11.5 11.4
Look-through CET1 leverage ratio (%) 3.8 3.2 3.3
Look-through Tier 1 leverage ratio (%) 5.2 4.4 4.5
Share information   
Shares outstanding (million) 2,550.3 2,089.9 1,951.5 22 7
   of which common shares issued  2,556.0 2,089.9 1,957.4 22 7
   of which treasury shares  (5.7) 0.0 (5.9) 100
Book value per share (CHF) 16.43 20.05 22.74 (18) (12)
Tangible book value per share (CHF) 14.48 17.59 20.18 (18) (13)
Market capitalization (CHF million) 44,475 30,533 42,456 46 (28)
Dividend per share (CHF) 0.25 0.70 0.70
Number of employees (full-time equivalents)   
Number of employees 46,840 47,170 48,210 (1) (2)
See relevant tables for additional information on these metrics.



Annual Report 2017
Credit Suisse Group AG & Credit Suisse AG





For the purposes of this report, unless the context otherwise requires, the terms “Credit Suisse Group”, “Credit Suisse”, the “Group”, “we”, “us” and “our” mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the direct bank subsidiary of the Group, is substantially similar to the Group, and we use these terms to refer to both when the subject is the same or substantially similar. We use the term the “Bank” when we are referring only to Credit Suisse AG and its consolidated subsidiaries. Abbreviations and selected >>>terms are explained in the List of abbreviations and the Glossary in the back of this report. Publications referenced in this report, whether via website links or otherwise, are not incorporated into this report. The English language version of this report is the controlling version. In various tables, use of “–” indicates not meaningful or not applicable.


Annual Report 2017
INTERVIEW WITH THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
Message from the Chairman and the Chief Executive Officer
Information on the company
Credit Suisse at a glance
Strategy
Divisions
Regulation and supervision
Risk factors
Operating and financial review
Operating environment
Credit Suisse
Swiss Universal Bank
International Wealth Management
Asia Pacific
Global Markets
Investment Banking & Capital Markets
Strategic Resolution Unit
Corporate Center
Assets under management
Critical accounting estimates
Treasury, Risk, Balance sheet and Off-balance sheet
Liquidity and funding management
Capital management
Risk management
Balance sheet, off-balance sheet and other contractual obligations
Corporate Governance
Corporate Governance overview
Shareholders
Board of Directors
Executive Board
Additional information
Compensation
Letter from the Chair of the Compensation Committee
Compensation design at a glance
Compensation governance
Executive Board compensation for 2017
Revised Executive Board compensation design for 2018
Board of Directors compensation
Group compensation
Report of the Statutory Auditor
Consolidated financial statements – Credit Suisse Group
Report of the Independent Registered Public Accounting Firm
Consolidated financial statements
Notes to the consolidated financial statements
Controls and procedures
Report of the Independent Registered Public Accounting Firm
Parent company financial statements – Credit Suisse Group
Report of the Statutory Auditor
Parent company financial statements
Notes to the financial statements
Proposed appropriation of retained earnings and capital distribution
Consolidated financial statements – Credit Suisse (Bank)
Report of the Independent Registered Public Accounting Firm
Consolidated financial statements
Notes to the consolidated financial statements
Controls and procedures
Report of the Independent Registered Public Accounting Firm
Parent company financial statements – Credit Suisse (Bank)
Report of the Statutory Auditor
Parent company financial statements
Notes to the financial statements
Proposed appropriation of retained earnings
Additional information
Statistical information
Other information
Appendix
Selected five-year information
List of abbreviations
Glossary
Investor information
Financial calendar and contacts

INTERVIEW WITH THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
In finance, trust is essential to successfully pursue business opportunities. How can the trust of clients and other important stakeholders be maintained?
Urs Rohner: Unquestionably, trust is the cornerstone of any long-term business relationship. It has traditionally been the very foundation of banking and the basis on which we operate. After our industry suffered a loss of trust in the immediate aftermath of the financial crisis, we have been successfully re-establishing this trust with all our stakeholders. As a matter of principle, a trusted banking institution must have a solid capital base as well as effective structures and processes with state-of-the-art technology, advanced security precautions and responsible employees.
Importantly, within our organization, we nurture a culture in which our values are clearly articulated and our business principles are systematically implemented, and we have incentives in place that advance client-centric, rules-based conduct. I consider our growth in assets under management and net new assets in particular as distinct confirmation of the trust that clients across the globe place in Credit Suisse as their partner of choice.
Tidjane Thiam: Our long-term success ultimately depends on our ability to inspire confidence in our clients and investors, as well as our employees and external stakeholders such as regulators. To maintain the trust of our clients, we strive to be a professional and reliable partner, focused on the long term – whether it is by assessing the suitability and appropriateness of the advice we offer our clients, by ensuring best execution of their transactions or by carefully managing and safeguarding their assets. In the case of our shareholders, we build trust by generating compliant and profitable growth over the long term.
Our capital and liquidity position is of key importance when it comes to trust as it provides tangible evidence of our stability and solidity. At the end of 2017, our look-through CET1 capital ratio was 12.8%, up from 11.5% at end-2016. Our look-through tier 1 leverage ratio was 5.2%, up from 4.4% a year earlier, and our look-through CET1 leverage ratio was 3.8%, up from 3.2% at the end of 2016. These capital and leverage ratios are already above the levels prescribed by the Swiss “Too Big to Fail” requirements that enter into force in 2020.
We have addressed major legacy issues and maintained our strong capital position. At the same time, we have continued to increase our amount of Total Loss-Absorbing Capacity to comply with Swiss regulations. The progress we have made in parallel in terms of reducing our risks and strengthening our capital position was recognized by the Financial Stability Board in 2017 when it moved Credit Suisse into its lowest tier of systemic importance. Our business model is designed to generate capital organically, with lower risk. That is vital for the sustainable success of our bank.
Looking back at the progress achieved in 2017, which areas delivered particularly strong results?
TT: 2017 was a crucial year of delivery in our three-year restructuring plan. Last year’s results are tangible evidence of the positive impact that our restructuring efforts are having on Credit Suisse’s performance. We can look back at a number of key achievements during the year. For example, positive operating leverage accelerated across the Group as we simultaneously increased revenues and reduced costs: We grew our adjusted* net revenues by 5% while reducing adjusted* operating expenses by 6% year on year. Our reported pre-tax income grew by CHF 4 billion to CHF 1.8 billion in 2017 and our adjusted* pre-tax income rose by 349% to CHF 2.8 billion compared to 2016. By the end of 2017, we had delivered total net cost savings at constant foreign exchange rates of CHF 3.2 billion1 over two years since the start of the cost savings program at the beginning of 2016. We made strong progress towards our combined profit target2 in our Wealth Management businesses. Notably, by the end of 2017 Wealth Management was already 85% of the way towards meeting its 2018 profit target2 – with one year left to go. We substantially increased our net new assets3 in Wealth Management to over CHF 37 billion – the highest level since 2013 – and ended the year with record assets under management3 of CHF 772 billion. Importantly, each of our five operating divisions increased their return on regulatory capital4 year on year.
UR: In 2017 alone, global wealth grew by USD 16.7 trillion to a record USD 280 trillion5. In the second full year of the strategic reorientation we announced in the fourth quarter of 2015, our results clearly demonstrate that we are able to capture the associated business opportunities and to deliver solid performance across all our regions and divisions. With a large part of the transformation process behind us, I believe we now have a resilient franchise, a strong capital position and are able to invest in our Core businesses to support our long-term growth. Simultaneously, I would stress our success in achieving significant cost savings and achieving our annual cost target while, at the same time, restructuring and strengthening our operations. On behalf of the Board of Directors, it is important to me to thank our management and all of Credit Suisse’s employees worldwide for their continued dedication throughout this demanding period. In the final year of our restructuring plan, we need to stay focused on the task at hand and we will begin a new chapter in the development of Credit Suisse in 2019.
The tax reform announced in December 2017 by the US government lessens the tax burden for businesses. What are the expected immediate and future impacts on Credit Suisse?
UR: We take the view that the US tax reform is likely to further stimulate growth of the US economy. Many analysts expect the reduction in the corporate tax rate to lead to higher capital spending, which should help to increase productivity and wages. In addition, faster growth in the US economy should have a positive impact on our activity levels in the US market, particularly with regard to our investment banking activities in advisory and underwriting. However, as an immediate effect and as with many of our peers, the tax reform has resulted in a re-assessment of our deferred tax assets. We recognized an associated tax charge of CHF 2.3 billion, primarily related to our US deferred tax assets. This charge, which we recognized in the fourth quarter of 2017, was the reason for our net loss attributable to shareholders of CHF 983 million for the full year, with adjusted* pre-tax income of CHF 2.8 billion. It is important to point out that our dividend policy remains unaffected by the re-assessment of deferred tax assets related to the US tax reform. Our businesses have performed strongly and this is reflected in the dividend we are proposing to shareholders.
TT: The US tax reform comes at the right time to give new impetus to global growth and mitigate uncertainty on the likely ­evolution of interest rates as central banks scale back their quantitative easing ­programs. At Credit Suisse, the reduction in the US federal corporate tax rate should lower the Group’s tax rate in the US over the coming years and support our profitability.


4

In the short term, the immediate effect of the tax reform has been a re-assessment of deferred tax assets. In the fourth quarter of 2017, we recognized an associated tax charge of CHF 2.3 billion, mainly resulting from the US tax reform, as the relevant legislation was signed by the US President on December 22, 2017. As a result of this non-cash adjustment, we reported a net loss attributable to shareholders of CHF 983 million for the full year 2017. This had a negligible impact on our strong regulatory capital position. Looking ahead, we estimate that we will see an additional benefit of at least 100 basis points6 on our return on tangible equity in 2019 from a lower Group tax rate. On the basis of the current analysis of the base erosion and anti-abuse tax (BEAT) regime, we regard it as more likely than not that the Group will not be subject to this regime in 2018. However, there are significant uncertainties in the application of BEAT and this interpretation will be subject to review once further guidance has been issued by the US Department of Treasury.
In 2018, you entered the final phase of your three-year restructuring plan. What can we expect in the next 12 months?
TT: Our main priority as we work through 2018 remains the disciplined execution of our restructuring plan. We have agreed clear actions for driving growth and are working towards the profit targets that we have communicated for each of our Core divisions. In addition, we will continue to put a particular emphasis on further strengthening collaboration between our wealth management and investment banking businesses. In 2017, we created International Trading Solutions – a partnership between three of our divisions, Swiss Universal Bank, International Wealth Management and Global Markets – to drive increased collaboration and offer bespoke solutions to our ultra-high-net-worth clients. We are on track to wind-down the Strategic Resolution Unit by the end of 2018, an absolutely key milestone that will make 2019 our first year of operating with a significantly reduced drag from our legacy issues compared to prior years. Any remaining residual operations and assets are expected to be absorbed into the rest of the Group from 2019 onwards. We have focused relentlessly on reducing our fixed cost base for two years now to increase the resilience of our business in unsupportive markets and gain greater leverage in constructive markets. In view of the progress achieved to date, we are confident of bringing our total cost base7 to below CHF 17 billion by the end of 2018.
Technology-driven innovation is shaping the banking industry to a substantial degree. Does it represent more of a challenge or an opportunity for Credit Suisse?
UR: Technological innovation has been a driver of change across industries and has changed the way the financial sector operates and services its clients for the past half a century. Since the first technological breakthroughs in the 1950s, technologies have helped us deliver better, faster and more convenient services for our clients. The past decade has brought another wave of intense digitalization and enabled improved performance in many important areas of the front and back office. Credit Suisse was among the first banks to explore new possibilities and we continue to view technology as a crucial enabler of leading client service and performance. I see digitalization as a significant opportunity both in our client-facing activities as well as on the operational side and believe we are fully leveraging its potential to deliver better performance and cost efficiency across the organization. The Board follows and assesses key technological developments that are impacting the banking sector or are expected to do so in the future. In 2015, we established a dedicated Innovation and Technology Committee to closely coordinate our innovation activities, as well as cybersecurity and other related areas. Going forward, we expect the use of digital technology to help our bank to further increase efficiency, to simplify global access for our clients, and to address reputational and conduct risks at an early stage.
TT: The evolving digital landscape is one of several drivers that are fundamentally altering the way clients interact with their bank. This presents financial institutions with certain challenges – but I see it mostly as a huge opportunity to improve the services we provide to our clients. By leveraging technology appropriately we can become even more client-focused. Many of our digital innovations are focused on further improving access to our integrated offering and on enhancing client service and advice. In Switzerland, we now have a fully paperless account opening process that is digital from start to finish, meaning people can generally become a client of Credit Suisse in just 15 minutes – without having to visit one of our branches. In the Asia Pacific region, Credit Suisse Invest was launched in Singapore and Hong Kong in July 2017 as a new digitally-enabled private banking advisory solution. We have achieved substantial improvements in the speed, effectiveness and efficiency of our compliance activities thanks to advanced data and technology platforms. We are convinced that through innovation and the smart use of new technologies, we can partner with our clients in the way they want, meet or exceed their expectations, and strengthen their loyalty to Credit Suisse.
What is the outlook for the Group in 2019 and beyond?
UR: By the end of 2018, we expect to have completed our restructuring plan and to return to normalized business. We will continue to focus on providing entrepreneurs and private clients across the globe with industry-leading financial services. In terms of business performance, we want to achieve a return on tangible equity of 10-11% by 2019 and 11-12% one year later, which implies increasing our net income and capital generation going forward. We expect that approximately 20% of this net income will be invested in growing our wealth management and connected businesses8, and about 30% of the cumulative capital generated will be used for the RWA uplift resulting from Basel III reforms and other contingencies. We expect the remaining 50% of net income to be distributed to our shareholders, primarily through share buybacks and special dividends. We have received vital support from our shareholders during the restructuring phase, and we look forward to being able to reward their trust.
TT: There are two main reasons why we are confident we will be able to grow our profit in the period after 2018. First, most of the expected improvements in profit up to 2019 come from measures that we already know about or have planned. We have substantially completed our program to establish new legal entities to strengthen the resilience of the Group, and we aim to continue winding down our discontinued activities in the Strategic Resolution Unit. Together, these measures are expected to account for around half of our intended improvement in our return on tangible equity in 2019. Second, I believe the growth outlook for our markets is good, particularly in wealth management. As a ‘one-stop shop’ providing wealth management and investment banking products and services, we are also well placed to win more business from existing clients. In 2017, we increased net new assets3 in Wealth Management by more than a quarter compared to the prior year, with our ultra-high-net-worth clients accounting for more than 75% of the total amount. In 2015, ultra-high-net-worth clients accounted for approximately 50% of net new assets3 across our Wealth Management businesses.
* Adjusted results are non-GAAP financial measures. For further information relating to this and other footnotes indicated in this interview, please refer to the footnotes in the “Message from the Chairman and the Chief Executive Officer” directly following.


5

Message from the Chairman and the Chief Executive Officer
2017 was a year of continued transformation for Credit Suisse as we delivered on key strategic objectives and made progress against our plan to achieve profitable and compliant growth.
Dear shareholders, clients and colleagues
2017 was a crucial year of delivery in the three year-restructuring plan we launched at the end of 2015. Following the deep and radical reorganization we carried out in 2016, this was the first full year in which we could put our new organizational structure to work and test the effectiveness of our strategy. In a changing and often challenging operating environment, we worked intensively to assert our position as a leading wealth manager with strong investment banking capabilities. We aim to capture the opportunities available to us as an expert financial partner that can service the increasingly complex needs of ultra-high-net-worth individuals (UHNWI) and successful entrepreneurs around the globe. To achieve this, we are taking a balanced approach between mature and emerging markets. In mature markets, where wealth is distributed quite evenly across generations, we are focusing on meeting the complex financial needs of our clients based on a differentiated approach. In emerging markets, where most of the growth in wealth is generated by a few talented and highly successful entrepreneurs, our focus is on serving first- and second-generation entrepreneurs with an emphasis on helping them manage their increasing personal wealth and on growing their businesses. Across all our markets, our strong and trusted brand and our ability to be a ‘one-stop shop’ for these clients – addressing both their private wealth and business needs – are key factors that we believe will drive our continued success.
Our strategy is working
While the outlook for global economic growth continued to improve in 2017, the year was also shaped by geopolitical uncertainty, ongoing regulatory developments and changing central bank policies. We saw the continuation of low or even negative interest rates and historically low levels of volatility, which negatively impacted client activity. Against this backdrop, we delivered against our five key objectives: We continued our efforts to (i) strengthen our capital position, (ii) deliver profitable growth, (iii) reduce our fixed cost base, (iv) right-size and de-risk our trading activities, and (v) make progress in resolving our legacy issues. Positive operating leverage accelerated across the Group and all five of our operating divisions increased their adjusted* return on regulatory capital year on year.
Credit Suisse operated profitably on both a reported and an adjusted* pre-tax basis in 2017. We grew our reported pre-tax income to CHF 1.8 billion, up CHF 4 billion year on year, and our adjusted* pre-tax income rose 349% to CHF 2.8 billion. In the fourth quarter of 2017, we reassessed our deferred tax assets and recognized an associated tax charge of CHF 2.3 billion, primarily resulting from the US tax reform. This non-cash adjustment led to a reported net loss attributable to shareholders for the year. However, this does not detract from our solid operating performance and had a negligible impact on our capital position. We estimate that we will see an additional benefit of at least 100 basis points6 on our return on tangible equity in 2019 as the Group tax rate is reduced. On the basis of the current analysis of the base erosion and anti-abuse tax (BEAT) regime, we regard it as more likely than not that the Group will not be subject to this regime in 2018. However, there are significant uncertainties in the application of BEAT and this interpretation will be subject to review once further guidance has been issued by the US Department of Treasury. We also expect to benefit from the anticipated positive impact of the tax reform on the US economy and our activity levels in the US, in particular with regard to our leading investment banking activities in advisory and underwriting.
Focus on wealth management
Our strategic decision to focus on the global wealth management opportunity and allocate more capital to our higher-returning Wealth Management and connected businesses8 is paying off. The global wealth pool9 has almost doubled over the past decade and as it continues to grow, we are seeing accelerated momentum across these businesses, which are producing higher profits10, higher combined net new assets3, higher margins11 and higher returns on capital4. In 2017, we made strong progress towards our 2018 profit targets for Wealth Management2. With adjusted* pre-tax income reaching CHF 4.2 billion2, we were already 85% of the way towards reaching our end-2018 profit target2 at the end of 2017 – with one year left to go. At CHF 37.2 billion, our Wealth Management net new assets3 reached their highest level since 2013, up 27% compared to 2016. Importantly, more than 75% of these net new assets3 came from UHNWI clients compared to approximately 50% two years earlier, in 2015. At the end of 2017, assets under management3 in Wealth Management reached a record CHF 772 billion, up 13% year on year, at higher margins11.
In our historic home market of Switzerland, we made good progress in our Swiss Universal Bank (SUB) in 2017. By the end of the year, SUB had delivered eight consecutive quarters of year-on-year growth in adjusted* pre-tax income. At CHF 1.9 billion, our adjusted* pre-tax income for the year rose 8% compared to 2016 and 17%12 compared to 2015. Both the Private Clients and Corporate & Institutional Clients businesses delivered improved adjusted* pre-tax income, reflecting strong cost discipline and resilient adjusted* revenues. Our Swiss investment banking business maintained its number one position13 in the country in Mergers & Acquisitions (M&A), Debt Capital Markets (DCM) and Equity Capital Markets (ECM), and we expect this positive momentum to continue in 2018.


6

Urs Rohner, Chairman of the Board of Directors (left) and Tidjane Thiam, Chief Executive Officer.


In International Wealth Management (IWM), we had a very successful year and delivered a step change in profitability, growing our adjusted* pre-tax income by 35% to CHF 1.5 billion in 2017. The increased operating leverage achieved in IWM during the year was driven by growth across all major revenue categories and continued cost discipline.
In APAC’s Wealth Management & Connected business, adjusted* pre-tax income reached CHF 820 million in 2017, representing almost a threefold increase over the past two years. We achieved our 2018 adjusted* pre-tax income target14 one year earlier and, as a result, adjusted our 2018 profit target upwards. We received around 120 industry awards15 during 2017 and, for the first time, we were named Best Private Bank16 and best Corporate & Institutional Bank17 in the same year. For the APAC division as a whole, we delivered a solid adjusted* return on regulatory capital of 15% while carrying out the significant repositioning of our Markets business.
In Investment Banking & Capital Markets (IBCM), net revenues grew 9% and our adjusted* pre-tax income increased 41% to USD 419 million in 2017. With an adjusted* return on regulatory capital of 15% at the end of 2017, IBCM is already operating within its end-2018 target range18. Costs19 rose by 3%, reflecting targeted investments in business growth and compliance during the year. We gained further market share across M&A, ECM and Leveraged Finance in both Americas and EMEA20 in 2017.
In Global Markets (GM), we generated a 5% increase in adjusted net revenues21 and reduced our adjusted* operating expenses by 5%, resulting in 118% growth in adjusted* pre-tax income to USD 620 million in 2017. Another important milestone during the year was the establishment of International Trading Solutions, a partnership across SUB, IWM and GM created to enable our wealth management clients to benefit from our expertise in Global Markets with bespoke solutions to meet their investment and financing needs.


7

Rigorous cost discipline
Thanks to our relentless focus on costs and on our strategic approach to productivity gains, we achieved our 2017 cost target with an adjusted* operating cost base of CHF 18 billion1 at year-end. This means we have delivered total net cost savings of CHF 3.2 billion1 over the two years since the start of the cost program. All these costs are measured at constant foreign exchange rates fixed at the end of 2015 to provide transparency and to allow our shareholders to monitor the effectiveness of our cost program during the Group’s restructuring. A significant proportion of our sustainable cost savings was achieved through strategic decisions about our portfolio of businesses, a number of which were exited or significantly reduced in scale. Our goal is to continue to reinvest some of the savings we generate with a particular focus on developing our UHNWI offering, hiring talent and further transforming our technology through digitalization, robotics and automation. We remain on track to achieve our 2018 cost base7 target of less than CHF 17 billion. Looking further ahead, we aim to work with a cost base7 for the Group of CHF 16.5 billion to CHF 17 billion in 2019 and 2020, subject to market conditions and investment opportunities.
Stronger capital position and significantly lower risk
We transformed and substantially strengthened our capital position in 2017, thanks in particular to the trust and support of shareholders who participated in our capital increase by way of a rights offering that closed in June 2017. We ended the year with look-through tier 1 capital of CHF 47.3 billion. Following the deduction of approximately 45 basis points due to increased risk-weighted assets related to operational risk22 in the second half of the year, our look-through CET1 capital ratio was 12.8% at the end of 2017, up from 11.5% at the end of the previous year. The look-through tier 1 leverage ratio was 5.2% at the end of 2017, up from 4.4% at the end of 2016, and our look-through CET1 leverage ratio was 3.8%, up from 3.2% at the end of 2016. These capital and leverage ratios are already above the levels prescribed by the Swiss “Too Big to Fail” requirements that enter into force in 2020. In addition and most importantly, we have significantly de-risked our business, almost halving the Group’s risk management value-at-risk23 since 2015. This has considerably improved the quality of our earnings, with profits10 growing 349% in 2017 compared to 2016 while the level of risks incurred23 was significantly reduced.
Resolution of legacy issues
In our Strategic Resolution Unit (SRU), we continued to make significant progress in disposing of and de-risking legacy positions, with a 43% reduction in operating expenses, a 43% decrease in risk-weighted assets24 and a 41% reduction in leverage exposure compared to the prior year. We expect to complete the wind-down of the SRU in 2018, with any remaining residual operations and assets expected to be absorbed into the rest of the Group from 2019 onwards. This is an absolutely key milestone that we believe will make 2019 our first year of operating with a significantly reduced drag from legacy issues compared to prior years. We reduced the SRU’s drag on Group profits by 37% in 2017, while at the same time increasing profitability in our Core businesses by 30%. It is important to keep in mind that the Group’s CHF 983 million net loss attributable to shareholders for 2017 was recorded after absorbing CHF 1.8 billion of adjusted* pre-tax losses due to our ongoing efforts to wind down the SRU. As the drag from the SRU diminishes, we are well positioned to generate profitable growth and create further value for our shareholders. Our success in strengthening our capital position and reducing risk throughout our activities has been recognized by regulators. In November 2017, the Financial Stability Board – the international body that monitors the financial system – moved Credit Suisse into its lowest tier of systemic importance.
A strong compliance culture
The banking sector has been transformed over the past decade as regulators tightened capital requirements and reporting rules. Our organization has wholeheartedly embraced these changes. We created a strong and separate Compliance and Regulatory Affairs function back in 2015 with a leader sitting on our Executive Board. Its mandate is to oversee all compliance and regulatory matters for Credit Suisse and includes being a proactive, independent function that partners with the businesses by continuously challenging and supporting them in efforts to effectively manage compliance risk. While expanding our Core businesses, we have completed a comprehensive review of our markets and legacy client base in our efforts to ensure that our activities are fully compliant, with a particular focus on wealth management activities. At the same time, we have achieved substantial improvements in the speed and effectiveness of our monitoring activities thanks to the advanced data and technology platform with state-of-the-art analytics that we introduced in 2017. Our use of technology is expected to lower the cost of compliance and contribute to reducing Credit Suisse’s overall operating expenses this year, while increasing our ability to identify compliance risk factors.
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We are fully harnessing the power of new technologies to better serve our clients – whether it is to accelerate our client onboarding process, add innovative features to traditional products or provide clients with global access to the bank via the channels they prefer. At the same time, we embrace the potential of digitalization to drive cost efficiencies across our organization and to support labor-intensive processes.
Banks as catalysts for growth
While executing our strategy in 2017, we remained focused on performing our core role as a financial services provider reliably and efficiently. Banks play an essential role in the global economy, enabling people to safely deposit their savings, managing efficient payment systems and acting as a financial intermediary, bringing together borrowers and lenders of capital, from companies and public sector bodies to private individuals around the globe. We supply businesses with the capital resources they need to expand their activities, finance innovation and create jobs, thus helping in efforts to drive economic growth, employment and wealth creation. We always strive to carry out all these activities in accordance with clear principles and values – particularly our commitment to operating responsibly and with integrity in the interests of our stakeholders.
Credit Suisse also facilitates projects and initiatives that are designed to generate a positive economic and social impact. In 2017, we marked 15 years of impact investing at Credit Suisse and we established our Impact Advisory and Finance (IAF) department, reporting directly to the CEO, which will direct and coordinate activities across the Group that promote impact investing and support our philanthropic advisory services.
Outlook
Looking at 2018, we are committed to maintaining our strong business momentum in order to achieve our targets and to complete our restructuring, allowing us to enter a new normalized operating phase from 2019 onwards with a strong balance sheet, a superb franchise and a talented and dedicated global workforce – having successfully resolved our major legacy issues. Our goal is to achieve a Group reported return on tangible equity of between 10% and 11% for 2019 and between 11% and 12% for 2020. We expect this to be driven by continued revenue growth primarily in our Wealth Management and connected businesses8, strong cost discipline to further reduce our fixed costs, and additional known actions and cost initiatives, such as the wind-down of the SRU and expected reductions in our funding costs – elements that are largely within our control.
Given our progress against our five key strategic objectives in 2017, as well as the dedication and determination of our team of 46,840 employees worldwide, we are convinced that we can deliver on our 2018 ambitions and successfully conclude the restructuring of Credit Suisse.
We wish to thank our employees for their hard work and commitment during this transformative period. We also wish to express our thanks to our clients and shareholders for their continued trust and support.
Best regards
Urs Rohner                     Tidjane Thiam
Chairman of the              Chief Executive Officer
Board of Directors
March 2018
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* Adjusted results are non-GAAP financial measures. For a reconciliation of the adjusted results to the most directly comparable US GAAP measures, see “Reconciliation of adjusted results” in “Credit Suisse” in II – Operating and financial review.
1 2017 net cost savings represents the difference between 2015 “adjusted operating cost base at constant foreign exchange (FX) rates” of CHF 21.2 billion and 2017 “adjusted operating cost base at constant FX rates” of CHF 18.0 billion. Adjusted operating cost base at constant FX rates from 2015 is based on adjusted operating expenses and also includes adjustments for certain accounting changes (which had not been in place at the launch of the cost savings program) of CHF 170 million in 2017, debit valuation adjustments related volatility of CHF 83 million in 2017 and the negative FX impact (CHF (319) million in 2015, CHF (293) million in 2016 and CHF (326) million in 2017). Adjustments for FX apply unweighted currency exchange rates, i.e., a straight line average of monthly rates, consistently for the periods under review.
2 Referring to combined 2017 adjusted* pre-tax income or 2018 adjusted* pre-tax income targets for SUB, IWM and APAC Wealth Management & Connected as the context may require.
3 Referring to combined net new assets or assets under management for Private Clients within SUB, Private Banking within IWM and Private Banking within Wealth Management & Connected in APAC as the context may require.
4 Referring to adjusted* return on regulatory capital.
5 Source: Credit Suisse Research Institute Global Wealth Report 2015.
6 Based on currently available information and beliefs, expectations and opinions of management as of the date hereof. Actual impact for the full year 2019 may differ.
7 Referring to Group adjusted* cost base at constant foreign exchange rates.
8 Referring to SUB, IWM, APAC WM&C and IBCM.
9 Source: McKinsey Wealth Pools 2017.
10 Referring to adjusted* pre-tax income.
11 Referring to adjusted* net margins for Private Clients within SUB, Private Banking within IWM and Private Banking within Wealth Management & Connected in APAC, respectively.
12 Excludes Swisscard net revenues of CHF 148 million and operating expenses of CHF 123 million for 2015 in SUB Private Clients.
13 Source: Thomson Securities for M&A, International Financing Review (IFR) for DCM, Dealogic for ECM; all for the period ending December 31, 2017.
14 Referring to our previous adjusted* pre-tax income target of CHF 700 million for the year 2018; this was subsequently revised to CHF 850 million at our recent Investor Day in November 2017.
15 Includes awards which reflect 2017 performance, including announced in 2018 YTD; excludes awards announced in 2017 which reflect 2016 performance. Excludes all survey and poll results.
16 Source: Best Private Bank Asia, Asian Private Banker, announced January 2018.
17 Source: Best Corporate and Institutional Bank, The Asset Triple A Regional Awards 2017 as of February 2018.
18 Referring to adjusted* return on regulatory capital of 15-20%.
19 Referring to adjusted* total operating expenses.
20 Source: Dealogic as of December 31, 2017; includes Americas and EMEA only.
21 Excludes SMG net revenues of USD 172 million in 2016 and USD (16) million in 2017.
22 Increases to risk weighted assets related to operational risk of CHF 5.2 billion and CHF 3.8 billion in 3Q17 and 4Q17, respectively, reflecting an updated loss history and a revised methodology for the measurement of our risk-weighted assets relating to operational risk primarily in respect of our residential mortgage-backed securities settlements.
23 Referring to 2017 average one-day, 98% risk management value-at-risk.
24 Excluding risk-weighted assets related to operational risk of CHF 20 billion in 2016 and CHF 20 billion in 2017.
Important Information
For further information on calculation methods used for return on tangible equity and return on regulatory capital, see “Results” and “Return on regulatory capital” in “Credit Suisse” in II- Operating and financial review.
References to operating divisions throughout this document mean SUB, IWM, APAC, IBCM and GM.
Unless otherwise noted, leverage exposure is based on the BIS leverage ratio framework and consists of period-end balance sheet assets and prescribed regulatory adjustments. The look-through tier 1 leverage ratio and the CET1 leverage ratio are calculated as look-through BIS tier 1 capital and CET1 capital, respectively, divided by period end leverage exposure. For further details on capital-related information, see “Capital Management-Regulatory Capital Framework” in III-Treasury, Risk, Balance sheet and Off-balance sheet.
We may not achieve all of the expected benefits of our strategic initiatives. Factors beyond our control, including but not limited to the market and economic conditions, changes in laws, rules or regulations and other challenges discussed in our public filings, could limit our ability to achieve some or all of the expected benefits of these initiatives.
This document contains forward-looking statements that involve inherent risks and uncertainties, and we might not be able to achieve the predictions, forecasts, projections and other outcomes we describe or imply in forward-looking statements. A number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions we express in these forward-looking statements, including those we identify in “Risk factors” and in the “Cautionary statement regarding forward-looking information” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2017 filed with the US Securities and Exchange Commission and other public filings and press releases. We do not intend to update these forward-looking statements.
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Information on the company
Credit Suisse at a glance
Strategy
Divisions
Regulation and supervision
Risk factors
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Credit Suisse at a glance
Credit Suisse
Our strategy builds on Credit Suisse’s core strengths: its position as a leading global wealth manager, its specialist investment banking capabilities and its strong presence in our home market of Switzerland. We seek to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets. Founded in 1856, we today have a global reach with operations in about 50 countries and 46,840 employees from over 150 different nations. Our broad footprint helps us to generate a ­geographically ­balanced stream of revenues and net new assets and allows us to capture growth opportunities around the world. We serve our clients through three regionally focused divisions: Swiss Universal Bank, International Wealth Management and Asia Pacific. These regional businesses are supported by two other divisions specializing in investment banking capabilities: Global Markets and ­Investment ­Banking & Capital Markets. The Strategic Resolution Unit consolidates the remaining portfolios from the former non-­strategic units plus additional businesses and positions that do not fit with our strategic direction. Our business divisions cooperate closely to provide holistic financial solutions, including innovative products and specially tailored advice.
Swiss Universal Bank
The Swiss Universal Bank division offers comprehensive advice and a wide range of financial solutions to private, corporate and institutional clients primarily domiciled in our home market Switzerland, which offers attractive growth opportunities and where we can build on a strong market position across our key businesses. Our Private Clients business has a leading franchise in our Swiss home market and serves ultra-high-net-worth individuals, high-net-worth individuals, affluent and retail clients. Our Corporate & Institutional Clients business serves large corporate clients, small and medium-sized enterprises, institutional clients, external asset managers and financial institutions.
International Wealth Management
The International Wealth Management division through its Private Banking business offers comprehensive advisory services and tailored investment and financing solutions to wealthy private clients and external asset managers in Europe, the Middle East, Africa and Latin America, utilizing comprehensive access to the broad spectrum of Credit Suisse’s global resources and capabilities as well as a wide range of proprietary and third-party products and services. Our Asset Management business offers investment solutions and services globally to a broad range of clients, including pension funds, governments, foundations and endowments, corporations and individuals.
Asia Pacific
In the Asia Pacific division, our wealth management, financing and underwriting and advisory teams work closely together to deliver integrated advisory services and solutions to our target ultra-high-net-worth, entrepreneur and corporate clients. Our Wealth Management & Connected business combines our activities in wealth management with our financing, underwriting and advisory activities. Our Markets business represents our equities and fixed income trading business in Asia Pacific, which supports our wealth management activities, but also deals extensively with a broader range of institutional clients.
Global Markets
The Global Markets division offers a broad range of financial products and services to client-driven businesses and also supports Credit Suisse’s global wealth management businesses and their clients. Our suite of products and services includes global securities sales, trading and execution, prime brokerage and comprehensive investment research. Our clients include financial institutions, corporations, governments, institutional investors, such as pension funds and hedge funds, and private individuals around the world.
Investment Banking & Capital Markets
The Investment Banking & Capital Markets division offers a broad range of investment banking services to corporations, financial institutions, financial sponsors and ultra-high-net-worth individuals and sovereign clients. Our range of products and services includes advisory services related to mergers and acquisitions, divestitures, takeover defense mandates, business restructurings and spin-offs. The division also engages in debt and equity underwriting of public securities offerings and private placements.
Strategic Resolution Unit
The Strategic Resolution Unit was created to facilitate the immediate right-sizing of our business divisions from a capital perspective and includes remaining portfolios from former non-strategic units plus transfers of additional exposures from the business divisions. The unit’s primary focus is on facilitating the rapid wind-down of capital usage and costs to reduce the negative impact on the Group’s performance. Repositioned as a separate division, this provides clearer accountability, governance and reporting.
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Strategy
Credit Suisse STRATEGY
Our strategy is to be a leading wealth manager with strong investment banking capabilities.
We believe wealth management is one of the most attractive segments in banking. Global wealth has grown significantly over the last ten years and is projected to continue to grow faster than GDP over the next several years, with both emerging markets and mature markets offering attractive growth opportunities. We seek to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets.
In wealth management, we expect that emerging markets will account for more than 60% of the growth in global wealth in the coming years, with approximately 60% of that additional wealth expected to be created in Asia Pacific. Wealth is highly concentrated in emerging markets, with wealth creation mostly tied to first and second generation entrepreneurs. We believe that positioning ourselves as the “Bank for Entrepreneurs” by leveraging our strengths in wealth management and investment banking will provide us with key competitive advantages to succeed in these markets as we provide clients with a range of services to protect and grow their wealth. We are scaling up our wealth management franchise in emerging markets by recruiting and retaining high-quality relationship managers and prudently expanding our lending exposure, building on our strong investment and advisory offering and global investment banking capabilities. At the same time we are investing in our risk management and compliance functions.
Despite slower growth, mature markets are still expected to remain important and account for more than half of global wealth by 2020. We plan to capitalize on opportunities in markets such as Western Europe, with a focused approach to building scale given the highly competitive environment.
Switzerland, as our home market, provides compelling opportunities for Credit Suisse. Switzerland remains the country with the highest average wealth and highest density of affluent clients globally. Switzerland benefits from its highly developed and traditionally resilient economy, where many entrepreneurial small and medium-sized enterprises (SME) continue to drive strong export performance. We provide a full range of services to private, corporate and institutional clients with a specific focus on becoming the “Bank for Entrepreneurs” and plan to further expand our strong position with Swiss private, corporate and institutional clients as well as take advantage of opportunities arising from consolidation.
We have simplified our Global Markets business model, reducing complexity and cost while continuing to support our core institutional client franchises, offering differentiated products for wealth management clients and corporate clients and maintaining strong positions in our core franchises. We have right-sized our operations and reduced risk in a focused way by exiting or downsizing selected businesses consistent with our return on capital objectives and lower risk profile.
In our Investment Banking & Capital Markets division, we have focused on rebalancing our product mix towards advisory and equity underwriting while maintaining our leading leveraged finance franchise. Our objective is to align, and selectively invest in, our coverage and capital resources with the largest growth opportunities and where our franchise is well-positioned. We believe this will help us to strengthen our market position, contribute to a revenue mix that is more diversified and less volatile through the market cycle and achieve returns in excess of our cost of capital. We will continue to leverage Investment Banking & Capital Markets’ global connectivity with our other divisions and its platform to drive opportunities for the Group.
The Strategic Resolution Unit oversees the effective wind-down of businesses and positions that do not fit our strategic direction in the most efficient manner possible. The Strategic Resolution Unit consolidates the remaining portfolios from our former non-strategic units plus additional activities and businesses from the investment banking and private banking businesses that are no longer considered strategic. In the first quarter of 2017 we announced an acceleration of the release of capital from the Strategic Resolution Unit and now plan to wind-down the division by the end of 2018 without an adverse incremental impact to our existing targets for adjusted loss before taxes from this division. Any remaining residual operations and assets of the Strategic Resolution Unit are expected to be absorbed into the rest of the Group from 2019 onwards.
We intend to rigorously execute a disciplined approach to cost management across the Group to lower our cost base and increase positive operating leverage.
Progress on our strategy
Over the last two years Credit Suisse has continued to make significant progress against the strategic objectives outlined at the Investor Day on October 21, 2015.
Strengthen our capital position
We have successfully executed on our capital plan through capital raises and disciplined capital management. In parallel with the successful capital raise in the second quarter of 2017, we decided not to pursue a partial initial public offering of our Swiss banking subsidiary Credit Suisse (Schweiz) AG, thus retaining full ownership of a historically stable income stream in our home market of Switzerland and avoiding complexity in the business structure and activities of a key division of the Group.
We have significantly strengthened our capital position since the third quarter of 2015 with look-through common equity tier 1 (CET1) capital of CHF 34.8 billion and Tier 1 capital of CHF 47.3 billion as of year-end 2017. Our look-through CET1 ratio has increased from 10.2% in the third quarter of 2015 to
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12.8% at year-end 2017 and our look-through Tier 1 leverage ratio has increased from 3.9% in the third quarter of 2015 to 5.2% as of year-end 2017. We have also made significant progress in reshaping the capital allocation across the Group and allocating a higher share of capital to our wealth management and advisory businesses.
Deliver profitable growth
In 2017 we achieved a strong net new asset growth rate and reported net new assets of CHF 37.8 billion, leading to record assets under management of CHF 1,376.1 billion. Our balanced approach to wealth management has contributed to positive inflows in mature markets as well as strong inflows in emerging markets.
In our Swiss Universal Bank, we have continued to drive improvements in our profitability over the last two years and as well as in our cost structure.
In International Wealth Management and Asia Pacific Wealth Management & Connected, we achieved a year-on-year step-change in profitability in 2017 by delivering strong revenue growth, with higher recurring commissions and fees, while creating positive operating leverage.
In Investment Banking & Capital Markets, we are building on our balanced revenue mix and have achieved better than market revenue growth in mergers & acquisitions (M&A) and equity capital markets since 2015. We have made notable progress in the execution of our targeted plans for investment grade corporates, non-investment grade corporates and financial sponsors and have improved share of wallet across all of these client segments since 2015. Our strategy has delivered significant growth both in revenues and profitability over the last two years.
Reduce our cost base
We continue to make significant progress against our goal to ensure that we permanently lower our cost base while improving productivity and operational efficiency, and have confirmed our targeted operating cost base on an adjusted basis of less than CHF 17.0 billion for 2018.
Right-size and de-risk our Global Markets activities
In Global Markets we have successfully restructured our business portfolio and improved profitability while maintaining our core franchise strengths. We have reduced the >>>risk-weighted assets and leverage exposure since the third quarter of 2015 to USD 60 billion and USD 290 billion, respectively. The franchise has also been significantly de-risked, with the Global Markets trading book >>>value-at-risk in USD down 53% since the end of 2015.
Resolve legacy issues and wind-down the Strategic Resolution Unit
We continue to successfully reduce the drag on profitability and capital from our Strategic Resolution Unit while significantly reducing the complexity and overall risk profile of the portfolio. Since the third quarter of 2015 we have reduced the risk-weighted assets (excluding risk-weighted assets relating to operational risk of USD 19 billion in the third quarter of 2015 and USD 20 billion in the fourth quarter of 2017) of the Strategic Resolution Unit by USD 42 billion or 74% and the leverage exposure by USD 135 billion or 69%. In addition, at our Investor Day in 2017 we announced more ambitious plans with lower 2018 and 2019 adjusted operating expense ambitions as well as a lower adjusted loss before taxes target for 2019.
Organizational structure
Our organizational structure consists of three regionally focused divisions: Swiss Universal Bank, International Wealth Management and Asia Pacific. These regional businesses are supported by two other divisions specialized in investment banking capabilities: Global Markets and Investment Banking & Capital Markets. The Strategic Resolution Unit consolidates the remaining portfolios from the former non-strategic units plus additional businesses and positions that do not fit with our strategic direction. Our organization is designed to drive stronger client focus and provide better alignment with regulatory requirements. We believe that decentralization will increase the speed of decision making, accountability and cost competiveness across the Group.
Our operating businesses are supported by focused corporate functions at the Group Executive Board level, consisting of: Chief Financial Officer, Chief Operating Officer, Chief Risk Officer, Chief Compliance and Regulatory Affairs Officer, General Counsel and Human Resources.
Financial targets and objectives
At the Investor Day on November 30, 2017, we confirmed or updated our financial targets for the Group and the divisions. We also communicated new financial objectives for the Group for 2019 and 2020.
As indicated, many of our references to ambitions, objectives and targets for revenues, operating expenses, income/(loss) before taxes and return on regulatory capital are on an adjusted basis. These adjusted numbers and return on tangible equity attributable to shareholders are non-GAAP financial measures. Management believes that adjusted results provide a useful presentation of our operating results for purposes of assessing our Group and divisional performance consistently over time, on a basis that excludes items that management does not consider representative of our underlying performance. Adjusted results exclude goodwill impairment, major litigation charges, restructuring expenses and gains, losses and expenses from business or real estate sales. The operating cost base on an adjusted basis and our cost savings program are measured using adjusted total operating expenses at constant foreign exchange rates since 2015 and also include adjustments for certain accounting changes (which had not been in place at the launch of the cost savings program), debit valuation adjustments related volatility and for foreign exchange. Return on tangible equity attributable to shareholders is based on tangible
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shareholders’ equity attributable to shareholders, which is calculated by deducting goodwill and other intangible assets from total shareholders’ equity attributable to shareholders as presented in our balance sheet. Management believes that the return on tangible shareholders’ equity attributable to shareholders is meaningful as it allows consistent measurement of the performance of businesses without regard to whether the businesses were acquired. A reconciliation of these ambitions, objectives and targets to the nearest GAAP measures is unavailable without unreasonable efforts, as the items of exclusion are unavailable on a prospective basis.
> Refer to “Reconciliation of adjusted results” in II – Operating and financial review – Credit Suisse for further information.
Financial targets:
reduce our operating cost base on an adjusted basis to below CHF 17.0 billion by year-end 2018;
increase our cumulative net cost savings on an adjusted basis to more than CHF 4.2 billion by year-end 2018;
maintain a look-through CET1 ratio of greater than 12.5% in 2018;
achieve a look-through CET1 leverage ratio of greater than 3.5% and a look-through tier 1 leverage ratio of greater than 5.0% in 2018;
achieve adjusted income before taxes for Swiss Universal Bank of CHF 2.3 billion in 2018;
achieve adjusted income before taxes for International Wealth Management of CHF 1.8 billion in 2018;
achieve adjusted income before taxes for Asia Pacific Wealth Management & Connected of CHF 0.85 billion in 2018 and an adjusted return on regulatory capital for Asia Pacific Markets of 10-15% for full-year 2019;
achieve adjusted return on regulatory capital for Investment Banking & Capital Markets of 15-20% for full-year 2018;
achieve adjusted return on regulatory capital for Global Markets of 10-15% for full-year 2018 while operating within a risk-weighted assets threshold of USD 60 billion and a leverage exposure threshold of USD 290 billion; and
reduce adjusted loss before taxes for the Strategic Resolution Unit to approximately USD 1.4 billion in 2018, reduce risk-weighted assets (excluding operational risk) to USD 11 billion and reduce leverage exposure to USD 40 billion by year-end 2018; reduce adjusted loss before taxes to approximately USD 0.5 billion in 2019.
Financial objectives for 2019 and 2020:
intend to increase our return on tangible equity attributable to shareholders to 10-11% by 2019 and 11-12% by 2020;
intend to operate at an annual cost base on an adjusted basis of CHF 16.5–17.0 billion in 2019 and 2020, subject to market conditions and investment opportunities within this range;
intend to operate at a look-through CET1 ratio of greater than 12.5% for 2019 and 2020, before the implementation of the >>>Basel III reforms beginning in 2020; and
plan to distribute 50% of net income earned cumulatively in 2019 and 2020 to shareholders primarily through share buybacks or special dividends.
Evolution of legal entity structure
The execution of the program evolving the Group’s legal entity structure to support the realization of our strategic objectives, increase the resilience of the Group and meet developing and future regulatory requirements has continued to progress. Key developments include:
In February 2017, Credit Suisse (Schweiz) AG and Credit Suisse Asset Management International Holding Ltd (CSAM IHAG), with a participating interest of 49% and 51%, respectively, incorporated Credit Suisse Asset Management & Investor Services (Schweiz) Holding AG (CSAM Holding), a holding company domiciled in Switzerland. Credit Suisse Asset Management (Schweiz) AG (CSAM Schweiz) was incorporated in February 2017 and received the Swiss-related asset management business from Credit Suisse AG through a transfer of assets in accordance with the Swiss Merger Act. All transfers of participations were made at the participations’ Swiss GAAP carrying value as recorded by the transferor.
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, the following equity stakes held by the Group were transferred to Credit Suisse AG and subsequently to Credit Suisse (Schweiz) AG: (i) 100% equity stake in Neue Aargauer Bank AG, (ii) 100% equity stake in BANK-now AG, and (iii) 50% equity stake in Swisscard AECS GmbH. The transfer was completed on March 31, 2017.
In the US, Credit Suisse Services (USA) LLC became operational in January 2017.
In Switzerland, Credit Suisse Services AG became operational in July 2017 with the transfer of employees, net assets and our Business Delivery Center in Poland from Credit Suisse AG. In addition, several branches of Credit Suisse Services AG were registered and became operational. In the UK, London branch became operational in June 2017. In India, Pune branch became operational in November 2017. In Singapore, Singapore branch became operational in January 2018.
As part of ongoing efforts to reduce the footprint of Credit Suisse Securities Europe Limited (CSSEL), CSSEL Frankfurt branch (business and staff) were migrated to Credit Suisse (Deutschland) Aktiengesellschaft in October 2017.
The legal entity program has been prepared in discussion with the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA), our primary regulator, and other regulators and addresses regulations in Switzerland, the US and the UK with respect to requirements for global recovery and resolution planning by systemically relevant banks, such as Credit Suisse, that will facilitate resolution of an institution in the event of a failure. The program has been approved by the Board of Directors of the Group, but it remains subject to final approval by FINMA and other regulators.
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Products and services
Private banking offerings and wealth management solutions
We offer a wide range of private banking and wealth management solutions tailored for our clients in our Swiss Universal Bank, International Wealth Management and Asia Pacific divisions.
Client segment specific value propositions
Our wide range of wealth management solutions is tailored to specific client segments. Close collaboration with our investment banking businesses enables us to offer customized and innovative solutions to our clients, especially in the >>>ultra-high-net-worth individuals (UHNWI) segment, and we have specialized teams offering bespoke and complex solutions predominantly for our sophisticated clients. This distinct value proposition of our integrated bank remains a key strength in our client offerings.
Structured advisory process
We apply a structured approach in our advisory process based on a thorough understanding of our clients’ needs, personal circumstances, product knowledge, investment objectives and a comprehensive analysis of their financial situation to define individual client risk profiles. On this basis, we define an individual investment strategy in collaboration with our clients. This strategy is implemented to help ensure adherence to portfolio quality standards and compliance with suitability and appropriateness standards for all investment instruments. Responsible for the implementation are either the portfolio managers or our relationship managers working together with their advisory clients. Our UHNWI relationship managers are supported by dedicated portfolio managers.
Comprehensive investment services
We offer a comprehensive range of investment advice and discretionary asset management services based on the outcome of our structured advisory process and the global “House View” of our Credit Suisse Investment Committee. We base our advice and services on the analysis and recommendations of our research and investment strategy teams, which provide a wide range of investment expertise, including macroeconomic, equity, bond, commodity and foreign-exchange analysis, as well as research on the economy. Our investment advice covers a range of services, from portfolio consulting to advising on individual investments. We offer our clients portfolio and risk management solutions, including managed investment products. These are products actively managed and structured by our specialists or third parties, providing private investors with access to investment opportunities that otherwise would not be available to them. For clients with more complex requirements, we offer investment portfolio structuring and the implementation of individual strategies, including a wide range of structured products and alternative investments. Discretionary asset management services are available to clients who wish to delegate the responsibility for investment decisions to Credit Suisse. We are an industry leader in alternative investments and, in close collaboration with our asset management business and investment banking businesses, we offer innovative products with limited correlation to equities and bonds, such as hedge funds, private equity, commodities and real estate investments.
In addition, we offer solutions for a range of private and corporate wealth management needs, which include financial planning, succession planning and trust services.
Financing and lending
We offer a broad range of financing and lending solutions across all of our private client segments, including consumer credit and real estate mortgage lending, real asset lending relating to ship and aviation financing for UHNWI, standard and structured hedging and lombard lending solutions as well as collateral trading services.
Multi-shore platform
With global operations comprising 13 international >>>booking centers in addition to our operations in Switzerland, we are able to offer our clients booking capabilities locally as well as through our international hubs. Our multi-shore offering is designed to serve clients who are focused on geographical risk diversification, have multiple domiciles, seek access to global execution services or are interested in a wider range of products than is available to them locally.
Corporate client and institutional client offerings
In accordance with our ambition to position ourselves as the “Bank for Entrepreneurs”, we provide corporate and institutional clients, predominantly in Switzerland, with a broad range of financial solutions. To meet our clients’ evolving needs, we deliver our offering through an integrated franchise and international presence. Based on this model, we are able to assist our clients in virtually every stage of their business life cycle to cover their banking needs. For corporate clients, we provide a wide spectrum of banking products such as traditional and structured lending, payment services, foreign exchange, capital goods leasing and investment solutions. In addition, we apply our investment banking capabilities to supply customized services in the areas of M&A, syndications and structured finance. For corporations with specific needs for global finance and transaction banking, we provide services in commodity trade finance, trade finance, structured trade finance, export finance and factoring. For our Swiss institutional clients, including pension funds, insurances, public sector and UHNWI clients, we offer a wide range of fund solutions and fund-linked services, including fund management and administration, fund design and comprehensive global custody solutions. Our offering also includes ship and aviation finance and a competitive range of services and products for financial institutions such as securities, cash and treasury services.
Asset management offerings
Our traditional investment products provide strategies and comprehensive management across equities, fixed income, and multi-asset products in both fund formation and customized solutions. Stressing investment principles, such as risk management and
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asset allocation, we take an active and disciplined approach to investing. Alongside our actively managed offerings, we have a suite of passively managed solutions, which provide clients access to a wide variety of investment options for different asset classes in a cost-effective manner.
We also offer institutional and individual clients a range of alternative investment products, including credit investments, hedge fund strategies, real estate and commodities. We are also able to offer access to various asset classes and markets through strategic alliances and key joint ventures with external managers.
In December 2016, we announced the transition of the systematic market-making group from equities in the Global Markets division and from equity sales and trading in the Asia Pacific division to the Asset Management business in the International Wealth Management division. International Wealth Management is an investor together with Asia Pacific, Global Markets and third-party investors through the launch of two quantitative funds that will encompass the performance of this business. The systematic market-making group utilizes a range of liquidity-providing and market-making strategies in liquid markets.
Investment banking financial solutions
Equity underwriting
Equity capital markets originates, syndicates and underwrites equity in IPOs, common and convertible stock issues, acquisition financing and other equity issues.
Debt underwriting
Debt capital markets originates, syndicates and underwrites corporate and sovereign debt.
Advisory services
Advisory services advises clients on all aspects of M&A, corporate sales, restructurings, divestitures, spin-offs and takeover defense strategies.
Equities
Cash equities provides a comprehensive suite of offerings, including: (i) research, analytics and other content-driven products and services, to meet the needs of clients including mutual funds, investment advisors, banks, pension funds, hedge funds, insurance companies and other global financial institutions; (ii) sales trading, responsible for managing the order flow between our clients and the marketplace and providing clients with trading ideas and capital commitments, identifying trends and delivering the most effective trade execution; (iii) trading, which executes client orders and makes markets in listed and >>>over-the-counter (OTC) cash securities, exchange-traded funds and programs, providing liquidity to the market through both capital commitments and risk management; and (iv) Credit Suisse’s >>>advanced execution services (AES), a sophisticated suite of algorithmic trading strategies, tools and analytics to facilitate global equity trading. By employing algorithms to execute client orders and limit volatility, AES helps institutions and hedge funds reduce market impact. AES is a recognized leader in its field and provides access to hundreds of trading destinations in over 40 countries and six continents.
Prime services offers hedge funds and institutional clients execution, financing, clearing and reporting capabilities across various asset classes through prime brokerage, synthetic financing and listed and OTC derivatives. In addition, prime services is a leading provider of advisory services across capital services, risk and consulting for both start-ups and existing clients.
Equity derivatives provides a full range of equity-related products, investment options and financing solutions, as well as sophisticated hedging and risk management expertise and comprehensive execution capabilities to private banking clients, financial institutions, hedge funds, asset managers and corporations. Additionally, global fund-linked products is a market leader in fund-linked financing and derivatives products.
Convertibles: The convertibles team provides secondary trading and market making of convertible bonds as well as pricing and distribution of Credit Suisse-originated convertible issuances.
Fixed income
Global credit products is a leading, client-focused credit franchise, providing value-added products and solutions to both issuer and investor clients. Our capital markets businesses are responsible for structuring, underwriting and syndicating a full range of products for our issuer clients, including investment grade and leveraged loans, investment grade and high yield bonds and unit transactions. We are also a leading provider of committed acquisition financing, including leveraged loan, bridge finance and mezzanine finance and collateralized loan obligation formation. In sales and trading, we are a leading market maker in private and public debt across the credit spectrum, including leveraged loans as well as high yield and investment grade cash. We are also a market maker in the credit derivatives market, including the CDX suite, liquid single-name >>>credit default swaps (CDS), sovereign CDS and credit default swaptions. We offer clients a comprehensive range of financing options for credit products including, but not limited to, repurchase agreements, short covering, total return swaps and portfolio lending.
Securitized products trades, securitizes, syndicates and underwrites various forms of securities, including >>>residential mortgage-backed securities (RMBS), asset-backed securities (ABS) and >>>commercial mortgage-backed securities (CMBS). CMBS, RMBS and ABS are based on underlying pools of assets and include both CMBS and RMBS government- and agency-backed as well as private-label loans. Core to the securitized products franchise is its asset financing business, which focuses on providing asset and portfolio advisory services, and financing solutions to clients across asset classes. We are also an originator of commercial real estate loans and also own Select Portfolio Servicing, a residential mortgage servicing company.
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Macro products includes our global foreign exchange and rates businesses and investment grade capital markets team in Switzerland. Our rates business offers market-making capabilities in the full spectrum of US cash and derivatives, European cleared swaps and select bilateral and structured solutions. Investor products provide clients market-making services in benchmark and proprietary custom indices across commodities, rates and foreign exchange products.
Emerging Markets, Financing and Structured Credit includes a range of financing products including cash flow lending, share-backed lending and secured financing transactions and onshore Brazil trading. In addition, we offer financing solutions and tailored investment products for Latin American, Central and Eastern European, Middle Eastern and African financial institutions and corporate and sovereign clients.
Other
Other products and activities include lending and certain real estate investments. Lending includes senior bank debt in the form of syndicated loans and commitments to extend credit to investment grade and non-investment grade borrowers.
Research and HOLT
Our equity and fixed income businesses are enhanced by the research and HOLT functions. HOLT offers a framework for objectively assessing the performance of approximately 20,000 companies worldwide, with interactive tools and consulting services that clients use to make informed investment decisions.
Equity and fixed income research uses in-depth analytical frameworks, proprietary methodologies and data sources to analyze approximately 3,000 companies worldwide and provide macroeconomic insights into this constantly changing environment.
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Divisions
sWISS UNIVERSAL BANK
Business profile
Within Swiss Universal Bank, we offer comprehensive advice and a broad range of financial solutions to private, corporate and institutional clients primarily domiciled in Switzerland. Since January 1, 2017, we have served our clients through the following four dedicated business areas in order to better cater to our Swiss client base: Private & Wealth Management Clients and Premium Clients within the Private Clients business, and Corporate & Investment Banking as well as Institutional Clients within the Corporate & Institutional Clients business. The most significant change which arose pursuant to this modification in the organizational structure relates to the external asset managers business which is now part of the Corporate & Institutional Clients business.
Our Private Clients business has a leading client franchise in Switzerland, serving approximately 1.5 million clients, including >>>UHNWI, >>>high-net-worth individual (HNWI), >>>affluent and retail clients. Our service offering is based on our structured advisory process, distinct client-segment-specific value propositions and coverage models as well as the access to a broad range of comprehensive products and services. Our network includes 1,300 relationship managers in 163 branches, including 26 branches of the Bank’s affiliate, Neue Aargauer Bank. Additionally, our consumer finance business BANK-now has 24 branches. Also, we offer our clients the world’s leading credit card brands through Swisscard AECS GmbH, an equity method investment jointly owned with American Express.
Our Corporate & Institutional Clients business offers expert advice and high-quality services to a wide range of clients, serving the needs of over 100,000 corporations and institutions, including large corporate clients, small and medium-size enterprises, institutional clients, external asset managers, financial institutions and commodity traders. This business also includes our Swiss investment banking business, serving corporate clients and financial institutions in connection with financing transactions in debt and equity capital markets and advising on M&A transactions. Our business includes 540 relationship managers who serve our clients out of 43 locations.
Key data – Swiss Universal Bank
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) 5,396 5,759 5,721
Income before taxes (CHF million) 1,765 2,025 1,675
Assets under management (CHF billion)
– Private Clients 208.3 192.2 189.8
– Corporate & Institutional Clients 354.7 339.3 327.0
Number of employees 12,600 13,140 13,400
Business environment
The Swiss private banking and wealth management industry remains very attractive and continues to have positive growth prospects. Switzerland has the highest millionaire density worldwide and is expected to continue to have the highest average wealth per adult. We remain well-positioned in the Swiss market with strong market shares across client segments.
The corporate and institutional clients business continues to offer attractive opportunities, supported by the expected steady growth of the Swiss economy. In a continued low interest rate environment, key trends in equity capital markets in Switzerland are expected to include an increase in IPOs, acquisition-related financing and monetization of equity holdings. We believe that the environment in the Swiss M&A market should remain supportive through 2018. We are a leading provider of banking services to corporate and institutional clients in Switzerland, utilizing our market-leading investment banking capabilities in Switzerland for local execution while leveraging Investment Banking & Capital Markets’ international reach and Global Markets’ placing power.
Structurally, the industry continues to undergo significant change. Regulatory requirements for investment advisory services continue to increase, including in the areas of suitability and appropriateness of advice, client information and documentation. This is expected to drive further consolidation of smaller banks due to the higher critical size necessary to fulfill business and regulatory requirements. We continue to believe that we are well-positioned to opportunistically take advantage of this potential market consolidation. We have made additional progress in adapting to the changing regulatory environment and are continuing to dedicate significant resources to ensure our business is compliant with regulatory standards.
Business strategy
Switzerland, our home market, has always been and is expected to remain a key market for our Group and is core to our overall strategy. Within Swiss Universal Bank, we combine all the strengths and critical mass of our Swiss retail, wealth management, corporate, institutional and investment banking activities. The division is well-positioned to meet the needs of our clients, both individual and corporate, with a broad suite of customized products and services.
In order to further cement our standing as a leading Swiss bank and continue to impress our clients, we sharpened our strategy in 2017. We expect to advance our business by focusing on the following four key priorities:
Bank for Switzerland
We are committed to our Swiss home market and to all our clients in Switzerland – we are a universal bank that serves private, corporate and institutional client segments. We intend to expand our market share and continue to be a responsible partner in Swiss society.
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We have reduced management hierarchies while increasing the scope of control at local market levels to allow for more efficient priority-setting and faster decision-making in those markets. We leveraged our digital capabilities and upgraded our call center capabilities to offer best-in-class banking services for retail clients. In addition, we increased our advice intensity in our affluent client segment by reducing the number of clients per relationship manager by over 30% since 2016. We see potential in developing the HNWI business, which is growing significantly and remains highly attractive.
Bank for Entrepreneurs
Entrepreneurship has always been important for Credit Suisse, and entrepreneurial thinking is one of our core principles. We have grown and will seek to continue to significantly grow our business with entrepreneurs and their companies across all businesses within Swiss Universal Bank, including by leveraging our international connectivity in investment banking and asset management. It is our ambition to be recognized as the “Bank for Entrepreneurs”.
We strengthened our focus on being recognized as the “Bank for Entrepreneurs” by launching joint client coverage for private and corporate clients in 2015. In this context, we increased the number of Entrepreneurs & Executives relationship managers and now cover the Swiss market with 16 locations. Our broad range of expertise and capabilities enabled us to execute a large number of investment banking transactions in 2017 and we were again recognized as the number one investment bank in Switzerland.
Bank for the Digital World
We are transforming the way we serve and advise our clients in an increasingly digital society and economy. We expect new technologies and business models to emerge and must adapt our efforts to be successful. To this end, we are investing in digital capabilities with a focus on client engagement, self-service capabilities and frontline productivity. Digitalization, automation and data management will be key drivers to continuously improve our cost position and drive our competitiveness with the possibility to fundamentally change the way we work.
During 2017, various digital solutions for private, corporate and institutional clients as well as relationship managers were launched. We enhanced our self-service capabilities including the introduction of digital client self-onboarding, which allows private clients to identify themselves and open an account through a computer or mobile device. In addition, our clients are now able to make peer-to-peer mobile payments through our participation in TWINT. In 2017 we managed to further improve the productivity of client-facing employees and increased the automation of front-to-back processes (e.g., through automated document scanning and data capturing).
Bank for the Next Generation
While we are always mindful of the needs of all clients, we particularly aim to support the next generation in Switzerland in achieving their ambitions. Supertrends such as an aging population are expected to fundamentally change our country in coming years and will open opportunities for us to make a difference to our clients across generations. Developing our own young talents in their careers with various programs will complement this process and is part of our long-term commitment to the next generation in Switzerland.
We successfully launched Viva Kids, a new offering for our youngest clients. With over 10,000 new clients in the first three months, we exceeded our ambitious expectations. Viva Kids is designed to help parents in the financial education of their children and we believe it will be an important contributor for our future client base.
Awards and market share momentum
Credit Suisse was highly placed in a number of key industry awards in 2017, including:
Best Trade Finance Bank in Switzerland –Global Finance
Best Family Office Offering and Outstanding Philanthropy Offering –Private Banker International
Outstanding Private Bank for UHNW Clients in Europe –Private Banker International Europe
Best Commercial Banking Capabilities –Euromoney Private Banking and Wealth Management Survey
Best Index Product –Swiss Derivatives Awards 2017
Best M&A House in EMEA –EMEA Finance 2016 Achievement Awards
Equity Capital Markets Bank of the Year in Germany, Austria and Switzerland –GlobalCapital
international wealth management
Business profile
In International Wealth Management, we cater to the needs of our private, corporate and institutional clients by offering expert advice and a broad range of financial solutions.
Our Private Banking business provides comprehensive advisory services and tailored investment and financing solutions to wealthy private clients and external asset managers in Europe, the Middle East, Africa and Latin America. We serve our clients through 1,130 relationship managers in 44 cities in 27 countries, utilizing comprehensive access to the broad spectrum of Credit Suisse’s global resources and capabilities as well as a wide range of proprietary and third-party products and services.
Our Asset Management business offers investment solutions and services globally to a broad range of clients, including pension funds, governments, foundations and endowments, corporations and individuals, along with our private banking businesses. Our asset management capabilities span across a diversified range of asset classes, with a focus on traditional and alternative strategies.
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Key data – International Wealth Management
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) 5,111 4,698 4,552
Income before taxes (CHF million) 1,351 1,121 723
Assets under management (CHF billion)
– Private Banking 366.9 323.2 289.6
– Asset Management 385.6 321.6 321.3
Number of employees 10,250 10,300 9,750
Business environment
The private banking industry continues to benefit from attractive growth prospects in the European and emerging markets covered by International Wealth Management, where private banking assets are expected to grow by approximately 6% annually through 2021. Regionally, private banking assets are expected to grow by approximately 8% in Russia and Central & Eastern Europe, by approximately 8% in the Middle East & Africa and by approximately 7% in Latin America. This growth is expected to be fueled by an increase in population, entrepreneurial wealth creation and technological advancements. Although wealth is expected to grow at a slower pace in Europe (by approximately 3% annually), this region continues to be of crucial importance, holding around 20% of the world’s wealth. In addition, it is expected that demographic developments relating to an aging population, such as funding pressure in the public pension systems and a transfer of wealth to the next generation, will present important opportunities in the European private banking markets.
The asset management industry continues to evolve and grow with positive support from increasing global wealth. However, managers face a number of challenges, including regulatory complexities and revenue and margin compression. At the same time, investors are seeking asset diversification and yield enhancement through alternative and less liquid products. Investors are also shifting away from active investment strategies in favor of passively managed investments, reflecting increased fee sensitivity in the ongoing low-yield environment. These shifting preferences and pressures have helped drive further consolidation in the industry. In this environment, managers must demonstrate differentiating capabilities including not only strong investment performance, but also other value-add capabilities such as risk management and controls, compliance, client reporting, and data security.
During 2017, the wealth and asset management industry experienced supportive equity markets and maintained a long-term fundamental growth trend. Broader market fundamentals remained challenging in light of political and economic uncertainty and the persistence of low interest rates. The sector saw the continued pursuit of new opportunities and efficiencies arising from digital technology advancements and front-to-back process improvements, while facing structural pressure as it continues to adapt to industry-specific regulatory changes and tax regularization initiatives.
Business strategy
Our private banking and asset management businesses are among the industry’s leaders by size and reputation in our target markets and regions. International Wealth Management continues to contribute significantly to Credit Suisse’s strategic and financial ambitions. The following three strategic priorities guide our decisions:
Deliver client value
To add further value to our clients’ portfolios we are increasingly leveraging our investment strategy and research capabilities and deploying solutions and products that are tailored to our clients’ needs. The Asset Management business continues to strengthen its partnership with our wealth management businesses to provide quality products and solutions to clients. Enhanced client proximity supported by a regionally empowered businesses model aids in the development of new and innovative products in line with client demand. We are addressing our clients’ sophisticated financing needs by broadening our lending services and leveraging additional resources.
Enhance client proximity
Our focus on enhancing client proximity is intended to capture market share, which we are facilitating by hiring predominantly experienced relationship managers, while actively steering relationship manager productivity. In addition, we are strengthening and adapting our footprint with technology investments in our key hubs and by continuing to establish new advisory offices, while shifting smaller-scale locations towards a sustainable business model. We are operating a strategic clients business, consisting of senior coverage officers, who are fully embedded in our client coverage organization and highly connected across the Group, in order to facilitate collaboration and improve the breadth and depth of solutions offered to our targeted strategic >>>UHNWI and entrepreneur clients.
Increase client time
We are capturing growth in the lower wealth band client segment by developing a digitally-enabled service model and providing focused coverage and a targeted offering on a multi-channel service platform. We are making additional organizational changes aimed at simplifying structures, accelerating decision-making and empowering local market management to steer their respective businesses and be held accountable for their results. We continue to make important investments in the re-design of certain processes, technology and automation efforts aimed at shortening the time-to-market of products and solutions and reducing our relationship managers’ administrative tasks, so that they can spend more time with our clients. Finally, we continue to actively manage risk and focus on ensuring compliant business conduct.
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Awards and market share momentum
Credit Suisse received a number of key industry awards in 2017, including:
Best Private Bank in the Middle East (third consecutive year), Egypt (second consecutive year), Greece (fifth consecutive year), Lebanon and Qatar (third consecutive year) – Euromoney Private Banking Survey
Best Bank for Wealth Management in the Middle East – Euromoney Awards for Excellence
Best Private Bank in Russia (fifth consecutive year) and Best Private Bank in the Middle East –  Global Private Banking Awards – PWM / The Banker
Outstanding Private Bank in Eastern Europe and Outstanding Private Bank for UHNW Clients in Europe – Private Banker International Europe
Best Family Office Offering and Outstanding Philanthropy Offering – Private Banker International
Institutional Structurer of the Year – Structured Products Europe Awards
Best Bank Overall in Switzerland, Best Loan Finance in Switzerland and Best Equity Finance in Switzerland – Euromoney Real Estate Survey
ASIA PACIFIC
Business profile
In the Asia Pacific division, we continue to focus on our client centric strategy as the “The Trusted Entrepreneurs’ Bank of Asia Pacific” by delivering a comprehensive suite of advisory services and solutions that meet the private wealth and business needs of our clients. In order to better align with our client-focused model, we implemented a change to our financial reporting in the first quarter of 2017. We now report our financial performance along the following two businesses: Wealth Management & Connected, which reflects our activities in private banking, financing, underwriting and advisory; and Markets, which represents our equities and fixed income sales and trading businesses that support our wealth management activities.
Within Wealth Management & Connected, our teams work closely together to deliver integrated advisory and solutions through the lifecycle of our UHNWI, entrepreneur and corporate clients. Our Private Banking business offers a comprehensive suite of wealth management financial products and solutions. Our advisory and underwriting businesses provide advisory services, including for IPOs and mergers and acquisitions, as well as access to global capital markets. Our financing business provides tailored lending solutions. In addition, we collaborate closely with International Wealth Management and the Group’s other global businesses to deliver the full breadth of Credit-Suisse capabilities to our clients.
Within Markets, our equities and fixed income franchises deliver a broad range of services, including sales and trading, prime brokerage and investment research to our clients, including entrepreneurs and a broad range of institutional clients such as corporates, institutional investors, financial sponsors and sovereigns. The business works closely with Global Markets to meet the needs of global institutional clients and with the Group’s wealth management businesses.
Key data – Asia Pacific
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) 3,504 3,597 3,839
Income before taxes (CHF million) 729 725 377
Assets under management (CHF billion)
– Private Banking 196.8 166.9 150.4
Number of employees 7,230 6,980 6,590
Business environment
The Asia Pacific region led global economic growth in 2017. The fundamentals underpinning wealth creation and growth in business activities remained positive due to the region’s healthy pace of economic growth, net capital inflows, market liberalization and strong consumer demand. Entrepreneurs continued to be at the core of growth in Asia Pacific and the number of UHNWIs grew faster in the region than in any other part of the world.
In 2017, credit growth in the region remained robust. Asian currencies generally appreciated against the US dollar, however volatility trended lower, impacting market trading activity. Asia Pacific equity market volumes increased during the course of 2017, and peaked in the fourth quarter, driven by earnings and higher market index levels. Equity issuances in the region included several high profile Hong Kong listings in the second half of 2017, mainly from the Chinese technology sector. Debt capital markets saw strong activity in Asia Pacific, particularly with respect to US dollar high-yield bonds and perpetual transactions.
In the fourth quarter, the China Ministry of Finance signaled the potential to increase foreign participation in its financial markets with its intention to ease limits on foreign ownership of financial services companies, including securities joint ventures. In 2017, China’s “Belt and Road Initiative” to improve trade and economic connectivity across Asia, Europe and Africa was also established as an official government policy, underscoring its importance as a strategic imperative. As these initiatives are implemented, we expect global banks to leverage their advisory, financing and capital markets capabilities to participate in the development of Chinese markets.
Business strategy
Our client-focused business strategy centered on our vision to be the “The Trusted Entrepreneurs’ Bank of Asia Pacific” is proving successful. Our Asia Pacific business model is a strong differentiator that supports our integrated strategy and our consistent focus on our clients and geographic diversity in the region. This has been critical for our ability to attract strong talent and to foster a partnership culture that can deliver profitable growth with disciplined risk management and achieve attractive returns on capital on a consistent basis. In 2017, we saw continued momentum and
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robust growth in our Wealth Management & Connected business. Our Markets business underwent significant repositioning as part of our efforts to deliver attractive long-term returns and enhance our services to clients. Looking ahead, our strategic focus remains centered on delivering a balanced franchise with disciplined risk management and strong controls as we seek to capture efficiencies and optimize resources across the division.
Focus on targeted client groups
Our strategy is to focus on our existing key clients, while looking for opportunities to increase activity in underrepresented areas, by better coordinating coverage and deepening our relationships. In 2017, we made good progress against our initiatives to enhance coverage collaboration across our businesses and meet the broad and complex needs of our UHNWI, entrepreneur and corporate clients through all phases of their private and corporate life cycles. We are increasingly able to help them in both dimensions by combining our strengths in private banking with our capabilities in advisory, underwriting and financing, providing tailored and holistic products and solutions. We saw an increase in profitability and activities in our Wealth Management & Connected business, and Credit Suisse was recognized as a leader across multiple offerings that are valued by our clients.
We also continued to invest in technology to deepen our engagement with our UHNWI and entrepreneur clients as part of a core strategic initiative to cultivate stronger relationships. Following successful launches in Singapore and Hong Kong, in 2017 we rolled out our digital platform in Thailand and Australia. We also implemented a new digital advisory solution with a transparent fee structure.
Delivering client tailored solutions
A key component of our business strategy is centered on delivering services that our clients value and helping them realize their wealth and financial goals.
We utilize our integrated financing platform, with its centralized structuring, risk management and distribution approach, to deliver tailored solutions across the entire financing spectrum to our key clients. Similarly, our Markets business combines our equity derivatives and fixed income capabilities to provide multi-asset product offerings to our UHNWI and institutional clients, supporting the enhancement of their investment portfolios and risk management. Continuous product innovation and a disciplined approach to risk and costs remain critical to meeting our clients’ and our own objectives, and we continue to seek opportunities to enhance our operating framework across the bank.
Continue to build our base of profitability
Our diversified platform in Asia Pacific, across a mix of clients, countries and product areas helps in our efforts to maintain a more stable, less volatile earnings profile, which is critical in a region as dynamic as Asia Pacific with its variety of economic, business and client characteristics. We plan to continue to invest in our businesses where we have deep client relationships and strong, profitable market positions. We believe that it is important to have a focused strategy, coupled with an ability to maintain agility and geographic diversity, to effectively and sustainably compete in Asia Pacific.
Significant transactions
We executed a number of significant transactions in 2017, reflecting the diversity and strength of our franchise. Noteworthy transactions include:
In Greater China, we advised China National Chemical Corporation on its bridge financing in relation to its acquisition of Syngenta AG (commodities), I Squared Capital on its acquisition of Hutchison Global Communications Investment Holding Limited on its associated acquisition financing (telecommunications) and Ant Financial Services Group on its term loan and syndicated loan facility (financial services). We also advised on the Hong Kong IPOs of ZhongAn Online P&C Insurance Co. Ltd. and China Literature Limited as well as on the US IPOs of Qudian Inc. and Sogou Inc. (technology).
In South East Asia, we advised on the Hong Kong IPO of Razer Inc. and the US IPO of Sea Limited (technology), Lotte Chemical Titan Holding Bhd on its IPO in Malaysia (chemicals), PT Gajah Tunggal Tbk on its notes offering in Indonesia (manufacturing) and a consortium of Star Energy companies on its acquisition of Chevron’s geothermal and power operations business and associated debt financing in Indonesia (power).
In Australia, we advised on the IPO of Netwealth Limited (financial services) and InterOil on its acquisition by ExxonMobil (oil & gas).
Elsewhere, we advised on Vincom Retail Joint Stock Company’s initial equity offering in Vietnam (retail), HDFC Standard Life Insurance Company Limited’s IPO in India (financial services), Softbank Group Corp’s notes offering in Japan (technology), LG Corp’s sale of its stake in LG Siltron to SK Holdings in Korea (conglomerate), Pakistan Water & Power Development Authority’s term loan (utilities) and the Government of Mongolia’s exchange offer and notes offering (sovereign).
Awards and market share momentum
We were highly placed in a number of key industry awards in 2017, including:
Best Private Bank, Asia Pacific – Asian Private Banker
Best Private Bank, UHNWI Services – Asian Private Banker
Best Investment Bank in Asia – GlobalCapital Asia
Best Corporate & Institutional Bank, Asia Pacific – The Asset
Best Leveraged/Acquisition Finance Adviser – The Asset
Best Equity Capital Markets House, Asia – GlobalCapital
Best High Yield Bond House, Asia – GlobalCapital
Asia Pacific Loan House of the Year – IFR Asia
Asia’s Quant House of the Year – Asia Risk
Best overall All-Asia sales and trading teams – Institutional Investor
Asia’s Best Bank for Wealth Management – Euromoney
Asia’s Best Bank for Financing – Euromoney
Top 2 in Investment Banking Revenue in Asia Pacific ex-Japan and ex-China Onshore – Dealogic
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Global markets
Business profile
Global Markets provides a broad range of financial products and services to client-driven businesses and also supports the Group’s private banking, Investment Banking & Capital Markets and Asia Pacific businesses and their clients. Our suite of products and services includes global securities sales, trading and execution, prime brokerage and comprehensive investment research. Our clients include financial institutions, corporations, governments, institutional investors, such as pension funds and hedge funds, and private individuals around the world. We deliver our global markets capabilities through regional and local teams based in both major developed and emerging market centers. Our integrated business model enables us to gain a deeper understanding of our clients and deliver creative, high-value, customized solutions based on expertise from across Credit Suisse.
Key data – Global Markets
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) 5,551 5,497 6,826
Income/(loss) before taxes (CHF million) 450 48 (1,931)
Number of employees 11,740 11,530 12,000
Business environment
In 2017, operating conditions were mixed across our businesses. During the first half of the year, we experienced more favorable credit market conditions compared to subdued conditions in the first half of 2016. During the year, credit market conditions were characterized by improved credit asset prices, tightened credit spreads and lower volatility, which led to higher client activity, particularly in securitized products and our credit trading and underwriting businesses. Client activity in our rates and foreign exchange businesses was negatively impacted by sustained low volatility compared to 2016, which benefited from significant macroeconomic events including the UK referendum on continued EU membership and the US elections. Market conditions were less favorable for equity trading and equity derivatives as persistently low levels of volatility and reduced volumes negatively impacted client activity. In addition, our leveraged finance and investment grade and equity underwriting businesses improved in 2017, reflecting higher issuance activity.
Business strategy
In 2017, we implemented a change in financial reporting to reflect an amended business structure consisting of equity sales and trading, fixed income sales and trading and underwriting. Equity sales and trading includes cash equities, prime services, convertibles and equity derivatives. Fixed income sales and trading is comprised of our yield businesses, including global credit products, securitized products and our structured lending, rates, foreign exchange and emerging markets businesses. Underwriting includes our leveraged finance, investment grade and equity underwriting businesses.
We made consistent progress towards our goals of achieving greater than USD 6 billion in revenues and less than USD 4.8 billion in costs on an adjusted basis. We saw improved operating leverage with total operating expenses down 7% while revenues were stable, highlighting continued execution of our strategy. During the year, we continued to invest in the business and effective July 1, 2017, the Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management whereby it provides centralized trading and sales services to private and institutional clients across the three divisions referred to as International Trading Solutions (ITS). These services are now managed as a single business within the Global Markets division. ITS is expected to provide aligned market strategies, significant cost synergies and enhanced client focus. On costs, we reduced operating expenses significantly compared to 2016 as a result of our continued cost discipline by eliminating duplication across functions and optimizing our New York and London footprint. As a result, we are on track to achieve our end-2018 ambition of less than USD 4.8 billion in costs, on an adjusted basis. We also operated at our thresholds of USD 60 billion in >>>risk-weighted assets and USD 290 billion in leverage exposure.
Looking ahead, the division continues to focus on four strategic ambitions: further increasing collaboration across Credit Suisse, focusing on our International Wealth Management, Asia Pacific and Investment Banking & Capital Markets clients, increasing operating leverage, attracting top talent and achieving an adjusted return on regulatory capital target of 10%-15% by year-end 2018. We are focused on growing revenues across equities and fixed income products by enhancing collaboration with our institutional, corporate and wealth management clients. Particularly for our wealth management clients, our vision is to enhance our product offerings into developed European and emerging markets. In addition, we are investing in key talent across the franchise and will remain focused on defending our leading market positions across equities and fixed income products. With regard to costs, we will continue ongoing cost-saving initiatives, including increasing efficiencies from consolidating redundant platforms and eliminating duplication across functions. We believe that the combination of increased revenues and greater cost controls have the potential to help us meet our adjusted return on regulatory capital target of 10%-15% by year-end 2018.
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investment banking & capital markets
Business profile
The Investment Banking & Capital Markets division offers a broad range of investment banking products and services which include advisory services related to M&A, divestitures, takeover defense strategies, business restructurings and spin-offs, as well as debt and equity underwriting of public offerings and private placements. We also offer derivative transactions related to these activities. Our clients include leading corporations, financial institutions, financial sponsors, UHNWI and sovereign clients.
We deliver our investment banking capabilities through regional and local teams based in both major developed and emerging market centers. Our integrated business model enables us to deliver high value, customized solutions that leverage the expertise offered across Credit Suisse and that help our clients unlock capital and value in order to achieve their strategic goals.
Key data – Investment Banking & Capital Markets
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) 2,139 1,972 1,787
Income/(loss) before taxes (CHF million) 369 261 (314)
Number of employees 3,190 3,090 2,810
Business environment
Macroeconomic conditions improved compared to 2016, supporting an increase in investor risk appetite and asset price stability. Despite political uncertainties (impact of the UK referendum on continued EU membership, French and German elections, US tax and policy agendas) market volatility dampened across asset classes. The capital markets environment was supported by global economic growth and continued low interest rates, positively impacting debt and equity underwriting and M&A fee pools compared to 2016.
Global M&A activity was steady in 2017 with large deals announced across many sectors as companies sought consolidation and strategic acquisitions, particularly in the retail & consumer, media & telecommunications, healthcare and energy industries. Global industry-wide announced M&A activity was down 2% compared to 2016.
Business strategy
Our strategy focuses on leveraging our global structuring and execution expertise to develop innovative financing and advisory solutions for our clients. Our divisional strategy is designed to generate sustainable, profitable growth and continue delivering returns in excess of our cost of capital. Our key strategic priorities include: achieving a balanced product mix, optimizing the client coverage model and using our global platform to meet our clients’ needs for cross-border expertise in developed and emerging markets.
A key element of our strategy is rebalancing our product mix to generate stronger results in M&A advisory and equity underwriting, while maintaining our leading leveraged finance franchise. We expect that refocusing our efforts on these products will not only allow us to better support our clients’ strategic goals, but will also contribute to a revenue mix that is more diversified and less volatile through the market cycle.
We continue to optimize our client strategy in order to deliver efficient and effective client coverage. Our strategic objective is to align, and selectively invest in, our coverage and capital resources with the largest growth opportunities and where our franchise is well-positioned. We have made notable progress in the execution of our targeted plans for investment grade corporates, non-investment grade corporates and financial sponsors.
We will continue to leverage Investment Banking & Capital Markets’ global connectivity with our other divisions and its platform to drive opportunities for the Group.
Significant transactions
We executed a number of noteworthy transactions in 2017, reflecting the diversity of our franchise.
In debt capital markets, we arranged key financings for a diverse set of clients including Verizon Communications Inc. (telecommunications), Microsoft Corporation (software), inVentiv Health Inc. (healthcare services), Paysafe Group plc (financial technology), Enel S.p.A (power), McCormick & Company, Inc. (food and beverage), Broadcom Ltd. (semiconductors), Aon Hewitt (professional services), BP PLC (exploration and production), Caesars Resort Collection, LLC (gaming) and EP Energy LLC (exploration & production).
In equity capital markets, we executed rights offerings for Unicredito Italiano S.p.A (banks) and Deutsche Bank AG (banks), IPOs for Snap Inc. (internet), Galenica Sante AG (retail) and EN+ Group plc (utilities), several special purpose acquisition company IPOs including Social Capital Hedosophia Holdings, Silver Run Acquisition Corp. II, Kayne Anderson Acquisition Corp., Vantage Energy Acquisition Corp., TPG Pace Energy Holdings and Osprey Energy Acquisition Corp. and an equity carve-out and IPO for ALD International S.A. (fleet mobility).
In M&A, we advised on a number of transformational transactions announced throughout the year, including Atlantia S.p.A.’s acquisition of Abertis Infraestructuras S.A. (transportation and logistics), Johnson & Johnson’s acquisition of Actelion Ltd. (life sciences), an acquisition by a Bain Capital led consortium of Toshiba Corporation’s memory chips business (semiconductors), Vantiv Inc.’s acquisition of WorldPay Group PLC (technology services), BASF’s acquisition of Bayer AG crop sciences business (chemicals), Fresenius SE & Co KGaA’s acquisition of Akorn Inc. (medical devices), Global Infrastructure Management LLC’s acquisition of Equis Pte Ltd. (renewables), The Blackstone Group L.P.’s acquisition of Aon plc (professional services), the merger of equals combining Inventiv Health Inc. and INC Research Holdings Inc. (healthcare services), the merger of equals combining Aberdeen Asset Management PLC and Standard Life PLC (asset management) and Tyson Foods Inc.’s acquisition of AdvancePierre Foods Holdings Inc. (consumer), KKR & Co LP’s acquisition of Unilever plc’s spreads business (consumer) and Campbell Soup Company’s acquisition of Snyder’s-Lance Inc. (consumer).
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strategic resolution unit
Business profile
The Strategic Resolution Unit was established to facilitate the effective and rapid wind-down of capital usage and reduce the drag on the Group pre-tax income results through the reduction of costs. The Strategic Resolution Unit includes remaining portfolios from former non-strategic units and transfers of additional exposures from the business divisions. Repositioned as a separate division, this provides clearer accountability, governance and reporting.
Key data – Strategic Resolution Unit
   in / end of
2017 2016 2015
Key data
Net revenues (CHF million) (886) (1,271) 511
Income/(loss) before taxes (CHF million) (2,135) (5,759) (2,652)
Number of employees 1,530 1,830 3,200
Composition
Our Strategic Resolution Unit contains specific wind-down activities and positions. For reporting purposes, the Strategic Resolution Unit is split into the following categories: restructuring of select onshore businesses which contains the onshore repositioning in select Western European countries and the US; legacy cross-border and small markets businesses which include the repositioning of cross-border businesses; legacy asset management positions which include portfolio divestitures and discontinued operations; legacy investment banking portfolios; and legacy funding costs relating to non-Basel III compliant debt instruments.
Non-controlling interests without significant economic interest are reflected in the Strategic Resolution Unit and include revenues and expenses from the consolidation of certain private equity funds and other entities in which we have non-controlling interests without significant economic interest.
Development of the Strategic Resolution Unit
As part of the Group’s strategy announced in the fourth quarter of 2015, we formed a new Strategic Resolution Unit intended to oversee the effective wind-down of businesses and positions that do not fit our strategic direction in the most efficient manner possible. At that time the Strategic Resolution Unit was created to facilitate the immediate right-sizing of our business divisions from a capital perspective and included remaining portfolios from our former non-strategic units plus additional transfers from the business divisions. The expectation at that time was that the Strategic Resolution Unit’s risk-weighted assets and leverage exposure would be reduced by approximately 80% by 2020, excluding operational risk.
On March 23, 2016 we announced additional strategic measures to further lower our cost base, accelerate the risk-weighted assets and leverage reduction initiatives through the restructuring of our Global Markets business and further strengthen our capital position. The additional measures included exiting the distressed credit, European securitized products trading and long-term illiquid financing businesses and making other business reductions. The assets from these impacted businesses were transferred to the Strategic Resolution Unit in the second quarter of 2016, including a portion of the corporate loan portfolio managed by the Global Markets and Investment Banking & Capital Markets divisions. These transfers related to client lending relationship exits and exposure types that at the time we did not consider consistent with the announced strategy. At that time we updated our expectation of the timing of an 80% reduction of the division’s risk-weighted assets and leverage exposure to year-end 2019, excluding operational risk.
In the first quarter of 2017, we announced an acceleration of the release of capital from the Strategic Resolution Unit and now plan to complete the wind-down of the division by the end of 2018 without an adverse incremental impact to our existing targets for pre-tax losses from this division.
At our Investor Day in 2017 we announced that we estimated adjusted operating expenses in the Strategic Resolution Unit would amount to approximately USD 500 million and USD 250 million in 2018 and 2019, respectively. We further announced our adjusted pre-tax loss targets of approximately USD 1,400 million and USD 500 million in 2018 and 2019, respectively. Currently the allocation of costs to the Strategic Resolution Unit is conducted pursuant to a Group-wide allocation methodology, i.e., the Strategic Resolution Unit is subject to the same cost allocation methodology as the strategic divisions; however reductions in service usage during the course of the wind-down of the division will reduce allocated costs.
We plan to reduce the Strategic Resolution Unit’s risk-weighted assets (excluding operational risk) to USD 11 billion and leverage exposure to USD 40 billion by year-end 2018. Any remaining operations and assets of the Strategic Resolution Unit are expected to be absorbed into the rest of the Group. While we work on these tasks in 2018 we expect the governance and controls to remain within the Strategic Resolution Unit throughout the transition period. We plan to resolve any legacy issues so as to minimize adverse capital and pre-tax income impacts for the Group in 2019 and onwards.
On occasion, the reduction of exposures in the Strategic Resolution Unit involve the maturation of lending facilities or other transactions that wholly or partially may be renewed or extended by our strategic business divisions, such as Global Markets or International Wealth Management. Similarly, there may be occasions where strategic business divisions will enter into new transactions with counterparties resulting in exposures that may have similar characteristics to those recorded in the Strategic Resolution Unit. This is aligned with the Group’s risk appetite and that of the relevant strategic divisions.
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We have amended and enhanced our risk appetite framework in an effort to provide additional governance and controls to ensure all new business activities are scrutinized to distinguish between those types of business exposures held in the Strategic Resolution Unit that will be allowed for execution in our strategic divisions and those that will be prohibited or for which we have limited risk appetite.
A decline in risk-weighted assets and leverage exposure in the second quarter of 2017 for the Strategic Resolution Unit also reflected the contractual maturation of certain legacy loan facilities where the third-party counterparties entered into new agreements with the Global Markets division. The impact of these maturations on risk weighted assets and leverage exposure for the Strategic Resolution Unit was approximately USD 17 million and USD 77 million, respectively.
> Refer to “Update to the risk appetite framework” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk appetite framework for further information.
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Regulation and supervision
Overview
Our operations are regulated by authorities in each of the jurisdictions in which we have offices, branches and subsidiaries.
Central banks and other bank regulators, financial services agencies, securities agencies and exchanges and self-regulatory organizations are among the regulatory authorities that oversee our businesses. There is coordination among many of our regulators, in particular among our primary regulators in Switzerland, the US, the EU and the UK as well as in the Asia Pacific region.
The supervisory and regulatory regimes of the countries in which we operate determine to some degree our ability to expand into new markets, the services and products that we are able to offer in those markets and how we structure specific operations.
Governments and regulatory authorities around the world have responded to the challenging market conditions beginning in 2007 by proposing and enacting numerous reforms of the regulatory framework for financial services firms such as the Group. In particular, a number of reforms have been proposed and enacted by regulators, including our primary regulators, which could potentially have a material effect on our business. These regulatory developments could result in additional costs or limit or restrict the way we conduct our business. Although we expect regulatory-related costs and capital requirements for all major financial services firms (including the Group) to continue to be high, we cannot predict the likely impact of proposed regulations on our businesses or results. We believe, however, that overall we are well positioned for regulatory reform, as we have reduced risk and maintained strong capital, funding and liquidity.
> Refer to “Risk factors” for further information on risks that may arise relating to regulation.
Recent regulatory developments and proposals
Some of the most significant regulations proposed or enacted during 2017 and early 2018 are discussed below.
Global initiatives
Certain regulatory developments and standards are being coordinated on a global basis and implemented under local law, such as those discussed below.
ISDA Resolution Stay Protocols
In Switzerland, the Swiss Federal Council introduced amendments to the Ordinance on Banks and Savings Banks (Banking Ordinance) that will require banks, including Credit Suisse, to include terms in certain of their contracts (and in certain contracts entered into by their subsidiaries) that are not governed by Swiss law or that provide for jurisdiction outside of Switzerland that ensure that FINMA’s stay powers under the Swiss Federal Act on Banks and Savings Banks of November 8, 1934, as amended (Bank Law) would be enforceable with respect to such contracts. These requirements have been set forth in the Banking Ordinance since January 1, 2016. FINMA is responsible for determining the appropriate time for complying with this requirement in line with international standards as well as the contracts that are in scope. To this end, a partial revision of the Ordinance of FINMA on the Insolvency of Banks and Securities Dealers (FINMA Banking Insolvency Ordinance) entered into effect on April 1, 2017. The rule is subject to an implementing period of 12 months for contracts with banks and securities dealers and 18 months for contracts with other counterparties and will only affect an exhaustive list of contracts whose continued existence is essential for a bank requiring restructuring. The listed contracts are customary in the financial market and include, in particular, contracts governing the purchase, sale, lending and repurchase of certain underlying securities. Contracts entered into by foreign group entities are only subject to the rule if, among other things, the respective financial contract is guaranteed or otherwise secured by a bank or securities dealer domiciled in Switzerland. Certain contracts, e.g. contracts with individuals as well as for the placement of financial instruments in the market, are excluded. The list of contracts is internationally harmonized and broadly in line with the definition of financial contracts in accordance with the EU Bank Recovery and Resolution Directive (BRRD).
In the US, in 2017, the Board of Governors of the Federal Reserve System (Fed), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) each issued final rules designed to improve the resolvability of US headquartered global systemically important banks (G-SIBS) and the US operations of non-US G-SIBs, such as our US operations. These final rules require US G-SIBs and the US operations of non-US G-SIBs, such as the US operations of Credit Suisse, to modify their qualified financial contracts. These modifications include obtaining the agreement of counterparties that (1) their qualified financial contracts are subject to the stays on early termination rights under the orderly liquidation provision of the Dodd-Frank Act and the Federal Deposit Insurance Act, which is similar to requirements introduced in Germany, Switzerland and the United Kingdom to which we are already subject, and (2) certain cross-default rights would be overridden if an affiliate of the G-SIB entered proceedings under the US Bankruptcy Code. Covered “qualified financial contracts” must be conformed to the rules’ requirements starting January 1, 2019, with full compliance by January 1, 2020. It is expected that the International Swaps and Derivatives Association, Inc. (ISDA) will produce a protocol to facilitate compliance by the broader market with the Fed’s final requirements.
Industry-led developments
In May 2017, public and private sector representatives from the foreign exchange committees of 16 international foreign exchange (FX) trading centers agreed to form a Global Foreign Exchange Committee. On May 25, 2017, the Global Foreign Exchange Committee published the FX Global Code, which sets out global
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principles of good practice in the FX markets. The principles included in the FX Global Code cover topics such as ethics, governance, execution, information sharing, risk management and compliance, and confirmation and settlement processes. In December 2017, the FX Global Code was amended and revised in connection with Principle 17 of the FX Global Code which concerns “last look” practices. Credit Suisse supports the adoption of the FX Global Code by FX market participants. Confirming its commitment, Credit Suisse intends to sign the FX Global Code’s Statement of Commitment on a global basis, by May 25, 2018.
Switzerland
As of January 1, 2013, the >>>Basel III framework was implemented in Switzerland along with the Swiss >>>“Too Big to Fail” legislation and regulations thereunder. Together with the related implementing ordinances, the legislation includes capital, liquidity, leverage and large exposure requirements, and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency. Certain requirements under the legislation, including those regarding capital, are to be phased in through year-end 2018.
> Refer to “Liquidity and funding management” and “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for information regarding our current regulatory framework and expected changes to this framework affecting capital and liquidity standards.
Supervision
The Federal Act on Financial Market Infrastructure and Market Conduct in Securities and Derivatives Trading (FMIA) and the Financial Market Infrastructure Ordinance (FMIO) came into effect on January 1, 2016. In accordance with the timing of corresponding provisions of the revised Markets in Financial Instruments Directive (MiFID II), which entered into effect on January 3, 2018, financial market infrastructures and the operators of organized trading facilities were granted a transitional period until January 1, 2018 to comply with various new duties, including those associated with the publication of pre- and post-trade transparency information and with high-frequency trading.
On November 4, 2015, the Swiss Federal Council adopted the dispatch on, and drafts of, the Federal Financial Services Act (FFSA) and the Financial Institutions Act (FinIA) and submitted them to the Swiss Parliament. The FFSA and the FinIA passed the first and second chamber of the Swiss Parliament in January 2017 and November 2017, respectively, with certain amendments now subject to a procedure for the resolution of differences. The FFSA will govern the prerequisites for offering financial instruments and providing financial services, including the provision of financial services to Swiss clients from abroad on a cross-border basis. Moreover, the draft FFSA contains uniform rules on prospectus requirements and introduces the requirement to prepare a basic information document for offerings of financial instruments other than shares and straight bonds to retail customers. The draft FinIA provides for a differentiated supervisory regime for financial institutions and introduces (indirect) prudential supervision of certain categories of asset managers that have previously not been subject to supervision.
On December 5, 2017, FINMA published its Circular 2018/3 Outsourcing – “Banks and Insurers”. It will enter into effect on April 1, 2018 and replaces FINMA’s Circular 2008/7 on outsourcing. The circular sets out the regulatory requirements that must be met by banks, securities dealers and insurance companies when outsourcing material functions to third party providers. Notable changes include the obligation to maintain an up-to-date inventory of outsourcings with a description of the outsourced function, an identification of the outsourcing provider and any subcontractors as well as an identification of the service recipient and the responsible unit within the bank, securities dealer or insurance company. The new provisions will immediately apply to outsourcing agreements concluded or amended after April 1, 2018; however, a five-year phase-in period will apply to outsourcing agreements concluded before that date.
Tax
Administrative assistance in tax matters
On January 1, 2017, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) entered into force and became applicable as of January 1, 2018. Under the MAC, Switzerland is required to exchange information in tax matters both spontaneously in certain cases as well as upon request. Furthermore, the revised Federal Act on International Administrative Assistance in Tax Matters and the revised Federal Ordinance on International Administrative Assistance in Tax Matters (OIAA) entered into force, which provide the procedural rules for international administrative assistance on tax matters based on either the MAC or under bilateral double taxation treaties of Switzerland. With respect to bilateral double taxation treaties of Switzerland, so-called “fishing expeditions” are not allowed, and the exchange of information in tax matters is granted in individual cases upon specific and justified requests and in group request cases based on a behavioral pattern for information relating to tax periods after January 31, 2013. However, the Swiss Supreme Court decided on September 12, 2016 that a group request submitted to the Swiss Federal Tax Administration by the Dutch tax administration with respect to Dutch clients of a Swiss bank, which have not been able to give sufficient proof to the Swiss bank that their assets have been disclosed to the Dutch tax authorities, was in principle permissible despite the fact that the request did not contain the names of the clients and was without explicit legal basis for such group requests in the Swiss-Dutch double taxation treaty. In exceptional cases, the Swiss legislation permits exchange of information before the taxpayer concerned is informed. Under the MAC (and as clarified in the OIAA), Switzerland commenced for tax periods from January 1, 2018 onwards to automatically exchange information on certain advance tax rulings within the scope of the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) project to combat base erosion and profit shifting (BEPS).
On June 10, 2016, the Swiss Federal Council submitted to the Swiss Parliament an amendment of the Federal Act on International Administrative Assistance in Tax Matters for adoption to also allow administrative assistance for requests based on stolen
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data, however, only if the stolen data has been obtained by regular administrative assistance or from public sources. The Swiss Parliament has yet to debate the proposed new law.
On December 1, 2017, the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbCA) as well as the implementing Swiss federal legislation entered into force, which is the Federal Act on the International Automatic Exchange of Country by Country Reports of Multinationals and the Federal Ordinance on the International Automatic Exchange of Country by Country Reports of Multinationals. Under the CbCA and the implementing legislation, multinational groups of companies in Switzerland will have to prepare country-by-country reports for the first time for the 2018 tax year. The reports will be exchanged by Switzerland starting in 2020. On a voluntary basis, multinational groups of companies may prepare, and are permitted to submit, country-by-country reports for the 2016 and 2017 tax periods. Any such reports will be exchanged for the first time in 2018.
Automatic exchange of information in tax matters
On January 1, 2017, the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) and the Agreement on the Automatic Exchange of Information in Tax Matters (AEOI Agreement) became effective with the EU. The AEOI Agreement applies to all 28 member states of the EU and also Gibraltar. The AEOI Agreement replaces the repealed agreement of October 26, 2004 between the European Community and Switzerland, which together with the relevant Swiss legislation provided measures which were equivalent to those in the repealed EU Savings Directive. The AEOI Agreement also replaces the repealed bilateral agreements on final withholding taxes of Switzerland with the UK and Austria. These three repealed agreements continue to apply in respect of income and gains before January 1, 2017. In addition to the AEOI Agreement, Switzerland has concluded a number of bilateral agreements on the automatic exchange of information (AEOI) based on the MCAA, including with Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Greenland, Iceland, India, Indonesia, Israel, Japan, Lichtenstein, Malaysia, Mexico, New Zealand, Norway, Russia, Saudi Arabia, South Africa, South Korea, United Arab Emirates, Uruguay, and a number of other jurisdictions. The agreements became effective on January 1, 2017 or January 1, 2018. In September 2017 and December 2017, legislation passed the first and the second chamber of the Swiss Parliament, respectively, authorizing the Swiss Federal Council to implement AEOI with another 41 states and territories (among others, Saudi Arabia, China and Russia). These AEOI bilateral agreements are expected to be implemented in 2018, with the first set of data exchanged in late 2019. The legislation includes a review mechanism, which requires the Swiss Federal Council, before the first information exchange with these countries in 2019, to verify whether these states and territories meet certain standards, in particular, concerning confidentiality and data security, and issue a respective assessment report to a commission of the Swiss Parliament. It further requires the Swiss Federal Council to periodically assess, using a risk based approach, whether these standards continue to be met and to submit reports to the commission. Furthermore, Switzerland has signed bilateral agreements with Hong Kong and Singapore, which will be debated in the Swiss Parliament in 2018 but are being applied provisionally from January 1, 2018.
Based on these agreements and the implementing Federal Act on the International Automatic Exchange of Information in Tax Matters and the implementing Ordinance on the International Automatic Information Exchange, both effective since January 1, 2017, Switzerland collects or will collect data in respect of financial assets and accounts in Switzerland held by or for the benefit of residents of a EU member state or a treaty state from 2017 or 2018, and has begun or will begin to exchange it from 2018 or 2019, depending on the effective date of the relevant agreement.
Withholding tax reforms
On January 1, 2017, the revised Withholding Tax Act entered into force. It extends the exemption of interest paid on contingent convertible bonds and write-down bonds of banks or group companies of finance groups which were approved by FINMA and issued between January 1, 2013 and December 31, 2016, to issuances between January 1, 2017 and December 31, 2021. It also exempts interest paid on total loss-absorbing capacity (TLAC) instruments approved by FINMA for purposes of meeting regulatory requirements which have been or will be issued between January 1, 2017 and December 31, 2021, or have been issued prior to January 1, 2017 where the foreign issuer thereof will be substituted for a Swiss issuer between January 1, 2017 and December 31, 2021.
Stamp tax reforms
On January 1, 2017, the revised Stamp Tax Act entered into force. The revision introduced an exemption from the 1% issuance stamp tax for equity securities in banks or group companies of a financial group issued in connection with the conversion of TLAC instruments into equity, in addition to the exemption for equity securities in banks issued from conversion capital.
Corporate tax reforms
On February 12, 2017, the Swiss people rejected in a public vote the Corporate Tax Reform Act III (CTR III). The act proposed to introduce a patent box, a surplus research and development expense allowance, a notional interest deduction and step-up of basis and to abolish the cantonal tax privileges for holding companies, mixed companies and domicile companies. Switzerland is internationally expected to abolish such tax privileges. In connection with the tax reform, several cantons had announced they planned to cut their statutory corporate income tax rates to approximately 12%, subject to, and simultaneously with, the effectiveness of the reform. On September 6, 2017, the Swiss Federal Council initiated a consultation process on new legislation to reform the Swiss corporate income tax legislation, which ended on December 6, 2017. On March 21, 2018, the Swiss Federal Council submitted the new draft legislation together with its dispatch to the Swiss
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Parliament for debate in 2018. The new proposal includes a patent box that is mandatory for all cantons but narrower than the one contained in CTR III, an optional surplus research and development allowance and a step-up in basis, among other measures, but not a notional interest deduction. Following parliamentary debate and approval, the new legislation will be subject to an optional referendum. According to the Swiss Federal Council, if a referendum is not called, certain provisions could enter into force at the beginning of 2019 and most of the remaining provisions could enter into force at the beginning of 2020.
On June 9, 2017, the Swiss Federal Council initiated the consultation proceeding on the proposed Federal Act on Calculation of the Participation Deduction for “Too Big to Fail” Instruments. The consultation ended on September 29, 2017. On February 14, 2018, the Swiss Federal Council transmitted its dispatch and draft bill to the Swiss Parliament for debate and approval. Current legislation requires systemically relevant banks to issue contingent convertible bonds, write-off bonds and bail-in bonds through their top holding company from January 1, 2020 at the latest. Despite the top holding company on-lending the funds internally to direct or indirect subsidiaries, current corporate income tax laws require the top holding company to allocate interest paid under the contingent convertible bonds, write-off bonds or bail-in bonds to the participation exemption for dividends of the top holding company. This reduces the participation exemption for dividends of the top holding company of systemically relevant banks and may lead to materially higher corporate income taxes for such top holding company. This inadvertent consequence of higher corporate income taxes is inconsistent with the “Too Big to Fail” legislation’s objective of strengthening the equity capital of systemically relevant banks. If enacted, the proposed legislation will permit systemically relevant banks to carve-out interest paid in respect of such instruments for purposes of calculating tax exempt net participation income and thereby remedy the effect of higher corporate income taxes from higher interest allocations.
US
In July 2010, the US enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides a broad framework for regulatory changes. Although rulemaking in respect of many of the provisions of the Dodd-Frank Act has already taken place, implementation will require further rulemaking by different regulators, including the US Department of the Treasury (US Treasury), the Fed, the US Securities and Exchange Commission (SEC), the OCC, the FDIC, the Commodity Futures Trading Commission (CFTC) and the Financial Stability Oversight Council (FSOC), and uncertainty remains about the details of implementation.
ERISA
On April 6, 2016, the US Department of Labor released final rules revising the definition of “fiduciary” for purposes of the US Employee Retirement Income Security Act of 1974, as amended (ERISA), and US Internal Revenue Code (IRC). The revised definition imposes heightened standards of conduct for banks, broker-dealers, and investment advisers when engaging with plans and accounts subject to ERISA and IRC and prohibits transactions viewed as conflicts of interest subject to narrow exceptions and exemptions. The revised definition of fiduciary became effective June 9, 2017; however, the US Department of Labor delayed the applicability of certain proposed exemption conditions and exemption amendments until July 1, 2019 to allow for further consideration of their impact and to determine whether any changes or alternatives would be appropriate. Depending upon the outcome of the US Department of Labor’s review, we may be required to revise our policies, procedures and practices for dealing with such plans and accounts.
Supervision
Credit Suisse is subject to the so-called “Volcker Rule”, which limits the ability of banking entities to sponsor or invest in certain private equity or hedge funds, broadly defined, and to engage in certain types of proprietary trading for their own account. On April 18, 2017, the Federal Reserve Bank of New York approved our request for an extension of the Volcker Rule conformance period for certain of our illiquid fund holdings, extending the period of time for us to divest or conform these investments by five additional years (i.e., until July 21, 2022).
On July 21, 2017, the US banking agencies responsible for implementing the Volcker Rule released guidance providing temporary relief with respect to “foreign excluded funds” that are controlled by a foreign bank and thus could be subjected to the Volcker Rule’s proprietary trading and covered funds restrictions. The guidance provides that for one year (until July 21, 2018), the agencies will not take action with respect to any such foreign excluded fund if the fund satisfies certain criteria (including that the fund is organized outside of the US as part of a bona fide asset management business, is not offered or sold to US investors and that the foreign bank’s investment and/or sponsorship of the fund occurs solely outside of the US).
Derivative regulation
Swap Regulation – Margin requirements
On October 18, 2017, the CFTC issued a comparability determination with respect to margin rules for uncleared derivatives adopted in the EU. This determination concluded that, in general, the margin rules adopted in the EU are comparable to CFTC margin rules for uncleared swaps. Accordingly, non-US swap dealers that do not have a US prudential regulator, including Credit Suisse Securities (Europe) Limited (CSSEL), could comply with comparable EU rules in lieu of the CFTC’s margin rules for uncleared swaps but certain issues about the scope of the comparability determination could limit the ability of CSSEL to rely on it for certain US-facing swaps. Because Credit Suisse Capital LLC (CS Capital) is a US-swap dealer, it generally cannot rely on this comparability determination and must comply with the CFTC’s margin rules for uncleared swaps for all of its in scope swaps transactions. Credit Suisse International (CSI) also does not benefit from this
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comparability determination as it is subject to the US prudential regulators’ margin rules, and it must comply with the Fed’s margin rules for US-facing uncleared swaps and security-based swaps.
The CFTC’s margin rules for uncleared swaps and the margin rules for uncleared swaps and security-based swaps of the FDIC, the Fed, the OCC, the Farm Credit Administration and the Federal Housing Finance Agency are following a phased implementation schedule, with (i) variation margin requirements having come into effect on September 1, 2016 for trading among the most significant market participants and March 1, 2017 for other covered entities, and (ii) initial margin requirements phasing in annually for different counterparties from September 1, 2016 until September 1, 2020, depending on the notional derivatives exposure of the counterparty and its affiliates during the preceding March, April and May and applying first to trading among the most significant market participants. As a result, these rules began to apply to CSI and CSSEL on September 1, 2016 and for CS Capital on August 15, 2017 once it registered as a swap dealer, for our trading with other large, globally active swap dealers, and then will phase-in over 2016-2020 for our trading with less active counterparties.
Since March 1, 2017, CSI, CSSEL and CS Capital have been required to comply with variation margin requirements with covered entities under the US rules, requiring execution of new margin agreements with all such covered entities in order to continue to trade.
CFTC no-action relief
On July 25, 2017, the CFTC issued a no-action letter extending relief from a staff advisory stating that CFTC “transaction-level” requirements, such as mandatory clearing, mandatory exchange trading, real-time public reporting and external business conduct, apply to a swap between a non-US swap dealer, such as CSI or CSSEL, and another non-US person if the swap is arranged, negotiated or executed by US personnel or agents of the non-US swap dealer. The no-action letter is effective until the effective date of any CFTC action addressing whether a particular “transaction-level” requirement applies to relevant transactions. On October 11, 2016, the CFTC issued a rule proposal that would, if adopted, supersede this no-action letter with regard to external business conduct standards, but the proposal did not address any of the other rules covered by the no-action letter.
On November 30, 2017, the CFTC issued a no-action letter that extends from December 1, 2017 until December 1, 2020 the expiration date for relief from a requirement that certain non-US swap dealers, including CSI and CSSEL, report information about their swaps with non-US counterparties to a US data repository.
Expiration of either of these letters without modifications to the CFTC’s guidance or permitting substituted compliance with the EU rules could reduce the willingness of non-US counterparties to trade with CSI and CSSEL, which could negatively affect our swap trading revenue or necessitate changes to how we organize our swap business. We continue to monitor these developments and prepare contingency plans to comply with the final guidance once effective.
On December 8, 2017, the CFTC issued an order exempting certain multilateral trading facilities (MTFs) and organized trading facilities (OTFs) authorized within the EU from a requirement to register with the CFTC as swap execution facilities. As a result of this order, US persons, including CS Capital, and non-US persons executing through US-based personnel, which may include CSI and CSSEL, may execute swap transactions on these facilities, including swaps that are subject to the CFTC’s trade execution requirement, provided that such persons comply with other CFTC requirements applicable to such trades.
Regulatory Focus on Cybersecurity
Federal and state regulators, including the Financial Industry Regulatory Authority (FINRA) and the New York Department of Financial Services (DFS), have increasingly focused on cybersecurity risks and responses for regulated entities. For example, on March 1, 2017, the revised DFS cybersecurity regulation became effective. The regulation applies to any licensed person, including DFS-licensed branches of non-US banks, and requires each company to assess its specific risk profile periodically and design a program that addresses its risks “in a robust fashion”, including addressing risks posed by third-party service providers, training and retention of specialized staff to address cybersecurity risks, maintaining systems designed to reconstruct material financial transactions and complying with security requirements for non-public information. Each covered entity must monitor its systems and networks and notify the superintendent of the DFS within 72 hours after it is determined that a material cybersecurity event has occurred. Senior management of the branch is required to file an annual certification confirming compliance with the DFS regulations beginning February 15, 2018. Similarly, FINRA has identified cybersecurity as a significant risk and will assess firms’ programs to mitigate those risks.
On February 21, 2018, the SEC issued expanded interpretative guidance on cybersecurity matters. The interpretative release confirms their prior guidance on the subject from 2011 and highlights requirements under US federal securities laws that public operating companies must pay particular attention to with respect to cybersecurity risks and incidents.
Resolution Regime
On March 24, 2017, the Fed and the FDIC released guidance for the 2018 US resolution plans submitted by the “first wave” foreign filers, including Credit Suisse. Like the guidance issued in 2016 to “first wave” US filers, the new guidance includes additional requirements for more detailed analyses on a number of issues. However, in contrast to the regulators’ evaluations of the “first wave” US filers’ 2015 US resolution plans, no credibility determinations were made for “first wave” foreign filers’ 2015 US resolution plans. Credit Suisse is required to file its next US resolution plan by July 1, 2018.
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Tax
On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the US, which revises US corporate income tax law by, among other things, reducing the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The US tax reform required a re-assessment of our deferred tax assets, which resulted in a tax charge recorded in 4Q17, primarily related to our US deferred tax assets. The impact of the US tax reform on our look-through common equity tier 1 (CET1) ratio in 4Q17 was minimal.
The US tax reform also introduced the base erosion and anti-abuse tax (BEAT), effective as of January 1, 2018. It is broadly levied on tax deductions created by certain payments, for example, for interest and services, to affiliated group companies outside the US, in the case where the calculated tax based on a modified taxable income exceeds the amount of ordinary federal corporate income taxes paid. The tax rates applicable for banks are 6% for 2018, 11% for 2019 until 2025 and 13.5% from 2026 onward. On the basis of the current analysis of the BEAT alternative tax regime, we regard it as more likely than not that the Group will not be subject to this regime in 2018. However, there are significant uncertainties in the application of the BEAT and this interpretation will be subject to review once further guidance has been issued by the US Department of Treasury.
EU
The EU, the UK and other national European jurisdictions have also proposed and enacted a wide range of prudential, securities and governance regulations to address systemic risk and to further regulate financial institutions, products and markets. These proposals are at various stages of the EU pre-legislative, legislative rule-making and implementation processes, and their final form and cumulative impact remain uncertain.
Investment services regulation
MiFID II and the Markets in Financial Instruments Regulation (MiFIR) have applied since January 3, 2018. MiFID II and MiFIR have introduced a number of significant changes to the regulatory framework established by the Markets in Financial Instruments Directive (MiFID I), and the European Commission has adopted a number of delegated and implementing measures, which supplement their requirements. In particular, MiFID II and MiFIR have introduced enhanced organizational and business conduct standards that apply to investment firms. These include standards for managing conflicts of interest, best execution and enhanced investor protection. MiFID II has introduced a ban on the receipt of investment research by portfolio managers and providers of independent investment advice unless paid for by clients. MiFID II and MiFIR have also made significant changes to the regulation of markets and market infrastructure in Europe, including the creation of a new category of trading venue, that is, the OTF; measures to direct more trading on to regulated trading venues such as regulated markets, MTFs and OTFs; and an extension of pre- and post-trade transparency requirements to equity-like fixed income and derivative financial instruments. MiFID II and MiFIR have also introduced new safeguards for high frequency and algorithmic trading activities, including, among other things, with respect to requirements to enhance systems, processes and controls for firms engaging in such activities.
MiFIR requires certain derivative contracts to be traded on a regulated market, MTF, OTF or equivalent third country venues. On December 5, 2017, the European Commission released an implementing decision on the equivalence of the legal and supervisory framework applicable to designated market contracts and swap execution facilities in the US. Similarly, on December 8, 2017, the CFTC released an order of exemption from the CFTC’s swap execution facility registration requirements with respect to certain MTFs and OTFs authorized in the EU. It remains unclear whether, notwithstanding the European Commission’s implementing decision and the CFTC’s order, the MiFIR requirements will result in fragmentation between the EU and US markets with respect to derivatives trading.
MiFIR also introduces a trading obligation for shares that requires investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market, or traded on a trading venue, take place on a regulated market, MTF, systematic internaliser or an equivalent third-country trading venue. On December 13, 2017, the European Commission released an implementing decision recognizing the equivalence of the legal and supervisory framework applicable to national securities exchanges and alternative trading systems registered with the SEC in the US. On December 21, 2017, the European Commission decided to recognize the equivalence of the Swiss legal and supervisory framework for trading venues with that of the EU for a temporary period of one year, which can be extended. The decision allows European securities traders to meet the new MiFID II shares trading obligation on Swiss exchanges until December 31, 2018. The temporary nature of this recognition is subject to continuing debate, including on a political level.
On January 1, 2018, the Regulation on key information documents (or KIDs) for packaged retail and insurance-based investment products (PRIIPs) became applicable in member states. The main aim of the PRIIPs Regulation is to introduce a new, pre-contractual disclosure document (a KID), which is required to be made available to retail consumers when they are offered, or advised about, PRIIPs (which includes a wide range of investment products). The KID is intended to enable retail investors to compare products and make a more informed investment choice.
Benchmarks regulation
On June 30, 2016, the Benchmarks Regulation (BMR), which introduces new rules aimed at ensuring greater accuracy and integrity of benchmarks in financial instruments, entered into force. The BMR sets out various requirements which will govern the activities of benchmark administrators and submitters. The majority of the provisions of the BMR have applied since January 1, 2018. Certain requirements introduced by the BMR have applied to Credit Suisse in its capacity as a contributor to certain critical
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benchmarks from June 30, 2016. In February 2018, four European Commission Delegated Regulations supplementing the BMR entered into force. The regulations specify, among other things, the criteria for assessing whether certain events would result in significant and adverse impacts on matters including the market integrity and financial stability of one or more member states and the conditions to assess the impact resulting from the cessation of, or change to, existing benchmarks.
Payment services regulation
The Directive on payment services in the internal market (PSD2), the main piece of legislation governing payment services in the EU, came into force on January 12, 2016 and was required to be transposed into their national legislation by the member states by January 13, 2018. Among other things, PSD2 extends the geographical scope of transparency and conduct of business requirements to payments to and from third countries where one of the payment service providers is located in the EU, and to transactions in non-EU currencies that have at least one leg in the EU. In addition, PSD2 has introduced more stringent requirements relating to operational and security risks. Further delegated legislation is expected to be finalized and implemented in 2018 and 2019. In order to comply with the new regime, firms may have to make changes to their payment services terms and conditions, as well as to their systems and processes.
Derivative regulation
On January 4, 2017, the European Commission Delegated Regulation supplementing the European Market Infrastructure Regulation (EMIR) with regard to regulatory technical standards (RTS) for risk mitigation techniques for over-the-counter (OTC) derivatives not cleared by a central counterparty entered into force. The delegated regulation imposes a requirement on financial counterparties and non-financial counterparties above the clearing threshold to collect initial margin and variation margin in respect of non-centrally cleared OTC derivative transactions. The requirements relating to initial margin and variation margin have applied since February 4, 2017 in relation to the largest market participants. Other market participants have become or in the future will become subject to the requirements relating to initial margin through a series of annual phase-in dates, starting September 1, 2017. Requirements relating to variation margin have applied to all financial and non-financial counterparties above the clearing threshold since March 1, 2017.
In order to comply with the new regime for variation margin, firms have had to make significant changes, including negotiating amendments to legal documentation and making appropriate operational arrangements to enable the exchange of variation margin. In common with the other firms, we have put in place plans to achieve full compliance for all in-scope transactions entered into from March 1, 2017. The European supervisory authorities have acknowledged the challenges in complying with the new RTS and announced in November 2017 that they will conduct a review of the RTS, in relation to physically-settled FX forwards, with a view to proposing to exempt certain users of such forwards from the obligation to provide variation margin that entered into effect on January 3, 2018. The precise scope of the exemption is not yet clear. The Financial Conduct Authority (FCA) supported the European supervisory authorities’ statement, including in relation to their recommendation that competent authorities should generally continue to apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner until the RTS are amended.
Although the EU margin rules are generally consistent with rules of other jurisdictions, including the US, material differences remain, in particular in relation to entity and product scope. This could impair the ability of CSI and CSSEL to engage effectively in cross-border derivatives activities. The availability of substituted compliance or equivalence determinations in certain non-EU jurisdictions may help resolve the situation, but there remain many cases in which more than one regime applies and substituted compliance or equivalence is not yet available or otherwise offers only limited assistance. On October 13, 2017, the European Commission adopted an equivalence decision for the CFTC’s margin rules. Some current substituted compliance or equivalence determinations in non-EU jurisdictions are provisional or temporary measures that could be reduced or eliminated in the future.
On January 5, 2017, ten implementing decisions entered into force relating to the equivalence of the regulatory regimes of India, New Zealand, Brazil, Dubai International Financial Center, United Arab Emirates, Japan, Singapore, Australia and Canada for central counterparties (CCPs) and trading venues under EMIR. The European Securities and Markets Authority (ESMA) announced on March 20, 2017 that it had entered into a memorandum of understanding (MoU) with relevant regulatory authorities in Brazil, Japan, India, Dubai and the United Arab Emirates and on April 18, 2017 with the New Zealand regulatory authorities. These MoUs establish co-operation agreements, including with respect to the exchange of information, for CCPs established in these jurisdictions and which have applied for EU recognition under EMIR. As of January 18, 2018, eleven CCPs and trading venues in these jurisdictions had been recognized in accordance with EMIR.
Prudential regulation
In November 2016, the European Commission published its legislative proposals for the amendment of the Capital Requirements Regulation (CRR) (through an amending Regulation CRR II), the Capital Requirements Directive IV (CRD IV) (through an amending Directive CRD V) and the BRRD (through an amending Directive BRRD II). Political agreement on this legislative package is expected to be reached by end-2018.
CRR II contains, among other things, proposed reforms to the CRR regarding international prudential standards based on the Basel III standards and provisions relating to, among other things, leverage ratio, market risk, counterparty credit risk and large exposures and implementing the Financial Stability Board’s (FSB) TLAC standard. BRRD II is expected to revise the existing EU regime relating to the minimum requirement for own funds
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and eligible liabilities (MREL) to align it with the TLAC standard and to introduce, among other things, changes to the contractual recognition of bail-in and a new moratorium power for competent authorities.
In addition, the CRD V proposal includes a requirement for non-EU groups that are G-SIBs, which have two or more bank or investment firm subsidiaries in the EU, to establish an intermediate parent undertaking in the EU.
Data protection regulation
The General Data Protection Regulation (GDPR) will be fully applicable beginning May 25, 2018. It replaces the existing data protection law in the EU under the Data Protection Directive 95/46/EC. The GDPR applies to the processing of personal data in the context of our EU establishments as well as in relation to the processing of personal data of individuals in the EU by our non-EU establishments to the extent such non-EU establishments are offering products and/or services to EU customers. The GDPR imposes a number of new compliance obligations and enhances the rights of individuals and their ability to control the processing of their personal data. In accordance with the GDPR, we have appointed a Data Protection Officer who will be responsible for providing advice in connection with, and monitoring our compliance with, the GDPR. The GDPR grants broad enforcement powers to supervisory authorities, including the potential to levy significant administrative fines for non-compliance.
Additionally, in December 2017 the European Banking Authority (EBA) produced its final guidance for the use of cloud service providers by financial institutions. The EBA recommendations, which are applicable as of July 1, 2018 and build on the existing guidelines on outsourcing developed by the Committee of European Banking Supervisors, provide additional clarity on cloud computing and address five key areas: the security of data and systems, the location of data and data processing, access and audit rights, chain outsourcing, and contingency plans and exit strategies.
UK
BREXIT
On June 23, 2016, voters in the UK voted to leave the EU in a non-binding referendum. On March 16, 2017, the European Union (Notification of Withdrawal) Bill was enacted and on March 29, 2017, the UK government submitted the formal notification under Article 50 of the Lisbon Treaty to the European Council of the intention of the UK to withdraw from the EU. Negotiations have commenced on a withdrawal agreement, which may include an agreement on a transition period. This process may include the renegotiation, either during a transitional period or more permanently, of a number of regulatory and other arrangements between the EU and the UK that directly impact our business. Unless all EU member states agree to an extension, the deadline for the conclusion of the withdrawal agreement under Article 50 is March 29, 2019. If a withdrawal agreement is concluded, the UK will leave the EU on the date the agreement comes into force. If no withdrawal agreement is concluded, the UK will leave the EU at midnight on March 29, 2019.
Credit Suisse is working to address the implications of the consequences of these changes and to minimize disruption for our clients. Adverse changes to any of these arrangements, and even uncertainty over potential changes during any period of negotiation, could potentially impact our results in the UK or other markets we serve.
Regulatory framework
The principal regulatory structures that apply to our operations are discussed below.
Global initiatives
Total Loss-Absorbing Capacity
On November 9, 2015, the FSB issued the final TLAC standard for G-SIBs, which will become effective on January 1, 2019, subject to a phase-in until January 1, 2022. In order for this new standard to become effective, it must be implemented under local law in relevant jurisdictions. The purpose of the standard is to enhance the ability of regulators to recapitalize a G-SIB at the point of non-viability in a manner that minimizes systemic disruption, preserves critical functions and limits the exposure of public sector funds. TLAC-eligible instruments will include instruments that count towards satisfying minimum regulatory capital requirements, as well as long-term unsecured debt instruments that have remaining maturities of no less than one year, are subordinated by statute, corporate structure or contract to certain excluded liabilities, including deposits, are held by unaffiliated third parties and meet certain other requirements. Excluding any applicable regulatory capital buffers that are otherwise required, the minimum TLAC requirement will be at least 16% of a G-SIB’s RWA as of January 1, 2019, and increase to at least 18% as of January 1, 2022. In addition, the minimum TLAC requirement must be at least 6% of the >>>Basel III leverage ratio denominator as of January 1, 2019, and at least 6.75% as of January 1, 2022.
In the US, the Fed adopted final rules on December 15, 2016 that implement the FSB’s TLAC standard in the US. The final rules require, among other things, the US intermediate holding companies (IHCs) of non-US G-SIBs, such as Credit Suisse’s US IHC, to maintain minimum amounts of “internal” TLAC, which would include minimum levels of tier 1 capital and long-term debt satisfying certain eligibility criteria, and a related TLAC buffer commencing January 1, 2019. Credit Suisse’s US IHC would be required to issue all such TLAC instruments to a foreign parent entity (a non-US entity that controls the intermediate holding company) or another foreign affiliate that is wholly owned by its foreign parent. The final rules also impose limitations on the types of financial transactions in which Credit Suisse’s US IHC can engage.
In the UK, on November 8, 2016, the Bank of England published the final version of its statement of policy on its approach to establishing the requirement under the BRRD for certain UK entities, including CSI and CSSEL, to maintain the MREL requirement. Similar to the FSB’s TLAC standard, the MREL requirement obliges
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firms within the scope of the BRRD to maintain a minimum level of own funds and liabilities that can be bailed in. The statement of policy reflects both the TLAC standards and the requirements of the EBA’s Regulatory Technical Standards on MREL. It does not set TLAC requirements in addition to MREL. On October 2, 2017, the Bank of England published a consultation paper on its approach to setting a minimum requirement for MREL within groups (also known as internal MREL), broadly consistent with the FSB’s internal TLAC requirements. The Bank of England set out, among other things, the scope of internal MREL and the criteria that instruments must meet to qualify as internal MREL resources. The Bank of England proposed that interim internal MREL should apply from January 1, 2019 for material subsidiaries of G-SIBs and from January 1, 2020 for other firms. End-state internal MREL requirements will apply from January 1, 2022.
ISDA Resolution Stay Protocols
On November 12, 2015, ISDA launched the ISDA 2015 Universal Resolution Stay Protocol (ISDA 2015 Universal Protocol) and Credit Suisse voluntarily adhered to the ISDA 2015 Universal Protocol at the time of its launch. By adhering to the ISDA 2015 Universal Protocol, parties agree to be bound by, or “opt in”, to certain existing and forthcoming special resolution regimes to ensure that cross-border derivatives and securities financing transactions are subject to statutory stays on cross-default and early termination rights in the event a bank counterparty enters into resolution, regardless of its governing law. These stays are intended to facilitate an orderly resolution of a troubled bank. Statutory resolution regimes have been implemented in several jurisdictions, including Switzerland, the US and the EU. These regimes provide resolution authorities with a broad set of tools and powers to resolve a troubled bank, including the ability to temporarily stay, and under certain circumstances permanently override, the termination rights of counterparties of a bank and its affiliates in the event the bank enters into resolution. The ISDA 2015 Universal Protocol introduces similar stays and overrides in the event that an affiliate of an adhering party becomes subject to proceedings under the US Bankruptcy Code, under which no such stays or overrides currently exist.
Although other large banking groups have also adhered to the ISDA 2015 Universal Protocol, it is anticipated that buy-side or end-user counterparties of Credit Suisse will not voluntarily give up early termination rights and will therefore not adhere to the ISDA 2015 Universal Protocol. In order to expand the scope of parties and transactions covered by the ISDA 2015 Universal Protocol or similar contractual arrangements, the G20 committed to introducing regulations requiring large banking groups to include ISDA 2015 Universal Protocol-like provisions in certain financial contracts when facing counterparties under foreign laws. Certain G20 member nations, including the US, introduced such requirements in 2015, 2016 and 2017.
In Switzerland, the Swiss Federal Council introduced amendments to the Banking Ordinance that will require banks, including Credit Suisse, to include terms in certain of their contracts (and in certain contracts entered into by their subsidiaries) that are not governed by Swiss law or that provide for jurisdiction outside of Switzerland that ensure that FINMA’s stay powers under the Bank Law would be enforceable with respect to such contracts. These requirements have been set forth in the Banking Ordinance since January 1, 2016. FINMA is responsible for determining the appropriate time for complying with this requirement in line with international standards as well as the contracts that are in scope. To this end, a partial revision of the FINMA Banking Insolvency Ordinance entered into effect on April 1, 2017 (see the Recent Regulatory Developments and Proposals section above discussing the Swiss development).
In the UK, the Prudential Regulation Authority (PRA) published final rules in November 2015 requiring UK entities, including CSI and CSSEL, to ensure that their counterparties under a broad range of financial arrangements are subject to the stays on early termination rights under the UK Banking Act that would be applicable upon their resolution. UK entities have been required to comply with these rules from June 1, 2016 for contracts where the counterparty is a credit institution or an investment firm, and from January 1, 2017 in respect of contracts with all other counterparties.
ISDA has developed another protocol, the ISDA Resolution Stay Jurisdictional Modular Protocol to facilitate market-wide compliance with these new requirements by both dealers, such as Credit Suisse, and their counterparties.
In the US, in 2017, the Fed, the FDIC and the OCC each issued final rules designed to improve the resolvability of US headquartered G-SIBS and the US operations of non-US G-SIBs, such as our US operations. Covered “qualified financial contracts” must be conformed to the rules’ requirements starting January 1, 2019, with full compliance by January 1, 2020 (see the Recent Regulatory Developments and Proposals section above discussing the US development). It is expected that the ISDA will produce a protocol to facilitate compliance by the broader market with the Fed’s final requirements.
Switzerland
Banking regulation and supervision
Although Credit Suisse Group is not a bank according to the Bank Law and the Banking Ordinance, the Group is required, pursuant to the provisions on consolidated supervision of financial groups and conglomerates of the Bank Law, to comply with certain requirements for banks. Such requirements include capital adequacy, solvency and risk concentration on a consolidated basis, and certain reporting obligations. Our banks in Switzerland are regulated by >>>FINMA on a legal entity basis and, if applicable, on a consolidated basis.
Our banks in Switzerland operate under banking licenses granted by FINMA pursuant to the Bank Law and the Banking Ordinance. In addition, certain of these banks hold securities dealer licenses granted by FINMA pursuant to the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA).
FINMA is the sole bank supervisory authority in Switzerland and is independent from the Swiss National Bank (SNB). Under
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the Bank Law, FINMA is responsible for the supervision of the Swiss banking system. The SNB is responsible for implementing the government’s monetary policy relating to banks and securities dealers and for ensuring the stability of the financial system. Under the >>>”Too Big to Fail” legislation, the SNB is also responsible for determining which banks in Switzerland are systemically relevant banks and which functions are systemically relevant in Switzerland. The SNB has identified the Group on a consolidated basis as a systemically relevant bank for the purposes of Swiss law.
Our banks in Switzerland are subject to close and continuous prudential supervision and direct audits by FINMA. Under the Bank Law, our banks are subject to inspection and supervision by an independent auditing firm recognized by FINMA, which is appointed by the bank’s shareholder meeting and required to perform annual audits of the bank’s financial statements and to assess whether the bank is in compliance with laws and regulations, including the Bank Law, the Banking Ordinance and FINMA regulations.
Swiss banks are subject to the >>>Basel III framework and the Swiss “Too Big to Fail” legislation and regulations thereunder, which include capital, liquidity, leverage and large exposure requirements, and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency.
Our regulatory capital is calculated on the basis of accounting principles generally accepted in the US, with certain adjustments required by, or agreed with, FINMA.
> Refer to “Liquidity and funding management” and “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for further information regarding our current regulatory framework and expected changes to this framework affecting capital and liquidity standards.
Under Swiss banking law, banks and securities dealers are required to manage risk concentration within specific limits. Aggregated credit exposure to any single counterparty or a group of related counterparties must bear an adequate relationship to the bank’s adjusted eligible capital (for systemically relevant banks like us, to their core tier 1 capital) taking into account counterparty risks and >>>risk mitigation instruments.
Under the Bank Law and SESTA, Swiss banks and securities dealers are obligated to keep confidential the existence and all aspects of their relationships with customers. These customer confidentiality laws do not, however, provide protection with respect to criminal offenses such as insider trading, money laundering, terrorist financing activities, tax fraud or evasion or prevent the disclosure of information to courts and administrative authorities.
Swiss rules and regulations to combat money laundering and terrorist financing are comprehensive and require banks and other financial intermediaries to thoroughly verify and document customer identity before commencing business. In addition, these rules and regulations include obligations to maintain appropriate policies for dealings with politically exposed persons and procedures and controls to detect and prevent money laundering and terrorist financing activities, including reporting suspicious activities to authorities.
In addition, Switzerland has stringent anti-corruption and anti-bribery laws related to Swiss and foreign public officials as well as persons in the private sector.
Compensation design and its implementation and disclosure have been required to comply with standards promulgated by FINMA under its Circular on Remuneration Schemes, as updated from time to time.
Securities dealer and asset management regulation and supervision
Our securities dealer activities in Switzerland are conducted primarily through the Bank and are subject to regulation under SESTA, which regulates all aspects of the securities dealer business in Switzerland, including regulatory capital, risk concentration, sales and trading practices, record-keeping requirements and procedures and periodic reporting procedures. Securities dealers are supervised by FINMA.
Our asset management activities in Switzerland, which include the establishment and administration of mutual funds registered for public distribution, are conducted under the supervision of FINMA.
Resolution regime
The FINMA Banking Insolvency Ordinance governs resolution (i.e., restructuring or liquidation) procedures of Swiss banks and securities dealers, such as Credit Suisse AG and Credit Suisse (Schweiz) AG, and of Swiss-domiciled parent companies of financial groups, such as Credit Suisse Group AG, and certain other unregulated Swiss-domiciled companies belonging to financial groups. Instead of prescribing a particular resolution concept, the FINMA Banking Insolvency Ordinance provides FINMA with a significant amount of authority and discretion in the case of resolution, as well as various restructuring tools from which FINMA may choose.
FINMA may open resolution proceedings if there is an impending insolvency because there is justified concern that the relevant Swiss bank (or Swiss-domiciled parent companies of financial groups and certain other unregulated Swiss-domiciled companies belonging to financial groups) is over-indebted, has serious liquidity problems or no longer fulfills capital adequacy requirements. Resolution proceedings may only take the form of restructuring (rather than liquidation) proceedings if (i) the recovery of, or the continued provision of individual banking services by, the relevant bank appears likely and (ii) the creditors of the relevant bank are likely better off in restructuring proceedings than in liquidation proceedings. All realizable assets in the relevant entity’s possession will be subject to such proceedings, regardless of where they are located.
If FINMA were to open restructuring proceedings with respect to Credit Suisse AG, Credit Suisse (Schweiz) AG or Credit Suisse Group AG, it would have discretion to take decisive actions, including (i) transferring the assets of the banks or Credit Suisse Group AG, as applicable, or a portion thereof, together with its debt and other liabilities, or a portion thereof, and contracts, to another entity, (ii) staying (for a maximum of two working days) the termination of, and the exercise of rights to terminate netting rights, rights to enforce or dispose of certain types of collateral or rights
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to transfer claims, liabilities or certain collateral, under contracts to which the banks or Credit Suisse Group AG, as applicable, is a party, (iii) converting the debt of the banks or Credit Suisse Group AG, as applicable, into equity (debt-to-equity swap), and/or (iv) partially or fully writing off the obligations of the banks or Credit Suisse Group AG, as applicable (>>>haircut).
Prior to any debt-to equity swap or haircut, outstanding equity capital and debt instruments issued by Credit Suisse AG, Credit Suisse (Schweiz) AG or Credit Suisse Group AG that are part of its regulatory capital (including outstanding high trigger capital instruments and low trigger capital instruments) must be converted or written-off (as applicable) and cancelled. Any debt-to-equity swap, (but not any haircut) would have to follow the hierarchy of claims to the extent such debt is not excluded from such conversion by the FINMA Banking Insolvency Ordinance. Contingent liabilities of Credit Suisse AG, Credit Suisse (Schweiz) AG or Credit Suisse Group AG such as guarantees could also be subjected to a debt-to-equity swap or a haircut, to the extent amounts are due and payable thereunder at any time during restructuring proceedings.
For systemically relevant institutions such as Credit Suisse AG, Credit Suisse (Schweiz) AG and Credit Suisse Group AG, creditors have no right to reject the restructuring plan approved by FINMA.
US
Banking regulation and supervision
Our banking operations are subject to extensive federal and state regulation and supervision in the US. Our direct US offices are composed of our New York Branch and representative offices in California. Each of these offices is licensed with, and subject to examination and regulation by, the state banking authority in the state in which it is located.
Our New York Branch is licensed by the New York Superintendent of Financial Services (Superintendent), examined by the DFS, and subject to laws and regulations applicable to a foreign bank operating a New York branch. Under the New York Banking Law, our New York Branch must maintain eligible assets with banks in the state of New York. The amount of eligible assets required, which is expressed as a percentage of third-party liabilities, could increase if our New York Branch is no longer designated well rated by the Superintendent.
The New York Banking Law authorizes the Superintendent to seize our New York Branch and all of Credit Suisse AG’s business and property in New York State (which includes property of our New York Branch, wherever it may be located, and all of Credit Suisse AG’s property situated in New York State) under circumstances generally including violations of law, unsafe or unsound practices or insolvency. In liquidating or dealing with our New York Branch’s business after taking possession, the Superintendent would only accept for payment the claims of depositors and other creditors (unaffiliated with us) that arose out of transactions with our New York Branch. After the claims of those creditors were paid out of the business and property of the Bank in New York, the Superintendent would turn over the remaining assets, if any, to us or our liquidator or receiver.
Under New York Banking Law and US federal banking laws, our New York Branch is generally subject to single borrower lending limits expressed as a percentage of the worldwide capital of the Bank. Under the Dodd-Frank Act, lending limits take into account credit exposure arising from derivative transactions, securities borrowing and lending transactions and >>>repurchase and reverse repurchase agreements with counterparties.
Our operations are also subject to reporting and examination requirements under US federal banking laws. Our US non-banking operations are subject to examination by the Fed in its capacity as our US umbrella supervisor. The New York Branch is also subject to examination by the Fed and is subject to federal banking law requirements and limitations on the acceptance and maintenance of deposits. Because the New York Branch does not engage in retail deposit taking, it is not a member of, and its deposits are not insured by, the FDIC.
US federal banking laws provide that a state-licensed branch (such as the New York Branch) or agency of a foreign bank may not, as a general matter, engage as principal in any type of activity that is not permissible for a federally licensed branch or agency of a foreign bank unless the Fed has determined that such activity is consistent with sound banking practice. In addition, regulations which the FSOC and the Fed may adopt could affect the nature of the activities which the Bank (including the New York Branch) may conduct, and may impose restrictions and limitations on the conduct of such activities.
The Fed may terminate the activities of a US branch or agency of a foreign bank if it finds that the foreign bank: (i) is not subject to comprehensive supervision in its home country; (ii) has violated the law or engaged in an unsafe or unsound banking practice in the US; or (iii) for a foreign bank that presents a risk to the stability of the US financial system, the home country of the foreign bank has not adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk.
Credit Suisse Group and the Bank became financial holding companies for purposes of US federal banking law in 2000 and, as a result, may engage in a broad range of non-banking activities in the US, including insurance, securities, private equity and other financial activities, in each case subject to regulatory requirements and limitations. Credit Suisse Group is still required to obtain the prior approval of the Fed (and potentially other US banking regulators) before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting shares of (or otherwise controlling) any US bank, bank holding company or many other US depositary institutions and their holding companies, and as a result of the Dodd-Frank Act, before making certain acquisitions involving large non-bank companies. The New York Branch is also restricted from engaging in certain tying arrangements involving products and services, and in certain transactions with certain of its affiliates. If Credit Suisse Group or the Bank ceases to be well-capitalized or well-managed under applicable Fed rules, or otherwise fails to meet any of the requirements for financial holding company status, it may be required to discontinue certain financial activities or terminate its New York Branch. Credit Suisse Group’s
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ability to undertake acquisitions permitted by financial holding companies could also be adversely affected.
As mentioned above, Credit Suisse is also subject to the so-called “Volcker Rule”, which limits the ability of banking entities to sponsor or invest in certain private equity or hedge funds, broadly defined, and to engage in certain types of proprietary trading for their own account. These restrictions are subject to certain exclusions and exemptions, including with respect to underwriting, market-making, risk-mitigating hedging and certain asset and fund management activities, and with respect to certain transactions and investments occurring solely outside of the US. The Volcker Rule requires banking entities to establish an extensive array of compliance policies, procedures and quantitative metrics reporting designed to ensure and monitor compliance with restrictions under the Volcker Rule. It also requires an annual attestation either by the CEO of the top-tier foreign banking organization or the senior management officer in the US as to the implementation of a compliance program reasonably designed to achieve compliance with the Volcker Rule. The Volcker Rule’s implementing regulations became effective in April 2014 and Credit Suisse was generally required to come into compliance with the Volcker Rule by July 2015, with the exception of “legacy” investments in, and bank relationships with, certain private funds, that were in place prior to December 31, 2013, for which the Fed extended the compliance deadline to July 21, 2017. Credit Suisse has implemented a Volcker Rule compliance program reasonably designed to satisfy the requirements of the Volcker Rule. The Volcker Rule’s implementing regulations are highly complex and may be subject to further regulatory interpretation and guidance, and its full impact will not be known with certainty for some time.
Fed regulations implementing the Dodd-Frank Act required Credit Suisse to create a single US IHC to hold all of its US subsidiaries with limited exceptions by July 1, 2017. The IHC requirement does not apply to the New York Branch. Credit Suisse’s US IHC is subject to US risk-based capital and leverage requirements that are largely consistent with the Basel III framework published by the >>>Basel Committee on Banking Supervision (BCBS), though they diverge in several important respects due to the requirements of the Dodd-Frank Act, and is subject to capital planning and capital stress testing requirements under the Dodd-Frank Act and the Fed’s annual Comprehensive Capital Analysis and Review. Credit Suisse’s US IHC will also be subject to additional requirements under the Fed’s final TLAC framework for IHCs, described above. In addition, both Credit Suisse’s US IHC itself and the combined US operations of Credit Suisse (including Credit Suisse’s US IHC and the New York Branch) are subject to other new prudential requirements, including with respect to liquidity risk management, separate liquidity buffers for each of Credit Suisse’s US IHC and the New York Branch, and stress testing. Under proposals that remain under consideration, Credit Suisse’s US IHC and the combined US operations of Credit Suisse may become subject to limits on credit exposures to any single counterparty, and the combined US operations of Credit Suisse may also become subject to an early remediation regime which could be triggered by risk-based capital, leverage, stress tests, liquidity, risk management and market indicators. The Fed has also indicated that it is considering future rulemakings that could apply the US rules implementing the Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) to the US operations of certain large foreign banking organizations. On April 5, 2017, Credit Suisse’s US IHC filed its first annual capital plan with the Fed pursuant to the Fed’s capital planning and IHC rules.
> Refer to “Liquidity and funding management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for further information on Basel III LCR and NSFR.
A major focus of US policy and regulation relating to financial institutions has been to combat money laundering and terrorist financing. These laws and regulations impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, verify the identity of customers and comply with economic sanctions. Any failure to maintain and implement adequate programs to combat money laundering and terrorist financing, and violations of such economic sanctions, laws and regulations, could have serious legal and reputational consequences. We take our obligations to prevent money laundering and terrorist financing in the US and globally very seriously, while appropriately respecting and protecting the confidentiality of clients. We have policies, procedures and training intended to ensure that our employees comply with “know your customer” regulations and understand when a client relationship or business should be evaluated as higher risk for us.
The Dodd-Frank Act requires issuers with listed securities to establish a claw-back policy to recoup erroneously awarded compensation in the event of an accounting restatement but no final rules have been adopted.
Broker-dealer and asset management regulation and supervision
Our US broker-dealers are subject to extensive regulation by US regulatory authorities. The SEC is the federal agency primarily responsible for the regulation of broker-dealers, investment advisers and investment companies. In addition, the US Treasury has the authority to promulgate rules relating to US Treasury and government agency securities, the Municipal Securities Rulemaking Board (MSRB) has the authority to promulgate rules relating to municipal securities, and the MSRB also promulgates regulations applicable to certain securities credit transactions. In addition, broker-dealers are subject to regulation by securities industry self-regulatory organizations, including FINRA, and by state securities authorities.
Our US broker-dealers are registered with the SEC and our primary US broker-dealer is registered in all 50 states, the District of Columbia, Puerto Rico and the US Virgin Islands. Our US registered entities are subject to extensive regulatory requirements that apply to all aspects of their business activity, including where applicable: capital requirements; the use and safekeeping of customer funds and securities; the suitability of customer investments; record-keeping and reporting requirements; employee-related
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matters; limitations on extensions of credit in securities transactions; prevention and detection of money laundering and terrorist financing; procedures relating to research analyst independence; procedures for the clearance and settlement of trades; and communications with the public.
Our US broker-dealers are also subject to the SEC’s net capital rule, which requires broker-dealers to maintain a specified level of minimum net capital in relatively liquid form. Compliance with the net capital rule could limit operations that require intensive use of capital, such as underwriting and trading activities and the financing of customer account balances and also could restrict our ability to withdraw capital from our broker-dealers. Most of our US broker-dealers are also subject to additional net capital requirements of FINRA and, in some cases, other self-regulatory organizations.
Our securities and asset management businesses include legal entities registered and regulated as a broker-dealer and investment adviser by the SEC. The SEC-registered mutual funds that we advise are subject to the Investment Company Act of 1940. For pension fund customers, we are subject to ERISA and similar state statutes.
The Dodd-Frank Act grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers and expands the extraterritorial jurisdiction of US courts over actions brought by the SEC or the US with respect to violations of the antifraud provisions in the Securities Act of 1933, Securities Exchange Act of 1934 and Investment Advisers Act of 1940. It also requires broader regulation of hedge funds and private equity funds, as well as credit rating agencies.
Derivative regulation and supervision
The CFTC is the federal agency primarily responsible for the regulation of futures commission merchants, commodity pool operators and commodity trading advisors. With the effectiveness of the Dodd-Frank Act, these CFTC registration categories were expanded to include persons engaging in a relevant activity with respect to swaps, and registration categories were added for swap dealers and major swap participants. For futures and swap activities, these CFTC registrants are subject to futures industry self-regulatory organizations such as the National Futures Association (NFA).
Each of CSI, CSSEL and CS Capital is registered with the CFTC as a swap dealer as a result of its applicable swap activities and is therefore subject to requirements relating to reporting, record-keeping, swap confirmation, swap portfolio reconciliation and compression, mandatory clearing, mandatory exchange-trading, swap trading relationship documentation, external business conduct, risk management, chief compliance officer duties and reports, internal controls and margin requirements. However, where permitted by comparability determinations by the CFTC or in reliance on no-action letters issued by the CFTC, non-US swap dealers, including CSI and CSSEL, can comply with certain requirements through substituted compliance with EU regulations.
On October 11, 2016, the CFTC issued a rule proposal that would, if adopted, expand the cross-border application of swap dealer and major swap participant registration to encompass the foreign consolidated subsidiaries of US companies, foreign counterparties of those foreign consolidated subsidiaries, and foreign counterparties of foreign branches of US swap dealers and guaranteed affiliates of US swap dealers. If adopted, this expansion could adversely affect our competitive position by inhibiting our ability to do business with the foreign operations of US multinational companies through our currently unregistered entities, including Credit Suisse AG.
On December 2, 2016, the CFTC proposed capital requirements for non-bank swap dealers, which, once adopted, would apply to CSSEL and CS Capital. Under the proposal, CSSEL and CS Capital could elect whether to satisfy capital requirements based on Fed rules implementing Basel capital requirements or SEC rules similar to the capital requirements currently applicable to US broker-dealers, but in each case they would be subject to an additional capital requirement based on 8% of the initial margin required for their derivatives positions. If the CFTC found EU capital requirements to be comparable, CSSEL could satisfy the CFTC’s requirements through “substituted compliance” with EU requirements. If the CFTC did not grant that comparability determination, however, CSSEL would face a significant competitive disadvantage relative to non-US competitors not subject to CFTC capital requirements due to the additional capital required under the CFTC’s rules as proposed and the burdens associated with satisfying duplicative capital regimes.
One of our US broker-dealers, Credit Suisse Securities (USA) LLC, is also registered as a futures commission merchant and subject to the capital, segregation and other requirements of the CFTC and the NFA.
Our asset management businesses include legal entities registered and regulated as commodity pool operators and commodity trading advisors by the CFTC and the NFA.
On December 5, 2016, the CFTC proposed rules that would establish aggregate position limits for certain physical commodity futures contracts and economically equivalent swaps and narrow the scope of existing hedging exemptions from position limits. If adopted as proposed, these position limit rules would require us to develop a costly compliance infrastructure and could reduce our ability to participate in the commodity derivatives markets, both directly and on behalf of our clients.
In addition, it is possible the SEC will finalize or re-propose some of its rules implementing the derivatives provisions of the Dodd-Frank Act during 2018. However, the timing remains unclear. While the SEC’s proposals have largely paralleled many of the CFTC’s rules, significant differences between the final CFTC and SEC rules could materially increase the compliance costs associated with, and hinder the efficiency of, our equity and credit derivatives businesses with US persons. For example, significant differences between the SEC rules regarding capital, margin and segregation requirements for OTC derivatives and related CFTC
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rules, as well as the cross-border application of SEC and CFTC rules, could have such effects. In particular, SEC rules applying public transaction reporting and external business conduct requirements to security-based swaps between non-US persons that are arranged, negotiated or executed by US personnel could discourage non-US counterparties from interacting with our US personnel, unless the SEC permits substituted compliance with non-US reporting or business conduct requirements. The SEC requirements, as currently finalized, would take effect upon or shortly after security-based swap dealer registration, which will not be required until after the SEC completes several other pending rulemakings relating to security-based swap dealer regulation.
FATCA
The Foreign Account Tax Compliance Act (FATCA) became law in the US on March 18, 2010. The legislation requires foreign financial institutions (FFIs) (such as Credit Suisse) to enter into an FFI agreement and agree to identify and provide the US Internal Revenue Service (IRS) with information on accounts held by US persons and certain US-owned foreign entities, or otherwise face 30% withholding tax on withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a US or non-US account, and US account holders who do not agree to the FFI reporting their account to the IRS. Switzerland and the US entered into a “Model 2” intergovernmental agreement to implement the reporting and withholding tax provisions of FATCA that became effective on June 2, 2014. FATCA requirements entered into force on July 1, 2014. The intergovernmental agreement enables FFIs in Switzerland to comply with FATCA while remaining in compliance with Swiss law. Under the agreement, US authorities may ask Swiss authorities for administrative assistance in connection with group requests where consent to provide information regarding potential US accounts is not provided to the FFI. The Swiss Federal Council announced on October 8, 2014 that it intends to negotiate a Model 1 intergovernmental agreement that would replace the existing agreement, and that would instead require FFIs in Switzerland to report US accounts to the Swiss authorities, with an AEOI between Swiss and US authorities. Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. It is unclear when negotiations will continue for the Model 1 intergovernmental agreement and when any new regime would come into force. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.
Resolution regime
The Dodd-Frank Act also established an “Orderly Liquidation Authority”, a regime for the orderly liquidation of systemically significant non-bank financial companies, which could potentially apply to certain of our US entities. The Secretary of the US Treasury may under certain circumstances appoint the FDIC as receiver for a failing financial company in order to prevent risks to US financial stability. The FDIC would then have the authority to charter a “bridge” company to which it can transfer assets and liabilities of the financial company, including swaps and other qualified financial contracts, in order to preserve the continuity of critical functions of the financial company. The FDIC has indicated that it prefers a single-point-of-entry strategy, although it retains the ability to resolve individual financial companies. On February 17, 2016, the FDIC and SEC proposed rules that would clarify the application of the Securities Investor Protection Act in a receivership for a systemically significant broker-dealer under the Dodd-Frank Act’s Orderly Liquidation Authority.
In addition, the Dodd-Frank Act and related rules promulgated by the Fed and the FDIC require bank holding companies with total consolidated assets of USD 50 billion or more, such as us, and certain designated non-bank financial firms to submit periodically to the Fed and the FDIC resolution plans describing the strategy for rapid and orderly resolution under the US Bankruptcy Code or other applicable insolvency regimes, though such plans may not rely on the Orderly Liquidation Authority.
EU
Financial services regulation and supervision
Our European banks, investment firms and fund managers are subject to extensive regulation by EU and national regulatory authorities, whose requirements are increasingly imposed under EU directives and regulations aimed at increasing integration and harmonization in the European market for financial services. While regulations have immediate and direct effect in EU member states, directives must be implemented through national legislation. As a result, the terms of implementation of directives are not always consistent from country to country. In response to the financial crisis and in order to strengthen European supervisory arrangements, the EU established the European Systemic Risk Board, which has macro-prudential oversight of the financial system. The EU has also established three supervisory authorities responsible for promoting greater harmonization and consistent application of EU legislation by national regulators: EBA, ESMA and the European Insurance and Occupational Pensions Authority.
The Basel III capital framework is implemented in the EU by the CRD IV and the CRR (together, the CRD IV package). The CRD IV package comprises a single prudential rule book for banks and investment firms and establishes corporate governance and remuneration requirements, including a cap on variable remuneration for EU banks and investment firms.
Other EU legislation governs the provision of investment services and payment services (see the Recent Regulatory Developments and Proposals section above discussing the EU developments), derivative and securities financing activities, fund management, and the administration and use of, and contributions to, benchmarks.
Within the eurozone, banks are supervised within the Single Supervisory Mechanism. This empowers the European Central Bank (ECB) to act as a single supervisor for banks in the 17
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eurozone countries and for certain non-eurozone countries which may choose to participate in the Single Supervisory Mechanism.
The Fourth EU Anti-Money Laundering Directive (MLD4) entered into force on June 25, 2015 and was required to be transposed by member states by June 26, 2017. MLD4 introduced a series of reforms, including updated and refined requirements relating to the information that a financial institution must obtain and hold in a central register relating to the beneficial ownership of its customers, new precautions for dealing with politically exposed persons, a reshaped risk-based approach for customer due diligence, and increased fines for serious, repeated or systematic breaches of requirements under the directive. The European Commission published a proposed Fifth Money Laundering Directive (MLD5) on July 5, 2016, which would introduce a series of reforms to the existing MLD4, including a new requirement for EU member states to establish central mechanisms to identify holders and controllers of bank and payment accounts and the extension of requirements to virtual currency exchange platforms and custodian wallet providers. It is unclear when MLD5 will be formally adopted.
Resolution regime
The BRRD establishes a framework for the recovery and resolution of credit institutions and investment firms. The BRRD introduces requirements for recovery and resolution plans, provides for bank resolution tools, including bail-in for failing banks, and establishes country-specific bank resolution financing arrangements. In addition, as part of their powers over banks in resolution, resolution authorities are empowered to replace a bank’s senior management, transfer a bank’s rights, assets and liabilities to another person, take a bank into public ownership, and close out and terminate a bank’s financial contracts or derivatives contracts. Banks are required to produce recovery plans, describing proposed arrangements to permit them to restore their viability, while resolution authorities are empowered to produce resolution plans which describe how a bank may be resolved in an orderly manner, were it to fail.
Under the BRRD, the resolution authority can increase the capital of a failing or failed bank through bail-in: i.e., the write-down, reduction or cancellation of liabilities held by unsecured creditors, or their conversion to equity or other securities. All of a bank’s liabilities are subject to bail-in, unless explicitly excluded by the BRRD because they are, for example, covered deposits, secured liabilities, or liabilities arising from holding client assets or client money.
The BRRD also requires banks to hold a certain amount of bail-inable loss-absorbing capacity at both individual and consolidated levels. This requirement is known as the MREL, and is conceptually similar to the TLAC framework.
The BRRD applies to all Credit Suisse EU entities, including branches of the Bank. The Single Resolution Mechanism Regulation, which came into force on August 19, 2014, established the Single Resolution Board as the resolution authority in charge of Banks in the eurozone. Since January 1, 2016, the Single Resolution Board has had full resolution powers, including bail-in.
UK
Banking regulation and supervision
The principal statutory regulators of financial services activity in the UK are the PRA, a part of the Bank of England, which is responsible for the micro-prudential regulation of banks and larger investment firms, and the FCA, which regulates markets, the conduct of business of all financial firms, and the prudential regulation of firms not regulated by the PRA. In addition, the Financial Policy Committee of the Bank of England is responsible for macro-prudential regulation.
As a member state of the EU, the UK is required to implement EU directives into national law. The regulatory regime for banks operating in the UK conforms to required EU standards including compliance with capital adequacy standards, customer protection requirements, conduct of business rules and anti-money laundering rules. These standards, requirements and rules are similarly implemented, under the same directives, throughout the other member states of the EU in which we operate. It is expected that the majority of the requirements of existing EU directives and regulations will be enacted into UK law, immediately following the exit of the UK from the EU.
CSI, Credit Suisse (UK) Limited and Credit Suisse AG, London Branch are authorized to take deposits. We also have a number of entities authorized to conduct investment business and asset management activities. In deciding whether to grant authorization, the PRA must first determine whether a firm satisfies the threshold conditions for authorization, which include suitability and the requirement for the firm to be fit and proper.
Our London Branch is required to comply principally with Swiss home country regulation. However, as a response to the global financial crisis, the PRA made changes to its prudential supervision rules in its Handbook of Rules and Guidance, applying a principle of “self-sufficiency”, such that CSI, CSSEL and Credit Suisse (UK) Limited are required to maintain adequate liquidity resources, under the day-to-day supervision of the entity’s senior management, held in a custodian account in the name of the entity, unencumbered and attributed to the entity balance sheet. In addition, the PRA requires CSI, CSSEL and Credit Suisse (UK) Limited to maintain a minimum capital ratio and to monitor and report large exposures in accordance with the rules implementing CRD IV.
With effect from January 1, 2014, CRD IV replaced the previous CRD with new measures implementing Basel III and other requirements. The PRA is also responsible for approval of certain models with respect to regulatory capital requirements of our UK subsidiaries.
The PRA has implemented the requirements of CRD IV relating to staff remuneration and imposed a 1:1 cap on variable remuneration which can rise to 1:2 with explicit shareholder approval.
The UK Financial Services Act 2013 (Banking Reform Act), enacted in December 2013, establishes a more stringent
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regulatory regime for senior managers and specified risk takers in a bank or PRA authorized investment firm; it also makes reckless misconduct in the management of a bank a criminal offense. These rules impact our UK entities, such as CSI and CSSEL.
Broker-dealer and asset management regulation and supervision
Our London bank and broker-dealer subsidiaries are authorized under the Financial Services and Markets Act 2000 (FSMA) and are subject to regulation by the PRA and FCA. In addition, our asset management companies are authorized under the FSMA and are subject to regulation by the FCA. In deciding whether to authorize an investment firm in the UK, the PRA and FCA will consider the threshold conditions, which include suitability and the general requirement for a firm to be fit and proper. The PRA and FCA are responsible for regulating most aspects of an investment firm’s business, including its regulatory capital, sales and trading practices, use and safekeeping of customer funds and securities, record-keeping, margin practices and procedures, registration standards for individuals carrying on certain functions, anti-money laundering systems and periodic reporting and settlement procedures.
Resolution regime
The UK legislation related to the recovery and resolution of credit institutions such as Credit Suisse consists of the special resolution regime (SRR), the PRA recovery and resolution framework and the FCA recovery and resolution requirements, which implement the BRRD in the UK. The UK Banking Act and the related secondary legislation govern the application of the SRR, which grants the UK authorities powers to handle systemically important firms, such as banks, in case of highly likely failure. The UK resolution authority is the Bank of England which is empowered, among other things, to direct firms and their parent undertakings to address or remove barriers to resolvability, to enforce resolution actions and to carry out resolvability assessments of credit institutions. Separately, the PRA and the FCA have the power to require parent undertakings of firms subject to this regime to take actions such as the preparation and submission of group recovery plans or the facilitation of the use of resolution powers.
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Risk factors
Our businesses are exposed to a variety of risks that could adversely affect our results of operations and financial ­condition, including, among others, those described below.
Liquidity risk
Liquidity, or ready access to funds, is essential to our business, particularly our investment banking businesses. We seek to maintain available liquidity to meet our obligations in a stressed liquidity environment.
> Refer to “Liquidity and funding management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for information on our liquidity management.
Our liquidity could be impaired if we were unable to access the capital markets, sell our assets or our liquidity costs increase
Our ability to borrow on a secured or unsecured basis and the cost of doing so can be affected by increases in interest rates or credit spreads, the availability of credit, regulatory requirements relating to liquidity or the market perceptions of risk relating to us, certain of our counterparties or the banking sector as a whole, including our perceived or actual creditworthiness. An inability to obtain financing in the unsecured long-term or short-term debt capital markets, or to access the secured lending markets, could have a substantial adverse effect on our liquidity. In challenging credit markets our funding costs may increase or we may be unable to raise funds to support or expand our businesses, adversely affecting our results of operations. Following the financial crisis in 2008 and 2009, our costs of liquidity have been significant and we expect to incur ongoing costs as a result of regulatory requirements for increased liquidity. In addition, on July 27, 2017, the FCA, which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. As such, LIBOR may be modified and could potentially be discontinued after 2021. Any such developments or future changes in the administration of benchmarks could result in adverse consequences to the return on, value of and market for securities and other instruments whose returns are linked to any such benchmark, including those issued by the Group.
If we are unable to raise needed funds in the capital markets (including through offerings of equity, debt and regulatory capital securities), we may need to liquidate unencumbered assets to meet our liabilities. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may need to sell assets at depressed prices, which in either case could adversely affect our results of operations and financial condition.
Our businesses rely significantly on our deposit base for funding
Our businesses benefit from short-term funding sources, including primarily demand deposits, inter-bank loans, time deposits and cash bonds. Although deposits have been, over time, a stable source of funding, this may not continue. In that case, our liquidity position could be adversely affected and we might be unable to meet deposit withdrawals on demand or at their contractual maturity to repay borrowings as they mature or to fund new loans, investments and businesses.
Changes in our ratings may adversely affect our business
Ratings are assigned by rating agencies. They may lower, indicate their intention to lower or withdraw their ratings at any time. The major rating agencies remain focused on the financial services industry, particularly on uncertainties as to whether firms pose systemic risk in a financial or credit crisis, and on such firms’ potential vulnerability to market sentiment and confidence, particularly during periods of severe economic stress. In January 2016, Moody’s Investors Service lowered its senior long-term debt ratings of Credit Suisse AG and Credit Suisse Group AG by one notch. Any downgrades in our ratings could increase our borrowing costs, limit our access to capital markets, increase our cost of capital and adversely affect the ability of our businesses to sell or market their products, engage in business transactions – particularly financing and >>>derivatives transactions – and retain our clients.
Market risk
We may incur significant losses on our trading and investment activities due to market fluctuations and volatility
Although we continued to strive to reduce our balance sheet and made significant progress in implementing our strategy in 2017, we continue to maintain large trading and investment positions and hedges in the debt, currency and equity markets, and in private equity, hedge funds, real estate and other assets. These positions could be adversely affected by volatility in financial and other markets, that is, the degree to which prices fluctuate over a particular period in a particular market, regardless of market levels. To the extent that we own assets, or have net long positions, in any of those markets, a downturn in those markets could result in losses from a decline in the value of our net long positions. Conversely, to the extent that we have sold assets that we do not own, or have net short positions, in any of those markets, an upturn in those markets could expose us to potentially significant losses as we attempt to cover our net short positions by acquiring assets in a rising market. Market fluctuations, downturns and volatility can adversely affect the >>>fair value of our positions and our results of operations. Adverse market or economic conditions or trends have caused, and in the future may cause, a significant decline in our net revenues and profitability.
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Our businesses and organization are subject to the risk of loss from adverse market conditions and unfavorable economic, monetary, political, legal, regulatory and other developments in the countries we operate in
As a global financial services company, our businesses are materially affected by conditions in the financial markets, economic conditions generally and other developments in Europe, the US, Asia and elsewhere around the world. The recovery from the economic crisis of 2008 and 2009 continues to be sluggish in several key developed markets. The European sovereign debt crisis as well as US debt levels and the federal budget process have not been permanently resolved. In addition, commodity price volatility and concerns about emerging markets have affected financial markets. Our financial condition and results of operations could be materially adversely affected if these conditions do not improve, or if they stagnate or worsen. Further, various countries in which we operate or invest have experienced severe economic disruptions particular to that country or region, including extreme currency fluctuations, high inflation, or low or negative growth, among other negative conditions. Concerns about weaknesses in the economic and fiscal condition of certain European countries have continued, especially with regard to how such weaknesses might affect other economies as well as financial institutions (including us) which lent funds to or did business with or in those countries.
Continued concern about European economies, including the refugee crisis and political uncertainty as well as in relation to the UK’s withdrawal from the EU, could cause disruptions in market conditions in Europe and around the world. UK Prime Minister Theresa May initiated the two-year process of negotiations for withdrawal from the EU in March 2017, with an expected date of withdrawal in early 2019 (subject to any transitional arrangements that may be agreed between the EU and the UK). The results of this negotiation and the macroeconomic impact of this decision are difficult to predict and are expected to remain uncertain for a prolonged period. Among the significant global implications of the referendum was the increased uncertainty concerning a potentially more persistent and widespread imposition by central banks of negative interest rate policies. We cannot accurately predict the impact of the UK leaving the EU on Credit Suisse and such impact may negatively affect our future results of operations and financial condition. Our legal entities that are organized or operate in the UK could face limitations on providing services or otherwise conducting business in the EU following the UK’s withdrawal, which may require us to implement potentially significant changes to our legal entity structure and locations in which we conduct certain operations. While the execution of the program evolving the Group’s legal entity structure to meet developing and future regulatory requirements has continued to progress and we have reached a number of significant milestones, this program remains subject to a number of uncertainties that may affect its feasibility, scope and timing. Significant legal and regulatory changes affecting us and our operations may require us to make further changes in our legal structure. The implementation of these changes may require significant time and resources and may potentially increase operational, capital, funding and tax costs as well as our counterparties’ credit risk. The environment of political uncertainty in continental Europe may also affect our business. The popularity of nationalistic sentiments may result in significant shifts in national policy and a move away from European integration and the eurozone. Similar uncertainties exist regarding the impact of proposed changes in US policies on trade, immigration, climate change and foreign relations.
> Refer to “Evolution of legal entity structure” in Strategy for further information on our legal entity structure.
Economic disruption in other countries, even in countries in which we do not currently conduct business or have operations, could adversely affect our businesses and results. Adverse market and economic conditions continue to create a challenging operating environment for financial services companies. In particular, the impact of interest and currency exchange rates, the risk of geopolitical events, fluctuations in commodity prices and concerns about European stagnation have affected financial markets and the economy. In recent years, the low interest rate environment has adversely affected our net interest income and the value of our trading and non-trading fixed income portfolios. Future changes in interest rates, including increasing interest rates or changes in the current negative short-term interest rates in our home market, could adversely affect our businesses and results. In addition, movements in equity markets have affected the value of our trading and non-trading equity portfolios, while the historical strength of the Swiss franc has adversely affected our revenues and net income. Further, diverging monetary policies among the major economies in which we operate, in particular among the Fed, ECB and SNB, may adversely affect our results.
Such adverse market or economic conditions may reduce the number and size of investment banking transactions in which we provide underwriting, mergers and acquisitions advice or other services and, therefore, may adversely affect our financial advisory and underwriting fees. Such conditions may adversely affect the types and volumes of securities trades that we execute for customers and may adversely affect the net revenues we receive from commissions and spreads. In addition, several of our businesses engage in transactions with, or trade in obligations of, governmental entities, including supranational, national, state, provincial, municipal and local authorities. These activities can expose us to enhanced sovereign, credit-related, operational and reputational risks, including the risks that a governmental entity may default on or restructure its obligations or may claim that actions taken by government officials were beyond the legal authority of those officials, which could adversely affect our financial condition and results of operations.
Unfavorable market or economic conditions have affected our businesses over the last years, including the low interest rate environment, continued cautious investor behavior and changes in market structure, particularly in our macro businesses. These negative factors have been reflected in lower commissions and fees from our client-flow sales and trading and asset management activities, including commissions and fees that are based on the value of our clients’ portfolios. Investment performance that is below that of
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competitors or asset management benchmarks could result in a decline in assets under management and related fees and make it harder to attract new clients. There has been a fundamental shift in client demand away from more complex products and significant client deleveraging, and our results of operations related to private banking and asset management activities have been and could continue to be adversely affected as long as this continues.
Adverse market or economic conditions have also negatively affected our private equity investments since, if a private equity investment substantially declines in value, we may not receive any increased share of the income and gains from such investment (to which we are entitled in certain cases when the return on such investment exceeds certain threshold returns), may be obligated to return to investors previously received excess carried interest payments and may lose our pro rata share of the capital invested. In addition, it could become more difficult to dispose of the investment as even investments that are performing well may prove difficult to exit.
In addition to the macroeconomic factors discussed above, other events beyond our control, including terrorist attacks, cyber attacks, military conflicts, economic or political sanctions, disease pandemics, political unrest or natural disasters could have a material adverse effect on economic and market conditions, market volatility and financial activity, with a potential related effect on our businesses and results.
We may incur significant losses in the real estate sector
We finance and acquire principal positions in a number of real estate and real estate-related products, primarily for clients, and originate loans secured by commercial and residential properties. As of December 31, 2017, our real estate loans as reported to the SNB totaled approximately CHF 144 billion. We also securitize and trade in commercial and residential real estate and real estate-related whole loans, mortgages, and other real estate and commercial assets and products, including >>>CMBS and >>>RMBS. Our real estate-related businesses and risk exposures could be adversely affected by any downturn in real estate markets, other sectors and the economy as a whole. In particular, the risk of potential price corrections in the real estate market in certain areas of Switzerland could have a material adverse effect on our real estate-related businesses.
Holding large and concentrated positions may expose us to large losses
Concentrations of risk could increase losses, given that we have sizeable loans to, and securities holdings in, certain customers, industries or countries. Decreasing economic growth in any sector in which we make significant commitments, for example, through underwriting, lending or advisory services, could also negatively affect our net revenues.
We have significant risk concentration in the financial services industry as a result of the large volume of transactions we routinely conduct with broker-dealers, banks, funds and other financial institutions, and in the ordinary conduct of our business we may be subject to risk concentration with a particular counterparty. We, like other financial institutions, continue to adapt our practices and operations in consultation with our regulators to better address an evolving understanding of our exposure to, and management of, systemic risk and risk concentration to financial institutions. Regulators continue to focus on these risks, and there are numerous new regulations and government proposals, and significant ongoing regulatory uncertainty, about how best to address them. There can be no assurance that the changes in our industry, operations, practices and regulation will be effective in managing this risk.
> Refer to “Regulation and supervision” for further information.
Risk concentration may cause us to suffer losses even when economic and market conditions are generally favorable for others in our industry.
Our hedging strategies may not prevent losses
If any of the variety of instruments and strategies we use to hedge our exposure to various types of risk in our businesses is not effective, we may incur losses. We may be unable to purchase hedges or be only partially hedged, or our hedging strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.
Market risk may increase the other risks that we face
In addition to the potentially adverse effects on our businesses described above, market risk could exacerbate the other risks that we face. For example, if we were to incur substantial trading losses, our need for liquidity could rise sharply while our access to liquidity could be impaired. In conjunction with another market downturn, our customers and counterparties could also incur substantial losses of their own, thereby weakening their financial condition and increasing our credit and counterparty risk exposure to them.
Credit risk
We may suffer significant losses from our credit exposures
Our businesses are subject to the fundamental risk that borrowers and other counterparties will be unable to perform their obligations. Our credit exposures exist across a wide range of transactions that we engage in with a large number of clients and counterparties, including lending relationships, commitments and letters of credit, as well as >>>derivative, currency exchange and other transactions. Our exposure to credit risk can be exacerbated by adverse economic or market trends, as well as increased volatility in relevant markets or instruments. In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate or realize the value of our positions, thereby leading to increased concentrations. Any inability to reduce these positions may not only increase the market and credit risks associated with such positions, but also increase the level of >>>risk-weighted assets on our balance sheet, thereby increasing our capital requirements, all of which could adversely affect our businesses.
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> Refer to “Credit risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management for information on management of credit risk.
Our regular review of the creditworthiness of clients and counterparties for credit losses does not depend on the accounting treatment of the asset or commitment. Changes in creditworthiness of loans and loan commitments that are >>>fair valued are reflected in trading revenues.
Management’s determination of the provision for loan losses is subject to significant judgment. Our banking businesses may need to increase their provisions for loan losses or may record losses in excess of the previously determined provisions if our original estimates of loss prove inadequate, which could have a material adverse effect on our results of operations.
> Refer to “Credit risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management and “Note 1 – Summary of significant accounting policies”, “Note 9 – Provision for credit losses” and “Note 18 – Loans, allowance for loan losses and credit quality” in VI – Consolidated financial statements – Credit Suisse Group for information on provisions for loan losses and related risk mitigation.
Under certain circumstances, we may assume long-term credit risk, extend credit against illiquid collateral and price derivative instruments aggressively based on the credit risks that we take. As a result of these risks, our capital and liquidity requirements may continue to increase.
Defaults by one or more large financial institutions could adversely affect financial markets generally and us specifically
Concerns or even rumors about or a default by one institution could lead to significant liquidity problems, losses or defaults by other institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships between institutions. This risk is sometimes referred to as systemic risk. Concerns about defaults by and failures of many financial institutions, particularly those in or with significant exposure to the eurozone, continued in 2017 and could continue to lead to losses or defaults by financial institutions and financial intermediaries with which we interact on a daily basis, such as clearing agencies, clearing houses, banks, securities firms and exchanges. Our credit risk exposure will also increase if the collateral we hold cannot be realized or can only be liquidated at prices insufficient to cover the full amount of exposure.
The information that we use to manage our credit risk may be inaccurate or incomplete
Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. We may also lack correct and complete information with respect to the credit or trading risks of a counterparty or risk associated with specific industries, countries and regions or misinterpret such information that is received or otherwise incorrectly assess a given risk situation. Additionally, there can be no assurance that measures instituted to manage such risk will be effective in all instances.
Risks relating to our strategy
We may not achieve all of the expected benefits of our strategic initiatives
In October 2015, we announced a comprehensive new strategic direction, structure and organization of the Group, which we updated in 2016 and 2017. Our ability to implement our strategic direction, structure and organization is based on a number of key assumptions regarding the future economic environment, the economic growth of certain geographic regions, the regulatory landscape, our ability to meet certain ambitions, objectives and targets, anticipated interest rates and central bank action, among other things. If any of these assumptions (including but not limited to our ability to meet certain ambitions, objectives and targets) prove inaccurate in whole or in part, our ability to achieve some or all of the expected benefits of this strategy could be limited, including our ability to meet our stated financial goals, keep related restructuring charges within the limits currently expected and retain key employees. Factors beyond our control, including but not limited to the market and economic conditions, changes in laws, rules or regulations, execution risk related to the implementation of our strategy and other challenges and risk factors discussed in this report, could limit our ability to achieve some or all of the expected benefits of this strategy. The breadth of the changes that we announced increases the execution risk of our strategy as we continue to work to change the strategic direction of the Group. If we are unable to implement this strategy successfully in whole or in part or should the components of the strategy that are implemented fail to produce the expected benefits, our financial results and our share price may be materially and adversely affected.
> Refer to “Strategy” for further information on our strategic direction.
Additionally, part of our strategy involves a change in focus within certain areas of our business, which may have unanticipated negative effects in other areas of the business and may result in an adverse effect on our business as a whole.
The implementation of our strategy may increase our exposure to certain risks, including but not limited to credit risks, market risks, operational risks and regulatory risks. We also seek to achieve certain ambitions, objectives and targets, for example in relation to cost savings, which may or may not be successful. There is no guarantee that we will be able to achieve these goals in the form described or at all. Finally, changes to the organizational structure of our business, as well as changes in personnel and management, may lead to temporary instability of our operations.
In addition, acquisitions and other similar transactions we undertake as part of our strategy subject us to certain risks. Even though we review the records of companies we plan to acquire, it is generally not feasible for us to review all such records in detail. Even an in-depth review of records may not reveal existing or potential problems or permit us to become familiar enough with a business to assess
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fully its capabilities and deficiencies. As a result, we may assume unanticipated liabilities (including legal and compliance issues), or an acquired business may not perform as well as expected. We also face the risk that we will not be able to integrate acquisitions into our existing operations effectively as a result of, among other things, differing procedures, business practices and technology systems, as well as difficulties in adapting an acquired company into our organizational structure. We face the risk that the returns on acquisitions will not support the expenditures or indebtedness incurred to acquire such businesses or the capital expenditures needed to develop such businesses. We also face the risk that unsuccessful acquisitions will ultimately result in our having to write down or write off any goodwill associated with such transactions. For example, our results for the fourth quarter of 2015 included a goodwill impairment charge of CHF 3,797 million, the most significant component of which arose from the acquisition of Donaldson, Lufkin & Jenrette Inc. in 2000. We continue to have a significant amount of goodwill relating to this and other transactions recorded on our balance sheet that could result in additional goodwill impairment charges.
We may also seek to engage in new joint ventures (within the Group and with external parties) and strategic alliances. Although we endeavor to identify appropriate partners, our joint venture efforts may prove unsuccessful or may not justify our investment and other commitments.
Risks from estimates and valuations
We make estimates and valuations that affect our reported results, including measuring the >>>fair value of certain assets and liabilities, establishing provisions for contingencies and losses for loans, litigation and regulatory proceedings, accounting for goodwill and intangible asset impairments, evaluating our ability to realize deferred tax assets, valuing equity-based compensation awards, modeling our risk exposure and calculating expenses and liabilities associated with our pension plans. These estimates are based upon judgment and available information, and our actual results may differ materially from these estimates.
> Refer to “Critical accounting estimates” in II – Operating and financial review and “Note 1 – Summary of significant accounting policies” in VI – Consolidated financial statements – Credit Suisse Group for information on these estimates and valuations.
Our estimates and valuations rely on models and processes to predict economic conditions and market or other events that might affect the ability of counterparties to perform their obligations to us or impact the value of assets. To the extent our models and processes become less predictive due to unforeseen market conditions, illiquidity or volatility, our ability to make accurate estimates and valuations could be adversely affected.
Risks relating to off-balance sheet entities
We enter into transactions with special purpose entities (SPEs) in our normal course of business, and certain SPEs with which we transact business are not consolidated and their assets and liabilities are off-balance sheet. We may have to exercise significant management judgment in applying relevant accounting consolidation standards, either initially or after the occurrence of certain events that may require us to reassess whether consolidation is required. Accounting standards relating to consolidation, and their interpretation, have changed and may continue to change. If we are required to consolidate an SPE, its assets and liabilities would be recorded on our consolidated balance sheets and we would recognize related gains and losses in our consolidated statements of operations, and this could have an adverse impact on our results of operations and capital and leverage ratios.
> Refer to “Off-balance sheet” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Balance sheet, off-balance sheet and other contractual obligations for information on our transactions with and commitments to SPEs.
COuntry and CURRENCY exchange risk
Country risks may increase market and credit risks we face
Country, regional and political risks are components of market and credit risk. Financial markets and economic conditions generally have been and may in the future be materially affected by such risks. Economic or political pressures in a country or region, including those arising from local market disruptions, currency crises, monetary controls or other factors, may adversely affect the ability of clients or counterparties located in that country or region to obtain foreign currency or credit and, therefore, to perform their obligations to us, which in turn may have an adverse impact on our results of operations.
We may face significant losses in emerging markets
A key element of our strategy is to scale up our private banking businesses in emerging market countries. Our implementation of that strategy will necessarily increase our existing exposure to economic instability in those countries. We monitor these risks, seek diversity in the sectors in which we invest and emphasize client-driven business. Our efforts at limiting emerging market risk, however, may not always succeed. In addition, various emerging market countries, in particular Brazil during 2017, have experienced and may continue to experience severe economic, financial and political disruptions or slower economic growth than in prior years. In addition, sanctions have been imposed on certain individuals and companies in Russia and further sanctions are possible. The possible effects of any such disruptions may include an adverse impact on our businesses and increased volatility in financial markets generally.
Currency fluctuations may adversely affect our results of operations
We are exposed to risk from fluctuations in exchange rates for currencies, particularly the US dollar. In particular, a substantial portion of our assets and liabilities are denominated in currencies other than the Swiss franc, which is the primary currency of our financial reporting. Our capital is also stated in Swiss francs, and we do not fully hedge our capital position against changes in currency exchange rates. The Swiss franc remained strong against the US dollar and weakened against the euro in 2017.
As we incur a significant part of our expenses in Swiss francs while we generate a large proportion of our revenues in other currencies, our earnings are sensitive to changes in the exchange
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rates between the Swiss franc and other major currencies. Although we have implemented a number of measures designed to offset the impact of exchange rate fluctuations on our results of operations, the appreciation of the Swiss franc in particular and exchange rate volatility in general have had an adverse impact on our results of operations and capital position in recent years and may have such an effect in the future.
Operational risk
We are exposed to a wide variety of operational risks, including cybersecurity and other information technology risks
Operational risk is the risk of financial loss arising from inadequate or failed internal processes, people or systems or from external events. In general, although we have business continuity plans, our businesses face a wide variety of operational risks, including technology risk that stems from dependencies on information technology, third-party suppliers and the telecommunications infrastructure as well as from the interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses. As a global financial services company, we rely heavily on our financial, accounting and other data processing systems, which are varied and complex. Our business depends on our ability to process a large volume of diverse and complex transactions, including >>>derivatives transactions, which have increased in volume and complexity. We are exposed to operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded or accounted for. Cybersecurity and other information technology risks for financial institutions have significantly increased in recent years. Regulatory requirements in these areas have increased and are expected to increase further.
Information security, data confidentiality and integrity are of critical importance to our businesses. Despite our wide array of security measures to protect the confidentiality, integrity and availability of our systems and information, it is not always possible to anticipate the evolving threat landscape and mitigate all risks to our systems and information. We could also be affected by risks to the systems and information of clients, vendors, service providers, counterparties and other third parties. In addition, we may introduce new products or services or change processes, resulting in new operational risk that we may not fully appreciate or identify.
These threats may derive from human error, fraud or malice, or may result from accidental technological failure. There may also be attempts to fraudulently induce employees, clients, third parties or other users of our systems to disclose sensitive information in order to gain access to our data or that of our clients.
A cyber attack, information or security breach or technology failure could cause the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information relating to Credit Suisse, our clients, vendors, service providers, counterparties or other third parties. Given our global footprint and the high volume of transactions we process, the large number of clients, partners and counterparties with which we do business, our growing use of digital, mobile and internet-based services, and the increasing sophistication of cyber attacks, a cyber attack, information or security breach or technology failure could occur without detection for an extended period of time. In addition, we expect that any investigation of a cyber attack, information or security breach or technology failure will be inherently unpredictable and it may take time before any investigation is complete. During such time, we may not know the extent of the harm or how best to remediate it and certain errors or actions may be repeated or compounded before they are discovered and rectified, all or any of which would further increase the costs and consequences of a cyber attack, information or security breach or technology failure.
If any of our systems do not operate properly or are compromised as a result of cyber attacks, information or security breaches, technology failures, unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other events that could have an adverse security impact, we could be subject to litigation or suffer financial loss not covered by insurance, a disruption of our businesses, liability to our clients, damage to relationships with our vendors, regulatory intervention or reputational damage. Any such event could also require us to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures. We may also be required to expend resources to comply with new and increasingly expansive regulatory requirements related to cybersecurity.
We may suffer losses due to employee misconduct
Our businesses are exposed to risk from potential non-compliance with policies or regulations, employee misconduct or negligence and fraud, which could result in civil or criminal investigations and charges, regulatory sanctions and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to, for example, the actions of traders performing unauthorized trades or other employee misconduct. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective.
Risk management
We have risk management procedures and policies designed to manage our risk. These techniques and policies, however, may not always be effective, particularly in highly volatile markets. We continue to adapt our risk management techniques, in particular >>>value-at-risk and economic capital, which rely on historical data, to reflect changes in the financial and credit markets. No risk management procedures can anticipate every market development or event, and our risk management procedures and hedging strategies, and the judgments behind them, may not fully mitigate our risk exposure in all markets or against all types of risk.
> Refer to “Risk management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for information on our risk management.
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Legal and regulatory risks
Our exposure to legal liability is significant
We face significant legal risks in our businesses, and the volume and amount of damages claimed in litigation, regulatory proceedings and other adversarial proceedings against financial services firms continue to increase in many of the principal markets in which we operate.
We and our subsidiaries are subject to a number of material legal proceedings, regulatory actions and investigations, and an adverse result in one or more of these proceedings could have a material adverse effect on our operating results for any particular period, depending, in part, upon our results for such period.
> Refer to “Note 38 – Litigation” in VI – Consolidated financial statements – Credit Suisse Group for information relating to these and other legal and regulatory proceedings involving our investment banking and other businesses.
It is inherently difficult to predict the outcome of many of the legal, regulatory and other adversarial proceedings involving our businesses, particularly those cases in which the matters are brought on behalf of various classes of claimants, seek damages of unspecified or indeterminate amounts or involve novel legal claims. Management is required to establish, increase or release reserves for losses that are probable and reasonably estimable in connection with these matters, all of which requires significant judgment.
> Refer to “Critical accounting estimates” in II – Operating and financial review and “Note 1 – Summary of significant accounting policies” in VI – Consolidated financial statements – Credit Suisse Group for more information.
Regulatory changes may adversely affect our business and ability to execute our strategic plans
As a participant in the financial services industry, we are subject to extensive regulation by governmental agencies, supervisory authorities and self-regulatory organizations in Switzerland, the EU, the UK, the US and other jurisdictions in which we operate around the world. Such regulation is increasingly more extensive and complex and, in recent years, costs related to our compliance with these requirements and the penalties and fines sought and imposed on the financial services industry by regulatory authorities have all increased significantly and may increase further. These regulations often serve to limit our activities, including through the application of increased or enhanced capital, leverage and liquidity requirements, the addition of capital surcharges for risks related to operational, litigation, regulatory and similar matters, customer protection and market conduct regulations and direct or indirect restrictions on the businesses in which we may operate or invest. Such limitations can have a negative effect on our business and our ability to implement strategic initiatives. To the extent we are required to divest certain businesses, we could incur losses, as we may be forced to sell such businesses at a discount, which in certain instances could be substantial, as a result of both the constrained timing of such sales and the possibility that other financial institutions are liquidating similar investments at the same time.
Since 2008, regulators and governments have focused on the reform of the financial services industry, including enhanced capital, leverage and liquidity requirements, changes in compensation practices (including tax levies) and measures to address systemic risk, including ring-fencing certain activities and operations within specific legal entities. We are already subject to extensive regulation in many areas of our business and expect to face increased regulation and regulatory scrutiny and enforcement. These various regulations and requirements could require us to reduce assets held in certain subsidiaries, inject capital or other funds into or otherwise change our operations or the structure of our subsidiaries and Group. We expect such increased regulation to continue to increase our costs, including, but not limited to, costs related to compliance, systems and operations, as well as affect our ability to conduct certain types of business, which could adversely affect our profitability and competitive position. Variations in the details and implementation of such regulations may further negatively affect us, as certain requirements currently are not expected to apply equally to all of our competitors or to be implemented uniformly across jurisdictions.
For example, the additional requirements related to minimum regulatory capital, leverage ratios and liquidity measures imposed by >>>Basel III, together with more stringent requirements imposed by the Swiss >>>“Too Big To Fail” legislation and its implementing ordinances and related actions by our regulators, have contributed to our decision to reduce >>>risk-weighted assets and the size of our balance sheet, and could potentially impact our access to capital markets and increase our funding costs. In addition, the ongoing implementation in the US of the provisions of the Dodd-Frank Act, including the “Volcker Rule”, >>>derivatives regulation, and other regulatory developments described in “Regulation and supervision”, have imposed, and will continue to impose, new regulatory burdens on certain of our operations. These requirements have contributed to our decision to exit certain businesses (including a number of our private equity businesses) and may lead us to exit other businesses. Recent CFTC and SEC rules and proposals could materially increase the operating costs, including margin requirements, compliance, information technology and related costs, associated with our derivatives businesses with US persons, while at the same time making it more difficult for us to transact derivatives business outside the US. Further, in 2014, the Fed adopted a final rule under the Dodd-Frank Act that created a new framework for regulation of the US operations of foreign banking organizations such as ours. Although the final impact of the rule cannot be fully predicted at this time, it is expected to result in our incurring additional costs and to affect the way we conduct our business in the US, including through our US IHC. Certain of these proposals are not final, and the ultimate impact of any final requirements cannot be predicted at this time. Further, already enacted and possible future cross-border tax regulation with extraterritorial effect, such as FATCA, and other bilateral or multilateral tax treaties and agreements on the automatic exchange of information in tax matters, impose detailed reporting obligations and increased compliance and systems-related costs on our businesses. In addition, the US tax reform enacted on December 22, 2017 introduced substantial changes to the US tax system, including the lowering of the corporate tax rate and the introduction of
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BEAT. Additionally, implementation of EMIR and its Swiss counterpart, FMIA, CRD IV, MiFID II and MiFIR reforms may negatively affect our business activities. If Switzerland does not pass legislation that is deemed equivalent to MiFID II in a timely manner or if Swiss regulation already passed is not deemed equivalent to EMIR, Swiss banks, including us, may be limited from participating in businesses regulated by such laws. Finally, we expect that TLAC requirements, which were finalized in Switzerland and the US in 2016 and are being finalized in many other jurisdictions, including the EU, as well as new requirements and rules with respect to the internal total loss-absorbing capacity of G-SIBs (iTLAC), may increase our cost of funding and restrict our ability to deploy capital and liquidity on a global basis as needed when they are implemented.
Further, following the formal notification by the UK of its decision to leave the EU, negotiations have commenced on the withdrawal agreement. This includes the renegotiation, either during a transitional period or more permanently, of a number of regulatory and other arrangements between the EU and the UK that could directly impact our business. Adverse changes to any of these arrangements, and even uncertainty over potential changes during the period of negotiation, could potentially impact our results.
We expect the financial services industry and its members, including us, to continue to be affected by the significant uncertainty over the scope and content of regulatory reform in 2018 and beyond. The uncertainty about the future US regulatory agenda, which includes a variety of proposals to change existing regulations or the approach to regulation of the financial industry, potential changes in regulation following a UK withdrawal from the EU and the results of national elections in Europe may result in significant changes in the regulatory direction and policies applicable to us. Changes in laws, rules or regulations, or in their interpretation or enforcement, or the implementation of new laws, rules or regulations, may adversely affect our results of operations.
Despite our best efforts to comply with applicable regulations, a number of risks remain, particularly in areas where applicable regulations may be unclear or inconsistent among jurisdictions or where regulators revise their previous guidance or courts overturn previous rulings. Authorities in many jurisdictions have the power to bring administrative or judicial proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially adversely affect our results of operations and seriously harm our reputation.
> Refer to “Regulation and supervision” for a description of our regulatory regime and a summary of some of the significant regulatory and government reform proposals affecting the financial services industry as well as to “Liquidity and funding management” and “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for information regarding our current regulatory framework and expected changes to this framework affecting capital and liquidity standards.
Swiss resolution proceedings and resolution planning requirements may affect our shareholders and creditors
Pursuant to Swiss banking laws, >>>FINMA has broad powers and discretion in the case of resolution proceedings with respect to a Swiss bank, such as Credit Suisse AG or Credit Suisse (Schweiz) AG, and to a Swiss parent company of a financial group, such as Credit Suisse Group AG. These broad powers include the power to open restructuring proceedings with respect to Credit Suisse AG, Credit Suisse (Schweiz) AG or Credit Suisse Group AG and, in connection therewith, cancel the outstanding equity of the entity subject to such proceedings, convert such entity’s debt instruments and other liabilities into equity and/or cancel such debt instruments and other liabilities, in each case, in whole or in part, and stay (for a maximum of two business days) certain rights under contracts to which such entity is a party, as well as the power to order protective measures, including the deferment of payments, and institute liquidation proceedings with respect to Credit Suisse AG, Credit Suisse (Schweiz) AG or Credit Suisse Group AG. The scope of such powers and discretion and the legal mechanisms that would be utilized are subject to development and interpretation.
We are currently subject to resolution planning requirements in Switzerland, the US and the UK and may face similar requirements in other jurisdictions. If a resolution plan is determined by the relevant authority to be inadequate, relevant regulations may allow the authority to place limitations on the scope or size of our business in that jurisdiction, require us to hold higher amounts of capital or liquidity, require us to divest assets or subsidiaries or to change our legal structure or business to remove the relevant impediments to resolution.
> Refer to “Recent regulatory developments and proposals – Switzerland” and “Regulatory framework – Switzerland – Resolution regime” in Regulation and supervision for a description of the current resolution regime under Swiss banking laws as it applies to Credit Suisse AG, Credit Suisse (Schweiz) AG and Credit Suisse Group AG.
Changes in monetary policy are beyond our control and difficult to predict
We are affected by the monetary policies adopted by the central banks and regulatory authorities of Switzerland, the US and other countries. The actions of the SNB and other central banking authorities directly impact our cost of funds for lending, capital raising and investment activities and may impact the value of financial instruments we hold and the competitive and operating environment for the financial services industry. Many central banks, including the Fed, have implemented significant changes to their monetary policy or have experienced significant changes in their management and may implement or experience further changes. We cannot predict whether these changes will have a material adverse effect on us or our operations. In addition, changes in monetary policy may affect the credit quality of our customers. Any changes in monetary policy are beyond our control and difficult to predict.
Legal restrictions on our clients may reduce the demand for our services
We may be materially affected not only by regulations applicable to us as a financial services company, but also by regulations and changes in enforcement practices applicable to our clients. Our business could be affected by, among other things, existing and proposed tax legislation, antitrust and competition policies,
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corporate governance initiatives and other governmental regulations and policies, and changes in the interpretation or enforcement of existing laws and rules that affect business and the financial markets. For example, focus on tax compliance and changes in enforcement practices could lead to further asset outflows from our private banking businesses.
Any conversion of our convertible capital instruments will dilute the ownership interests of existing shareholders
Under Swiss regulatory capital rules, we are required to issue a significant amount of contingent capital instruments, certain of which will convert into common equity upon the occurrence of specified triggering events, including our CET1 ratio falling below prescribed thresholds (7% in the case of high-trigger instruments), or a determination by FINMA that conversion is necessary, or that we require extraordinary public sector capital support, to prevent us from becoming insolvent. As of December 31, 2017, we had 2,550,254,054 common shares outstanding and we had already issued in the aggregate an equivalent of CHF 5.9 billion in principal amount of such contingent convertible capital instruments, and we may issue more such contingent convertible capital instruments in the future. The conversion of some or all of our contingent convertible capital instruments due to the occurrence of any of such triggering events will result in the dilution of the ownership interests of our then existing shareholders, which dilution could be substantial. Additionally, any conversion, or the anticipation of the possibility of a conversion, could depress the market price of our ordinary shares.
> Refer to “Contingent convertible capital instruments” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Issuances and redemptions for more information on the triggering events related to our contingent convertible capital instruments.
Competition
We face intense competition
We face intense competition in all financial services markets and for the products and services we offer. Consolidation through mergers, acquisitions, alliances and cooperation, including as a result of financial distress, has increased competitive pressures. Competition is based on many factors, including the products and services offered, pricing, distribution systems, customer service, brand recognition, perceived financial strength and the willingness to use capital to serve client needs. Consolidation has created a number of firms that, like us, have the ability to offer a wide range of products, from loans and deposit-taking to brokerage, investment banking and asset management services. Some of these firms may be able to offer a broader range of products than we do, or offer such products at more competitive prices. Current market conditions have resulted in significant changes in the competitive landscape in our industry as many institutions have merged, altered the scope of their business, declared bankruptcy, received government assistance or changed their regulatory status, which will affect how they conduct their business. In addition, current market conditions have had a fundamental impact on client demand for products and services. Some new competitors in the financial technology sector have sought to target existing segments of our businesses that could be susceptible to disruption by innovative or less regulated business models. We can give no assurance that our results of operations will not be adversely affected.
Our competitive position could be harmed if our reputation is damaged
In the highly competitive environment arising from globalization and convergence in the financial services industry, a reputation for financial strength and integrity is critical to our performance, including our ability to attract and retain clients and employees. Our reputation could be harmed if our comprehensive procedures and controls fail, or appear to fail, to address conflicts of interest, prevent employee misconduct, produce materially accurate and complete financial and other information or prevent adverse legal or regulatory actions.
> Refer to “Reputational risk” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management for more information.
We must recruit and retain highly skilled employees
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition for qualified employees is intense. We have devoted considerable resources to recruiting, training and compensating employees. Our continued ability to compete effectively in our businesses depends on our ability to attract new employees and to retain and motivate our existing employees. The continued public focus on compensation practices in the financial services industry, and related regulatory changes, may have an adverse impact on our ability to attract and retain highly skilled employees. In particular, limits on the amount and form of executive compensation imposed by regulatory initiatives, including the Swiss Ordinance Against Excessive Compensation with respect to Listed Stock Corporations (Compensation Ordinance) in Switzerland and the implementation of CRD IV in the UK, could potentially have an adverse impact on our ability to retain certain of our most highly skilled employees and hire new qualified employees in certain businesses.
We face competition from new trading technologies
Our businesses face competitive challenges from new trading technologies, including trends towards direct access to automated and electronic markets, and the move to more automated trading platforms. Such technologies and trends may adversely affect our commission and trading revenues, exclude our businesses from certain transaction flows, reduce our participation in the trading markets and the associated access to market information and lead to the creation of new and stronger competitors. We have made, and may continue to be required to make, significant additional expenditures to develop and support new trading systems or otherwise invest in technology to maintain our competitive position.
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Operating and financial review
Operating environment
Credit Suisse
Swiss Universal Bank
International Wealth Management
Asia Pacific
Global Markets
Investment Banking & Capital Markets
Strategic Resolution Unit
Corporate Center
Assets under management
Critical accounting estimates

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Operating environment
Global economic growth accelerated significantly in 2017, while inflation generally remained subdued. Global equity markets appreciated strongly during the year, and volatility remained at low levels. Major government bond yields were mixed and generally remained at low levels. The US dollar underperformed against major currencies in 2017 and commodities ended the year higher.
Economic environment
Strong improvements in business and consumer surveys early in 2017 signaled a meaningful economic acceleration in many major economies. After peaking in the first quarter of 2017, US core inflation began to recede markedly before stabilizing again in the second half. Economic momentum in the eurozone was comparably strong, broadly supported by all major economies of the currency union. The inflation environment, on the other hand, remained subdued and showed little evidence that a more sustainable upward trend had begun. Among emerging markets, China’s economic performance beat expectations in the first half of the year, while signs of somewhat slower growth emerged in the second half.
The US Federal Reserve (Fed) continued to raise the target range for the federal funds rate throughout 2017, delivering a total of three 25 basis point hikes. The European Central Bank (ECB) kept monetary policy unchanged in 2017, but announced in October a reduction in the pace of its monthly asset purchases to EUR 30 billion beginning in January 2018. Central banks in most other advanced economies kept monetary policy unchanged as well. The exceptions were the Bank of Canada and the Bank of England, which returned their policy rates to the levels prevailing before their most recent emergency rate cuts in 2015 and 2016, respectively. Monetary policy in emerging markets such as Russia and Brazil eased somewhat, while rate hikes in Mexico and South Korea were the exception.
In 2017, global equities returned more than 18% due to the supportive growth environment and strong corporate earnings. Among developed markets, US and Japanese equities outperformed global equity markets, while Canada, Australia and the eurozone markets underperformed. Emerging market equities was the strongest segment, with a total return of more than 30%, benefitting from the recovery in global growth, easing monetary policy and a weaker US dollar (refer to the charts under “Equity markets”). Among sectors, IT, materials and industrials were the top performers while energy, telecommunications and utilities were the bottom performers in 2017. Equity market volatility, as measured by the Chicago Board Options Exchange Market Volatility Index (VIX), trended lower throughout 2017 to reach historically low levels. Risk appetite, as measured by the Credit Suisse Equity Risk Appetite Index, decreased during the year. The Credit Suisse Hedge Fund Index increased 7.2% in 2017.
54

In fixed income, despite strong economic momentum, US dollar long-dated government bond yields ended the year broadly unchanged given the subdued inflation pressure. In contrast, US dollar yields on shorter maturities increased further due to a continuation of rate increases by the Fed (refer to the charts under “Yield curves”). As a result, the US dollar yield curve flattened significantly, with the yield differential between 10-year and 2-year US Treasury yields declining. For the euro and the Swiss franc, longer dated yields increased slightly with better growth prospects and signs of a gradual increase in inflation expectations. Reflecting a decrease in the eurozone risk premium, peripheral European bonds outperformed core European sovereigns, with Greece and Portugal leading the trend. In credits, European subordinated financial debt benefited the most from this improved sentiment (refer to the charts under “Credit spreads”). The generally positive risk appetite led to an outperformance of global credits versus government bonds and high yield versus investment grade corporate bonds. In addition to the improved perception towards Europe, emerging market risk premiums also declined meaningfully in 2017. The decline in risk premium led to emerging market currency gains and very strong returns for local bonds in US dollar terms, with the asset class one of the best performing fixed income market segments in 2017.
Among major currencies, the US dollar underperformed in 2017. It depreciated from strong levels at the beginning of 2017, despite the continued tightening of US monetary policy, as disappointing US inflation weighed on it. The euro appreciated the most, following easing political concerns after the French elections, strong economic growth in the eurozone and the ECB’s October announcement on monetary policy plans. The Swiss franc also gained against the US dollar over the year, but depreciated against the euro as economic and political risks in the eurozone receded and safe-haven flows of capital began to reverse. The British pound was also among the strong major currencies in 2017, benefitting from progress in the negotiations on the United Kingdom’s withdrawal from the European Union. In major emerging markets, the Polish zloty, South Korean won and South African rand performed the best, while the Turkish lira was one of the few currencies to depreciate against the US dollar in 2017.
The Credit Suisse Commodities Benchmark ended the year with a positive return of more than 7% after substantial gains in the second half of the year reversed declines suffered in the first half of 2017. Within commodities, industrial metals outperformed following strong global industrial activity and ongoing Chinese supply reforms. Energy markets, specifically crude oil, also recorded price increases, driven by tightening inventories due to production cuts by the Organization of Petroleum Exporting Countries
55

and firm demand. Meanwhile, precious metals benefitted from a weaker US dollar and low US real interest rates. Major agriculture markets recorded losses as already large inventories and another strong world-wide harvest weighed on prices.
Market volumes (growth in % year on year)
2017 Global Europe
Equity trading volume 1 2 8
Announced mergers and acquisitions 2 (2) 7
Completed mergers and acquisitions 2 (10) (20)
Equity underwriting 2 28 48
Debt underwriting 2 8 12
Syndicated lending – investment grade 2 (35)
1
London Stock Exchange, Borsa Italiana, Deutsche Börse and BME. Global also includes ICE and NASDAQ.
2
Dealogic.
Sector environment
World bank stocks underperformed global equity markets in 2017. European bank stocks outperformed world bank stocks strongly in the first half of 2017, but underperformed in the second half due to a very strong performance by North American bank stocks. At the end of 2017, world bank stocks traded 16.1% higher compared to 2016 (refer to the charts under “Equity markets”).
In private banking, market conditions remained challenging in light of political and economic uncertainty and the persistence of the low interest rate environment. The sector continues to face significant structural pressure as it adapts to industry-specific regulatory changes and tax regularization initiatives. In 2017, the industry experienced supportive equity markets, maintained a long-term fundamental growth trend and saw the continued pursuit of new opportunities and efficiencies arising from digital technology.
In investment banking, global equity trading volumes slightly increased compared to 2016, mainly driven by higher volumes in Europe. Compared to 2016, global announced mergers & acquisitions (M&A) volumes were down by 2%. Global completed M&A volumes also decreased, mainly due to lower volumes in Europe. Global equity underwriting volumes increased 28%, impacted by higher volumes in Europe, which were up 48% compared to 2016. Global debt underwriting increased by 8% compared to 2016. US fixed income volumes were stable compared to 2016.
56

Credit Suisse
In 2017, we recorded a net loss attributable to shareholders of CHF 983 million. Diluted loss per share was CHF 0.41 and the return on equity attributable to shareholders was (2.3)%. As of the end of 2017, our BIS CET1 ratio was 12.8% on a look-through basis.
Results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net interest income 6,557 7,562 9,299 (13) (19)
Commissions and fees 11,817 11,092 12,044 7 (8)
Trading revenues 1,317 313 1,340 321 (77)
Other revenues 1,209 1,356 1,114 (11) 22
Net revenues  20,900 20,323 23,797 3 (15)
Provision for credit losses  210 252 324 (17) (22)
Compensation and benefits 10,177 10,572 11,546 (4) (8)
General and administrative expenses 6,835 9,770 8,574 (30) 14
Commission expenses 1,430 1,455 1,623 (2) (10)
Goodwill impairment 0 0 3,797 (100)
Restructuring expenses 455 540 355 (16) 52
Total other operating expenses 8,720 11,765 14,349 (26) (18)
Total operating expenses  18,897 22,337 25,895 (15) (14)
Income/(loss) before taxes  1,793 (2,266) (2,422) (6)
Income tax expense 2,741 441 523 (16)
Net income/(loss)  (948) (2,707) (2,945) (65) (8)
Net income/(loss) attributable to noncontrolling interests 35 3 (1)
Net income/(loss) attributable to shareholders  (983) (2,710) (2,944) (64) (8)
Statement of operations metrics (%)   
Return on regulatory capital 3.9 (4.7) (4.5)
Cost/income ratio 90.4 109.9 108.8
Effective tax rate 152.9 (19.5) (21.6)
Earnings per share (CHF)   
Basic earnings/(loss) per share (0.41) (1.27) (1.65) (68) (23)
Diluted earnings/(loss) per share (0.41) (1.27) (1.65) (68) (23)
Return on equity (%)   
Return on equity attributable to shareholders (2.3) (6.1) (6.8)
Return on tangible equity attributable to shareholders 1 (2.6) (6.9) (8.4)
Balance sheet statistics (CHF million)   
Total assets 796,289 819,861 820,805 (3) 0
Risk-weighted assets 2 271,680 268,045 289,946 1 (8)
Leverage exposure 2 916,525 950,763 987,628 (4) (4)
Number of employees (full-time equivalents)   
Number of employees 46,840 47,170 48,210 (1) (2)
1
Based on tangible shareholders' equity attributable to shareholders, a non-GAAP financial measure, which is calculated by deducting goodwill and other intangible assets from total shareholders' equity attributable to shareholders as presented in our balance sheet. Management believes that the return on tangible shareholders' equity attributable to shareholders is meaningful as it allows consistent measurement of the performance of businesses without regard to whether the businesses were acquired.
2
Disclosed on a look-through basis.
57

Results Summary
2017 results
In 2017, Credit Suisse reported a net loss attributable to shareholders of CHF 983 million compared to a net loss attributable to shareholders of CHF 2,710 million in 2016. The 2017 results included income tax expenses of CHF 2,741 million, mainly reflecting the re-assessment of deferred tax assets with an associated tax charge of CHF 2.3 billion, primarily resulting from a reduction in the US federal corporate tax rate following the enactment of the Tax Cuts and Jobs Act in the US during the fourth quarter of 2017. The 2016 results included net litigation provisions of CHF 2,986 million, primarily relating to the settlement with the US Department of Justice (DOJ) regarding our legacy >>>residential mortgage-backed securities (RMBS) business. In 2017, Credit Suisse reported income before taxes of CHF 1,793 million and an adjusted income before taxes of CHF 2,762 million.
2016 results
In 2016, Credit Suisse reported a net loss attributable to shareholders of CHF 2,710 million compared to CHF 2,944 million in 2015. The 2016 results included net litigation provisions of CHF 2,986 million, primarily related to the settlement with the DOJ regarding our legacy RMBS business. Our 2015 results included a goodwill impairment charge of CHF 3,797 million. In 2016, Credit Suisse reported an adjusted income before taxes of CHF 615 million.
2017 Results
Net revenues
Compared to 2016, net revenues of CHF 20,900 million increased 3%, primarily reflecting higher net revenues in International Wealth Management and Investment Banking & Capital Markets and lower negative net revenues in the Strategic Resolution Unit, partially offset by lower net revenues in Swiss Universal Bank. The increase in net revenues in International Wealth Management was driven by higher recurring commissions and fees, higher transaction- and performance-based revenues and higher net interest income, partially offset by lower other revenues. The increase in net revenues in Investment Banking & Capital Markets was due to higher revenues from debt underwriting and equity underwriting, partially offset by lower revenues in advisory and other fees. The decrease in negative net revenues in the Strategic Resolution Unit was driven by lower negative valuation adjustments, a reduction in overall funding costs and lower exit losses primarily related to the sale of loan and financing portfolios, partially offset by a reduction in fee-based revenues as a result of accelerated business exits. The decrease in net revenues in Swiss Universal Bank was mainly due to gains on the sale of real estate in 2016 of CHF 366 million.
Provision for credit losses
In 2017, we recorded provision for credit losses of CHF 210 million, primarily reflecting provisions of CHF 75 million in Swiss Universal Bank, CHF 32 million in the Strategic Resolution Unit, CHF 31 million in Global Markets and CHF 30 million in Investment Banking & Capital Markets.
Total operating expenses
We reported total operating expenses of CHF 18,897 million in 2017, a decrease of 15% compared to 2016, primarily due to a 30% decrease in general and administrative expenses and a 4% decrease in compensation and benefits. The decrease in general and administrative expenses was primarily due to lower litigation provisions, mainly due to the settlements in 2016 with the DOJ and the National Credit Union Administration Board (NCUA) regarding our legacy >>>RMBS business, and lower professional services fees. The decrease in compensation and benefits was mainly due to lower salaries and lower discretionary compensation expenses.
58

Income tax expense
In 2017, we recorded income tax expense of CHF 2,741 million. The Credit Suisse effective tax rate was 152.9% in 2017, compared to (19.5)% in 2016. The effective tax rate for 2017 mainly reflected the re-assessment of deferred tax assets, with an associated tax charge of CHF 2.3 billion primarily resulting from the US tax reform, the non-deductible penalty relating to the settlement with the DFS relating to certain areas of our foreign exchange trading business and the impact from recognizing tax contingency accruals, partially offset by the impact of the geographical mix of results. Overall, net deferred tax assets decreased CHF 571 million to CHF 5,128 million during 2017, mainly driven by the re-assessment of deferred taxes, earnings and a foreign exchange impact, partially offset by the adoption of new accounting standards relating to intra-entity asset transfers rules and share-based payment. Net deferred tax assets on net operating losses increased CHF 35 million to CHF 2,213 million during 2017.
US tax reform – Tax Cuts and Jobs Act
The US tax reform enacted on December 22, 2017 resulted in a reduction of the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The US tax reform required a re-assessment of our deferred tax assets, which resulted in a tax charge recorded in the fourth quarter of 2017, primarily related to our US deferred tax assets. The impact of the US tax reform on our look-through common equity tier 1 (CET1) ratio in the fourth quarter of 2017 was minimal.
The reform also introduced the base erosion and anti-abuse tax (BEAT), effective as of January 1, 2018. It is broadly levied on tax deductions created by certain payments, e.g., for interest and services, to affiliated group companies outside the US, in the case where the calculated tax based on a modified taxable income exceeds the amount of ordinary federal corporate income taxes paid. The tax rates applicable for banks are 6% for 2018, 11% for 2019 until 2025 and 13.5% from 2026 onward. On the basis of the current analysis of the BEAT tax regime, we regard it as more likely than not that the Group will not be subject to this regime in 2018. However, there are significant uncertainties in the application of BEAT and this interpretation will be subject to review once further guidance has been issued by the US Department of Treasury.
> Refer to “Note 27 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information.
2016 Results
Net revenues
Compared to 2015, net revenues of CHF 20,323 million decreased 15%, primarily reflecting lower net revenues in the Strategic Resolution Unit and Global Markets. Net revenues in the Strategic Resolution Unit decreased primarily due to lower revenues from the restructuring of our select onshore businesses, in particular the transfer of our US private banking business, which was announced in 2015, higher overall funding costs and higher negative valuation adjustments. Net revenues in Global Markets declined as challenging trading conditions resulted in reduced client activity.
Provision for credit losses
In 2016, we recorded provision for credit losses of CHF 252 million, primarily reflecting provisions of CHF 111 million in the Strategic Resolution Unit and CHF 79 million in Swiss Universal Bank.
Total operating expenses
Compared to 2015, total operating expenses of CHF 22,337 million decreased 14%, primarily reflecting the significant goodwill impairment charge in the fourth quarter of 2015, partially offset by a 52% increase in restructuring expenses, mainly in Global Markets, and the higher net litigation provisions primarily due to the settlements with the DOJ and the NCUA regarding our legacy >>>RMBS business.
Income tax expense
In 2016, we recorded income tax expense of CHF 441 million. The Credit Suisse effective tax rate was (19.5)% in 2016, compared to (21.6)% in 2015. The effective tax rate for 2016 mainly reflected the non-deductible civil monetary penalty relating to the settlement with the DOJ regarding our legacy RMBS business. This impact was partially offset by tax benefits from the geographical mix of results and re-assessment of deferred tax balances, mainly in Switzerland. It also reflected changes in valuation allowances against deferred tax assets, mainly in the UK and Switzerland. Overall, net deferred tax assets decreased CHF 426 million to CHF 5,699 million during 2016.
> Refer to “Note 27 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information.
59

Overview of Results 

in / end of

Swiss
Universal
Bank

International
Wealth
Management



Asia Pacific


Global
Markets
Investment
Banking &
Capital
Markets


Corporate
Center


Core
Results

Strategic
Resolution
Unit


Credit
Suisse
2017 (CHF million)   
Net revenues  5,396 5,111 3,504 5,551 2,139 85 21,786 (886) 20,900
Provision for credit losses  75 27 15 31 30 0 178 32 210
Compensation and benefits 1,833 2,216 1,602 2,532 1,268 394 9,845 332 10,177
Total other operating expenses 1,723 1,517 1,158 2,538 472 427 7,835 885 8,720
   of which general and administrative expenses  1,375 1,203 831 1,839 423 368 6,039 796 6,835
   of which restructuring expenses  59 70 63 150 42 14 398 57 455
Total operating expenses  3,556 3,733 2,760 5,070 1,740 821 17,680 1,217 18,897
Income/(loss) before taxes  1,765 1,351 729 450 369 (736) 3,928 (2,135) 1,793
Return on regulatory capital 13.7 25.8 13.8 3.2 13.7 9.3 3.9
Cost/income ratio 65.9 73.0 78.8 91.3 81.3 81.2 90.4
Total assets 228,857 94,753 96,497 242,159 20,803 67,591 750,660 45,629 796,289
Goodwill 610 1,544 1,496 459 633 0 4,742 0 4,742
Risk-weighted assets 1 65,572 38,256 31,474 58,858 20,058 23,849 238,067 33,613 271,680
Leverage exposure 1 257,054 99,267 105,585 283,809 43,842 67,034 856,591 59,934 916,525
2016 (CHF million)   
Net revenues  5,759 4,698 3,597 5,497 1,972 71 21,594 (1,271) 20,323
Provision for credit losses  79 20 26 (3) 20 (1) 141 111 252
Compensation and benefits 1,937 2,119 1,665 2,725 1,237 277 9,960 612 10,572
Total other operating expenses 1,718 1,438 1,181 2,727 454 482 8,000 3,765 11,765
   of which general and administrative expenses  1,375 1,145 836 2,001 424 399 6,180 3,590 9,770
   of which restructuring expenses  60 54 53 217 28 7 419 121 540
Total operating expenses  3,655 3,557 2,846 5,452 1,691 759 17,960 4,377 22,337
Income/(loss) before taxes  2,025 1,121 725 48 261 (687) 3,493 (5,759) (2,266)
Return on regulatory capital 16.5 23.3 13.7 0.4 10.7 8.5 (4.7)
Cost/income ratio 63.5 75.7 79.1 99.2 85.8 83.2 109.9
Total assets 228,363 91,083 97,221 239,700 20,784 62,413 739,564 80,297 819,861
Goodwill 623 1,612 1,546 476 656 0 4,913 0 4,913
Risk-weighted assets 1 65,669 35,252 34,605 51,713 18,027 17,338 222,604 45,441 268,045
Leverage exposure 1 252,889 94,092 108,926 284,143 45,571 59,374 844,995 105,768 950,763
2015 (CHF million)   
Net revenues  5,721 4,552 3,839 6,826 1,787 561 23,286 511 23,797
Provision for credit losses  138 5 35 10 0 (1) 187 137 324
Compensation and benefits 1,985 2,115 1,557 3,105 1,265 351 10,378 1,168 11,546
Total other operating expenses 1,923 1,709 1,870 5,642 836 511 12,491 1,858 14,349
   of which general and administrative expenses  1,597 1,429 790 2,322 432 465 7,035 1,539 8,574
   Goodwill impairment  0 0 756 2,661 380 0 3,797 0 3,797
   Restructuring expenses  42 36 3 96 22 0 199 156 355
Total operating expenses  3,908 3,824 3,427 8,747 2,101 862 22,869 3,026 25,895
Income/(loss) before taxes 1,675 723 377 (1,931) (314) (300) 230 (2,652) (2,422)
Return on regulatory capital 13.8 15.4 6.7 (11.2) (15.4) 0.5 (4.5)
Cost/income ratio 68.3 84.0 89.3 128.1 117.6 98.2 108.8
Total assets 220,359 96,085 85,929 234,276 18,712 64,621 719,982 100,823 820,805
Goodwill 610 1,573 1,522 464 639 0 4,808 0 4,808
Risk-weighted assets 1 60,352 32,880 26,835 62,838 16,150 18,467 217,522 72,424 289,946
Leverage exposure 1 238,180 101,628 98,632 276,656 40,898 63,090 819,084 168,544 987,628
1
Disclosed on a look-through basis.
60

Reconciliation of adjusted results
Adjusted results referred to in this report are non-GAAP financial measures that exclude goodwill impairment and certain other revenues and expenses included in our reported results. Management believes that adjusted results provide a useful presentation of our operating results for purposes of assessing our Group and divisional performance consistently over time, on a basis that excludes items that management does not consider representative of our underlying performance. Provided below is a reconciliation of our adjusted results to the most directly comparable US GAAP measures.

in

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets


Corporate
Center


Core
Results

Strategic
Resolution
Unit


Credit
Suisse
2017 (CHF million)   
Net revenues  5,396 5,111 3,504 5,551 2,139 85 21,786 (886) 20,900
   (Gains)/losses on business sales  0 28 0 0 0 23 51 (38) 13
Net revenues adjusted  5,396 5,139 3,504 5,551 2,139 108 21,837 (924) 20,913
Provision for credit losses  75 27 15 31 30 0 178 32 210
Total operating expenses  3,556 3,733 2,760 5,070 1,740 821 17,680 1,217 18,897
   Restructuring expenses  (59) (70) (63) (150) (42) (14) (398) (57) (455)
   Major litigation provisions  (49) (48) 0 0 0 (127) (224) (269) (493)
   Expenses related to business sales  0 0 0 (8) 0 0 (8) 0 (8)
Total operating expenses adjusted  3,448 3,615 2,697 4,912 1,698 680 17,050 891 17,941
Income/(loss) before taxes  1,765 1,351 729 450 369 (736) 3,928 (2,135) 1,793
   Total adjustments  108 146 63 158 42 164 681 288 969
Adjusted income/(loss) before taxes  1,873 1,497 792 608 411 (572) 4,609 (1,847) 2,762
Adjusted return on regulatory capital (%) 14.6 28.6 15.0 4.3 15.2 10.9 6.0
2016 (CHF million)   
Net revenues  5,759 4,698 3,597 5,497 1,972 71 21,594 (1,271) 20,323
   Real estate gains  (366) (54) 0 0 0 0 (420) (4) (424)
   (Gains)/losses on business sales  0 0 0 0 0 52 52 6 58
Net revenues adjusted  5,393 4,644 3,597 5,497 1,972 123 21,226 (1,269) 19,957
Provision for credit losses  79 20 26 (3) 20 (1) 141 111 252
Total operating expenses  3,655 3,557 2,846 5,452 1,691 759 17,960 4,377 22,337
   Restructuring expenses  (60) (54) (53) (217) (28) (7) (419) (121) (540)
   Major litigation provisions  (19) 12 0 (7) 0 0 (14) (2,693) (2,707)
Total operating expenses adjusted  3,576 3,515 2,793 5,228 1,663 752 17,527 1,563 19,090
Income/(loss) before taxes  2,025 1,121 725 48 261 (687) 3,493 (5,759) (2,266)
   Total adjustments  (287) (12) 53 224 28 59 65 2,816 2,881
Adjusted income/(loss) before taxes  1,738 1,109 778 272 289 (628) 3,558 (2,943) 615
Adjusted return on regulatory capital (%) 14.2 23.1 14.8 2.0 11.9 8.6 1.3
2015 (CHF million)   
Net revenues  5,721 4,552 3,839 6,826 1,787 561 23,286 511 23,797
   Fair value on own debt  (298) (298) (298)
   Real estate gains  (95) 0 0 0 0 0 (95) 0 (95)
   (Gains)/losses on business sales  (23) (11) 0 0 0 0 (34) 0 (34)
Net revenues adjusted  5,603 4,541 3,839 6,826 1,787 263 22,859 511 23,370
Provision for credit losses  138 5 35 10 0 (1) 187 137 324
Total operating expenses  3,908 3,824 3,427 8,747 2,101 862 22,869 3,026 25,895
   Goodwill impairment  0 0 (756) (2,661) (380) 0 (3,797) 0 (3,797)
   Restructuring expenses  (42) (36) (3) (96) (22) 0 (199) (156) (355)
   Major litigation provisions  (25) (268) (6) (231) 0 0 (530) (290) (820)
Total operating expenses adjusted  3,841 3,520 2,662 5,759 1,699 862 18,343 2,580 20,923
Income/(loss) before taxes  1,675 723 377 (1,931) (314) (300) 230 (2,652) (2,422)
   Total adjustments  (51) 293 765 2,988 402 (298) 4,099 446 4,545
Adjusted income/(loss) before taxes  1,624 1,016 1,142 1,057 88 (598) 4,329 (2,206) 2,123
Adjusted return on regulatory capital (%) 13.4 21.7 20.4 6.7 4.6 10.0 4.0
Adjusted return on regulatory capital is calculated using adjusted results, applying the same methodology used to calculate return on regulatory capital.
61

Core Results by business activity 
in    2017 2016 2015

(CHF million)

Swiss
Universal
Bank

International
Wealth
Management



Asia Pacific


Global
Markets
Investment
Banking &
Capital
Markets


Corporate
Center


Core
Results


Core
Results


Core
Results
Related to private banking   
Net revenues 2,897 3,603 1,607 8,107 8,003 7,607
   of which net interest income  1,670 1,449 620 3,739 3,571 3,090
   of which recurring  812 1,200 381 2,393 2,232 2,391
   of which transaction-based  413 953 606 1,972 1,801 1,997
Provision for credit losses 42 27 4 73 91 72
Total operating expenses 2,054 2,552 1,062 5,668 5,615 5,951
Income before taxes  801 1,024 541 2,366 2,297 1,584
Related to corporate & institutional banking   
Net revenues 2,499 2,499 2,501 2,516
   of which net interest income  1,226 1,226 1,223 1,117
   of which recurring  634 634 626 637
   of which transaction-based  694 694 702 784
Provision for credit losses 33 33 40 89
Total operating expenses 1,502 1,502 1,531 1,460
Income before taxes  964 964 930 967
Related to investment banking   
Net revenues 1,897 5,551 2,139 9,587 9,692 11,274
   of which fixed income sales and trading  262 2,922 3,184 3,130 3,887
   of which equity sales and trading  920 1,750 2,670 3,319 4,526
   of which underwriting and advisory 1 715 1,115 2,186 4,016 3,582 3,214
Provision for credit losses 11 31 30 72 11 27
Total operating expenses 1,698 5,070 1,740 8,508 9,008 13,450
Income before taxes  188 450 369 1,007 673 (2,203)
Related to asset management   
Net revenues 1,508 1,508 1,327 1,328
Total operating expenses 1,181 1,181 1,047 1,146
Income before taxes  327 327 280 182
Related to corporate center   
Net revenues 85 85 71 561
Provision for credit losses 0 0 (1) (1)
Total operating expenses 821 821 759 862
Loss before taxes  (736) (736) (687) (300)
Total   
Net revenues 5,396 5,111 3,504 5,551 2,139 85 21,786 21,594 23,286
Provision for credit losses 75 27 15 31 30 0 178 141 187
Total operating expenses 3,556 3,733 2,760 5,070 1,740 821 17,680 17,960 22,869
Income/(loss) before taxes  1,765 1,351 729 450 369 (736) 3,928 3,493 230
1
Certain transaction-based revenues in Swiss Universal Bank and certain fixed income and equity sales and trading revenues in Global Markets relate to the Group’s global advisory and underwriting business. Refer to “Global advisory and underwriting revenues” in Investment Banking & Capital Markets for further information.
62

Core Results
2017 results
In 2017, Core Results net revenues of CHF 21,786 million were stable compared to 2016, primarily reflecting higher net revenues in International Wealth Management and Investment Banking & Capital Markets, offset by lower net revenues in Swiss Universal Bank and Asia Pacific. Provision for credit losses was CHF 178 million, primarily reflecting net provisions of CHF 75 million in Swiss Universal Bank, CHF 31 million in Global Markets and CHF 30 million in Investment Banking & Capital Markets. Total operating expenses of CHF 17,680 million decreased slightly compared to 2016, mainly due to slightly lower general and administrative expenses.
2016 results
In 2016, Core Results net revenues of CHF 21,594 million decreased 7% compared to 2015, primarily reflecting lower net revenues in Global Markets, Corporate Center and Asia Pacific. Provision for credit losses was CHF 141 million, mainly reflecting net provisions of CHF 79 million in Swiss Universal Bank and CHF 26 million in Asia Pacific. Total operating expenses of CHF 17,960 million were down 21% compared to 2015, primarily reflecting the goodwill impairment charge of CHF 3,797 million in 2015 and a 12% decrease in general and administrative expenses.
Regulatory capital
As of the end of 2017, our >>>Bank for International Settlements (BIS) CET1 ratio was 12.8% and our >>>risk-weighted assets were CHF 271.7 billion, both on a look-through basis.
Following discussions with the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) during 2017, Credit Suisse updated its loss history and implemented a revised methodology for the measurement of its risk-weighted assets relating to operational risk, primarily in respect of its >>>RMBS settlements. As a consequence of the application of this revised methodology to the RMBS settlements with the DOJ, the NCUA and Massachusetts Mutual Life Insurance Company, risk-weighted assets relating to operational risk increased by a total of CHF 9.0 billion in the second half of 2017. Separately, Credit Suisse has approached FINMA with a request to review the appropriateness of the level of the risk-weighted assets relating to operational risk in the Strategic Resolution Unit given the progress in exiting businesses and reducing the size of the division over the last two years, with the aim of aligning reductions to the accelerated closure of the Strategic Resolution Unit by the end of 2018. This is still under discussion with FINMA.
Separate to the above, we expect additional regulatory changes from FINMA, mainly in respect of credit multipliers, to result in additional risk-weighted assets of approximately CHF 8 billion in 2018, of which we expect approximately CHF 2 billion will be added in the first quarter of 2018.
> Refer to “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for further information.
employees and other HEADCOUNT
As of December 31, 2017, we had 46,840 employees worldwide, of which 16,490 were in Switzerland and 30,350 were abroad.
The number of employees decreased by 330 compared to the end of 2016. The decrease primarily reflected the results of our cost efficiency measures and the right-sizing of business activities, especially in Swiss Universal Bank and the Strategic Resolution Unit, partially offset by an increase in Asia Pacific and Global Markets, primarily due to contractor conversions and strategic hiring. The number of outsourced roles, contractors and consultants decreased by 1,520 compared to the end of 2016.
Employees and other headcount
end of 2017 2016
Employees
Swiss Universal Bank 12,600 13,140
International Wealth Management 10,250 10,300
Asia Pacific 7,230 6,980
Global Markets 11,740 11,530
Investment Banking & Capital Markets 3,190 3,090
Strategic Resolution Unit 1,530 1,830
Corporate Center 300 300
Total employees  46,840 47,170
   of which Switzerland  16,490 17,020
   of which all other regions  30,350 30,150
Other headcount
Outsourced roles, contractors and consultants 21,510 23,030
Total employees and other headcount  68,350 70,200
Based on full-time equivalents.
63

Information and developments
Format of presentation
In managing our business, revenues are evaluated in the aggregate, including an assessment of trading gains and losses and the related interest income and expense from financing and hedging positions. For this reason, specific individual revenue categories in isolation may not be indicative of performance.
Certain reclassifications have been made to prior periods to conform to the current presentation.
International Trading Solutions
Effective July 1, 2017, the Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management whereby it provides centralized trading and sales services to private and institutional clients across the three divisions. These services are now managed as a single business within the Global Markets division, referred to as International Trading Solutions (ITS). ITS is expected to provide aligned market strategies, significant cost synergies and enhanced client focus.
Return on regulatory capital
Credit Suisse measures firm-wide returns against total shareholders’ equity and tangible shareholders’ equity. In addition, it also measures the efficiency of the firm and its divisions with regard to the usage of capital as determined by the minimum requirements set by regulators. This regulatory capital is calculated as the worst of 10% of >>>risk-weighted assets and 3.5% of leverage exposure. Return on regulatory capital is calculated using income/(loss) after tax and assumes a tax rate of 30% and capital allocated based on the worst of 10% of average risk-weighted assets and 3.5% of average leverage exposure. These percentages are used in the calculation in order to reflect the 2019 fully phased-in Swiss regulatory minimum requirements for >>>Basel III CET1 capital and leverage ratio. For Global Markets and Investment Banking & Capital Markets, return on regulatory capital is based on US dollar denominated numbers.
Capital distribution proposal
Our Board of Directors will propose to the shareholders at the Annual General Meeting on April 27, 2018 a distribution of CHF 0.25 per share out of capital contribution reserves for the financial year 2017. The distribution will be free of Swiss withholding tax and will not be subject to income tax for Swiss resident individuals holding the shares as a private investment. The distribution will be payable in cash.
Compensation and benefits
Compensation and benefits for a given year reflect the strength and breadth of the business results and staffing levels and include fixed components, such as salaries, benefits and the amortization of share-based and other deferred compensation from prior-year awards, and a discretionary variable component. The variable component reflects the performance-based variable compensation for the current year. The portion of the performance-based compensation for the current year deferred through share-based and other awards is expensed in future periods and is subject to vesting and other conditions.
Our shareholders’ equity reflects the effect of share-based compensation. Share-based compensation expense (which is generally based on >>>fair value at the time of grant) reduces equity; however, the recognition of the obligation to deliver the shares increases equity by a corresponding amount. Equity is generally unaffected by the granting and vesting of share-based awards and by the settlement of these awards through the issuance of shares from approved conditional capital. The Group may issue shares from conditional capital to meet its obligations to deliver share-based compensation awards. If Credit Suisse purchases shares from the market to meet its obligation to employees, these purchased treasury shares reduce equity by the amount of the purchase price.
> Refer to “Compensation” in V – Compensation for further information.
> Refer to “Consolidated statements of changes in equity” and “Note 28 – Employee deferred compensation” in VI – Consolidated financial statements – Credit Suisse Group for further information.
> Refer to “Tax benefits associated with share-based compensation” in Note 27 – Tax in VI – Consolidated financial statements – Credit Suisse Group for further information.
64

Allocations and funding
Revenue sharing
Responsibility for each product is allocated to a specific segment, which records all related revenues and expenses. Revenue-sharing and service level agreements govern the compensation received by one segment for generating revenue or providing services on behalf of another. These agreements are negotiated periodically by the relevant segments on a product-by-product basis. The aim of revenue-sharing and service level agreements is to reflect the pricing structure of unrelated third-party transactions.
Cost allocation
Corporate services and business support, including in finance, operations, human resources, legal, compliance, risk management and IT, are provided by corporate functions, and the related costs are allocated to the segments and the Corporate Center based on their respective requirements and other relevant measures.
Funding
We centrally manage our funding activities. New securities for funding and capital purposes are issued primarily by the Bank.
> Refer to Note 4 – Segment information in VI – Consolidated financial statements – Credit Suisse Group for further information.
Fair valuations
Fair value can be a relevant measurement for financial instruments when it aligns the accounting for these instruments with how we manage our business. The levels of the fair value hierarchy as defined by the relevant accounting guidance are not a measurement of economic risk, but rather an indication of the observability of prices or valuation inputs.
> Refer to “Note 1 – Summary of significant accounting policies” and “Note 34 – Financial instruments” in VI – Consolidated financial statements – Credit Suisse Group for further information.
The fair value of the majority of the Group’s financial instruments is based on quoted prices in active markets (level 1) or observable inputs (level 2). These instruments include government and agency securities, certain >>>commercial paper, most investment grade corporate debt, certain high yield debt securities, exchange-traded and certain >>>over-the-counter (OTC) >>>derivative instruments and most listed equity securities.
In addition, the Group holds financial instruments for which no prices are available and which have little or no observable inputs (level 3). For these instruments, the determination of fair value requires subjective assessment and judgment depending on liquidity, pricing assumptions, the current economic and competitive environment and the risks affecting the specific instrument. In such circumstances, valuation is determined based on management’s own judgments about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These instruments include certain OTC derivatives, including equity and credit derivatives, certain corporate equity-linked securities, mortgage-related and >>>collateralized debt obligation (CDO) securities, private equity investments, certain loans and credit products, including leveraged finance, certain syndicated loans and certain high yield bonds, and life finance instruments.
Models were used to value financial instruments for which no prices are available and which have little or no observable inputs (level 3). Models are developed internally and are reviewed by functions independent of the front office to ensure they are appropriate for current market conditions. The models require subjective assessment and varying degrees of judgment depending on liquidity, concentration, pricing assumptions and risks affecting the specific instrument. The models consider observable and unobservable parameters in calculating the value of these products, including certain indices relating to these products. Consideration of these indices is more significant in periods of lower market activity.
As of the end of 2017, 38% and 24% of our total assets and total liabilities, respectively, were measured at fair value.
The majority of our level 3 assets are recorded in our investment banking businesses. Total assets at fair value recorded as level 3 instruments decreased CHF 6.7 billion to CHF 16.6 billion as of the end of 2017, primarily reflecting net sales, mainly in trading assets and loans, net settlements, mainly in loans and trading assets, and the foreign exchange translation impact, mainly in trading assets and loans.
As of the end of 2017, these assets comprised 2% of total assets and 6% of total assets measured at fair value, compared to 3% and 7%, respectively, as of the end of 2016.
We believe that the range of any valuation uncertainty, in the aggregate, would not be material to our financial condition; however, it may be material to our operating results for any particular period, depending, in part, upon the operating results for such period.
65

Differences between Group and Bank
Except where noted, the business of the Bank is substantially the same as the business of Credit Suisse Group, and substantially all of the Bank’s operations are conducted through the Swiss Universal Bank, International Wealth Management, Asia Pacific, Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit segments. These segmental results are included in Core Results, except for the Strategic Resolution Unit, which is part of the Credit Suisse Results. Core Results also include certain Corporate Center activities of the Group that are not applicable to the Bank. Certain other assets, liabilities and results of operations are managed as part of the activities of the six segments. However, since they are legally owned by the Group, they are not included in the Bank’s consolidated financial statements. These relate principally to:
financing vehicles of the Group, which include special purpose vehicles for various funding activities of the Group, including for the purpose of raising capital;
Credit Suisse Services AG and its branches that provide services to the Bank and its subsidiaries; and
hedging activities relating to share-based compensation awards.
These operations and activities vary from period to period and give rise to differences between the Bank’s assets, liabilities, revenues and expenses, including pensions and taxes, and those of the Group.
> Refer to “Note 40 – Subsidiary guarantee information” in VI – Consolidated financial statements – Credit Suisse Group for further information on the Bank.
Comparison of consolidated statements of operations
   Group Bank
in 2017 2016 2015 2017 2016 2015
Statements of operations (CHF million)   
Net revenues 20,900 20,323 23,797 20,965 20,393 23,811
Provision for credit losses 210 252 324 210 252 324
Total operating expenses 18,897 22,337 25,895 19,202 22,630 26,136
Income/(loss) before taxes  1,793 (2,266) (2,422) 1,553 (2,489) (2,649)
Income tax expense 2,741 441 523 2,781 400 488
Net income/(loss)  (948) (2,707) (2,945) (1,228) (2,889) (3,137)
Net income/(loss) attributable to noncontrolling interests 35 3 (1) 27 (6) (7)
Net income/(loss) attributable to shareholders  (983) (2,710) (2,944) (1,255) (2,883) (3,130)
Comparison of consolidated balance sheets
   Group Bank
end of 2017 2016 2017 2016
Balance sheet statistics (CHF million)   
Total assets 796,289 819,861 798,372 822,065
Total liabilities 754,100 777,550 754,822 778,207
Capitalization and indebtedness
   Group Bank
end of 2017 2016 2017 2016
Capitalization and indebtedness (CHF million)   
Due to banks 15,413 22,800 15,411 22,800
Customer deposits 361,162 355,833 362,303 357,224
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 26,496 33,016 26,496 33,016
Long-term debt 173,032 193,315 172,042 192,495
Other liabilities 177,997 172,586 178,570 172,672
Total liabilities  754,100 777,550 754,822 778,207
Total equity 42,189 42,311 43,550 43,858
Total capitalization and indebtedness    796,289 819,861 798,372 822,065
BIS capital metrics
   Group Bank
end of 2017 2016 2017 2016
Capital and risk-weighted assets (CHF million)   
CET1 capital 36,711 36,576 38,433 37,356
Tier 1 capital 51,482 48,865 52,378 48,888
Total eligible capital 56,696 55,728 57,592 55,802
Risk-weighted assets 272,815 271,372 272,720 270,653
Capital ratios (%)   
CET1 ratio 13.5 13.5 14.1 13.8
Tier 1 ratio 18.9 18.0 19.2 18.1
Total capital ratio 20.8 20.5 21.1 20.6
Dividends from the Bank to the Group
for the financial year 2017 2016 2015 2013 2012
Dividends (CHF million)   
Dividends 10 1 10 10 10 10
1
The Bank’s total share capital is fully paid and consisted of 4,399,680,200 registered shares as of December 31, 2017. Dividends are determined in accordance with Swiss law and the Bank's articles of incorporation. Proposal of the Board of Directors to the annual general meeting of the Bank for a dividend of CHF 10 million.
66

Swiss Universal Bank
In 2017, we reported income before taxes of CHF 1,765 million and net revenues of CHF 5,396 million. Income before taxes decreased 13% compared to 2016, reflecting lower net revenues, partially offset by slightly lower total operating expenses. 2016 included gains on the sale of real estate of CHF 366 million. Adjusted income before taxes increased 8% compared to 2016.
Results Summary
2017 results
In 2017, we reported income before taxes of CHF 1,765 million and net revenues of CHF 5,396 million. Compared to 2016, net revenues were 6% lower, mainly due to gains on the sale of real estate in 2016 of CHF 366 million reflected in other revenues. All other revenue categories were stable. Provision for credit losses was CHF 75 million in 2017 on a net loan portfolio of CHF 165.0 billion. Total operating expenses decreased slightly, primarily driven by lower compensation and benefits reflecting lower salary expenses and lower pension expenses. General and administrative expenses were stable.
Adjusted income before taxes of CHF 1,873 million was 8% higher compared to 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  5,396 5,759 5,721 (6) 1
Provision for credit losses  75 79 138 (5) (43)
Compensation and benefits 1,833 1,937 1,985 (5) (2)
General and administrative expenses 1,375 1,375 1,597 0 (14)
Commission expenses 289 283 284 2 0
Restructuring expenses 59 60 42 (2) 43
Total other operating expenses 1,723 1,718 1,923 0 (11)
Total operating expenses  3,556 3,655 3,908 (3) (6)
Income before taxes  1,765 2,025 1,675 (13) 21
Statement of operations metrics (%)   
Return on regulatory capital 13.7 16.5 13.8
Cost/income ratio 65.9 63.5 68.3
Economic risk capital and return   
Average economic risk capital (CHF million) 5,566 5,564 5,119 0 9
Pre-tax return on average economic risk capital (%) 1 31.7 36.4 32.7
Number of employees and relationship managers   
Number of employees (full-time equivalents) 12,600 13,140 13,400 (4) (2)
Number of relationship managers 1,840 1,970 2,060 (7) (4)
1
Calculated using a return excluding interest costs for allocated goodwill.
67

Divisional results (continued)
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Net revenues (CHF million)   
Private Clients 2,897 3,258 3,205 (11) 2
Corporate & Institutional Clients 2,499 2,501 2,516 0 (1)
Net revenues  5,396 5,759 5,721 (6) 1
Net revenue detail (CHF million)   
Net interest income 2,896 2,884 2,756 0 5
Recurring commissions and fees 1,446 1,446 1,570 0 (8)
Transaction-based revenues 1,107 1,112 1,313 0 (15)
Other revenues (53) 317 82 287
Net revenues  5,396 5,759 5,721 (6) 1
Provision for credit losses (CHF million)   
New provisions 158 150 205 5 (27)
Releases of provisions (83) (71) (67) 17 6
Provision for credit losses  75 79 138 (5) (43)
Balance sheet statistics (CHF million)   
Total assets 228,857 228,363 220,359 0 4
Net loans 165,041 165,685 162,717 0 2
   of which Private Clients  111,222 109,554 2
Risk-weighted assets 65,572 65,669 60,352 0 9
Leverage exposure 257,054 252,889 238,180 2 6
Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. Recurring commissions and fees includes investment product management, discretionary mandate and other asset management-related fees, fees for general banking products and services and revenues from wealth structuring solutions. Transaction-based revenues arise primarily from brokerage and product issuing fees, fees from foreign exchange client transactions, trading and sales income, equity participations income and other transaction-based income. Other revenues include fair value gains/(losses) on synthetic securitized loan portfolios and other gains and losses.
2016 results
In 2016, we reported income before taxes of CHF 2,025 million and net revenues of CHF 5,759 million. Compared to 2015, net revenues were stable, with higher gains on the sale of real estate and increased net interest income, offset by lower transaction-based revenues and the impact of the deconsolidation of the cards issuing business in 2015, primarily reflected in recurring commissions and fees. Net interest income increased 5%, reflecting improved loan margins on stable average loan volumes, partially offset by slightly lower deposit margins on lower average deposit volumes. The decrease in transaction-based revenues primarily reflected lower brokerage and product issuing fees and lower fees from foreign exchange client business, reflecting decreased client activity, and lower revenues from International Trading Solutions (ITS), partially offset by increased revenues from our Swiss investment banking business. Excluding the net impact from the deconsolidation of the cards issuing business of CHF 115 million, recurring commissions and fees were stable. Provision for credit losses was CHF 79 million in 2016 on a net loan portfolio of CHF 165.7 billion. Total operating expenses decreased 6%, primarily reflecting lower expenses due to the deconsolidation of the cards issuing business and lower allocated corporate function costs, partially offset by higher professional services fees and higher contractor services fees.
Adjusted income before taxes of CHF 1,738 million was 7% higher compared to 2015.
On July 1, 2015, the Group transferred the credit and charge cards issuing business (cards issuing business) to Swisscard AECS GmbH, an entity in which the Group holds a significant equity interest. As a result of the transfer, the cards issuing business was deconsolidated as of July 1, 2015.
Capital and leverage metrics
At the end of 2017, we reported risk-weighted assets of CHF 65.6 billion, stable compared to the end of 2016. Increases from methodology and policy changes reflecting the phase-in of the Swiss mortgage multipliers were offset by improved book quality and reduced counterparty credit risk exposure. Leverage exposure was CHF 257.1 billion, reflecting a slight increase compared to the end of 2016, mainly driven by increased high-quality liquid assets (HQLA) and business growth.
68

Reconciliation of adjusted results
   Private Clients Corporate & Institutional Clients Swiss Universal Bank
in 2017 2016 2015 2017 2016 2015 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  2,897 3,258 3,205 2,499 2,501 2,516 5,396 5,759 5,721
   Real estate gains  0 (366) (95) 0 0 0 0 (366) (95)
   Gains on business sales  0 0 (10) 0 0 (13) 0 0 (23)
Adjusted net revenues  2,897 2,892 3,100 2,499 2,501 2,503 5,396 5,393 5,603
Provision for credit losses  42 39 49 33 40 89 75 79 138
Total operating expenses  2,054 2,124 2,448 1,502 1,531 1,460 3,556 3,655 3,908
   Restructuring expenses  (53) (51) (33) (6) (9) (9) (59) (60) (42)
   Major litigation provisions  (6) 0 (25) (43) (19) 0 (49) (19) (25)
Adjusted total operating expenses  1,995 2,073 2,390 1,453 1,503 1,451 3,448 3,576 3,841
Income before taxes  801 1,095 708 964 930 967 1,765 2,025 1,675
   Total adjustments  59 (315) (47) 49 28 (4) 108 (287) (51)
Adjusted income before taxes  860 780 661 1,013 958 963 1,873 1,738 1,624
Adjusted return on regulatory capital (%) 14.6 14.2 13.4
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
Private clients
2017 Results
Income before taxes of CHF 801 million decreased 27% compared to 2016, driven by lower net revenues, partially offset by slightly lower total operating expenses. Adjusted income before taxes of CHF 860 million increased 10% compared to 2016.
Net revenues
In 2017, net revenues of CHF 2,897 million decreased 11%, mainly due to the gains on the sale of real estate of CHF 366 million in 2016 reflected in other revenues. Net interest income of CHF 1,670 million was stable, with slightly higher deposit margins on higher average deposit volumes and slightly higher loan margins on slightly higher average loan volumes. Transaction-based revenues of CHF 413 million were stable, reflecting a gain from the sale of an investment and higher brokerage and product issuing fees, reflecting increased client activity, offset by lower revenues from ITS and lower equity participations income. Recurring commissions and fees of CHF 812 million were stable with lower revenues from discretionary mandate management fees offset by higher revenues from wealth structuring solutions, higher investment product management fees and increased investment advisory fees. Adjusted net revenues of CHF 2,897 million were stable compared to 2016.
Provision for credit losses
The Private Clients loan portfolio is substantially comprised of residential mortgages in Switzerland and loans collateralized by securities and, to a lesser extent, consumer finance loans.
In 2017, Private Clients recorded provision for credit losses of CHF 42 million compared to CHF 39 million in 2016. The provision was primarily related to our consumer finance business.
Total operating expenses
Compared to 2016, total operating expenses of CHF 2,054 million decreased slightly, primarily reflecting lower compensation and benefits, partially offset by higher commission expenses and slightly higher general and administrative expenses. Compensation and benefits of CHF 1,000 million decreased 10%, primarily reflecting lower salary expenses and lower pension expenses. General and administrative expenses of CHF 860 million were slightly higher compared to 2016, driven by higher allocated corporate function costs, partially offset by decreased occupancy expenses and lower advertising and marketing expenses. Adjusted total operating expenses of CHF 1,995 million were 4% lower compared to 2016.
69

Results – Private Clients
   in % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  2,897 3,258 3,205 (11) 2
Provision for credit losses  42 39 49 8 (20)
Compensation and benefits 1,000 1,116 1,200 (10) (7)
General and administrative expenses 860 845 1,116 2 (24)
Commission expenses 141 112 99 26 13
Restructuring expenses 53 51 33 4 55
Total other operating expenses 1,054 1,008 1,248 5 (19)
Total operating expenses  2,054 2,124 2,448 (3) (13)
Income before taxes  801 1,095 708 (27) 55
Statement of operations metrics (%)   
Cost/income ratio 70.9 65.2 76.4
Net revenue detail (CHF million)   
Net interest income 1,670 1,661 1,639 1 1
Recurring commissions and fees 812 820 933 (1) (12)
Transaction-based revenues 413 410 529 1 (22)
Other revenues 2 367 104 (99) 253
Net revenues  2,897 3,258 3,205 (11) 2
Margins on assets under management (bp)   
Gross margin 1 143 171 164
Net margin 2 40 58 36
Number of relationship managers   
Number of relationship managers 1,300 1,430 1,510 (9) (5)
1
Net revenues divided by average assets under management.
2
Income before taxes divided by average assets under management.
2016 Results
Income before taxes of CHF 1,095 million increased 55% compared to 2015, driven by lower total operating expenses and slightly higher net revenues. Adjusted income before taxes of CHF 780 million increased 18% compared to 2015.
Net revenues
Compared to 2015, net revenues of CHF 3,258 million were slightly higher, with higher gains from the sale of real estate in 2016 reflected in other revenues, partially offset by lower transaction-based revenues and the impact of the deconsolidation of the cards issuing business. Transaction-based revenues of CHF 410 million decreased 22% with lower brokerage and product issuing fees, lower fees from foreign exchange client business and decreased revenues from ITS. Recurring commissions and fees of CHF 820 million decreased 12% primarily due to the deconsolidation of the cards issuing business. Excluding the related net impact of CHF 115 million, recurring commissions and fees were stable, reflecting lower security account and custody services fees and lower investment product management fees, offset by higher investment advisory fees and higher wealth structuring solution fees. Net interest income of CHF 1,661 million was stable, reflecting higher loan margins on slightly higher average loan volumes, offset by lower deposit margins on stable average deposit volumes. Adjusted net revenues of CHF 2,892 million were 7% lower compared to 2015.
Provision for credit losses
In 2016, Private Clients recorded provision for credit losses of CHF 39 million compared to CHF 49 million in 2015. The provision was primarily related to our consumer finance business.
Total operating expenses
Compared to 2015, total operating expenses of CHF 2,124 million decreased 13%, primarily reflecting lower general and administrative expenses and decreased compensation and benefits. General and administrative expenses of CHF 845 million were 24% lower compared to 2015, driven by lower expenses due to the deconsolidation of the cards issuing business and lower allocated corporate function costs, partially offset by higher contractor services fees and increased professional services fees. Compensation and benefits of CHF 1,116 million decreased 7%, primarily reflecting lower allocated corporate function costs and lower deferred compensation expenses from prior-year awards. Adjusted total operating expenses of CHF 2,073 million were 13% lower compared to 2015.
70

margins
Gross margin
Our gross margin was 143 basis points in 2017, 28 basis points lower compared to 2016, mainly reflecting the gains on the sale of real estate in 2016 and a 6.4% increase in average assets under management. On the basis of adjusted net revenues, our gross margin was nine basis points lower compared to 2016.
> Refer to “Assets under management” for further information.
Net margin
Our net margin was 40 basis points in 2017, 18 basis points lower compared to 2016, mainly reflecting the gains on the sale of real estate in 2016 and the 6.4% increase in average assets under management, partially offset by slightly lower total operating expenses. On the basis of adjusted income before taxes, our net margin was 43 basis points, two basis points higher compared to 2016.
Assets under management
As of the end of 2017, assets under management of CHF 208.3 billion increased CHF 16.1 billion compared to the end of 2016, primarily driven by favorable market movements and net new assets of CHF 4.7 billion, with good performance across all businesses and strong contributions from ultra-high-net-worth individuals and entrepreneurs.
As of the end of 2016, assets under management of CHF 192.2 billion increased CHF 2.4 billion compared to the end of 2015, primarily driven by favorable market movements. Net new assets of CHF 0.1 billion were negatively impacted by the regularization of client assets.
Assets under management – Private Clients
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Assets under management (CHF billion)   
Assets under management 208.3 192.2 189.8 8.4 1.3
Average assets under management 202.2 190.0 195.8 6.4 (3.0)
Assets under management by currency (CHF billion)   
USD 30.5 28.7 27.9 6.3 2.9
EUR 22.9 19.0 3.6 20.5 427.8
CHF 145.0 136.7 136.3 6.1 0.3
Other 9.9 7.8 22.0 26.9 (64.5)
Assets under management  208.3 192.2 189.8 8.4 1.3
Growth in assets under management (CHF billion)   
Net new assets 4.7 0.1 3.3
Other effects 11.4 2.3 (15.4)
   of which market movements  12.4 2.1 (1.4)
   of which foreign exchange  0.8 0.3 (2.5)
   of which other  (1.8) (0.1) (11.5)
Growth in assets under management  16.1 2.4 (12.1)
Growth in assets under management (%)   
Net new assets 2.4 0.1 1.6
Other effects 6.0 1.2 (7.6)
Growth in assets under management  8.4 1.3 (6.0)
71

corporate & institutional cients
Results – Corporate & Institutional Clients
   in % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  2,499 2,501 2,516 0 (1)
Provision for credit losses  33 40 89 (18) (55)
Compensation and benefits 833 821 785 1 5
General and administrative expenses 515 530 481 (3) 10
Commission expenses 148 171 185 (13) (8)
Restructuring expenses 6 9 9 (33) 0
Total other operating expenses 669 710 675 (6) 5
Total operating expenses  1,502 1,531 1,460 (2) 5
Income before taxes  964 930 967 4 (4)
Statement of operations metrics (%)   
Cost/income ratio 60.1 61.2 58.0
Net revenue detail (CHF million)   
Net interest income 1,226 1,223 1,117 0 9
Recurring commissions and fees 634 626 637 1 (2)
Transaction-based revenues 694 702 784 (1) (10)
Other revenues (55) (50) (22) 10 127
Net revenues  2,499 2,501 2,516 0 (1)
Number of relationship managers   
Number of relationship managers 540 540 550 0 (2)
2017 results
Income before taxes of CHF 964 million increased 4% compared to 2016, driven by slightly lower total operating expenses and lower provision for credit losses. Adjusted income before taxes of CHF 1,013 million increased 6% compared to 2016.
Net revenues
Compared to 2016, net revenues of CHF 2,499 million were stable, with stable revenues across all revenue categories. Recurring commissions and fees of CHF 634 million were stable, reflecting higher fees from lending activities and higher investment product management fees, offset by lower discretionary mandate management fees. Net interest income of CHF 1,226 million was stable, with slightly higher loan margins on stable average loan volumes, offset by lower deposit margins on higher average deposit volumes. Transaction-based revenues of CHF 694 million were stable, with lower revenues from ITS, offset by increased revenues from our Swiss investment banking business and our profit share on the sale of an investment.
Provision for credit losses
The Corporate & Institutional Clients loan portfolio has relatively low concentrations and is mainly secured by real estate, securities and other financial collateral.
In 2017, Corporate & Institutional Clients recorded provision for credit losses of CHF 33 million compared to CHF 40 million in 2016. The decrease reflected higher releases of provision for credit losses relating to several individual cases and a recovery case of CHF 8 million, partially offset by higher new provisions.
Total operating expenses
Compared to 2016, total operating expenses of CHF 1,502 million decreased slightly, primarily reflecting lower commission expenses and slightly lower general and administrative expenses. General and administrative expenses of CHF 515 million decreased slightly, mainly driven by lower allocated corporate function costs. Compensation and benefits of CHF 833 million were stable, driven by higher allocated corporate function costs, offset by lower pension expenses and lower discretionary compensation expenses. Adjusted total operating expenses of CHF 1,453 million were slightly lower compared to 2016.
72

2016 Results
Income before taxes of CHF 930 million decreased 4% compared to 2015, driven by higher total operating expenses, partially offset by lower provision for credit losses. Adjusted income before taxes of CHF 958 million was stable compared to 2015.
Net revenues
Compared to 2015, net revenues of CHF 2,501 million were stable, reflecting lower transaction-based revenues, decreased other revenues and slightly lower recurring commissions and fees, offset by higher net interest income. Transaction-based revenues of CHF 702 million decreased 10%, driven by lower revenues from ITS, decreased brokerage and product issuing fees, lower fees from foreign exchange client business and lower corporate advisory fees, partially offset by higher revenues from our Swiss investment banking business. The decrease in other revenues reflected higher costs for synthetic securitizations and the partial sale of an investment in Euroclear in 2015. Recurring commissions and fees of CHF 626 million were slightly lower, primarily reflecting lower security account and custody services fees and lower investment product management fees, partially offset by higher fees from lending activities and increased banking services fees. Net interest income of CHF 1,223 million increased 9%, driven by higher loan margins on stable average loan volumes and higher deposit margins on lower average deposit volumes.
Provision for credit losses
In 2016, Corporate & Institutional Clients recorded provision for credit losses of CHF 40 million compared to CHF 89 million in 2015. The provision for credit losses reflected a small number of individual cases.
Total operating expenses
Compared to 2015, total operating expenses of CHF 1,531 million increased 5%, primarily reflecting higher general and administrative expenses and higher compensation and benefits. General and administrative expenses of CHF 530 million were 10% higher, mainly driven by higher litigation provisions and professional services fees, partially offset by lower allocated corporate function costs. Compensation and benefits of CHF 821 million were 5% higher, driven by increased discretionary compensation expenses and higher deferred compensation expenses from prior-year awards, partially offset by slightly lower salary expenses. Adjusted total operating expenses of CHF 1,503 million were 4% higher compared to 2015.
Assets under management
As of the end of 2017, assets under management of CHF 354.7 billion were CHF 15.4 billion higher compared to the end of 2016, mainly driven by favorable market movements. Net asset outflows of CHF 13.9 billion were primarily due to redemptions of CHF 13.3 billion from a single public sector mandate in the third quarter of 2017.
As of the end of 2016, assets under management of CHF 339.3 billion were CHF 12.3 billion higher compared to the end of 2015, driven by favorable market movements and net new assets of CHF 2.5 billion. Net asset inflows of CHF 5.8 billion were negatively impacted by terminated relationships with certain external asset managers and the regularization of client assets of CHF 3.3 billion.
73

International Wealth Management
In 2017, we reported income before taxes of CHF 1,351 million and net revenues of CHF 5,111 million. Income before taxes increased 21% compared to 2016, primarily reflecting higher net revenues, partially offset by higher total operating expenses.
Results Summary
2017 results
In 2017, we reported income before taxes of CHF 1,351 million and net revenues of CHF 5,111 million. Compared to 2016, net revenues increased 9% driven by higher recurring commissions and fees, higher transaction- and performance-based revenues and higher net interest income. These increases were partially offset by lower other revenues. Higher recurring commissions and fees were mainly driven by higher asset management fees, higher investment product management fees and higher average assets under management. These increases were partially offset by lower discretionary mandate management fees. Higher transaction- and performance-based revenues mainly reflected higher brokerage and product issuing fees in Private Banking and higher performance and placement fees in Asset Management, partially offset by lower revenues from ITS. Higher net interest income reflected higher loan and deposit margins on higher average loan and deposit volumes. Other revenues were lower mainly as 2016 included a gain on the sale of real estate in Private Banking compared to an investment loss from Asset Management Finance LLC (AMF) and a loss from a business disposal relating to our systematic market making business in 2017 in Asset Management. Provision for credit losses was CHF 27 million on a net loan portfolio of CHF 50.5 billion. The 5% increase in total operating expenses compared to 2016 was primarily driven by higher discretionary compensation expenses, higher litigation provisions, higher salary expenses and higher allocated corporate function costs, partially offset by lower contractor services fees.
Adjusted income before taxes of CHF 1,497 million increased 35% compared to 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  5,111 4,698 4,552 9 3
Provision for credit losses  27 20 5 35 300
Compensation and benefits 2,216 2,119 2,115 5 0
General and administrative expenses 1,203 1,145 1,429 5 (20)
Commission expenses 244 239 244 2 (2)
Restructuring expenses 70 54 36 30 50
Total other operating expenses 1,517 1,438 1,709 5 (16)
Total operating expenses  3,733 3,557 3,824 5 (7)
Income before taxes  1,351 1,121 723 21 55
Statement of operations metrics (%)   
Return on regulatory capital 25.8 23.3 15.4
Cost/income ratio 73.0 75.7 84.0
Economic risk capital and return   
Average economic risk capital (CHF million) 4,379 3,785 3,288 16 15
Pre-tax return on average economic risk capital (%) 1 30.8 29.6 22.0
Number of employees (full-time equivalents)   
Number of employees 10,250 10,300 9,750 0 6
1
Calculated using a return excluding interest costs for allocated goodwill.
74

Divisional results (continued)
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Net revenues (CHF million)   
Private Banking 3,603 3,371 3,224 7 5
Asset Management 1,508 1,327 1,328 14 0
Net revenues  5,111 4,698 4,552 9 3
Net revenue detail (CHF million)   
Net interest income 1,449 1,308 1,006 11 30
Recurring commissions and fees 2,135 1,914 1,965 12 (3)
Transaction- and performance-based revenues 1,616 1,426 1,607 13 (11)
Other revenues (89) 50 (26)
Net revenues  5,111 4,698 4,552 9 3
Provision for credit losses (CHF million)   
New provisions 49 55 37 (11) 49
Releases of provisions (22) (35) (32) (37) 9
Provision for credit losses  27 20 5 35 300
Balance sheet statistics (CHF million)   
Total assets 94,753 91,083 96,085 4 (5)
Net loans 50,474 44,965 40,084 12 12
   of which Private Banking  50,429 44,952 12
Risk-weighted assets 38,256 35,252 32,880 9 7
Leverage exposure 99,267 94,092 101,628 5 (7)
2016 results
In 2016, we reported income before taxes of CHF 1,121 million and net revenues of CHF 4,698 million. Compared to 2015, net revenues increased slightly driven by significantly higher net interest income, investment-related gains in 2016 compared to losses in 2015 and the gain on the sale of real estate in 2016. These increases were partially offset by lower transaction- and performance-based revenues and slightly lower recurring commissions and fees. Higher net interest income reflected higher loan and deposit margins on higher average loan and deposit volumes. The decrease in transaction- and performance-based revenues mainly reflected lower revenues from ITS, lower equity participations income, lower brokerage and product issuing fees and lower fees from foreign exchange client business, partially offset by higher carried interest reflecting a residual gain from a private equity interest. Recurring commissions and fees were slightly lower, primarily driven by lower security account and custody services fees, lower discretionary mandate management fees and lower banking services fees, partially offset by higher asset management fees. Provision for credit losses was CHF 20 million on a net loan portfolio of CHF 45.0 billion. The decrease in total operating expenses was mainly driven by lower litigation provisions and lower deferred compensation expenses from prior-year awards, partially offset by higher discretionary compensation expenses and an increase in professional services fees.
Adjusted income before taxes of CHF 1,109 million increased 9% compared to 2015.
Capital and leverage metrics
At the end of 2017, we reported risk-weighted assets of CHF 38.3 billion, an increase of CHF 3.0 billion compared to the end of 2016, mainly driven by business growth and methodology changes. Leverage exposure was CHF 99.3 billion, an increase of CHF 5.2 billion compared to the end of 2016, mainly driven by increased HQLA.
75

Reconciliation of adjusted results
   Private Banking Asset Management International Wealth Management
in 2017 2016 2015 2017 2016 2015 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  3,603 3,371 3,224 1,508 1,327 1,328 5,111 4,698 4,552
   Real estate gains  0 (54) 0 0 0 0 0 (54) 0
   (Gains)/losses on business sales  0 0 (11) 28 0 0 28 0 (11)
Adjusted net revenues  3,603 3,317 3,213 1,536 1,327 1,328 5,139 4,644 4,541
Provision for credit losses  27 20 5 0 0 0 27 20 5
Total operating expenses  2,552 2,510 2,678 1,181 1,047 1,146 3,733 3,557 3,824
   Restructuring expenses  (44) (47) (32) (26) (7) (4) (70) (54) (36)
   Major litigation provisions  (48) 12 (268) 0 0 0 (48) 12 (268)
Adjusted total operating expenses  2,460 2,475 2,378 1,155 1,040 1,142 3,615 3,515 3,520
Income before taxes  1,024 841 541 327 280 182 1,351 1,121 723
   Total adjustments  92 (19) 289 54 7 4 146 (12) 293
Adjusted income before taxes  1,116 822 830 381 287 186 1,497 1,109 1,016
Adjusted return on regulatory capital (%) 28.6 23.1 21.7
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
Private Banking
2017 results
Income before taxes of CHF 1,024 million increased 22% compared to 2016, reflecting higher net revenues, partially offset by slightly higher total operating expenses. Adjusted income before taxes of CHF 1,116 million increased 36% compared to 2016.
Net revenues
Compared to 2016, net revenues of CHF 3,603 million were 7% higher, reflecting higher net interest income, higher recurring commissions and fees and slightly higher transaction- and performance-based revenues. These increases were partially offset by lower other revenues. Net interest income of CHF 1,449 million increased 11%, reflecting higher loan and deposit margins on higher average loan and deposit volumes. Recurring commissions and fees of CHF 1,200 million increased 10%, mainly reflecting higher investment product management fees and higher security account and custody services fees, partially offset by lower discretionary mandate management fees. Transaction- and performance-based revenues of CHF 953 million increased slightly, mainly reflecting higher brokerage and product issuing fees, partially offset by lower revenues from ITS. Other revenues were significantly lower as 2016 included the gain on the sale of real estate of CHF 54 million. Adjusted net revenues of CHF 3,603 million increased 9% compared to 2016.
Provision for credit losses
In 2017, Private Banking recorded provision for credit losses of CHF 27 million, compared to CHF 20 million in 2016, including a small number of cases in Europe and related to ship finance.
Total operating expenses
Compared to 2016, total operating expenses of CHF 2,552 million increased slightly, mainly reflecting slightly higher compensation and benefits and higher commission expenses. Compensation and benefits of CHF 1,490 million increased slightly, mainly reflecting higher allocated corporate function costs. General and administrative expenses of CHF 832 million were stable with higher litigation provisions offset by lower professional services fees. Adjusted total operating expenses of CHF 2,460 million were stable compared to 2016.
76

Results – Private Banking
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  3,603 3,371 3,224 7 5
Provision for credit losses  27 20 5 35 300
Compensation and benefits 1,490 1,463 1,413 2 4
General and administrative expenses 832 827 1,053 1 (21)
Commission expenses 186 173 180 8 (4)
Restructuring expenses 44 47 32 (6) 47
Total other operating expenses 1,062 1,047 1,265 1 (17)
Total operating expenses  2,552 2,510 2,678 2 (6)
Income before taxes  1,024 841 541 22 55
Statement of operations metrics (%)   
Cost/income ratio 70.8 74.5 83.1
Net revenue detail (CHF million)   
Net interest income 1,449 1,308 1,006 11 30
Recurring commissions and fees 1,200 1,093 1,161 10 (6)
Transaction- and performance-based revenues 953 922 1,049 3 (12)
Other revenues 1 48 8 (98) 500
Net revenues  3,603 3,371 3,224 7 5
Margins on assets under management (bp)   
Gross margin 1 105 112 107
Net margin 2 30 28 18
Number of relationship managers   
Number of relationship managers 1,130 1,140 1,180 (1) (3)
Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. Recurring commissions and fees includes investment product management, discretionary mandate and other asset management-related fees, fees for general banking products and services and revenues from wealth structuring solutions. Transaction- and performance-based revenues arise primarily from brokerage and product issuing fees, fees from foreign exchange client transactions, trading and sales income, equity participations income and other transaction- and performance-based income.
1
Net revenues divided by average assets under management.
2
Income before taxes divided by average assets under management.
2016 results
Income before taxes of CHF 841 million increased 55% compared to 2015, reflecting lower total operating expenses and higher net revenues, partially offset by higher provision for credit losses. Adjusted income before taxes of CHF 822 million was stable compared to 2015.
Net revenues
Compared to 2015, net revenues of CHF 3,371 million were 5% higher, reflecting higher net interest income and higher other revenues, partially offset by lower transaction- and performance-based revenues and lower recurring commissions and fees. Net interest income of CHF 1,308 million increased 30%, reflecting higher loan and deposit margins on higher average loan and deposit volumes. Other revenues of CHF 48 million were significantly higher mainly due to a gain on the sale of real estate of CHF 54 million in 2016. Transaction- and performance-based revenues of CHF 922 million were 12% lower, primarily driven by lower brokerage and product issuing fees, lower fees from foreign exchange client business and lower equity participations income as 2015 included an extraordinary dividend from SIX Group of CHF 23 million. Recurring commissions and fees of CHF 1,093 million decreased 6% with lower security account and custody services fees and lower banking services fees. Adjusted net revenues of CHF 3,317 million were slightly higher compared to 2015.
Provision for credit losses
In 2016, Private Banking recorded provision for credit losses of CHF 20 million, compared to CHF 5 million in 2015.
77

Total operating expenses
Compared to 2015, total operating expenses of CHF 2,510 million decreased 6%, reflecting lower general and administrative expenses, partially offset by higher compensation and benefits and higher restructuring expenses. General and administrative expenses decreased 21% to CHF 827 million, mainly driven by significantly lower litigation provisions, partially offset by higher professional services fees. Compensation and benefits of CHF 1,463 million were 4% higher, reflecting higher discretionary compensation expenses. Adjusted total operating expenses of CHF 2,475 million were 4% higher compared to 2015.
margins
Gross margin
Our gross margin was 105 basis points in 2017, seven basis points lower compared to 2016, mainly reflecting an increase of 14.5% in average assets under management, partially offset by higher net interest income and higher recurring commissions and fees. On the basis of adjusted net revenues, our gross margin was five basis points lower compared to 2016.
> Refer to “Assets under management” for further information.
Net margin
Our net margin was 30 basis points in 2017, two basis points higher compared to 2016, mainly reflecting higher net revenues, partially offset by the 14.5% higher average assets under management. On the basis of adjusted income before taxes, our net margin was 32 basis points in 2017, five basis points higher compared to 2016.
Assets under management
As of the end of 2017, assets under management of CHF 366.9 billion were CHF 43.7 billion higher compared to the end of 2016, primarily reflecting favorable market movements and net new assets of CHF 15.6 billion. Net new assets reflected solid inflows from emerging markets and Europe.
As of the end of 2016, assets under management of CHF 323.2 billion were CHF 33.6 billion higher compared to the end of 2015, reflecting net new assets of CHF 15.6 billion and favorable market and foreign exchange-related movements. The net new assets reflected solid inflows from emerging markets and Europe, partially offset by outflows in connection with the regularization of client assets of CHF 5.7 billion.
Assets under management – Private Banking
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Assets under management (CHF billion)   
Assets under management 366.9 323.2 289.6 13.5 11.6
Average assets under management 343.9 300.3 301.3 14.5 (0.3)
Assets under management by currency (CHF billion)   
USD 162.9 149.0 137.6 9.3 8.3
EUR 114.1 93.2 92.7 22.4 0.5
CHF 23.0 21.0 22.4 9.5 (6.2)
Other 66.9 60.0 36.9 11.5 62.6
Assets under management  366.9 323.2 289.6 13.5 11.6
Growth in assets under management (CHF billion)   
Net new assets 15.6 15.6 (3.0)
Other effects 28.1 18.0 (31.1)
   of which market movements  24.3 10.1 8.3
   of which foreign exchange  1.0 7.8 (20.5)
   of which other  2.8 0.1 (18.9)
Growth in assets under management  43.7 33.6 (34.1)
Growth in assets under management (%)   
Net new assets 4.8 5.4 (0.9)
Other effects 8.7 6.2 (9.6)
Growth in assets under management  13.5 11.6 (10.5)
78

asset management
2017 results
Income before taxes of CHF 327 million increased 17% compared to 2016, with higher net revenues partially offset by higher total operating expenses. Adjusted income before taxes of CHF 381 million increased 33% compared to 2016.
Net revenues
Compared to 2016, net revenues of CHF 1,508 million increased 14%, with significantly higher management fees and higher performance and placement revenues, partially offset by significantly lower investment and partnership income. Management fees of CHF 1,084 million increased 22%, mainly reflecting higher average assets under management. Performance and placement revenues of CHF 282 million increased 36%, mainly reflecting higher performance fees and placement fees, partially offset by the loss from the business disposal of CHF 28 million. Investment and partnership income of CHF 142 million decreased 38%, primarily reflecting the investment loss of CHF 43 million from AMF in 2017 compared to a residual gain from a private equity interest of CHF 45 million in 2016. Adjusted net revenues of CHF 1,536 million increased 16% compared to 2016.
Total operating expenses
Compared to 2016, total operating expenses of CHF 1,181 million increased 13%, driven by higher compensation and benefits and higher general and administrative expenses. Compensation and benefits of CHF 726 million increased 11%, reflecting higher salary expenses and higher discretionary compensation expenses, partially offset by lower deferred compensation expenses from prior-year awards. Higher salary expenses mainly reflected the strong investment performance of a fund and the transition of the systematic market making business from Global Markets to International Wealth Management. General and administrative expenses of CHF 371 million increased 17% mainly reflecting higher professional services fees. Adjusted total operating expenses of CHF 1,155 million increased 11% compared to 2016.
Results – Asset Management
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  1,508 1,327 1,328 14 0
Provision for credit losses  0 0 0
Compensation and benefits 726 656 702 11 (7)
General and administrative expenses 371 318 376 17 (15)
Commission expenses 58 66 64 (12) 3
Restructuring expenses 26 7 4 271 75
Total other operating expenses 455 391 444 16 (12)
Total operating expenses  1,181 1,047 1,146 13 (9)
Income before taxes  327 280 182 17 54
Statement of operations metrics (%)   
Cost/income ratio 78.3 78.9 86.3
Net revenue detail (CHF million)   
Management fees 1,084 891 873 22 2
Performance and placement revenues 282 208 164 36 27
Investment and partnership income 142 228 291 (38) (22)
Net revenues  1,508 1,327 1,328 14 0
   of which recurring commissions and fees  935 821 804 14 2
   of which transaction- and performance-based revenues  663 504 558 32 (10)
   of which other revenues  (90) 2 (34)
Management fees include fees on assets under management, asset administration revenues and transaction fees related to the acquisition and disposal of investments in the funds being managed. Performance revenues relate to the performance or return of the funds being managed and includes investment-related gains and losses from proprietary funds. Placement revenues arise from our third-party private equity fundraising activities and secondary private equity market advisory services. Investment and partnership income includes equity participation income from seed capital returns and from minority investments in third-party asset managers, income from strategic partnerships and distribution agreements, and other revenues.
79

2016 Results
Income before taxes of CHF 280 million increased 54% compared to 2015, driven by lower total operating expenses. Net revenues were stable.
Net revenues
Compared to 2015, net revenues of CHF 1,327 million were stable, with higher performance and placement revenues and slightly higher management fees, offset by lower investment and partnership income. Performance and placement revenues increased 27% to CHF 208 million, reflecting investment-related gains in 2016 compared to losses in 2015 and higher performance fees, partially offset by lower placement fees. Management fees of CHF 891 million were slightly higher. The decrease in investment and partnership income of 22% to CHF 228 million mainly reflected lower equity participations income from single manager hedge funds and lower performance fees.
Total operating expenses
Compared to 2015, total operating expenses of CHF 1,047 million decreased 9%, reflecting lower general and administrative expenses and lower compensation and benefits. General and administrative expenses of CHF 318 million were 15% lower, mainly driven by lower allocated corporate function costs. Compensation and benefits of CHF 656 million decreased 7%, reflecting lower deferred compensation expenses from prior-year awards, lower salary expenses, lower pension expenses and lower discretionary compensation expenses.
Assets under management
As of the end of 2017, assets under management of CHF 385.6 billion increased CHF 64.0 billion compared to the end of 2016, reflecting a structural effect from assets under management reported for multi-asset class solutions, favorable market movements and net new assets of CHF 20.3 billion. Net new assets primarily reflected inflows from traditional and alternative investments and from emerging market joint ventures.
As of the end of 2016, assets under management of CHF 321.6 billion were stable compared to the end of 2015, reflecting favorable market movements, net new assets of CHF 5.6 billion and favorable foreign exchange-related movements, offset by structural effects, mainly from an adjustment of assets under management reported for multi-asset class solutions in 2016. Net new assets reflected inflows from a new product launch and from an emerging market joint venture, partially offset by an outflow from a single mandate.
Assets under management – Asset Management
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Assets under management (CHF billion)   
Traditional investments 217.6 159.9 172.2 36.1 (7.1)
Alternative investments 121.6 121.3 110.4 0.2 9.9
Investments and partnerships 46.4 40.4 38.7 14.9 4.4
Assets under management  385.6 321.6 321.3 19.9 0.1
Average assets under management 368.4 317.5 312.4 16.0 1.6
Assets under management by currency (CHF billion)   
USD 100.1 95.9 88.1 4.4 8.9
EUR 48.2 36.6 42.1 31.7 (13.1)
CHF 182.6 140.7 148.9 29.8 (5.5)
Other 54.7 48.4 42.2 13.0 14.7
Assets under management  385.6 321.6 321.3 19.9 0.1
Growth in assets under management (CHF billion)   
Net new assets 1 20.3 5.6 26.5
Other effects 43.7 (5.3) (10.4)
   of which market movements  20.6 7.6 0.7
   of which foreign exchange  (0.3) 3.9 (8.0)
   of which other  23.4 (16.8) (3.1)
Growth in assets under management  64.0 0.3 16.1
Growth in assets under management (%)   
Net new assets 6.3 1.7 8.7
Other effects 13.6 (1.6) (3.4)
Growth in assets under management  19.9 0.1 5.3
1
Includes outflows for private equity assets reflecting realizations at cost and unfunded commitments on which a fee is no longer earned.
80

Asia Pacific
In 2017, we reported income before taxes of CHF 729 million and net revenues of CHF 3,504 million. Income before taxes was stable compared to 2016, as lower net revenues were offset by lower total operating expenses and lower provision for credit losses.
Results Summary
2017 results
In 2017, we reported income before taxes of CHF 729 million and net revenues of CHF 3,504 million. Compared to 2016, income before taxes was stable, as lower net revenues were offset by lower total operating expenses and lower provision for credit losses. Lower net revenues were driven by lower fixed income and equity sales and trading revenues in our Markets business. Lower fixed income and trading revenues were primarily driven by decreased client activity in rates and lower revenues in foreign exchange products due to weaker trading performance. Lower equity sales and trading revenues were primarily driven by weaker results, reflecting a difficult trading environment that was characterized by persistently low levels of volatility and reduced client activity in equity derivatives, and the transition of the systematic market making business to International Wealth Management that was completed in the first quarter of 2017. These decreases were partially offset by higher net revenues in our Wealth Management & Connected business, reflecting higher Private Banking revenues, mainly from higher transaction-based revenues, and higher advisory, underwriting and financing revenues. Compared to 2016, total operating expenses of CHF 2,760 million decreased slightly, primarily reflecting lower compensation and benefits and lower commission expenses, mainly due to the transition of the systematic market making business, partially offset by higher restructuring expenses. Adjusted income before taxes of CHF 792 million increased slightly compared to 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  3,504 3,597 3,839 (3) (6)
Provision for credit losses  15 26 35 (42) (26)
Compensation and benefits 1,602 1,665 1,557 (4) 7
General and administrative expenses 831 836 790 (1) 6
Commission expenses 264 292 321 (10) (9)
Goodwill impairment 756 (100)
Restructuring expenses 63 53 3 19
Total other operating expenses 1,158 1,181 1,870 (2) (37)
Total operating expenses  2,760 2,846 3,427 (3) (17)
Income before taxes  729 725 377 1 92
Statement of operations metrics (%)   
Return on regulatory capital 13.8 13.7 6.7
Cost/income ratio 78.8 79.1 89.3
Economic risk capital and return   
Average economic risk capital (CHF million) 3,897 4,147 3,405 (6) 22
Pre-tax return on average economic risk capital (%) 1 18.7 17.5 11.1
Number of employees (full-time equivalents)   
Number of employees 7,230 6,980 6,590 4 6
1
Calculated using a return excluding interest costs for allocated goodwill.
81

Divisional results (continued)
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Net revenues (CHF million)   
Wealth Management & Connected 2,322 1,904 1,506 22 26
Markets 1,182 1,693 2,333 (30) (27)
Net revenues  3,504 3,597 3,839 (3) (6)
Provision for credit losses (CHF million)   
New provisions 28 72 74 (61) (3)
Releases of provisions (13) (46) (39) (72) 18
Provision for credit losses  15 26 35 (42) (26)
Balance sheet statistics (CHF million)   
Total assets 96,497 97,221 85,929 (1) 13
Net loans 43,080 40,134 35,905 7 12
   of which Private Banking  35,331 33,405 6
Risk-weighted assets 31,474 34,605 26,835 (9) 29
Leverage exposure 105,585 108,926 98,632 (3) 10
2016 results
In 2016, we reported income before taxes of CHF 725 million and net revenues of CHF 3,597 million. Compared to 2015, income before taxes increased 92%, mainly due to lower total operating expenses, primarily reflecting the absence of the goodwill impairment charge of CHF 756 million in 2015, partially offset by lower net revenues, particularly in equity sales and trading revenues in our Markets business. Lower revenues in equity sales and trading were primarily driven by decreased client activity. Wealth Management & Connected revenues were higher, mainly reflecting significantly higher advisory, underwriting and financing revenues and higher net revenues from Private Banking. Compared to 2015, total operating expenses of CHF 2,846 million decreased 17%, mainly reflecting the absence of the goodwill impairment charge in 2015, partially offset by increased compensation and benefits driven by growth-related higher headcount, higher restructuring expenses and higher general and administrative expenses. Adjusted income before taxes of CHF 778 million decreased 32% compared to 2015.
Capital and leverage metrics
As of the end of 2017, we reported risk-weighted assets of CHF 31.5 billion, a decrease of CHF 3.1 billion compared to the end of 2016, primarily reflecting reductions from restructuring efforts in our Markets business and the securitization of certain lending exposures in our Wealth Management & Connected business, partly offset by an increase in lending activity in the Wealth Management & Connected business. Leverage exposure was CHF 105.6 billion, a decrease of CHF 3.3 billion compared to the end of 2016, reflecting the foreign exchange impact from the weakening of the US dollar against the Swiss franc, reductions from our restructuring efforts in the Markets business and a decrease in HQLA, partially offset by an increase in lending volumes in the Wealth Management & Connected business.
82

Reconciliation of adjusted results
   Wealth Management & Connected Markets Asia Pacific
in 2017 2016 2015 2017 2016 2015 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  2,322 1,904 1,506 1,182 1,693 2,333 3,504 3,597 3,839
Provision for credit losses  15 29 31 0 (3) 4 15 26 35
Total operating expenses  1,508 1,386 1,643 1,252 1,460 1,784 2,760 2,846 3,427
   Goodwill impairment  (446) (310) (756)
   Restructuring expenses  (21) (14) (1) (42) (39) (2) (63) (53) (3)
   Major litigation provisions  0 0 (6) 0 0 0 0 0 (6)
Adjusted total operating expenses  1,487 1,372 1,190 1,210 1,421 1,472 2,697 2,793 2,662
Income/(loss) before taxes  799 489 (168) (70) 236 545 729 725 377
   Total adjustments  21 14 453 42 39 312 63 53 765
Adjusted income/(loss) before taxes  820 503 285 (28) 275 857 792 778 1,142
Adjusted return on regulatory capital (%) 15.0 14.8 20.4
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
Wealth Management & Connected
2017 Results
Income before taxes of CHF 799 million increased 63% compared to 2016, primarily reflecting significantly higher net revenues, partially offset by higher total operating expenses. Adjusted income before taxes of CHF 820 million increased 63% compared to 2016.
Net revenues
Net revenues of CHF 2,322 million increased 22% compared to 2016, reflecting higher Private Banking revenues, mainly from higher transaction-based revenues and higher advisory, underwriting and financing revenues. Transaction-based revenues increased 29% to CHF 606 million, mainly due to higher brokerage and product issuing and corporate advisory fees arising from integrated solutions. Recurring commissions and fees increased 19% to CHF 381 million, primarily reflecting higher investment product management, discretionary mandate management and security account and custody services fees. Net interest income increased slightly to CHF 620 million, reflecting higher average deposit and loan volumes, partially offset by slightly lower deposit margins and lower loan margins. Advisory, underwriting and financing revenues increased 35% to CHF 715 million, primarily due to higher financing and debt and equity underwriting revenues, partially offset by lower fees from M&A transactions. Financing revenues in 2017 included a gain of CHF 64 million from a pre-IPO financing and a positive net fair value impact of CHF 94 million from an impaired loan portfolio in recovery management.
Provision for credit losses
The Wealth Management & Connected loan portfolio primarily comprises Private Banking >>>lombard loans, mainly backed by listed securities, and secured and unsecured loans to corporates.
In 2017, Wealth Management & Connected recorded a provision for credit losses of CHF 15 million relating to several individual cases, compared to a provision for credit losses of CHF 29 million in 2016.
Total operating expenses
Total operating expenses of CHF 1,508 million increased 9% compared to 2016, mainly reflecting higher compensation and benefits, higher general and administrative expenses and higher commission expenses. Compensation and benefits increased 6% to CHF 1,002 million, primarily driven by higher compliance, risk and IT compensation related expenses and higher discretionary compensation, reflecting growth-related higher headcount. General and administrative expenses increased 10% to CHF 421 million, mainly due to higher risk, IT infrastructure, finance and compliance expenses. Commission expenses of CHF 64 million increased 36%, primarily reflecting higher transaction-based revenues.
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Results - Wealth Management & Connected
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  2,322 1,904 1,506 22 26
Provision for credit losses  15 29 31 (48) (6)
Compensation and benefits 1,002 941 791 6 19
General and administrative expenses 421 384 354 10 8
Commission expenses 64 47 51 36 (8)
Goodwill impairment 446 (100)
Restructuring expenses 21 14 1 50
Total other operating expenses 506 445 852 14 (48)
Total operating expenses  1,508 1,386 1,643 9 (16)
Income/(loss) before taxes  799 489 (168) 63
Statement of operations metrics (%)   
Cost/income ratio 64.9 72.8 109.1
Net revenue detail (CHF million)   
Private Banking 1,607 1,374 1,178 17 17
   of which net interest income  620 602 445 3 35
   of which recurring commissions and fees  381 319 297 19 7
   of which transaction-based revenues  606 469 419 29 12
   of which other revenues  0 (16) 17 100
Advisory, underwriting and financing 715 530 328 35 62
Net revenues  2,322 1,904 1,506 22 26
Private Banking margins on assets under management (bp)   
Gross margin 1 88 86 79
Net margin 2 30 23 22
Number of relationship managers   
Number of relationship managers 590 640 580 (8) 10
Net interest income includes a term spread credit on stable deposit funding and a term spread charge on loans. Recurring commissions and fees includes investment product management, discretionary mandate and other asset management-related fees, fees for general banking products and services and revenues from wealth structuring solutions. Transaction-based revenues arise primarily from brokerage and product issuing fees, fees from foreign exchange client transactions, trading and sales income, equity participations income and other transaction-based income.
1
Net revenues divided by average assets under management.
2
Income before taxes divided by average assets under management.
2016 Results
Income before taxes was CHF 489 million compared to a loss of CHF 168 million in 2015, primarily reflecting higher net revenues and lower total operating expenses. Adjusted income before taxes of CHF 503 million increased 76% compared to 2015.
Net revenues
Net revenues of CHF 1,904 million increased 26% compared to 2015, mainly reflecting higher advisory, underwriting and financing revenues and higher net interest income. Advisory, underwriting and financing revenues increased 62% to CHF 530 million, mainly reflecting higher financing revenues and higher fees from M&A transactions. Financing revenues included the positive net fair value impact of CHF 48 million from the impaired loan portfolio in recovery management. Net interest income increased 35% to CHF 602 million, reflecting higher deposit margins and slightly higher loan margins on higher average deposit and loans volumes. Transaction-based revenues increased 12% to CHF 469 million, mainly due to higher corporate advisory fees arising from integrated solutions. Recurring commissions and fees increased 7% to CHF 319 million, primarily reflecting higher investment product management fees, higher wealth structuring solutions fees and higher investment advisory fees.
Provision for credit losses
The Wealth Management & Connected loan portfolio primarily comprises Private Banking lombard loans, mainly backed by listed securities, and secured and unsecured loans to corporates.
In 2016, Wealth Management & Connected recorded a provision for credit losses of CHF 29 million, compared to a provision for credit losses of CHF 31 million in 2015. The provision for credit losses in 2016 was mainly in relation to a small number of share-based loans in Hong Kong which were impaired in the third quarter of 2016 due to their collateral values abruptly falling below their loan amounts.
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Total operating expenses
Total operating expenses of CHF 1,386 million decreased 16% compared to 2015, mainly reflecting the absence of the goodwill impairment charge of CHF 446 million in 2015, partially offset by higher compensation and benefits and higher general and administrative expenses. Compensation and benefits increased 19% to CHF 941 million, primarily driven by higher salary expenses, including higher growth-related headcount. General and administrative expenses increased 8% to CHF 384 million, mainly due to higher IT infrastructure expenses, higher product development and solution expenses and higher occupancy expenses, partially offset by lower litigation provisions.
Margins
Gross margin
Our gross margin was 88 basis points in 2017, two basis points higher compared to 2016, reflecting higher net revenues that were mostly offset by a 14.3% increase in average assets under management.
> Refer to “Assets under management” for further information.
Net margin
Our net margin was 30 basis points in 2017, seven basis points higher compared to 2016, reflecting higher net revenues and lower provision for credit losses, partially offset by higher total operating expenses and the increase in average assets under management.
Assets under management
As of the end of 2017, assets under management of CHF 196.8 billion were CHF 29.9 billion higher compared to the end of 2016, mainly reflecting net new assets of CHF 16.9 billion and favorable market movements. Net new assets reflected inflows primarily from Greater China, South East Asia, Japan and Australia.
As of the end of 2016, assets under management of CHF 166.9 billion were CHF 16.5 billion higher compared to the end of 2015, mainly reflecting net new assets of CHF 13.6 billion and favorable foreign exchange-related and market movements. Net new assets reflected inflows primarily from Greater China, Australia and South East Asia, partially offset by outflows in connection with the regularization of client assets of CHF 2.5 billion, mainly in South East Asia.
Assets under management – Private Banking
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Assets under management (CHF billion)   
Assets under management 196.8 166.9 150.4 17.9 11.0
Average assets under management 182.3 159.5 150.0 14.3 6.3
Assets under management by currency (CHF billion)   
USD 98.2 82.5 66.5 19.0 24.1
EUR 6.7 4.6 4.7 45.7 (2.1)
CHF 2.5 2.0 2.3 25.0 (13.0)
Other 89.4 77.8 76.9 14.9 1.2
Assets under management  196.8 166.9 150.4 17.9 11.0
Growth in assets under management (CHF billion)   
Net new assets 16.9 13.6 17.8
Other effects 13.0 2.9 (17.9)
   of which market movements  16.8 1.0 (4.9)
   of which foreign exchange  (3.9) 4.8 (3.4)
   of which other  0.1 (2.9) (9.6)
Growth in assets under management  29.9 16.5 (0.1)
Growth in assets under management (%)   
Net new assets 10.1 9.0 11.8
Other effects 7.8 2.0 (11.9)
Growth in assets under management  17.9 11.0 (0.1)
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markets
2017 Results
Loss before taxes of CHF 70 million in 2017 compared to an income before taxes of CHF 236 million in 2016. The related decrease of CHF 306 million primarily reflected lower net revenues, partially offset by lower total operating expenses. Adjusted loss before taxes of CHF 28 million in 2017 compared to adjusted income before taxes of CHF 275 million in 2016.
Net revenues
Net revenues of CHF 1,182 million decreased 30% compared to 2016, due to lower fixed income and equity sales and trading revenues. Fixed income sales and trading revenues decreased 51% to CHF 262 million, mainly due to decreased client activity in rates and lower revenues in foreign exchange products due to weaker trading performance. Developed markets rates products revenue in 2016 included a positive impact of CHF 33 million resulting from an increase in the funding value of certain structured deposits originated in Asia Pacific. Equity sales and trading revenues decreased 21% to CHF 920 million, mainly due to lower revenues from equity derivatives from weaker trading performance and lower client activity, and the transition of the systematic market making business to International Wealth Management that was completed in the first quarter of 2017. In 2016, equity derivatives revenue included the positive impact of CHF 65 million in derivatives resulting from a recalibration of the valuation model for certain hybrid instruments.
Provision for credit losses
In 2017, Markets had no provision for credit losses, compared to a release of provision for credit losses of CHF 3 million in 2016.
Total operating expenses
Total operating expenses of CHF 1,252 million decreased 14% compared to 2016, mainly reflecting lower compensation and benefits, general and administrative expenses and commission expenses. Compensation and benefits decreased 17% to CHF 600 million, mainly due to lower deferred compensation expenses from prior-year awards and salary expenses, reflecting a decrease in headcount from the restructuring of the Markets business. General and administrative expenses decreased 9% to CHF 410 million, mainly due to lower regulatory-related allocations and lower withholding taxes. Commission expenses decreased 18% to CHF 200 million, primarily reflecting the transition of the systematic market making business. Adjusted total operating expenses of CHF 1,210 million decreased 15% compared to 2016.
Results – Markets
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  1,182 1,693 2,333 (30) (27)
Provision for credit losses  0 (3) 4 100
Compensation and benefits 600 724 766 (17) (5)
General and administrative expenses 410 452 436 (9) 4
Commission expenses 200 245 270 (18) (9)
Goodwill impairment 310 (100)
Restructuring expenses 42 39 2 8
Total other operating expenses 652 736 1,018 (11) (28)
Total operating expenses  1,252 1,460 1,784 (14) (18)
Income/(loss) before taxes  (70) 236 545 (57)
Statement of operations metrics (%)   
Cost/income ratio 105.9 86.2 76.5
Net revenue detail (CHF million)   
Equity sales and trading 920 1,162 1,801 (21) (35)
Fixed income sales and trading 262 531 532 (51) 0
Net revenues  1,182 1,693 2,333 (30) (27)
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2016 Results
Income before taxes of CHF 236 million decreased CHF 309 million compared to 2015, primarily due to lower net revenues. Adjusted income before taxes of CHF 275 million decreased 68% compared to 2015.
Net revenues
Net revenues of CHF 1,693 million decreased 27% compared to 2015, primarily due to lower equity sales and trading revenues. Equity sales and trading revenues decreased 35% to CHF 1,162 million, mainly due to decreases in equity derivatives, reflecting lower client activity, and decreases in systematic market making, partially offset by the positive impact of CHF 65 million in derivatives in 2016, resulting from a recalibration of the valuation model for certain hybrid instruments to reflect increased observability of pricing data and a more standardized approach across products. Fixed income sales and trading revenues were stable compared to 2015, as higher revenues from developed markets rates products, which included a positive impact of CHF 33 million in 2016 resulting from an increase in the funding value of certain structured deposits originated in Asia Pacific were offset by lower revenues from emerging markets rates products.
Provision for credit losses
In 2016, Markets recorded a release of provision for credit losses of CHF 3 million, compared to a provision for credit losses of CHF 4 million in 2015.
Total operating expenses
Total operating expenses of CHF 1,460 million decreased 18% compared to 2015, mainly reflecting the absence of the goodwill impairment charge of CHF 310 million in 2015. Compensation and benefits decreased 5% to CHF 724 million, mainly due to lower discretionary compensation expenses and lower deferred compensation expenses from prior-year awards, partially offset by higher salary expenses. Commission expenses decreased 9% to CHF 245 million, primarily reflecting lower client trading volumes in equities. Restructuring expenses increased CHF 37 million to CHF 39 million, reflecting ongoing cost management initiatives. General and administrative expenses increased 4% to CHF 452 million, mainly due to higher corporate management charges. Adjusted total operating expenses of CHF 1,421 million decreased slightly compared to 2015.
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Global Markets
In 2017, we reported income before taxes of CHF 450 million and net revenues of CHF 5,551 million. Net revenues were stable compared to 2016, as improved fixed income and underwriting revenues were offset by challenging trading conditions in our equities businesses.
Results Summary
2017 results
In 2017, we reported income before taxes of CHF 450 million and net revenues of CHF 5,551 million. Compared to 2016, net revenues were stable, as substantially higher securitized products revenues and increased underwriting activity were offset by challenging equity trading conditions which resulted in low levels of client activity, particularly in ITS. Fixed income sales and trading revenues increased 12%, underwriting revenues increased 17% and equity sales and trading revenues declined 19%. Total operating expenses were CHF 5,070 million, down 7% compared to 2016, reflecting lower compensation and benefits, reduced allocated corporate function costs and lower restructuring costs. We reported an adjusted income before taxes of CHF 608 million in 2017 compared to CHF 272 million in 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  5,551 5,497 6,826 1 (19)
Provision for credit losses  31 (3) 10
Compensation and benefits 2,532 2,725 3,105 (7) (12)
General and administrative expenses 1,839 2,001 2,322 (8) (14)
Commission expenses 549 509 563 8 (10)
Goodwill impairment 0 0 2,661 (100)
Restructuring expenses 150 217 96 (31) 126
Total other operating expenses 2,538 2,727 5,642 (7) (52)
Total operating expenses  5,070 5,452 8,747 (7) (38)
Income/(loss) before taxes  450 48 (1,931)
Statement of operations metrics (%)   
Return on regulatory capital 3.2 0.4 (11.2)
Cost/income ratio 91.3 99.2 128.1
Economic risk capital and return   
Average economic risk capital (CHF million) 9,327 9,928 12,372 (6) (20)
Pre-tax return on average economic risk capital (%) 1 4.8 0.5 (15.6)
Balance sheet statistics (CHF million, except where indicated)   
Total assets 242,159 239,700 234,276 1 2
Risk-weighted assets 58,858 51,713 62,838 14 (18)
Risk-weighted assets (USD) 60,237 50,556 63,527 19 (20)
Leverage exposure 283,809 284,143 276,656 0 3
Leverage exposure (USD) 290,461 277,787 279,691 5 (1)
Number of employees (full-time equivalents)   
Number of employees 11,740 11,530 12,000 2 (4)
1
Calculated using a return excluding interest costs for allocated goodwill.
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Divisional results (continued)
   in % change
2017 2016 2015 17 / 16 16 / 15
Net revenue detail (CHF million)   
Fixed income sales and trading 2,922 2,599 3,355 12 (23)
Equity sales and trading 1,750 2,157 2,725 (19) (21)
Underwriting 1,115 957 953 17
Other (236) (216) (207) 9 4
Net revenues  5,551 5,497 6,826 1 (19)
Reconciliation of adjusted results
   Global Markets
in 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  5,551 5,497 6,826
Provision for credit losses  31 (3) 10
Total operating expenses  5,070 5,452 8,747
   Goodwill impairment  (2,661)
   Restructuring expenses  (150) (217) (96)
   Major litigation provisions  0 (7) (231)
   Expenses related to business sales  (8) 0 0
Adjusted total operating expenses  4,912 5,228 5,759
Income/(loss) before taxes  450 48 (1,931)
   Total adjustments  158 224 2,988
Adjusted income before taxes  608 272 1,057
Adjusted return on regulatory capital (%) 4.3 2.0 6.7
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
2016 results
In 2016, we reported income before taxes of CHF 48 million and net revenues of CHF 5,497 million. Compared to 2015, net revenues decreased 19%, as challenging trading conditions resulted in low levels of client activity. Fixed income sales and trading revenues declined 23%, equity sales and trading revenues declined 21% and underwriting revenues were stable. Total operating expenses were CHF 5,452 million, down 38% compared to 2015, reflecting the goodwill impairment of CHF 2,661 million in 2015. Adjusted total operating expenses of CHF 5,228 million decreased 9% compared to 2015, reflecting lower compensation and benefits and decreased costs related to our risk, regulatory and compliance infrastructure. Adjusted income before taxes was CHF 272 million in 2016, compared to CHF 1,057 million in 2015.
Capital and leverage metrics
At the end of 2017, we reported risk-weighted assets of USD 60.2 billion, in line with our 2018 threshold of USD 60 billion. Risk-weighted assets increased USD 9.7 billion compared to 2016 primarily reflecting increased business activity across our credit businesses and capital markets, the expiration of a credit risk hedge and methodology changes. Leverage exposure was USD 290.5 billion, in line with our 2018 threshold of USD 290 billion. Leverage exposure increased USD 12.7 billion compared to 2016 primarily due to increased business activity.
2017 Results
Revenues reflected a change in the intra-divisional funding cost allocation methodology between fixed income sales and trading and equity sales and trading in the fourth quarter of 2017 due to ongoing work on the implementation of the net stable funding ratio framework.
Fixed income sales and trading
Fixed income sales and trading revenues of CHF 2,922 million increased 12% compared to 2016, primarily due to substantially higher securitized products revenues reflecting strength across all products. This was partially offset by substantially lower macro products revenues reflecting weak US rates results due to subdued volatility and our reduced issuance of structured notes. Emerging markets revenues decreased, reflecting a substantial decline in Brazil financing due to significantly lower client activity compared to more favorable market conditions in 2016. In addition, global credit products revenues decreased, driven by lower investment grade trading and leveraged finance revenues in light of continued low volatility and tighter credit spreads.
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Equity sales and trading
Equity sales and trading revenues of CHF 1,750 million decreased 19% compared to 2016, reflecting lower systematic market revenues driven by the transition of the business to International Wealth Management that was completed in the first quarter of 2017, coupled with a difficult trading environment. Equity derivatives revenues decreased significantly due to continued low levels of volatility, which negatively impacted flow derivatives. Prime services revenues declined primarily reflecting lower client financing revenues given a low trading volume environment. Cash equities revenues were stable in a difficult trading environment.
Underwriting
Underwriting revenues of CHF 1,115 million increased 17% compared to 2016, reflecting increased issuance activity due to a low volatility market environment. Debt underwriting revenues increased, primarily due to significantly higher leveraged finance revenues. In addition, equity underwriting revenues increased, due to significantly higher primary issuance volumes.
Provision for credit losses
Global Markets recorded a provision for credit losses of CHF 31 million in 2017. In 2016 we recorded a release of provision for credit losses of CHF 3 million. The release of provision reflected the stabilization in the energy sector.
Total operating expenses
Compared to 2016, total operating expenses of CHF 5,070 million decreased 7%, reflecting lower compensation and benefits, reduced general and administrative expenses and lower restructuring costs. Compensation and benefits decreased 7%, reflecting lower deferred compensation expenses from prior-year awards, lower salary and reduced discretionary compensation expenses. General and administrative expenses decreased, primarily due to lower allocated corporate function costs. In addition, we incurred restructuring expenses of CHF 150 million.
2016 Results
Fixed income sales and trading
Fixed income sales and trading revenues of CHF 2,599 million declined 23%, compared to 2015, primarily due to lower securitized products revenues as we significantly reduced our risk and capital profile. Revenues in our rates business declined, due to lower capital usage and the exit of our European rates business as we resized the franchise. In addition, emerging markets revenues declined, primarily due to lower structured products results. This was partially offset by improved Brazil trading activity and higher global credit product revenues, reflecting improved leveraged finance trading activity due to a significant rebound in US high yield and loan trading.
Equity sales and trading
Equities revenues of CHF 2,157 million declined 21%, compared to 2015, reflecting challenging operating conditions. Equity derivatives revenues declined mainly due to decreased structured and flow derivatives, reflecting lower volatility. Systematic market making revenues declined due to low volatility. Prime services revenues declined, reflecting our resized business model compared to 2015. Cash equities revenues were lower, reflecting a decline in Europe, Middle East and Africa (EMEA) trading volumes. This was partially offset by improved convertibles revenues.
Underwriting
Underwriting revenues of CHF 957 million were stable compared to 2015, primarily due to higher debt underwriting revenues driven by improved investment grade and leveraged finance activity. This was offset by lower equity underwriting revenues, primarily due to reduced industry-wide issuance activity.
Provision for credit losses
Global Markets recorded a release of provision for credit losses of CHF 3 million in 2016 and a provision for credit losses of CHF 10 million in 2015. The release of provision reflected the stabilization in the energy sector.
Total operating expenses
Compared to 2015, total operating expenses of CHF 5,452 million decreased 38%, primarily due to the goodwill impairment charge of CHF 2,661 million in 2015. Compensation and benefits decreased 12%, reflecting lower deferred compensation expenses from prior-year awards and lower salary expenses. General and administrative expenses decreased, reflecting reduced costs related to our risk, regulatory and compliance infrastructure. In addition, we incurred restructuring expenses of CHF 217 million. Adjusted total operating expenses decreased 9%.
90

Investment Banking & Capital Markets
In 2017, we reported income before taxes of CHF 369 million and net revenues of CHF 2,139 million. Income before taxes increased 41% and net revenues increased 8% compared to 2016. Profitability was positively impacted by an improved share of wallet and increased underwriting revenues.
Results Summary
2017 results
In 2017, we reported income before taxes of CHF 369 million and net revenues of CHF 2,139 million. Net revenues increased 8% compared to 2016, due to higher revenues from debt underwriting and equity underwriting, partially offset by lower revenues in advisory and other fees. Debt underwriting revenues of CHF 1,030 million increased 10%, driven by higher leveraged finance revenues, partially offset by lower derivatives financing revenues. Equity underwriting revenues of CHF 386 million increased 24%, primarily reflecting an increase in the overall industry-wide fee pool driven by strong IPO activity. Advisory and other fees of CHF 770 million decreased 9%, mainly reflecting lower revenues from completed M&A transactions. Total operating expenses of CHF 1,740 million increased 3%, primarily due to higher compensation and benefits and restructuring expenses. Adjusted income before taxes was CHF 411 million in 2017, compared to CHF 289 million in 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  2,139 1,972 1,787 8 10
Provision for credit losses  30 20 0 50
Compensation and benefits 1,268 1,237 1,265 3 (2)
General and administrative expenses 423 424 432 (2)
Commission expenses 7 2 2 250
Goodwill impairment 0 0 380 (100)
Restructuring expenses 42 28 22 50 27
Total other operating expenses 472 454 836 4 (46)
Total operating expenses  1,740 1,691 2,101 3 (20)
Income/(loss) before taxes  369 261 (314) 41
Statement of operations metrics (%)   
Return on regulatory capital 13.7 10.7 (15.4)
Cost/income ratio 81.3 85.8 117.6
Economic risk capital and return   
Average economic risk capital (CHF million) 5,279 4,652 3,717 13 25
Pre-tax return on average economic risk capital (%) 1 7.0 5.6 (8.4)
Balance sheet statistics (CHF million, except where indicated)   
Total assets 20,803 20,784 18,712 0 11
Risk-weighted assets 20,058 18,027 16,150 11 12
Risk-weighted assets (USD) 20,528 17,624 16,327 16 8
Leverage exposure 43,842 45,571 40,898 (4) 11
Leverage exposure (USD) 44,870 44,552 41,347 1 8
Number of employees (full-time equivalents)   
Number of employees 3,190 3,090 2,810 3 10
1
Calculated using a return excluding interest costs for allocated goodwill.
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Divisional results (continued)
   in % change
2017 2016 2015 17 / 16 16 / 15
Net revenue detail (CHF million)   
Advisory and other fees 770 849 748 (9) 14
Debt underwriting 1,030 934 809 10 15
Equity underwriting 386 312 376 24 (17)
Other (47) (123) (146) (62) (16)
Net revenues  2,139 1,972 1,787 8 10
Reconciliation of adjusted results
   Investment Banking & Capital Markets
in 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  2,139 1,972 1,787
Provision for credit losses  30 20
Total operating expenses  1,740 1,691 2,101
   Goodwill impairment  (380)
   Restructuring expenses  (42) (28) (22)
Adjusted total operating expenses  1,698 1,663 1,699
Income/(loss) before taxes  369 261 (314)
   Total adjustments  42 28 402
Adjusted income before taxes  411 289 88
Adjusted return on regulatory capital (%) 15.2 11.9 4.6
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
2016 results
In 2016, we reported income before taxes of CHF 261 million and net revenues of CHF 1,972 million. Net revenues increased 10% compared to 2015. Debt underwriting revenues of CHF 934 million increased 15% on higher leveraged finance and derivatives financing revenues and significant mark-to-market losses related to our underwriting commitments in 2015. Advisory and other fees of CHF 849 million increased 14%, mainly reflecting higher revenues from completed M&A transactions. Equity underwriting revenues of CHF 312 million decreased 17%, primarily reflecting a decrease in the industry-wide fee pool for IPOs and follow-on offerings. Total operating expenses of CHF 1,691 million decreased 20%, primarily due to the goodwill impairment charge of CHF 380 million incurred in 2015 and lower deferred compensation expense. Adjusted income before taxes was CHF 289 million in 2016, compared to CHF 88 million in 2015.
Capital and leverage metrics
At the end of 2017, risk-weighted assets were USD 20.5 billion, an increase of USD 2.9 billion compared to the end of 2016. The change was driven by the impact of methodology changes, growth in the loan portfolio and increased underwriting commitments. We reported leverage exposure of USD 44.9 billion, an increase of USD 0.3 billion compared to the end of 2016.
2017 Results
Advisory and other fees
In 2017, revenues from advisory and other fees of CHF 770 million decreased 9% compared to 2016, mainly reflecting lower revenues from completed M&A transactions, despite an increase in our share of wallet for those transactions. Share of wallet refers to our share of the industry-wide fee pool for the respective products.
Debt underwriting
In 2017, debt underwriting revenues of CHF 1,030 million increased 10% compared to 2016, driven by significantly higher leveraged finance revenues partially offset by lower derivatives financing revenues.
Equity underwriting
In 2017, equity underwriting revenues of CHF 386 million increased 24% compared to 2016, primarily reflecting an increase in the overall industry-wide fee pool driven by strong IPO activity.
Provision for credit losses
In 2017, Investment Banking & Capital Markets recorded a provision for credit losses of CHF 30 million including increased provisions reflecting a methodology change for probable losses inherent in the portfolio relating to the period of time expected to identify defaults once they have occurred and provisions relating to a single counterparty.
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Total operating expenses
Total operating expenses of CHF 1,740 million increased 3% compared to 2016, primarily due to higher deferred compensation expenses from prior year awards, allocated corporate function costs, mainly reflecting targeted investments in our IT and compliance functions, and restructuring expenses. These increases were partially offset by a lower discretionary compensation accrual.
2016 Results
Advisory and other fees
In 2016, revenues from advisory and other fees of CHF 849 million increased 14% compared to 2015, as higher revenues from completed M&A transactions and an increase in our share of wallet offset a decrease in the industry-wide fee pool. Share of wallet refers to our share of the industry-wide fee pool for the respective products.
Debt underwriting
In 2016, debt underwriting revenues of CHF 934 million increased 15% compared to 2015, driven by significantly higher leveraged finance revenues and mark-to-market losses related to our underwriting commitments in 2015.
Equity underwriting
In 2016, equity underwriting revenues of CHF 312 million decreased 17% compared to 2015, primarily reflecting a decrease in the industry-wide fee pool for IPOs and follow-on offerings.
Provision for credit losses
In 2016, Investment Banking & Capital Markets recorded a provision for credit losses of CHF 20 million, primarily relating to the energy sector.
Total operating expenses
Total operating expenses of CHF 1,691 million decreased 20% compared to 2015, primarily due to the goodwill impairment charge of CHF 380 million in 2015, and lower deferred compensation expense. These decreases were partially offset by a higher discretionary compensation accrual, market-based salary increases and higher restructuring expenses.
Global advisory and underwriting revenues
The Group’s global advisory and underwriting business operates across multiple business divisions that work in close collaboration with each other to generate these revenues. In order to reflect the global performance and capabilities of this business and for enhanced comparability versus its peers, the following table aggregates total advisory and underwriting revenues for the Group into a single metric in US dollar terms before cross-divisional revenue sharing agreements.
   in % change
2017 2016 YoY
Global advisory and underwriting revenues (USD million)   
Global advisory and underwriting revenues 4,133 3,771 10
   of which advisory and other fees  935 1,046 (11)
   of which debt underwriting  2,292 1,967 17
   of which equity underwriting  906 758 20
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Strategic Resolution Unit
In 2017, we reported a loss before taxes of CHF 2,135 million and decreased risk-weighted assets by USD 10.0 billion and leverage exposure by USD 42.1 billion compared to the end of 2016.
results summary
2017 results
In 2017, we reported a loss before taxes of CHF 2,135 million, compared to a loss before taxes of CHF 5,759 million in 2016 that included significant litigation provisions of CHF 2,792 million, primarily related to the settlements with the DOJ and the NCUA regarding our legacy >>>RMBS business. In 2017, we reported an adjusted loss before taxes of CHF 1,847 million, compared to CHF 2,943 million in 2016.
Negative net revenues of CHF 886 million in 2017 were driven by overall funding costs, valuation adjustments and exit costs, partially offset by revenues from our legacy cross-border and small markets businesses. Valuation adjustments in 2017 primarily reflected mark-to-market losses on our legacy investment banking portfolio. Provision for credit losses was CHF 32 million in 2017 compared to CHF 111 million in 2016. Total operating expenses were CHF 1,217 million in 2017, including CHF 796 million of general and administrative expenses, of which CHF 300 million were litigation provisions, and CHF 332 million of compensation and benefits.
In 2017, we reported adjusted total operating expenses of CHF 891 million, compared to CHF 1,563 million in 2016.
Divisional results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Net revenues  (886) (1,271) 511 (30)
   of which from noncontrolling interests without significant economic interest  45 27 11 67 145
Provision for credit losses  32 111 137 (71) (19)
Compensation and benefits 332 612 1,168 (46) (48)
General and administrative expenses 796 3,590 1,539 (78) 133
   of which litigation provisions  300 2,792 417 (89)
Commission expenses 32 54 163 (41) (67)
Restructuring expenses 57 121 156 (53) (22)
Total other operating expenses 885 3,765 1,858 (76) 103
Total operating expenses  1,217 4,377 3,026 (72) 45
   of which from noncontrolling interests without significant economic interest  10 23 22 (57) 5
Income/(loss) before taxes  (2,135) (5,759) (2,652) (63) 117
   of which from noncontrolling interests without significant economic interest  35 4 (11)
Balance sheet statistics (CHF million, except where indicated)   
Total assets 45,629 80,297 100,823 (43) (20)
Risk-weighted assets 33,613 45,441 72,424 (26) (37)
Risk-weighted assets (USD) 34,401 44,425 73,218 (23) (39)
Leverage exposure 59,934 105,768 168,544 (43) (37)
Leverage exposure (USD) 61,339 103,402 170,393 (41) (39)
Number of employees (full-time equivalents)   
Number of employees 1,530 1,830 3,200 (16) (43)
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Divisional results (continued)
   in % change
2017 2016 2015 17 / 16 16 / 15
Net revenue detail (CHF million)   
Restructuring of select onshore businesses 31 154 757 (80) (80)
Legacy cross-border and small markets businesses 121 194 291 (38) (33)
Legacy asset management positions (79) (90) (109) (12) (17)
Legacy investment banking portfolio (697) (1,253) (281) (44) 346
Legacy funding costs (337) (315) (251) 7 25
Other 30 12 93 150 (87)
Noncontrolling interests without significant economic interest 45 27 11 67 145
Net revenues  (886) (1,271) 511 (30)
Reconciliation of adjusted results
   Strategic Resolution Unit
in 2017 2016 2015
Adjusted results (CHF million)   
Net revenues  (886) (1,271) 511
   Real estate gains  0 (4) 0
   (Gains)/losses on business sales  (38) 6 0
Adjusted net revenues  (924) (1,269) 511
Provision for credit losses  32 111 137
Total operating expenses  1,217 4,377 3,026
   Restructuring expenses  (57) (121) (156)
   Major litigation provisions  (269) (2,693) (290)
Adjusted total operating expenses  891 1,563 2,580
Income/(loss) before taxes  (2,135) (5,759) (2,652)
   Total adjustments  288 2,816 446
Adjusted income/(loss) before taxes  (1,847) (2,943) (2,206)
Adjusted results are non-GAAP financial measures. Refer to "Reconciliation of adjusted results" in Credit Suisse for further information.
2016 results
We reported a loss before taxes of CHF 5,759 million, including significant litigation provisions of CHF 2,792 million, primarily related to the settlements with the DOJ and the NCUA regarding our legacy RMBS, compared to a loss before taxes of CHF 2,652 million in 2015. In 2016, we reported an adjusted loss before taxes of CHF 2,943 million, compared to CHF 2,206 million in 2015.
Negative net revenues of CHF 1,271 million in 2016 were driven by overall funding costs, valuation adjustments and exit costs, partially offset by revenues from our legacy cross-border and small markets businesses. Valuation adjustments in 2016 primarily reflected mark-to-market losses on our legacy investment banking portfolio, including our distressed credit and emerging markets loan portfolio. Net revenues decreased CHF 1,782 million compared to 2015, primarily driven by lower revenues from the restructuring of our select onshore businesses and higher overall funding costs. Provision for credit losses was CHF 111 million in 2016 compared to CHF 137 million in 2015. Total operating expenses were CHF 4,377 million in 2016, including CHF 3,590 million of general and administrative expenses, of which CHF 2,792 million were litigation provisions, primarily relating to the RMBS settlements, and CHF 612 million of compensation and benefits.
In 2016, we reported adjusted total operating expenses of CHF 1,563 million, compared to CHF 2,580 million in 2015.
Capital and leverage metrics
At the end of 2017, we reported >>>risk-weighted assets of USD 34.4 billion, a decrease of USD 10.0 billion compared to the end of 2016. Leverage exposure was USD 61.3 billion at the end of 2017, reflecting a decrease of USD 42.1 billion compared to the end of 2016. These decreases were primarily achieved through a broad range of transactions, including restructuring and unwinds in the derivatives portfolio, sales in the residual loan portfolio and legacy asset management positions, restructuring of life finance and emerging market exposures, real estate exits and a full exit of the legacy leveraged finance capital markets portfolio.
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Development of the Strategic Resolution Unit
In the fourth quarter of 2015, we formed the Strategic Resolution Unit to oversee the effective wind-down of businesses and positions that do not fit our strategic direction in the most efficient manner possible. We plan to complete the wind-down of the division by the end of 2018. Any remaining operations and assets of the Strategic Resolution Unit are expected to be absorbed into the rest of the Group.
> Refer to “Development of the Strategic Resolution Unit” in I – Information on the company – Divisions – Strategic Resolution Unit for further information.
2017 results
Net revenues
We reported negative net revenues of CHF 886 million in 2017 compared to negative net revenues of CHF 1,271 million in 2016. The improvement was driven by lower negative valuation adjustments, a reduction in overall funding costs and lower exit losses primarily related to the sale of loan and financing portfolios, partially offset by a reduction in fee-based revenues as a result of accelerated business exits.
Provision for credit losses
Provision for credit losses was CHF 32 million in 2017 compared to CHF 111 million in 2016. Provisions in 2017 were primarily related to corporate loans, the disposal of a portfolio of senior financing on US middle market loans and ship finance exposures. Provisions in 2016 were primarily related to the ship finance sector.
Total operating expenses
Total operating expenses of CHF 1,217 million decreased CHF 3,160 million, a decline of 72% compared to 2016, primarily due to lower general and administrative expenses and lower compensation and benefits. General and administrative expenses of CHF 796 million decreased 78%, including significantly lower litigation provisions, a decrease of CHF 2,492 million as 2016 included significant litigation provisions of CHF 2,792 million, primarily related to the >>>RMBS settlements. Compensation and benefits of CHF 332 million decreased 46%, primarily from the restructuring of select onshore businesses, including cost reduction initiatives relating to the exit of our US onshore and Western European private banking businesses. Total operating expenses in 2017 included costs of CHF 177 million to meet requirements related to the settlements with US authorities regarding US cross-border matters, some of which relates to the work performed by the DFS monitor. Adjusted total operating expenses were CHF 891 million in 2017, compared to CHF 1,563 million in 2016, a decline of 43%.
2016 results
Net revenues
We reported negative net revenues of CHF 1,271 million in 2016 compared to net revenues of CHF 511 million in 2015. The decrease in net revenues was driven by lower revenues from the restructuring of our select onshore businesses, in particular the transfer of our US private banking business, which was announced in 2015, higher overall funding costs and higher negative valuation adjustments. Valuation adjustments in 2016 primarily reflected mark-to-market losses on our legacy investment banking portfolio, including our distressed credit and emerging markets loan portfolio. The lower revenues also reflected higher exit costs relating to our legacy investment banking portfolio and the restructuring of our former Asset Management business.
Provision for credit losses
Provision for credit losses was CHF 111 million in 2016 compared to CHF 137 million in 2015. Provisions in 2016 mainly related to the ship finance sector and provisions in 2015 primarily related to the energy sector, principally from our legacy US private banking business.
Total operating expenses
Total operating expenses of CHF 4,377 million increased CHF 1,351 million compared to 2015, reflecting significant litigation provisions of CHF 2,792 million in 2016, primarily related to the >>>RMBS settlements, partially offset by lower compensation and benefits and commission expenses as a result of various cost reduction initiatives, as well as the transfer of our US private banking business. Total operating expenses in 2016 included CHF 121 million of restructuring expenses and costs of CHF 220 million to meet requirements related to the settlements with US authorities regarding US cross-border matters, some of which relates to the work performed by the DFS monitor. Adjusted total operating expenses were CHF 1,563 million in 2016, compared to CHF 2,580 million in 2015, a decline of 39%.
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Corporate Center
In 2017, we recorded a loss before taxes of CHF 736 million compared to a loss of CHF 687 million in 2016.
Corporate Center includes parent company operations such as Group financing, expenses for projects sponsored by the Group, including costs associated with the evolution of our legal entity structure to meet developing and future regulatory requirements, and certain other expenses and revenues that have not been allocated to the segments. Corporate Center also includes consolidation and elimination adjustments required to eliminate intercompany revenues and expenses.
Treasury results include the impact of volatility in the valuations of certain central funding transactions such as structured notes issuances and swap transactions. Since the second quarter of 2017, treasury results also include additional interest charges from transfer pricing to align funding costs to assets held in the Corporate Center.
Other revenues include required elimination adjustments associated with trading in own shares and, beginning in the third quarter of 2017, include the cost of certain hedging transactions executed in connection with the Group’s >>>risk-weighted assets.
Compensation and benefits mainly reflect >>>fair value adjustments on certain deferred compensation plans not allocated to the segments and certain deferred compensation retention awards intended to support the restructuring of the Group relating to Global Markets and Investment Banking & Capital Markets predominantly through the end of 2017, and to Asia Pacific predominantly through the end of 2018.
2017 results
In 2017, we recorded a loss before taxes of CHF 736 million compared to a loss of CHF 687 million in 2016. The increase in the loss before taxes was primarily driven by higher total operating expenses, partially offset by an increase in net revenues.
We reported net revenues of CHF 85 million compared to CHF 71 million in 2016. In 2017, treasury results of CHF 56 million reflected revenues with respect to structured notes volatility of CHF 503 million, partially offset by negative revenues of CHF 257 million relating to funding activities, CHF 118 million relating to hedging volatility and CHF 74 million relating to fair-valued money market instruments. The 2017 structured notes volatility was substantially composed of the positive impact of CHF 412 million from the enhancements in the third and fourth quarters of 2017 to the valuation methodology relating to the instrument-specific credit risk on fair value option elected structured notes, of which CHF 338 million was reallocated between accumulated other comprehensive income/(loss) (AOCI) and net income. We are in the process of migrating our structured notes portfolio to a new target operating model that allows for a more granular and precise valuation of the individual notes. This migration became sufficiently advanced during the third and fourth quarters of 2017 with respect to the rates sub-portfolio to allow for this change in estimate.
Corporate Center results
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Statements of operations (CHF million)   
Treasury results 56 (160) 69
Fair value impact from movements in own credit spreads 298 (100)
Other 29 231 194 (87) 19
Net revenues  85 71 561 20 (87)
Provision for credit losses  0 (1) (1) 100 0
Compensation and benefits 394 277 351 42 (21)
General and administrative expenses 368 399 465 (8) (14)
Commission expenses 45 76 46 (41) 65
Restructuring expenses 14 7 0 100
Total other operating expenses 427 482 511 (11) (6)
Total operating expenses  821 759 862 8 (12)
Income/(loss) before taxes  (736) (687) (300) 7 129
Balance sheet statistics (CHF million)   
Total assets 67,591 62,413 64,621 8 (3)
Risk-weighted assets 1 23,849 17,338 18,467 38 (6)
Leverage exposure 1 67,034 59,374 63,090 13 (6)
1
Disclosed on a look-through basis.
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Total operating expenses increased 8%, primarily reflecting a 42% increase in compensation and benefits, partially offset by an 8% decrease in general and administrative expenses. The increase in compensation and benefits mainly reflected higher deferred compensation expenses from prior year awards. The decrease in general and administrative expenses was mainly due to lower expenses related to the evolution of our legal entity structure, offset by a CHF 127 million impact from the settlement with the DFS relating to certain areas of our foreign exchange trading business and the impact from a provision for indirect taxes.
Capital metrics
Following discussions with >>>FINMA during 2017, we updated our loss history and implemented a revised methodology for the measurement of our risk-weighted assets relating to operational risk, primarily in respect of our >>>RMBS settlements, which resulted in an increase of CHF 9.0 billion in the second half of 2017. This increase was partially offset by CHF 4.0 billion of movements in risk levels, primarily in credit risk.
> Refer to “Regulatory capital” in Credit Suisse for further information.
2016 results
In 2016, the Corporate Center recorded a loss before taxes of CHF 687 million compared to a loss of CHF 300 million in 2015, primarily reflecting lower net revenues.
We reported net revenues of CHF 71 million compared to CHF 561 million in 2015. In 2016, the treasury results were a negative CHF 160 million, including CHF 175 million of losses with respect to structured notes volatility, CHF 87 million relating to funding activities, CHF 104 million relating to hedging volatility and CHF 32 million relating to fair-valued money market instruments, partially offset by CHF 238 million of gains relating to Credit Suisse issued fair-valued vanilla debt instruments and associated hedges.
Total operating expenses decreased 12%, primarily reflecting a 21% decrease in compensation and benefits and a 14% decrease in general and administrative expenses. The decrease in compensation and benefits mainly reflected lower deferred compensation expenses from prior year awards. The decrease in general and administrative expenses was mainly due to lower expenses related to the evolution of our legal entity structure.
Expense allocation to divisions
   in / end of % change
2017 2016 2015 17 / 16 16 / 15
Expense allocation to divisions (CHF million)   
Compensation and benefits 2,683 2,571 2,571 4 0
General and administrative expenses 2,642 2,978 3,439 (11) (13)
Commission expenses 45 76 46 (41) 65
Restructuring expenses 158 166 106 (5) 57
Total other operating expenses 2,845 3,220 3,591 (12) (10)
Total operating expenses before allocations to divisions  5,528 5,791 6,162 (5) (6)
Net allocation to divisions 4,707 5,032 5,300 (6) (5)
   of which Swiss Universal Bank  1,010 1,021 1,217 (1) (16)
   of which International Wealth Management  816 789 798 3 (1)
   of which Asia Pacific  738 669 648 10 3
   of which Global Markets  1,524 1,732 1,698 (12) 2
   of which Investment Banking & Capital Markets  320 279 262 15 6
   of which Strategic Resolution Unit  299 542 677 (45) (20)
Total operating expenses  821 759 862 8 (12)
Corporate services and business support, including in finance, operations, human resources, legal, compliance, risk management and IT, are provided by corporate functions, and the related costs are allocated to the segments and the Corporate Center based on their requirements and other relevant measures.
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Assets under management
As of the end of 2017, assets under management were CHF 1,376.1 billion, 10.0% higher compared to the end of 2016, primarily driven by favorable market movements and net new assets of CHF 37.8 billion.
Assets under management
Assets under management comprise assets that are placed with us for investment purposes and include discretionary and advisory counterparty assets.
Discretionary assets are assets for which the client fully transfers the discretionary power to a Credit Suisse entity with a management mandate. Discretionary assets are reported in the business in which the advice is provided as well as in the business in which the investment decisions take place. Assets managed by the Asset Management business of International Wealth Management for other businesses are reported in each applicable business and eliminated at the Group level.
Advisory assets include assets placed with us where the client is provided access to investment advice but retains discretion over investment decisions.
Assets under management and net new assets include assets managed by consolidated entities, joint ventures and strategic participations. Assets from joint ventures and participations are counted in proportion to our share in the respective entity.
Net new assets
Net new assets include individual cash payments, delivery of securities and cash flows resulting from loan increases or repayments.
Interest and dividend income credited to clients and commissions, interest and fees charged for banking services as well as changes in assets under management due to currency and market volatility are not taken into account when calculating net new assets, as such charges or market movements are not directly related to the Group’s success in acquiring assets under management. Similarly structural effects mainly relate to asset inflows and outflows due to acquisition or divestiture, exit from businesses or markets or exits due to new regulatory requirements and are not taken into account when calculating net new assets. The Group reviews relevant policies regarding client assets on a regular basis.
Assets under management and client assets
   end of % change
2017 2016 2015 17 / 16 16 / 15
Assets under management (CHF billion)   
Swiss Universal Bank – Private Clients 208.3 192.2 189.8 8.4 1.3
Swiss Universal Bank – Corporate & Institutional Clients 354.7 339.3 327.0 4.5 3.8
International Wealth Management – Private Banking 366.9 323.2 289.6 13.5 11.6
International Wealth Management – Asset Management 385.6 321.6 321.3 19.9 0.1
Asia Pacific – Private Banking 196.8 166.9 150.4 17.9 11.0
Strategic Resolution Unit 5.0 13.7 27.3 (63.5) (49.8)
Assets managed across businesses 1 (141.2) (105.8) (91.3) 33.5 15.9
Assets under management  1,376.1 1,251.1 1,214.1 10.0 3.0
   of which discretionary assets  452.5 404.3 410.1 11.9 (1.4)
   of which advisory assets  923.6 846.8 804.0 9.1 5.3
Client assets (CHF billion)   2
Swiss Universal Bank – Private Clients 241.0 218.5 210.0 10.3 4.0
Swiss Universal Bank – Corporate & Institutional Clients 463.8 447.8 433.3 3.6 3.3
International Wealth Management – Private Banking 466.0 423.4 400.0 10.1 5.9
International Wealth Management – Asset Management 385.6 321.6 321.3 19.9 0.1
Asia Pacific – Private Banking 255.5 202.8 169.8 26.0 19.4
Strategic Resolution Unit 8.5 19.8 110.4 (57.1) (82.1)
Assets managed across businesses 1 (141.2) (105.8) (91.3) 33.5 15.9
Client assets  1,679.2 1,528.1 1,553.5 9.9 (1.6)
1
Represents assets managed by Asset Management within International Wealth Management for the other businesses.
2
Client assets is a broader measure than assets under management as it includes transactional accounts and assets under custody (assets held solely for transaction-related or safekeeping/custody purposes) and assets of corporate clients and public institutions used primarily for cash management or transaction-related purposes.
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Growth in assets under management
in 2017 2016 2015
Growth in assets under management (CHF billion)   
Net new assets  37.8 26.8 46.9
   of which Swiss Universal Bank – Private Clients  4.7 0.1 3.3
   of which Swiss Universal Bank – Corporate & Institutional Clients  (13.9) 2.5 10.5
   of which International Wealth Management – Private Banking  15.6 15.6 (3.0)
   of which International Wealth Management – Asset Management 1 20.3 5.6 26.5
   of which Asia Pacific – Private Banking  16.9 13.6 17.8
   of which Strategic Resolution Unit  (2.5) (8.5) (4.0)
   of which assets managed across businesses 2 (3.3) (2.1) (4.2)
Other effects  87.2 10.2 (201.5)
   of which Swiss Universal Bank – Private Clients  11.4 2.3 (15.4)
   of which Swiss Universal Bank – Corporate & Institutional Clients  29.3 9.8 (16.1)
   of which International Wealth Management – Private Banking  28.1 18.0 (31.1)
   of which International Wealth Management – Asset Management  43.7 (5.3) (10.4)
   of which Asia Pacific – Private Banking  13.0 2.9 (17.9)
   of which Strategic Resolution Unit  (6.2) (5.1) (112.7)
   of which assets managed across businesses 2 (32.1) (12.4) 2.1
Growth in assets under management  125.0 37.0 (154.6)
   of which Swiss Universal Bank – Private Clients  16.1 2.4 (12.1)
   of which Swiss Universal Bank – Corporate & Institutional Clients  15.4 12.3 (5.6)
   of which International Wealth Management – Private Banking  43.7 33.6 (34.1)
   of which International Wealth Management – Asset Management 1 64.0 0.3 16.1
   of which Asia Pacific – Private Banking  29.9 16.5 (0.1)
   of which Strategic Resolution Unit  (8.7) (13.6) (116.7)
   of which assets managed across businesses 2 (35.4) (14.5) (2.1)
Growth in assets under management (%)   
Net new assets  3.0 2.2 3.4
   of which Swiss Universal Bank – Private Clients  2.4 0.1 1.6
   of which Swiss Universal Bank – Corporate & Institutional Clients  (4.1) 0.8 3.2
   of which International Wealth Management – Private Banking  4.8 5.4 (0.9)
   of which International Wealth Management – Asset Management 1 6.3 1.7 8.7
   of which Asia Pacific – Private Banking  10.1 9.0 11.8
   of which Strategic Resolution Unit  (18.2) (31.1) (2.8)
   of which assets managed across businesses 2 3.1 2.3 4.7
Other effects  7.0 0.8 (14.7)
   of which Swiss Universal Bank – Private Clients  6.0 1.2 (7.6)
   of which Swiss Universal Bank – Corporate & Institutional Clients  8.6 3.0 (4.9)
   of which International Wealth Management – Private Banking  8.7 6.2 (9.6)
   of which International Wealth Management – Asset Management  13.6 (1.6) (3.4)
   of which Asia Pacific – Private Banking  7.8 2.0 (11.9)
   of which Strategic Resolution Unit  (45.3) (18.7) (78.2)
   of which assets managed across businesses 2 30.4 13.6 (2.3)
Growth in assets under management  10.0 3.0 (11.3)
   of which Swiss Universal Bank – Private Clients  8.4 1.3 (6.0)
   of which Swiss Universal Bank – Corporate & Institutional Clients  4.5 3.8 (1.7)
   of which International Wealth Management – Private Banking  13.5 11.6 (10.5)
   of which International Wealth Management – Asset Management 1 19.9 0.1 5.3
   of which Asia Pacific – Private Banking  17.9 11.0 (0.1)
   of which Strategic Resolution Unit  (63.5) (49.8) (81.0)
   of which assets managed across businesses 2 33.5 15.9 2.4
1
Includes outflows for private equity assets reflecting realizations at cost and unfunded commitments on which a fee is no longer earned.
2
Represents assets managed by Asset Management within International Wealth Management for the other businesses.
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2017 results
As of the end of 2017, assets under management were CHF 1,376.1 billion, an increase of CHF 125.0 billion compared to the end of 2016. The increase was mainly driven by favorable market movements and net new assets of CHF 37.8 billion.
Net new assets of CHF 37.8 billion mainly reflected net new assets of CHF 20.3 billion in the Asset Management business of International Wealth Management, primarily reflecting inflows from traditional and alternative investments and from emerging market joint ventures, net new assets of CHF 16.9 billion in the Private Banking business of Asia Pacific, reflecting inflows primarily from Greater China, South East Asia, Japan and Australia and net new assets of CHF 15.6 billion in the Private Banking business of International Wealth Management, reflecting solid inflows from emerging markets and Europe. These were partially offset by net asset outflows of CHF 13.9 billion in the Corporate & Institutional Clients business of Swiss Universal Bank primarily due to redemptions of CHF 13.3 billion from a single public sector mandate in the third quarter 2017.
2016 results
As of the end of 2016, assets under management were CHF 1,251.1 billion, an increase of CHF 37.0 billion compared to the end of 2015. The increase was mainly driven by net new assets of CHF 26.8 billion as well as favorable foreign exchange-related and market movements, partially offset by structural effects, mainly from an adjustment of assets under management reported for multi-asset class solutions in 2016 in the Asset Management business of International Wealth Management and the exit of certain markets in the Strategic Resolution Unit.
Net new assets of CHF 26.8 billion mainly reflected net new assets of CHF 15.6 billion in the Private Banking business of International Wealth Management, primarily from emerging markets and Europe and net new assets of CHF 13.6 billion in the Private Banking business of Asia Pacific, reflecting inflows primarily from Greater China and Australia, partially offset by outflows of CHF 8.5 billion related to the wind-down of operations in the Strategic Resolution Unit.
> Refer to “Swiss Universal Bank”, “International Wealth Management” and “Asia Pacific” and “Note 37 – Assets under management” in VI – Consolidated financial statements – Credit Suisse Group for further information.
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Critical accounting estimates
In order to prepare the consolidated financial statements in accordance with US GAAP, management is required to make certain accounting estimates to ascertain the value of assets and liabilities. These estimates are based upon judgment and the information available at the time, and actual results may differ materially from these estimates. Management believes that the estimates and assumptions used in the preparation of the consolidated financial statements are prudent, reasonable and consistently applied.
We believe that the critical accounting estimates discussed below involve the most complex judgments and assessments.
> Refer to “Note 1 – Summary of significant accounting policies” and “Note 2 – Recently issued accounting standards” in VI – Consolidated financial statements – Credit Suisse Group for further information on significant accounting policies and new accounting pronouncements. For financial information relating to the Bank, refer to the corresponding notes in the consolidated financial statements of the Bank.
Fair value
A significant portion of our assets and liabilities are carried at >>>fair value. The fair value of the majority of these financial instruments is based on quoted prices in active markets or observable inputs.
In addition, we hold financial instruments for which no prices are available and which have little or no observable inputs. For these instruments, the determination of fair value requires subjective assessment and judgment depending on liquidity, pricing assumptions, the current economic and competitive environment and the risks affecting the respective instrument. In such circumstances, valuation is determined based on management’s own judgments about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These instruments include certain >>>OTC >>>derivatives including interest rate, foreign exchange, equity and credit derivatives, certain corporate equity-linked securities, mortgage-related and >>>CDO securities, private equity investments, certain loans and credit products (including leveraged finance, certain syndicated loans and certain high yield bonds) and life finance instruments.
We have availed ourselves of the simplification in accounting offered under the fair value option guidance in Accounting Standards Codification (ASC) Topic 825 – Financial Instruments, primarily in the divisions International Wealth Management, Asia Pacific, Global Markets, Investment Banking & Capital Markets and Strategic Resolution Unit. This has been accomplished generally by electing the fair value option, both at initial adoption and for subsequent transactions, on items impacted by the hedge accounting requirements of US GAAP. For instruments for which hedge accounting could not be achieved and for which we are economically hedged, we have generally elected the fair value option. Where we manage an activity on a fair value basis but previously have been unable to achieve fair value accounting, we generally utilize the fair value option to align our financial accounting to our risk management reporting.
Control processes are applied to ensure that the fair values of the financial instruments reported in the consolidated financial statements, including those derived from pricing models, are appropriate and determined on a reasonable basis.
> Refer to “Note 34 – Financial instruments” in VI – Consolidated financial statements – Credit Suisse Group for further information on fair value and related control processes of the Group.
Variable interest entities
As a normal part of our business, we engage in various transactions which include entities that are considered VIEs. VIEs are special purpose entities that typically lack sufficient equity to finance their activities without additional subordinated financial support or are structured such that the holders of the voting rights do not substantively participate in the gains and losses of the entity. Such entities are required to be assessed for consolidation under US GAAP, compelling the primary beneficiary to consolidate the VIE. The primary beneficiary is the party that has the power to direct the activities that most significantly affect the economics of the VIE and has the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. We consolidate all VIEs where we are the primary beneficiary. Application of the accounting requirements for consolidation of VIEs, including ongoing re-assessment of VIEs for possible consolidation, may require the exercise of significant management judgment.
> Refer to “Note 1 – Summary of significant accounting policies” and “Note 33 – Transfers of financial assets and variable interest entities” in VI – Consolidated financial statements – Credit Suisse Group for further information on VIEs.
Contingencies and loss provisions
A contingency is an existing condition that involves a degree of uncertainty that will ultimately be resolved upon the occurrence or non-occurrence of future events.
Litigation contingencies
We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Some of these proceedings have been brought on behalf of various classes of claimants and seek damages of material and/or indeterminate amounts. We accrue loss contingency litigation provisions and take a charge to our consolidated statements of operations in connection with certain proceedings when losses, additional losses or ranges of loss are probable and reasonably estimable. We also accrue litigation provisions for the estimated fees and expenses of external lawyers and other service providers in relation to such proceedings, including in cases for which we have not accrued a loss contingency provision. We accrue these fee and expense litigation provisions and take a charge to income in connection therewith when such fees and expenses are probable and reasonably estimable. We review our
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legal proceedings each quarter to determine the adequacy of our litigation provisions and may increase or release provisions based on management’s judgment and the advice of counsel. The establishment of additional provisions or releases of litigation provisions may be necessary in the future as developments in such proceedings warrant.
It is inherently difficult to determine whether a loss is probable or even reasonably possible or to estimate the amount of any loss or loss range for many of our legal proceedings. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the proceeding, the progress of the matter, the advice of counsel, our defenses and our experience in similar matters, as well as our assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. Factual and legal determinations, many of which are complex, must be made before a loss, additional losses or ranges of loss can be reasonably estimated for any proceeding. We do not believe that we can estimate an aggregate range of reasonably possible losses for certain of our proceedings because of their complexity, the novelty of some of the claims, the early stage of the proceedings, the limited amount of discovery that has occurred and/or other factors. Most matters pending against us seek damages of an indeterminate amount. While certain matters specify the damages claimed, such claimed amount may not represent our reasonably possible losses.
> Refer to “Note 38 – Litigation” in VI – Consolidated financial statements – Credit Suisse Group for further information on legal proceedings.
Allowance and provision for credit losses
As a normal part of our business, we are exposed to credit risk through our lending relationships, commitments and letters of credit as well as counterparty risk on >>>derivatives, foreign exchange and other transactions. Credit risk is the possibility of a loss being incurred as a result of a borrower or counterparty failing to meet its financial obligations or as a result of deterioration in the credit quality of the borrower or counterparty. In the event of a default, we generally incur a loss equal to the amount owed by the debtor, less any recoveries resulting from foreclosure, liquidation of collateral or the restructuring of the debtor company. The allowance for loan losses is considered a reasonable estimate of credit losses existing at the dates of the consolidated balance sheets. This allowance is for probable credit losses inherent in existing exposures and credit exposures specifically identified as impaired.
> Refer to “Note 1 – Summary of significant accounting policies” and “Note 18 – Loans, allowance for loan losses and credit quality” in VI – Consolidated financial statements – Credit Suisse Group for further information on allowance for loan losses.
Inherent loan loss allowance
The inherent loan loss allowance is for all credit exposures not specifically identified as impaired and that, on a portfolio basis, are considered to contain probable inherent loss. The estimate of this component of the allowance for the consumer loans portfolio involves applying historical and current default probabilities, historical recovery experience and related current assumptions to homogenous loans based on internal risk rating and product type. To estimate this component of the allowance for the corporate and institutional loans portfolio, the Group segregates loans by risk, industry or country rating. The methodology for determining the inherent loan loss allowance for loan portfolios in our investment banking businesses uses rating-specific default probabilities, which incorporate not only historic third-party data but also data implied from current quoted credit spreads.
Many factors are evaluated in estimating probable credit losses inherent in existing exposures. These factors include: the volatility of default probabilities; rating changes; the magnitude of the potential loss; internal risk ratings; geographic, industry and other economic factors; and imprecision in the methodologies and models used to estimate credit risk. Overall credit risk indicators are also considered, such as trends in internal risk-rated exposures, classified exposures, cash-basis loans, recent loss experience and forecasted write-offs, as well as industry and geographic concentrations and current developments within those segments or locations. Our current business strategy and credit process, including credit approvals and limits, underwriting criteria and workout procedures, are also important factors.
Significant judgment is exercised in the evaluation of these factors. For example, estimating the amount of potential loss requires an assessment of the period of the underlying data. Data that does not capture a complete credit cycle may compromise the accuracy of loss estimates. Determining which external data relating to default probabilities should be used and when it should be used also requires judgment. The use of market indices and ratings that do not sufficiently correlate to our specific exposure characteristics could also affect the accuracy of loss estimates. Evaluating the impact of uncertainties regarding macroeconomic and political conditions, currency devaluations on cross-border exposures, changes in underwriting criteria, unexpected correlations among exposures and other factors all require significant judgment. Changes in our estimates of probable loan losses inherent in the portfolio could have an impact on the provision and result in a change in the allowance.
Specific loan loss allowances
We make provisions for specific loan losses on impaired loans based on regular and detailed analysis of each loan in the portfolio. This analysis includes an estimate of the realizable value of any collateral, the costs associated with obtaining repayment and realization of any such collateral, the counterparty’s overall financial condition, resources and payment record, the extent of our other commitments to the same counterparty and prospects for support from any financially responsible guarantors.
The methodology for calculating specific allowances involves judgments at many levels. First, it involves the early identification of deteriorating credit. Extensive judgment is required in order to properly evaluate the various indicators of the financial condition of a counterparty and likelihood of repayment. The failure to identify certain indicators or give them proper weight could lead to
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a different conclusion about the credit risk. The assessment of credit risk is subject to inherent limitations with respect to the completeness and accuracy of relevant information (for example, relating to the counterparty, collateral or guarantee) that is available at the time of the assessment. Significant judgment is exercised in determining the amount of the allowance. Whenever possible, independent, verifiable data or our own historical loss experience is used in models for estimating loan losses. However, a significant degree of uncertainty remains when applying such valuation techniques. Under our loan policy, the classification of loan status also has a significant impact on the subsequent accounting for interest accruals.
> Refer to “Risk Management” in III – Treasury, Risk, Balance sheet and Off-balance sheet and “Note 18 – Loans, allowance for loan losses and credit quality” in VI – Consolidated financial statements – Credit Suisse Group for loan portfolio disclosures, valuation adjustment disclosures and certain other information relevant to the evaluation of credit risk and credit risk management.
Goodwill impairment
Under US GAAP, goodwill is not amortized, but is reviewed for potential impairment on an annual basis as of December 31 and at any other time that events or circumstances indicate that the carrying value of goodwill may not be recoverable.
For the purpose of testing goodwill for impairment, each reporting unit is assessed individually. A reporting unit is an operating segment or one level below an operating segment, also referred to as a component. A component of an operating segment is deemed to be a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
On December 7, 2016, and on February 14, 2017, the Group announced a reorganization and change to financial reporting affecting its Swiss Universal Bank and Asia Pacific segments. During the first quarter of 2017, these measures were implemented. The Group determined that these changes constituted triggering events. The Group’s reporting units as a result of these measures are defined as follows: Swiss Universal Bank – Private Clients (formerly Private Banking), Swiss Universal Bank – Corporate & Institutional Clients (formerly Corporate & Institutional Banking), International Wealth Management – Private Banking, International Wealth Management – Asset Management, Asia Pacific – Wealth Management & Connected (formerly Private Banking), Asia Pacific – Markets (formerly Investment Banking), Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit.
Under Accounting Standards Update 2011-08, “Testing Goodwill for Impairment” (ASU 2011-08), a qualitative assessment is permitted to evaluate whether a reporting unit’s >>>fair value is less than its carrying value. If on the basis of the qualitative assessment it is more likely than not that the reporting unit’s fair value is higher than its carrying value, no quantitative goodwill impairment test is required. If on the basis of the qualitative assessment it is more likely than not that the reporting unit’s fair value is lower than its carrying value, a quantitative goodwill impairment test must be performed, by calculating the fair value of the reporting unit and comparing that amount to its carrying value. If the fair value of a reporting unit exceeds its carrying value, there is no goodwill impairment. If the carrying value exceeds the fair value, there is a goodwill impairment. The goodwill impairment is calculated as the difference between the carrying value and the fair value of the reporting unit up to a maximum of the goodwill amount recorded in that reporting unit.
The qualitative assessment is intended to be a simplification of the annual impairment test and can be bypassed for any reporting unit and any period to proceed directly to performing the quantitative goodwill impairment test. When bypassing the qualitative assessment in any period in accordance with the current practice of the Group, the preparation of a qualitative assessment can be resumed in any subsequent period.
Circumstances that could trigger an initial qualitative assessment of the goodwill impairment test include, but are not limited to: (i) macroeconomic conditions such as a deterioration in general economic conditions or other developments in equity and credit markets; (ii) industry and market considerations such as a deterioration in the environment in which the entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), and regulatory or political developments; (iii) other relevant entity-specific events such as changes in management, key personnel or strategy; (iv) a more-likely-than-not expectation of selling or disposing of all, or a portion, of a reporting unit; (v) results of testing for recoverability of a significant asset group within a reporting unit; (vi) recognition of a goodwill impairment in the financial statements of a subsidiary that is a component of a reporting unit; and (vii) a sustained decrease in share price (considered in both absolute terms and relative to peers).
The carrying value of each reporting unit for the purpose of the goodwill impairment test is determined by considering the reporting units’ >>>risk-weighted assets usage, leverage ratio exposure, deferred tax assets, goodwill and intangible assets. Any residual equity, after considering the total of these elements, is allocated to the reporting units on a pro-rata basis. As of December 31, 2017, such residual equity was equal to CHF 4,255 million.
In estimating the fair value of its reporting units, the Group applied a combination of the market approach and the income approach. Under the market approach, consideration was given to price to projected earnings multiples or price to book value multiples for similarly traded companies and prices paid in recent transactions that have occurred in its industry or in related industries. Under the income approach, a discount rate was applied that reflects the risk and uncertainty related to the reporting unit’s projected cash flows, which were determined from the Group’s financial plan.
In determining the estimated fair value, the Group relied upon its updated five-year strategic business plan, which included significant management assumptions and estimates based on its view of current and future economic conditions and regulatory changes, and as approved by the Board of Directors.
Estimates of the Group’s future earnings potential, and that of the reporting units, involve considerable judgment, including
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management’s view on future changes in market cycles, the regulatory environment and the anticipated result of the implementation of business strategies, competitive factors and assumptions concerning the retention of key employees. Adverse changes in the estimates and assumptions used to determine the fair value of the Group’s reporting units may result in a goodwill impairment in the future.
An estimated balance sheet for each reporting unit is prepared on a quarterly basis. In January 2017, the Financial Accounting Standards Board issued ASU 2017-04 Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. The guidance removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. An impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Credit Suisse has decided to early adopt ASU 2017-04, simplifying the test for goodwill impairment as of January 1, 2017. This policy has also been early adopted for any goodwill impairment tests performed for any subsidiary of the Group.
Goodwill is tested for impairment before and immediately after a reorganization or restructuring of reporting units. As a result, the goodwill impairment test was performed during the first quarter of 2017 under the old business structure and then again under the modified structure according to the measures implemented in connection with the announcements on December 7, 2016 and February 14, 2017. Based on its goodwill impairment analysis performed during the first quarter of 2017, the Group concluded that the estimated fair value for all of the reporting units with goodwill impacted by measures implemented in connection with the December 7, 2016 and February 14, 2017 announcements substantially exceeded their related carrying values and that no impairment was necessary.
Based on its goodwill impairment analysis performed as of December 31, 2017, the Group concluded that the estimated fair value for all of the reporting units with goodwill substantially exceeded their related carrying values and no impairment was necessary as of December 31, 2017.
The Group engaged the services of an independent valuation specialist to assist in the valuation of the Global Markets and Asia Pacific Markets reporting units as of December 31, 2017. The valuations were performed using a combination of the market approach and income approach.
The results of the impairment evaluation of each reporting unit’s goodwill would be significantly impacted by adverse changes in the underlying parameters used in the valuation process. If actual outcomes adversely differ by a significant margin from our best estimates of the key economic assumptions and associated cash flows applied in the valuation of the reporting unit, we could potentially incur material impairment charges in the future.
> Refer to “Note 20 – Goodwill” in VI – Consolidated financial statements – Credit Suisse Group for further information on goodwill.
Taxes
Uncertainty of income tax positions
We follow the guidance in ASC Topic 740 – Income Taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain income tax positions.
Significant judgment is required in determining whether it is more likely than not that an income tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Further judgment is required to determine the amount of benefit eligible for recognition in the consolidated financial statements.
> Refer to “Note 27 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information on income tax positions.
Deferred tax valuation allowances
Deferred tax assets and liabilities are recognized for the estimated future tax effects of operating loss carry-forwards and temporary differences between the carrying values of existing assets and liabilities and their respective tax bases at the dates of the consolidated balance sheets.
The realization of deferred tax assets on temporary differences is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. The realization of deferred tax assets on net operating losses is dependent upon the generation of taxable income during the periods prior to their expiration, if applicable. Management regularly evaluates whether deferred tax assets will be realized. If management considers it more likely than not that all or a portion of a deferred tax asset will not be realized, a corresponding valuation allowance is established. In evaluating whether deferred tax assets will be realized, management considers both positive and negative evidence, including projected future taxable income, the reversal of deferred tax liabilities which can be scheduled and tax planning strategies.
This evaluation requires significant management judgment, primarily with respect to projected taxable income. Future taxable income can never be predicted with certainty. It is derived from budgets and strategic business plans but is dependent on numerous factors, some of which are beyond management’s control. Substantial variance of actual results from estimated future taxable profits, or changes in our estimate of future taxable profits and potential restructurings, could lead to changes in deferred tax assets being realizable, or considered realizable, and would require a corresponding adjustment to the valuation allowance.
As part of its normal practice, management has conducted a detailed evaluation of its expected future results and also considered stress scenarios. This evaluation has indicated the expected future results that are likely to be earned in jurisdictions where the Group has significant gross deferred tax assets, such as the US, Switzerland and the UK. Management then compared those expected future results with the applicable law governing utilization of deferred tax assets. Swiss tax law allows for a seven-year carry-forward period for net operating losses. UK tax law allows for an unlimited carry-forward period for net operating losses, and
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even though there are restrictions on the use of tax losses carried forward, these are not expected to have a material impact on the recoverability of the net deferred tax assets. US tax law allows for a 20-year carry-forward period for existing net operating losses. Due to the US tax reform enacted on December 22, 2017, this period limitation was removed and any new net operating losses will have an unlimited carry-forward period.
> Refer to “Note 27 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information on deferred tax assets.
Pension plans
The Group
The Group covers pension requirements, in both Swiss and non-Swiss locations, through various defined benefit pension plans and defined contribution pension plans.
Our funding policy with respect to these pension plans is consistent with local government and tax requirements.
The calculation of the expense and liability associated with the defined benefit pension plans requires an extensive use of assumptions, which include the discount rate, expected return on plan assets and rate of future compensation increases. Management determines these assumptions based upon currently available market and industry data and historical experience of the plans. Management also consults with an independent actuarial firm to assist in selecting appropriate assumptions and valuing its related liabilities. Management regularly reviews the actuarial assumptions used to value and measure the defined benefit obligation on a periodic basis as required by US GAAP. As part of its review in 2016, Credit Suisse concluded that additional refinements to certain assumptions for the Swiss defined benefit plan were required to reflect the best estimate and enhanced its methodology for determining those assumptions. The actuarial assumptions that we use may differ materially from actual results due to changing market and economic conditions and specific experience of the plans (such as investment management over or underperformance, higher or lower withdrawal rates and longer or shorter life spans of the participants). Any such differences could have a significant impact on the amount of pension expense recorded in future years.
The funded status of our defined benefit pension and other post-retirement defined benefit plans is recorded in the consolidated balance sheets. The impacts from re-measuring the funded status (reflected in actuarial gains or losses) and from amending the plan (reflected in prior service cost or credits) are recognized in equity as a component of AOCI.
The projected benefit obligation (PBO) of our total defined benefit pension plans included CHF 1,083 million and CHF 979 million related to our assumption for future salary increases as of December 31, 2017 and 2016. The accumulated benefit obligation (ABO) is defined as the PBO less the amount related to estimated future salary increases. The difference between the >>>fair value of plan assets and the ABO was an overfunding of CHF 2,892 million for 2017, compared to CHF 1,708 million for 2016.
We are required to estimate the expected long-term rate of return on plan assets, which is then used to compute benefit costs recorded in the consolidated statements of operations. Estimating future returns on plan assets is particularly subjective, as the estimate requires an assessment of possible future market returns based on the plan asset mix. In calculating pension expense and in determining the expected long-term rate of return, we use the market-related value of assets. The assumptions used to determine the benefit obligation as of the measurement date are also used to calculate the net periodic benefit costs for the 12-month period following this date.
The expected weighted-average long-term rate of return used to determine the expected return on plan assets as a component of the net periodic benefit costs in 2017 and 2016 was 3.00% and 3.50%, respectively, for the Swiss plans and 3.88% and 5.07%, respectively, for the international plans. In 2017, if the expected long-term rate of return had been increased/decreased one percentage point, net pension expense for the Swiss plans would have decreased/increased CHF 158 million and net pension expense for the international plans would have decreased/increased CHF 33 million.
The discount rates used in determining the benefit obligation and the pension expense are based on yield curves, constructed from high-quality corporate bonds currently available and observable in the market and are expected to be available during the period to maturity of the pension benefits. In countries where there is no deep market in high-quality corporate bonds with longer durations, the best available market information, including governmental bond yields and risk premiums, is used to construct the yield curve. As a result of its review of the assumptions during 2016, Credit Suisse adopted the spot rate approach for determining the benefit obligation as of December 31, 2016 and for service and interest cost components of the pension expense for future years. Under the spot rate approach, individual spot rates along the yield curve are applied to each expected future benefit payment, whereas under the previous methodology a single weighted-average discount rate derived from the yield curve was applied. The spot rate approach provides a more precise measurement of the benefit obligation, service cost and interest cost by improving the correlation between projected cash outflows and corresponding spot rates on the yield curve.
For the Swiss plan, the weighted average discount rate for the PBO increased 0.01 percentage points from 0.85% as of December 31, 2016, to 0.86% as of December 31, 2017, mainly due to a slight change in Swiss bond market rates. The average discount rate for the PBO for the international plans decreased 0.27 percentage points from 3.10% as of December 31, 2016, to 2.83% as of December 31, 2017, mainly due to a slight decrease in bond market rates. For the year ended December 31, 2017, a one percentage point decline in the discount rates for the Swiss plans would have resulted in an increase in the PBO of CHF 1,791 million and an increase in pension expense of CHF 37 million, and a one percentage point increase in discount rates would have
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resulted in a decrease in the PBO of CHF 1,594 million and a decrease in the pension expense of CHF 61 million. A one percentage point decline in discount rates for the international plans as of December 31, 2017 would have resulted in an increase in the PBO of CHF 743 million and an increase in pension expense of CHF 60 million, and a one percentage point increase in discount rates would have resulted in a decrease in the PBO of CHF 599 million and a decrease in the pension expense of CHF 45 million.
Actuarial losses and prior service cost are amortized over the average remaining service period of active employees expected to receive benefits under the plan, which, as of December 31, 2017, was approximately 10 years for the Swiss plans and 3 to 20 years for the international plans. The pre-tax expense associated with the amortization of net actuarial losses and prior service cost for defined benefit pension plans for the years ended December 31, 2017, 2016 and 2015 was CHF 269 million, CHF 291 million and CHF 350 million, respectively. The amortization of recognized actuarial losses and prior service cost for defined benefit pension plans for the year ending December 31, 2018, which is assessed at the beginning of the year, is expected to be CHF 182 million, net of tax. The impact from deviations between our actuarial assumptions and the actual developments of such parameters observed for our pension plans further impacts the amount of net actuarial losses or gains recognized in equity, resulting in a higher or lower amount of amortization expense in periods after 2018.
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group for further information on pension benefits.
The Bank
The Bank covers pension requirements for its employees in Switzerland through participation in a defined benefit pension plan sponsored by the Group (Group plan). Various legal entities within the Group participate in the Group plan, which is set up as an independent trust domiciled in Zurich. The Group accounts for the Group plan as a single-employer defined benefit pension plan and uses the projected unit credit actuarial method to determine the net periodic pension expense, PBO, ABO and the related amounts recognized in the consolidated balance sheets. The funded status of the Group plan is recorded in the consolidated balance sheets. The actuarial gains and losses and prior service costs or credits are recognized in equity as a component of AOCI.
The Bank accounts for the Group plan on a defined contribution basis whereby it only recognizes the amounts required to be contributed to the Group plan during the period as net periodic pension expense and only recognizes a liability for any contributions due and unpaid. No other expense or balance sheet amounts related to the Group plan are recognized by the Bank.
The Bank covers pension requirements for its employees in international locations through participation in various pension plans, which are accounted for as single-employer defined benefit pension plans or defined contribution pension plans.
In 2017 and 2016, the weighted-average expected long-term rate of return used to calculate the expected return on plan assets as a component of the net periodic benefit costs for the international single-employer defined benefit pension plans was 3.88% and 5.07%, respectively. In 2017, if the expected long-term rate of return had been increased/decreased one percentage point, net pension expense would have decreased/increased CHF 33 million.
The discount rate used in determining the benefit obligation is based either on high-quality corporate bond rates or government bond rates plus a premium in order to approximate high-quality corporate bond rates. The average discount rate for the PBO for the international plans decreased 0.27 percentage points from 3.10% as of December 31, 2016, to 2.83% as of December 31, 2017. A one percentage point decline in the discount rate for the international single-employer plans would have resulted in an increase in PBO of CHF 743 million and an increase in pension expense of CHF 60 million, and a one percentage point increase in discount rates would have resulted in a decrease in PBO of CHF 599 million and a decrease in pension expense by CHF 45 million.
Actuarial losses and prior service cost related to the international single-employer defined benefit pension plans are amortized over the average remaining service period of active employees expected to receive benefits under the plan. The pre-tax expense associated with the amortization of recognized net actuarial losses and prior service cost for the years ended December 31, 2017, 2016 and 2015 was CHF 60 million, CHF 41 million and CHF 84 million, respectively. The amortization of recognized actuarial losses and prior service cost for the year ending December 31, 2018, which is assessed at the beginning of the year, is expected to be CHF 40 million, net of tax.
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Treasury, Risk, Balance sheet and Off-balance sheet
Liquidity and funding management
Capital management
Risk management
Balance sheet, off-balance sheet and other contractual obligations

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Liquidity and funding management
During 2017, we maintained a strong liquidity and funding position. The majority of our unsecured funding was generated from core customer deposits and long-term debt.
Overview
Securities for funding and capital purposes have historically been issued primarily by the Bank, our principal operating subsidiary and a US registrant. In response to regulatory reform, we have focused our issuance strategy on offering long-term debt securities at the Group level. Proceeds from issuances are lent to operating subsidiaries and affiliates on both a senior and subordinated basis, as needed; the latter typically to meet capital requirements and the former as desired by management to support business initiatives and liquidity needs.
Our liquidity and funding strategy is approved by the Capital Allocation & Risk Management Committee (CARMC) and overseen by the Board of Directors (Board). The implementation and execution of the liquidity and funding strategy is managed by Treasury. Treasury ensures adherence to our funding policy and the efficient coordination of the secured funding desks. This approach enhances our ability to manage potential liquidity and funding risks and to promptly adjust our liquidity and funding levels to meet stress situations. Our liquidity and funding profile is regularly reported to CARMC and the Board, who define our risk tolerance, including liquidity risk, and set parameters for the balance sheet and funding usage of our businesses. The Board is responsible for defining our overall risk tolerance in the form of a risk appetite statement.
Our liquidity and funding profile reflects our strategy and risk appetite and is driven by business activity levels and the overall operating environment. We have adapted our liquidity and funding profile to reflect lessons learned from the financial crisis, the subsequent changes in our business strategy and regulatory developments. We have been an active participant in regulatory and industry forums to promote best practice standards on quantitative and qualitative liquidity management. Our internal liquidity risk management framework is subject to review and monitoring by the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA), other regulators and rating agencies.
Regulatory framework
Basel III liquidity framework
In 2010, the Basel Committee on Banking Supervision (BCBS) issued the Basel III international framework for liquidity risk measurement, standards and monitoring. The Basel III framework includes a >>>liquidity coverage ratio (LCR) and a net stable funding ratio (NSFR). As of January 1, 2013, Basel III was implemented in Switzerland along with the Swiss “Too Big to Fail” legislation and regulations thereunder. Our related disclosures are in accordance with our interpretation of such requirements, including relevant assumptions and estimates. Changes in the interpretation of these requirements in Switzerland or in any of our interpretations, assumptions or estimates could result in different numbers from those shown in this report.
The LCR, which is being phased in from January 1, 2015 through January 1, 2019, addresses liquidity risk over a 30-day period. The LCR aims to ensure that banks have unencumbered high-quality liquid assets (HQLA) available to meet short-term liquidity needs under a severe stress scenario. The LCR is comprised of two components, the value of HQLA in stressed conditions and the total net cash outflows calculated according to specified scenario parameters. Under the BCBS requirements, the ratio of liquid assets over net cash outflows is subject to an initial minimum requirement of 60%, which will increase by 10% per year until January 1, 2019.
The NSFR establishes criteria for a minimum amount of stable funding based on the liquidity of a bank’s on- and off-balance sheet activities over a one-year horizon. The NSFR is a complementary measure to the LCR and is structured to ensure that illiquid assets are funded with an appropriate amount of stable long-term funds. The NSFR is defined as the ratio of available stable funding over the amount of required stable funding and once implemented by national regulators, should always be at least 100%.
Swiss liquidity requirements
In 2012, the Swiss Federal Council adopted a liquidity ordinance (Liquidity Ordinance) that implements Basel III liquidity requirements into Swiss law subject, in part, to further rule-making, including with respect to the final Basel III LCR rules adopted in 2014. Effective January 1, 2018, the Swiss Federal Council amended the Liquidity Ordinance with minor adjustments to the LCR and relief for smaller banks. The amendments are not material to the LCR for the Group and relevant subsidiaries. Under the Liquidity Ordinance, as amended, certain Swiss banks became subject to an initial 60% LCR requirement, with incremental increases by 10% per year until January 1, 2019. Systemically relevant banks like Credit Suisse became subject to an initial minimum LCR requirement of 100% beginning on January 1, 2015 and the associated disclosure requirements. Further, beginning in May 2015, FINMA required us to maintain a minimum LCR of 110% at all times.
In connection with the implementation of >>>Basel III, regulatory LCR disclosures for the Group and certain subsidiaries are required. Further details on our LCR can be found on our website.
> Refer to credit-suisse.com/regulatorydisclosures for additional information.
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FINMA requires us to report the NSFR to FINMA on a monthly basis during an observation period that began in 2012. The reporting instructions are generally aligned with the final BCBS NSFR requirements. In November 2017, the Federal Council decided to postpone the introduction of the NSFR as a minimum standard, which was originally planned for January 1, 2018. The Federal Council will reconsider this matter at the end of 2018.
Our liquidity principles and our liquidity risk management framework as agreed with FINMA are in line with the Basel III liquidity framework.
> Refer to “Recent regulatory developments and proposals” in I – Information on the company – Regulation and supervision for further information.
Liquidity risk management framework
Our approach to liquidity risk management
Our liquidity and funding policy is designed to ensure that funding is available to meet all obligations in times of stress, whether caused by market events or issues specific to Credit Suisse. We achieve this through a conservative asset/liability management strategy aimed at maintaining long-term funding, including stable deposits, in excess of illiquid assets. To address short-term liquidity stress, we maintain a liquidity pool, described below, that covers unexpected outflows in the event of severe market and idiosyncratic stress. Our liquidity risk parameters reflect various liquidity stress assumptions that we believe are conservative. We manage our liquidity profile at a sufficient level such that, in the event we are unable to access unsecured funding, we expect to have sufficient liquidity to sustain operations for a period of time in excess of our minimum limit. This includes potential currency mismatches, which are not deemed to be a major risk but are monitored and subject to limits, particularly in the significant currencies of euro, Japanese yen, pound sterling, Swiss franc and US dollar.
Although the compliance with a minimum >>>NSFR is not yet required, we began using the NSFR in 2012 as one of our primary tools, in parallel with the internal liquidity barometer, and in 2014 the LCR, to monitor our structural liquidity position and plan funding.
We use our internal liquidity barometer to manage liquidity to internal targets and as a basis to model both Credit Suisse-specific and market-wide stress scenarios and their impact on liquidity and funding. Our internal barometer framework supports the management of our funding structure. It allows us to manage the time horizon over which the stressed market value of unencumbered assets (including cash) exceeds the aggregate value of contractual outflows of unsecured liabilities plus a conservative forecast of anticipated contingent commitments. This internal barometer framework enables us to manage liquidity to a desired profile under a Credit Suisse-specific or market-wide stress that permits us to continue business activities for a period of time (also known as a liquidity horizon) without changing business plans. Under this framework, we also have short-term targets based on additional stress scenarios to ensure uninterrupted liquidity for short time frames. At the beginning of 2017, we introduced a new version of our internal liquidity barometer, which includes enhanced functionalities to manage entity-specific liquidity under newly defined and more conservative stress scenarios for redefined short and long-term time horizons.
In the second quarter of 2014, we began allocating the majority of the balance sheet usage related to our Treasury-managed HQLA portfolio to the business divisions to allow for a more efficient management of their business activities from an overall Group perspective with respect to LCR and Swiss leverage requirements.
Our overall liquidity management framework allows us to run stress analyses on our balance sheet and off-balance sheet positions, which include, but are not limited to, the following:
A multiple-notch downgrade in the Bank’s long-term debt credit ratings, which would require additional funding as a result of certain contingent off-balance sheet obligations;
Significant withdrawals from private banking client deposits;
Potential cash outflows associated with the prime brokerage business;
Over-collateralization of available secured funding;
Limited availability of capital markets, certificates of deposit and >>>commercial paper;
Other money market access will be significantly reduced;
A reduction in funding value of unencumbered assets;
The inaccessibility of assets held by subsidiaries due to regulatory, operational and other constraints;
The possibility of providing non-contractual liquidity support in times of market stress, including purchasing our unsecured debt;
Monitoring the concentration in sources of wholesale funding and thus encourage funding diversification;
Monitoring the composition and analysis of the unencumbered assets;
Restricted availability of foreign currency swap markets; and
Other scenarios as deemed necessary from time to time.
Governance
Funding, liquidity, capital and our foreign exchange exposures in the banking book are managed centrally by Treasury. Oversight of these activities is provided by CARMC, a committee that includes the chief executive officers (CEOs) of the Group and the divisions, the Chief Financial Officer, the Chief Risk Officer (CRO), the Chief Compliance and Regulatory Affairs Officer and the Treasurer.
It is CARMC’s responsibility to review the capital position, balance sheet development, current and prospective funding, interest rate risk and foreign exchange exposure and to define and monitor adherence to internal risk limits. CARMC regularly reviews the methodology and assumptions of our liquidity risk management framework and determines the liquidity horizon to be maintained.
All liquidity stress tests are coordinated and overseen by the CRO to ensure a consistent and coordinated approach across all risk disciplines.
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Contingency planning
In the event of a liquidity crisis, our Contingency Funding Plan provides for specific actions to be taken depending on the nature of the crisis. Our plan is designed to address ever-increasing liquidity and funding stresses and has pre-defined escalation levels aimed at maximizing the likelihood that we can take certain measures to address liquidity or funding shortfalls. In order to identify a deteriorating liquidity situation, we monitor a set of regulatory and economic liquidity metrics while also seeking the views of our subject matter experts as well as senior management, who retain at all times the authority to take remedial actions promptly. In all cases, the plan’s primary objectives are to strengthen liquidity (immediate), reduce funding needs (medium term) and assess recovery options (longer term).
Liquidity metrics
Liquidity pool
Treasury manages a sizeable portfolio of liquid assets, comprised of cash held at central banks and securities. A portion of the liquidity pool is generated through >>>reverse repurchase agreements with top-rated counterparties. We are mindful of potential credit risk and therefore focus our liquidity holdings strategy on cash held at central banks and highly rated government bonds and on short-term reverse repurchase agreements. These government bonds are eligible as collateral for liquidity facilities with various central banks including the Swiss National Bank (SNB), the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England. Our direct exposure on these bonds is limited to highly liquid, top-rated sovereign entities or fully guaranteed agencies of sovereign entities. The liquidity pool may be used to meet the liquidity requirements of our operating companies.
All securities, including those obtained from reverse repurchase agreements, are subject to a stress level >>>haircut in our barometer to reflect the risk that emergency funding may not be available at market value in a stress scenario. Our internal stress level haircut calculation for the Treasury-managed liquidity pool is aligned with the HQLA definition used in the LCR framework.
We centrally manage this liquidity pool and hold it at our main operating entities. Holding securities in these entities ensures that we can make liquidity and funding available to local entities in need without delay.
Liquidity pool – Group
end of    2017 2016
Swiss
franc
US
dollar

Euro
Other
currencies

Total

Total
Liquid assets (CHF million)
Cash held at central banks 70,375 17,510 6,725 1,984 96,594 98,294
Securities 5,363 33,607 7,103 20,705 66,778 91,680
Liquid assets 1 75,738 51,117 13,828 22,689 163,372 189,974
1
Reflects a pre-cancellation view.
As of December 31, 2017, our liquidity pool managed by Treasury had an HQLA value of CHF 163.4 billion. The liquidity pool consisted of CHF 96.6 billion of cash held at major central banks, primarily the SNB, the Fed and the ECB, and CHF 66.8 billion market value of securities issued by governments and government agencies, primarily from the US, UK and France.
In addition to the liquidity portfolio managed by Treasury, there is also a portfolio of unencumbered liquid assets managed by various businesses, primarily in the Global Markets and Investment Banking & Capital Markets divisions. These assets generally include high-grade bonds and highly liquid equity securities that form part of major indices. In coordination with the businesses, Treasury can access these assets to generate liquidity if required.
As of December 31, 2017, the portfolio of liquid assets that is not managed by Treasury had a market value of CHF 37.5 billion, consisting of CHF 13.6 billion of high-grade bonds and CHF 23.9 billion of highly liquid equity securities. Under our internal model, an average stress-level haircut of 15% is applied to these assets. The haircuts applied to these portfolios reflect our assessment of overall market risk at the time of measurement, potential monetization capacity taking into account increased haircuts, market volatility and the quality of the relevant securities. These haircuts were updated in 2017 as part of the introduction of the new version of our internal liquidity barometer.
Liquidity Coverage Ratio
Our calculation methodology for the LCR is prescribed by FINMA. For disclosure purposes, since January 1, 2017, our LCR is calculated using a three-month average that is measured using daily calculations during the quarter. The FINMA calculation of HQLA takes into account a cancellation mechanism (post-cancellation view) and is therefore not directly comparable to the assets presented in the financial statements that could potentially be monetized under a severe stress scenario. The cancellation mechanism effectively excludes the impact of certain secured financing transactions from available HQLA and simultaneously adjusts the level of net cash outflows calculated. Application of the cancellation mechanism adjusts both the numerator and denominator of the LCR calculation, meaning that the impact is mostly neutral on the LCR itself.
Since March 31, 2017, our HQLA measurement methodology excludes potentially eligible HQLA available for use by entities of
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the Group in certain jurisdictions that may not be readily accessible for use by the Group as a whole. These HQLA eligible amounts may be restricted for reasons such as local regulatory requirements, including large exposure requirements, or other binding constraints that could limit the transferability to other Group entities in other jurisdictions.
On this basis, the level of our LCR was 185% as of the end of 2017, representing an average HQLA of CHF 166.1 billion and average net cash outflows of CHF 89.9 billion. The ratio reflects a conservative liquidity position, including ensuring that the Group’s branches and subsidiaries meet applicable local liquidity requirements.
The decrease in the LCR compared to 2016 was driven by the decrease in HQLA, driven by the amendment to HQLA measurement methodology described above, and lower net cash outflows, reflecting higher total cash inflows partially offset by increased total cash outflows.
The increase in total cash inflows, particularly in the fourth quarter of 2017, was driven by an increase in secured lending from collateral swap and margin lending activities and performing loan inflows from non-financial counterparties.
The increase in total cash outflows was driven by increased unsecured wholesale funding outflows. A recalibration of the model used to define operational and non-operational deposits led to an increase in non-operational deposits and decrease in operational deposits. These total cash outflows were further increased due to a general growth in non-operational deposit balances throughout the year and increases in other contractual funding obligations, partially offset by reductions in additional requirements, mainly related to collateral requirements and credit and liquidity facilities.
Liquidity coverage ratio – Group
end of    2017 2016
Unweighted
value
1 Weighted
value
2 Weighted
value
2
High-quality liquid assets (CHF million)
High-quality liquid assets 3 166,077 190,642
Cash outflows (CHF million)
Retail deposits and deposits from small business customers 156,650 20,108 18,811
Unsecured wholesale funding 215,585 87,899 74,763
Secured wholesale funding 65,525 63,312
Additional requirements 178,952 37,435 46,434
Other contractual funding obligations 70,679 70,679 66,300
Other contingent funding obligations 234,961 6,644 6,279
Total cash outflows  288,290 275,899
Cash inflows (CHF million)
Secured lending 139,158 92,585 80,759
Inflows from fully performing exposures 67,875 33,624 30,234
Other cash inflows 72,228 72,228 70,618
Total cash inflows  279,261 198,437 181,611
Liquidity coverage ratio
High-quality liquid assets (CHF million) 166,077 190,642
Net cash outflows (CHF million) 89,853 94,288
Liquidity coverage ratio (%)  185 202
Calculated using a three-month average.
1
Calculated as outstanding balances maturing or callable within 30 days.
2
Calculated after the application of haircuts for high-quality liquid assets or inflow and outflow rates.
3
Consists of cash and eligible securities as prescribed by FINMA and reflects a post-cancellation view.
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Funding sources and uses
We fund our balance sheet primarily through core customer deposits, long-term debt, including structured notes, and shareholders’ equity. We monitor the funding sources, including their concentrations against certain limits, according to their counterparty, currency, tenor, geography and maturity, and whether they are secured or unsecured. A substantial portion of our balance sheet is >>>match funded and requires no unsecured funding. Match funded balance sheet items consist of assets and liabilities with close to equal liquidity durations and values so that the liquidity and funding generated or required by the positions are substantially equivalent.
Cash and due from banks and >>>reverse repurchase agreements are highly liquid. A significant part of our assets, principally unencumbered trading assets that support the securities business, is comprised of securities inventories and collateralized receivables that fluctuate and are generally liquid. These liquid assets are available to settle short-term liabilities.
Loans, which comprise the largest component of our illiquid assets, are funded by our core customer deposits, with an excess coverage of 18% as of the end of 2017, compared to 14% as of the end of 2016, primarily reflecting stable loans and a small increase in deposits. We fund other illiquid assets, including real estate, private equity and other long-term investments as well as the >>>haircut for the illiquid portion of securities, with long-term debt and equity, in which we try to maintain a substantial funding buffer.
Our core customer deposits totaled CHF 327 billion as of the end of 2017, an increase of 5% compared to CHF 312 billion as of the end of 2016, reflecting an increase in the customer deposit base in the private banking and corporate & institutional banking businesses in 2017. Core customer deposits are from clients with whom we have a broad and longstanding relationship. Core customer deposits exclude deposits from banks and certificates of deposit. We place a priority on maintaining and growing customer deposits, as they have proven to be a stable and resilient source of funding even in difficult market conditions. Our core customer deposit funding is supplemented by the issuance of long-term debt.
> Refer to the chart “Balance sheet funding structure” and “Balance sheet” in Balance sheet, off-balance sheet and other contractual obligations for further information.
Funding management
Treasury is responsible for the development, execution and regular updating of our funding plan. The plan reflects projected business growth, development of the balance sheet, future funding needs and maturity profiles as well as the effects of changing market and regulatory conditions.
Interest expense on long-term debt, excluding structured notes, is monitored and managed relative to certain indices, such as the >>>London Interbank Offered Rate (LIBOR), that are relevant to the financial services industry. This approach to term funding best reflects the sensitivity of both our liabilities and our assets to changes in interest rates.
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We continually manage the impact of funding spreads through careful management of our liability mix and opportunistic issuance of debt. The effect of funding spreads on interest expense depends on many factors, including market conditions, product type and the absolute level of the indices on which our funding is based.
We diversify our long-term funding sources by issuing structured notes, which are debt securities on which the return is linked to commodities, stocks, indices or currencies or other assets. We generally hedge structured notes with positions in the underlying assets or >>>derivatives.
We also use other collateralized financings, including >>>repurchase agreements and securities lending agreements. The level of our repurchase agreements fluctuates, reflecting market opportunities, client needs for highly liquid collateral, such as US treasuries and agency securities, and the impact of balance sheet and >>>risk-weighted asset limits. In addition, matched book trades, under which securities are purchased under agreements to resell and are simultaneously sold under agreements to repurchase with comparable maturities, earn spreads, are relatively risk free and are generally related to client activity.
Our primary source of liquidity is funding through consolidated entities.
Contractual maturity of assets and liabilities
The following table provides contractual maturities of the assets and liabilities specified as of the end of 2017. The contractual maturities are an important source of information for liquidity risk management. However, liquidity risk is also managed based on an expected maturity that considers counterparty behavior and in addition takes into account certain off-balance sheet items such as >>>derivatives. Liquidity risk management performs extensive analysis of counterparty behavioral assumptions under various stress scenarios.
> Refer to “Contractual obligations and other commercial commitments” in Balance sheet, off-balance sheet and other contractual obligations and “Note 32 – Guarantees and commitments” in VI – Consolidated financial statements – Credit Suisse Group for further information on contractual maturities of guarantees and commitments.
Contractual maturity of assets and liabilities

end of 2017


On demand

Less than
1 month
Between
1 to 3
months
Between
3 to 12
months
Between
1 to 5
years
Greater
than
5 years


Total
Assets (CHF million)   
Cash and due from banks 102,623 625 3,005 52 0 3,510 109,815
Interest-bearing deposits with banks 0 318 225 171 4 8 726
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 44,312 39,429 16,295 12,821 2,427 62 115,346
Securities received as collateral, at fair value 37,889 0 0 185 0 0 38,074
Trading assets, at fair value 156,334 0 0 0 0 0 156,334
Investment securities 18 341 348 160 851 473 2,191
Other investments 666 0 0 0 129 5,169 5,964
Net loans 11,424 57,755 31,458 44,365 91,018 43,129 279,149
Premises and equipment 0 0 0 0 0 4,686 4,686
Goodwill 0 0 0 0 0 4,742 4,742
Other intangible assets 0 0 0 0 0 223 223
Brokerage receivables 46,968 0 0 0 0 0 46,968
Other assets 12,102 3,321 4,696 4,475 2,371 5,106 32,071
Total assets  412,336 101,789 56,027 62,229 96,800 67,108 796,289
Liabilities (CHF million)   
Due to banks 6,534 2,749 3,158 2,165 658 149 15,413
Customer deposits 233,242 34,993 48,509 42,573 1,059 786 361,162
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 12,928 5,998 4,565 1,318 1,673 14 26,496
Obligation to return securities received as collateral, at fair value 37,889 0 0 185 0 0 38,074
Trading liabilities, at fair value 39,119 0 0 0 0 0 39,119
Short-term borrowings 0 4,287 9,421 12,181 0 0 25,889
Long-term debt 0 3,995 4,861 24,901 73,778 65,497 173,032
Brokerage payables 43,303 0 0 0 0 0 43,303
Other liabilities 21,493 7,281 195 578 1,281 784 31,612
Total liabilities  394,508 59,303 70,709 83,901 78,449 67,230 754,100
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Debt issuances and redemptions
Our long-term debt includes senior, senior bail-in and subordinated debt issued in US-registered offerings and medium-term note programs, euro medium-term note programs, stand-alone offerings, structured note programs, covered bond programs, Australian dollar domestic medium-term note programs and a Samurai shelf registration statement in Japan. As a global bank, we have access to multiple markets worldwide and our major funding centers are New York, London, Zurich and Tokyo.
We use a wide range of products and currencies to ensure that our funding is efficient and well diversified across markets and investor types. Substantially all of our unsecured senior debt is issued without financial covenants, such as adverse changes in our credit ratings, cash flows, results of operations or financial ratios, which could trigger an increase in our cost of financing or accelerate the maturity of the debt. Our covered bond funding is in the form of mortgage-backed loans funded by domestic covered bonds issued through Pfandbriefbank Schweizerischer Hypothekarinstitute, one of two institutions established by a 1930 act of the Swiss Parliament to centralize the issuance of covered bonds, or historically from our own international covered bond program.
The following table provides information on long-term debt issuances, maturities and redemptions in 2017, excluding structured notes.
Debt issuances and redemptions

in 2017

Senior
Senior
bail-in
Sub-
ordinated
Long-term
debt
Long-term debt (CHF billion, notional value)   
Issuances  1.2 9.6 1.9 12.7
   of which unsecured  0.0 9.6 1.9 11.5
   of which secured 1 1.2 0.0 0.0 1.2
Maturities / Redemptions  22.5 0.0 1.5 24.0
   of which unsecured  20.1 0.0 1.5 21.6
   of which secured 1 2.4 0.0 0.0 2.4
Excludes structured notes.
1
Includes covered bonds.
As of the end of 2017, we had outstanding long-term debt of CHF 173.0 billion, which included senior and subordinated instruments. We had CHF 51.5 billion and CHF 18.9 billion of structured notes and covered bonds outstanding, respectively, as of the end of 2017 compared to CHF 59.5 billion and CHF 19.5 billion, respectively, as of the end of 2016.
As of the end of 2017, the weighted average maturity of long-term debt was 5.8 years (including certificates of deposit with a maturity of one year or longer, but excluding structured notes, and assuming callable securities are redeemed at final maturity or in 2030 for instruments without a stated final maturity).
> Refer to “Note 24 – Long-term debt” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Short-term borrowings increased 68% to CHF 25.9 billion as of the end of 2017 compared to CHF 15.4 billion in 2016, mainly related to a refinement in maturity allocation triggering a shift in balances from long-term debt to short-term borrowings.
> Refer to “Issuances and redemptions” in Capital management for further information on capital issuances, including low-trigger and high-trigger capital instruments.
Funds transfer pricing
We maintain an internal funds transfer pricing system based on market rates. Our funds transfer pricing system is designed to allocate to our businesses all funding costs in a way that incentivizes their efficient use of funding. Our funds transfer pricing system is an essential tool that allocates to the businesses the short-term and long-term costs of funding their balance sheet usages and off-balance sheet contingencies. The funds transfer pricing framework ensures full funding costs allocation under normal business conditions, but it is of even greater importance in a stressed capital markets environment where raising funds is more challenging and expensive. Under this framework, our businesses are also credited to the extent they provide long-term stable funding.
Cash flows from operating, investing and financing activities
As a global financial institution, our cash flows are complex and interrelated and bear little relation to our net earnings and net assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the liquidity and funding policies described above. Cash flow analysis may, however, be helpful in highlighting certain macro trends in our business.
For the year ended December 31, 2017, net cash used in operating activities of continuing operations was CHF 8.5 billion, primarily reflecting an increase in other assets, partially offset by a decrease in net trading assets and liabilities and an increase in deferred tax provision, mainly related to the US tax reform. Our operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of cash flows. Management believes cash flows from operations, available cash balances and short-term and long-term borrowings will be sufficient to fund our operating liquidity needs.
Our investing activities primarily include originating loans to be held to maturity, other receivables and the investment securities portfolio. For the year ended December 31, 2017, net cash provided by investing activities from continuing operations was CHF 10.8 billion, primarily due to a decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions and proceeds from sales of loans, partially offset by an increase in loans.
Our financing activities primarily include the issuance of debt and receipt of customer deposits. We pay annual dividends on our common shares. In 2017, net cash used in financing activities of continuing operations was CHF 12.8 billion, mainly reflecting the repayment of long-term debt and the repurchase of treasury shares, partially offset by the issuance of long-term debt and the sale of treasury shares.
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Credit ratings
Our access to the debt capital markets and our borrowing costs depend significantly on our credit ratings. Rating agencies take many factors into consideration in determining a company’s rating, including, among others, earnings performance, business mix, market position, ownership, financial strategy, level of capital, risk management policies and practices, management team and the broader outlook for the financial services industry more generally. The rating agencies may raise, lower or withdraw their ratings, or publicly announce an intention to raise or lower their ratings, at any time.
Although retail and private bank deposits are generally less sensitive to changes in a bank’s credit ratings, the cost and availability of other sources of unsecured external funding is generally a function of credit ratings. Credit ratings are especially important to us when competing in certain markets and when seeking to engage in longer-term transactions, including >>>over-the-counter (OTC) derivative instruments.
A downgrade in credit ratings could reduce our access to capital markets, increase our borrowing costs, require us to post additional collateral or allow counterparties to terminate transactions under certain of our trading and collateralized financing and derivative contracts. This, in turn, could reduce our liquidity and negatively impact our operating results and financial position. Our internal liquidity barometer takes into consideration contingent events associated with a two-notch downgrade in our credit ratings. The maximum impact of a simultaneous one, two or three-notch downgrade by all three major rating agencies in the Bank’s long-term debt ratings would result in additional collateral requirements or assumed termination payments under certain derivative instruments of CHF 0.4 billion, CHF 1.6 billion and CHF 2.1 billion, respectively, as of December 31, 2017, and would not be material to our liquidity and funding planning. If the downgrade does not involve all three rating agencies, the impact may be smaller.
Potential cash outflows on these derivative contracts associated with a downgrade of our long-term debt credit ratings, such as the requirement to post additional collateral to the counterparty, the loss of re-hypothecation rights on any collateral received and impacts arising from additional termination events, are monitored and taken into account in the calculation of our liquidity requirements. There are additional derivative related risks that do not relate to the downgrade of our long-term debt credit ratings and which may impact our liquidity position, including risks relating to holdings of derivatives collateral or potential movements in the valuation of derivatives positions. The potential outflows resulting across all derivative product types are monitored as part of the LCR scenario parameters and the internal liquidity reporting.
> Refer to “Investor information” in the Appendix for further information on Group and Bank credit ratings.
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Capital management
As of the end of 2017, our BIS CET1 ratio was 13.5% and 12.8% on a look-through basis. Our BIS tier 1 leverage ratio was 5.6% and 5.2% on a look-through basis.
Capital strategy and framework
Credit Suisse considers a strong and efficient capital position to be a priority. Through our capital strategy, our goal is to strengthen our capital position and optimize the use of >>>risk-weighted assets (RWA), particularly in light of emerging regulatory capital requirements.
The overall capital needs of Credit Suisse reflect management’s regulatory and credit rating objectives as well as our underlying risks. Our framework considers the capital needed to absorb losses, both realized and unrealized, while remaining a strongly capitalized institution. Multi-year projections and capital plans are prepared for the Group and its major subsidiaries and reviewed throughout the year with their regulators. These plans are subject to various stress tests, reflecting both macroeconomic and specific risk scenarios. Capital contingency plans are developed in connection with these stress tests to ensure that possible mitigating actions are consistent with both the amount of capital at risk and the market conditions for accessing additional capital.
Our capital management framework also relies on economic capital, which is a comprehensive tool that is also used for risk management and performance measurement. Economic capital measures risks in terms of economic realities rather than regulatory or accounting rules and is the estimated capital needed to remain solvent and in business, even under extreme market, business and operational conditions, given our target financial strength as reflected in our long-term credit rating.
> Refer to “Economic risk capital” in Risk Management – Risk coverage and management for further information.
Regulatory capital framework
Effective January 1, 2013, the >>>Basel III framework was implemented in Switzerland along with the Swiss >>>“Too Big to Fail” legislation and regulations thereunder (Swiss Requirements). Together with the related implementing ordinances, the legislation includes capital, liquidity, leverage and large exposure requirements and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency. Our related disclosures are in accordance with our current interpretation of such requirements, including relevant assumptions. Changes in the interpretation of these requirements in Switzerland or in any of our assumptions or estimates could result in different numbers from those shown in this report. Also, our capital metrics fluctuate during any reporting period in the ordinary course of business.
The Basel framework describes a range of options for determining capital requirements in order to provide banks and supervisors the ability to select approaches that are most appropriate for their operations and their financial market infrastructure. In general, Credit Suisse has adopted the most advanced approaches, which align with the way that risk is internally managed and provide the greatest risk sensitivity.
For measuring credit risk, we received approval from >>>FINMA to use the >>>advanced internal ratings-based (A-IRB) approach. Under the A-IRB approach for measuring credit risk, risk weights are determined by using internal risk parameters for >>>probability of default (PD), >>>loss given default (LGD) and effective maturity. The exposure at default (EAD) is either derived from balance sheet values or by using models. Capital requirements for premises and equipment, real estate and investments in real estate entities are included in credit risk.
For calculating the capital requirements for market risk, the internal models approach, the standardized measurement method and the standardized approach are used.
Under the Basel framework, operational risk is included in >>>RWA and we received approval from FINMA to use the >>>advanced measurement approach (AMA). Under the AMA for measuring operational risk, we identified key scenarios that describe our major operational risks using an event model.
References to phase-in and look-through included herein refer to Basel III capital requirements and Swiss Requirements. Phase-in reflects that, for the years 2014 – 2018, there will be a five-year (20% per annum) phase-in of goodwill, other intangible assets and other capital deductions (e.g., certain deferred tax assets) and the phase-out of an adjustment for the accounting treatment of pension plans and, for the years 2013 – 2022, there will be a phase-out of certain capital instruments. Look-through assumes the full phase-in of goodwill and other intangible assets and other regulatory adjustments and the phase-out of certain capital instruments.
BIS Requirements
The >>>BCBS, the standard setting committee within the >>>Bank for International Settlements (BIS), issued the >>>Basel III framework, with higher minimum capital requirements and conservation and countercyclical buffers, revised risk-based capital measures, a leverage ratio and liquidity standards. The framework was designed to strengthen the resilience of the banking sector and requires banks to hold more capital, mainly in the form of common equity. The new capital standards are being phased in from 2013 through 2018 and become fully effective on January 1, 2019 for those countries that have adopted Basel III.
> Refer to the table “BIS phase-in requirements for Credit Suisse” for capital requirements and applicable effective dates during the phase-in period.
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Under Basel III, the minimum common equity tier 1 (CET1) requirement is 4.5% of >>>RWA. In addition, a 2.5% CET1 capital conservation buffer is required to absorb losses in periods of financial and economic stress. Banks that do not maintain this buffer will be limited in their ability to pay dividends and make discretionary bonus payments and other earnings distributions.
A progressive buffer between 1% and 2.5% (with a possible additional 1% surcharge) of CET1, depending on a bank’s systemic importance, is an additional capital requirement for global systemically important banks (G-SIBs). The Financial Stability Board (FSB) has identified Credit Suisse as a G-SIB and requires Credit Suisse to maintain a 1.5% progressive buffer. In November 2017, the FSB advised that a reduced progressive buffer of 1.0% will apply beginning in January 2019.
CET1 capital is subject to certain regulatory deductions and other adjustments to common equity, including the deduction of deferred tax assets for tax-loss carry-forwards, goodwill and other intangible assets and investments in banking and finance entities.
BIS phase-in requirements for Credit Suisse
For 2017 2018 2019
Capital ratios   
CET1 4.5% 4.5% 4.5%
Capital conservation buffer 1.25% 1 1.875% 1 2.5%
Progressive buffer for G-SIB 0.75% 1 1.125% 1 1.0%
Total CET1  6.5% 7.5% 8.0%
Additional tier 1 1.5% 1.5% 1.5%
Tier 1  8.0% 9.0% 9.5%
Tier 2 2.0% 2.0% 2.0%
Total capital  10.0% 11.0% 11.5%
Phase-in deductions from CET1 2 80.0% 1 100.0% 100.0%
Capital instruments subject to phase-out       Phased out over a 10-year horizon beginning 2013 through 2022
1
Indicates phase-in period.
2
Includes goodwill, other intangible assets and certain deferred tax assets.
In addition to the CET1 requirements, there is also a requirement for 1.5% of additional tier 1 capital and 2% of tier 2 capital. These requirements may also be met with CET1 capital. To qualify as additional tier 1 under Basel III, capital instruments must provide for principal loss absorption through a conversion into common equity or a write-down of principal feature. The trigger for such conversion or write-down must include a CET1 ratio of at least 5.125% as well as a trigger at the point of non-viability.
Basel III further provides for a countercyclical buffer that could require banks to hold up to 2.5% of CET1. This requirement is imposed by national regulators where credit growth is deemed to be excessive and leading to the build-up of system-wide risk.
Capital instruments that do not meet the strict criteria for inclusion in CET1 are excluded. Capital instruments that would no longer qualify as tier 1 or tier 2 capital will be phased out. In addition, instruments with an incentive to redeem prior to their stated maturity, if any, are phased out at their effective maturity date, which is generally the date of the first step-up coupon.
Banks are required to maintain a tier 1 leverage ratio of 3% beginning on January 1, 2018.
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Swiss Requirements
The legislation implementing the >>>Basel III framework in Switzerland in respect of capital requirements for systemically relevant banks, including Credit Suisse, goes beyond the Basel III minimum standards for systemically relevant banks.
In May 2016, the Swiss Federal Council amended the Capital Adequacy Ordinance applicable to Swiss banks. The amendment recalibrates and expands the existing >>>“Too Big to Fail” regime in Switzerland. Under the amended regime, systemically important banks operating internationally, such as Credit Suisse, are subject to two different minimum requirements for loss-absorbing capacity: G-SIBs must hold sufficient capital that absorbs losses to ensure continuity of service (going concern requirement) and they must issue sufficient debt instruments to fund an orderly resolution without recourse to public resources (gone concern requirement). Going concern capital and gone concern capital together form our >>>total loss-absorbing capacity (TLAC). The going concern and gone concern requirements are generally aligned with the FSB’s total loss-absorbing capacity standard. The amended Capital Adequacy Ordinance came into effect on July 1, 2016, subject to phase-in and grandfathering provisions for certain outstanding instruments, and has to be fully applied by January 1, 2020.
Going concern requirement
The going concern requirement applicable in 2020 for a G-SIB consists of (i) a base requirement of 12.86% of >>>RWA and 4.5% of leverage exposure; and (ii) a surcharge, which reflects the G-SIB’s systemic importance. For Credit Suisse, this currently translates into a going concern requirement of 14.3% of RWA, of which the minimum CET1 component is 10%, with the remainder to be met with a maximum of 4.3% additional tier 1 capital, which includes high-trigger capital instruments that would be converted into common equity or written down if the CET1 ratio falls below 7%. Under the going concern requirement, the Swiss leverage ratio must be 5%, of which the minimum CET1 component is 3.5%, with the remainder to be met with a maximum of 1.5% additional tier 1 capital, which includes high-trigger capital instruments.
Gone concern requirement
The gone concern requirement of a G-SIB is equal to its total going concern requirement, which in 2020, consists of a base requirement of 12.86% of RWA and 4.5% of leverage exposure, plus any surcharges applicable to the relevant G-SIB. The gone concern requirement does not include any countercyclical buffers. Credit Suisse is currently subject to a gone concern requirement of 14.3% of RWA and a 5% Swiss leverage ratio and is subject to potential capital rebates for resolvability and for certain tier 2 low-trigger instruments recognized as gone concern capital.
The gone concern requirement should primarily be fulfilled with bail-in debt instruments that are designed to absorb losses after the write-down or conversion into equity of regulatory capital of a G-SIB in a restructuring scenario, but before the write-down or conversion into equity of other senior obligations of the G-SIB. Bail-in debt instruments do not feature capital triggers that may lead to a write-down and/or a conversion into equity outside of restructuring, but only begin to bear losses once the G-SIB is formally in restructuring proceedings and >>>FINMA orders capital measures (i.e., a write-down and/or a conversion into equity) in the restructuring plan.
According to the amended Capital Adequacy Ordinance, bail-in debt instruments must fulfill certain criteria in order to qualify under the gone concern requirement, including FINMA approval. In addition to bail-in debt instruments, the gone concern requirement may further be fulfilled with other capital instruments, including CET1, additional tier 1 capital instruments or tier 2 capital instruments.
Grandfathering provisions
The Capital Adequacy Ordinance provides for a number of grandfathering provisions with regard to the qualification of previously issued additional tier 1 capital instruments and tier 2 capital instruments:
Additional tier 1 capital instruments with a low trigger qualify as going concern capital until their first call date. Additional tier 1 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital;
Tier 2 capital instruments with a high trigger qualify as going concern capital until the earlier of (i) their maturity date or first call date; and (ii) December 31, 2019. Tier 2 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital until one year before their final maturity; and
Tier 2 capital instruments with a low trigger also qualify as going concern capital until the earlier of (i) their maturity date or first call date; and (ii) December 31, 2019. Tier 2 capital instruments that no longer qualify as going concern capital pursuant to this provision qualify as gone concern capital until one year before their final maturity.
Furthermore, to be eligible as gone concern capital, outstanding bail-in debt instruments issued before July 1, 2016 and bail-in debt instruments issued by a (Swiss or foreign) special purpose vehicle before January 1, 2017 must have been approved by FINMA.
Both the going concern and the gone concern requirements are subject to a phase-in with gradually increasing requirements and have to be fully applied by January 1, 2020.
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Other requirements
Effective July 1, 2016, Switzerland implemented an extended countercyclical buffer, which is based on the >>>BIS countercyclical buffer that could require banks to hold up to 2.5% of RWA in the form of CET1 capital. The extended countercyclical buffer relates to a requirement that can be imposed by national regulators when credit growth is deemed to be excessive and leading to the build-up of system-wide risk.
The Swiss Federal Council has not activated the BIS countercyclical buffer for Switzerland but instead requires banks to hold CET1 capital in the amount of 2% of their RWA pertaining to mortgage loans that finance residential property in Switzerland (Swiss countercyclical buffer).
In 2013, FINMA introduced increased capital charges for mortgages that finance owner-occupied residential property in Switzerland (mortgage multiplier) to be phased in through January 1, 2019. The mortgage multiplier applies for purposes of both BIS and FINMA requirements.
In December 2013, FINMA issued a decree (2013 FINMA Decree), effective since February 2, 2014, specifying capital adequacy requirements for the Bank, on a stand-alone basis (Bank parent company), and the Bank and the Group, each on a consolidated basis, as systemically relevant institutions. In October 2017, FINMA issued an additional decree with respect to the regulatory capital requirements of the Bank parent company (2017 FINMA Decree), specifying the treatment of investments in subsidiaries for capital adequacy purposes.
> Refer to “Regulatory developments and proposals” for further information.
Within the Basel framework for FINMA regulatory capital purposes, we implemented risk measurement models, including an >>>incremental risk charge (IRC), >>>stressed VaR, >>>risks not in VaR (RNIV) and advanced >>>credit valuation adjustment (CVA).
The IRC is a regulatory capital charge for default and migration risk on positions in the trading books and is intended to complement additional standards being applied to the >>>VaR modeling framework, including >>>stressed VaR. Stressed VaR replicates a VaR calculation on the Group’s current portfolio, taking into account a one-year observation period relating to significant financial stress and helps reduce the pro-cyclicality of the minimum capital requirements for market risk. RNIV and stressed RNIV are risks that are not currently implemented within the Group’s VaR model, such as certain basis risks, higher order risks and cross risks. Advanced CVA covers the risk of mark-to-market losses on the expected counterparty risk arising from changes in a counterparty’s credit spreads.
For capital purposes, FINMA, in line with BIS requirements, uses a multiplier to impose an increase in market risk capital for every >>>regulatory VaR >>>backtesting exception over four in the prior rolling 12-month period. In 2017, our market risk capital multiplier remained at FINMA and BIS minimum levels and we did not experience an increase in market risk capital.
> Refer to “Market risk review” in Risk management for further information.
Regulatory developments and proposals
In March 2017, the >>>BCBS released the interim regulatory treatment of accounting provisions and standards for transitional arrangements. These measures are in response to the forthcoming international accounting standards on expected credit loss provisioning that will replace the incurred loss models. The BCBS will retain the current regulatory treatment of provisions under the Basel framework for an interim period. The BCBS sets out that jurisdictions may adopt transitional arrangements to address any significant negative impact on regulatory capital which may arise on day one from the introduction of expected credit losses provisioning for accounting. Accounting principles generally accepted in the US (US GAAP) require that these credit loss provisioning standards, which require the use of expected credit loss models, become effective as of January 1, 2020.
In March 2017, the BCBS published revised Pillar 3 disclosure requirements which consolidate all existing BCBS disclosure requirements into the Pillar 3 framework. Furthermore, the revised disclosure requirements reflect ongoing reforms to the regulatory framework, such as the >>>total loss-absorbing capacity regime for G-SIBs and the revised market risk framework. The effective dates of the revised Pillar 3 disclosure requirements as set by >>>FINMA are between December 2018 and December 2020.
In April 2017, the BCBS published the regulatory capital treatment related to changes to lease accounting standards under forthcoming US GAAP and international accounting standards. The new accounting rules, which become effective as of January 1, 2019, require that most leases will be reflected on a lessee’s balance sheet as an obligation to make lease payments (a liability) and a related right-of-use asset (an asset). The BCBS standard requires that, for leases where the underlying asset being leased is a tangible asset, the right-of-use asset should be risk-weighted with 100%.
In July 2017, the FSB issued its Guiding Principles on the Internal Loss-absorbing Capacity of G-SIBs. The principles set out high-level guidelines to assist Crisis Management Group authorities in the implementation of internal total loss-absorbing capacity mechanisms consistent with the FSB’s total loss-absorbing capacity. Total loss-absorbing capacity standard of November 2015. G-SIBs should be expected to meet the internal total loss-absorbing capacity requirements by January 1, 2019, if they have been designated by the FSB as a G-SIB before the end of 2015, which is the case for Credit Suisse.
In October 2017, the BCBS published final guidelines on the identification and management of step-in risk. Step-in risk refers to the risk that a bank decides to provide financial support to an unconsolidated entity that is facing financial stress in the absence of, or in excess of, any contractual obligations or equity ties to actually provide such support, in particular to avoid reputational risks. The guidelines do not prescribe any automatic liquidity or capital charge, but rather rely on existing prudential measures to mitigate significant step-in risk through identification and management of step-in risks and a supervisory process built on reporting.
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The BCBS expects the guidelines to be implemented in member jurisdictions by 2020.
In October 2017, FINMA announced its re-assessment of rebates for resolvability relating to the gone concern requirement. The eligibility for the rebates for resolvability is assessed on an annual basis. Effective July 1, 2017, our capital ratio rebate is 0.868% and our leverage ratio rebate is 0.28%.
In November 2017, the FSB published the 2017 list of G-SIBs. Based on their scores of systemic importance, G-SIBs are allocated into four equally sized buckets, with varying levels of higher loss absorbency requirements applied to the different buckets. Compared to the 2016 list of G-SIBs, Credit Suisse moved from bucket two to bucket one, reducing the required progressive buffer by 0.5% and placing Credit Suisse in the lowest 1.0% bucket. Bucket one includes the banks with the lowest level of global systemic importance.
In November 2017, the Swiss Federal Council extended the transition period from January 2018 to January 2020 for some revisions to the capital requirements of credit risk. The revisions relate to equity investments in funds and a new standardized approach for counterparty credit risk (SA-CCR) for derivatives. Furthermore, the Swiss Federal Council published revised standards for large exposure reporting and limits, which will become effective in January 2019.
In December 2017, the BCBS finalized the outstanding >>>Basel III post-crisis regulatory reforms. The revised standards become effective January 1, 2022. The output floor will be phased in over five years from 2022 to 2027.
They include the following elements:
a revised standardized approach for credit risk, which seeks to improve the granularity and risk sensitivity of the existing approach;
revisions to the internal ratings-based approach for credit risk, which introduces some constraints to banks’ estimates of risk parameters;
revisions to the CVA framework, removing the model-based approach and replacing it with a standardized or a basic approach;
a revised standardized approach for operational risk, which will replace the existing >>>AMA;
an aggregate output floor, which seeks to ensure that banks’ >>>RWA generated by internal models are no lower than 72.5% of RWA as calculated by the Basel III framework’s standardized approach; and
revisions to the leverage ratio framework, introducing a leverage ratio buffer for G-SIBs and refining the leverage exposure measure, including using the SA-CCR methodology within this framework.
FINMA Decrees
The SNB designated the Group as a financial group of systemic importance under applicable Swiss law. Following that designation, FINMA issued the 2013 FINMA Decree, effective since February 2, 2014, which requires the Group to fully comply with the special requirements for systemically important banks set out in the Capital Adequacy Ordinance. In addition to the capital adequacy requirements, it also specifies liquidity and risk diversification requirements for the Bank parent company.
In October 2017, FINMA issued the 2017 FINMA Decree with respect to the regulatory capital requirements of the Bank parent company, specifying the treatment of investments in subsidiaries for capital adequacy purposes. This decree partially replaces certain aspects of the 2013 FINMA Decree, but all other aspects of that decree remain in force. The 2017 FINMA Decree is effective retroactively as of July 1, 2017. The changes aim to create a capital adequacy framework for the Bank parent company that is more comparable to relevant international frameworks and does not rely on exemptions from, or corrections of, the basic framework applicable to all Swiss banks. The changes only apply to the going concern capital requirements for the Bank parent company, which, as of July 1, 2017, amount to 14.3% of RWA, of which the minimum CET1 component is 10%, with the remainder to be met with a maximum of 4.3% additional tier 1 capital, which includes high-trigger capital instruments. Additional effects from countercyclical buffers impact the CET1 minimum requirement. Under the going concern requirement, the Swiss leverage ratio must be 5%, of which the minimum CET1 component is 3.5%, with the remainder to be met with a maximum of 1.5% additional tier 1 capital, which includes high-trigger capital instruments. Unlike the Group requirements, the capital and leverage requirements for the Bank parent company are not subject to a transition period and are therefore the same under phase-in and look-through.
The 2017 FINMA Decree requires the Bank parent company to risk-weight both direct and indirect investments in subsidiaries, with the initial risk-weight set at 200%. Beginning in 2019, these risk-weights will gradually increase over 10 years to 250% for participations in subsidiaries in Switzerland and to 400% for participations in subsidiaries abroad. This replaces the existing framework that, for systemically relevant banks, provided exemptions to the general rule of capital deduction with respect to investments in subsidiaries to avoid unintended effects from the existing >>>“Too Big to Fail” legislation and capital requirements thereunder. Furthermore, the Swiss administration plans to amend the Capital Adequacy Ordinance accordingly so that these new rules will apply to all banks in Switzerland.
The 2017 FINMA Decree also applies an adjustment (referred to as a regulatory filter) to any impact on CET1 capital arising from the upcoming accounting change under applicable Swiss banking rules for the Bank parent company’s investments in subsidiaries from the current portfolio valuation method to the individual valuation method by 2020. The regulatory filter allows for the measurement of the regulatory capital position as if the Bank parent company had maintained the portfolio valuation method, which results in higher total participation values subject to risk weighting.
> Refer to credit-suisse.com/regulatorydisclosures for the Bank parent company’s regulatory disclosures.
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issuances and redemptions
Issuances
Bail-in instruments
The following callable bail-in instruments were issued in the first quarter of 2017:
USD 1.75 billion 3.574% senior notes due 2023; and
USD 2.25 billion 4.282% senior notes due 2028.
The following callable bail-in instrument was issued in the second quarter of 2017:
EUR 1.5 billion 1.25% senior notes due 2025.
The following callable bail-in instruments were issued in the third quarter of 2017:
GBP 750 million 2.125% senior notes due 2025;
USD 1.0 billion 2.997% senior notes due 2023; and
USD 500 million floating rate senior notes due 2023.
The following callable bail-in instruments were issued in the fourth quarter of 2017:
JPY 38.7 billion 0.553% senior notes due 2023;
JPY 8.3 billion 0.904% senior notes due 2027;
JPY 10.0 billion 1.269% senior notes due 2033; and
USD 1.0 billion floating rate senior notes due 2022.
The following callable bail-in instruments have been issued to date in the first quarter of 2018:
USD 2.0 billion 3.869% senior notes due 2029;
AUD 125 million 3.5% senior notes due 2024;
AUD 175 million floating rate senior notes due 2024; and
AUD 176 million zero coupon accreting senior notes due 2038.
Other issuances
In the first quarter of 2017, the Group issued USD 1.5 billion 7.125% high-trigger additional tier 1 capital instruments and CHF 200 million 3.875% high-trigger additional tier 1 capital instruments.
On May 18, 2017, the Group held an Extraordinary General Meeting of shareholders, at which shareholders approved a capital increase. The capital increase was completed by way of a rights offering in the second quarter of 2017. Net proceeds of the rights offering amounted to CHF 4.1 billion.
Redemptions
In the first quarter of 2017, Credit Suisse redeemed CHF 750 million 7.125% high-trigger tier 2 capital instruments.
In the second quarter of 2017, the Group redeemed the remaining outstanding principal balances in the amounts of USD 135 million and USD 50 million of two tier 1 capital instruments and the remaining outstanding principal balance in the amount of GBP 20 million of a tier 2 capital instrument.
Contingent convertible capital instruments
We have issued high-trigger and low-trigger capital instruments to meet our capital requirements. Our high-trigger instruments (with the exception of Contingent Capital Awards (CCA)) mandatorily convert into our ordinary shares upon the occurrence of certain specified triggering events. These events include our CET1 ratio falling below 7% (or any lower applicable minimum threshold), or a determination by >>>FINMA that conversion is necessary, or that we require public sector capital support, to prevent us from becoming insolvent, bankrupt or unable to pay a material amount of our debts, or other similar circumstances. Conversion can only be prevented if FINMA, at our request, is satisfied that certain conditions exist and conversion is not required. High-trigger instruments are designed to absorb losses before our other capital instruments, including the low-trigger capital instruments. The features of low-trigger capital instruments are described below. CCA would not convert into common equity, but would be written down to zero upon a trigger event.
Higher Trigger Capital Amount
The capital ratio write-down triggers for certain of our outstanding capital instruments take into account the fact that other outstanding capital instruments that contain relatively higher capital ratios as part of their trigger feature are expected to convert into equity or be written down prior to the write-down of such capital instruments. The amount of additional capital that is expected to be contributed by such conversion into equity or write-down is referred to as the >>>Higher Trigger Capital Amount.
The following tier 1 capital notes (collectively, Tier 1 Capital Notes), which have a trigger amount of 5.125% and qualify as low trigger capital instruments, were outstanding as of December 31, 2017:
USD 2.5 billion 6.25% tier 1 capital notes;
USD 2.25 billion 7.5% tier 1 capital notes; and
CHF 290 million 6.0% tier 1 capital notes.
The following tier 2 capital notes (collectively, Tier 2 Capital Notes), which have a trigger amount of 5% and qualify as low trigger capital instruments, were outstanding as of December 31, 2017:
USD 2.5 billion 6.5% tier 2 capital notes; and
EUR 1.25 billion 5.75% tier 2 capital notes.
Each of the series of Tier 1 Capital Notes and Tier 2 Capital Notes qualify as low-trigger capital instruments and have a write-down feature, which means that the full principal amount of the notes will be permanently written down to zero upon the occurrence of specified triggering events. These events occur when the amount of our CET1 ratio, together with an additional ratio described below that takes into account other outstanding capital instruments, falls below 5.125% for the Tier 1 Capital Notes and 5% for the Tier 2 Capital Notes. The write-down can only be prevented if FINMA, at our request, is satisfied that certain conditions exist and determines a write-down is not required. The capital notes will also be written down upon a non-viability event, which occurs when FINMA determines that a write-down
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is necessary, or that we require extraordinary public sector capital support, to prevent us from becoming insolvent, bankrupt or unable to pay a material amount of our debts, or other similar circumstances.
With respect to the capital instruments that specify a trigger event if the CET1 ratio were to fall below 5.125%, the Higher Trigger Capital Amount was CHF 7.6 billion and the Higher Trigger Capital Ratio (i.e., the ratio of the Higher Trigger Capital Amount to the aggregate of all >>>RWA of the Group) was 2.8%, both as of the end of 2017.
With respect to the capital instruments that specify a trigger event if the CET1 ratio were to fall below 5%, the Higher Trigger Capital Amount was CHF 12.4 billion and the Higher Trigger Capital Ratio was 4.6%, both as of the end of 2017.
> Refer to the table “BIS capital metrics – Group” for further information on the BIS metrics used to calculate such measures.
BIS capital metrics – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Capital and risk-weighted assets (CHF million)
CET1 capital 36,711 36,576 0 34,824 30,783 13
Tier 1 capital 51,482 48,865 5 47,262 41,879 13
Total eligible capital 56,696 55,728 2 51,389 46,758 10
Risk-weighted assets 272,815 271,372 1 271,680 268,045 1
Capital ratios (%)
CET1 ratio 13.5 13.5 12.8 11.5
Tier 1 ratio 18.9 18.0 17.4 15.6
Total capital ratio 20.8 20.5 18.9 17.4
bis Capital metrics
Our CET1 ratio was 13.5% as of the end of 2017, stable compared to the end of 2016, with slightly higher >>>RWA. Our tier 1 ratio was 18.9% as of the end of 2017 compared to 18.0% the end of 2016. Our total capital ratio was 20.8% as of the end of 2017 compared to 20.5% as of the end of 2016.
CET1 capital was stable at CHF 36.7 billion as of the end of 2017 compared to the end of 2016. CET1 was impacted by the issuance of common shares due to the rights offering and the regulatory adjustment of deferred tax assets, primarily resulting from the US tax reform. These increases were partially offset by an additional annual 20% phase-in of regulatory deductions from CET1 (from 60% to 80%), including goodwill, other intangible assets and certain deferred tax assets, and an additional annual 20% decrease in the adjustment for the accounting treatment of pension plans (from 40% to 20%), pursuant to phase-in requirements. CET1 capital was also affected by a net loss attributable to shareholders driven by the re-assessment impact on deferred tax assets resulting from the US tax reform, a negative foreign exchange impact and the cash component of a dividend accrual.
Additional tier 1 capital increased to CHF 14.8 billion as of the end of 2017 compared to CHF 12.3 billion as of the end of 2016, mainly reflecting the issuance of high-trigger additional tier 1 capital instruments and an additional annual 20% phase-in of regulatory deductions (from 40% to 20%), including goodwill, other intangible assets and other capital deductions, partially offset by a negative foreign exchange impact.
Tier 2 capital was CHF 5.2 billion as of the end of 2017 compared to CHF 6.9 billion as of the end of 2016, mainly due to the impact of the prescribed amortization requirement as instruments move closer to their maturity date and the redemption of the high-trigger tier 2 capital instruments.
Total eligible capital as of the end of 2017 was CHF 56.7 billion compared to CHF 55.7 billion as of the end of 2016, primarily reflecting an increase in additional tier 1 capital, partially offset by a decrease in tier 2 capital.
As of the end of 2017, the look-through CET1 ratio was 12.8% compared to 11.5% as of the end of 2016. As of the end of 2017, the look-through total capital ratio was 18.9% compared to 17.4% as of the end of 2016.
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Eligible capital – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Eligible capital (CHF million)
Total shareholders' equity  41,902 41,897 0 41,902 41,897 0
Regulatory adjustments 1 (576) (694) (17) (576) (694) (17)
Adjustments subject to phase-in 
   Accounting treatment of defined benefit pension plans  508 1,246 (59)
   Common share capital issued by subsidiaries and held by third parties  44 83 (47)
   Goodwill 2 (3,792) (2,919) 30 (4,740) (4,864) (3)
   Other intangible assets 2 (48) (42) 14 (60) (70) (14)
   Deferred tax assets that rely on future profitability  (1,770) (2,120) (17) (2,213) (3,534) (37)
   Shortfall of provisions to expected losses  (402) (299) 34 (503) (498) 1
   Gains/(losses) due to changes in own credit on fair-valued liabilities  2,152 435 395 2,690 724 272
   Defined benefit pension assets 2 (1,337) (479) 179 (1,672) (798) 110
   Investments in own shares  (13) (1) (16) (2)
   Other adjustments 3 43 11 291 56 20 180
   Deferred tax assets from temporary differences (threshold-based)  0 (542) 100 (44) (1,398) (97)
Adjustments subject to phase-in  (4,615) 4 (4,627) 0 (6,502) (10,420) (38)
CET1 capital  36,711 36,576 0 34,824 30,783 13
High-trigger capital instruments (7% trigger) 7,575 6,000 26 7,575 6,000 26
Low-trigger capital instruments (5.125% trigger) 4,863 5,096 (5) 4,863 5,096 (5)
Additional tier 1 instruments  12,438 11,096 12 12,438 11,096 12
Additional tier 1 instruments subject to phase-out 5 2,778 2,899 (4)
Deductions from additional tier 1 capital (445) 6 (1,706) (74)
Additional tier 1 capital  14,771 12,289 20 12,438 11,096 12
Tier 1 capital  51,482 48,865 5 47,262 41,879 13
High-trigger capital instruments (7% trigger) 0 698 (100) 0 698 (100)
Low-trigger capital instruments (5% trigger) 4,127 4,181 (1) 4,127 4,181 (1)
Tier 2 instruments  4,127 4,879 (15) 4,127 4,879 (15)
Tier 2 instruments subject to phase-out 1,138 2,083 (45)
Deductions from tier 2 capital (51) (99) (48)
Tier 2 capital  5,214 6,863 (24) 4,127 4,879 (15)
Total eligible capital  56,696 55,728 2 51,389 46,758 10
1
Includes regulatory adjustments not subject to phase-in, including a cumulative dividend accrual.
2
Net of deferred tax liability.
3
Includes cash flow hedge reserve.
4
Reflects 80% phase-in deductions, including goodwill, other intangible assets and certain deferred tax assets, and 20% of an adjustment primarily for the accounting treatment of pension plans pursuant to phase-in requirements.
5
Includes hybrid capital instruments that are subject to phase-out.
6
Includes 20% of goodwill and other intangible assets (CHF 1.0 billion) and other capital deductions, including the regulatory reversal of gains/(losses) due to changes in own credit risk on fair-valued financial liabilities, which will be deducted from CET1 once Basel III is fully implemented.
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Capital movement – Group
   Phase-in Look-through
2017 2016 2017 2016
CET1 capital (CHF million)   
Balance at beginning of period  36,576 42,072 30,783 32,938
Net income/(loss) attributable to shareholders (983) (2,710) (983) (2,710)
Foreign exchange impact (807) 1 446 (736) 413
Impact of deductions relating to phase-in requirements (2,650) (2,777) 0 0
Issuance of common shares 4,096 2 717 4,096 717
Regulatory adjustment of deferred tax assets 1,637 3 (401) 2,487 (258)
Regulatory adjustment of own credit on fair-valued financial liabilities (397) (429) 2 3
Other (761) 4 (342) (825) (320)
Balance at end of period  36,711 36,576 34,824 30,783
Additional tier 1 capital (CHF million)   
Balance at beginning of period  12,289 10,991 11,096 11,663
Foreign exchange impact (475) 372 (372) 274
Impact of deductions relating to phase-in requirements 853 1,096 0 0
Issuances 1,680 0 1,680 0
Redemptions (180) (505) 0 (505)
Regulatory adjustment of own credit on fair-valued financial liabilities 386 446 0 0
Other 218 (111) 34 (336)
Balance at end of period  14,771 12,289 12,438 11,096
Tier 2 capital (CHF million)   
Balance at beginning of period  6,863 9,619 4,879 6,824
Foreign exchange impact (41) 73 3 51
Impact of deductions relating to phase-in requirements 50 59 0 0
Redemptions (714) (2,005) (698) (1,946)
Other (944) 5 (883) (57) (50)
Balance at end of period  5,214 6,863 4,127 4,879
Eligible capital (CHF million)   
Balance at end of period  56,696 55,728 51,389 46,758
1
Includes US GAAP cumulative translation adjustments and the foreign exchange impact on regulatory CET1 adjustments.
2
Represents the issuance of common shares in connection due to the rights offering.
3
Primarily reflects the impact of the re-assessment of deferred tax assets resulting from the US tax reform.
4
Includes the impact of a dividend accrual, the net effect of share-based compensation and pensions and a change in other regulatory adjustments.
5
Primarily reflects the impact of the prescribed amortization requirement as instruments move closer to their maturity date.
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Risk-weighted assets
Our balance sheet positions and off-balance sheet exposures translate into >>>RWA that are categorized as credit, market and operational RWA. When assessing RWA, it is not the nominal size, but rather the nature (including >>>risk mitigation such as collateral or hedges) of the balance sheet positions or off-balance sheet exposures that determines the RWA. Credit risk RWA reflect the capital requirements for the possibility of a loss being incurred as the result of a borrower or counterparty failing to meet its financial obligations or as a result of a deterioration in the credit quality of the borrower or counterparty. Capital requirements for premises and equipment, real estate and investments in real estate entities are also included in credit risk. Under >>>Basel III, certain regulatory capital adjustments are dependent on the level of CET1 capital (thresholds). The amount above the threshold is deducted from CET1 capital and the amount below the threshold is risk weighted. RWA subject to such threshold adjustments are included in credit risk RWA. Market risk RWA reflect the capital requirements of potential changes in the >>>fair values of financial instruments in response to market movements inherent in both balance sheet and off-balance sheet items. Operational risk RWA reflect the capital requirements for the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
RWA increased 1% to CHF 272.8 billion as of the end of 2017 from CHF 271.4 billion as of the end of 2016. The increase was primarily driven by methodology and policy changes in operational risk and credit risk, mostly offset by movements in risk levels, mainly in credit risk and market risk, and a negative foreign exchange impact.
Excluding the foreign exchange impact, the decrease in credit risk was primarily driven by decreases related to movements in risk levels primarily attributable to book size, partially offset by increases related to methodology and policy changes. The decrease in risk levels attributable to book size was mainly due to reductions in exposures, primarily relating to the wind-down of non-core business in the Strategic Resolution Unit, and reductions in advanced >>>CVA resulting from decreased exposures, primarily in the Strategic Resolution Unit and Swiss Universal Bank. The decrease also reflected the impact of hedging transactions executed in connection with managing the Group’s RWA position and the Basel III phase-in requirements, both in the Corporate Center. These decreases were partially offset by increases from lending risk exposures primarily in Asia Pacific and Investment Banking & Capital Markets, the expiration of a credit risk hedge primarily in Global Markets and the Strategic Resolution Unit, and increases from banking book securitization exposures in Global Markets and International Wealth Management. The decrease in risk levels attributable to book quality was mainly due to a reduction in lending risk with corporate and private clients in Asia Pacific and Swiss Universal Bank. The increase due to methodology and policy changes was mainly related to an additional phase-in of the multiplier on income producing real estate (IPRE) exposures and non-IPRE exposures, both within Swiss Universal Bank, and an additional phase-in of a multiplier on certain investment banking corporate exposures in Investment Banking & Capital Markets, Global Markets and Asia Pacific. Increases related to methodology and policy changes were also impacted by a phase-in impact from a >>>FINMA requirement to treat share-backed lending without personal guarantees as corporate exposures, which was introduced in the third quarter of 2016 impacting Asia Pacific, International Wealth Management and Investment Banking & Capital Markets.
Risk-weighted assets – Group

end of

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Corporate
Center



Group
2017 (CHF million)
Credit risk 52,776 24,641 20,510 34,185 17,362 12,078 14,960 176,512
Market risk 737 1,101 5,128 11,334 121 1,875 994 21,290
Operational risk 12,059 12,514 5,836 13,339 2,575 19,660 9,030 75,013
Risk-weighted assets – phase-in  65,572 38,256 31,474 58,858 20,058 33,613 24,984 272,815
Look-through adjustment (1,135) (1,135)
Risk-weighted assets – look-through  65,572 38,256 31,474 58,858 20,058 33,613 23,849 271,680
2016 (CHF million)
Credit risk 52,713 21,737 19,961 29,565 15,280 22,214 20,599 182,069
Market risk 888 992 8,808 8,755 172 3,567 66 23,248
Operational risk 12,068 12,523 5,836 13,393 2,575 19,660 0 66,055
Risk-weighted assets – phase-in  65,669 35,252 34,605 51,713 18,027 45,441 20,665 271,372
Look-through adjustment (3,327) (3,327)
Risk-weighted assets – look-through  65,669 35,252 34,605 51,713 18,027 45,441 17,338 268,045
128

Excluding the foreign exchange impact, the decrease in market risk was primarily driven by decreases in risk levels and model and parameter updates, partially offset by increases related to methodology and policy changes. The movements in risk levels reflected decreases in Asia Pacific and Strategic Resolution Unit, partially offset by increases in Global Markets. The decrease in model and parameter updates was mainly due to model enhancements to >>>VaR and >>>RNIV in Global Markets and Asia Pacific, including in connection with certain interest rate derivatives. Increases in methodology and policy changes primarily related to the >>>IRC model, mainly in Global Markets and Asia Pacific.
The increase in operational risk was mainly driven by methodology and policy changes. Following discussions with FINMA in 2017, we updated our loss history and implemented a revised methodology for the measurement of RWA related to operational risk, primarily in respect of our >>>residential mortgage-backed securities (RMBS) settlements. As a consequence, RWA relating to operational risk increased by CHF 9.0 billion in the second half of 2017, which was reflected in the Corporate Center.
129

Risk-weighted asset movement by risk type – Group

2017 (CHF million)

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Corporate
Center



Total
Credit risk
Balance at beginning of period  52,713 21,737 19,961 29,565 15,280 22,214 20,599 182,069
Foreign exchange impact (291) (441) (457) (654) (582) (850) (391) (3,666)
Movements in risk levels (2,689) 1,860 (346) 4,652 1,257 (9,193) (5,349) (9,808)
   of which credit risk – book size 1 (1,814) 1,801 605 4,628 1,395 (9,302) (5,436) (8,123)
   of which credit risk – book quality 2 (875) 59 (951) 24 (138) 109 87 (1,685)
Model and parameter updates 3 88 536 1 (218) 147 (312) 98 340
Methodology and policy changes 4 2,955 949 1,351 840 1,260 219 3 7,577
Balance at end of period – phase-in  52,776 24,641 20,510 34,185 17,362 12,078 14,960 176,512
Market risk
Balance at beginning of period  888 992 8,808 8,755 172 3,567 66 23,248
Foreign exchange impact (1) 8 (65) (135) (2) (38) 3 (230)
Movements in risk levels (161) (207) (3,670) 3,354 (69) (1,627) 942 (1,438)
Model and parameter updates 3 (2) 177 (340) (866) 14 (180) (90) (1,287)
Methodology and policy changes 4 13 131 395 226 6 153 73 997
Balance at end of period – phase-in  737 1,101 5,128 11,334 121 1,875 994 21,290
Operational risk
Balance at beginning of period  12,068 12,523 5,836 13,393 2,575 19,660 0 66,055
Movements in risk levels (9) (9) 0 (44) 0 0 0 (62)
Model and parameter updates 3 0 0 0 (10) 0 0 0 (10)
Methodology and policy changes 4 0 0 0 0 0 0 9,030 9,030
Balance at end of period – phase-in  12,059 12,514 5,836 13,339 2,575 19,660 9,030 75,013
Total
Balance at beginning of period  65,669 35,252 34,605 51,713 18,027 45,441 20,665 271,372
Foreign exchange impact (292) (433) (522) (789) (584) (888) (388) (3,896)
Movements in risk levels (2,859) 1,644 (4,016) 7,962 1,188 (10,820) (4,407) (11,308)
Model and parameter updates 3 86 713 (339) (1,094) 161 (492) 8 (957)
Methodology and policy changes 4 2,968 1,080 1,746 1,066 1,266 372 9,106 17,604
Balance at end of period – phase-in  65,572 38,256 31,474 58,858 20,058 33,613 24,984 272,815
Look-through adjustment 5 (1,135) (1,135)
Balance at end of period – look-through  65,572 38,256 31,474 58,858 20,058 33,613 23,849 271,680
1
Represents changes in portfolio size.
2
Represents changes in average risk weighting across credit risk classes.
3
Represents movements arising from updates to models and recalibrations of parameters and internal changes impacting how exposures are treated.
4
Represents externally prescribed regulatory changes impacting how exposures are treated.
5
The look-through adjustment impacts only credit risk within the Corporate Center. The difference between phase-in and look-through risk-weighted assets relates to transitional arrangements such as the impact from pension assets and deferred tax assets not deducted from CET1 during the phase-in period and the transitional impact from threshold-related risk-weighted assets.
130

LEVERAGE METRICS
Credit Suisse has adopted the >>>BIS leverage ratio framework, as issued by the >>>BCBS and implemented in Switzerland by >>>FINMA. Under the BIS framework, the leverage ratio measures tier 1 capital against the end-of-period exposure. BIS leverage amounts are calculated based on our interpretation of, and assumptions and estimates related to, the BIS requirements as implemented in Switzerland by FINMA. Changes in the interpretation of these requirements in Switzerland or in any of our interpretations, assumptions or estimates could result in different numbers from those shown here.
As used herein, leverage exposure consists of period-end balance sheet assets and prescribed regulatory adjustments.
The look-through leverage exposure was CHF 916.5 billion as of the end of 2017, a decrease of 4% compared to CHF 950.8 billion as of the end of 2016. The decrease was primarily related to the Strategic Resolution Unit, reflecting a broad range of transactions, including restructuring and unwinds in the derivatives portfolio and sales in the residual loan portfolio. The decrease in leverage exposure was also impacted by a reduction in the Group’s consolidated balance sheet, primarily reflecting the foreign exchange translation impact.
> Refer to “Balance sheet, off-balance sheet and other contractual obligations” for further information on the reduction in the Group’s consolidated balance sheet.
Look-through leverage exposure – Group
2017 2016
Look-through leverage exposure (CHF million)
Swiss Universal Bank 257,054 252,889
International Wealth Management 99,267 94,092
Asia Pacific 105,585 108,926
Global Markets 283,809 284,143
Investment Banking & Capital Markets 43,842 45,571
Strategic Resolution Unit 59,934 105,768
Corporate Center 67,034 59,374
Leverage exposure  916,525 950,763
BIS leverage ratios – Group
The tier 1 leverage ratio was 5.6% as of the end of 2017, with a CET1 component of 4.0%. On a look-through basis, the tier 1 leverage ratio was 5.2%, with a CET1 component of 3.8%.
The CET1 leverage ratio was 4.0% as of the end of 2017 compared to 3.8% as of the end of 2016, reflecting the stable CET1 capital and lower leverage exposure.
The tier 1 leverage ratio of 5.6% increased from 5.1% as of the end of 2016, primarily reflecting the increase in tier 1 capital and lower leverage exposure.
Leverage exposure components – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Leverage exposure (CHF million)   
Balance sheet assets  796,289 819,861 (3) 796,289 819,861 (3)
Adjustments 
   Difference in scope of consolidation and tier 1 capital deductions 1 (11,873) (9,316) 27 (14,401) (15,620) (8)
   Derivative financial instruments  85,210 88,656 (4) 85,210 88,656 (4)
   Securities financing transactions  (27,138) (22,766) 19 (27,138) (22,766) 19
   Off-balance sheet exposures  76,565 80,632 (5) 76,565 80,632 (5)
Total adjustments  122,764 137,206 (11) 120,236 130,902 (8)
Leverage exposure  919,053 957,067 (4) 916,525 950,763 (4)
1
Includes adjustments for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation and tier 1 capital deductions related to balance sheet assets.
BIS leverage metrics – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Capital and leverage exposure (CHF million)   
CET1 capital 36,711 36,576 0 34,824 30,783 13
Tier 1 capital 51,482 48,865 5 47,262 41,879 13
Leverage exposure 919,053 957,067 (4) 916,525 950,763 (4)
Leverage ratios (%)   
CET1 leverage ratio 4.0 3.8 3.8 3.2
Tier 1 leverage ratio 5.6 5.1 5.2 4.4
131

SWISS Capital and leverage metrics
Swiss capital metrics
> Refer to “Swiss Requirements” for further information on Swiss regulatory requirements.
As of the end of 2017, our Swiss CET1 ratio was 13.4%, our going concern capital ratio was 19.4%, our gone concern capital ratio was 13.1% and our TLAC ratio was 32.5%.
On a look-through basis, as of the end of 2017, our Swiss CET1 capital was CHF 34.7 billion and our Swiss CET1 ratio was 12.7%. Our going concern capital was CHF 47.1 billion and our going concern capital ratio was 17.3%. Our gone concern capital was CHF 35.2 billion and our gone concern capital ratio was 12.9% Our >>>total loss-absorbing capacity was CHF 82.3 billion and our TLAC ratio was 30.2%.
Swiss capital metrics – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Swiss capital and risk-weighted assets (CHF million)   
Swiss CET1 capital 36,567 36,417 0 34,665 30,616 13
Going concern capital 53,131 52,392 1 47,102 42,410 11
Gone concern capital 35,712 26,783 33 35,226 26,340 34
Total loss-absorbing capacity 88,843 79,175 12 82,328 68,750 20
Swiss risk-weighted assets 273,436 272,090 0 272,265 268,762 1
Swiss capital ratios (%)
Swiss CET1 ratio 13.4 13.4 12.7 11.4
Going concern capital ratio 19.4 19.3 17.3 15.8
Gone concern capital ratio 13.1 9.8 12.9 9.8
TLAC ratio 32.5 29.1 30.2 25.6
132

Swiss capital and risk-weighted assets – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Swiss capital (CHF million)   
CET1 capital – BIS 36,711 36,576 0 34,824 30,783 13
Swiss regulatory adjustments 1 (144) (159) (9) (159) (167) (5)
Swiss CET1 capital  36,567 36,417 0 34,665 30,616 13
Additional tier 1 high-trigger capital instruments 7,574 6,000 26 7,574 6,000 26
Grandfathered capital instruments 8,990 9,975 (10) 4,863 5,794 (16)
   of which additional tier 1 low-trigger capital instruments  4,863 5,096 (5) 4,863 5,096 (5)
   of which tier 2 high-trigger capital instruments  0 698 (100) 0 698 (100)
   of which tier 2 low-trigger capital instruments  4,127 4,181 (1)
Swiss additional tier 1 capital  16,564 15,975 4 12,437 11,794 5
Going concern capital  53,131 52,392 1 47,102 42,410 11
Bail-in debt instruments 31,099 22,159 40 31,099 22,159 40
Additional tier 1 instruments subject to phase-out 2,778 2,899 (4)
Tier 2 instruments subject to phase-out 1,138 2,083 (45)
Tier 2 amortization component 1,193 1,448 (18)
Tier 2 low-trigger capital instruments 4,127 4,181 (1)
Deductions (496) (1,806) (73)
Gone concern capital  35,712 26,783 33 35,226 26,340 34
Total loss-absorbing capacity  88,843 79,175 12 82,328 68,750 20
Risk-weighted assets (CHF million)   
Risk-weighted assets – BIS 272,815 271,372 1 271,680 268,045 1
Swiss regulatory adjustments 2 621 718 (14) 585 717 (18)
Swiss risk-weighted assets  273,436 272,090 0 272,265 268,762 1
1
Includes adjustments for certain unrealized gains outside the trading book.
2
Primarily includes differences in the credit risk multiplier.
Swiss leverage metrics
The leverage exposure used in the Swiss leverage ratios is measured on the same period-end basis as the leverage exposure for the >>>BIS leverage ratio.
Swiss leverage metrics – Group
   Phase-in Look-through
end of 2017 2016 % change 2017 2016 % change
Swiss capital and leverage exposure (CHF million)   
Swiss CET1 capital 36,567 36,417 0 34,665 30,616 13
Going concern capital 53,131 52,392 1 47,102 42,410 11
Gone concern capital 35,712 26,783 33 35,226 26,340 34
Total loss-absorbing capacity 88,843 79,175 12 82,328 68,750 20
Leverage exposure 919,053 957,067 (4) 916,525 950,763 (4)
Swiss leverage ratios (%)
Swiss CET1 leverage ratio 4.0 3.8 3.8 3.2
Going concern leverage ratio 5.8 5.5 5.1 4.5
Gone concern leverage ratio 3.9 2.8 3.8 2.8
TLAC leverage ratio 9.7 8.3 9.0 7.2
Rounding differences may occur.
133

As of the end of 2017, our Swiss CET1 leverage ratio was 4.0%, our going concern leverage ratio was 5.8%, our gone concern leverage ratio was 3.9% and our TLAC leverage ratio was 9.7%.
On a look-through basis, as of the end of 2017, our Swiss CET1 leverage ratio was 3.8%, our going concern leverage ratio was 5.1%, our gone concern leverage ratio was 3.8% and our TLAC leverage ratio was 9.0%.
Bank regulatory disclosures
The following capital, >>>RWA and leverage disclosures apply to the Bank. The business of the Bank is substantially the same as that of the Group, including business drivers and trends relating to capital, RWA and leverage metrics.
BIS capital and leverage metrics – Bank
> Refer to “BIS capital metrics”, “Risk-weighted assets” and “Leverage metrics” for further information.
BIS capital metrics – Bank
   Phase-in
end of 2017 2016 % change
Capital and risk-weighted assets (CHF million)
CET1 capital 38,433 37,356 3
Tier 1 capital 52,378 48,888 7
Total eligible capital 57,592 55,802 3
Risk-weighted assets 272,720 270,653 1
Capital ratios (%)
CET1 ratio 14.1 13.8
Tier 1 ratio 19.2 18.1
Total capital ratio 21.1 20.6
Eligible capital and risk-weighted assets – Bank
   Phase-in
end of 2017 2016 % change
Eligible capital (CHF million)
Total shareholders' equity  42,670 42,789 0
Regulatory adjustments 1 (46) (22) 109
Adjustments subject to phase-in (4,191) 2 (5,411) (23)
CET1 capital  38,433 37,356 3
Additional tier 1 instruments 11,579 3 10,217 13
Additional tier 1 instruments subject to phase-out   4 2,778 2,899 (4)
Deductions from additional tier 1 capital (412) 5 (1,584) (74)
Additional tier 1 capital  13,945 11,532 21
Tier 1 capital  52,378 48,888 7
Tier 2 instruments 4,127 6 4,931 (16)
Tier 2 instruments subject to phase-out 1,138 2,083 (45)
Deductions from tier 2 capital (51) (100) (49)
Tier 2 capital  5,214 6,914 (25)
Total eligible capital  57,592 55,802 3
Risk-weighted assets by risk type (CHF million)
Credit risk 176,417 181,350 (3)
Market risk 21,290 23,248 (8)
Operational risk 75,013 66,055 14
Risk-weighted assets  272,720 270,653 1
1
Includes regulatory adjustments not subject to phase-in, including a cumulative dividend accrual.
2
Primarily reflects 80% phase-in deductions, including goodwill, other intangible assets and certain deferred tax assets.
3
Consists of high-trigger and low-trigger capital instruments. Of this amount, CHF 7.6 billion consists of capital instruments with a capital ratio write-down trigger of 7% and CHF 3.9 billion consists of capital instruments with a capital ratio write-down trigger of 5.125%.
4
Includes hybrid capital instruments that are subject to phase-out.
5
Includes 20% of goodwill and other intangible assets (CHF 0.8 billion) and other capital deductions, including the regulatory reversal of gains/(losses) due to changes in own credit risk on fair-valued financial liabilities, which will be deducted from CET1 once Basel III is fully implemented.
6
Consists of low-trigger capital instruments with a capital ratio write-down trigger of 5%.
134

The Bank’s CET1 ratio was 14.1% as of the end of 2017 compared to 13.8% as of the end of 2016, reflecting higher CET1 capital and slightly higher RWA. The Bank’s tier 1 ratio was 19.2% as of the end of 2017 compared to 18.1% as of the end of 2016. The Bank’s total capital ratio was 21.1% as of the end of 2017 compared to 20.6% as of the end of 2016.
CET1 capital was CHF 38.4 billion as of the end of 2017 compared to CHF 37.4 billion as of the end of 2016. CET1 was impacted by the capital contribution from the Group following the issuance of common shares due to the rights offering and the regulatory adjustment of deferred tax assets, primarily resulting from the US tax reform. These increases were partially offset by an additional annual 20% phase-in of regulatory deductions from CET1 (from 60% to 80%), including goodwill, other intangible assets and certain deferred tax assets, and an additional annual 20% decrease in the adjustment for the accounting treatment of pension plans (from 40% to 20%), pursuant to phase-in requirements. CET1 capital was also affected by a net loss attributable to shareholders driven by the re-assessment impact on deferred tax assets resulting from the US tax reform and a negative foreign exchange impact.
Additional tier 1 capital was CHF 13.9 billion as of the end of 2017 compared to CHF 11.5 billion as of the end of 2016, mainly reflecting the issuance of high-trigger additional tier 1 capital instruments and an additional annual 20% phase-in of regulatory deductions (from 40% to 20%), including goodwill, other intangible assets and other capital deductions, partially offset by a negative foreign exchange impact.
Tier 2 capital was CHF 5.2 billion as of the end of 2017 compared to CHF 6.9 billion as of the end of 2016, mainly due to the redemption of the high-trigger tier 2 capital instruments and the impact of the prescribed amortization requirement as instruments move closer to their maturity date.
The Bank’s total eligible capital was CHF 57.6 billion as of the end of 2017 compared to CHF 55.8 billion as of the end of 2016.
RWA increased CHF 2.1 billion to CHF 272.7 billion as of the end of 2017 compared to CHF 270.7 billion as of the end of 2016.
Leverage exposure components – Bank
   Phase-in
end of 2017 2016 % change
Leverage exposure (CHF million)   
Balance sheet assets  798,372 822,065 (3)
Adjustments 
   Difference in scope of consolidation    and tier 1 capital deductions   1 (11,569) (10,639) 9
   Derivative financial instruments  85,559 88,975 (4)
   Securities financing transactions  (27,138) (22,766) 19
   Off-balance sheet exposures  76,569 80,661 (5)
Total adjustments  123,421 136,231 (9)
Leverage exposure  921,793 958,296 (4)
1
Includes adjustments for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation and tier 1 capital deductions related to balance sheet assets.
BIS leverage metrics – Bank
   Phase-in
end of 2017 2016 % change
Capital and leverage exposure (CHF million)   
CET1 capital 38,433 37,356 3
Tier 1 capital 52,378 48,888 7
Leverage exposure 921,793 958,296 (4)
Leverage ratios (%)   
CET1 leverage ratio 4.2 3.9
Tier 1 leverage ratio 5.7 5.1
135

Swiss capital and leverage metrics – Bank
> Refer to “Swiss capital and leverage metrics” for further information.
Swiss capital metrics – Bank
   Phase-in
end of 2017 2016 % change
Swiss capital and risk-weighted assets (CHF million)
Swiss CET1 capital 38,288 37,196 3
Going concern capital 53,995 52,344 3
Gone concern capital 35,771 26,904 33
Total loss-absorbing capacity 89,766 79,248 13
Swiss risk-weighted assets 273,332 271,359 1
Swiss capital ratios (%)
Swiss CET1 ratio 14.0 13.7
Going concern capital ratio 19.8 19.3
Gone concern capital ratio 13.1 9.9
TLAC ratio 32.8 29.2
Rounding differences may occur.
Swiss capital and risk-weighted assets – Bank
   Phase-in
end of 2017 2016 % change
Swiss capital (CHF million)   
CET1 capital – BIS 38,433 37,356 3
Swiss regulatory adjustments 1 (145) (160) (9)
Swiss CET1 capital  38,288 37,196 3
Additional tier 1 high-trigger capital instruments 7,631 6,083 25
Grandfathered capital instruments 8,076 9,065 (11)
   of which additional tier 1    low-trigger capital instruments    3,949 4,134 (4)
   of which tier 2 high-trigger capital instruments  0 750 (100)
   of which tier 2 low-trigger capital instruments  4,127 4,181 (1)
Swiss additional tier 1 capital  15,707 15,148 4
Going concern capital  53,995 52,344 3
Bail-in debt instruments 31,125 22,159 40
Additional tier 1 instruments subject to phase-out 2,778 2,899 (4)
Tier 2 instruments subject to phase-out 1,138 2,083 (45)
Tier 2 amortization component 1,193 1,447 (18)
Deductions (463) (1,684) (73)
Gone concern capital  35,771 26,904 33
Total loss-absorbing capacity  89,766 79,248 13
Risk-weighted assets (CHF million)   
Risk-weighted assets – BIS 272,720 270,653 1
Swiss regulatory adjustments 2 612 706 (13)
Swiss risk-weighted assets  273,332 271,359 1
1
Includes adjustments for certain unrealized gains outside the trading book.
2
Primarily includes differences in the credit risk multiplier.
Swiss leverage metrics – Bank
   Phase-in
end of 2017 2016 % change
Swiss capital and leverage exposure (CHF million)
Swiss CET1 capital 38,288 37,196 3
Going concern capital 53,995 52,344 3
Gone concern capital 35,771 26,904 33
Total loss-absorbing capacity 89,766 79,248 13
Leverage exposure 921,793 958,296 (4)
Swiss leverage ratios (%)
Swiss CET1 leverage ratio 4.2 3.9
Going concern leverage ratio 5.9 5.5
Gone concern leverage ratio 3.9 2.8
TLAC leverage ratio 9.7 8.3
Rounding differences may occur.
other regulatory disclosures
In connection with the implementation of >>>Basel III, certain regulatory disclosures for the Group and certain of its subsidiaries are required. The Group’s Pillar 3 disclosure, regulatory disclosures, additional information on capital instruments, including the main features and terms and conditions of regulatory capital instruments that form part of the eligible capital base, G-SIB financial indicators, reconciliation requirements, leverage ratios and certain liquidity disclosures as well as regulatory disclosures for subsidiaries can be found on our website.
> Refer to credit-suisse.com/regulatorydisclosures for additional information.
Shareholders’ equity and share metrics
Total shareholders’ equity
Group
The Group’s total shareholders’ equity was stable at CHF 41.9 billion as of the end of 2017 compared to the end of 2016. Total shareholders’ equity was positively impacted by the issuance of common shares due to the rights offering, the share-based compensation obligation and an actuarial gain from the annual re-measurement of the Group’s defined benefit pension plan assets and liabilities. These movements were partially offset by losses on >>>fair value elected liabilities related to credit risk, foreign exchange-related movements on cumulative translation adjustments, a net loss attributable to shareholders, transactions relating to the settlement of share-based compensation awards and dividends paid.
> Refer to the “Consolidated statements of changes in equity” in VI – Consolidated financial statements – Credit Suisse Group for further information on the Group’s total shareholders’ equity.
136

Bank
The Bank’s total shareholders’ equity was CHF 42.7 billion as of the end of 2017 compared to CHF 42.8 billion as of the end of 2016. Total shareholders’ equity was negatively impacted by losses on fair value elected liabilities related to credit risk, a net loss attributable to shareholders, foreign exchange-related movements on cumulative translation adjustments and transactions relating to the settlement of share-based compensation awards. These movements were partially offset by a capital contribution from the Group in connection with the rights offering and an increase in share-based compensation obligation.
> Refer to the “Consolidated statements of changes in equity” in VIII – Consolidated financial statements – Credit Suisse (Bank) for further information on the Bank’s total shareholders’ equity.
Shareholders' equity and share metrics
   Group Bank
end of 2017 2016 % change 2017 2016 % change
Shareholders' equity (CHF million)   
Common shares 102 84 21 4,400 4,400 0
Additional paid-in capital 35,668 32,131 11 45,718 41,817 9
Retained earnings 24,973 25,954 (4) 8,484 9,814 (14)
Treasury shares, at cost (103) 0
Accumulated other comprehensive income/(loss) (18,738) (16,272) 15 (15,932) (13,242) 20
Total shareholders' equity  41,902 41,897 0 42,670 42,789 0
Goodwill (4,742) (4,913) (3) (4,036) (4,189) (4)
Other intangible assets (223) (213) 5 (223) (213) 5
Tangible shareholders' equity 1 36,937 36,771 0 38,411 38,387 0
Shares outstanding (million)   
Common shares issued 2,556.0 2,089.9 22 4,399.7 4,399.7 0
Treasury shares (5.7) 0.0
Shares outstanding  2,550.3 2,089.9 22 4,399.7 4,399.7 0
Par value (CHF)   
Par value  0.04 0.04 0 1.00 1.00 0
Book value per share (CHF)   
Total book value per share  16.43 20.05 (18) 9.70 9.73 0
Goodwill per share (1.86) (2.35) (21) (0.92) (0.96) (4)
Other intangible assets per share (0.09) (0.11) (18) (0.05) (0.05) 0
Tangible book value per share 1 14.48 17.59 (18) 8.73 8.72 0
1
Management believes that tangible shareholders' equity and tangible book value per share, both non-GAAP financial measures, are meaningful as they are measures used and relied upon by industry analysts and investors to assess valuations and capital adequacy.
Share repurchases
The Swiss Code of Obligations limits a corporation’s ability to hold or repurchase its own shares. We may only repurchase shares if we have sufficient free reserves to pay the purchase price, and if the aggregate nominal value of the repurchased shares does not exceed 10% of our nominal share capital. Furthermore, we must create a special reserve in our parent company’s financial statements in the amount of the purchase price of the acquired shares. In our consolidated financial statements, own shares are recorded at cost and reported as treasury shares, resulting in a reduction in total shareholders’ equity. Shares repurchased by us do not carry any voting rights at shareholders’ meetings.
In 2017, there were no effective publicly announced share repurchase plans. We purchased 857 million treasury shares and sold or re-issued 809 million treasury shares in 2017 through open market transactions, predominantly for market-making purposes and facilitating customer orders. As of December 31, 2017, the Group held 6 million treasury shares.
> Refer to “Impact of share-based compensation on shareholders’ equity” in V – Compensation – Group compensation for further information.
Purchases and sales of treasury shares

Number
of shares
(million)
Average
price
per share
(CHF)
2017   
January 53.3 15.58
February 50.5 15.13
March 69.1 15.36
April 36.8 14.70
May 87.3 14.28
June 149.6 13.37
July 62.0 14.59
August 78.1 14.58
September 87.0 14.66
October 57.0 15.60
November 72.4 16.24
December 53.9 17.19
Total purchase of treasury shares  857.0
Total sale of treasury shares  809.3
137

Dividends and dividend policy
Under the Swiss Code of Obligations, dividends may be paid out only if and to the extent the corporation has distributable profits from previous business years, or if the free reserves of the corporation are sufficient to allow distribution of a dividend. In addition, at least 5% of the annual net profits must be retained and booked as general legal reserves for so long as these reserves amount to less than 20% of the paid-in share capital. Our reserves currently exceed this 20% threshold. Furthermore, dividends may be paid out only after shareholder approval at the Annual General Meeting (AGM). The Board may propose that a dividend be paid out, but cannot itself set the dividend. In Switzerland, the auditors are required to confirm whether the appropriation of retained earnings is in accordance with Swiss law and the company’s articles of incorporation. In practice, the shareholders usually approve the dividend proposal of the Board. Dividends are usually due and payable after the shareholders’ resolution relating to the allocation of profits has been passed. Under the Swiss Code of Obligations, the statute of limitations in respect of claiming the payment of dividends that have been declared is five years.
The dividend payment made in 2017 for the financial year 2016 consisted of a distribution of CHF 0.70 per share payable out of capital contribution reserves in cash or, upon shareholder election and subject to legal restrictions applicable in shareholders’ home jurisdictions, a scrip dividend or a combination thereof. The distribution was free of Swiss withholding tax and was not subject to income tax for Swiss resident individuals holding the shares as a private investment.
Our dividend payment policy seeks to provide investors with an efficient form of capital distribution relative to earnings. We have revised our dividend policy beginning in 2017 by discontinuing the proposal of a scrip alternative at the option of shareholders and by instead proposing to pay an all-cash dividend per share at a level similar to the cash component (as opposed to the stock component) per share of the total dividend that our shareholders elected in recent years, subject to performance and to the decision of the Board and approval of our shareholders in due course.
Our Board will propose to the shareholders at the AGM on April 27, 2018 a distribution of CHF 0.25 per share out of capital contribution reserves for the financial year 2017. The distribution will be free of Swiss withholding tax and will not be subject to income tax for Swiss resident individuals holding the shares as a private investment. The distribution will be payable in cash. The ex-dividend date has been set to May 4, 2018.
Reflecting our holding company structure, the Group is not an operating company and holds investments in subsidiaries. It is therefore reliant on the dividends of its subsidiaries to pay shareholder dividends and service its long-term debt. The subsidiaries of the Group are generally subject to legal restrictions on the amount of dividends they can pay. The amount of dividends paid by operating subsidiaries is determined after consideration of the expectations for future results and growth of the operating businesses.
> Refer to “Proposed distribution out of capital contribution reserves” in VII – Parent company financial statements – Credit Suisse Group – Proposed appropriation of retained earnings and capital distribution for further information on dividends.
Dividend per ordinary share
USD 1 CHF
Dividend per ordinary share for the financial year   
2017 0.72 0.70
2016 0.72 0.70
2014 0.75 0.70
2013 0.79 0.70
2012 2 0.80 0.75
1
Represents the distribution on each American Depositary Share. For further information, refer to credit-suisse.com/dividend.
2
Distribution consisted of CHF 0.10 (USD 0.11) per share in cash and a stock dividend with a theoretical value of approximately CHF 0.65 (USD 0.69) per subscription right as approved at the AGM on April 26, 2013 for the financial year 2012.
Foreign exchange exposure and interest rate management
Foreign exchange risk associated with investments in branches, subsidiaries and affiliates is managed within defined parameters that create a balance between the interests of stability of capital adequacy ratios and the preservation of Swiss franc shareholders’ equity. The decisions regarding these parameters are made by CARMC and are regularly reviewed. Foreign exchange risk associated with the nonfunctional currency net assets of branches and subsidiaries is managed through a combination of forward-looking and concurrent backward-looking hedging activity, which is aimed at reducing the foreign exchange rate induced volatility of reported earnings.
Interest rate risk inherent in banking book activities, such as lending and deposit-taking, is managed through the use of replication portfolios. Treasury develops and maintains the models needed to determine the interest rate risks of products that do not have a defined maturity, such as demand and savings accounts. For this purpose, a replicating methodology is applied in close coordination with Risk Management to maximize the stability and sustainability of spread revenues at the divisions. Further, Treasury manages the interest exposure of the Bank’s equity to targets agreed with senior management.
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Risk management
The prudent taking of risk in line with our strategic priorities is fundamental to our business as a leading global bank. During the year, we continued to focus on aligning the Group risk profile with our strategy and further reducing exposures in the Strategic Resolution Unit, while increasing our lending activities in our wealth management-related businesses. At the same time, strengthening our operational control framework remained a primary focus. During 2017, we continued our multi-year effort to enhance the capabilities necessary to execute a capital adequacy assessment and stress testing framework for our US intermediate holding company, further evolved our global model risk management framework and initiated a program to assess climate change risks in line with recommendations of FSB’s Task Force on Climate-related Financial Disclosures.
Key Risk developments
The world’s major economies continued to expand in 2017 despite a catastrophic hurricane season in the Carribean and the US and ongoing geopolitical risk, including tensions on the Korean peninsula and in the Middle East, and further changes in the political landscape in Europe. Growing confidence in the economic recovery in the US led the Fed to announce the unwinding of its quantitative easing (QE) program, and the potential for an adverse market reaction to that unwinding program was one of the biggest risks to financial markets. Cyber threats continued to evolve rapidly, posing a major risk to the financial industry as a whole.
North Korea
Tensions ran high on the Korean peninsula. Against this environment, we enhanced risk constraints for relevant portfolios and increased the size of our macro hedge program to offset potential losses. We have been assessing and closely monitoring the related risks in our portfolio using several scenarios.
US economic climate
Despite persistently low inflation, the Fed raised rates three times in 2017 and announced the unwinding of its QE program. In December, the US enacted the Tax Cuts and Jobs Act of 2017 in an effort to accelerate economic growth. High equity valuations and a disorderly rise in bond yields remain one of the biggest risks to the markets. We are monitoring the risk associated with high valuations and a potential disorderly QE program wind-down using a suite of scenarios.
Middle East
In early June 2017, several countries, including Saudi Arabia, the United Arab Emirates, Egypt and Bahrain severed diplomatic ties and cut transportation links with Qatar. We have business relationships in all of these countries. While political uncertainty remains elevated, Qatar has not raised foreign funding or triggered a potentially disorderly forced repatriation of foreign assets. Separately, several Saudi Arabian princes and senior officials were arrested by the national anti-corruption commission in early November 2017. We are monitoring developments in the region.
Cyber risk
The financial industry continued facing rapidly evolving cyber threats from a variety of actors who are driven by monetary, political and other motivations. We continue to invest significantly in our information and cybersecurity program to strengthen our ability to anticipate, defend, detect and recover from cyber attacks. We regularly assess the effectiveness of our key controls and we conduct ongoing employee training and awareness activities, including for key management personnel, in order to embed a strong cyber risk culture.
European political landscape
Despite the defeat of right-wing nationalist candidates in the presidential elections of France and the Netherlands, nationalist populism remained a source of uncertainty in Europe along with the negotiations relating to the withdrawal of the UK from the EU. The potential impact of changes in the European political landscape on our structural exposures were managed through our enterprise stress test and risk appetite framework.
Natural disasters
The 2017 hurricanes in the Caribbean and the US caused immediate and widespread economic disruption and affected some Credit Suisse offices, including utility power loss and infrastructure shutdown. Our crisis management team successfully engaged recovery procedures and notification tools allowing offices to continue operation. An earthquake in Mexico required staff evacuation, however it did not have any further implications.
Brazil
In mid-2017, the president of Brazil was formally indicted on corruption charges in the latest iteration of a long-running corruption investigation. The impact from political developments on Brazil’s fiscal policy and the economy is still uncertain. From a risk perspective, the potential threats to Brazil’s economic upswing and to its local markets are likely to stay relatively high. While Brazil is a significant market for Credit Suisse, we further reduced our exposure to this country during 2017 and continued assessing potential implications in the event of further deterioration of this political crisis.
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Risk management oversight
Prudent risk taking in line with our strategic priorities is fundamental to our business. The primary objectives of risk management are to protect our financial strength and reputation, while ensuring that capital is well deployed to support business growth and activities. Our risk management framework is based on transparency, management accountability and independent oversight. Risk management is an integral part of our business planning process with strong senior management and Board involvement.
We continuously work to strengthen risk management across the Group in our efforts to meet the challenges resulting from a volatile market environment and increasing complexity driven by the changing regulatory landscape. Utilizing comprehensive risk management processes and sophisticated control systems, we continuously work to minimize the negative impact that may arise from risk concentrations.
The BCBS published the “Principles for effective risk data aggregation and risk reporting” (BCBS 239) in 2013 in order to strengthen the risk data aggregation and risk reporting practices at banks and enhance their risk management and decision-making processes. We have committed to FINMA that we will implement these principles with respect to a defined scope of risk measures, risk reports and legal entities by year-end 2018. Credit Suisse remains on track to achieve compliance with these principles in 2018 with strong engagement and oversight from the Board.
Risk governance
Effective risk governance sets a solid foundation for comprehensive risk management discipline. Our risk governance framework is based on a “three lines of defense” governance model, where each line has a specific role with defined responsibilities and works in close collaboration to identify, assess and mitigate risks.
The first line of defense is the front office, which is responsible for pursuing suitable business opportunities within the strategic risk objectives and compliance requirements of the Group. Its primary responsibility is to ensure compliance with relevant legal and regulatory requirements and maintain effective internal controls.
The second line of defense includes functions such as risk management, compliance, legal and product control. It articulates standards and expectations for the effective management of risk and controls, including advising on applicable legal and regulatory requirements and publishing related policies, and monitors and assesses compliance with regulatory and internal standards. The second line of defense is separate from the front office and acts as an independent control function, responsible for reviewing, measuring and challenging front office activities and producing independent assessments and risk management reporting for senior management and regulatory authorities.
The third line of defense is the internal audit function, which monitors the effectiveness of controls across various functions and operations, including risk management and governance practices.
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Our operations are regulated by authorities in each of the jurisdictions in which we conduct business. Central banks and other bank regulators, financial services agencies, securities agencies and exchanges and self-regulatory organizations are among the regulatory authorities that oversee our businesses. >>>FINMA is our primary regulator.
> Refer to “Regulation and supervision” in I – Information on the company for further information.
Our governance includes a committee structure and a comprehensive set of corporate policies which are developed, reviewed and approved by the Board, the Executive Board, their respective committees, the Group CRO, the Group Chief Compliance and Regulatory Affairs Officer (CCRO) and the board of directors of significant subsidiaries, in accordance with their respective responsibilities and levels of authority.
> Refer to “Board of Directors” and “Executive Board” in IV – Corporate Governance for further information.
Board of Directors
The Board is responsible for our strategic direction, supervision and control, and for defining our overall tolerance for risk in the form of a risk appetite statement and overall risk limits. Overall risk limits are set by the Board in consultation with its Risk Committee.
The Risk Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by providing guidance regarding risk governance and the development of our risk profile and capital adequacy, including the regular review of major risk exposures and overall risk limits.
The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by monitoring management’s approach with respect to financial reporting, internal controls, accounting and legal and regulatory compliance. Additionally, the Audit Committee is responsible for monitoring the independence and performance of internal and external auditors.
Executive Board
The Executive Board is responsible for developing and implementing our strategic business plans, subject to approval by the Board. It further reviews and coordinates significant initiatives for the risk management function and establishes Group-wide risk policies. The Group CRO and CCRO are members of the Executive Board and represent the risk management and compliance functions, respectively, reporting to the Group Chief Executive Officer (CEO) and, at least annually, to the Board.
Executive Board committees
The Capital Allocation & Risk Management Committee (CARMC) is responsible for overseeing and directing our risk profile, recommending risk limits at the Group level to the Risk Committee and the Board, establishing and allocating risk appetite among the various businesses, reviewing new significant business strategies or changes in business strategies including business migrations, making risk-related decisions on escalations, and for applying measures, methodologies and tools to monitor and manage the risk portfolio. CARMC meets monthly and conducts reviews according to the following three rotating cycles. The asset & liability management cycle reviews the funding and balance sheet trends and activities, plans and monitors regulatory and business liquidity requirements and internal and regulatory capital adequacy. The market & credit risks cycle defines and implements risk management strategies for the Group businesses, sets and approves risk appetite within Board-approved limits and other appropriate measures to monitor and manage the risk profile of the Group and allocates liquidity resources and sets liquidity risk limits for individual divisions. The internal control system cycle monitors and analyzes significant operational, legal and compliance risks, reviews and approves the business continuity program’s alignment with the corporate strategy on an annual basis, sets limits, caps and triggers on specific businesses to control significant operational risk exposure, and reviews and assesses the appropriateness and efficiency of the internal control systems.
The Valuation Risk Management Committee (VARMC) is responsible for establishing policies regarding the valuation of certain material assets and the policies and calculation methodologies applied in the valuation process.
The Risk Processes & Standards Committee (RPSC) reviews major risk management processes, issues general instructions, standards and processes concerning risk management, approves material changes in market, credit and operational risk management standards, policies and related methodologies, and approves the standards of our internal models used for calculating regulatory capital.
The Reputational Risk & Sustainability Committee (RRSC) sets policies and reviews processes and significant cases relating to reputational risks and sustainability issues. It also ensures adherence to our reputational and sustainability policies and oversees their implementation.
Divisional and legal entity risk management committees
Divisional and legal entity risk management committees review risk, legal, compliance and internal control matters specific to the divisions and individual legal entities, respectively.
Risk organization
The risk management function is responsible for providing risk management oversight and establishing an organizational basis to manage risk matters. The risk management function challenges and proactively engages with the business divisions in shaping the divisions’ and the Group’s risk profiles.
Our risk organization supports the Group’s strategy and divisional structure. The divisional chief risk officers, who also act as legal entity chief risk officers for the most significant legal entities in their respective regions, assume an important role in this organization.
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From a people and business management perspective, the organizational setup of the risk function builds on a matrix structure, unifying global functions and divisional/legal entity perspectives.
Our governance framework includes dedicated risk management committees for each division. The divisional and legal entity chief risk officer organizations have established granular risk appetite frameworks and reporting capabilities to cover the specific needs of their business divisions. The global risk functions drive our risk appetite, ensure globally harmonized models and methodologies, execute global regulatory deliverables, provide global limit frameworks and ensure risk conflict remediation.
The key elements of the risk organization include:
Matrix structure
Our matrix structure reflects the Group’s business strategy and emphasizes the Group’s legal entity considerations.
The global functions comprise credit, market & liquidity, enterprise, operational and fiduciary risk management, and are accountable for functional risk oversight and the risk limit framework at the global and local legal entity level. They are also responsible for functional models, methodologies and policies and function-related regulatory change. The enterprise risk management mandate is focused on the overarching risk framework including risk appetite and stress testing, Group risk reporting, model risk management, risk-related regulatory management and coordination of our reputational risk-related activities.
The divisional chief risk officers for Swiss Universal Bank, International Wealth Management, Asia Pacific, Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit are responsible for ensuring alignment of the risk management function within our divisions.
The legal entity chief risk officers provide risk oversight for certain significant legal entities in the locations of our main operations. They define the local risk management and risk appetite frameworks and are responsible for meeting the legal-entity-specific regulatory requirements. The legal entity chief risk officer roles for our most significant legal entities are assumed by the divisional chief risk officers in their respective regions, except for Credit Suisse AG where the chief risk officer role is assumed by the Group CRO.
The heads of the global functions and the divisional/legal entity chief risk officers jointly manage the embedded functional teams.
Central functions
Risk and Finance Data Analytics, Reporting provides consistent reporting production, analytics and data management shared with finance functions. CRO Change is responsible for the portfolio of strategic change programs across the risk management function. The Group CRO’s chief operating officer facilitates business management within the risk management function. Credit Risk Review is a review function independent from credit risk management with a direct reporting line to the Board’s Risk Committee, administratively reporting to the Group CRO. Credit Risk Review assesses Credit Suisse’s credit exposures and credit risk management processes and practices. The head of Credit Risk Review is also responsible for our comprehensive capital analysis and
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review (CCAR) challenge function which supports the application of the CCAR framework for the Group and provides independent assessments of the processes for managing and allocating capital resources. CCAR is a US regulatory framework introduced by the Fed to assess, regulate and supervise large financial institutions.
In April 2017, Credit Suisse Holdings (USA), Inc. submitted its first capital plan to the Fed as part of its CCAR process for 2017. This non-public submission detailed Credit Suisse Holdings (USA), Inc.’s capital adequacy process, including its stress testing capabilities, processes, methodologies, governance and results. Preparations for the CCAR submission for 2018 have begun and the capital adequacy results will be publicly disclosed once the review by the Fed is completed.
Compliance and regulatory affairs
The compliance and regulatory affairs (compliance) function is a proactive, independent function working with the businesses to continuously challenge practices to manage compliance risk. As a second line of defense function, responsibilities include independently assessing compliance risk, monitoring and testing and reporting on adherence to the compliance risk appetite and other material matters to the Board and senior management. It also oversees regulatory interactions of the Group and assesses potential impact and monitors implementation of regulatory developments.
Our compliance organization supports the Group’s strategy and divisional structure, with the involvement of the divisional chief compliance officers, who also provide compliance oversight for the most significant legal entities in their respective regions. The divisional chief compliance officers are responsible for providing independent oversight and control over the compliance and regulatory risks relating to their respective divisions and legal entities.
Central compliance functions
Central compliance functions, such as core compliance services, financial crime compliance, regulatory affairs and investigations, support all divisions by overseeing and managing global programs in partnership with the divisional chief compliance officers. The core compliance services function oversees framework design and establishes enterprise level standards for compliance practices, surveillance and global programs (e.g., cross-border compliance, client tax compliance and conduct risk). The financial crime compliance function establishes and monitors compliance policies, guidelines, procedures and controls related to anti-money laundering, anti-corruption and sanctions. The regulatory affairs function supports the Group through management of regulatory relationships and interactions, including coordination of regulatory commitments on behalf of relevant divisions. The investigations function is responsible for the identification and remediation of significant breaches in the Group’s compliance processes and controls.
Risk culture
We base our business operations on conscious and disciplined risk-taking. We believe that independent risk management, compliance and audit processes with proper management accountability are critical to the interests and concerns of our stakeholders. Our risk culture is supported by the following principles:
Our risk management and compliance policies set out authorities and responsibilities for taking and managing risks;
We establish a clear risk appetite that sets out the types and levels of risk we are prepared to take;
We actively monitor risks and take mitigating actions where they fall outside accepted levels;
Breaches of risk limits are identified, analyzed and escalated, and large, repeated or unauthorized exceptions may lead to terminations, adverse adjustments to compensation or other disciplinary action; and
We seek to establish resilient risk constraints that promote multiple perspectives on risk and reduce the reliance on single risk measures.
We actively promote a strong risk culture where employees are encouraged to take accountability for identifying and escalating risks and for challenging inappropriate actions. The businesses are held accountable for managing all of the risks they generate, including those relating to employee behavior and conduct, in line with our risk appetite. Expectations on risk culture are regularly communicated by senior management, reinforced through policies and training, and considered in the performance assessment and compensation processes and, with respect to employee conduct, assessed by formal disciplinary review committees.
We seek to promote responsible behavior through the Group’s Code of Conduct, which provides a clear statement on the conduct standards and ethical values that we expect of our employees and members of the Board, and thereby maintain and strengthen our reputation for integrity, fair dealing and measured risk-taking. In addition, our six conduct and ethics standards, which include client focus, accountability and transparency, are a key part of our effort to embed our core ethical values into our business strategy and the fabric of our organization. They are designed to encourage employees to act with responsibility, respect, honesty and compliance at all times in order to secure the trust of our stakeholders. Initiatives in this area have provided employees with practical guidance on careful and considered behavior as well as the importance of acting ethically and learning from mistakes. Our employee performance assessment and compensation processes are linked to the conduct and ethics standards and the Group’s Code of Conduct.
> Refer to “Conduct risk” in Risk coverage and management for further information.
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Risk appetite Framework
Overview
We maintain a comprehensive Group-wide risk appetite framework, which is governed by a global policy and provides a robust foundation for risk appetite setting and management across the Group. A key element of the framework is a detailed statement of the Board-approved risk appetite which is aligned to our financial and capital plans. The framework also encompasses the processes and systems for assessing the appropriate level of risk appetite required to constrain our overall risk profile.
Risk capacity is the maximum level of risk that we can assume given our current level of resources before breaching any constraints determined by capital and liquidity needs, the operational environment and our responsibilities to depositors, shareholders, investors and other stakeholders. Risk appetite expresses the aggregate level and types of risk we are willing to assume within our risk capacity to achieve our strategic objectives and business plan. Risk profile is a point-in-time assessment of our net risk exposures aggregated within and across each relevant risk category and is expressed in a variety of different quantitative risk metrics and qualitative risk observations. The size of our risk profile is restricted to the planned level of our risk appetite through the use of risk constraints, such as limits, guidelines, tolerances and targets.
Risk appetite framework
The Group risk appetite framework is governed by an overarching global policy that encompasses the suite of specific policies, processes and systems with which the risk constraints are calibrated and the risk profile is managed. The framework is guided by the following strategic risk objectives:
maintaining Group-wide capital adequacy above minimum regulatory requirements under both normal and stressed conditions;
promoting stability of earnings to support performance in line with financial objectives;
ensuring sound management of liquidity and funding risk in normal and stressed conditions;
proactively controlling concentration risks;
managing operational and compliance risk within our enterprise risk and control framework (ERCF) to ensure sustainable performance;
minimizing reputational risk; and
managing and mitigating conduct risk.
Group-wide risk appetite is determined in partnership with the financial and capital planning process on an annual basis, based on bottom-up forecasts that reflect planned risk usage by the businesses and top-down, Board-driven strategic risk objectives and risk appetite. Scenario stress testing of financial and capital plans is an essential element in the risk appetite calibration process as a key means through which our strategic risk objectives, financial resources and business plans are aligned. The capital plans are also analyzed using our economic capital coverage ratio, which provides a further means of assessing bottom-up risk plans with respect to available capital resources. The risk appetite is approved through a number of internal governance forums, including joint approval by the Group CRO and the Chief Financial Officer (CFO), the Risk Appetite Review Committee (a sub-committee of CARMC), CARMC, the Risk Committee and, subsequently, by the Board.
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The risk appetite statement is the formal plan, approved by the Board, for our Group-wide risk appetite. Key divisional allocations are cascaded from the Group and approved in divisional risk management committees. Legal entity risk appetites are set by the local legal entity board of directors within the limits established by the Group.
The top-down and bottom-up risk appetite calibration process includes the following key steps:
Top-down:
Group-level strategic risk objectives are agreed by the Board in line with our financial and capital objectives.
Top-down risk capacities and risk appetites are determined with reference to available resources and key thresholds, such as minimum regulatory requirements.
A risk appetite statement is determined and approved annually by the Board, and is based on the strategic risk objectives, the comprehensive scenario stress testing of our forecasted financial results and capital requirements, and our economic capital framework. A semi-annual review of the risk appetite and capacity levels is performed. The risk appetite statement comprises quantitative and qualitative risk measures necessary for adequate control of the risk appetite across the organization. The review of the top-down and bottom-up risk appetite levels and their allocation between divisions and legal entities is performed by the Risk Appetite Review Committee.
Separate legal entity risk appetite frameworks aligned to local regulatory requirements are in place for material subsidiaries. An integrated year-end planning process ensures that individual legal entity risk appetites are consistent with Group levels.
Divisional risk committees are responsible for allocating risk appetite within the respective divisions based on individual business line reviews and requirements.
Bottom-up:
Planned risk levels and related risk appetite requirements are provided by front office business experts in conjunction with financial and capital plans in order to ensure consistency with the business strategy. Risk plans are reviewed by the relevant risk management committees.
Bottom-up risk forecasts are aggregated across businesses to assess divisional and Group-wide risk plans and to support management decisions on variations to existing risk appetite levels or the possible need for new risk appetite measures.
The effectiveness of risk appetite in support of business strategy execution and delivery against financial objectives is assessed via a risk appetite effectiveness framework. This framework assists senior management and the Board in ensuring that appropriate levels of risk appetite are set and that the subsequent risk constraints are appropriately calibrated.
Risk, financial and capital plans are jointly reviewed and approved by the Executive Board and the Board.
The following chart provides an overview of key Group-wide quantitative and qualitative aspects covered in our risk appetite statement for the Group and their connection to the division-specific risk appetite statements.
Risk constraints
A core aspect of our risk appetite framework is a sound system of integrated risk constraints to maintain our risk profile within our overall risk appetite. Our risk appetite framework utilizes a suite of different types of risk constraints to reflect the aggregate risk appetite of the Group and to further cascade risk appetite across our organization, including among business divisions and legal entities. The risk constraints restrict our maximum balance sheet and off-balance sheet exposure given the market environment, business strategy and financial resources available to absorb losses. Different levels of seniority are mapped to, and specific enforcement and breach response protocols are required for, each type of risk constraint. We define the following risk constraint categories:
Qualitative constraints represent constraints that are used to manage identified but unquantifiable or subjective risks, with adherence assessed by the appropriate level of constraint authority.
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Quantitative constraints represent constraints that are used to manage identified quantifiable risks and exist in the form of limits, guidelines, tolerances, targets and flags.
Constraint authority for the risk constraints is determined by the relevant approving body and constraints are currently in effect for all key risk governance bodies and committees including the Board, its Risk Committee, the Executive Board and CARMC. The appropriateness of the constraint types for the various risk classes within our risk appetite, including market, credit, operational and liquidity risk, is determined considering the respective characteristics of the various risk constraint types. We define the following types of risk constraints:
Qualitative constraint statements are required for all qualitative constraints. Qualitative constraint statements need to be specific and to clearly define the respective risk to ensure that the risk profile for unquantifiable or subjective risks is readily assessable.
Limits, guidelines and tolerances are specific threshold levels for a given risk metric. Limits are binding thresholds that require discussion to avoid a breach and trigger immediate remediating action if a breach occurs. Guidelines are thresholds which, if breached, require an action plan to reduce risk below the guideline or to propose, justify and agree to adjust the guideline. Tolerances are designed as management thresholds to initiate discussion, and breach of a tolerance level triggers review by the relevant constraint authority.
Targets represent the level of risk that the Group intends to accept in pursuit of business objectives at a specific point in time in the future.
Flags are early warning indicators, which serve primarily as a business risk management and supervisory control tool for our front offices and Treasury, and they may be complementary to other types of constraints.
With respect to limits, guidelines and tolerances, established criteria are applied in the selection of the appropriate risk constraint, including the assessment of (i) the materiality of the respective risk metric with regard to its contribution to the overall Group risk appetite; (ii) the importance of the risk constraint to the organization from a qualitative perspective; (iii) the characteristic of the respective risk, e.g., risk concentrations or high priority risk for the Group; and (iv) the availability of mitigating actions to manage the risk profile of the Group in relation to the respective risk.
We have established a constraint structure which manages the Group’s risk profile using multiple metrics, including economic risk capital, >>>value-at-risk (VaR), scenario analysis and various exposure limits at the Group level. The overall risk limits for the Group are set by the Board in consultation with its Risk Committee and are binding. In the rare circumstance where a breach of these limits would occur, it would result in a notification to the Chair of the Board’s Risk Committee and the Group CEO, and written notification to the full Board at its next meeting. Following notification, the Group CRO may approve positions that exceed the Board limits up to a predefined level and any such approval is reported to the full Board. Positions that exceed the Board limits by more than the predefined level may only be approved by the Group CRO and the full Board acting jointly. In 2017 and 2016, no Board limits were exceeded.
Dedicated constraints are also in place to cover the specific risk profiles of individual businesses and legal entities. In the context of the overall risk appetite of the Group, as defined by the limits set by the Board and its Risk Committee, CARMC is responsible for allocating divisional risk limits and more specific limits deemed necessary to control the concentration of risk within individual lines of business. The divisional risk management committees and the divisional and legal entity chief risk officers are responsible for allocating risk appetite further within the organization. For this purpose, they use a detailed framework of individual risk limits designed to control risk-taking at a granular level by individual businesses and in the aggregate. The risk constraints are intended to:
limit overall risk-taking to the Group’s risk appetite;
trigger senior management discussions with the businesses involved, risk management and governance committees in case of substantial change in the overall risk profile;
ensure consistent risk measurement across businesses;
provide a common framework for the allocation of resources to businesses; and
provide a basis for protecting the Group’s capital base and meeting strategic risk objectives.
The limit owners are responsible for reviewing warning triggers for risk limits. They may set warning triggers for potential limit excesses at any level lower than the approved limits as deemed appropriate after taking into account the nature of the underlying business. Strict escalation procedures apply to any limit breaches and, depending on the severity of the excess, the Group CRO or divisional chief executive officer’s approval may be required. Serious excesses are highlighted in periodic Risk Committee meeting management summaries. An assessment by the disciplinary review committee and any disciplinary actions that may be taken are considered in the regular performance assessment and compensation processes.
Update to the risk appetite framework
During the second quarter of 2017, we amended and enhanced our risk appetite framework to provide additional governance and controls within our relevant transaction approval processes to distinguish between those types of business exposures held in the Strategic Resolution Unit that will be allowed for execution in our strategic divisions and those that will be prohibited or for which we have limited risk appetite. The amendments introduce a specific risk appetite statement which together with the entire risk appetite framework will be reviewed annually in line with our current process. This framework has been approved by CARMC.
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The risk appetite statement includes a detailed list of transaction and product types that are prohibited from being executed in our strategic businesses. These transaction and product types are classified in five categories: (i) specific products; (ii) risk types; (iii) counterparties; (iv) investment classes; and (v) operational and franchise considerations. In addition, the statement establishes a robust set of principles and guidelines that serve to limit the execution of non-strategic transactions or business activities in our strategic business divisions.
We have established a framework for approval of exceptions to the provisions outlined in our risk appetite framework for certain transactions which may arise. Execution of such exceptions requires the approval of the divisional chief risk officer and divisional chief executive officer or their delegates and, where needed, by CARMC and/or the legal entity board of directors. Proposed transactions or business activities within our relevant transaction approval processes are assessed against the risk appetite statement.
Risk Coverage and Management
Overview
We use a wide range of risk management practices to address the variety of risks that arise from our business activities. Policies, limits, guidelines, processes, standards, risk assessment and measurement methodologies, and risk monitoring and reporting are key components of our risk management practices. Our risk management practices complement each other in our analysis of potential loss, support the identification of interdependencies and interactions of risks across the organization and provide a comprehensive view of our exposures. We regularly review and update our risk management practices to ensure consistency with our business activities and relevance to our business and financial strategies. Risk management practices have evolved over time without a standardized approach within the industry, therefore comparisons across firms may not be meaningful.
The key risk types, their definitions and key risk evaluation methods are summarized in the following table.
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It is important to both evaluate each risk type separately and assess their combined impact on the Group, which helps ensure that our overall risk profile remains within the Group-wide risk appetite.
The primary evaluation methods used to assess Group-wide quantifiable risks include economic risk capital and stress testing. Economic risk capital captures both position risk, such as market risk and credit risk, and non-position risk, such as operational risk and certain other risks, and is a key component in our risk appetite framework with limits established to control aggregate risk. Stress testing also captures position and non-position risks and provides an evaluation method capable of capturing both historic and forward-looking scenarios to ensure that aggregate risks are managed within the Group-wide risk appetite also under stressed conditions.
The description of our economic risk capital methodology and our stress testing framework below is followed by a more detailed description of our key risk types.
> Refer to “Liquidity and funding management” for further information on liquidity and funding risks-related evaluation methods used in our liquidity risk management framework and for funding management.
Economic risk capital
Overview
Economic risk capital is used as a consistent and comprehensive tool for capital management, limit monitoring and performance management. Economic risk capital is our core Group-wide risk management tool for measuring and reporting the combined impact from quantifiable risks such as market, credit, operational, pension, expense and model risks, each of which has an impact on our capital position.
Under the Basel framework, we are required to maintain a robust and comprehensive framework for assessing capital adequacy, defining internal capital targets and ensuring that these capital targets are consistent with our overall risk profile and the current operating environment. Our economic risk capital model represents our internal view of the amount of capital required to support our business activities.
> Refer to “Capital strategy and framework” and “Regulatory capital framework” in Capital management for further information on our capital management framework.
During 2017, as part of our economic risk capital strategic development program to further embed economic risk capital into our risk appetite framework, we continued to develop and implement a suite of metrics and models that better assess, monitor and manage capital adequacy and solvency risk in severe stress events such as business recovery or resolution. We redeveloped the position risk methodology by introducing new and enhancing previously used credit and market risk models. Our redesigned credit risk model is based on multi-factor Monte Carlo simulation, compared to the single-factor model used previously. Our new market risk model incorporates new price and spread shocks for structured assets and illiquid private equity investments and uses historical simulation for equity and fixed income trading, compared to the combination of credit spread shocks and historical simulation used in previous models. In addition, we improved our pension risk model which models assets and liabilities in line with the redeveloped position risk framework. Finally, we introduced an enhanced and newly calibrated correlation matrix to aggregate across both position and non-position risk models. The new economic risk capital framework should enable us to further embed economic risk capital into our risk appetite and risk management framework, and to better assess, monitor and manage capital adequacy and solvency risk in both “going concern” and “gone concern” scenarios. In a “going concern” scenario, we hold sufficient capital to absorb losses to ensure continuity of service. In a “gone concern” scenario, we hold sufficient capital to fund an orderly resolution without recourse to public resources. Our new economic risk capital framework was implemented in January 2018 and the net impact from of these methodology enhancements on economic risk capital for the Group as of December 31, 2017 was a decrease of CHF 0.7 billion, or 2%.
> Refer to “Methodology and model developments” in Risk review and results – Economic risk capital review for further information.
Methodology and scope
Economic risk capital measures risks in terms of economic realities rather than regulatory or accounting rules and estimates the amount of capital needed to remain solvent and in business under extreme market, business and operating conditions over the period of one year, given our target financial strength (our long-term credit rating). Economic risk capital is set to a level needed to absorb unexpected losses at a confidence level of 99.97%. Our economic risk capital model is a set of methodologies used for measuring quantifiable risks associated with our business activities on a consistent basis. It is calculated separately for >>>position risk (reflecting our exposure to market and credit risks), operational risk and other risks. Within each of these risk categories, risks are further divided into subcategories, for which economic risk capital is calculated using the appropriate specific methodology. Some of these methodologies are common to a number of risk subcategories, while others are tailored to the particular features of single, specific risk types included in position risk, operational risk and other risks. Economic risk capital is calculated as the sum of position risk, operational risk and other risks.
Position risk and diversification benefit
Position risk is the level of unexpected loss from our portfolio of balance sheet and off-balance sheet positions over a one-year holding period and includes market and credit risks. Position risk is calculated at a 99% confidence level for risk management purposes reflecting a “going concern” scenario. Position risk is also calculated at a 99.97% confidence level for capital management purposes reflecting a “gone concern” resolution scenario. Our position risks categories are described in the table “Position risk categories”.
To determine our overall position risk, we consider the diversification benefit across risk types. Diversification benefit represents the reduction in risk that occurs when combining different, not
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perfectly correlated risk types in the same portfolio and is measured as the difference between the sum of position risk for the individual risk types and the position risk calculated for the combined portfolio. Hence, position risk for the combined portfolio is non-additive across risk types and is lower than the sum of position risk of its individual risk types due to risk reduction (or benefit) caused by portfolio diversification. When analyzing position risk for risk management purposes, we look at individual risk types before and after the diversification benefit.
As part of our overall risk management, we hold a portfolio of hedges. Hedges are impacted by market movements, similar to other trading securities, and may result in gains or losses which offset losses or gains on the portfolios they were designated to hedge. Due to the varying nature and structure of hedges, these gains or losses may not wholly offset the losses or gains on the portfolios.
Operational risk
Operational risk is the risk of financial loss arising from inadequate or failed internal processes, people and systems or from external events. We use an internal model to calculate the economic capital requirement for operational risk at a 99.97% confidence level and a one-year holding period. A loss distribution approach based on historical data on internal and relevant external losses of peers is used to generate a loss distribution for a range of potential operational risk loss scenarios, such as unauthorized trading incidents, business interruption, fraud or other material business disruptions. The parameters estimated through the quantitative model are reviewed by business experts and senior management in order to take account of the business environment and internal control factors and to reflect a forward-looking view in the estimate. The capital calculation also includes a component to reflect litigation events and insurance mitigation. The overall approach is based on the same principles and methodology of the >>>AMA model used for regulatory capital requirements.
Position risk categories 
Position risk categories  Risks captured
Fixed income trading  – Foreign exchange rates and volatilities
– Interest rate levels and volatilities
– Commodity prices and volatilities
– Credit spreads and the risk of corporate bond defaults
– Life finance and litigation business activities
Equity trading & investments  – Equity prices and volatilities
– Non-recourse share-backed financing transactions
– Liquid hedge funds exposures and fund-linked products
– Equity risk arbitrage activities, in particular the risk that an announced merger may not be completed
– Private equity, illiquid hedge funds and other illiquid equity investment exposures
Private banking corporate & retail lending  – Potential changes in the creditworthiness of counterparty exposures and the risk of counterparty defaults
International lending & counterparty exposures  – Potential changes in the creditworthiness of counterparty exposures and the risk of counterparty defaults
Emerging markets country event risk  – Loss due to significant country events
– Simultaneous impact across the Group's exposures in a given country
– Risk of related disturbance in neighboring countries or countries in the same region
Real estate & structured assets  – Commercial real estate activities and structured assets
– Residential real estate activities and positions in asset-backed securities
Other risks
The other risks category includes the following:
Our expense risk measures the potential difference between expenses and revenues in a severe market event, excluding the elements captured by position risk and operational risk, using conservative assumptions regarding the earnings capacity and the ability to reduce the cost base in a crisis situation.
Pension risk is the risk that we, as a plan sponsor, are required to fund a deficit in employee pension schemes in an extreme event. It covers fluctuations in our pension plan assets and liabilities which can lead to potential funding shortfalls. Funding shortfalls can arise from a decline in asset values and/or an increase in the present value of liabilities. The shortfall would need to be funded using available resources. In order to recognize the potential for a funding shortfall, we apply an economic risk capital charge.
Owned real estate risk is defined as the capital at risk which arises from fluctuations in the value of buildings owned by the Group.
Foreign exchange risk is the risk arising from a currency mismatch between available economic capital and economic risk capital required.
Corporate interest rate risk is the interest rate risk on our treasury positions arising from discounting our client interest rate margins.
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The impact from deferred share-based compensation awards captures the economic benefit that may result from covering our structural short obligations to deliver own shares through market purchases during times of falling market prices.
Model uncertainty add-on addresses other potential low-probability events with potential high impact for which limited market data exists. It also reflects an estimate of the impacts of certain planned methodology changes.
Available economic capital
Available economic capital is an internal view of the capital available to absorb losses based on the reported BIS look-through CET1 capital under >>>Basel III, with economic adjustments applied to provide consistency with our economic risk capital. It enables a comparison between capital needs (economic risk capital) and capital resources (available economic capital).
Economic risk capital coverage ratio
Economic risk capital coverage ratio is defined as the ratio of capital available to absorb losses in a “gone concern” scenario (available economic capital) to capital needs (economic risk capital). The economic risk capital coverage ratio is primarily meant to provide an assessment of our solvency and reflects our best internal assessment of risk and loss absorbing capacity in an extreme scenario. Furthermore, the economic risk capital coverage ratio is embedded in our risk appetite framework through our capital adequacy objective. We also plan to incorporate the “going concern” economic risk capital coverage ratio into our risk appetite and risk management frameworks, to supplement the “gone concern” coverage ratio introduced in 2015.
The economic risk capital coverage ratio operates with a number of distinct bands that serve as key control for monitoring and managing our operational solvency. An economic risk capital coverage ratio lower than 125% requires senior management review, followed by an action plan at a coverage ratio lower than 110%. Immediate actions such as risk reductions or capital measures would be triggered at a coverage ratio lower than 100%. The Board has set the minimum level for this coverage ratio at 80%.
Governance
Our economic risk capital framework is governed and maintained by a dedicated steering committee, which regularly reviews, assesses and updates the economic risk capital methodology in light of market and regulatory developments, risk management practice and organizational changes. In addition, the steering committee approves new methodologies and prioritizes the implementation for its three components (position risk, operational risk and other risks).
Stress testing framework
Overview
Stress testing or scenario analysis provides an additional approach to risk management and formulates hypothetical questions, including what would happen to our portfolio if, for example, historic or adverse forward-looking events were to occur. A well-developed stress testing framework provides a powerful tool for senior management to identify these risks and also take corrective actions to protect the earnings and capital from undesired impacts.
Stress testing is a fundamental element of our Group-wide risk appetite framework included in overall risk management to ensure that our financial position and risk profile provide sufficient resilience to withstand the impact of severe economic conditions. Stress testing results are monitored against limits, and are used in risk appetite discussions and strategic business planning and to support our internal capital adequacy assessment. Within the risk appetite framework, CARMC sets Group-wide and divisional stressed position loss limits to correspond to minimum post-stress capital ratios. Currently, limits are set on the basis of look-through BIS CET1 capital ratios. Stress tests also form an integral part of the Group’s recovery and resolution plan (RRP). Within the RRP, stress tests provide the indicative scenario severity required to reach recovery and resolution capital levels.
Stress testing provides key inputs for managing the following objectives of the risk appetite framework:
Ensuring Group-wide capital adequacy on both a regulatory basis and under stressed conditions: We run a suite of scenarios on forecasted financial metrics such as revenues, expenses, pre-tax income and >>>risk-weighted assets. The post-stress capital ratios are assessed against the risk appetite of the Group.
Maintaining stable earnings: We mainly use stress testing to quantitatively assess earnings stability risk. Earnings-loss-triggers are established and monitored to contain excessive risk-taking which could compromise our earnings stability.
We also conduct externally defined stress tests that meet the specific requirements of regulators. For example, as part of various regular stress tests and analysis, >>>FINMA requires a semi-annual loss potential analysis that includes an extreme scenario that sees European countries experience a severe recession resulting from the worsening of the European debt crisis as well as a scenario focusing on a financial crisis in China and the US.
Methodology and scope of Group-wide stress testing
Stress tests are carried out to determine stressed position losses, earnings volatility and stressed capital ratios using historical, forward-looking and reverse stress testing scenarios. The scope of stress testing includes market, credit default, operational, business and pension risk. Stress tests also include the scenario impact on risk-weighted assets through changes to market, credit and operational components.
We use historical stress testing scenarios to consider the impact of market shocks from relevant periods of extreme market disturbance. Standardized severity levels allow comparability of severity across differing risk types. The calibration of bad day, bad week, severe event and extreme event scenarios involves the identification of the worst moves that have occurred in recent history. Severe flight to quality (SFTQ) is a key scenario used for Group-wide stress testing and risk appetite setting. It is a combination of
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market shocks and defaults that reflects conditions similar to what followed the Lehman collapse during the fourth quarter of 2008. The SFTQ scenario assumes a severe crash across financial markets, along with stressed default rates.
We use forward-looking stress testing scenarios to complement historical scenarios. The forward-looking scenarios are centered on potential macroeconomic, geopolitical or policy threats. The Scenario Management Oversight Committee, comprised of internal economists, front office and representatives of the risk management and finance function, discusses the backdrop to several forward-looking scenarios. The Scenario Management Oversight Committee reviews a wide range of scenarios and selects those that are most relevant to the analysis of key macroeconomic shocks. Some examples of forward-looking scenarios include US and European country recessions, a so-called emerging markets economic “hard landing” and the impact of monetary policy changes by central banks. Various scenarios are also used to mitigate concentration risks across the entire firm, such as the credit concentration scenario. During 2017, the Group focused on the following forward-looking scenarios:
Financial sector problems in the eurozone: the markets challenge the solvency of a systemically-important bank, which puts the overall European financial sector and selected eurozone countries under acute pressure. The European economy is forced into recession. Contagion from a European recession to the US and emerging market economies is assumed to be substantial.
An emerging markets “hard landing” scenario: there is a severe economic slowdown in China driven by a wave of defaults in the private non-financial and financial sectors. The problems in China negatively impact all large emerging markets through lower commodity prices, increased capital flight and reduced intra-regional foreign trade. There is also significant contagion to the economy in the US and in Europe.
Reframed stress scenarios for the UK and for the US: the reframed scenarios take into account the large increase in economic policy outlook uncertainties and the higher risk that inflation significantly accelerates, bringing about a disorderly rise in government bond yields. The UK stress scenario focuses on the risks which may materialize from the negotiations on leaving the EU. The US stress scenario focuses on the business risks which may materialize from more expansionary fiscal policies and from any shift toward more protectionist foreign trade practices.
The scenarios are reviewed and updated regularly as markets and business strategies evolve. In addition to these periodic scenario analyses, we also perform ad hoc scenario analyses, for example in respect of the French and the US elections, in connection with current events as a proactive risk management tool.
We use reverse stress testing scenarios to complement traditional stress testing and enhance our understanding of business model vulnerabilities. Reverse stress testing scenarios define a range of severe adverse outcomes and identify what could lead to these outcomes. The more severe scenarios include large counterparty failures, sudden shifts in market conditions, operational risk events, credit rating downgrades and the shutdown of wholesale funding markets.
Governance
Our stress testing framework is comprehensive and governed by a dedicated steering committee, the Scenario Steering Committee. The Scenario Steering Committee reviews the scenario methodology and approves changes to scenario frameworks. It is comprised of experts in stress methodologies representing various risk functions (market risk, liquidity risk, credit risk and operational risk) and also represents the Group divisions and major legal entities.
The Scenario Management Oversight Committee has received responsibility from CARMC for the Group-wide scenario calibration and analysis process, including the design of scenarios and the assessment and approval of scenario results. Stress tests are conducted on a regular basis and the results, trend information and supporting analysis are reported to the Board, senior management and regulators.
Market risk
Definition
Market risk is the risk of financial loss arising from movements in market risk factors. The movements in market risk factors that generate financial losses are considered to be adverse changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and other factors, such as market volatility and the correlation of market prices across asset classes. A typical transaction or position in financial instruments may be exposed to a number of different market risk factors. Our trading portfolios (trading book) and non-trading portfolios (banking book) have different sources of market risk.
Sources of market risk
Market risks arise from both our trading and non-trading business activities. The classification of assets and liabilities into trading book and banking book portfolios determines the approach for analyzing our market risk exposure. This classification reflects the business and risk management perspective with respect to trading intent, and may be different from the classification of these assets and liabilities for financial reporting purposes.
Trading book
Market risks from our trading book relate to our trading activities, primarily in Global Markets (as well as through a partnership with International Wealth Management and Swiss Universal Bank under Global Markets’ risk oversight), Asia Pacific and the Strategic Resolution Unit. Our trading book, as measured for risk management purposes, typically includes fair-valued positions only, primarily of the following balance sheet items: trading assets and trading liabilities, investment securities, other investments, other assets (mainly derivatives used for hedging, loans and real estate held-for-sale),
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short-term borrowings, long-term debt and other liabilities (mainly derivatives used for hedging).
We are active globally in the principal trading markets, using a wide range of trading and hedging products, including derivatives and structured products. Structured products are customized transactions often using combinations of derivatives and are executed to meet specific client or internal needs. As a result of our broad participation in products and markets, our trading strategies are correspondingly diverse and exposures are generally spread across a range of risks and locations.
The market risks associated with the entire portfolio, including the embedded derivative elements of our structured products, are actively monitored and managed on a portfolio basis as part of our overall trading book and are reflected in our >>>VaR measures.
Banking book
Market risks from our banking book primarily relate to asset and liability mismatch exposures, equity participations and investments in bonds and money market instruments. Our businesses and the treasury function have non-trading portfolios that carry market risks, mainly related to changes in interest rates but also to changes in foreign exchange rates, equity prices and, to a lesser extent, commodity prices. Our banking book, as measured for risk management purposes, includes a majority of the following balance sheet items: loans, central bank funds sold, securities purchased under resale agreements and securities borrowing transactions, cash and due from banks, brokerage receivables, due to banks, customer deposits, central bank funds purchased, securities sold under >>>repurchase agreements and securities lending transactions, brokerage payables, selected positions of short-term borrowings and long-term debt, hedging instruments and other assets and liabilities not included in the trading portfolio.
We assume interest rate risks in our banking book through lending and deposit-taking, money market and funding activities, and the deployment of our consolidated equity as well as other activities, including market making and trading activities involving banking book positions at the divisional level. Savings accounts and many other retail banking products have no contractual maturity date or direct market-linked interest rate and are risk-managed on a pooled basis using replication portfolios on behalf of our private banking, corporate and institutional businesses. The replication portfolios approximate the interest rate characteristics of the underlying products. This particular source of market risk is monitored on a daily basis.
The majority of non-trading foreign exchange risk is associated with our net investment in foreign branches, subsidiaries and affiliates denominated in currencies other than Swiss francs. This exposure is actively managed to hedge our capital and leverage ratios and is governed within our risk appetite framework.
Evaluation and management of market risk
We use market risk measurement and management methods capable of calculating comparable exposures across our many activities and employ focused tools that can model unique characteristics of certain instruments or portfolios. The tools are used for internal market risk management, internal market risk reporting and external disclosure purposes. Our principal market risk measurement for the trading book is VaR. In addition, our market risk exposures are reflected in scenario analysis, as included in our stress testing framework, position risk, as included in our economic risk capital, and sensitivity analysis. Each market risk measurement aims to estimate the potential loss that we can incur due to an adverse market movement with varying degrees of severity. VaR, scenario analysis, position risk and sensitivity analysis complement each other in our market risk assessment and are used to measure market risk at the Group level. Our risk management practices are regularly reviewed to ensure they remain appropriate.
The Group’s overall limit framework encompasses specific limits on a large number of different products and risk type concentrations at the Group, divisional, and legal entity levels. For example, there are controls over consolidated trading exposures, the mismatch of interest-earning assets and interest-bearing liabilities, private equity and seed capital. Risk limits are cascaded to lower organizational levels within the businesses. Risk limits are binding and generally set close to the planned risk profile to ensure that any meaningful increase in risk exposures is promptly escalated. The Group’s Organizational Guidelines and Regulations and the Group’s policies determine limit-setting authority, temporary modification of such limits in certain situations and required approval authority at the Group, Bank, divisional, business and legal entity levels for any instances that could cause such limits to be exceeded. For example, with respect to market risk limits, the divisional chief risk officers and certain other members of senior management have the authority to temporarily increase the divisional risk committee limits by an approved percentage for a specified maximum period. Market risk limit excesses are subject to a formal escalation procedure and the incremental risk associated with the excess must be approved by the responsible risk manager within market risk management, with escalation to senior management if certain thresholds are exceeded. The majority of the market risk limits are monitored on a daily basis. Limits for which the inherent calculation time is longer or for which the risk profile changes less often are monitored less frequently depending on the nature of the limit (weekly, monthly, or quarterly). For example, limits relating to illiquid investments are monitored on a monthly basis. The business is mandated to remediate market risk limit excesses within three business days upon notification. Remediation actions which take longer than three days are subject to an out-of-policy remediation process with senior management escalation. All limit excesses identified in 2017 were resolved in line with applicable policy requirements.
For the purpose of this disclosure, market risk in the trading book is mainly measured using VaR and market risk in our banking book is mainly measured using sensitivity analysis on related market factors.
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Value-at-risk
VaR is a risk measure which quantifies the potential loss on a given portfolio of financial instruments over a certain holding period and that is expected to occur at a certain confidence level. VaR can be calculated for all financial instruments with adequate price histories. Positions are aggregated by risk category rather than by product. For example, interest rate risk VaR captures potential losses driven by fluctuations of interest rates affecting a wide variety of interest rate products (such as interest rate and foreign exchange swaps or swaptions) as well as other products (such as foreign exchange, equity and commodity options) for which interest rate risk is not the primary market risk driver. The use of VaR allows the comparison of risk across different businesses. It also provides a means of aggregating and netting a variety of positions within a portfolio to reflect actual correlations between different assets, applying the concept of portfolio diversification benefit described above for position risk. Our VaR model is designed to take into account a comprehensive set of risk factors across all asset classes.
VaR is an important tool in risk management and is used for measuring quantifiable risks from our activities exposed to market risk on a daily basis. In addition, VaR is one of the main risk measures for limit monitoring, financial reporting, calculation of regulatory capital and regulatory >>>backtesting.
Our VaR model is predominantly based on historical simulation which derives plausible future trading losses from the analysis of historical movements in market risk factors. The model is responsive to changes in market conditions through the use of exponential weighting, which applies a greater weight to more recent events, and the use of expected shortfall equivalent measures to ensure all extreme adverse events are considered in the model. We use the same VaR model for risk management (including limit monitoring and financial reporting), regulatory capital calculation and regulatory backtesting purposes, although confidence level, holding period and the scope of financial instruments considered can be different.
For our >>>risk management VaR, we use a two-year historical dataset, a one-day holding period and a 98% confidence level. This means that we would expect daily mark-to-market trading losses to exceed the reported VaR not more than twice in 100 trading days over a multi-year observation period. This measure captures risks in trading books only and includes securitization positions. It is closely aligned to the way we consider the risks associated with our trading activities and to the way we measure regulatory VaR for capital purposes. For internal risk management and limit monitoring purposes we add certain banking book positions to the scope of the risk management VaR calculation.
For regulatory capital purposes, we operate under the >>>Basel III market risk framework which includes the following components for the calculation of regulatory capital: >>>regulatory VaR, >>>stressed VaR, >>>incremental risk charge (IRC), >>>risk not in VaR (RNIV), stressed RNIV and the impact of changes in a counterparty’s credit spreads (also known as >>>CVA). The regulatory VaR for capital purposes uses a two-year historical dataset, a ten-day holding period and a 99% confidence level. This measure captures all risks in the trading book and foreign exchange and commodity risks in the banking book and excludes securitization positions, as these are treated under the securitization approach for regulatory purposes. Stressed VaR replicates the regulatory VaR calculation on the Group’s current portfolio over a continuous one-year observation period that results in the highest VaR. The historical dataset starting in 2006 avoids the smoothing effect of the two-year dataset used for our risk management and regulatory VaR, allows for the capturing of a longer history of potential loss events and helps reduce the pro-cyclicality of the minimum capital requirements for market risk. IRC is a regulatory capital charge for default and migration risk on positions in the trading books. RNIV captures a variety of risks, such as certain basis risks, higher order risks and cross risks between asset classes, not currently captured by the VaR model for example due to lack of sufficient or accurate data.
Backtesting VaR uses a two-year historical dataset, a one-day holding period and a 99% confidence level. This measure captures risks in the trading book and includes securitization positions. Backtesting VaR is not a component used for the calculation of regulatory capital but may have an impact through the regulatory capital multiplier if the number of backtesting exceptions exceeds regulatory thresholds.
Assumptions used in our market risk measurement methods for regulatory capital purposes are compliant with the standards published by the BCBS and other international standards for market risk management. We have approval from >>>FINMA, as well as from other regulators for our subsidiaries, to use our regulatory VaR model in the calculation of market risk capital requirements. Ongoing enhancements to our VaR methodology are subject to regulatory approval or notification depending on their materiality, and the model is subject to regular reviews by regulators and the Group’s independent model validation function.
Information required under Pillar 3 of the Basel framework related to risk is available on our website at credit-suisse.com/regulatorydisclosures.
> Refer to “Other requirements” in Capital management – Swiss requirements for further information on the use of our regulatory VaR model in the calculation of trading book market risk capital requirements.
VaR assumptions and limitations
The VaR model uses assumptions and estimates that we believe are reasonable, but VaR only quantifies the potential loss on a portfolio based on historical market conditions. The main assumptions and limitations of VaR as a risk measure are:
VaR relies on historical data to estimate future changes in market conditions. Historical scenarios may not capture all potential future outcomes, particularly where there are significant changes in market conditions, such as increases in volatilities and changes in the correlation of market prices across asset classes;
VaR provides an estimate of losses at a specified confidence level; the use of an expected shortfall equivalent measure
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allows all extreme adverse events to be considered in the model;
VaR is based on either a one-day (for internal risk management, backtesting and disclosure purposes) or a ten-day (for regulatory capital purposes) holding period. This assumes that risks can be either sold or hedged over the holding period, which may not be possible for all types of exposure, particularly during periods of market illiquidity or turbulence; it also assumes that risks will remain in existence over the entire holding period; and
VaR is calculated using positions held at the end of each business day and does not include intra-day changes in exposures.
To mitigate some of the VaR limitations and estimate losses associated with unusually severe market movements, we use other metrics designed for risk management purposes and described above, including stressed VaR, position risk and scenario analysis.
For some risk types there can be insufficient historical data for a calculation within the Group’s VaR model. This often happens because underlying instruments may have traded only for a limited time. Where we do not have sufficient market data, either market data proxies or extreme parameter moves for these risk types are used. Market data proxies are selected to be as close to the underlying instrument as possible. Where neither a suitable market dataset nor a close proxy is available, extreme parameter moves are used.
We use a risk factor identification process to ensure that risks are identified and measured correctly. There are two parts to this process. First, the market data dependency approach systematically determines the risk requirements based on data inputs used by front-office pricing models and compares this with the risk types that are captured by the Group’s VaR model and the RNIV framework. Second, the product-based approach is a qualitative analysis of product types undertaken in order to identify the risk types that those product types would be exposed to. A comparison is again made with the risk types that are captured in the VaR and RNIV frameworks. This process identifies risks that are not yet captured in the VaR model or the RNIV framework. A plan for including these risks in one or the other framework can then be devised. RNIV is captured in our economic risk capital framework.
VaR backtesting
Various techniques are used to assess the accuracy of the VaR methodology used for risk management and regulatory purposes and to assess if our regulatory capital is sufficient to absorb actual losses. Our VaR backtesting process is used to assess the accuracy and performance of our regulatory VaR model and to encourage developments to our VaR model. Backtesting involves comparing the results produced from the VaR model with the daily trading revenues. Actual daily trading revenues for the purpose of this backtesting are defined as gains and losses arising from our trading activities, excluding non-market-driven provisions, the net cost of funding, profit and loss transfers between businesses and any gains and losses resulting from valuation adjustments associated with counterparty and own credit exposures. A backtesting exception occurs when a trading loss exceeds the daily VaR estimate. Statistically, at the overall Group level, given the 99% confidence level and the one-day holding period used in the regulatory VaR model for backtesting purposes, we would expect daily trading losses to exceed the calculated daily VaR not more than once in 100 trading days over a multi-year observation period.
For capital purposes, FINMA, in line with BIS requirements, uses a multiplier to impose an increase in market risk capital for every regulatory VaR backtesting exception over four in the prior rolling 12-month period calculated using a subset of actual daily trading revenues, also referred to as “hypothetical” trading revenues under the Basel framework. These hypothetical trading revenues are defined on a consistent basis with the regulatory VaR model and thereby exclude non-market elements such as fees, commissions, gains and losses from intra-day trading, as well as cancellations and terminations.
VaR governance
Like other sophisticated models, our VaR model is subject to internal governance including validation by a team of modeling experts independent from the model developers. Validation includes identifying and testing the model’s assumptions and limitations, investigating its performance through historical and potential future stress events, and testing that the live implementation of the model behaves as intended. We employ a range of different control processes to help ensure that the models used for market risk remain appropriate over time. As part of these control processes, a dedicated Market Risk Quantitative Steering Committee meets regularly to review model performance and approve any new or amended models.
Sensitivity analysis
Market risks associated with our banking book positions are measured, monitored and limited using several tools, including economic risk capital, scenario analysis, sensitivity analysis and VaR. For the purpose of this disclosure, the aggregated market risks associated with our banking book positions are measured using sensitivity analysis. Sensitivity analysis is a technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. The sensitivity analysis for the banking book positions measures the potential change in economic value resulting from specified hypothetical shocks to market factors (e.g., interest rates). It is not a measure of the potential impact on reported earnings in the current period, since the banking book positions generally are not marked to market through the income statement.
Credit and debit valuation adjustments
>>>Credit valuation adjustments are modifications to the measurement of derivative assets used to reflect the credit risk of counterparties. >>>Debit valuation adjustments are modifications to the measurement of derivative liabilities used to reflect an entity’s own credit risk. VaR excludes the impact of changes in both counterparty and our own credit spreads on derivative products.
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Credit risk
Definition
Credit risk is the risk of financial loss arising as a result of a borrower or counterparty failing to meet its financial obligations or as a result of deterioration in the credit quality of the borrower or counterparty. In the event of a counterparty default, a bank generally incurs a loss equal to the amount owed by the debtor, less any recoveries from foreclosure, liquidation of collateral, or the restructuring of the debtor company. A change in the credit quality of a counterparty has an impact on the valuation of assets measured at >>>fair value, with valuation changes recorded in the consolidated statements of operations.
Sources of credit risk
The majority of our credit risk arises from our activities in retail and private banking as well as with corporate and institutional clients in the five divisions Swiss Universal Bank, International Wealth Management, Asia Pacific, Global Markets and Investment Banking & Capital Markets, and the residual activities in the Strategic Resolution Unit. Credit risk arises from lending products, irrevocable loan commitments, credit guarantees and letters of credit, and results from counterparty exposure arising from >>>derivatives, foreign exchange and other transactions.
Evaluation and management of credit risk
Effective credit risk management is a structured process to assess, measure, monitor and manage risk on a consistent basis. This requires careful consideration of proposed extensions of credit, the setting of specific limits, monitoring during the life of the exposure, active use of credit mitigation tools and a disciplined approach to recognizing credit impairment.
Our credit risk management framework applies to all of the Group’s credit exposure and includes the following core components:
individual counterparty rating systems;
transaction rating systems;
a counterparty credit limit system;
country concentration limits;
industry concentration limits;
product limits;
risk-based pricing methodologies;
active credit portfolio management; and
a credit risk provisioning methodology.
Counterparty and transaction rating systems
We employ a set of credit ratings for the purpose of internally rating counterparties to whom we are exposed to credit risk as the contractual party, including with respect to loans, loan commitments, securities financings or >>>OTC derivative contracts. Credit ratings are intended to reflect the risk of default of each counterparty. Ratings are assigned based on internally developed rating models and processes, which are subject to governance and internally independent validation procedures.
Our internal ratings may differ from a counterparty’s external ratings, if one is available. Internal ratings are regularly reviewed depending on exposure type, client segment, collateral or event-driven developments. For the calculation of internal risk estimates (e.g., an estimate of expected loss in the event of a counterparty default) and risk-weighted assets, a >>>probability of default (PD), >>>loss given default (LGD) and >>>exposure at default (EAD) are assigned to each facility. These three parameters are primarily derived from internally developed statistical models that have been backtested against internal experience, validated by a function independent of the model owners on a regular basis and approved by our main regulators for application in the regulatory capital calculation in the >>>A-IRB approach under the Basel framework. The A-IRB models are subject to a comprehensive backtesting process to demonstrate that model performance can be confirmed annually during the entire lifecycle of each model. Findings from backtesting serve as a key input for any future model enhancements.
For the majority of clients and counterparties, internal ratings or PDs are calculated directly by proprietary statistical rating models. These models are based on internally compiled data comprising both quantitative factors (e.g., primarily balance sheet information for corporates and loan-to-value (LTV) ratio and the borrower’s income level for mortgage lending) and qualitative factors (e.g., credit histories from credit reporting bureaus) concentrating on economic trends and financial fundamentals. For statistical rating models calculating a PD, an equivalent rating based on the Standard & Poor’s rating scale is assigned based on the PD band associated with each rating, which is used for disclosure purposes.
For the remaining facilities where statistical rating models are not used, a PD is determined through an internal rating assigned on the basis of a structured expert approach. Credit officers make use of peer analyses, industry comparisons, external ratings and research as well as the judgment of credit experts for the purpose of their analysis. The PD for each internal rating is calibrated to historical default experience using internal data and external data from Standard & Poor’s.
LGD represents the expected loss on a transaction should a default occur, and our LGD models consider the structure, collateral, seniority of the claim, counterparty industry, recovery costs and downturn conditions.
EAD represents the expected exposure in the event of a default. Off-balance sheet exposures are converted into expected EADs through the application of a credit conversion factor which is modeled using internal data.
We use internal rating methodologies consistently for the purposes of approval, establishment and monitoring of credit limits and credit portfolio management, credit policy, management reporting, risk-adjusted performance measurement, economic risk capital measurement and allocation and financial accounting. This approach also allows us to price transactions involving credit risk more accurately, based on risk/return estimates.
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Our internal rating grades are mapped to the Group’s internal masterscale. The PDs assigned to each rating grade are reflected in the following table.
Credit Suisse counterparty ratings
Ratings PD bands (%) Definition S&P Fitch Moody's Details
AAA 0.000–0.021
Substantially
risk free
AAA
AAA
Aaa
Extremely low risk, very high long-term
stability, still solvent under extreme conditions
AA+
AA
AA-
0.021–0.027
0.027–0.034
0.034–0.044
Minimal risk

AA+
AA
AA-
AA+
AA
AA-
Aa1
Aa2
Aa3
Very low risk, long-term stability, repayment
sources sufficient under lasting adverse
conditions, extremely high medium-term stability
A+
A
A-
0.044–0.056
0.056–0.068
0.068–0.097
Modest risk


A+
A
A-
A+
A
A-
A1
A2
A3
Low risk, short- and medium-term stability, small adverse
developments can be absorbed long term, short- and
medium-term solvency preserved in the event of serious
difficulties
BBB+
BBB
BBB-
0.097–0.167
0.167–0.285
0.285–0.487
Average risk

BBB+
BBB
BBB-
BBB+
BBB
BBB-
Baa1
Baa2
Baa3
Medium to low risk, high short-term stability, adequate
substance for medium-term survival, very stable short
term
BB+
BB
BB-
0.487–0.839
0.839–1.442
1.442–2.478
Acceptable risk


BB+
BB
BB-
BB+
BB
BB-
Ba1
Ba2
Ba3
Medium risk, only short-term stability, only capable of
absorbing minor adverse developments in the medium term,
stable in the short term, no increased credit risks expected
within the year
B+
B
B-
2.478–4.259
4.259–7.311
7.311–12.550
High risk

B+
B
B-
B+
B
B-
B1
B2
B3
Increasing risk, limited capability to absorb
further unexpected negative developments
CCC+
CCC
CCC-
CC
12.550–21.543
21.543–100.00
21.543–100.00
21.543–100.00
Very high
risk

CCC+
CCC
CCC-
CC
CCC+
CCC
CCC-
CC
Caa1
Caa2
Caa3
Ca
High risk, very limited capability to absorb
further unexpected negative developments

C
D1
D2
100
Risk of default
has materialized
Imminent or
actual loss

C
D

C
D

C


Substantial credit risk has materialized, i.e., counterparty
is distressed and/or non-performing. Adequate specific
provisions must be made as further adverse developments
will result directly in credit losses.
Transactions rated C are potential problem loans; those rated D1 are non-performing assets and those rated D2 are non-interest earning.
Credit risk and country concentration limits overview
Credit limits are used to manage individual counterparty credit risk. A system of limits is also established to address concentration risk in the portfolio, including a comprehensive set of country limits and limits for certain products and industries. In addition, credit risk concentration is regularly supervised by credit and risk management committees, taking current market conditions and trend analysis into consideration. A rigorous credit quality review process provides an early identification of possible changes in the creditworthiness of clients and includes regular asset and collateral quality reviews, business and financial statement analysis, and relevant economic and industry studies. Regularly updated watch lists and review meetings are used for the identification of counterparties that could be subject to adverse changes in creditworthiness.
Active credit portfolio management
Our regular review of the credit quality of clients and counterparties does not depend on the accounting treatment of the asset or commitment. We regularly review the appropriateness of allowances for credit losses. Changes in the credit quality of counterparties of loans held at fair value are reflected in valuation changes recorded directly in revenues, and therefore are not part of the impaired loans balance. Impaired transactions are further classified as potential problem exposure, non-performing exposure, non-interest-earning exposure or restructured exposure, and the exposures are generally managed within credit recovery units. The credit portfolio & provisions review committee regularly determines the adequacy of allowances.
Credit risk provisioning methodology
We maintain specific valuation allowances on loans valued at amortized cost, which we consider a reasonable estimate of losses identified in the existing credit portfolio. We provide for loan losses based on a regular and detailed analysis of all counterparties, taking collateral value into consideration. If uncertainty exists as to the repayment of either principal or interest, a specific valuation allowance is either created or adjusted accordingly. The specific allowance for loan losses is revalued by Group credit risk management at least annually or more frequently depending on the risk profile of the borrower or credit-relevant events.
In accordance with US GAAP, an inherent loss allowance is estimated for all loans not specifically identified as impaired and that, on a portfolio basis, are considered to contain inherent losses. The method for determining the inherent loss in the lending portfolios of Global Markets and Investment Banking & Capital Markets is based on a model using long-term industry-wide historical default and recovery data taking into account the credit rating and industry of each counterparty. A separate component of the calculation reflects the current market conditions in the allowance for loan losses. Depending on the nature of the exposures, this method may
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also be applied for the lending portfolios in Swiss Universal Bank, International Wealth Management, Asia Pacific and the Strategic Resolution Unit. For all other exposures, inherent losses in the lending portfolios of these divisions are determined based on current internal risk ratings, collateral and exposure structure, applying historical default and loss experience in the ratings and loss parameters. Qualitative adjustments to reflect current market conditions or any other factors not captured by the model are approved by management and reflected in the allowance for loan losses. A provision for inherent losses on off-balance sheet lending-related exposure, such as contingent liabilities and irrevocable commitments, is also determined, using a methodology similar to that used for the loan portfolio.
Risk mitigation
We actively manage our credit exposure utilizing credit hedges, collateral and guarantees. Collateral is security in the form of an asset, such as cash and marketable securities, which serves to mitigate the inherent risk of credit loss and to improve recoveries in the event of a default.
Collateral valuation and management
The policies and processes for collateral valuation and management are driven by legal documentation that is agreed with our counterparties and an internally independent collateral management function.
For portfolios collateralized by marketable securities, collateral is valued daily, except as agreed otherwise in contracts or other legal documentation. The mark-to-market prices used for valuing collateral are a combination of Group-internal and market prices sourced from trading platforms and service providers, as appropriate. The management of collateral is standardized and centralized to ensure complete coverage of traded products.
For mortgage lending portfolios, real estate property is valued at the time of credit approval and periodically thereafter, according to our internal policies and controls, depending on the type of loan (e.g., residential or commercial loan) and LTV ratio.
Primary types of collateral
The primary types of collateral typically depend on the type of credit transaction.
Collateral securing foreign exchange transactions and OTC trading activities primarily includes cash and US treasury instruments, >>>G10 government securities and corporate bonds.
Collateral securing loan transactions primarily includes financial collateral pledged against loans collateralized by securities of clients (primarily cash and marketable securities), real estate property for mortgages, mainly residential, but also multi-family buildings, offices and commercial properties, and other types of lending collateral such as accounts receivable, inventory, plant and equipment.
Credit risk governance
Credit risk is managed and controlled by Group credit risk management, an independent function within the risk management area and governed by a framework of policies and procedures. Key processes are reviewed through supervisory checks on a regular basis by management, including the functional area head.
In order to strengthen the risk governance on credit exposures, we established the Credit Risk Review function. Credit Risk Review is a review function independent from credit risk management with a direct reporting line to the Board’s Risk Committee, administratively reporting to the Group CRO. Its objective is to provide regular assessments of the Group’s credit exposures and credit risk management processes and practices.
Credit Risk Review is responsible for performing cycled and continuous credit monitoring activities. These include (i) identifying credit exposures with potential weaknesses, (ii) assessing the accuracy and consistency of Group counterparty and transaction ratings, (iii) assessing compliance with internal and regulatory requirements for credit risk management, (iv) ensuring compliance with regulatory and supervisory statements where Credit Risk Review is designated as a review function, and (v) reporting trends and material review recommendations to the Risk Committee and senior management.
Model risk
Like most other financial firms, we rely on advanced quantitative models across all business lines and legal entities to support a broad range of applications, including estimating various forms of financial risk, valuation of securities, stress testing, assessing capital adequacy, providing wealth management services to clients and to meet various reporting requirements.
Definition and sources of model risk
Model risk is the risk of adverse consequences from decisions made based on model results that may be incorrect, misinterpreted or used inappropriately. All quantitative models are imperfect approximations that are subject to varying degrees of uncertainty in their output depending on, among other factors, the model’s complexity and its intended application. As a result, modeling errors are unavoidable and can result in inappropriate business decisions, financial loss, regulatory and reputational risk and incorrect or inadequate capital reporting. Model errors, intrinsic uncertainty and inappropriate use are the primary contributors to aggregate, Group-wide model risk.
Evaluation and management of model risk
Through our global model risk management and governance framework we seek to identify, measure and mitigate all significant risks arising from the use of models embedded within our global model ecosystem. Model risks can then be mitigated through a well-designed and robust model risk management framework, encompassing both model governance policies and procedures in combination with model validation best practices.
Robust model risk management is crucial to ensuring that the Group’s model risk is assessed and managed in order to remain within a defined model risk appetite by focusing on identification, measurement and resolution of model limitations. Under the Group’s model governance policies, the model risk management function
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validates and approves all new models and material changes to existing models before their implementation, in compliance with standards established by regulators. Developers, owners and model supervisors are responsible for identifying, developing, implementing and testing their models. Model supervisors are responsible for ensuring that models are submitted to model risk management for validation and approval and entered into the Group’s model inventory. The model risk management function is structured to be independent from model users, developers and supervisors.
A rigorous validation practice should ensure that models are conceptually sound, correctly implemented by the model owners and developers and functioning as intended. To accomplish this, model risk management deploys a team of objective, well-informed subject matter experts (the model validators) who have the necessary skills and knowledge to pose effective challenge to all classes of models as a guiding principle for mitigating model risk.
Under the Group model governance policies, all models are risk-tiered according to an internal scoring method that combines complexity and materiality to assign models into one of three risk ratings: high, medium and low. The rating tiers are used in turn to prioritize models and allocate resources for initial validations, annual reviews and ongoing monitoring.
Governance is an important part of model risk management. Various model review committees within model risk management prepare aggregate model risk reports that serve to identify concentrations of model risk and to make recommendations for remediation. These reports are submitted regularly to a dedicated model risk governance committee which escalates issues as necessary to the Group’s Model Risk Steering Committee and the Board’s Risk Committee.
Model risk management reviews models annually, reports model limitations to key stakeholders, tracks remediation plans for validation findings and reports on model risk tolerance and metrics to senior management. Model risk management oversees controls to support a complete and accurate Group-wide model inventory and performs annual attestations affirming the completeness and accuracy of its model inventory.
Operational and compliance risk
Similar to all financial institutions, the Group is required to have an adequate and effective risk and control framework in place to manage operational and compliance risks. Building on established, independent operational and compliance risk frameworks, as of 2017, the ERCF further integrates these frameworks and harmonizes the related processes in the Group recognizing the commonality and prevalence of operational and compliance risk in the non-financial risk domain. The ERCF establishes a consistent, unified approach to non-financial risk and control identification and assessment and sets common minimum standards across the Group for each key component with regard to processes and the policy framework.
Operational risk
Operational risk is the risk of financial loss arising from inadequate or failed internal processes, people or systems, or from external events. Operational risk does not include strategic and reputational risks. However, some operational risks can lead to reputational issues and as such operational and reputational risks may be closely linked.
Operational risk is inherent in most aspects of our business, including the systems and processes that support our activities. It comprises a large number of disparate risks that can manifest in a variety of ways. Particularly relevant examples of operational risk include the risk of fraudulent or unauthorized transactions, damage to physical assets, trade processing errors, business disruption and cyber attacks. Operational risk can arise from human error, inappropriate conduct, failures in systems, processes and controls, deliberate attack or natural and man-made disasters.
Compliance and regulatory risk
Compliance and regulatory risk is the risk from the failure to comply with laws, regulations, rules or market standards that may have a negative effect on our franchise and clients we serve. It includes the risk that changes in laws, regulations, rules or market standards may limit our activities and have a negative effect on our business or our ability to implement strategic initiatives, or can result in an increase in operating costs for the business or make our products and services more expensive for clients. Examples of sources of compliance risks include cross-border activities, the risk of money laundering, improper handling of confidential information, conflicts of interest, improper gifts and entertainment and failure in duties to clients.
The enterprise risk and control framework
To effectively manage operational and compliance risks, the Group-wide ERCF was implemented focusing on the early identification, recording, assessment, monitoring, prevention and mitigation of these risks, as well as timely and meaningful management reporting. We introduced a revised, formal, well-defined operational risk framework in 2013, which improved the integration of previously separate operational risk processes, providing a more coherent and systematic approach to managing all aspects of the operational risk landscape. In 2016, we established the ERCF which integrated this operational risk framework and all of its components with the compliance risk components to further harmonize our approach to non-financial risk. As an initial step, the assessment processes for operational and compliance risks in 2016 were closely coordinated, resulting in an enhanced risk and control self-assessment (RCSA) that covers both risk types in a more consistent manner. Also, standardized Group-wide role descriptions were introduced that define the responsibilities for identifying, assessing, reporting and managing risks across the organization. In 2017, continued progress was made in rolling out a systematic key control activities framework as part of the ERCF. This framework applies consistent standards and approaches to the identification, documentation and assessment of key controls across the Group.
Continuous enhancement of our non-financial risk management practices across the three lines of defense is expected in 2018.
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The ERCF provides a structured approach to managing operational and compliance risks. It seeks to apply consistent standards and techniques for evaluating risks across the Group while providing individual businesses with sufficient flexibility to tailor specific components to their own needs, as long as they meet Group-wide minimum standards. The main components of the ERCF are described below:
Governance and policies
The ERCF relies on effective governance processes that establish clear roles and responsibilities for managing operational and compliance risk and define appropriate escalation processes for outcomes that are outside expected levels. We utilize a comprehensive set of policies and procedures that set out how employees are expected to conduct their activities.
Each business area takes responsibility for its operational and compliance risks and the provision of adequate resources and procedures for the management of those risks. Businesses are supported by designated second line of defense operational risk and compliance teams that are responsible for independent risk oversight, methodologies, tools and reporting within their areas as well as working with management on any operational and compliance risk issues that arise. Businesses and relevant control functions meet regularly to discuss operational and compliance risk issues and identify required actions to mitigate risks.
The operational risk management and compliance functions are jointly responsible for setting minimum standards with policies and procedures for operational and compliance risks. This includes ensuring the cohesiveness of policies, tools and practices throughout the Group particularly with regard to the identification, evaluation, mitigation, monitoring and reporting of these risks.
Operational and compliance risk exposures, metrics, issues and remediation efforts are discussed at the quarterly CARMC meetings of the internal control system cycle and at divisional operational risk and compliance management committees, which have senior representatives from all relevant functions.
ERCF risk appetite
ERCF risk appetite determines our approach to risk-taking and articulates the motivations for taking, accepting or avoiding certain types of risks or exposures. Senior management expresses their operational and compliance risk appetite in terms of quantitative tolerance levels that apply to operational risk incidents (which may also arise due to compliance issues) and qualitative statements covering outcomes that should be avoided. Senior management also defines market area and client risk appetites. They define their risk appetite with the relevant risk management committees in agreement with the operational risk management and compliance functions.
ERCF risk taxonomy
The ERCF risk taxonomy represents a unified and standardized catalogue of inherent non-financial risk definitions across operational and compliance risk. It provides a consistent approach to the identification and classification of these risks across the Group.
ERCF key controls
The ERCF key controls are documented and assessed under a common controls assessment framework, ensuring that key controls are identified, documented, executed and assessed consistently and comprehensively, with a focus on the Group’s most significant risks and associated key controls. We utilize a comprehensive set of internal controls that are designed to ensure that our activities follow agreed policies and that processes operate as intended. Key controls are subject to independent testing to evaluate their effectiveness. The results of these tests are considered by other ERCF components, such as in the RCSA process.
ERCF metrics
ERCF metrics are risk and control indicators that are used to monitor identified operational risks, compliance risks and controls over
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time. A key risk indicator is defined as a metric used to provide early warning of increasing risk exposure and can be backward and forward looking in nature. A key control indicator is defined as a metric that assesses and monitors the effectiveness of one or several controls. Minimum standards apply to the identification, selection, risk mapping approval, monitoring and escalation of metrics that are linked to ERCF risk appetite and top ERCF risks which are reported to the CARMC internal controls system cycle and divisional, functional or legal entity risk management committees. Key risk and control indicators may also be used as inputs into scenario analysis and capital allocation.
Incidents
In the incidents process, we systematically collect, analyze and report data on operational and compliance risk incidents to ensure that we understand the reasons why they occurred and how controls can be improved to reduce the risk of future incidents. We focus both on incidents that result in economic losses and on events that provide information on potential control gaps, even if no losses occurred. We also collect and utilize available data on incidents at relevant peer firms to identify potential risks that may be relevant in the future, even if they have not impacted the Group. Incident data is also a key input for our operational risk capital models and other analytics.
Enterprise risk and control assessment
Enterprise risk and control assessment consolidates the assessment, review and challenge activities for operational, compliance and legal risks across all divisions and functions into a single framework and consists of the elements RCSA, compliance risk assessment and any associated legal risk assessment:
Risk and control self-assessments are comprehensive, bottom-up assessments of the key operational and compliance risks in each business and control function. The process of preparing RCSAs comprises a self-assessment of the relevant business line or functional risk profile based on the Group-wide ERCF risk taxonomy classifying risks under a standardized approach. It covers an assessment of the inherent risks of each business and control function, provides an evaluation of the effectiveness of the controls in place to mitigate these risks, determines the residual risk ratings and requires a decision to either accept or remediate any residual risks. In the case of remediation, mitigating actions are defined and approved by management. While these are self-assessments, they are subject to independent review and challenge by relevant risk management functions to ensure that they have been conducted appropriately. RCSAs utilize other components of the ERCF, such as ERCF metrics and incidents, and they generate outputs that are used to manage and monitor risks.
Compliance risk assessment is the Group’s formal, proactive dynamic process which provides the framework for the independent second line compliance function to formally assess the overall compliance and regulatory risks associated with a particular business unit or business activity. The results are used to identify potential or actual areas of risk in the business which also assists compliance management in planning the compliance objectives to mitigate risks identified. This risk assessment consists of an analysis of the inherent risk and control effectiveness aligned to the compliance risk categories and is performed at the level of a risk unit. Quantitative metrics are leveraged wherever possible, supplementing the qualitative assessments. Upon completion of the assessment, overall risk unit ratings are established through a compliance divisional and Group-wide review and mitigating actions are identified as appropriate. The results of the compliance risk assessment are presented to the Board and the Group’s Audit Committee.
Legal risk assessment is a sub-assessment of the Group’s RCSA with the objective to conduct an enhanced assessment of legal risks across the Group. The legal risk assessment is based on the principles defined for the RCSA program. The General Counsel function reviews the results of the legal risk assessments performed by business units across the Group. The legal risk assessment complements the RCSA process in providing an independent review and challenge process by the second line of defense.
Top ERCF risks
Top ERCF risks represent the most significant risks requiring senior management attention across the Group and are generated through a combination of top-down assessment by senior management and a bottom-up process collating the main themes arising from the RCSA and compliance risk assessment processes. Where appropriate, remediation plans are put in place with ownership by senior management.
Issues and action management
Issues and action management encompasses a structured approach to responding to operational and compliance risk incidents and breaches of ERCF quantitative and qualitative risk appetite or metrics, as well as continuous monitoring of remediation actions against identified control issues. It is applicable to business divisions and corporate functions globally. Further, the compliance and regulatory responses function consolidates and monitors Group-wide issues and actions including audit, regulatory, self-identified and second line identified issues and actions.
The operational risk incident management component includes a defined process for identifying, categorizing, investigating, escalating and remediating incidents. These reviews seek to assess the causes of control weaknesses, establish appropriate remediation actions and ascertain whether events have implications for other businesses or could have potential impact in the future. They can result in recommendations to impose restrictions on businesses while operational risk management processes and controls are improved. The breach component provides a methodology for evaluating breaches of quantitative and qualitative ERCF risk appetite statements. Its goal is to provide senior management with the information needed to make decisions on how to best remediate issues that fall outside agreed risk appetite levels.
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ERCF change assessments
Where appropriate, major strategic change programs may also undergo independent change assessments by the operational risk function, leveraging the ERCF assessment framework to determine the potential impact of the change activity on the overall operational risk profile of the impacted area both during and after implementation.
ERCF scenario analysis, stress testing, capital modelling and reverse stress testing
The ERCF scenario analysis is focused on operational and compliance risks and is used to identify and measure exposure to a range of adverse events, such as unauthorized trading, transaction processing errors and compliance issues. These scenarios help businesses assess the suitability of controls in light of potential losses, and they are also an input to the internal models used by the Group to calculate stressed loss projections as well as economic and regulatory capital.
More specifically, the ERCF stress testing is a sub-component of the Group-wide stress testing framework and it focuses on the evaluation of potential operational risk impacts of macro-economic scenarios on net income and regulatory capital across a number of operational risk categories. The macro-economic scenarios are provided as part of regulatory processes, such as CCAR and loss potential analysis, or internal processes, such as financial planning and risk appetite setting.
Capital modelling is based on an advanced measurement approach (AMA) and utilizes both historical data as well as scenario analysis to estimate capital requirements for the Group, as further described below.
Finally, ERCF reverse stress testing is an additional complementary tool that introduces a more forward-looking element into the RCSA process. It assumes that a business has suffered an adverse outcome, such as a large operational risk loss, and requires consideration of the events that could have led to the result. As such, it allows for the consideration of risks beyond normal business expectations and it challenges common assumptions about the risk profile, the emergence of new risks or interactions between existing risks, as well as the performance of expected control and mitigation strategies.
Operational risk regulatory capital measurement
We have used an internal model to calculate the regulatory capital requirement for operational risk under the >>>AMA approach since 2008. This model was replaced with an enhanced AMA internal model in 2014, which has been approved by >>>FINMA.
The model is based on a loss distribution approach that uses historical data on internal and relevant external losses of peers to generate frequency and severity distributions for a range of potential operational risk loss scenarios, such as an unauthorized trading incident or a material business disruption. Business experts and senior management review, and may adjust, the parameters of these scenarios to take account of business environment and internal control factors, such as RCSA results and risk and control indicators, to provide a forward-looking assessment of each scenario. Insurance mitigation is included in the regulatory capital requirement for operational risk where appropriate, by considering the level of insurance coverage for each scenario and incorporating >>>haircuts as appropriate. The internal model then uses the adjusted parameters to generate an overall loss distribution for the Group over a one-year time horizon. The AMA capital requirement represents the 99.9th percentile of this overall loss distribution. We use a risk-sensitive approach to allocating the AMA capital requirement to businesses that is designed to be forward-looking and incentivize appropriate risk management behaviors.
In 2017, we updated the model structure to further align with the Group’s divisions and expanded the scenario analysis program to address more specific divisional risk assessments. We also updated our loss history and implemented a revised methodology for the measurement of our risk-weighted assets relating to operational risk, primarily in respect of our RMBS settlements. As a consequence of the application of this revised methodology to the RMBS settlements, risk-weighted assets relating to operational risk increased significantly during the third and fourth quarters of 2017.
Transfer of operational risk to third-party insurance companies
In addition to managing and mitigating operational risks under the ERCF through business- and risk-related processes and organization, we also transfer the risk of potential loss from certain operational risks to third-party insurance companies in certain instances.
Conduct risk
Conduct risk is the risk that improper behavior or judgment by our employees may result in a negative financial, non-financial or reputational impact to our clients, employees or the Group or negatively impact the integrity of the financial markets. Conduct risk may arise from a wide variety of activities and types of behaviors. A Group-wide definition of expectations relating to the conduct of our employees helps to ensure that we have a common understanding of and are consistently managing, minimizing and mitigating our conduct risk and further promotes standards of responsible conduct and ethics in our employees. Managing conduct risk includes consideration of the risks generated by each business and the strength of the associated mitigating controls. Conduct risk is also assessed by reviewing and learning from past incidents within the Group and at other firms in the financial services sector. Compliance oversees conduct risk for the Group.
As noted, establishment of a strong risk culture is fundamental to the management of conduct risk with the Group’s Code of Conduct providing a clear statement on our conduct standards and ethical values, supported by our six conduct and ethics standards.
> Refer to “Risk culture” in Risk management oversight and to “Corporate governance framework” in IV – Corporate Governance – Corporate Governance overview for further information on our Code of Conduct.
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Technology risk
Technology risk deserves particular attention given the complex technological landscape that covers our business model. Ensuring that confidentiality, integrity and availability of information assets are protected is critical to our operations.
Technology risk is the risk that technology-related failures, such as service outages or information security incidents, may disrupt business. Technology risk is inherent not only in our IT assets, but also in the people and processes that interact with them including through dependency on third-party suppliers and the worldwide telecommunications infrastructure. We seek to ensure that the data used to support key business processes and reporting is secure, complete, accurate, available, timely and meets appropriate quality and integrity standards. We require our critical IT systems to be identified, secure, resilient and available and support our ongoing operations, decision-making, communications and reporting. Our systems must also have the capability, capacity, scalability and adaptability to meet current and future business objectives, the needs of our customers and regulatory and legal expectations. Failure to meet these standards and requirements may result in adverse events that could subject us to reputational damage, fines, litigation, regulatory sanctions, financial losses or loss of market share.
Cyber risk, which is part of technology risk, is the risk that we will be compromised as a result of cyber attacks, security breaches, unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other events that could have an adverse security impact. Any such event could subject us to litigation or cause us to suffer a financial loss, a disruption of our businesses, liability to our clients, regulatory intervention or reputational damage. We could also be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures.
Technology risks are managed through our technology risk management program, business continuity management plan and business contingency and resiliency plans and feature in our overall operational risk assessment.
Legal risk
Legal risk is the risk of loss or imposition of damages, fines, penalties or other liability or any other material adverse impact arising from circumstances including the failure to comply with legal obligations, whether contractual, statutory or otherwise, changes in enforcement practices, the making of a legal challenge or claim against us, our inability to enforce legal rights or the failure to take measures to protect our rights.
Reputational risk
Reputational risk is the risk that negative perception by our stakeholders, including clients, counterparties, employees, shareholders, regulators and the general public, may adversely impact client acquisition and damage our business relationships with clients and counterparties, affecting staff morale and reducing access to funding sources.
Reputational risk may arise from a variety of sources, including, but not limited to, the nature or purpose of a proposed transaction or service, the identity or activity of a potential client, the regulatory or political climate in which the business will be transacted, and the potentially controversial environmental or social impacts of a transaction or significant public attention surrounding the transaction itself. The risk may also arise from reputational damage in the aftermath of an operational risk incident, such as cyber crime or the failure by employees to meet expected conduct and ethical standards.
Reputational risk is included in the Group’s risk appetite framework to ensure that risk-taking is aligned with the approved risk appetite. We highly value our reputation and are fully committed to protecting it through a prudent approach to risk-taking and a responsible approach to business. This is achieved through the use of dedicated processes, resources and policies focused on identifying, evaluating, managing and reporting potential reputational risks. This is also achieved by applying the highest standards of personal accountability and ethical conduct as set out in the Group’s Code of Conduct and the Group’s approach to conduct and ethics. Reputational risk potentially arising from proposed business transactions and client activity is assessed in the reputational risk review process. The Group’s global policy on reputational risk requires employees to be conservative when assessing potential reputational impact and, where certain indicators give rise to potential reputational risk, the relevant business proposal or service must be submitted through the reputational risk review process. This involves a submission by an originator (any employee), approval by a business area head or designee, and its subsequent referral to one of the assigned reputational risk approvers, each of whom is an experienced and high-ranking senior manager, independent of the business divisions, who has authority to approve, reject or impose conditions on our participation in the transaction or service.
The RRSC, on a global level, and the reputational risk committees, on a divisional or legal entity level, are the governing bodies responsible for the oversight and active discussion of reputational risk and sustainability issues. At the Board level, the Risk Committee and Audit Committee jointly assist the Board in fulfilling its reputational risk oversight responsibilities by reviewing and approving the Group’s risk appetite framework as well as assessing the adequacy of the management of reputational risks.
In order to inform our stakeholders about how we manage some of the environmental and social risks inherent to the banking business, we publish our Corporate Responsibility Report, in which we also describe our efforts to conduct our operations in a manner that is environmentally and socially responsible and broadly contributes to society.
Fiduciary risk
Fiduciary risk is the risk of financial loss arising when the Group or its employees, acting in a fiduciary capacity as trustee, investment manager or as mandated by law, do not act in the best interest of the client in connection with the advice and management of
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our client’s assets including from a product-related market, credit, liquidity and operational risk perspective.
Assessing investment performance and reviewing forward-looking investment risks in our discretionary client portfolios and investment funds is central to our oversight program. Areas of focus include:
Monitoring client investment guidelines or investment fund limits. In certain cases, internal limits or guidelines are also established and monitored.
Ensuring discretionary portfolio managers’ investment approach is in line with client expectations and in accordance with written sales and marketing materials.
Measuring investment performance of discretionary client portfolios and investment funds and comparing the returns against benchmarks to understand sources and drivers of the returns.
Assessing risk measures such as exposure, sensitivities, stress scenarios, expected volatility and liquidity across our portfolios to ensure that we are managing the assets in line with the clients’ expectations and risk tolerance.
Treating clients with a prudent standard of care, which includes information disclosure, subscriptions and redemptions processes, trade execution and requiring the highest ethical conduct.
Sound governance is essential for all discretionary management activities including trade execution and investment process. Our program targets daily, monthly or quarterly monitoring of all portfolio management activities with independent analysis provided to senior management. Formal review meetings are in place to ensure that investment performance and risks are in line with expectations and adequately supervised.
Strategic risk
Strategic risk is the risk of financial loss or reputational damage arising from inappropriate strategic decisions, ineffective implementation of business strategies or an inability to adapt business strategies in response to changes in the business environment. Strategic risk may arise from a variety of sources, including:
an inadequate or inaccurate understanding of our existing capabilities and competitive positioning;
an inadequate or inaccurate analysis of current and prospective operating conditions in our markets, including the macroeconomic environment, client and competitor behaviors and actions, regulatory developments and technological impacts;
inappropriate strategic decisions, such as those pertaining to which activities we will undertake, which markets and client segments we will serve, which organizational structure we will adopt and how we will position ourselves relative to competitors;
ineffective implementation and execution of chosen business strategies and related organizational changes;
the inability to properly identify and analyze key changes in our operating environment, and to adapt strategies accordingly; and
the inability to properly monitor progress against strategic objectives.
A wide variety of financial, risk, client and market analyses are used to monitor the effectiveness of our strategies and the performance of our businesses against their strategic objectives. These include an analysis of current and expected operating conditions, an analysis of current and target market positioning, and detailed scenario planning.
Strategic plans are developed by each division annually and aggregated into a Group plan, which is reviewed by the Group CRO, CFO and CEO before presentation to the Executive Board. Following approval by the Executive Board, the Group plan is submitted for review and approval to the Board. In addition, there is an annual strategic review at which the Board evaluates the Group’s performance against strategic objectives and sets the overall strategic direction for the Group. From time to time, the Board and the Executive Board conduct more fundamental in-depth reviews of the Group’s strategy.
> Refer to “Strategy” in I – Information on the company for further information.
To complement the annual cycle, each division presents a more detailed individual analysis to review key dimensions of its strategy at various points during the year. Additionally, the CEO, the Executive Board and individual business heads regularly assess the performance of each business against strategic objectives through a series of strategic business reviews conducted throughout the year. The reviews include assessments of business strategy, overall operating environment, including our competitive position, financial performance and key business risks.
An example of a strategic risk is climate change, which, following the publication of recommendations from FSB’s Task Force on Climate-related Financial Disclosures in June 2017, is now emerging as an important area of focus for the banking industry. The final report establishes a high-level framework for considering climate-related risks and opportunities in firm strategy and is applicable to listed corporations across all sectors globally. We have started to work towards addressing the recommendations and are engaging with key industry groups to develop our understanding of market practice.
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Risk review and results
Economic risk capital review
Methodology and model developments
We regularly review and update our economic risk capital methodology in order to ensure that the model remains relevant as markets and business strategies evolve. In the event of material methodology changes and dataset and model parameter updates, prior-period balances are restated in order to show meaningful trends.
Economic risk capital
With effect from July 1, 2017, the Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management whereby it provides centralized trading and sales services, referred to as International Trading Solutions, to private and institutional clients across the three divisions. As a result, we have updated our divisional capital allocation key and revenue sharing agreements. The impact of this update on our economic risk capital measures was immaterial and prior periods have not been restated.
Economic risk capital
end of 2017 2016 % change
Available economic capital (CHF million)   
BIS look-through CET1 capital (Basel III) 34,824 30,783 13
Economic adjustments 1 15,460 15,166 2
Available economic capital  50,284 45,949 9
Position risk (CHF million)   
Fixed income trading 2 777 1,270 (39)
Equity trading & investments 1,337 1,504 (11)
Private banking corporate & retail lending 2,810 2,920 (4)
International lending & counterparty exposures 5,172 5,784 (11)
Emerging markets country event risk 1,514 1,168 30
Real estate & structured assets 3 1,417 1,188 19
Diversification benefit 4 (2,513) (2,495) 1
Position risk (99% confidence level for risk management purposes)  10,514 11,339 (7)
Economic risk capital (CHF million)   
Position risk (99.97% confidence level for capital management purposes) 18,745 20,299 (8)
Operational risk 7,635 7,720 (1)
Other risks 5 6,698 6,628 1
Economic risk capital  33,078 34,647 (5)
Economic risk capital coverage ratio (%)   
Economic risk capital coverage ratio 6 152 133
1
Includes primarily high- and low-trigger capital instruments, adjustments to unrealized gains on owned real estate, reduced recognition of deferred tax assets and adjustments to treatment of pensions. Economic adjustments are made to BIS look-through CET1 capital to enable comparison between economic risk capital and available economic capital under the Basel III framework.
2
This category comprises fixed income trading, foreign exchange, commodity and insurance exposures.
3
This category comprises commercial and residential real estate (including RMBS and CMBS), ABS exposure, real estate acquired at auction and real estate fund investments.
4
Reflects the net difference between the sum of the position risk categories and the position risk on the total portfolio.
5
Includes owned real estate risk, expense risk, pension risk, foreign exchange risk between available economic capital and economic risk capital, interest rate risk on treasury positions, diversification benefits, the impact from deferred share-based compensation awards and an estimate for the impacts of certain planned methodology changes.
6
Ratio of available economic capital to economic risk capital.
Available economic capital trends
As of the end of 2017, our available economic capital for the Group was CHF 50.3 billion, an increase of CHF 4.3 billion from the end of 2016. BIS look-through CET1 capital increased CHF 4.0 billion, mainly reflecting our capital increase. Economic adjustments increased CHF 0.3 billion, mainly reflecting the issuance of high-trigger tier 1 instruments, partially offset by the redemption of high-trigger tier 2 instruments.
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Economic risk capital by division
   End of period Average
2017 2016 % change 2017 2016 % change
Economic risk capital by division (CHF million)   
Swiss Universal Bank 5,420 5,789 (6) 5,566 5,564 0
International Wealth Management 4,762 3,816 25 4,379 3,785 16
Asia Pacific 3,483 4,504 (23) 3,897 4,147 (6)
Global Markets 9,980 9,295 7 9,327 9,928 (6)
Investment Banking & Capital Markets 5,528 5,117 8 5,279 4,652 13
Strategic Resolution Unit 3,162 5,145 (39) 3,748 5,691 (34)
Corporate Center 1 743 981 (24) 915 970 (6)
Economic risk capital  33,078 34,647 (5) 33,111 34,737 (5)
1
Includes primarily expense risk, operational risk, diversification benefits from the divisions and foreign exchange risk between available economic capital and economic risk capital.
Economic risk capital trends
Compared to the end of 2016, our economic risk capital decreased 5% to CHF 33.1 billion as of the end of 2017, mainly due to an 8% decrease in position risk. The decrease in position risk was primarily driven by decreases in the Strategic Resolution Unit in line with our strategy and Asia Pacific, partially offset by an increase in International Wealth Management. Operational risks and other risks were stable.
For the Strategic Resolution Unit, economic risk capital decreased 39% to CHF 3.2 billion, mainly due to lower loan commitments in international lending & counterparty exposures, reduced traded credit spread exposures from high-yield bonds in the US in fixed income trading, reduced exposures in Turkey in emerging markets country event risk and decreased risk in equity trading & investments, mainly due to lower private equity exposures across regions.
For Asia Pacific, economic risk capital decreased 23% to CHF 3.5 billion, mainly due to the securitization of certain lending exposures in international lending & counterparty exposures and private banking corporate & retail lending and reduced traded credit spread exposures in fixed income trading.
For Swiss Universal Bank, economic risk capital decreased 6% to CHF 5.4 billion, mainly due to a reduction in private banking corporate & retail lending exposures, primarily reflecting lower counterparty concentration risk.
For International Wealth Management, economic risk capital increased 25% to CHF 4.8 billion, primarily reflecting increases in position risk, in particular from higher loan commitments in private banking corporate & retail lending and increased equity exposures in equity trading & investments related to securitization, and a change in pension risk allocation.
For Global Markets, economic risk capital increased 7% to CHF 10.0 billion, mainly due to increased exposures in Brazil in emerging markets country event risk and higher asset-backed securities exposures in the US in real estate & structured assets.
For Investment Banking & Capital Markets, economic risk capital increased 8% to CHF 5.5 billion, mainly due to increased lending risk in international lending & counterparty exposures reflecting enhancements to the investment banking lending dataset and increased lending.
Market risk review
Trading book
Development of trading book risks
The tables entitled “One-day, 98% risk management VaR” and “Average one-day, 98% risk management VaR by division” show our trading-related market risk exposure, as measured by one-day, 98% risk management >>>VaR in Swiss francs and US dollars. As we measure trading book VaR for internal risk management purposes using the US dollar as the base currency, the VaR figures were translated into Swiss francs using daily foreign exchange translation rates. VaR estimates are computed separately for each risk type and for the whole portfolio using the historical simulation methodology. The different risk types are grouped into five categories including interest rate, credit spread, foreign exchange, commodity and equity.
We regularly review our VaR model to ensure that it remains appropriate given evolving market conditions and the composition of our trading portfolio. In 2017, we updated our VaR model to capture higher order risks in exotic equity derivatives, South Korean interest rate derivatives and foreign exchange derivatives. Furthermore, we improved our VaR methodology to better reflect equity volatility risks by increasing the granularity of the short-term time series. These risks were previously included in RNIV. We also enhanced the methodology to capture volatility risk in exotic interest rate products. The volatility modelling now accounts for a close to zero and a negative interest rate environment for major developed markets and for select emerging markets. The impact of these updates on our VaR measures was immaterial and prior periods have not been restated.
165

One-day, 98% risk management VaR

in / end of

Interest
rate

Credit
spread

Foreign
exchange


Commodity


Equity
Diversi-
fication
benefit


Total
Risk management VaR (CHF million)   
2017 
Average 16 19 6 2 10 (27) 26
Minimum 11 16 4 1 8 1 21
Maximum 23 23 12 6 13 1 31
End of period 15 19 5 1 10 (22) 28
2016 
Average 14 28 8 2 16 (35) 33
Minimum 9 20 4 1 10 1 24
Maximum 20 44 18 3 38 1 65
End of period 15 21 7 1 13 (28) 29
2015 
Average 20 36 11 2 23 (43) 49
Minimum 6 31 5 1 16 1 34
Maximum 35 42 22 4 35 1 63
End of period 17 40 9 1 31 (42) 56
Risk management VaR (USD million)   
2017 
Average 16 19 6 2 10 (27) 26
Minimum 11 17 4 1 8 1 22
Maximum 23 23 12 7 13 1 33
End of period 15 19 5 1 10 (21) 29
2016 
Average 14 28 9 2 17 (36) 34
Minimum 9 21 3 1 10 1 23
Maximum 20 44 18 3 38 1 65
End of period 15 21 6 1 13 (28) 28
2015 
Average 20 37 11 2 24 (43) 51
Minimum 6 32 5 1 17 1 40
Maximum 35 42 23 4 35 1 64
End of period 17 40 9 1 32 (42) 57
Excludes risks associated with counterparty and own credit exposures.
1
As the maximum and minimum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit.
166

Average one-day, 98% risk management VaR by division

in
Swiss
Universal
Bank
International
Wealth
Management

Asia
Pacific

Global
Markets
Strategic
Resolution
Unit
Diversi-
fication
benefit
1
Credit
Suisse
Average risk management VaR (CHF million)   
2017 0 4 13 21 6 (18) 26
2016 3 2 16 26 13 (27) 33
2015 7 1 18 44 25 (46) 49
Average risk management VaR (USD million)   
2017 0 4 13 21 6 (18) 26
2016 3 2 17 27 14 (29) 34
2015 8 1 19 45 26 (48) 51
Excludes risks associated with counterparty and own credit exposures. Investment Banking & Capital Markets has only banking book positions.
1
Difference between the sum of the standalone VaR for each division and the VaR for the Group.
We measure VaR in US dollars, as the majority of our trading activities are conducted in US dollars.
Period-end risk management VaR of USD 29 million as of December 31, 2017 remained largely stable compared to USD 28 million as of December 31, 2016. The USD 7 million decrease in average risk management VaR to USD 26 million in 2017 reflected the significantly higher exposures in the first half of 2016, mainly in credit spread and equity risk, resulting in a higher average risk management VaR for the full-year 2016. Average risk management VaR levels in 2017 remained consistent with average risk management VaR levels in the second half of 2016.
In the 12-month period ending December 31, 2017, we had no >>>backtesting exceptions in our >>>regulatory VaR model, compared to two backtesting exceptions in the 12-month period ending December 31, 2016 and one backtesting exception in the 12-month period ending December 31, 2015. Since there were fewer than five backtesting exceptions in the rolling 12-month periods ending December 31, 2017, 2016 and 2015, in line with >>>BIS industry guidelines, the VaR model is deemed to be statistically valid.
For capital purposes, >>>FINMA, in line with BIS requirements, uses a multiplier to impose an increase in market risk capital for every regulatory VaR backtesting exception over four in the prior rolling 12-month period calculated using a subset of the actual daily trading revenues also referred to as “hypothetical” trading revenues under the Basel framework.
> Refer to “Other requirements” in Capital management – Swiss requirements for further information on the use of our regulatory VaR model in the calculation of trading book market risk capital requirements.
The histogram entitled “Actual daily trading revenues” compares the actual daily trading revenues for 2017 with those for 2016 and 2015. The dispersion of trading revenues indicates the day-to-day volatility in our trading activities. In 2017, we had three trading loss days, each of them with a trading loss not exceeding CHF 25 million, compared to four trading loss days in 2016, each of them with a trading loss not exceeding CHF 25 million.
167

Banking book
Development of banking book interest rate risks
Interest rate risk on banking book positions is measured by estimating the impact resulting from a one basis point parallel increase in yield curves on the >>>fair value of interest rate-sensitive banking book positions. As of December 31, 2017, the interest rate sensitivity of a one basis point parallel increase in yield curves would have been positive CHF 4.8 million, compared to positive CHF 4.2 million as of December 31, 2016.
One basis point parallel increase in yield curves by currency – banking book positions
end of CHF USD EUR GBP Other Total
2017 (CHF million)   
Fair value impact of a one basis point parallel increase in yield curves 1.7 2.0 0.9 0.0 0.2 4.8
2016 (CHF million)   1
Fair value impact of a one basis point parallel increase in yield curves 0.1 2.7 1.3 (0.1) 0.2 4.2
1
Prior period has been corrected.
Interest rate risk on banking book positions is also assessed using other measures, including the potential value change resulting from a significant change in yield curves. The following table shows the impact of immediate 100 basis point and 200 basis point moves in the yield curves.
Interest rate scenario results – banking book positions
end of CHF USD EUR GBP Other Total
2017 (CHF million)   
Increase (+)/decrease (–) in interest rates
   +200 basis points  307 405 167 (2) 46 923
   +100 basis points  159 201 85 (2) 23 466
   –100 basis points  (171) (198) (88) 5 (22) (474)
   –200 basis points  (354) (394) (178) 13 (44) (957)
2016 (CHF million)   1
Increase (+)/decrease (–) in interest rates
   +200 basis points  7 558 258 (18) 36 841
   +100 basis points  5 285 131 (11) 19 429
   –100 basis points  (7) (299) (134) 15 (18) (443)
   –200 basis points  (18) (611) (272) 35 (35) (901)
1
Prior period has been corrected.
As of December 31, 2017, the fair value impact of an adverse 200 basis point move in yield curves was a loss of CHF 1.0 billion, compared to a loss of CHF 0.9 billion as of December 31, 2016. The monthly analysis of the potential impact resulting from a significant change in yield curves indicated that as of the end of 2017 and 2016, the fair value impact of an adverse 200 basis point move in yield curves in relation to total eligible regulatory capital, was significantly below the 20% threshold used by regulators to identify banks that potentially run excessive levels of interest rate risk in the banking book.
Development of banking book equity risks
Our equity portfolios of the banking book include positions in private equity, hedge funds, strategic investments and other instruments. These positions may not be strongly correlated with general equity markets. Equity risk on banking book positions is measured using sensitivity analysis that estimates the potential change in value resulting from a 10% decline in the equity markets of developed nations and a 20% decline in the equity markets of emerging market nations. The estimated impact of this scenario would have been a decrease of CHF 391 million in the value of the banking book portfolio as of December 31, 2017, compared to a decrease of CHF 517 million as of December 31, 2016.
Development of banking book commodity risks
Our commodity portfolios of the banking book include mainly precious metals, primarily gold. Commodity risk on banking book positions is measured using sensitivity analysis that estimates the potential change in value resulting from a 20% weakening in commodity prices. The estimated impact of this scenario on the value of the banking book portfolio would have been a decrease of CHF 0.1 million as of December 31, 2017, compared to an increase of CHF 0.1 million as of December 31, 2016.
168

Credit and debit valuation adjustments
VaR excludes the impact of changes in both counterparty and our own credit spreads on derivative products. As of December 31, 2017, the estimated sensitivity implies that a one basis point increase in credit spreads, both counterparty and our own, would have resulted in a CHF 0.8 million gain on the overall derivatives position in the investment banking businesses. In addition, a one basis point increase in our own credit spread on our fair valued structured notes portfolio (including the impact of hedges) would have resulted in a CHF 24.2 million gain as of December 31, 2017.
Credit risk review
Credit risk overview
All transactions that are exposed to potential losses due to a counterparty failing to meet an obligation are subject to credit risk exposure measurement and management.
> Refer to “Impaired loans” in VI – Consolidated financial statements – Credit Suisse Group – Note 18 – Loans, allowance for loan losses and credit quality for information on credit quality and aging analysis of loans.
For regulatory capital purposes, credit risk comprises several regulatory categories where credit risk measurement and related regulatory capital requirements are subject to different measurement approaches under the Basel framework. Details on regulatory credit risk categories, credit quality indicators and credit risk concentration are available in our disclosures required under Pillar 3 of the Basel framework related to risk, which will be available on our website at credit-suisse.com/regulatorydisclosures.
Loans and irrevocable loan commitments
The following table provides an overview of loans and irrevocable loan commitments by division in accordance with accounting principles generally accepted in the US and are not comparable with the regulatory credit risk exposures presented in our disclosures required under Pillar 3 of the Basel framework.
Loans and irrevocable loan commitments
end of 2017 2016 % change
Loans and irrevocable loan commitments (CHF million)   
Gross loans 280,137 277,043 1
Irrevocable loan commitments 106,401 116,975 (9)
Total loans and irrevocable loan commitments  386,538 394,018 (2)
   of which Swiss Universal Bank  174,386 175,717 (1)
   of which International Wealth Management  54,378 48,527 12
   of which Asia Pacific  47,145 44,399 6
   of which Global Markets  61,649 67,063 (8)
   of which Investment Banking & Capital Markets  43,692 43,145 1
   of which Strategic Resolution Unit  4,623 14,636 (68)
Loans held-for-sale and traded loans
As of December 31, 2017 and 2016, loans held-for-sale included CHF 61 million and CHF 82 million, respectively, of seasoned US subprime residential mortgages from consolidated variable interest entities (VIE). Traded loans included US subprime residential mortgages of CHF 1,067 million and CHF 1,152 million as of December 31, 2017 and 2016, respectively.
Loans
The following table provides an overview of our loans by loan classes, impaired loans, the related allowance for loan losses and selected loan metrics by business division. The carrying values of loans and related allowance for loan losses are presented in accordance with generally accepted accounting standards in the US and are not comparable with the regulatory credit risk exposures presented in our disclosures required under Pillar 3 of the Basel framework.
169

Loans

end of

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Credit
Suisse
1
2017 (CHF million)   
Mortgages 100,498 4,106 1,309 0 0 126 106,039
Loans collateralized by securities 6,934 18,848 14,731 0 1,409 94 42,016
Consumer finance 3,174 941 25 17 0 85 4,242
Consumer 110,606 23,895 16,065 17 1,409 305 152,297
Real estate 23,158 1,968 720 302 403 48 26,599
Commercial and industrial loans 28,230 22,669 22,499 3,576 2,834 1,731 81,670
Financial institutions 2,749 1,917 2,912 6,432 422 1,059 15,697
Governments and public institutions 707 246 977 1,355 0 589 3,874
Corporate & institutional 54,844 2 26,800 3 27,108 4 11,665 3,659 3,427 127,840
Gross loans  165,450 50,695 43,173 11,682 5,068 3,732 280,137
   of which held at fair value  33 150 4,837 6,743 1,483 2,061 15,307
Net (unearned income) / deferred expenses 56 (113) (19) (17) (12) (1) (106)
Allowance for loan losses 5 (465) (108) (74) (44) (55) (136) (882)
Net loans  165,041 50,474 43,080 11,621 5,001 3,595 279,149
2016 (CHF million)   
Mortgages 99,383 3,551 1,166 0 0 235 104,335
Loans collateralized by securities 7,224 17,863 11,704 0 273 204 37,268
Consumer finance 2,923 438 3 18 0 108 3,490
Consumer 109,530 21,852 12,873 18 273 547 145,093
Real estate 23,661 1,383 499 160 214 99 26,016
Commercial and industrial loans 28,460 19,618 23,405 3,788 4,441 4,008 83,740
Financial institutions 3,657 2,077 2,320 4,351 465 4,878 17,921
Governments and public institutions 801 223 1,135 1,070 0 1,044 4,273
Corporate & institutional 56,579 2 23,301 3 27,359 4 9,369 5,120 10,029 131,950
Gross loans  166,109 45,153 40,232 9,387 5,393 10,576 277,043
   of which held at fair value  38 397 5,377 6,711 2,545 4,460 19,528
Net (unearned income) / deferred expenses 38 (99) (27) (8) (8) (25) (129)
Allowance for loan losses 5 (462) (89) (71) (19) (24) (273) (938)
Net loans  165,685 44,965 40,134 9,360 5,361 10,278 275,976
1
Includes the Corporate Center, in addition to the divisions disclosed.
2
The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 11,201 million and CHF 32,704 million, respectively, as of December 31, 2017, and CHF 11,266 million and CHF 33,515 million, respectively, as of December 31, 2016.
3
The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 20,485 million and CHF 1,809 million, respectively, as of December 31, 2017, and CHF 18,084 million and CHF 1,165 million, respectively, as of December 31, 2016.
4
The values of financial collateral and mortgages related to secured loans, considered up to the amount of the related loans, were CHF 19,566 million and CHF 138 million, respectively, as of December 31, 2017, and CHF 21,135 million and CHF 175 million, respectively, as of December 31, 2016.
5
Allowance for loan losses is only based on loans that are not carried at fair value.
Compared to December 31, 2016, gross loans increased CHF 3.1 billion to CHF 280.1 billion as of December 31, 2017, due to higher loans collateralized by securities, higher residential mortgages, increased consumer finance loans, higher loans to the real estate sector and the translation impact from the euro. These increases were partially offset by decreased loans to financial institutions, lower commercial and industrial loans, lower loans to governments and public institutions and the translation impact from the US dollar. The net increase of CHF 4.7 billion in loans collateralized by securities was mainly driven by increases in Asia Pacific, Investment Banking & Capital Markets and International Wealth Management. The net increase of CHF 1.7 billion in residential mortgages was mainly driven by increases in Swiss Universal Bank and International Wealth Management. Consumer finance loans increased CHF 0.8 billion, primarily due to increases in International Wealth Management and Swiss Universal Bank. Loans to the real estate sector increased CHF 0.6 billion, mainly driven by increases in International Wealth Management, Asia Pacific, Investment Banking & Capital Markets and Global Markets, partially offset by a decrease in Swiss Universal Bank. The net decrease of CHF 2.2 billion in loans to financial institutions was mainly driven by decreases in the Strategic Resolution Unit and Swiss Universal Bank, partially offset by increases in Global Markets and Asia Pacific. Commercial and industrial loans decreased CHF 2.1 billion, primarily due to decreases in the Strategic Resolution Unit, Investment Banking & Capital Markets and Asia Pacific, partially offset by an increase in
170

International Wealth Management. The net decrease of CHF 0.4 billion in loans to governments and public institutions was mainly due to decreases in the Strategic Resolution Unit and Asia Pacific, partially offset by an increase in Global Markets.
On a divisional level, increases in gross loans of CHF 5.5 billion in International Wealth Management, CHF 2.9 billion in Asia Pacific and CHF 2.3 billion in Global Markets were partially offset by decreases of CHF 6.8 billion in the Strategic Resolution Unit, CHF 0.7 billion in Swiss Universal Bank and CHF 0.3 billion in Investment Banking & Capital Markets.
> Refer to “Note 18 – Loans, allowance for loan losses and credit quality” in VI – Consolidated financial statements – Credit Suisse Group for further information.
As of December 31, 2017, 97% of the aggregate Swiss residential mortgage loan portfolio of CHF 105.1 billion had an LTV ratio equal to or lower than 80%. As of December 31, 2016, 97% of the aggregate Swiss residential mortgage loan portfolio of CHF 104.5 billion had an LTV ratio equal to or lower than 80%. For substantially all Swiss residential mortgage loans originated in 2017 and 2016, the average LTV ratio was equal to or lower than 80% at origination. Our LTV ratios are based on the most recent appraised value of the collateral.
Impaired loans

end of

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Credit
Suisse
1
2017 (CHF million)   
Non-performing loans 413 327 92 32 36 148 1,048
Non-interest-earning loans 161 16 0 0 0 46 223
Non-performing and non-interest-earning loans 574 343 92 32 36 194 1,271
Restructured loans 66 95 0 0 0 129 290
Potential problem loans 129 103 29 9 0 279 549
Other impaired loans 195 198 29 9 0 408 839
Gross impaired loans 2 769 541 3 121 41 36 602 2,110
   of which loans with a specific allowance  694 245 91 41 36 569 1,676
   of which loans without a specific allowance  75 296 30 0 0 33 434
2016 (CHF million)   
Non-performing loans 341 179 242 8 0 466 1,236
Non-interest-earning loans 168 17 1 0 0 79 265
Non-performing and non-interest-earning loans 509 196 243 8 0 545 1,501
Restructured loans 53 89 17 0 0 199 358
Potential problem loans 191 39 6 9 0 368 613
Other impaired loans 244 128 23 9 0 567 971
Gross impaired loans 2 753 324 3 266 17 0 1,112 2,472
   of which loans with a specific allowance  674 170 239 17 0 985 2,085
   of which loans without a specific allowance  79 154 27 0 0 127 387
1
Includes the Corporate Center, in addition to the divisions disclosed.
2
Impaired loans are only based on loans that are not carried at fair value.
3
Includes gross impaired loans of CHF 111 million and CHF 18 million as of December 31, 2017 and 2016, respectively, which are mostly secured by guarantees provided by investment-grade export credit agencies.
Impaired loans and allowance for loan losses
Compared to December 31, 2016, gross impaired loans decreased CHF 0.4 billion to CHF 2.1 billion as of December 31, 2017, mainly driven by decreases in non-performing loans and potential problem loans in the Strategic Resolution Unit.
In the Strategic Resolution Unit, gross impaired loans decreased CHF 510 million, primarily driven by the reduction in the oil and gas and ship finance portfolios, including certain repayments and sales of the oil and gas positions with a total exposure of CHF 257 million. The decrease was partially offset by an increase in the Swiss real estate leasing business. In Asia Pacific, gross impaired loans decreased CHF 145 million, mainly driven by the repayment of several share-backed facilities. In International Wealth Management, gross impaired loans increased CHF 217 million, primarily driven by export finance exposures, which are mostly secured by guarantees provided by investment-grade export credit agencies, as well as ship finance exposures and mortgages, partially offset by reductions in aviation finance exposures and securities-backed lending. Gross impaired loans in Investment Banking & Capital Markets and Global Markets increased CHF 36 million and CHF 24 million, respectively, mainly driven by a default in the supermarket sector in Europe. In Swiss Universal Bank, gross impaired loans increased CHF 16 million, mainly reflecting new potential problem loans for private and wealth management clients within Private Clients as well as small and medium-sized enterprises in Switzerland and the default of an exposure in commodity trade finance, partially offset by several upgrades of impaired loans to performing status and repayments.
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> Refer to “Impaired loans” in VI – Consolidated financial statements – Credit Suisse Group – Note 18 – Loans, allowance for loan losses and credit quality for information on categories of impaired loans.
Allowance for loan losses

end of

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Credit
Suisse
1
2017 (CHF million)   
Allowance for loan losses at beginning of period 2 462 89 71 19 24 273 938
   of which individually evaluated for impairment  314 56 62 9 0 259 700
   of which collectively evaluated for impairment  148 33 9 10 24 14 238
Net movements recognized in statements of operations 81 28 15 15 18 33 190
Gross write-offs (107) (19) (2) 0 0 (174) (302)
Recoveries 25 0 0 8 10 10 53
Net write-offs (82) (19) (2) 8 10 (164) (249)
Provisions for interest 8 5 (6) 1 1 4 13
Foreign currency translation impact and other adjustments, net (4) 5 (4) 1 2 (10) (10)
Allowance for loan losses at end of period 2 465 108 74 44 55 136 882
   of which individually evaluated for impairment  340 75 56 24 27 132 654
   of which collectively evaluated for impairment  125 33 18 20 28 4 228
1
Includes the Corporate Center, in addition to the divisions disclosed.
2
Allowance for loan losses is only based on loans that are not carried at fair value.
The following tables provide an overview of changes in impaired loans and related allowance for loan losses by loan portfolio segment.
Gross impaired loans by loan portfolio segment

Consumer
Corporate &
institutional

Total
2017 (CHF million)   
Balance at beginning of period  662 1,810 2,472
New impaired loans 471 785 1,256
Increase in existing impaired loans 50 73 123
Reclassifications to performing loans (192) (261) (453)
Repayments 1 (224) (470) (694)
Liquidation of collateral, insurance or guarantee payments (79) (79) (158)
Sales 2 (3) (130) (133)
Write-offs (53) (202) (255)
Foreign currency translation impact and other adjustments, net 0 (48) (48)
Balance at end of period  632 1,478 2,110
1
Full or partial principal repayments.
2
Includes transfers to loans held-for-sale for intended sales of held-to-maturity loans.
172

Allowance for loan losses by loan portfolio segment

Consumer
Corporate &
institutional

Total
2017 (CHF million)   
Balance at beginning of period  216 722 938
   of which individually evaluated for impairment  172 528 700
   of which collectively evaluated for impairment  44 194 238
Net movements recognized in statements of operations 54 136 190
Gross write-offs (60) (242) (302)
Recoveries 12 41 53
Net write-offs (48) (201) (249)
Provisions for interest (1) 14 13
Foreign currency translation impact and other adjustments, net (1) (9) (10)
Balance at end of period  220 662 882
   of which individually evaluated for impairment  179 475 654
   of which collectively evaluated for impairment  41 187 228
Loan metrics

end of

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit


Credit
Suisse
1
2017 (%)   
Non-performing and non-interest-earning loans / Gross loans 0.3 0.7 0.2 0.6 1.0 11.6 0.5
Gross impaired loans / Gross loans 0.5 1.1 0.3 0.8 1.0 36.0 0.8
Allowance for loan losses / Gross loans 0.3 0.2 0.2 0.9 1.5 8.1 0.3
Specific allowance for loan losses / Gross impaired loans 44.2 13.9 46.3 58.5 75.0 21.9 31.0
2016 (%)   
Non-performing and non-interest-earning loans / Gross loans 0.3 0.4 0.7 0.3 0.0 8.9 0.6
Gross impaired loans / Gross loans 0.5 0.7 0.8 0.6 0.0 18.2 1.0
Allowance for loan losses / Gross loans 0.3 0.2 0.2 0.7 0.8 4.5 0.4
Specific allowance for loan losses / Gross impaired loans 41.7 17.3 23.3 52.9 23.3 28.3
Gross loans and gross impaired loans exclude loans carried at fair value and the allowance for loan losses is only based on loans that are not carried at fair value.
1
Includes the Corporate Center, in addition to the divisions disclosed.
Derivative instruments
We enter into derivative contracts in the normal course of business for market making, positioning and arbitrage purposes, as well as for our own risk management needs, including mitigation of interest rate, foreign exchange and credit risk.
>>>Derivatives are either privately negotiated >>>OTC contracts or standard contracts transacted through regulated exchanges. The most frequently used derivative products include interest rate swaps, cross-currency swaps and >>>credit default swaps (CDS), interest rate and foreign exchange options, foreign exchange forward contracts, and foreign exchange and interest rate futures.
The replacement values of derivative instruments correspond to their >>>fair values at the dates of the consolidated balance sheets and arise from transactions for the account of individual customers and for our own account. >>>Positive replacement values (PRV) constitute an asset, while >>>negative replacement values (NRV) constitute a liability. Fair value does not indicate future gains or losses, but rather premiums paid or received for a derivative instrument at inception, if applicable, and unrealized gains and losses from marking to market all derivatives at a particular point in time. The fair values of derivatives are determined using various methodologies, primarily observable market prices where available and, in their absence, observable market parameters for instruments with similar characteristics and maturities, net present value analysis or other pricing models as appropriate.
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The following table illustrates how credit risk on derivatives receivables is reduced by the use of legally enforceable >>>netting agreements and collateral agreements. Netting agreements allow us to net balances from derivative assets and liabilities transacted with the same counterparty when the netting agreements are legally enforceable. Replacement values are disclosed net of such agreements in the consolidated balance sheets. Collateral agreements are entered into with certain counterparties based upon the nature of the counterparty and/or the transaction and require the placement of cash or securities with us as collateral for the underlying transaction. The carrying values of derivatives are presented in accordance with generally accepted accounting standards in the US and are not comparable with the derivatives metrics presented in our disclosures required under Pillar 3 of the Basel framework.
Derivative instruments by maturity
end of    2017 2016

due within

Less
than
1 year


1 to 5
years

More
than
5 years
Positive
replace-
ment
value

Less
than
1 year


1 to 5
years

More
than
5 years
Positive
replace-
ment
value
Derivative instruments (CHF billion)   
Interest rate products 9.6 26.5 50.9 87.0 15.3 43.9 79.2 138.4
Foreign exchange products 16.3 8.0 6.2 30.5 34.6 17.7 9.6 61.9
Equity/index-related products 5.4 6.6 0.1 12.1 6.0 5.1 1.3 12.4
Credit derivatives 0.6 5.3 1.8 7.7 1.0 4.7 2.4 8.1
Other products 1 0.4 0.2 1.0 1.6 0.6 0.4 1.5 2.5
OTC derivative instruments  32.3 46.6 60.0 138.9 57.5 71.8 94.0 223.3
Exchange-traded derivative instruments 9.5 11.8
Netting agreements 2 (128.8) (208.2)
Total derivative instruments  19.6 26.9
   of which recorded in trading assets  19.6 26.8
   of which recorded in other assets  0.0 0.1
1
Primarily precious metals, commodity and energy products.
2
Taking into account legally enforceable netting agreements.
Derivative transactions exposed to credit risk are subject to a credit request and approval process, ongoing credit and counterparty monitoring and a credit quality review process. The following table represents the rating split of our credit exposure from derivative instruments.
Derivative instruments by counterparty credit rating
end of 2017 2016
Derivative instruments (CHF billion)   
AAA 1.5 1.5
AA 5.7 8.0
A 4.1 5.8
BBB 5.7 8.7
BB or lower 1.7 2.2
OTC derivative instruments  18.7 26.2
Exchange-traded derivative instruments 1 0.9 0.7
Total derivative instruments 1 19.6 26.9
1
Taking into account legally enforceable netting agreements.
Derivative instruments by maturity and by counterparty credit rating for the Bank are not materially different, neither in absolute amounts nor in terms of movements, from the information for the Group presented above.
Derivative instruments are categorized as exposures from trading activities (trading) and those qualifying for hedge accounting (hedging). Trading includes activities relating to market making, positioning and arbitrage. It also includes economic hedges where the Group enters into derivative contracts for its own risk management purposes, but where the contracts do not qualify for hedge accounting under US GAAP. Hedging includes contracts that qualify for hedge accounting under US GAAP, such as fair value hedges, cash flow hedges and net investment hedges.
> Refer to “Note 26 – Offsetting of financial assets and financial liabilities” in VI – Consolidated financial statements – Credit Suisse Group for further information on offsetting of derivatives.
> Refer to “Note 31 – Derivatives and hedging activities” in VI – Consolidated financial statements – Credit Suisse Group for further information on derivatives, including an overview of derivatives by products categorized for trading and hedging purposes.
Forwards and futures
We enter into forward purchase and sale contracts for mortgage-backed securities, foreign currencies and commitments to buy or sell commercial and residential mortgages. In addition, we enter into futures contracts on equity-based indices and other financial instruments, as well as options on futures contracts. These contracts are typically entered into to meet the needs of customers, for trading and for hedging purposes.
174

On forward contracts, we are exposed to counterparty credit risk. To mitigate this credit risk, we limit transactions by counterparty, regularly review credit limits and adhere to internally established credit extension policies.
For futures contracts and options on futures contracts, the change in the market value is settled with a clearing broker in cash each day. As a result, our credit risk with the clearing broker is limited to the net positive change in the market value for a single day.
Swaps
Our swap agreements consist primarily of interest rate swaps, CDS, currency and equity swaps. We enter into swap agreements for trading and risk management purposes. Interest rate swaps are contractual agreements to exchange interest rate payments based on agreed upon notional amounts and maturities. CDS are contractual agreements in which the buyer of the swap pays a periodic fee in return for a contingent payment by the seller of the swap following a credit event of a reference entity. A credit event is commonly defined as bankruptcy, insolvency, receivership, material adverse restructuring of debt, or failure to meet payment obligations when due. Currency swaps are contractual agreements to exchange payments in different currencies based on agreed notional amounts and currency pairs. Equity swaps are contractual agreements to receive the appreciation or depreciation in value based on a specific strike price on an equity instrument in exchange for paying another rate, which is usually based on an index or interest rate movements.
Options
We write options specifically designed to meet the needs of customers and for trading purposes. These written options do not expose us to the credit risk of the customer because, if exercised, we and not our counterparty are obligated to perform. At the beginning of the contract period, we receive a cash premium. During the contract period, we bear the risk of unfavorable changes in the value of the financial instruments underlying the options. To manage this market risk, we purchase or sell cash or derivative financial instruments. Such purchases and sales may include debt and equity securities, forward and futures contracts, swaps and options.
We also purchase options to meet customer needs, for trading purposes and for hedging purposes. For purchased options, we obtain the right to buy or sell the underlying instrument at a fixed price on or before a specified date. During the contract period, our risk is limited to the premium paid. The underlying instruments for these options typically include fixed income and equity securities, foreign currencies and interest rate instruments or indices. Counterparties to these option contracts are regularly reviewed in order to assess creditworthiness.
Selected European credit risk exposures
The scope of our disclosure of European credit risk exposure includes all countries of the EU which are rated below AA or its equivalent by at least one of the three major rating agencies and where our gross exposure exceeds our quantitative threshold of EUR 0.5 billion. We believe this external rating is a useful measure in determining the financial ability of countries to meet their financial obligations, including giving an indication of vulnerability to adverse business, financial and economic conditions.
Monitoring of selected European credit risk exposures
Our credit risk exposure to these European countries is managed as part of our overall risk management process. The Group makes use of country limits and performs scenario analyses on a regular basis, which include analyses of our indirect sovereign credit risk exposures from our exposures to selected European financial institutions. This assessment of indirect sovereign credit risk exposures includes analysis of publicly available disclosures of counterparties’ exposures to the European countries within the defined scope of our disclosure. We monitor the concentration of collateral underpinning our >>>OTC derivative and >>>reverse repurchase agreement exposures through monthly reporting. We also monitor the impact of sovereign rating downgrades on collateral eligibility. Strict limits on sovereign collateral from >>>G7 and non-G7 countries are monitored monthly. Similar disclosure is part of our regular risk reporting to regulators.
As part of our global scenario framework, the counterparty credit risk stress testing framework measures counterparty exposure under scenarios calibrated to the 99th percentile for the worst one month and one year moves observed in the available history, as well as the absolutely worst weekly move observed in the same dataset. The scenario results are aggregated at the counterparty level for all our counterparties, including all European countries to which we have exposure. Furthermore, counterparty default scenarios are run where specific entities are set to default. In one of these scenarios, a European sovereign default is investigated. This scenario determines the maximum exposure that we have to this country in the event of its default and serves to identify those counterparties where exposure will rise substantially as a result of the modeled country defaulting.
The scenario framework also considers a range of other severe scenarios, including a specific eurozone crisis scenario which assumes the default of selected European countries, currently modeled to include Greece, Ireland, Italy, Portugal and Spain. It is assumed that the sovereigns, financial institutions and corporates within these countries default, with a 100% loss of sovereign and financial institutions exposures and a 0% to 100% loss of corporates depending on their credit ratings. As part of this scenario, we additionally assume a severe market sell-off involving an equity market crash, widening credit spreads, a rally in the price of gold and a devaluation of the euro. In addition, the eurozone crisis scenario assumes the default of a small number of our market counterparties that we believe would be severely affected by a default across the selected European countries. These counterparties are
175

assumed to default as we believe that they would be the most affected institutions because of their direct presence in the relevant countries and their direct exposures. Through these processes, revaluation and redenomination risks on our exposures are considered on a regular basis by our risk management function.
Presentation of selected European credit risk exposures
The basis for the presentation of the country exposure is our internal risk domicile view. The risk domicile view is based on the domicile of the legal counterparty, i.e., it may include exposure to a legal entity domiciled in the reported country even if its parent is located outside of the country.
The credit risk exposure in the table is presented on a risk-based view before deduction of any related allowance for loan losses. We present our credit risk exposure and related >>>risk mitigation for the following distinct categories:
Gross credit risk exposure includes the principal amount of loans drawn, letters of credit issued and undrawn portions of committed facilities, the >>>PRV of derivative instruments after consideration of legally enforceable >>>netting agreements, the notional value of investments in money market funds and the market values of securities financing transactions and the debt cash trading portfolio (short-term securities) netted at the issuer level.
Risk mitigation includes >>>CDS and other hedges, at their net notional amount, guarantees, insurance and collateral (primarily cash, securities and, to a lesser extent, real estate, mainly for exposures of our private banking, corporate and institutional businesses to corporates & other). Collateral values applied for the calculation of the net exposure are determined in accordance with our risk management policies and reflect applicable margining considerations.
Net credit risk exposure represents gross credit risk exposure net of risk mitigation.
Inventory represents the long inventory positions in trading and non-trading physical debt and synthetic positions, each at market value, all netted at the issuer level. Physical debt is non-derivative debt positions (e.g., bonds), and synthetic positions are created through OTC contracts (e.g., CDS purchased and/or sold and >>>total return swaps).
CDS presented in the risk mitigation column are purchased as a direct hedge to our OTC exposure and the risk mitigation impact is considered to be the notional amount of the contract for risk purposes, with the mark-to-market >>>fair value of CDS risk-managed against the protection provider. Net notional amounts of CDS reflect the notional amount of CDS protection purchased less the notional amount of CDS protection sold and are based on the origin of the CDS reference credit, rather than that of the CDS counterparty. CDS included in the inventory column represent contracts recorded in our trading books that are hedging the credit risk of the instruments included in the inventory column and are disclosed on the same basis as the value of the fixed income instrument they are hedging.
We do not have any tranched CDS positions on these European countries and only an insignificant amount of indexed credit derivatives is included in inventory.
The credit risk of CDS contracts themselves, i.e., the risk that the CDS counterparty will not perform in the event of a default, is managed separately from the credit risk of the reference credit. To mitigate such credit risk, all CDS contracts are collateralized and executed with counterparties with whom we have an enforceable International Swaps and Derivatives Association (ISDA) master agreement that provides for daily margining.
Development of selected European credit risk exposures
On a gross basis, before taking into account risk mitigation, our risk-based sovereign credit risk exposure to Cyprus, Croatia, Greece, Ireland, Italy, Malta, Portugal and Spain increased 2% to EUR 3,008 million as of December 31, 2017, compared to EUR 2,959 million as of December 31, 2016. Our net exposure to these sovereigns was EUR 1,463 million, 176% higher compared to EUR 531 million as of December 31, 2016. Our non-sovereign risk-based credit risk exposure in these countries as of December 31, 2017 included net exposures to financial institutions of EUR 1,898 million, 5% lower compared to December 31, 2016, and net exposures to corporates and other counterparties of EUR 2,391 million, 82% higher compared to December 31, 2016.
A significant majority of the purchased credit protection is transacted with central counterparties or banks outside of the disclosed countries. For credit protection purchased from central counterparties or banks in the disclosed countries, such credit risk is reflected in the gross and net exposure to each respective country.
Sovereign debt rating developments
From year-end 2017 through February 28, 2018, the long-term sovereign debt ratings of the countries listed in the table changed as follows: Standard & Poor’s increased Cyprus’ rating from BB to BB+, increased Greece’s rating from B- to B, increased Italy’s rating from BBB- to BBB and increased Portugal’s rating from BB+ to BBB-. Fitch increased Croatia’s rating from BB to BB+, increased Cyprus’ rating from BB- to BB, increased Greece’s rating from CCC to B, increased Ireland’s rating from A to A+, decreased Italy’s rating from BBB+ to BBB, increased Malta’s rating from A to A+, increased Portugal’s rating from BB+ to BBB and increased Spain’s rating from BBB+ to A-. Moody’s increased Cyprus’ rating from B1 to BA3, increased Greece’s rating from CAA3 to B3 and increased Ireland’s rating from A3 to A2. These rating changes did not have a significant impact on the Group’s financial position, result of operations, liquidity or capital resources.
176

Selected European credit risk exposures
         Gross
credit risk
exposure


Risk mitigation
Net
credit risk
exposure


Inventory
2 Total
credit risk
exposure

December 31, 2017




CDS


Other
1



Net
synthetic
inventory
3

Gross


Net
Croatia (EUR million)
Sovereign 0 0 0 0 7 6 7 7
Corporates & other 50 0 0 50 0 0 50 50
Total  50 0 0 50 7 6 57 57
Cyprus (EUR million)
Sovereign 0 0 0 0 2 0 2 2
Financial institutions 19 0 19 0 0 0 19 0
Corporates & other 1,338 0 1,275 63 0 0 1,338 63
Total  1,357 0 1,294 63 2 0 1,359 65
Greece (EUR million)
Sovereign 0 0 0 0 24 0 24 24
Financial institutions 137 0 136 1 0 0 137 1
Corporates & other 688 0 662 26 1 (5) 689 27
Total  825 0 798 27 25 (5) 850 52
Ireland (EUR million)
Sovereign 771 0 0 771 0 0 771 771
Financial institutions 1,187 0 341 846 37 (65) 1,224 883
Corporates & other 768 0 297 471 28 (17) 796 499
Total  2,726 0 638 2,088 65 (82) 2,791 2,153
Italy (EUR million)
Sovereign 1,854 1,414 131 309 0 (585) 1,854 309
Financial institutions 820 51 568 201 20 (68) 840 221
Corporates & other 3,785 41 2,772 972 109 (6) 3,894 1,081
Total  6,459 1,506 3,471 1,482 129 (659) 6,588 1,611
Malta (EUR million)
Financial institutions 29 0 0 29 0 0 29 29
Corporates & other 618 0 612 6 0 0 618 6
Total  647 0 612 35 0 0 647 35
Portugal (EUR million)
Sovereign 0 0 0 0 42 36 42 42
Financial institutions 251 0 232 19 9 (8) 260 28
Corporates & other 284 8 183 93 0 (68) 284 93
Total  535 8 415 112 51 (40) 586 163
Spain (EUR million)
Sovereign 308 0 0 308 0 (18) 308 308
Financial institutions 1,299 6 593 700 36 (36) 1,335 736
Corporates & other 1,925 85 1,337 503 69 (13) 1,994 572
Total  3,532 91 1,930 1,511 105 (67) 3,637 1,616
Total (EUR million)
Sovereign 2,933 1,414 131 1,388 75 (561) 3,008 1,463
Financial institutions 3,742 57 1,889 1,796 102 (177) 3,844 1,898
Corporates & other 9,456 134 7,138 2,184 207 (109) 9,663 2,391
Total  16,131 1,605 9,158 5,368 384 (847) 16,515 5,752
1
Includes other hedges (derivative instruments), guarantees, insurance and collateral.
2
Represents long inventory positions netted at issuer level.
3
Substantially all of which results from CDS; represents long positions net of short positions.
177

Balance sheet, off-balance sheet and other contractual obligations
During 2017, total assets and total liabilities decreased by 3%, primarily reflecting the foreign exchange translation impact. As of the end of 2017, total assets were CHF 796.3 billion, total liabilities were CHF 754.1 billion and total equity was CHF 42.2 billion. The majority of our transactions are recorded on our balance sheet. However, we also enter into transactions that give rise to both on and off-balance sheet exposure.
Balance sheet
Total assets were CHF 796.3 billion as of the end of 2017, a decrease of CHF 23.6 billion, or 3%, compared to the end of 2016. Excluding the foreign exchange translation impact, total assets decreased CHF 3.6 billion.
In Swiss francs, central bank funds sold, securities purchased under resale agreements and securities borrowing transactions decreased CHF 19.5 billion, or 14%, mainly driven by a decrease in reverse repurchase transactions with banks and customers, a decrease in cash collateral and the foreign exchange translation impact. Cash and due from banks decreased CHF 11.3 billion, or 9%, mainly driven by lower cash positions at central banks, including the SNB, the Fed and the ECB. Trading assets decreased CHF 8.8 billion, or 5%, primarily reflecting the foreign exchange translation impact. Brokerage receivables increased CHF 13.5 billion, or 40%, mainly due to open trades and increases in margin lending and failed settlements. Net loans and all other assets were stable.
Balance sheet summary
   end of % change
2017 2016 2015 17 / 16 16 / 15
Assets (CHF million)   
Cash and due from banks 109,815 121,161 92,328 (9) 31
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 115,346 134,839 123,049 (14) 10
Trading assets 156,334 165,150 190,737 (5) (13)
Net loans 279,149 275,976 272,995 1 1
Brokerage receivables 46,968 33,431 34,542 40 (3)
All other assets 88,677 89,304 107,154 (1) (17)
Total assets  796,289 819,861 820,805 (3) 0
Liabilities and equity (CHF million)   
Due to banks 15,413 22,800 21,054 (32) 8
Customer deposits 361,162 355,833 342,705 1 4
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 26,496 33,016 46,598 (20) (29)
Trading liabilities 39,119 44,930 48,971 (13) (8)
Long-term debt 173,032 193,315 197,608 (10) (2)
Brokerage payables 43,303 39,852 39,452 9 1
All other liabilities 95,575 87,804 79,399 9 11
Total liabilities  754,100 777,550 775,787 (3) 0
Total shareholders' equity  41,902 41,897 44,382 0 (6)
Noncontrolling interests 287 414 636 (31) (35)
Total equity  42,189 42,311 45,018 0 (6)
Total liabilities and equity  796,289 819,861 820,805 (3) 0
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Total liabilities were CHF 754.1 billion as of the end of 2017, a decrease of CHF 23.5 billion, or 3%, compared to the end of 2016. Excluding the foreign exchange translation impact, total liabilities decreased CHF 2.7 billion.
In Swiss francs, long-term debt decreased CHF 20.3 billion, or 10%, primarily driven by maturities of senior debt and the foreign exchange translation impact, partially offset by issuances of senior debt. Due to banks decreased CHF 7.4 billion, or 32%, mainly driven by a decrease in demand deposits with banks and a decrease in time deposits. A decrease of CHF 6.5 billion, or 20%, in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions mainly reflected decreases in >>>repurchase transactions with banks and customers and lower cash collateral. Trading liabilities decreased CHF 5.8 billion, or 13%, primarily reflecting a decrease in derivative instruments and the foreign exchange translation impact. Customer deposits were stable. Brokerage payables increased CHF 3.5 billion, or, 9%, mainly due to an increase in open trades with banks and customers, partially offset by decreases in margin lending, failed settlements and the foreign exchange translation impact. All other liabilities increased CHF 7.8 billion, or 9%, including increases of CHF 10.5 billion, or 68%, in short-term borrowings and CHF 5.5 billion, or 17%, in obligation to return securities received as collateral, partially offset by a decrease of CHF 8.2 billion, or 21%, in other liabilities.
> Refer to “Liquidity and funding management” and “Capital management” for more information, including our funding of the balance sheet and the leverage ratio.
Off-balance sheet
We enter into off-balance sheet arrangements in the normal course of business. Off-balance sheet arrangements are transactions or other contractual arrangements with, or for the benefit of, an entity that is not consolidated. These transactions include derivative instruments, guarantees and similar arrangements, retained or contingent interests in assets transferred to an unconsolidated entity in connection with our involvement with special purpose entities (SPEs), and obligations and liabilities (including contingent obligations and liabilities) under variable interests in unconsolidated entities that provide financing, liquidity, credit and other support.
Derivative instruments
We enter into derivative contracts in the normal course of business for market making, positioning and arbitrage purposes, as well as for our own risk management needs, including mitigation of interest rate, foreign exchange and credit risk.
> Refer to “Derivative instruments” in Risk management – Risk review and results – Credit risk review for further information.
> Refer to “Note 31 – Derivatives and hedging activities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
> Refer to “Note 34 – Financial instruments” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Guarantees and similar arrangements
In the ordinary course of business, guarantees and indemnifications are provided that contingently obligate us to make payments to a guaranteed or indemnified party based on changes in an asset, liability or equity security of the guaranteed or indemnified party. We may be contingently obligated to make payments to a guaranteed party based on another entity’s failure to perform, or we may have an indirect guarantee of the indebtedness of others. Guarantees provided include, but are not limited to, customary indemnifications to purchasers in connection with the sale of assets or businesses; to investors in private equity funds sponsored by us regarding potential obligations of their employees to return amounts previously paid as carried interest; to investors in our securities and other arrangements to provide gross-up payments if there is a withholding or deduction because of a tax assessment or other governmental charge; and to counterparties in connection with securities lending arrangements.
In connection with the sale of assets or businesses, we sometimes provide the acquirer with certain indemnification provisions. These indemnification provisions vary by counterparty in scope and duration and depend upon the type of assets or businesses sold. They are designed to transfer the potential risk of certain unquantifiable and unknowable loss contingencies, such as litigation, tax and intellectual property matters, from the acquirer to the seller. We closely monitor all such contractual agreements in order to ensure that indemnification provisions are adequately provided for in our consolidated financial statements.
US GAAP requires disclosure of our maximum potential payment obligations under certain guarantees to the extent that it is possible to estimate them and requires recognition of a liability for the fair value of obligations undertaken for guarantees issued or amended after December 31, 2002.
> Refer to “Note 32 – Guarantees and commitments” in VI – Consolidated financial statements – Credit Suisse Group for disclosure of our estimated maximum payment obligations under certain guarantees and related information.
Representations and warranties on residential mortgage loans sold
In connection with the former Investment Banking division’s sale of US residential mortgage loans, we have provided certain representations and warranties relating to the loans sold. We have provided these representations and warranties relating to sales of loans to: the US government-sponsored enterprises Fannie Mae and Freddie Mac; institutional investors, primarily banks; and non-agency, or private label, securitizations. The loans sold are primarily loans that we have purchased from other parties. The scope of representations and warranties, if any, depends on the transaction, but can include: ownership of the mortgage loans and legal capacity to sell the loans; LTV ratios and other characteristics of the property, the borrower and the loan; validity of the liens securing the loans and absence of delinquent taxes or related liens; conformity to underwriting standards and completeness of documentation; and origination in compliance with law. If it is determined that representations and warranties were breached, we may be required to repurchase the related loans or indemnify the investors
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to make them whole for losses. Whether we will incur a loss in connection with repurchases and make whole payments depends on: the extent to which claims are made; the validity of such claims (including the likelihood and ability to enforce claims); whether we can successfully claim against parties that sold loans to us and made representations and warranties to us; the residential real estate market, including the number of defaults; and whether the obligations of the securitization vehicles were guaranteed or insured by third parties.
> Refer to “Representations and warranties on residential mortgage loans sold” in Note 32 – Guarantees and commitments in VI – Consolidated financial statements – Credit Suisse Group for further information.
Involvement with special purpose entities
In the normal course of business, we enter into transactions with, and make use of, SPEs. An SPE is an entity in the form of a trust or other legal structure designed to fulfill a specific limited need of the company that organized it and is generally structured to isolate the SPE’s assets from creditors of other entities, including the Group. The principal uses of SPEs are to assist us and our clients in securitizing financial assets and creating investment products. We also use SPEs for other client-driven activity, such as to facilitate financings, and for Group tax or regulatory purposes.
> Refer to “Note 33 – Transfers of financial assets and variable interest entities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
From time to time, we may issue subordinated and senior securities through SPEs that lend the proceeds to the Group.
Contractual obligations and other commercial commitments
In connection with our operating activities, we enter into certain contractual obligations and commitments to fund certain assets. Our contractual obligations and commitments include short and long-term on-balance sheet obligations as well as future contractual interest payments and off-balance sheet obligations. Total obligations decreased CHF 15.2 billion in 2017 to CHF 666.9 billion, primarily reflecting decreases in long-term debt of CHF 20.3 billion to CHF 173.0 billion, in due to banks of CHF 7.4 billion to CHF 15.4 billion and in trading liabilities of CHF 5.8 billion to CHF 39.1 billion. The decreases were partially offset by increases in short-term borrowings of CHF 10.5 billion to CHF 25.9 billion, in customer deposits of CHF 5.3 billion to CHF 361.2 billion and in brokerage payables of CHF 3.5 billion to CHF 43.3 billion.
> Refer to “Note 24 – Long-term debt” in VI – Consolidated financial statements – Credit Suisse Group for further information on long-term debt and the related interest commitments.
> Refer to “Note 32 – Guarantees and commitments” in VI – Consolidated financial statements – Credit Suisse Group for further information on commitments.
Contractual obligations and other commercial commitments
   2017 2016

Payments due within
Less
than
1 year

1 to 3
years

3 to 5
years
More
than
5 years


Total


Total
On- and off-balance sheet obligations (CHF million)   
Due to banks 14,606 658 0 149 15,413 22,800
Customer deposits 359,317 740 319 786 361,162 355,833
Short-term borrowings 25,889 0 0 0 25,889 15,385
Long-term debt 1 33,757 44,193 29,585 65,497 173,032 2 193,315 2
Contractual interest payments 3 1,417 234 170 753 2,574 4 3,622
Trading liabilities 39,119 0 0 0 39,119 44,930
Brokerage payables 43,303 0 0 0 43,303 39,852
Operating lease obligations 570 1,039 741 2,884 5,234 5,777
Purchase obligations 555 353 148 127 1,183 564
Total obligations 5 518,533 47,217 30,963 70,196 666,909 682,078
1
Refer to "Debt issuances and redemptions" in Liquidity and funding management and "Note 24 – Long-term debt" in VI – Consolidated financial statements – Credit Suisse Group for further information on long-term debt.
2
Includes non-recourse liabilities from consolidated VIEs of CHF 863 million and CHF 1,759 million as of December 31, 2017 and 2016, respectively.
3
Includes interest payments on fixed rate long-term debt, fixed rate interest-bearing deposits (excluding demand deposits) and fixed rate short-term borrowings, which have not been effectively converted to variable rate on an individual instrument level through the use of swaps.
4
Due to the non-determinable nature of interest payments, the following notional amounts have been excluded from the table: variable rate long-term debt of CHF 66,925 million, variable rate short-term borrowings of CHF 21,072 million, variable rate interest-bearing deposits and demand deposits of CHF 149,300 million, fixed rate long-term debt and fixed rate interest-bearing deposits converted to variable rate on an individual instrument level through the use of swaps of CHF 77,028 million and CHF 203 million, respectively.
5
Excludes total accrued benefit liability for pension and other post-retirement benefit plans of CHF 533 million and CHF 516 million as of December 31, 2017 and 2016, respectively, recorded in other liabilities in the consolidated balance sheets, as the accrued liability does not represent expected liquidity needs. Refer to "Note 30 – Pension and other post-retirement benefits" in VI – Consolidated financial statements – Credit Suisse Group for further information on pension and other post-retirement benefits.
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Corporate Governance
Corporate Governance overview
Shareholders
Board of Directors
Executive Board
Additional information
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Corporate Governance overview
The Group’s corporate governance complies with internationally accepted standards. We are committed to safeguarding the interests of our stakeholders and recognize the importance of good corporate governance. We know that transparent disclosure of our governance helps stakeholders assess the quality of the Group’s corporate governance and assists investors in their investment decisions.
Corporate Governance developments
During 2017, the Group’s corporate governance continued to align with the implementation of the Group’s strategy and the ongoing program to evolve the Group’s legal entity structure. The key corporate governance developments for the Group in 2017 included:
The decision, announced in connection with the publication of our first quarter financial report, not to pursue a partial initial public offering of Credit Suisse (Schweiz) AG, thus retaining full ownership of a historically stable income stream in our home market of Switzerland and avoiding complexity in the business structure and activities of a key division of the Group;
The Extraordinary General Meeting (EGM) held on May 18, 2017, at which shareholders approved an ordinary capital increase by way of a rights offering, which resulted in 393,232,572 newly issued shares and net proceeds for the Group of CHF 4.1 billion;
The election of two new Group Board of Directors (Board) members, Andreas Gottschling and Alexandre Zeller, at the 2017 Annual General Meeting (AGM). Alexandre Zeller also serves as chairman of the board of directors of our Swiss subsidiary Credit Suisse (Schweiz) AG, and Andreas Gottschling was appointed as a board member to two of the Group’s UK subsidiaries, Credit Suisse International and Credit Suisse Securities (Europe) Limited, effective in January 2018;
The appointment of Board member Kai S. Nargolwala as the new Compensation Committee Chair, succeeding Jean Lanier, effective as of the 2017 AGM;
The selection and nomination of two new Board member candidates, Michael Klein and Ana Paula Pessoa, for election at the 2018 AGM;
Significant progress in evolving the legal entity structure of the Group, including the establishment of Credit Suisse Services AG, our Swiss service company, which became operational in July 2017; and
Continued progress in aligning the governance of the Group’s major subsidiaries, including appointments of new non-executive directors to the boards of the Group’s major subsidiaries in the US, UK and Switzerland.
> Refer to “Evolution of legal entity structure” in I – Information on the company – Strategy for further information on our legal entity structure.
We regularly monitor developments in corporate governance guidelines, regulations and best practice standards in all jurisdictions relevant to our business operations. In 2017, the Swiss parliament started its review of the proposed revision to Swiss corporate law, which includes proposals that impact shareholder meetings and executive compensation, carrying over the regulations of the Swiss Ordinance Against Excessive Compensation with respect to Listed Corporations (Compensation Ordinance) into the general Swiss corporate law, as well as gender diversity at the board and executive board levels. The >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) circular 2017/1 “Corporate Governance – Banks”, which concentrated existing specifications set forth in various FINMA circulars and emphasizes the importance of modern corporate governance and appropriate and efficient risk management for banks, became effective on July 1, 2017. The Group’s existing corporate governance framework, including its risk management framework, reflects the guidance and standards set forth in this new circular. Furthermore, the >>>SIX Swiss Exchange (SIX) issued a partial revision of the Directive on Information relating to Corporate Governance with respect to sustainability reporting. The amendment became effective on July 1, 2017 and enables issuers on an optional basis to report to the SIX by means of an opting-in clause that the issuer produces a sustainability report in accordance with an internationally recognized standard recognized by the SIX.
> Refer to “Risk management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for further information on risk governance.
Corporate Governance framework
The Group’s corporate governance framework consists of its governing bodies and its corporate governance policies and procedures, which define the competencies of the governing bodies and other corporate governance rules, as well as the practices to be followed throughout the Group, in line with Swiss corporate law and international best practice standards for corporate governance. The governing bodies of the Group are:
the General Meeting of Shareholders;
the Board of Directors;
the Executive Board; and
the external auditors.
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The shareholders elect the members of the Board and the external auditors on an annual basis and approve required resolutions at the AGM, such as the consolidated financial statements, capital increases and Board and Executive Board compensation. The Board is responsible for the overall strategic direction, supervision and control of the Group and appoints the members of the Executive Board. The Executive Board is responsible for the day-to-day operational management of the Group’s business and for developing and implementing business plans.
The Group is engaged in the banking business and is structured into five business divisions – Swiss Universal Bank; International Wealth Management; Asia Pacific; Global Markets; and Investment Banking & Capital Markets – as well as the Strategic Resolution Unit. The divisions are supported by corporate functions that provide infrastructure and services and have internal control responsibilities. The Group’s banking business is carried out through its legal entities, which are operational in various jurisdictions and subject to the governance rules and supervision of the regulators in those jurisdictions. The Group has identified certain major subsidiary companies, which, in aggregate, account for a significant proportion of the Group’s business operations. These major subsidiaries are Credit Suisse (Schweiz) AG, Credit Suisse Holdings (USA) Inc., Credit Suisse International and Credit Suisse Securities (Europe) Ltd., all subsidiaries of Credit Suisse AG. Corporate governance at these major subsidiaries is closely aligned with the Group’s corporate governance.
The Group’s corporate governance framework is depicted in the chart above. The duties and responsibilities of the governing bodies are described in further detail in the sections below.
The Group’s corporate governance policies and procedures, adopted by the Board, are defined in a series of documents, all of which are available on our website at credit-suisse.com/governance, and include:
Articles of Association (AoA): define the purpose of the business, the capital structure and the basic organizational framework. The AoA of Credit Suisse Group AG (Group) are dated June 6, 2017, and the AoA of Credit Suisse AG (Bank) are dated September 4, 2014. The Group’s and the Bank’s AoAs are available on our website at credit-suisse.com/articles.
Code of Conduct: defines the Group’s ethical values and professional standards that the Board and all employees are required to follow, including adherence to all relevant laws, regulations and policies in order to maintain and strengthen our reputation for integrity, fair dealing and measured risk taking. Our Code of Conduct is available on our website at credit-suisse.com/code in ten languages.
Organizational Guidelines and Regulations (OGR): define the organizational structure of the Group and the responsibilities and sphere of authority of the Board, its committees and the various senior management bodies within the Group, as well as the relevant reporting procedures.
Board charter: outlines the organization and responsibilities of the Board. The Board charter is available on our website at: credit-suisse.com/boardcharter.
Board committee charters: define the organization and responsibilities of the committees.
Compensation policy: provides a foundation for the development of sound compensation plans and practices. The Group’s compensation policy is available on our website at credit-suisse.com/compensationpolicy.
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The summaries herein of the material provisions of our AoA and the Swiss Code of Obligations do not purport to be complete and are qualified in their entirety by reference to the AoA and the Swiss Code of Obligations.
Credit Suisse Group AG and Credit Suisse AG are registered companies in Switzerland. The Group’s shares are listed on the >>>SIX stock exchange and – in the form of >>>American Depositary Shares (ADS), as evidenced by American Depositary Receipts – on the New York Stock Exchange (NYSE). The business purpose of the Group, as set forth in Article 2 of its AoA, is to hold direct or indirect interests in all types of businesses in Switzerland and abroad, in particular in the areas of banking, finance, asset management and insurance. The business purpose of the Bank, as set forth in Article 2 of its AoA, is to operate as a bank, with all related banking, finance, consultancy, service and trading activities in Switzerland and abroad. The AoA of the Group and the Bank set forth their powers to establish new businesses, acquire a majority or minority interest in existing businesses and provide related financing and to acquire, mortgage and sell real estate properties both in Switzerland and abroad. These and other company details are shown in the table below.
Company details
Group Bank
Legal name Credit Suisse Group AG Credit Suisse AG
Business purpose Operate as a holding company Operate as a bank
Registration details Commercial register of the Canton of Zurich as of March 3, 1982; No. CHE-105.884.494 Commercial register of the Canton of Zurich as of April 27, 1883; No. CHE-106.831.974
Date incorporated, with unlimited duration March 3, 1982 July 5, 1856
Registered office Paradeplatz 8 8001 Zurich Switzerland Paradeplatz 8 8001 Zurich Switzerland
Equity listing Swiss Exchange (SIX) SIX number 1213853 NYSE in the form of ADS
Authorized representative in the US Credit Suisse (USA), Inc., 11 Madison Avenue, New York, New York, 10010 Credit Suisse (USA), Inc., 11 Madison Avenue, New York, New York, 10010
> Refer to “II – Operating and financial review” for a detailed review of our operating results.
> Refer to “Note 39 – Significant subsidiaries and equity method investments” in VI – Consolidated financial statements – Credit Suisse Group for a list of significant subsidiaries and associated entities.
Code of Conduct
At Credit Suisse, we are convinced that our responsible approach to business is a decisive factor in determining our long-term success. We therefore expect all of our employees and members of the Board to observe the professional standards and ethical values set out in our Code of Conduct, including our commitment to complying with all applicable laws, regulations and policies in order to safeguard our reputation for integrity, fair dealing and measured risk-taking. The Code of Conduct also implements requirements stipulated under the US Sarbanes-Oxley Act of 2002 (SOX) by including provisions on ethics for our CEO and our principal financial and accounting officers and other persons performing similar functions. No waivers or exceptions are permissible under our Code of Conduct.
> Refer to “credit-suisse.com/code” for our Code of Conduct.
Corporate Responsibility
A responsible approach to business is a key factor in determining our long-term success. For Credit Suisse, corporate responsibility is about creating sustainable value for clients, shareholders, employees and other stakeholders. We strive to comply with the ethical values and professional standards set out in our Code of Conduct in every aspect of our work, including in our relationship with stakeholders. We do so based on a broad understanding of our duties as a financial services provider and employer and as an integral part of the economy and society. This approach also reflects our commitment to protecting the environment. To ensure that we supply the full breadth of information required by our stakeholders, we publish a Corporate Responsibility Report each year. The Group’s reporting on corporate responsibility reflects the requirements set out in the Global Reporting Initiative (GRI) and has been prepared in accordance with GRI Standards: Core Option. Our Corporate Responsibility Report 2017 will be voluntarily reported to the >>>SIX in accordance with the new opting-in regulation for companies issuing sustainability reports.
> Refer to “credit-suisse.com/responsibility” for our Corporate Responsibility Report.
Employee relations
As of December 31, 2017, we had 46,840 employees worldwide, of which 16,490 were in Switzerland and 30,350 were abroad. Our corporate titles include managing director, director, vice president, assistant vice president and non-officer staff. The majority of our employees do not belong to unions. We have not experienced any significant strikes, work stoppages or labor disputes in recent years. We consider our relations with our employees to be good.
> Refer to “Credit Suisse” in II – Operating and financial review for further information on our responsibility as an employer.
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Shareholders
Capital structure
Our total issued share capital as of December 31, 2017 was CHF 102,240,469 divided into 2,556,011,720 shares, with a nominal value of CHF 0.04 per share. On May 18, 2017, the Group held an EGM at which shareholders approved an ordinary capital increase by way of a rights offering, which resulted in 393,232,572 newly issued shares and net proceeds for the Group of CHF 4.1 billion.
> Refer to “Note 15 – Share capital, conditional, conversion and authorized capital of Credit Suisse Group” in VII – Parent company financial statements – Credit Suisse Group and our AoA (Articles 26, 26c and 27) for information on changes to our capital structure during the year.
Shareholder base
We have a broad shareholder base, with the majority of shares owned directly or indirectly by institutional investors outside Switzerland. As of December 31, 2017, 112,139 shareholders were registered in our share register with 1,444,901,325 shares, representing 57% of the total shares issued. The remaining 43% of shares are not registered in our share register. As of December 31, 2017, 121,345,463 or 4.75%, of the issued shares were in the form of >>>ADS. The information provided in the following tables reflects the distribution of Group shares as registered in our share register as of December 31, 2017.
Distribution of Group shares
end of    2017 2016
Number of
shareholders

%
Number of
shares

%
Number of
shareholders

%
Number of
shares

%
Distribution of Group shares   
Private investors 108,856 97 178,205,123 7 114,541 97 165,821,864 8
   of which Switzerland  99,164 88 157,977,712 6 104,367 88 146,980,705 7
   of which foreign  9,692 9 20,227,411 1 10,174 9 18,841,159 1
Institutional investors 3,283 3 1,266,696,202 50 3,478 3 1,105,973,725 53
   of which Switzerland  2,827 3 290,518,357 11 3,040 3 232,035,476 11
   of which foreign 1 456 0 976,177,845 38 438 0 873,938,249 42
Shares registered in share register  112,139 100 1,444,901,325 57 118,019 100 1,271,795,589 61
   of which Switzerland  101,991 91 448,496,069 18 107,407 91 379,016,181 18
   of which Europe  9,175 8 610,345,374 24 9,595 8 586,277,229 28
   of which US 1 162 0 362,822,676 14 148 0 290,750,194 14
   of which other  811 1 23,237,206 1 869 1 15,751,985 1
Shares not registered in share register  1,111,110,395 43 818,101,789 39
Total shares issued  2,556,011,720 100 2,089,897,378 100
1
Includes shares issued in the form of ADS.
Distribution of institutional investors in share register by industry
end of    2017 2016
Number of
shareholders

%
Number of
shares

%
Number of
shareholders

%
Number of
shares

%
Institutional investors by industry   
Banks 20 1 795,084 0 20 1 1,255,503 0
Insurance companies 77 2 16,310,918 1 84 2 11,728,261 1
Pension funds 449 14 60,280,116 5 520 15 56,358,187 5
Investment trusts 391 12 233,752,140 18 360 10 164,705,849 15
Other trusts 552 17 9,160,647 1 579 17 8,320,368 1
Governmental institutions 23 1 648,134 0 25 1 604,300 0
Other 1 1,657 50 161,226,970 13 1,761 51 130,483,026 12
Direct entries  3,169 97 482,174,009 38 3,349 96 373,455,494 34
Fiduciary holdings  114 3 784,522,193 62 129 4 732,518,231 66
Total institutional investors  3,283 100 1,266,696,202 100 3,478 100 1,105,973,725 100
Rounding differences may occur.
1
Includes various other institutional investors for which a breakdown by industry type was not available.
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Through the use of an external global market intelligence firm, we regularly gather additional information on the composition of our shareholder base, including information on shares that are not registered in our share register. According to this data, our shareholder base as of December 31, 2017 comprised 88% institutional investors, with around half of such investors located in North America. The distribution of Group shareholdings by investor type and region is shown as follows:
Shareholder engagement
The Group engages regularly with its shareholders and proxy advisors. The purpose of such engagements is to understand the perspectives of its shareholders, exchange views about the Group’s strategy, financial performance, corporate governance and compensation and other matters of importance to the Group or its shareholders. Shareholder engagement meetings may be attended by the Chairman of the Board (Chairman), the Compensation Committee Chair, the CEO, CFO and other members of the Board or senior management. The responsibility for shareholder engagement is overseen by our Investor Relations department. The Group aims to ensure that all shareholders receive the relevant information they need to keep abreast of current Group developments and make informed decisions.
Information policy
We are committed to an open and fair information policy with our shareholders and other stakeholders. Our Investor Relations and Corporate Communications departments are responsible for addressing inquiries received. All Group shareholders registered in our share register receive an invitation to our AGM, including an order form to receive the annual report and other reports. Each registered shareholder may elect to receive the quarterly reports on our financial performance. All of these reports and other information can be accessed on our website at credit-suisse.com/investors.
Notices required under Swiss law
Notices to shareholders required under Swiss law are made by publication in the Swiss Official Gazette of Commerce. The Board may designate further means of communication for publishing notices to shareholders. Notices required under the listing rules of the >>>SIX will either be published in two Swiss newspapers in German and French and sent to the SIX or otherwise communicated to the SIX in accordance with applicable listing rules. The SIX may further disseminate the relevant information.
Significant shareholders
Under the Swiss Federal Act on Financial Market Infrastructure and market Conduct in Securities and Derivative Trading (FMIA), anyone holding shares in a company listed on the SIX is required to notify the company and the SIX if their holding reaches, falls below or exceeds the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 331⁄3%, 50% or 662⁄3% of the voting rights entered into the commercial register, whether or not the voting rights can be exercised (that is, notifications must also include certain derivative holdings such as options or similar instruments). Following receipt of such notification, the company has an obligation to inform the public. In addition, pursuant to the Swiss Code of Obligations, a company must disclose in the notes to its annual consolidated financial statements the identity of any shareholders who own in excess of 5% of its shares. The following provides an overview of the holdings of our significant shareholders, including any rights to purchase or dispose of shares, based on the most recent disclosure notifications. In line with the FMIA requirements, the percentages indicated below were calculated in relation to the share capital reflected in the AoA at the time of the disclosure notification. As shareholders are only required to notify the company and the SIX if their holding reaches, falls below or exceeds the thresholds listed above, the percentage holdings of our significant shareholders may vary at any given time compared to the date of submission of the most recent notification for these respective shareholders. The full text of all notifications can be found on our website at credit-suisse.com/shareholders. Each share entitles the holder to one vote, except as described below.
> Refer to “Note 3 – Business developments, significant shareholders and subsequent events” in VI – Consolidated financial statements – Credit Suisse Group for further information on significant shareholders.
The Group also holds positions in its own shares, which are subject to the same disclosure requirements as significant external shareholders. These positions fluctuate and primarily reflect activities related to market making, facilitating client orders and satisfying the obligations under our employee compensation plans. Shares held by the Group have no voting rights. As of December 31, 2017, our holdings amounted to 3.79% purchase positions (0.42% registered shares and 3.37% share acquisition rights) and 21.19% sales positions (disposal rights), mainly related to the Group’s outstanding tier 1 capital instruments, which would be converted into Group ordinary shares upon the occurrence of certain specified triggering events.
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> Refer to “Issuances and redemptions” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management for further information.
Cross shareholdings
The Group has no cross shareholdings in excess of 5% of capital or voting rights with any other company.
Significant shareholders
Group publication
of notification
Number of
shares (million)
Approximate
shareholding %
1 Purchase rights
%
December 31, 2017 or the most recent notification date   
Norges Bank February 15, 2018 127.4 4.98
Qatar Investment Authority (registered entity – Qatar Holding LLC) August 16, 2017 126.2 4.94 10.97 2
The Olayan Group (registered entity – Crescent Holding GmbH) June 2, 2017 106.6 4.93 5.29 3
BlackRock Inc. September 2, 2017 86.9 4.17
Harris Associates L.P. November 9, 2013 4 81.5 5.17
Capital Group Companies, Inc. October 31, 2017 76.6 3.01
December 31, 2016 or the most recent notification date   
The Olayan Group (registered entity – Crescent Holding GmbH) September 16, 2016 111.3 5.41 5.31
Norges Bank December 3, 2016 104.4 4.99
Qatar Investment Authority (registered entity – Qatar Holding LLC) November 16, 2016 103.0 4.93 12.81
Capital Group Companies, Inc. January 28, 2017 96.7 4.91
Harris Associates L.P. November 9, 2013 81.5 5.17
BlackRock Inc. January 25, 2013 38.6 3.01
December 31, 2015 or the most recent notification date   
Norges Bank February 12, 2016 98.5 5.03
Qatar Investment Authority (registered entity – Qatar Holding LLC) December 10, 2015 97.5 4.98 13.59
The Olayan Group (registered entity – Crescent Holding GmbH) December 2, 2015 84.0 4.95 6.40
Harris Associates L.P. November 9, 2013 81.5 5.17
Franklin Resources, Inc. February 25, 2016 69.0 3.52
Dodge & Cox December 19, 2012 63.5 4.96
Capital Group Companies, Inc. April 21, 2015 48.4 3.01
BlackRock Inc. January 25, 2013 38.6 3.01
1
The approximate shareholding percentages were calculated in relation to the share capital at the time of the relevant disclosure notification. They therefore do not reflect changes in such percentages that would result from changes in the number of outstanding shares, following the date of the disclosure notification.
2
Consists of 10.97% purchase rights relating to Qatar Holding LLC's holdings of USD 1.72 billion 9.5% tier 1 capital instruments and CHF 2.5 billion 9.0% tier 1 capital instruments (perpetual security with mandatory contingent conversion into shares), which will be converted into shares only in situations where the Group no longer meets specific regulatory capital requirements.
3
Consists of 5.242% purchase rights relating to The Olayan Group's holdings of USD 1.725 billion 9.5% tier 1 capital instruments (perpetual security with mandatory contingent conversion into shares), which will be converted into shares only in situations where the Group no longer meets specific regulatory capital requirements, and 0.048% from short put options.
4
Harris Associates L.P.’s position includes the reportable position (4.97% shareholding as published by the SIX on November 28, 2017) of Harris Associates Investment Trust, which is managed by Harris Associates L.P.
Shareholder rights
We are fully committed to the principle of equal treatment of all shareholders. The following information summarizes certain shareholder rights at the Group.
Voting rights and transfer of shares
There is no limitation under Swiss law or the AoA on the right to own Group shares.
In principle, each share represents one vote at the AGM. Shares held by the Group have no voting rights. Shares for which a single shareholder or shareholder group can exercise voting rights may not exceed 2% of the total outstanding share capital, unless one of the exemptions discussed below applies. The restrictions on voting rights do not apply to:
the exercise of voting rights by the independent proxy as elected by the AGM;
shares in respect of which the shareholder confirms to us that the shareholder has acquired the shares in the shareholder’s name for the shareholder’s own account and in respect of which the disclosure requirements in accordance with the FMIA and the relevant ordinances and regulations have been fulfilled; or
shares that are registered in the name of a nominee, provided that this nominee is willing to furnish us, on request, the name, address and shareholdings of any beneficial owner or group of related beneficial owners on behalf of whom the nominee holds 0.5% or more of the total outstanding share capital of the Group.
To execute voting rights, shares need to be registered in the share register directly or in the name of a nominee. In order to be registered in the share register, the purchaser must file a share registration form with the depository bank. The registration of shares in the share register may be requested at any time. Failing such
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registration, the purchaser may not vote or participate in shareholders’ meetings. However, each shareholder, whether registered in the share register or not, is entitled to receive dividends or other distributions approved at the AGM. Transfer restrictions apply regardless of the way and the form in which the registered shares are kept in the accounts and regardless of the provisions applicable to transfers. The transfer of intermediated securities based on Group shares, and the pledging of these intermediated securities as collateral, is based on the provisions of the Swiss Federal Intermediated Securities Act. The transfer or pledging of shares as collateral by means of written assignment is not permitted.
Annual General Meeting
We encourage shareholders to participate at our AGM. Under Swiss law, the AGM must be held within six months of the end of the fiscal year. Notice of an AGM, including agenda items and proposals submitted by the Board and by shareholders, must be published in the Swiss Official Gazette of Commerce at least 20 days prior to the AGM.
Shares only qualify for voting at an AGM if they are registered in the share register with voting rights no later than three days prior to the AGM.
Convocation of shareholder meetings
The AGM is convened by the Board or, if necessary, by the statutory auditors, with 20 days’ prior notice. The Board is further required to convene an EGM if so resolved at a shareholders’ meeting or if so requested by shareholders holding in aggregate at least 10% of the nominal share capital. The request to call an EGM must be submitted in writing to the Board, and, at the same time, Group shares representing at least 10% of the nominal share capital must be deposited for safekeeping. The shares remain in safekeeping until the day after the EGM.
Request to place an item on the agenda
Shareholders holding shares with an aggregate nominal value of at least CHF 40,000 have the right to request that a specific item be placed on the agenda and voted upon at the AGM. The request to include a particular item on the agenda, together with a relevant proposal, must be submitted in writing to the Board no later than 45 days before the meeting and, at the same time, Group shares with an aggregate nominal value of at least CHF 40,000 must be deposited for safekeeping. The shares remain in safekeeping until the day after the AGM.
Quorum requirements
The AGM may, in principle, pass resolutions without regard to the number of shareholders present at the meeting or represented by proxy, except as discussed below. Resolutions and elections generally require the approval of a majority of the votes represented at the meeting, except as otherwise provided by mandatory provisions of law or by the AoA.
Shareholders’ resolutions that require a vote by a majority of the votes represented include:
amendments to the AoA, unless a supermajority is required;
election of members of the Board, the Chairman, the members of the Compensation Committee, the independent proxy and statutory auditors;
approval of the compensation of the members of the Board and the Executive Board;
approval of the annual report and the statutory and consolidated accounts;
discharge of the acts of the members of the Board and Executive Board; and
determination of the appropriation of retained earnings.
A quorum of at least two-thirds of the votes represented is required for resolutions on:
change of the purpose of the company;
creation of shares with increased voting powers;
implementation of transfer restrictions on shares;
increase in conditional and authorized capital;
increase of capital by way of conversion of capital surplus or by contribution in kind;
restriction or suspension of pre-emptive rights;
change of location of the principal office; and
dissolution of the company without liquidation.
A quorum of at least half of the total share capital and approval by at least three-quarters of the votes represented is required for resolutions on:
the conversion of registered shares into bearer shares;
amendments to the AoA relating to registration and voting rights of nominee holders; and
the dissolution of the company.
A quorum of at least half of the total share capital and the approval of at least seven-eighths of the votes cast is required for amendments to provisions of the AoA relating to voting rights.
Say on pay
In accordance with the Swiss Code of Best Practice for Corporate Governance, the Group submitted the compensation report (contained in the Compensation section of the Annual Report) for a consultative vote by shareholders at the 2017 AGM. In accordance with the Compensation Ordinance, the Group will submit the following Board and Executive Board compensation recommendations for binding votes by shareholders at the 2018 AGM:
For the Board: a maximum aggregate amount of compensation to be paid to members of the Board for the period from the 2018 to the 2019 AGM;
For the Executive Board: an aggregate amount of variable compensation in the form of short-term incentive (STI) awards to be awarded to Executive Board members for the 2017 financial year;
For the Executive Board: a maximum aggregate amount of fixed compensation to be paid to members of the Executive Board for the period from the 2018 to the 2019 AGM; and
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For the Executive Board: a maximum aggregate amount of variable compensation in the form of long-term incentive (LTI) awards to be granted to Executive Board members for the 2018 financial year.
In line with current practice, the Group will continue to submit the compensation report for a consultative vote by shareholders.
> Refer to V – Compensation for further information on the binding vote.
Discharge of the acts of the Board and the Executive Board
According to Swiss law, the AGM has the power to discharge the actions of the members of the Board and the Executive Board. The 2017 AGM granted discharge to the members of the Board and the Executive Board for the 2016 financial year.
Pre-emptive rights
Under Swiss law, any share issue, whether for cash or non-cash consideration or no consideration, is subject to the prior approval of the shareholders. Shareholders of a Swiss corporation have certain pre-emptive rights to subscribe for new issues of shares in proportion to the nominal amount of shares held. A resolution adopted at a shareholders’ meeting with a supermajority may, however, limit or suspend pre-emptive rights in certain limited circumstances.
Duty to make an offer
Swiss law provides that anyone who, directly or indirectly or acting in concert with third parties, acquires 331⁄3% or more of the voting rights of a listed Swiss company, whether or not such rights are exercisable, must make an offer to acquire all of the listed equity securities of such company, unless the AoA of the company provides otherwise. Our AoA does not include a contrary provision. This mandatory offer obligation may be waived under certain circumstances by the Swiss Takeover Board or the >>>FINMA. If no waiver is granted, the mandatory offer must be made pursuant to procedural rules set forth in the FMIA and implementing ordinances.
Clauses on changes in control
To the best of our knowledge, there are no agreements in place that could lead to a change in control of the Group. Subject to certain provisions in the Group’s employee compensation plans, which allow for the Compensation Committee or Board to determine the treatment of outstanding awards for all employees, including the Executive Board members, in the case of a change in control, there are no provisions that require the payment of extraordinary benefits in the agreements and plans benefiting members of the Board and the Executive Board or any other members of senior management. Specifically, there are no contractually agreed severance payments in the case of a change in control of the Group.
> Refer to “Contract lengths, termination and change in control provisions” in V – Compensation – Executive Board compensation for 2017 for further information on the clauses on changes in control.
Borrowing and raising funds
Neither Swiss law nor our AoA restrict our power to borrow and raise funds in any way. The decision to borrow funds is passed by or under the direction of our Board, with no shareholders’ resolution required.
Liquidation
Under Swiss law and our AoA, the Group may be dissolved at any time by a shareholders’ resolution which must be passed by:
a supermajority of at least three-quarters of the votes cast at the meeting in the event the Group were to be dissolved by way of liquidation; and
a supermajority of at least two-thirds of the votes represented and an absolute majority of the par value of the shares represented at the meeting in other cases.
Dissolution by order of FINMA is possible if we become bankrupt. Under Swiss law, any surplus arising out of liquidation (after the settlement of all claims of all creditors) is distributed to shareholders in proportion to the paid-up par value of shares held.
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Board of Directors
Membership and qualifications
The AoA provide that the Board shall consist of a minimum of seven members. The Board currently consists of 12 members. We believe that the size of the Board must be such that the committees can be staffed with qualified members. At the same time, the Board must be small enough to ensure an effective and rapid decision-making process. Board members are elected at the AGM by our shareholders individually for a period of one year and are eligible for re-election. Shareholders will also elect a member of the Board as the Chairman and each of the members of the Compensation Committee for a period of one year. One year of office is understood to be the period of time from one AGM to the close of the next AGM. Members of the Board shall generally retire after having served on the Board for 12 years. Under certain circumstances, the Board may extend the limit of terms of office for a particular Board member for a maximum of three additional years.
An overview of the Board and the committee membership is shown in the following table. The composition of the Boards of the Group and the Bank is identical.
Members of the Board and Board committees
Board
member
since


Independence
Governance and
Nominations
Committee

Audit
Committee

Compensation
Committee

Risk
Committee
December 31, 2017   
Urs Rohner, Chairman 2009 Independent Chairman
Iris Bohnet 2012 Independent Member
Andreas Gottschling 2017 Independent Member
Alexander Gut 2016 Independent Member
Andreas N. Koopman 2009 Independent Member Member
Seraina Macia 2015 Independent Member
Kai S. Nargolwala 2013 Independent Member Chairman
Joaquin J. Ribeiro 2016 Independent Member
Severin Schwan, Vice-Chair and Lead Independent Director 2014 Independent Member Member
Richard E. Thornburgh, Vice-Chair 2006 Independent Member Member Chairman
John Tiner 2009 Independent Member Chairman Member
Alexandre Zeller 2017 Independent Member Member
Board changes
At the 2017 AGM, Andreas Gottschling and Alexandre Zeller were elected as new members of the Board. Noreen Doyle, Jean Lanier and Jassim bin Hamad J.J. Al Thani stepped down from the Board. The Board proposes Michael Klein and Ana Paula Pessoa for election as new non-executive Board members at the AGM on April 27, 2018. Michael Klein, former Chairman and Co-CEO Markets & Banking at Citigroup, is a recognized international banking professional and expert with over thirty years of experience in banking and financial services. Ana Paula Pessoa has wide ranging-experience in finance and strategy spanning more than two decades and currently serves as an independent board member of News Corporation, New York, and Vinci Group, Paris. Richard E. Thornburgh, upon reaching the relevant tenure limit, will not stand for re-election. The Board proposes that all other current members of the Board be re-elected to the Board, proposes the re-election of Urs Rohner as Chairman and proposes Iris Bohnet, Andreas N. Koopmann, Kai S. Nargolwala and Alexandre Zeller as members of the Compensation Committee.
Board composition and succession planning
The Governance and Nominations Committee (formerly Chairman’s and Governance Committee) regularly considers the composition of the Board as a whole and in light of staffing requirements for the committees. The Governance and Nominations Committee recruits and evaluates candidates for Board membership based on criteria as set forth by the OGR. The Governance and Nominations Committee may also retain outside consultants with respect to the identification and recruitment of potential new Board members. In assessing candidates, the Governance and Nominations Committee considers the requisite skills and characteristics of Board members as well as the composition of the Board as a whole. Among other considerations, the Governance and Nominations Committee takes into account skills, management experience, independence and diversity in the context of the needs of the Board to fulfill its responsibilities. The Governance and Nominations Committee also considers other activities and commitments of an individual in order to be satisfied that a proposed member of the Board can devote enough time to a Board position at the Group.
> Refer to “Mandates” for further information.
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The background, skills and experience of our Board members are diverse and broad and include holding or having held top management positions at financial services and other companies in Switzerland and abroad, as well as leading positions in government, academia and international organizations. The Board is composed of individuals with wide-ranging professional expertise in key areas such as financial management, audit, risk management, legal and regulatory affairs, human resources, digitalization, communication and incentive structures. Diversity of culture, experience and opinion are important aspects of Board composition, as well as gender diversity. While the ratio of female-to-male Board members may vary in any given year, the Board is committed to maintaining a good gender balance over the long term.
To maintain a high degree of expertise, diversity and independence in the future, the Board has a succession planning process in place to identify potential candidates for the Board at an early stage. With this process, we are well prepared when Board members rotate off the Board. The objectives of the succession planning process are to ensure adequate representation of key Board competencies and a Board composition that is well-suited to address future challenges, while maintaining the stability and professionalism of the Board. Potential candidates are evaluated according to criteria defined to assess the candidates’ expertise and experience, which include the following:
proven track record as an executive with relevant leadership credentials gained in an international business environment in financial services or another industry;
relevant functional skills and credentials (e.g., in the areas of financial management, audit, risk management, legal, regulatory, innovation, technology, marketing, media, human resources, etc.);
understanding of global banking, financial markets and financial regulation;
broad international experience and global business perspective, with a track record of having operated in multiple geographies;
ability to bring insight and clarity to complex situations and to both challenge and constructively support management;
high level of integrity and affinity with the Group’s values and corporate culture; and
willingness to commit sufficient time to prepare for and attend Board and committee meetings.
The evaluation of candidates also considers formal independence and other criteria for Board membership, consistent with legal and regulatory requirements and the Swiss Code of Best Practice for Corporate Governance. Furthermore, we believe that other aspects, including team dynamics and personal reputation of Board members, play a critical role in ensuring the effective functioning of the Board. This is why the Group places the utmost importance on the right mix of personalities who are also fully committed to making their blend of specific skills and experience available to the Board.
While the Board is continually engaged in considering potential candidates throughout the year, succession planning for the next year is typically kicked off at the Board’s annual strategy offsite, which is held mid-year. In addition to its discussions of the Group’s strategy, the Board holds a dedicated session on corporate governance, at which, among other topics, current Board composition and future needs are discussed, including the needs for suitable Board committee composition. Based on the outcome of these discussions, the interest and availability of certain candidates will be explored further. The Board’s discussions will continue at its annual self-assessment session, which usually takes place at year-end, and it will consider specific changes in Board composition to be proposed at the next AGM. The Board will ultimately approve candidates to be nominated as new Board members for election at the AGM at its February or March meetings, shortly before the publication of this report.
New members and continuing training
Any newly appointed member is required to participate in an orientation program to become familiar with our organizational structure, strategic plans, significant financial, accounting and risk issues and other important matters relating to the governance of the Group.
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The orientation program is designed to take into account the new Board member’s individual background and level of experience in each specific area. Moreover, the program’s focus is aligned with any committee memberships of the person concerned. Board members are encouraged to engage in continuing training. The Board and the committees of the Board regularly ask specialists within the Group to speak about specific topics in order to enhance the Board members’ understanding of issues that already are, or may become, of particular importance to our business.
Meetings
In 2017, the Board held six meetings in person and eight additional meetings. In addition, the Board held a two and a half-day strategy session.
All members of the Board are expected to spend the necessary time outside of these meetings needed to discharge their responsibilities appropriately. The Chairman calls the meeting with sufficient notice and prepares an agenda for each meeting. However, any other Board member has the right to call an extraordinary meeting, if deemed necessary. The Chairman has the discretion to invite members of management or others to attend the meetings. Generally, the members of the Executive Board attend part of the meetings to ensure effective interaction with the Board. The Board also holds separate private sessions without management present. Minutes are kept of the proceedings and resolutions of the Board.
From time to time, the Board may take certain decisions via circular resolution, unless a member asks that the matter be discussed in a meeting and not decided upon by way of written consent.
Meeting attendance
The members of the Board are encouraged to attend all meetings of the Board and the committees on which they serve.
Meeting attendance – Board and Board committees

Board of
Directors
1 Governance and
Nominations
Committee
2
Audit
Committee
3
Compensation
Committee
4
Risk
Committee
5
in 2017   
Total number of meetings held 14 8 16 10 6
   Number of members who missed no meetings  9 7 4 4 6
   Number of members who missed one meeting  3 1 1 0 0
   Number of members who missed two or more meetings  3 0 0 1 1
Meeting attendance, in % 95 98 99 95 91
1
The Board consisted of 13 and 12 members at the beginning of the year and the end of the year, respectively, with 2 members joining the Board and 3 members leaving the Board as of the 2017 AGM.
2
The Governance and Nominations Committee consisted of five members at the beginning of the year and six members at the end of the year.
3
The Audit Committee consisted of five members at the beginning and the end of the year.
4
The Compensation Committee consisted of four members at the beginning and the end of the year.
5
The Risk Committee consisted of six members at the beginning of the year and five members at the end of the year.
Meeting attendance – individual Board members
Attendance (%) < 80 80–89 90–100
Board member   
Urs Rohner, Chairman
Iris Bohnet
Andreas Gottschling 1
Alexander Gut
Andreas N. Koopman
Seraina Macia
Kai S. Nargolwala
Joaquin J. Robeiro
Severin Schwan
Richard E. Thornburgh
John Tiner
Alexandre Zeller 1
1
Board member as of the 2017 AGM.
Mandates
Our Board members may assume board or executive level or other roles in companies and organizations outside of the Group, which are collectively referred to as mandates. The Compensation Ordinance sets out that companies must include provisions in their articles of association to define the activities that fall within the scope of a mandate and set limits on the number of mandates that board members and executive management may hold. According to the Group’s AoA, mandates include activities in the most senior executive and management bodies of listed companies and all other legal entities that are obliged to obtain an entry in the Swiss commercial register or a corresponding foreign register.
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The limitations on mandates assumed by Board members outside of the Group are summarized in the table below.
Type of mandate and limitation – Board
Type of mandate Limitation
Listed Companies No more than four other mandates
Other legal entities 1 No more than five mandates
Legal entities on behalf of the Group 2 No more than ten mandates
Charitable legal entities 3 No more than ten mandates
1
Includes private non-listed companies.
2
Includes memberships in business and industry associations.
3
Also includes honorary mandates in cultural or educational organizations.
No Board member holds mandates in excess of these restrictions. The restrictions shown above do not apply to mandates of Board members in legal entities controlled by the Group such as subsidiary boards.
> Refer to “Audit Committee” in Board committees for further information on limits on Audit Committee service.
Independence
The Board consists solely of non-executive directors within the Group, of which at least the majority must be determined to be independent. In its independence determination, the Board takes into account the factors set forth in the OGR, the committee charters and applicable laws and listing standards. Our independence standards are also periodically measured against other emerging best practice standards.
The Governance and Nominations Committee performs an annual assessment of the independence of each Board member and reports its findings to the Board for the final determination of independence of each individual member. The Board has applied the independence criteria of the >>>SIX Exchange Directive on Information relating to Corporate Governance, >>>FINMA, the Swiss Code of Best Practice for Corporate Governance and the rules of the NYSE and the Nasdaq Stock Market (Nasdaq) in determining the definition of independence.
Independence criteria applicable to all Board members
In general, a director is considered independent if the director:
is not, and has not been for the prior three years, employed as an executive officer or in another function at the Group or any of its subsidiaries;
is not, and has not been for the prior three years, an employee or affiliate of our external auditor; and
does not maintain a material direct or indirect business relationship with the Group or any of its subsidiaries.
Whether or not a relationship between the Group or any of its subsidiaries and a member of the Board is considered material depends in particular on the following factors:
the volume and size of any transactions concluded in relation to the financial status and credit standing of the Board member concerned or the organization in which he or she is a partner, significant shareholder or executive officer;
the terms and conditions applied to such transactions in comparison to those applied to transactions with counterparties of a similar credit standing;
whether the transactions are subject to the same internal approval processes and procedures as transactions that are concluded with other counterparties;
whether the transactions are performed in the ordinary course of business; and
whether the transactions are structured in such a way and on such terms and conditions that the transaction could be concluded with a third party on comparable terms and conditions.
Moreover, a Board member is not considered independent if the Board member is, or has been at any time during the prior three years, part of an interlocking directorate in which a member of the Executive Board serves on the compensation committee of another company that employs the Board member. Significant shareholder status is generally also not considered a criterion for independence unless the shareholding exceeds 10% of the Group’s share capital or in instances where the shareholder may otherwise influence the Group in a significant manner. Board members with immediate family members who would not qualify as independent are also not considered independent.
Additional independence considerations for Audit Committee and Compensation Committee members
Board members serving on the Audit Committee are subject to independence requirements in addition to those required of other Board members. None of the Audit Committee members may be an affiliated person of the Group or may, directly or indirectly, accept any consulting, advisory or other compensatory fees from us other than their regular compensation as members of the Board and its committees.
For Board members serving on the Compensation Committee, the independence determination considers all factors relevant to determining whether a director has a relationship with the Group that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including, but not limited to:
the source of any compensation of the Compensation Committee member, including any consulting, advisory or other compensatory fees paid by the Group to such director; and
whether the Compensation Committee member is affiliated with the Group, any of its subsidiaries or any affiliates of any of its subsidiaries.
Other independence standards
While the Group is not subject to such standards, the Board acknowledges that some proxy advisors apply different standards for assessing the independence of our Board members, including the length of tenure a Board member has served, the full-time status of a Board Member, annual compensation levels of Board members within a comparable range to executive pay or a Board member’s former executive status for periods further back than the preceding three years.
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Independence determination
As of December 31, 2017, all 12 members of the Board were determined by the Board to be independent.
Board leadership
Chairman of the Board
The Chairman is a non-executive member of the Board, in accordance with Swiss banking law, and performs his role on a full-time basis, in line with the practice expected by FINMA, our main regulator. The Chairman:
coordinates the work within the Board;
works with the committee chairmen to coordinate the tasks of the committees;
ensures that the Board members are provided with the information relevant for performing their duties;
drives the Board agenda;
drives key Board topics, especially regarding the strategic development of the Group, succession planning, the structure and organization of the Group, corporate governance, as well as compensation and compensation structure, including the performance evaluation and compensation of the CEO and the Executive Board;
chairs the Board, the Governance and Nominations Committee and the Shareholder Meetings;
takes an active role in representing the Group to key shareholders, investors, regulators and supervisors, industry associations and other external stakeholders;
has no executive function within the Group;
with the exception of the Governance and Nominations Committee, is not a member of any of the Board’s standing committees; and
may attend all or parts of selected committee meetings as a guest without voting power.
Vice-Chair
The Vice-Chair:
is a member of the Board;
is a designated deputy to the Chairman; and
assists the Chairman by providing support and advice to the Chairman, assuming the Chairman’s role in the event of the Chairman’s absence or indisposition and leading the Board accordingly.
There may be one or more Vice-Chairs. Severin Schwan and Richard E. Thornburgh currently serve as Vice-Chairs.
Lead Independent Director
According to the Group’s OGR, the Board may appoint a Lead Independent Director. If the Chairman is determined not to be independent by the Board, the Board must appoint a Lead Independent Director. The Lead Independent Director:
may convene meetings without the Chairman being present;
takes a leading role among the Board members, particularly when issues between a non-independent Chairman and the independent Board members arise (for example, when the non-independent Chairman has a conflict of interest);
leads the Board’s annual assessment of the Chairman; and
ensures that the work of the Board and Board-related processes continue to run smoothly.
As of the date of the 2017 AGM, Severin Schwan was appointed as the new Lead Independent Director.
Segregation of duties
In accordance with Swiss banking law, the Group operates under a dual board structure, which strictly segregates the duties of supervision, which are the responsibility of the Board, from the duties of management, which are the responsibility of the Executive Board. The roles of the Chairman (non-executive) and the CEO (executive) are separate and carried out by two different people.
Board responsibilities
In accordance with the OGR, the Board delegates certain tasks to Board committees and delegates the management of the company and the preparation and implementation of Board resolutions to certain management bodies or executive officers to the extent permitted by law, in particular Article 716a and 716b of the Swiss Code of Obligations, and the AoA.
With responsibility for the overall direction, supervision and control of the company, the Board:
regularly assesses our competitive position and approves our strategic and financial plans and risk appetite statement and overall risk limits;
receives a status report at each ordinary meeting on our financial results, capital, funding and liquidity situation;
receives, on a monthly basis, management information packages, which provide detailed information on our performance and financial status, as well as quarterly risk reports outlining recent developments and outlook scenarios;
is provided by management with regular updates on key issues and significant events, as deemed appropriate or requested;
has access to all information concerning the Group in order to appropriately discharge its responsibilities;
reviews and approves significant changes in our structure and organization;
approves the annual variable compensation pools for the Group and the divisions and recommends total compensation of the Board and Executive Board for shareholder approval at the AGM;
provides oversight on significant projects including acquisitions, divestitures, investments and other major projects; and
along with its committees, is entitled, without consulting with management and at the Group’s expense, to engage external legal, financial or other advisors, as it deems appropriate, with respect to any matters within its authority.
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Governance of Group subsidiaries
The Board assumes oversight responsibility for establishing appropriate governance for Group subsidiaries. The governance of the Group is based on the principles of an integrated oversight and management structure with global scope, which enables management of the Group as one economic unit. The Group sets corporate governance standards to ensure the efficient and harmonized steering of the Group. In accordance with the OGR, the Board appoints or dismisses the chairperson and the members of the board of directors of the major subsidiaries of the Group and approves their compensation. A policy naming the subsidiaries in scope and providing guidelines for the nomination and compensation process is periodically reviewed by the Board. The governance of the major subsidiaries, subject to compliance with all applicable local laws and regulations, should be consistent with the corporate governance principles of the Group, as reflected in the OGR and other corporate governance documents. In order to facilitate consistency and alignment of Group and subsidiary governance, it is the Group’s policy for the Board to appoint at least one Group director to each of the boards of its major subsidiaries. Directors and officers of the Group and its major subsidiaries are committed to ensuring transparency and collaboration throughout the Group.
Board evaluation
The Board performs a self-assessment once a year, where it reviews its own performance against the responsibilities listed in its charter and the Board’s objectives and determines future objectives, including any special focus objectives for the coming year. The Chairman does not participate in the discussion of his own performance. As part of the self-assessment, the Board evaluates its effectiveness with respect to a number of different aspects, including board structure and composition, communication and reporting, agenda setting and continuous improvement. From time to time, the Board may also mandate an external advisor to facilitate the evaluation process. Toward the end of 2016, the Board mandated an external firm to perform an effectiveness review of the Board, which was conducted in the first quarter of 2017 and included a comprehensive review of Board processes and documentation, interviews by the external assessor with the Chairman and the individual Board members and the participation of the external assessor as an observer in Board and Board committee meetings. The results were reviewed and analyzed by the Board during 2017 and the Board agreed to target performing an external board effectiveness review every three years.
Board – 2017 activities
During 2017, the Board focused on a number of key areas, including but not limited to the activities described below. Specifically, the Board:
continued to closely supervise the Group’s strategy implementation, with particular focus in the first half of 2017 on strengthening the Group’s capital base, which resulted in a capital increase by way of a rights offering and the decision not to pursue a partial IPO of Credit Suisse (Schweiz) AG;
held its annual strategy workshop with the Executive Board to review progress on strategic initiatives in each of the business divisions and to address key industry themes such as the expected UK withdrawal from the EU and digitalization in banking;
conducted a strategy workshop with the Asia Pacific senior management team in Hong Kong on the growth of our Asia Pacific Wealth Management & Connected business and repositioning of the Asia Pacific Markets business;
reviewed and approved the Group’s financial targets for 2018 and the introduction of the new Group objectives relating to return on tangible equity, as announced at the 2017 Investor Day;
actively supported and reviewed management’s implementation of the global Conduct and Ethics program, which has resulted in increased awareness across the organization and greater consistency through one global framework under the governance of the Conduct and Ethics Boards (CEBs);
continued to focus on corporate governance at the Group’s major subsidiaries, which included overseeing selected non-executive director appointments to the boards of the Group’s major subsidiaries in Switzerland, the US and the UK;
held the second annual board leadership event, involving board members of the Group and each of the major subsidiaries; key focus topics included capital planning for the Group and its subsidiaries in light of the final Basel III reforms and regulatory priorities in Switzerland, the US and the UK;
reviewed and approved the Group’s risk management framework, following an assessment by the Risk Committee in line with regulatory requirements; the firm-wide risk management framework encompasses all key risk frameworks, including the enterprise risk and control framework and the risk appetite framework;
maintained Board-level focus on innovation and technology through the Board’s advisory Innovation and Technology Committee, including regular monitoring of our cybersecurity programs and receiving assessments from internal and external technology experts regarding emerging trends; and
performed a comprehensive board effectiveness review with the assistance of an external board assessor, in addition to the Board’s usual annual self-assessment process.
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Board committees
The Board has four standing committees: the Governance and Nominations Committee, the Audit Committee, the Compensation Committee and the Risk Committee. Except for the Compensation Committee members who are elected by the shareholders on an annual basis, the committee members are appointed by the Board for a term of one year.
At each Board meeting, the Chairs of the committees report to the Board about the activities of the respective committees. In addition, the minutes and documentation of the committee meetings are accessible to all Board members.
Each committee has its own charter, which has been approved by the Board. Each standing committee performs a self-assessment once a year, where it reviews its own performance against the responsibilities listed in its charter and the committee’s objectives and determines any special focus objectives for the coming year.
Governance and Nominations Committee
The Governance and Nominations Committee consists of the Chairman, the Vice-Chairs and the Chairs of the committees of the Board and other members appointed by the Board. It may include non-independent Board members. Our Governance and Nominations Committee currently consists of five members, all of whom are independent.
The Governance and Nominations Committee generally meets on a monthly basis and the meetings are usually attended by the CEO. It is at the Chairman’s discretion to ask other members of management or specialists to attend a meeting.
The Governance and Nominations Committee:
acts as an advisor to the Chairman and supports him in the preparation of the Board meetings;
is responsible for the development and review of corporate governance guidelines, which are then recommended to the Board for approval;
at least once annually, evaluates the independence of the Board members and reports its findings to the Board for final determination;
is responsible for identifying, evaluating, recruiting and nominating new Board members in accordance with the Group’s internal criteria, subject to applicable laws and regulations;
guides the Board’s annual performance assessment of the Chairman, the CEO and the members of the Executive Board;
proposes to the Board the appointment, promotion, dismissal or replacement of members of the Executive Board; and
reviews succession plans for senior executive positions in the Group with the Chairman and the CEO.
Governance and Nominations Committee – 2017 activities
During 2017, the Governance and Nominations Committee focused on a number of key areas, including but not limited to the activities described below. Specifically, the Governance and Nominations Committee:
continued to focus on supporting the CEO in the execution of the Group’s three-year strategic plan announced in October 2015;
supported the Chairman in setting the priorities for the Board’s annual strategy workshop in 2017, which was focused on strategy implementation;
provided guidance for the external Board effectiveness review and the annual performance assessments of the Chairman and the CEO;
advised on the appointments of Kai Nargolwala, as the new Compensation Committee Chair, and Andreas Gottschling, as a non-executive director of the UK subsidiaries Credit Suisse International and Credit Suisse (Europe) Securities Ltd.;
assessed potential new Board Member candidates during 2017 and recommended that Michael Klein and Ana Paula Pessoa be proposed as new Board members for election at the 2018 AGM; and
participated in a simulation event with management designed to test the Group’s recovery and resolution plans, in line with regulatory expectations.
Audit Committee
The Audit Committee consists of at least three members, all of whom must be independent. The Chair of the Risk Committee is generally appointed as one of the members of the Audit Committee. Our Audit Committee currently consists of five members, all of whom are independent.
The Audit Committee charter stipulates that all Audit Committee members must be financially literate. In addition, they may not serve on the Audit Committee of more than two other companies, unless the Board deems that such membership would not impair their ability to serve on our Audit Committee.
Furthermore, the US Securities and Exchange Commission (SEC) requires disclosure about whether a member of the Audit Committee is an audit committee financial expert within the meaning of SOX. The Board has determined that John Tiner is an audit committee financial expert.
Pursuant to its charter, the Audit Committee holds meetings at least once each quarter, prior to the publication of our consolidated financial statements. Typically, the Audit Committee convenes for a number of additional meetings and workshops throughout the year. The meetings are attended by management representatives, as appropriate, the Head of Internal Audit and senior representatives of the external auditor. A private session with Internal Audit and the external auditors is regularly scheduled to provide them with an opportunity to discuss issues with the Audit Committee
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without management being present. The Head of Internal Audit reports directly to the Audit Committee Chair.
The primary function of the Audit Committee is to assist the Board in fulfilling its oversight role by:
monitoring and assessing the integrity of the consolidated financial statements as well as disclosures of the financial condition, results of operations and cash flows;
monitoring the adequacy of the financial accounting and reporting processes and the effectiveness of internal controls over financial reporting;
monitoring processes designed to ensure compliance by the Group in all significant respects with legal and regulatory requirements, including disclosure controls and procedures;
monitoring the adequacy of the management of operational risks jointly with the Risk Committee, including assessing the effectiveness of internal controls that go beyond the area of financial reporting;
monitoring the adequacy of the management of reputational risks, jointly with the Risk Committee; and
monitoring the qualifications, independence and performance of the external auditors and of Internal Audit.
The Audit Committee is regularly informed about significant projects aimed at further improving processes and receives regular updates on major litigation matters as well as significant regulatory and compliance matters. Furthermore, the Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, including a whistleblower hotline to provide the option to report complaints on a confidential, anonymous basis.
Audit Committee – 2017 activities
During 2017, the Audit Committee focused on a number of key areas, including but not limited to the activities described below. Specifically, the Audit Committee:
performed its regular review of the quarterly and annual financial results and related accounting, reporting and internal control matters;
held specific reviews on certain accounting and reporting matters of particular relevance in 2017, including valuation impacts in connection with the ongoing migration of the Group’s structured notes portfolio to a new target operating model, and Group tax matters, including the assessment of the implications of the US tax reform;
maintained a focus on compliance topics through briefings at every regular meeting by the Chief Compliance and Regulatory Affairs Officer on key compliance risks and associated internal controls;
held dedicated sessions on compliance for the International Wealth Management and Asia Pacific divisions;
conducted a comprehensive review of the Group’s finance functions;
continued to monitor the Strategic Resolution Unit, including the governance and controls in place to ensure all new business activities are scrutinized to distinguish between those types of business exposures held in the Strategic Resolution Unit that will be allowed for execution in our strategic divisions and those that will be prohibited or for which we have limited risk appetite;
reviewed, jointly with the Risk Committee, the Group’s data management framework, as well as measures in place to address data security topics, including cybersecurity;
reviewed, jointly with the Risk Committee, our approach to monitoring conduct risk, including enhanced monitoring and surveillance capabilities, specific measures in the divisions to strengthen conduct and culture, and the activities of the CEBs;
received regular updates by the Head of Internal Audit on key audit findings and held a dedicated workshop with the Internal Audit senior leadership team about their risk assessments for the organization and emerging risk and control themes;
held various briefing sessions on new and updated US GAAP guidance on selected accounting topics with internal experts and KPMG; and
assessed the Group’s position with respect to auditor rotation, in light of EU mandatory auditor rotation rules, which are applicable to Group entities in the EU.
197

Internal Audit
Our Internal Audit function comprises a team of around 350 professionals, substantially all of whom are directly involved in auditing activities. The Head of Internal Audit reports directly to the Audit Committee Chair and the Audit Committee oversees the activities of the Internal Audit function.
Internal Audit performs an independent and objective assurance function that is designed to add value to our operations. Using a systematic and disciplined approach, the Internal Audit team evaluates and enhances the effectiveness of our risk management, control and governance processes.
Internal Audit is responsible for carrying out periodic audits in line with the Charter for Internal Audit approved by the Audit Committee. It regularly and independently assesses the risk exposure of our various business activities, taking into account industry trends, strategic and organizational decisions, best practice and regulatory matters. Based on the results of its assessment, Internal Audit develops detailed annual audit objectives, defining key risk themes and specifying resource requirements for approval by the Audit Committee.
As part of its efforts to achieve best practice, Internal Audit regularly benchmarks its methods and tools against those of its peers. In addition, it submits periodic internal reports and summaries thereof to the management teams as well as the Chairman and the Audit Committee Chair. The Head of Internal Audit reports to the Audit Committee at least quarterly and more frequently as appropriate. Internal Audit coordinates its operations with the activities of the external auditor for maximum effect.
The Audit Committee annually assesses the performance and effectiveness of the Internal Audit function. For 2017, the Audit Committee concluded that the Internal Audit function was effective.
External Audit
The Audit Committee is responsible for the oversight of the external auditor. The external auditor reports directly to the Audit Committee and the Board with respect to its audit of the Group’s financial statements and is ultimately accountable to the shareholders. The Audit Committee pre-approves the retention of, and fees paid to, the external auditor for all audit and non-audit services.
> Refer to “External audit” in Additional information for further information.
External Auditor rotation
In view of the EU rules with respect to mandatory auditor rotation for certain of our significant subsidiaries, the Group’s Audit Committee has decided to pursue a rotation of our Group auditor effective no later than for the audit of the fiscal year ending December 31, 2021.
198

Compensation Committee
The Compensation Committee consists of at least three members of the Board, all of whom must be independent. Our Compensation Committee currently consists of four members, all of whom are independent.
Pursuant to its charter, the Compensation Committee holds at least four meetings per year. Additional meetings may be scheduled at any time. The meetings are attended by management representatives, as appropriate.
The Compensation Committee’s duties and responsibilities include:
reviewing the Group’s compensation policy;
establishing new compensation plans or amending existing plans and recommending them to the Board for approval;
reviewing the performance of the Group and the divisions and recommending to the Board for approval the variable compensation pools for the Group and the divisions;
proposing individual compensation for the Board members to the Board;
recommending to the Board a proposal for the CEO’s compensation;
based on proposals by the CEO, discussing and recommending to the Board the Executive Board members’ compensation; and
reviewing and recommending to the Board the compensation for individuals being considered for an Executive Board position.
In accordance with the Compensation Ordinance, all compensation proposals for members of the Board and the Executive Board are subject to AGM approval.
The Compensation Committee is authorized to retain outside advisors, at the Group’s expense, for the purpose of providing guidance to the Compensation Committee as it carries out its responsibilities. Prior to their appointment, the Compensation Committee conducts an independence assessment of the advisors pursuant to the rules of the SEC and the listing standards of the NYSE and Nasdaq.
> Refer to “The Compensation Committee” in V – Compensation – Compensation governance for information on our compensation approach, principles and objectives and outside advisors.
Compensation Committee – 2017 activities
During 2017, the Compensation Committee focused on a number of key areas, including but not limited to the activities described below. Specifically, the Compensation Committee:
initiated an extensive shareholder engagement effort, which included holding numerous meetings with shareholders involving the Compensation Committee Chair and the Chairman, in response to concerns expressed by some shareholders regarding the compensation of the Executive Board and the Board;
conducted a comprehensive review of the Group’s compensation framework with a focus on Executive Board compensation, based on the feedback gathered from shareholders and other external stakeholders;
determined a number of key changes for the Executive Board compensation design for 2018, which are aligned with the Group’s strategy, including simplified metrics for assessing Executive Board performance which focus more on profitability and shareholder returns and the use of Group level metrics in setting the STI and LTI payout levels, enabling greater transparency on performance targets;
recommended certain changes with respect to Board compensation, including a reduction of the fees paid to Board members who simultaneously serve on the boards of Group subsidiary companies;
assessed the Group’s performance and determined the variable compensation pools for 2017, taking into account the input from the Group’s risk and control functions, including the CEBs;
previewed the proposed variable compensation amounts for specific groups of employees, in line with regulatory guidance and the Group’s compensation policy, including any disciplinary issues and/or points of positive recognition;
introduced modifications to the structure and presentation of the Group’s compensation report to make it more clear and reader-friendly; and
retained Deloitte LLP as the Compensation Committee’s new external compensation advisor.
199

Risk Committee
The Risk Committee consists of at least three members. It may include non-independent members. The Chair of the Audit Committee is generally appointed as one of the members of the Risk Committee. Our Risk Committee currently consists of five members, all of whom are independent.
Pursuant to its charter, the Risk Committee holds at least four meetings a year. In addition, the Risk Committee usually convenes for additional meetings throughout the year in order to appropriately discharge its responsibilities. The meetings are attended by management representatives, as appropriate.
The Risk Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by providing guidance regarding risk governance and the development of our risk profile and capital adequacy, including the regular review of major risk exposures and overall risk limits. The main duties and responsibilities of the Risk Committee include:
reviewing and assessing the integrity and adequacy of the risk management function of the Group, in particular as it relates to market, credit and liquidity and funding risks;
reviewing the adequacy of the Group’s capital and its allocation to the Group’s businesses;
reviewing and assessing the Group’s risk appetite framework, including certain risk limits and regular risk reports and making recommendations to the Board;
reviewing and assessing the adequacy of the Group’s management of reputational risks, jointly with the Audit Committee;
reviewing and assessing the adequacy of the Group’s management of operational risks, including the adequacy of the Group’s internal control system, jointly with the Audit Committee; and
reviewing the Group’s policy in respect of corporate responsibility and sustainable development.
The Risk Committee is regularly informed about major initiatives aimed at responding to regulatory change and further improving risk management across the Group, including organizational changes, changes to risk measurement methods and upgrades to risk systems infrastructure.
Risk Committee – 2017 activities
During 2017, the Risk Committee focused on a number of key areas, including but not limited to the activities described below. Specifically, the Risk Committee:
maintained its focus on supporting the Board in reviewing strategically important topics, including adequacy of capital, liquidity and funding and the allocation of capital to Group businesses and major legal entities, with a focus on the Bank and Credit Suisse Holdings (USA);
reviewed and endorsed the 2018 risk appetite statement and limit requests for the Group and its major legal entities, based on an integrated risk and financial planning process;
monitored the migration of certain business activities between Group entities with a focus on capital and risk management;
monitored developments with respect to the Group’s risk framework, including several reviews of the economic risk capital methodology and the stress testing framework;
regularly monitored the risk profile and limits for a number of businesses, reviewed risk concentrations and limit breaches;
oversaw the Group’s responses to key risk developments, reputational risks and various country risks including those related to China and Korea;
reviewed, jointly with the Audit Committee, risks related to data management, IT and cybersecurity, including our Group-wide IT and cybersecurity response framework and cyber risk simulation testing plans;
conducted focused risk reviews for a number of different businesses and risk management areas, including credit, market and operational risk, model risk and conduct risk;
regularly reviewed the risk management function including processes and organizational structures;
received regular updates on key change programs in line with regulatory expectations including the Basel Committee on Banking Supervision 239 principles for effective risk data aggregation and risk reporting; and
received regular updates from the CEOs of the divisions on key risk matters within their divisions.
Innovation and Technology Committee
The Board established an Innovation and Technology Committee as an interdisciplinary advisory group in 2015. The group acts as a senior platform to discuss internal progress in relation to innovation and technology initiatives, as well as relevant industry-wide technology trends. The Innovation and Technology Committee is chaired by former Group Board member Sebastian Thrun in his role as senior advisor. Participants in the Innovation and Technology Committee include Board members, members of management, internal technology experts and a senior cybersecurity advisor. In 2017, the committee addressed progress on various digital initiatives across the Group and conducted regular reviews of the Group’s responsiveness to cybersecurity risk and overall approach for delivering secure technology-based services. The committee also received regular updates on technology-driven innovation projects, as well as emerging technology and cybersecurity trends.
200

Biographies of the Board members
Urs Rohner
Born 1959
Swiss Citizen
Board member since 2009
Chairman of the Board
Professional history
2004–present Credit Suisse
Chairman of the Board and the Governance and Nominations Committee (2011–present)
Member of the Innovation and Technology Committee (2015–present)
Member of the board of Credit Suisse (Schweiz) AG
(Swiss subsidiary) (2015–present)
Vice-Chair of the Board and member of the Governance and Nominations Committee (2009–2011)
Member of the Risk Committee (2009–2011)
Chief Operating Officer (2006–2009)
General Counsel (2004–2009)
Member of the Executive Board (2004–2009)
2000–2004 ProSiebenSat.1 Media AG,
Chairman of the Executive Board and CEO
1983–1999 Lenz & Staehelin
Partner (1992–1999)
Attorney (1983–1988; 1990–1992)
1988–1989 Sullivan & Cromwell LLP, New York, attorney
Education
1990 Admission to the bar of the State of New York
1986 Admission to the bar of the Canton of Zurich
1983 Master in Law (lic.iur.), University of Zurich, Switzerland
Other activities and functions
GlaxoSmithKline plc, board member
Swiss Bankers Association, vice-chairman1
Swiss Finance Council, board member1
Institute of International Finance, board member1
European Banking Group, member1
European Financial Services Roundtable, member1
University of Zurich Department of Economics, chairman of the advisory board
Lucerne Festival, board of trustees member
1 Mr. Rohner performs functions in these organizations in his capacity as Chairman of the Group.
Iris Bohnet
Born 1966
Swiss Citizen
Board member since 2012
Professional history
2012–present Credit Suisse
Member of the Compensation Committee (2012–present)
Member of the Innovation and Technology Committee (2015–present)
1998–present Harvard Kennedy School
Director of the Women and Public Policy Program (2008–present)
Professor of public policy (2006–present)
Academic dean (2011–2014)
Associate professor of public policy (2003–2006)
Assistant professor of public policy (1998–2003)
1997–1998 Haas School of Business, University of California at Berkeley, visiting scholar
Education
1997 Doctorate in Economics, University of Zurich, Switzerland
1992 Master’s degree in Economic History, Economics and Political Science, University of Zurich, Switzerland
Other activities and functions
Applied, board member
Global Future Council on Behavioral Science,
World Economic Forum (WEF), co-chair
Economic Dividends for Gender Equality (EDGE), advisory board member
201

Andreas Gottschling
Born 1967
German Citizen
Board member since 2017
Professional history
2017–present Credit Suisse
Member of the Risk Committee (2017–present)
Member of the board of Credit Suisse International and Credit Suisse Securities (Europe) Limited (UK subsidiaries) (2018–present)
2013–2016 Erste Group Bank, Vienna,
Chief Risk Officer and Member of the Management Board
2012–2013 McKinsey and Company, Zurich, Senior Advisor Risk Practice
2005–2012 Deutsche Bank, London and Frankfurt
Member of the Risk Executive Committee & Divisional Board (2005–2012)
Global Head Operational Risk (2006-2010)
2003–2005 LGT Capital Management, Switzerland,
Head of Quant Research
2000–2003 Euroquants, Germany, Consultant
1997–2000 Deutsche Bank, Frankfurt, Head of Quantitative Analysis
Education
1997 Doctorate in Economics, University of California, San Diego, USA
1991 Postgraduate Studies in Physics, Mathematics and Economics, Harvard University, Cambridge, US
1990 Degrees in Mathematics and Economics, University of Freiburg, Germany
Other activities and functions
Mr. Gottschling currently does not hold directorships in other organizations.
Alexander Gut
Born 1963
Swiss and British Citizen
Board member since 2016
Professional history
2016–present Credit Suisse
Member of the Audit Committee (2016–present)
Member of the Innovation and Technology Committee (2017–present)
Member of the board of Credit Suisse (Schweiz) AG
(Swiss subsidiary) (2016–present)
2007–present Gut Corporate Finance AG, managing partner
2003–2007 KPMG Switzerland
Member of the Executive Committee, Switzerland (2005–2007)
Partner and Head of Audit Financial Services, Switzerland (2004–2007) and region Zurich (2003–2004)
2001–2003 Ernst & Young, partner of the Transaction Advisory Services practice
1991–2001 KPMG Switzerland
Senior Manager, Audit Financial Services
Senior Manager, Banking Audit
Banking auditor
Education
1996 Swiss Certified Accountant, Swiss Institute of Certified Accountants and Tax Consultants
1995 Doctorate in Business Administration, University of Zurich
1990 Masters degree in Business Administration, University of Zurich
Other activities and functions
Adecco Group Ltd., board member and chairman of the compensation committee
SIHAG Swiss Industrial Holding Ltd, board member
202

Andreas N. Koopmann
Born 1951
Swiss and French Citizen
Board member since 2009
Professional history
2009–present Credit Suisse
Member of the Compensation Committee (2013–present)
Member of the Risk Committee (2009–present)
Member of the board of Credit Suisse (Schweiz) AG
(Swiss subsidiary) (2015–2017)
1982–2009 Bobst Group S.A., Lausanne
Group CEO (1995–2009)
Member of the board (1998–2002)
Executive Vice President (1994–1995)
Member of the Group Executive Committee,
head of manufacturing (1991–1994)
Management positions in engineering and manufacturing (1982–1991)
Prior to 1982 Bruno Piatti AG and Motor Columbus AG, various positions
Education
1978 MBA, International Institute for Management Development, Switzerland
1976 Master’s degree in Mechanical Engineering,
Swiss Federal Institute of Technology, Switzerland
Other activities and functions
Nestlé SA, board member and vice-chairman
Georg Fischer AG, chairman of the board
CSD Group, board member
Sonceboz SA, board member
Swiss Board Institute, member of the board of trustees
Economiesuisse, board member
EPFL, Lausanne, Switzerland, strategic advisory board member
EPFL+ Foundation, member of the board of trustees
Seraina Macia
Born 1968
Swiss and Australian Citizen
Board member since 2015
Professional history
2015–present Credit Suisse
Member of the Audit Committee (2015–present)
2017–present AIG Corporation
Executive vice president & CEO of Blackboard (AIG technology-focused subsidiary; formerly Hamilton USA)
2016–2017 Hamilton Insurance Group
CEO Hamilton USA
2013–2016 AIG Corporation
Executive vice-president and CEO Regional Management & Operations of AIG, New York (2015–2016)
CEO and President of AIG EMEA, London (2013–2016)
2010–2013 XL Insurance North America, chief executive
2002–2010 Zurich Financial Services
President Specialties Business Unit, Zurich North America Commercial, New York (2007–2010)
CFO, Zurich North America Commercial, New York (2006–2007)
Various positions, among others: head of the joint investor relations and rating agencies management departments; head of rating agencies management; senior investor relations officer (2002–2008)
2000–2002 NZB Neue Zuercher Bank,
founding partner and financial analyst
1990–2000 Swiss Re
Rating agency coordinator, Swiss Re Group (2000)
Senior underwriter and deputy head of financial products (1996–1999)
Various senior positions in Zurich and Melbourne (1990–1996)
Education
2001 Chartered Financial Analyst (CFA), CFA Institute, US
1999 MBA, Monash Mt Eliza Business School, Australia
1997 Post-graduate certificate in Management, Deakin University, Australia
Other activities and functions
CFA Institute, member
Food Bank for New York City, board member
203

Kai S. Nargolwala
Born 1950
Singaporean Citizen
Board member since 2013
Professional history
2008–present Credit Suisse
Chair of the Compensation Committee (2017–present)
Member of the Governance and Nominations Committee (2017-present)
Member of the Innovation and Technology Committee (2015–present)
Member of the Compensation Committee (2014–present)
Member of the Risk Committee (2013–2017)
Non-executive chairman of Credit Suisse’s Asia-Pacific region (2010–2011)
Member of the Executive Board (2008–2010)
CEO of Credit Suisse Asia Pacific region (2008–2010)
1998–2007 Standard Chartered plc, main board executive director
Prior to 1998 Bank of America
Group executive vice president and head of Asia Wholesale Banking group in Hong Kong (1990–1995)
Head of High Technology Industry group in San Francisco and New York (1984–1990)
Various management and other positions in the UK (1976–1984)
Peat Marwick Mitchell & Co., London, accountant (1970–1976)
Education
1974 Fellow of the Institute of Chartered Accountants (FCA), England and Wales
1969 BA in Economics, University of Delhi
Other activities and functions
Prudential plc, board member
Prudential Corporation Asia Limited, director and non-executive chairman
PSA International Pte. Ltd. Singapore, board member
Clifford Capital Pte. Ltd., director and non-executive chairman
Duke-NUS Graduate Medical School, Singapore,
chairman of the governing board
Singapore Institute of Directors, Fellow
Joaquin J. Ribeiro
Born 1956
US Citizen
Board member since 2016
Professional history
2016–present Credit Suisse
Member of the Audit Committee (2016–present)
1997–2016 Deloitte LLP (USA)
Vice chairman (2010–2016)
Chairman of Global Financial Services Industry practice (2010–2016)
Head of US Financial Services Industry practice (2003–2010)
Head of Global Financial Services Industry practice in Asia (1997–2003)
Head of South East Asian Corporate Restructuring practice (1997–2000)
2005–2010 World Economic Forum, senior advisor to Finance Governor's Committee
Education
1996 Executive Business Certificate, Columbia Business School, New York
1988 MBA in Finance, New York University, New York
1980 Certified Public Accountant, New York
1978 Bachelor degree in Accounting, Pace University, New York
Other activities and functions
Pace University, member of the board of trustees and chair of the audit committee
204

Severin Schwan
Born 1967
Austrian and German Citizen
Board member since 2014
Vice-Chair of the Board
Lead Independent Director
Professional history
2014–present Credit Suisse
Vice-Chair and Lead Independent Director (2017–present)
Member of the Governance and Nominations Committee (2017–present)
Member of the Risk Committee (2014–present)
Member of the board of Credit Suisse (Schweiz) AG
(Swiss subsidiary) (2015–2017)
1993–present Roche Group
CEO (2008–present)
Member of the board of Roche Holding Ltd. (2013–present)
CEO, Division Roche Diagnostics (2006–2008)
Head Asia Pacific Region, Roche Diagnostics Singapore (2004–2006)
Head Global Finance & Services, Roche Diagnostics Basel (2000–2004)
Various management and other positions with Roche Germany, Belgium and Switzerland (1993–2000)
Education
1993 Doctor of Law, University of Innsbruck, Austria
1991 Master’s degrees in Economics and Law,
University of Innsbruck, Austria
Other activities and functions
International Federation of Pharmaceutical Manufacturers & Associations (IFPMA), vice-president
International Business Leaders Advisory Council for the
Mayor of Shanghai, member
Richard E. Thornburgh
Born 1952
US Citizen
Board member since 2006
Vice-Chair of the Board
Professional history
2006–present Credit Suisse
Vice-Chair (2014–present)
Member of the Audit Committee (2011–present)
Chair of the Risk Committee (2009–present)
Member of the Governance & Nominations Committee (2009–present)
Member of the Risk Committee (2006–present)
Member of the board and chair of Credit Suisse Holdings (USA), Inc. / Credit Suisse (USA), Inc. / Credit Suisse Securities (USA), LLC
(US subsidiaries) (2015–present)
Member of the board of Credit Suisse International and Credit Suisse Securities (Europe) Limited (UK subsidiaries) (2013–2016)
2006–2015 Corsair Capital LLC, New York, vice-chairman
Prior to 2006 Credit Suisse
Member of the Group Executive Board in various executive roles including Group CRO, Group CFO and CFO Investment Banking (1997–2005)
Chief financial and administrative officer and member of the executive board of Credit Suisse First Boston (1995–1996)
Began investment banking career in New York with
The First Boston Corporation
(predecessor firm of Credit Suisse First Boston)
Education
2009 Honorary Doctorate, Commercial Sciences,
University of Cincinnati, Ohio
1976 MBA in Finance, Harvard University,
Cambridge, Massachusetts
1974 BBA in Finance, University of Cincinnati, Ohio
Other activities and functions
Corsair Capital LLC, investment committee member
S&P Global Inc., board executive committee member, audit committee
member and financial policy committee chair
CapStar Bank, board member
St. Xavier High School, trustee and finance committee chair
University of Cincinnati, investment committee member
205

John Tiner
Born 1957
British Citizen
Board member since 2009
Professional history
2009–present Credit Suisse
Chair of the Audit Committee (2011–present)
Member of the Governance and Nominations Committee (2011–present)
Member of the Risk Committee (2011–present)
Member of the Audit Committee (2009–present)
Member of the board of Credit Suisse Holdings (USA), Inc. / Credit Suisse (USA), Inc. / Credit Suisse Securities (USA), LLC (US subsidiaries)
(2015–present)
2008–2013 Resolution Operations LLP, CEO
2001–2007 Financial Services Authority (FSA)
CEO (2003–2007)
Managing director of the investment, insurance and consumer directorate (2001–2003)
Prior to 2001 Arthur Andersen, UK
Managing partner, UK Business Consulting (1998–2001)
Managing partner, Worldwide Financial Services practice (1997–2001)
Head of UK Financial Services practice (1993–1997)
Partner in banking and capital markets (1988–1997)
Auditor and consultant, Tansley Witt
(later Arthur Andersen UK) (1976–1988)
Education
2010 Honorary Doctor of Letters, Kingston University, London
1980 UK Chartered Accountant, Institute of Chartered Accountants in England and Wales
Other activities and functions
Ardonagh Group Limited, chairman
Tilney Group Limited, board member
Salcombe Brewery Limited, chairman
The Urology Foundation, chairman
Alexandre Zeller
Born 1961
Swiss Citizen
Board member since 2017
Professional history
2016–present Credit Suisse
Member of the Governance and Nominations Committee (2017–present)
Member of the Compensation Committee (2017–present)
Chairman of the board of Credit Suisse (Schweiz) AG (Swiss subsidiary) (2016–present)
2013–2016 SIX Group AG, Chairman of the Board
2008–2012 HSBC Private Bank (Suisse)
CEO, Country Manager Switzerland (2008–2012)
Regional CEO Global Private Banking EMEA (2010–2012)
2002–2008 Banque Cantonale Vaudoise (BCV), CEO
1987–2002 Credit Suisse
CEO Private Banking Switzerland (2002)
Member of the Executive Board Private Banking Switzerland (1999–2002)
Various management positions, including Head French speaking Switzerland and Vaud Region, Credit Suisse Private Banking and Head Corporate Clients (1987–1999)
1984–1987 Nestlé SA, Switzerland, International Operational Auditor
Education
1999 Advanced Management Program, Harvard Business School
1989 Corporate Finance and Capital Markets, International Bankers School
1982 Degree in Economics (Business Administration), University of Lausanne, Switzerland
Other activities and functions
Kudelski S.A., board member
Maus Frères S.A., board member
Spencer Stuart, advisory board member
Swiss Finance Council, chairman1
Swiss Board Institute, advisory council member
Schweizer Berghilfe, foundation board member
Studienzentrum Gerzensee, foundation board member
1 Mr. Zeller performs functions in this organization in his capacity as chairman of Credit Suisse (Schweiz) AG.
206

Honorary Chairman of Credit Suisse Group AG
Rainer E. Gut, born 1932, Swiss Citizen, was appointed Honorary Chairman of the Group in 2000 after he retired as Chairman, a position he had held from 1986 to 2000. Mr. Gut was a member of the board of Nestlé SA, Vevey, from 1981 to 2005, where he was vice-chairman from 1991 to 2000 and chairman from 2000 to 2005.
As Honorary Chairman, Mr. Gut does not have any function in the governance of the Group and does not attend the meetings of the Board.
Secretaries of the Board
Joan E. Belzer
Roman Schaerer
207

Executive Board
Membership
The Executive Board is the most senior management body of the Group. Its members are appointed by the Board. Prior to the appointment of an Executive Board member, the terms and conditions of the individual’s employment contract with the Group are reviewed by the Compensation Committee. The Executive Board currently consists of twelve members. The composition of the Executive Board of the Group and the Bank is identical, with the exception of Thomas Gottstein, who is a member of the Executive Board of the Group, but not the Bank. There were no changes in the composition of the Executive Board during 2017. The individual members of the Executive Board are listed in the table below.
Members of the Executive Board
Executive Board
member since

Role
December 31, 2017   
Tidjane Thiam, Chief Executive Officer 2015 Group CEO
James L. Amine, CEO Investment Banking & Capital Markets 2014 Divisional Head
Pierre-Olivier Bouée, COO 2015 Corporate Function Head
Romeo Cerutti, General Counsel 2009 Corporate Function Head
Brian Chin, CEO Global Markets 2016 Divisional Head
Peter Goerke, Chief Human Resources Officer 2015 Corporate Function Head
Thomas P. Gottstein, CEO Swiss Universal Bank 2015 Divisional Head
Iqbal Khan, CEO International Wealth Management 2015 Divisional Head
David R. Mathers, Chief Financial Officer 2010 Corporate Function Head
Joachim Oechslin, Chief Risk Officer 2014 Corporate Function Head
Helman Sitohang, CEO Asia Pacific 2015 Divisional Head
Lara J. Warner, Chief Compliance and Regulatory Affairs Officer 2015 Corporate Function Head
Responsibilities
The Executive Board is responsible for the day-to-day operational management of the Group under the leadership of the CEO. Its main duties and responsibilities include:
establishment of the strategic business plans for the Group overall as well as for the principal businesses, subject to approval by the Board;
regular review and coordination of significant initiatives, projects and business developments in the divisions and the corporate functions, including important risk management matters;
regular review of the consolidated and divisional financial performance, including progress on KPIs, as well as the Group’s capital and liquidity positions and those of its major subsidiaries;
appointment and dismissal of senior managers, with the exception of managers from Internal Audit, and the periodic review of senior management talent across the Group and talent development programs;
review and approval of business transactions, including mergers, acquisitions, establishment of joint ventures and establishment of subsidiary companies; and
approval of key policies for the Group.
208

Executive Board committees
The Executive Board has several standing committees, which are chaired by an Executive Board member and meet periodically throughout the year and/or as required. These committees are:
Capital Allocation & Risk Management Committee (CARMC): CARMC is responsible for overseeing and directing our risk profile, recommending risk limits at the Group level to the Risk Committee and the Board, establishing and allocating risk appetite among the various businesses, reviewing new significant business strategies or changes in business strategies including business migrations, making risk-related decisions on escalations and for applying measures, methodologies and tools to monitor and manage the risk portfolio. CARMC meets monthly and conducts reviews according to three rotating cycles: the asset & liability management cycle (chaired by the CFO), the market & credit risks cycle (chaired by the CRO) and the internal control system cycle (jointly chaired by the CRO and the Chief Compliance and Regulatory Affairs Officer (CCRO)).
Valuation Risk Management Committee (VARMC): the VARMC (chaired by the CFO) is responsible for establishing policies regarding the valuation of certain material assets and the policies and calculation methodologies applied in the valuation process.
Risk Process & Standards Committee (RPSC): the RPSC (chaired by the CRO) reviews major risk management processes, issues general instructions, standards and processes concerning risk management, approves material changes in market, credit and operational risk management standards, policies and related methodologies and approves the standards of our internal models used for calculating regulatory capital.
Reputational Risk & Sustainability Committee (RRSC): the RRSC (chaired by the CRO) sets policies and reviews processes and significant cases relating to reputational risks and sustainability issues. It also reviews adherence to our reputational and sustainability policies and oversees their implementation.
Group Conduct and Ethics Board: the Group CEB (co-chaired by the Chief Human Resources Officer and the CCRO) is responsible for overseeing how conduct and ethics matters are handled within the divisions and corporate functions and ensuring consistency and alignment of practices across the Group. The Group CEB also conducts reviews of employee sanctions and may perform subsequent evaluations for specific matters that have been escalated by the CEBs established for each division and the corporate functions.
> Refer to “Risk management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for information on our risk management oversight.
Executive Board mandates
Our Executive Board members may, similar to our Board members, assume board or executive level or other roles in companies and organizations outside of the Group, which are collectively referred to as mandates. According to the Group’s AoA, the number of mandates Executive Board members may hold in listed companies and other organizations outside of the Group is subject to certain restrictions, in order to comply with the Compensation Ordinance and to ensure that our Executive Board members dedicate sufficient time to fulfil their executive roles.
The limitations on mandates assumed by Executive Board members outside of the Group are summarized in the table below.
Type of mandate and limitation – Executive Board
Type of mandate Limitation
Listed Companies No more than one other mandate
Other legal entities 1 No more than two mandates
Legal entities on behalf of the Group 2 No more than ten mandates
Charitable legal entities 3 No more than ten mandates
1
Includes private non-listed companies.
2
Includes memberships in business and industry associations.
3
Also includes honorary mandates in cultural or educational organizations.
No Executive Board member holds mandates in excess of these restrictions. The restrictions shown above do not apply to mandates of Executive Board members in legal entities controlled by the Group, such as subsidiary boards.
> Refer to “Mandates” in Board of Directors for further information.
209

Biographies of the Executive Board members
Tidjane Thiam
Born 1962
French and Ivorian Citizen
Member since 2015
Chief Executive Officer
Professional history
2015–present Credit Suisse
Chief Executive Officer of the Group (2015–present)
Member of the board of Credit Suisse (Schweiz) AG
(Swiss subsidiary) (2016–present)
2008–2015 Prudential plc
Group Chief Executive (2009–2015)
Chief Financial Officer (2008–2009)
2002–2008 Aviva
Chief Executive, Europe (2006–2008)
Managing director, International (2004–2006)
Group strategy & development director (2002–2004)
2000–2002 McKinsey & Co, partner, Paris
1998–1999 Minister of planning and development, Côte d’Ivoire
1994–1998 National Bureau for Technical Studies & Development,
Côte d’Ivoire, Chairman and Chief Executive
Prior to 1994 McKinsey & Co, consultant,
Paris, London and New York
Education
1988 Master of Business Administration, INSEAD
1986 Advanced Mathematics and Physics,
Ecole Nationale Supérieure des Mines de Paris
1984 Ecole Polytechnique, Paris
Other activities and functions
21st Century Fox, board member
Group of Thirty (G30), member
International Business Council of the World Economic Forum, member
James L. Amine
Born 1959
US Citizen
Member since 2014
CEO
Investment Banking
& Capital Markets
Professional history
1997–present Credit Suisse
CEO Investment Banking & Capital Markets (2015–present)
Member of the board of Credit Suisse Holdings (USA), Inc. / Credit Suisse (USA), Inc. / Credit Suisse Securities (USA) LLC (US subsidiaries) (2014–present)
Joint Head of Investment Banking, responsible for the Investment Banking Department (2014–2015)
Head of Investment Banking Department (2012–2015)
Member of the executive board of Credit Suisse Holdings (USA), Inc. (2010–2015)
Co-Head of Investment Banking Department, responsible for the Americas and Asia Pacific (2010–2012)
Co-Head of Investment Banking Department, responsible for EMEA and Asia Pacific and Head of Global Market Solutions Group (2008–2010)
Head of European Global Markets Solutions Group and
Co-Head of Global Leveraged Finance (2005–2008)
Head of European Leveraged Finance (1999–2000;
2003–2005), Co-Head (2000–2003)
Various functions within High-Yield Capital Markets of Credit Suisse First Boston (1997–1999)
Prior to 1997 Cravath, Swaine & Moore, attorney
Education
1984 JD, Harvard Law School
1981 BA, Brown University
Other activities and functions
New York Cares, board member
Americas Diversity Council, member
Leadership Committee of Lincoln Center Corporate Fund, member
Caramoor Center for Music and the Arts, board member
Harvard Law School, dean’s advisory board member
Credit Suisse Americas Foundation, board member
210

Pierre-Olivier Bouée
Born 1971
French Citizen
Member since 2015
Chief Operating Officer
Professional history
2015–present Credit Suisse
Chief Operating Officer (2015–present)
Member of the Innovation and Technology Committee (2017–present)
Chief of Staff (2015)
2008–2015 Prudential plc
Group Risk Officer (2013–2015)
Managing director, CEO office (2009–2013)
Business representative Asia (2008–2013)
2004–2008 Aviva
Director, Central & Eastern Europe (2006–2008)
Director, Group strategy (2004–2006)
2000–2004 McKinsey & Company
Associate principal (2004)
Engagement manager (2002–2004)
Associate (2000–2002)
1997–2000 French Government Ministry of Economy and Finance,
Treasury Department
Deputy General Secretary of the Paris Club
Deputy Head, International Debt office (F1)
Education
1997 Master in Public Administration,
Ecole Nationale d’Administration (ENA)
1991 Master in Business and Finance,
Hautes Etudes Commerciales (HEC)
1991 Master in Corporate Law,
Faculté de Droit Paris XI, Jean Monnet
Other activities and functions
Mr. Bouée currently does not hold directorships in other organizations.
Romeo Cerutti
Born 1962
Swiss and Italian Citizen
Member since 2009
General Counsel
Professional history
2006–present Credit Suisse
General Counsel (2009–present)
Global Co-Head of Compliance (2008–2009)
General Counsel, Private Banking (2006–2009)
1999–2006 Lombard Odier Darier Hentsch & Cie
Partner of the Group Holding (2004–2006)
Head of Corporate Finance (1999–2004)
1995–1999 Homburger Rechtsanwälte, Zurich, attorney-at-law
Prior to 1995 Latham and Watkins, Los Angeles, attorney-at-law
Education
1998 Post-doctorate degree in Law (Habilitation),
University of Fribourg
1992 Admission to the bar of the State of California
1992 Master of Law (LLM), University of California, Los Angeles
1990 Doctorate in Law, University of Fribourg
1989 Admission to the bar of the Canton of Zurich
1986 Master in Law (lic.iur.), University of Fribourg
Other activities and functions
Vifor Pharma Ltd., board member
Swiss Finance Institute (SFI), chairman
Zurich Chamber of Commerce, board member
American-Swiss Chamber of Commerce, legal group member
Ulrico Hoepli Foundation, board of trustees member
211

Brian Chin
Born 1977
US Citizen
Member since 2016
CEO
Global Markets
Professional history
2003–present Credit Suisse
CEO Global Markets (2016–present)
Member of the board of Credit Suisse Holdings (USA), Inc. / Credit Suisse (USA), Inc. / Credit Suisse Securities (USA) LLC (US subsidiaries) (2016–present)
Co-Head of Credit Pillar within Global Markets (2015–2016)
Global Head of Securitized Products and Co-Head of Fixed Income, Americas (2012–2016)
Other senior positions within Investment Banking (2003–2012)
2000–2003 Deloitte & Touche LLP, senior analyst, Securitization Transaction Team
Prior to 2000 PriceWaterhouseCoopers LLP, Capital Markets Advisory Services
The United States Attorney's Office, Frauds division
Education
2000 BS in Accounting, Rutgers University
Other activities and functions
Credit Suisse Americas Foundation, board member
Peter Goerke
Born 1962
Swiss Citizen
Member since 2015
Head of Human Resources
Professional history
2015–present Credit Suisse
Head of Human Resources (2017–present)
Head of Human Resources, Communications & Branding
(2015–2017)
2011–2015 Prudential plc
Group Human Resources director and member of the Group Executive Committee (2011–2015)
Chairman of the Group Head Office Management Committee (2012–2015)
Director of Corporate Property (2012–2015)
2005–2010 Zurich Financial Services, AG, Switzerland,
Group Head of Human Resources and Member of the Group Management Board
2000–2005 Egon Zehnder International, Switzerland,
Head of Global Insurance Practice
1997–2000 McKinsey & Company, Zurich and Chicago,
Senior engagement manager
1989–1996 Abegglen Management Consultants, Switzerland,
Various positions up to partner
Education
2002 Advanced Management Program (AMP),
University of Pennsylvania – The Wharton School
1998 lic.oec., University of St. Gallen
Other activities and functions
Credit Suisse Foundation, board member
212

Thomas P. Gottstein
Born 1964
Swiss Citizen
Member since 2015
CEO
Swiss Universal Bank
Professional history
1999–present Credit Suisse
CEO Credit Suisse (Schweiz) AG (2016-present)
CEO Swiss Universal Bank (2015–present)
Member of the Executive Board of Credit Suisse AG
(2015-2016)
Head of Premium Clients Switzerland & Global External Asset Managers (2014–2015)
Head of Investment Banking Coverage Switzerland (2010–2013)
Co-Head of Equity Capital Markets EMEA (2007–2009)
Head Equity Capital Markets Switzerland, Austria and Scandinavia, London (2005–2007)
Head Equity Capital Markets Switzerland, Zurich (2002–2005)
Investment Banking Department Switzerland (1999–2002)
Prior to 1999 UBS, Telecoms Investment Banking and
Equity Capital Markets
Education
1996 PhD in Finance and Accounting, University of Zurich
1989 Degree in Business Administration and Economics,
University of Zurich
Other activities and functions
Credit Suisse Foundation, trustee
Pension Fund CS Group (Schweiz), member of the foundation board and investment committee member
Private Banking Steering Committee of the Swiss Banking Association, member
FINMA Private Banking Panel, member
Opernhaus Zurich, board member
Digitalswitzerland, association member
Iqbal Khan
Born 1976
Swiss Citizen
Member since 2015
CEO
International Wealth Management
Professional history
2013–present Credit Suisse
CEO International Wealth Management (2015–present)
CFO Private Banking & Wealth Management (2013–2015)
2001–2013 Ernst & Young, Switzerland
Managing Partner Assurance and Advisory Services –
Financial Services (2011-2013)
Member of Swiss Management Committee (2011–2013)
Industry Lead Partner Banking and Capital Markets, Switzerland and EMEA Private Banking (2009-2011)
Various positions (2001–2009)
Education
2012 Advanced Master of International Business Law (LLM), University of Zurich
2004 Certified Financial Analyst
2002 Swiss Certified Public Accountant
1999 Swiss Certified Trustee
Other activities and functions
Mr. Khan currently does not hold directorships in other organizations.
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David R. Mathers
Born 1965
British Citizen
Member since 2010
Chief Financial Officer
Professional history
1998–present Credit Suisse
Chief Financial Officer (2010–present)
CEO of Credit Suisse International and Credit Suisse Securities (Europe) Limited (UK subsidiaries) (2016–present)
Head of Strategic Resolution Unit (2015–present)
Head of IT and Operations (2012–2015)
Head of Finance and COO of Investment Banking (2007–2010)
Senior positions in Credit Suisse’s Equity business, including Director of European Research and Co-Head of European Equities (1998–2007)
Prior to 1998 HSBC
Global head of equity research (1997–1998)
Research analyst, HSBC James Capel (1987–1997)
Education
1991 Associate Certification, Society of Investment Analysis
1991 MA in Natural Sciences, University of Cambridge, England
1987 BA in Natural Sciences, University of Cambridge, England
Other activities and functions
European CFO Network, member
Women in Science & Engineering (WISE) program and academic awards and
grants at Robinson College, Cambridge, sponsor
Joachim Oechslin
Born 1970
Swiss Citizen
Member since 2014
Chief Risk Officer
Professional history
2014–present Credit Suisse
Chief Risk Officer (2014–present)
Member of the board of Credit Suisse Holdings (USA), Inc. / Credit Suisse (USA), Inc. / Credit Suisse Securities (USA) LLC (US subsidiaries) (2016–present)
2007–2013 Munich Re Group, Chief Risk Officer
2007 AXA Group, deputy Chief Risk Officer
2001–2006 "Winterthur" Swiss Insurance Company
Member of the executive board (2006)
Chief Risk Officer (2003–2006)
Head of risk management (2001–2003)
1998–2001 McKinsey & Company, consultant
Education
1998 Licentiate/Master of Science in Mathematics,
Swiss Federal Institute of Technology (ETH), Zurich
1994 Engineering degree, Higher Technical Institute (HTL), Winterthur
Other activities and functions
International Financial Risk Institute, member
Credit Suisse Foundation, board member
214

Helman Sitohang
Born 1965
Indonesian Citizen
Member since 2015
CEO
Asia Pacific
Professional history
1999–present Credit Suisse
CEO Asia Pacific (2015–present)
Regional CEO APAC (2014–2015)
Head of Investment Banking Asia Pacific (2012–2015)
Co-Head of the Emerging Markets Council (2012–2015)
CEO of South East Asia (2010–2015)
Co-Head of the Investment Banking Department - Asia Pacific (2009–2012)
Co-Head of the Global Markets Solutions Group - Asia Pacific (2009–2012)
Country CEO, Indonesia (1999–2010)
Prior to 1999 Bankers Trust, derivatives group
Education
1989 BS in Engineering, Bandung Institute of Technology
Other activities and functions
Credit Suisse Foundation, board member
Room to Room Singapore Ltd., advisory board member
Lara J. Warner
Born 1967
Australian and US Citizen
Member since 2015
Chief Compliance and Regulatory Affairs Officer
Professional history
2002–present Credit Suisse
Chief Compliance and Regulatory Affairs Officer (2015–present)
Chief Operating Officer, Investment Banking (2013–2015)
Chief Financial Officer, Investment Banking (2010–2015)
Head of Global Fixed Income Research (2009–2010)
Head of US Equity Research (2004–2009)
Senior Equity Research Analyst (2002–2004)
1999–2001 Lehman Brothers, equity research analyst
Prior to 1999 AT&T
Director of Investor Relations (1997–1999)
Chief Financial Officer, Competitive Local Exchange Business (1995-1997)
Various finance and operating roles (1988-1995)
Education
1988 BS, Pennsylvania State University
Other activities and functions
The Depository Trust & Clearing Corporation, board member
Pennsylvania State University Board of Visitors, member
Women’s Leadership Board of Harvard University’s John F. Kennedy
School of Government, executive committee chair
Aspen Institute’s Business and Society Program, board member
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Additional information
Banking relationships with Board and Executive Board members and related party transactions
The Group is a global financial services provider. Many of the members of the Board and the Executive Board, their close family members or companies associated with them maintain banking relationships with us. The Group or any of its banking subsidiaries may from time to time enter into financing and other banking agreements with companies in which current members of the Board or the Executive Board have a significant influence as defined by the SEC, such as holding executive and/or board level roles in these companies. With the exception of the transactions described below, relationships with members of the Board or the Executive Board and such companies are in the ordinary course of business and are entered into on an arm’s length basis. Also, unless otherwise noted, all loans to members of the Board, members of the Executive Board, their close family members or companies associated with them were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features. As of December 31, 2017, 2016 and 2015, there were no loan exposures to such related parties that were not made in the ordinary course of business and at prevailing market conditions.
> Refer to “Board loans” and “Executive Board loans (audited)” in V – Compensation – Board of Directors compensation and – Executive Board compensation for 2017, respectively, for the outstanding loans to members of the Board and the Executive Board.
Related party transactions
Tier 1 capital instruments
Beginning in February 2011, the Group entered into agreements with entities affiliated with Qatar Investment Authority (QIA) and The Olayan Group, each of which has significant holdings of Group shares and other Group financial products. The agreements were amended in 2012 and 2013 and, as a result, QIA and The Olayan Group agreed to purchase new tier 1 high-trigger capital instruments (new Tier 1 Capital Notes) in exchange for their holdings of previously issued notes.
The following new Tier 1 Capital Notes were outstanding as of December 31, 2017:
USD 1.725 billion, 9.5%, held by an affiliate of The Olayan Group;
USD 1.72 billion, 9.5%, held by an affiliate of QIA; and
CHF 2.5 billion, 9.0%, held by an affiliate of QIA.
Under their terms, the new Tier 1 Capital Notes will be converted into our ordinary shares if our reported common equity tier 1 (CET1) ratio, as determined under >>>Basel Committee on Banking Supervision regulations as of the end of any calendar quarter, falls below 7% (or any lower applicable minimum threshold), unless >>>FINMA, at our request, has agreed on or prior to the publication of our quarterly results that actions, circumstances or events have restored or will imminently restore, the ratio to above the applicable threshold. The new Tier 1 Capital Notes will also be converted if FINMA determines that conversion is necessary or that we require public sector capital support, to prevent us from becoming insolvent, bankrupt or unable to pay a material amount of our debts, or other similar circumstances. In addition, conversion of the new Tier 1 Capital Notes issued to the entities affiliated with The Olayan Group will be triggered if, in the event of a request by FINMA for an interim report prior to the end of any calendar quarter, our reported CET1 ratio, as of the end of any such interim period, falls below 5%. The conversion price will be the higher of a given floor price per share (subject to customary adjustments) or the daily volume-weighted average sales price of our ordinary shares over a five-day period preceding the notice of conversion. The new Tier 1 Capital Notes are deeply subordinated, perpetual and callable by us no earlier than 2018 and in certain other circumstances with FINMA approval. Interest, which is payable on the USD 1.725 billion and the USD 1.72 billion new Tier 1 Capital Notes at a fixed rate of 9.5% and on the CHF 2.5 billion new Tier 1 Capital Notes at a fixed rate of 9.0%, will reset after the first call date. Interest payments will generally be discretionary (unless triggered), subject to suspension in certain circumstances and non-cumulative.
At the time of the original transaction, the Group determined that this was a material transaction and deemed QIA and The Olayan Group to be related parties of our then Board members Jassim Bin Hamad J.J. Al Thani and Aziz R.D. Syriani for purposes of evaluating the terms and corporate governance of the original transaction. At that time, the Board (except for Mr. Bin Hamad J.J. Al Thani and Mr. Syriani, who abstained from participating in the determination process) determined that the terms of the original transaction, given its size, the nature of the contingent capital instrument, for which there was no established market, and the terms of the notes issued and held by QIA and The Olayan Group, were fair. As of April 26, 2013 and April 28, 2017, respectively, Mr. Syriani and Mr. Bin Hamad J.J. Al Thani retired from the Board and no other person affiliated with The Olayan Group or with QIA has been elected as a Board member.
> Refer to “Note 29 – Related parties” in VI – Consolidated financial statements – Credit Suisse Group for further information on related party transactions.
216

EXTERNAL Audit
> Refer to “Audit Committee” in Board of Directors – Board committees for further information on the responsibilities of the audit committee.
External audit forms an integral part of the Group’s corporate governance framework and plays a key role by providing an independent assessment of our operations and internal controls.
The AGM elects the external auditors annually. Our statutory auditor is KPMG AG (KPMG), Badenerstrasse 172, 8004 Zurich, Switzerland. The mandate was first given to KPMG for the business year 1989/1990. The lead audit partners are subject to periodic rotation requirements. The lead Group engagement partners are Anthony Anzevino, Global Lead Partner (since 2012) and Nicholas Edmonds, Group Engagement Partner (since 2016).
In addition, we have mandated BDO AG, Fabrikstrasse 50, 8031 Zurich, Switzerland, as special auditor for the purposes of issuing the legally required report for capital increases in accordance with Article 652f of the Swiss Code of Obligations, mainly relating to the valuation of companies in consideration of the qualified capital increases involving contributions in kind.
Audit committee pre-approval policy
The Audit Committee monitors and pre-approves the fees to be paid to KPMG for its services. It has developed and approved a policy on the engagement of public accounting firms that is designed to help ensure that the independence of the external auditor is maintained at all times.
The policy limits the scope of services that the external auditor may provide to us or any of our subsidiaries in connection with its audit and stipulates certain permissible types of non-audit services, including audit-related services, tax services and other services that have been pre-approved by the Audit Committee. The Audit Committee pre-approves all other services on a case-by-case basis. The external auditor is required to report periodically to the Audit Committee about the scope of the services it has provided and the fees for the services it has performed to date.
Fees paid to external auditors
in 2017 2016 % change
Fees paid to external auditors (CHF million)   
Audit services 1 51.4 48.8 5
Audit-related services 2 7.2 5.5 31
Tax services 3 3.3 1.9 74
1
Audit services include the integrated audit of the Group's consolidated and statutory financial statements, interim reviews and comfort and consent letters. Additionally they include all assurance and attestation services related to the regulatory filings of the Group and its subsidiaries. Audit fees exclude value-added taxes.
2
Audit-related services are primarily in respect of: (i) reports related to the Group's compliance with provisions of agreements or calculations required by agreements; (ii) accounting advice; (iii) audits of private equity funds and employee benefit plans; and (iv) regulatory advisory services.
3
Tax services are in respect of tax compliance and consultation services, including: (i) preparation and/or review of tax returns of the Group and its subsidiaries;
(ii) assistance with tax audits and appeals; and (iii) confirmations relating to the Qualified Intermediary status of Group entities.
KPMG attends all meetings of the Audit Committee and reports on the findings of its audit and/or interim review work. The Audit Committee reviews KPMG’s audit plan on an annual basis and evaluates the performance of KPMG and its senior representatives in fulfilling their responsibilities. Moreover, the Audit Committee recommends to the Board the appointment or replacement of the external auditor, subject to shareholder approval as required by Swiss law.
KPMG provides a report as to its independence to the Audit Committee at least once a year. In accordance with our pre-approval policy and as in prior years, all KPMG non-audit services provided in 2017 were pre-approved. KPMG is required to report to the Audit Committee periodically regarding the extent of services provided by KPMG and the fees for the services performed as of that date.
217

other information
Complying with rules and regulations
We fully adhere to the principles set out in the Swiss Code of Best Practice for Corporate Governance, dated August 28, 2014, including its appendix stipulating recommendations on the process for setting compensation for the Board and the Executive Board.
In connection with our primary listing on the >>>SIX, we are subject to the SIX Directive on Information relating to Corporate Governance, dated December 13, 2016. Our shares are also listed on the NYSE in the form of >>>ADS and certain of the Group’s exchange traded notes are listed on Nasdaq. As a result, we are subject to certain US rules and regulations. We adhere to the NYSE’s and Nasdaq’s corporate governance listing standards (NYSE and Nasdaq standards), with a few exceptions where the rules are not applicable to foreign private issuers.
The following are the significant differences between our corporate governance standards and the corporate governance standards applicable to US domestic issuers listed on the NYSE and Nasdaq:
Approval of employee benefit plans: NYSE and Nasdaq standards require shareholder approval of the establishment of, and material revisions to, certain equity compensation plans. We comply with Swiss law, which requires that shareholders approve the creation of conditional capital used to set aside shares for employee benefit plans and other equity compensation plans, but does not require shareholders to approve the terms of those plans.
Risk assessment and risk management: NYSE standards allocate to the Audit Committee responsibility for the discussion of guidelines and policies governing the process by which risk assessment and risk management is undertaken, while at the Group these duties are assumed by the Risk Committee. Whereas our Audit Committee members satisfy the NYSE as well as Nasdaq independence requirements, our Risk Committee may include non-independent members.
Independence of nominating and corporate governance committee: NYSE and Nasdaq standards require that all members of the nominating and corporate governance committee be independent. The Group’s Governance and Nominations Committee is currently composed entirely of independent members, but according to its charter, may include non-independent members.
Reporting: NYSE standards require that certain board committees report specified information directly to shareholders, while under Swiss law only the Board reports directly to the shareholders and the committees submit their reports to the full Board.
Appointment of the external auditor: NYSE and Nasdaq standards require that an Audit Committee of a listed company comply with and have the authority necessary to comply with the requirements of Rule 10A-3 of the Securities Exchange Act of 1934. Rule 10A-3 requires the Audit Committee to be directly responsible for the appointment, compensation, retention and oversight of the external auditor unless there is a conflicting requirement under home country law. Under Swiss law, the appointment of the external auditor must be approved by the shareholders at the AGM based on the proposal of the Board, which receives the advice and recommendation of the Audit Committee.
Audit Committee charter: Nasdaq standards require the Audit Committee to review and assess the adequacy of its charter on an annual basis, while our Audit Committee’s charter only requires review and assessment from time to time.
Executive sessions: NYSE and Nasdaq standards require the board of directors to meet regularly in executive sessions composed solely of independent directors. Our Board meets regularly in executive sessions comprising all directors, including any directors determined to be not independent. If any item discussed at the meeting raises a conflict of interest for any of our directors, however, such director does not participate in the related decision making. The Board does not include any directors who are also members of management.
Quorums: Nasdaq standards require that the company’s by-laws provide for a quorum of at least 331⁄3% of the outstanding shares of the company’s common stock for any meeting of the holders of common stock. The Group’s AoA call for a quorum in certain instances, but do not require a quorum of 331⁄3% or greater of the holders of the outstanding shares of common stock for any meeting of shareholders.
Independence: NYSE and Nasdaq independence standards specify thresholds for the maximum permissible amount of (i) direct compensation that can be paid by the company to a director or an immediate family member thereof, outside of such director’s directorship fees and other permitted payments; and (ii) payments between the company and another company at which such director or an immediate family member thereof is an executive officer, controlling shareholder, partner or employee. Our independence standards do not specify thresholds for direct compensation or cross-company revenues, but consider these facts in the overall materiality of the business relationship determination for independence purposes.
Fiduciary duties and indemnification
The Swiss Code of Obligations requires directors and members of senior management to safeguard the interests of the corporation and, in connection with this requirement, imposes the duties of care and loyalty on directors and members of senior management. While Swiss law does not have a general provision on conflicts of interest, the duties of care and loyalty are generally understood to disqualify directors and members of senior management from participating in decisions that could directly affect them. Directors and members of senior management are personally liable to the corporation for any breach of these provisions.
The Group’s AoA and the Bank’s AoA do not contain provisions regarding the indemnification of directors and officers. According to Swiss statutory law, an employee has a right to be indemnified by the employer against losses and expenses incurred by such
218

person in the execution of such person’s duties under an employment agreement, unless the losses and expenses arise from the employee’s gross negligence or willful misconduct. It is our policy to indemnify current and former directors and/or employees against certain losses and expenses in respect of service as a director or employee of the Group, one of the Group’s affiliates or another entity that we have approved, subject to specific conditions or exclusions. We maintain directors’ and officers’ insurance for our directors and officers.
Fees and charges for holders of ADS
In November 2016, after a competitive bid process, the Group entered into an amended and restated deposit agreement with The Bank of New York Mellon as depositary for the ADS (Depositary), replacing the previous depositary. In accordance with the terms of the deposit agreement, the Depositary may charge holders of our ADS, either directly or indirectly, fees or charges up to the amounts described below.
The Depositary collects its fees and related expenses for the delivery and surrender of ADS directly from investors depositing or surrendering ADS for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees and expenses for making distributions to holders by deducting those fees and expenses from the amounts distributed or by selling a portion of distributable property to pay the fees and expenses. The Depositary may generally refuse to provide fees and expenses until its fees for those services are paid.
Fees and charges for holders of ADS
Fees      
USD 5 (or less) per 100 ADS (or portion thereof) For the issuance of ADS, including issuances resulting from a distribution of shares, share dividends, share splits and other property; for ADS issued upon the exercise of rights; and for the surrender of ADS for cancellation and withdrawal of shares.
USD 0.05 (or less) per ADS For any distribution of cash to ADS registered holders, including upon the sale of rights or other entitlements.
Registration or transfer fees For the transfer and registration of shares on our share register to or from the name of the Depositary or its agent when the holder deposits or withdraws shares.
Charges      
Expenses of the Depositary For cable and facsimile transmissions (when expressly provided in the deposit agreement); and for converting foreign currency to US dollars.
Taxes and other governmental charges Paid, as necessary, to the Depositary or the custodian who pays certain charges on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or applicable interest or penalty thereon.
Other charges Paid, as necessary, to the Depositary or its agents for servicing the deposited shares.
Amounts paid by the Depositary to the Group
In 2017, in accordance with the Group’s previous deposit agreement and amended and restated deposit agreement, the respective entities acting as depositary under these agreements made payments to the Group in an aggregated amount of USD 0.4 million, including for the reimbursement of expenses relating to its ADS program. The respective depositaries have also contractually agreed to provide certain ADS program-related services free of charge.
Under certain circumstances, including removal of the Depositary or termination of the ADS program by the Group, the Group is required to repay certain amounts paid to the Group and to compensate the Depositary for payments made or services provided on behalf of the Group.
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220


Compensation
Letter from the Chair of the Compensation Committee
Compensation design at a glance
Compensation governance
Executive Board compensation for 2017
Revised Executive Board compensation design for 2018
Board of Directors compensation
Group compensation
Report of the Statutory Auditor
221

Letter from the Chair of the Compensation Committee
Kai S. Nargolwala
Chair of the Compensation Committee
Dear shareholders
As the new Chair of the Compensation Committee of the Board of Directors (Compensation Committee), I am pleased to present to you the 2017 Compensation Report. This year we have modified the structure and presentation of the report to make it clearer and more reader-friendly.
2017 Annual General Meeting regarding compensation
After we published the 2016 Compensation Report, some shareholders expressed concerns over the amount of variable incentive compensation proposed for the Executive Board. Recognizing these concerns, the Chief Executive Officer (CEO) and each member of the Executive Board voluntarily proposed to reduce both their 2016 Short-Term Incentive (STI) awards and 2017 Long-Term Incentive (LTI) opportunities by 40%, and this proposal was approved by the Board of Directors (Board). In terms of compensation for members of the Board, the Board decided to maintain the proposed aggregate amount at the same level as approved by shareholders for 2015 and 2016, with no incremental increase in 2017 as originally proposed.
All revised compensation proposals were approved by shareholders at the Annual General Meeting (AGM) on April 28, 2017, with many shareholders commenting positively on our efforts to address their concerns. However, the consultative vote on the 2016 Compensation Report resulted in only 58% of votes in favor, indicating a clear desire for change.
We noted the view of many shareholders that the interests of management and shareholders should have been more closely aligned. My top priority has been, and will remain, to strengthen confidence in our responsiveness to investor sentiment and ensure that our compensation decisions are guided by our principles and values, which includes greater alignment between pay and performance.
Shareholder engagement during 2017
Against that background, one of the first tasks I undertook as Chair of the Compensation Committee was to meet our key shareholders and other external stakeholders, including our regulators, in order to listen to their views on our compensation framework, address their questions, and better understand any concerns they had. I personally attended 26 investor meetings, a number of these together with the Chairman of the Board (Chairman), covering approximately 40% of our shareholder base, and maintained a continuous dialogue with our various regulators. The discussions were frank and open and the Compensation Committee has considered the feedback received as part of its review of the compensation framework.
Review of our compensation framework and key changes proposed
Equipped with the feedback from our shareholders and other external stakeholders, the Compensation Committee conducted a comprehensive review of our overall compensation framework, including compensation governance and approach to compensation disclosure.
In doing so, the Compensation Committee was mindful of the objectives of our compensation strategy, which is intended to attract, retain, reward and motivate the talented individuals needed for our long-term success as a client-focused and capital-efficient business. In particular, the compensation strategy emphasizes the link between pay and performance, supporting a performance culture which is based on merit, which recognizes and rewards excellent short- and long-term performance, and which is aligned with the Group’s values.
Key changes for 2018 onwards
Stronger governance and transparency
Removal of capital metrics and introduction of simplified metrics for assessing Executive Board performance to focus more on profitability and shareholder returns
Use of only Group-level metrics in setting the STI and LTI payout levels, enabling greater transparency on performance targets
Reduced STI and LTI payout levels for achievement of target performance and reduced LTI payout for below median relative total shareholder return (RTSR) ranking
Increased shareholding requirements
Reduced subsidiary board fees for members of the Group Board newly appointed to subsidiary boards
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The Compensation Committee decided that while the overall compensation framework remained appropriate, refinements were required in certain areas, in particular with respect to the Executive Board. Given that the 2017 compensation framework had been approved and the performance targets had been set at the beginning of the 2017 financial year, before the shareholder engagement and review period, implementation of the key changes is planned to take effect only for 2018 and onwards.
The proposed changes are aimed at strengthening the link between delivery of the strategy approved by the Board and our compensation outcomes. The performance measures for the Executive Board for 2017 reflected a phase of stabilization and consolidation (e.g., capital metrics, adjusted income before taxes, and division-specific performance indicators), whereas the performance measures for 2018 and beyond reflect a turnaround phase, building a leading wealth management business with strong investment banking capabilities which has the benefit of having gone through a significant and deep restructuring period. This can be seen in the removal of capital metrics for both STI and LTI awards and the introduction of return on tangible shareholders’ equity (RoTE) and tangible book value per share (TBVPS) as metrics for the LTI awards, to reward long-term sustainable performance for performance periods starting with 2018.
The proposed compensation arrangements for the Executive Board, as well as the Board and the wider Group, are shown below.
Financial performance context for compensation decisions
The Group’s performance forms the primary basis for compensation decision-making. During the second full year of our three-year restructuring plan announced in October 2015, the Group continued to make strong progress in delivering on its key priorities. In particular we strengthened our capital position, delivered profitable growth with higher adjusted income before taxes, reduced our fixed cost base, right-sized and de-risked our trading activities, and made progress in resolving our legacy issues. The key financial achievements for 2017 noted by the Compensation Committee included:
Group adjusted revenues increased by 5% compared with the prior year, while adjusted total operating expenses decreased by 6%, driving positive operating leverage;
Group reported income before taxes was CHF 1.8 billion, an increase of CHF 4.1 billion compared with the prior year, and Group adjusted income before taxes was CHF 2.8 billion, up 349% year on year;
Adjusted income before taxes and before variable incentive compensation expense was 54% higher compared with the prior year;
The Group cost target was achieved for 2017 and management is on track to deliver further fixed cost savings by the end of 2018;
Net new assets of CHF 37.2 billion from the wealth management1 businesses reached the highest level since 2013, and increased by 27% compared with the prior year;
The Group achieved a look-through CET1 ratio of 12.8% at the end of the year (after deducting approximately 45 basis points due to increased risk-weighted assets related to operational risk in the second half of 2017, primarily in respect of our RMBS settlements), compared with 11.5% at the end of the prior year, and a look-through CET1 leverage ratio of 3.8% compared with 3.2% at the end of the prior year;
The Strategic Resolution Unit is on track to close one year ahead of schedule by the end of 2018, which should, from 2019 onwards, significantly reduce the drag on the Group’s operating profits from legacy positions compared with prior years; and
Market capitalization at the end of 2017 was up 46% from a year earlier.
1 Referring to the combined net new assets of Private Clients within Swiss Universal Bank, Private Banking within International Wealth Management and Private Banking within Wealth Management & Connected in Asia Pacific.
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> Adjusted results are non-GAAP financial measures that exclude goodwill impairment, real estate transactions, business sales, restructuring expenses and major litigation provisions. Refer to “Reconciliation of adjusted results” in II – Operating and financial review – Credit Suisse for further information. For further information on variable incentive compensation expense, refer to the “Group compensation and benefits expense” table in Group compensation.
On December 22, 2017, the United States enacted new tax legislation which, among other things, lowered the US federal corporate tax rate. Overall, we believe the US Tax Cuts and Jobs Act is a positive development for our US businesses. The legislation could also result in a more favorable business climate, in particular for our investment banking activities in advisory and underwriting, which enjoy a strong position in the US market. As required by US GAAP, however, the reduction in US federal corporate tax rates has led to a re-assessment of our deferred tax assets (DTAs), with an associated non-cash tax charge of CHF 2.3 billion recognized in the fourth quarter of 2017, primarily related to our US DTAs. Many of our peers also reported significant DTA re-assessments following the enactment of the US tax reform. This was a primary factor behind the net loss attributable to shareholders of CHF 983 million for the full year. For the performance year 2017, the Compensation Committee took into account the effect of this non-cash item in determining the variable incentive compensation pool proposal. Although this event was outside of the control of management and had minimal impact on capital, liquidity, our ability to pay dividends or our underlying results, the Compensation Committee applied a downward adjustment of approximately CHF 100 million to the overall Group variable incentive compensation pool to reflect the impact of the tax charge on net income.
This tax charge does not impact our strategy going forward, and we intend to maintain a look-through CET1 ratio of greater than 12.5% in 2018 as well as in 2019 and 2020, before the implementation of the Basel III reforms beginning in 2020. The policy for returning capital to shareholders announced at the Investor Day is also unchanged.
2017 compensation decisions
Group compensation
Aside from the Group’s financial performance in 2017, the Compensation Committee considered a range of other factors such as progress made against strategic objectives, relative performance, market position and market trends, as well as control, risk, compliance and ethical considerations, to determine the Group variable incentive compensation pool. The Board approved the total Group variable incentive compensation pool of CHF 3,190 million, 3% higher than 2016 after the downward adjustment of approximately CHF 100 million applied by the Compensation Committee to take into account the impact resulting from the US tax reform mentioned above.
Executive Board compensation
Executive Board compensation is included in the total compensation awarded for the Group. Executive Board compensation related to 2017 is comprised of:
CHF 28.89 million total fixed compensation;
CHF 25.46 million total STI award, subject to shareholder approval at the 2018 AGM; and
CHF 31.2 million total LTI award maximum opportunity, with a fair value of CHF 15.55 million at the time of grant (estimated based on a Monte Carlo pricing model) as approved at the 2017 AGM.
> Refer to “Executive Board compensation for 2017” for further information.
The total compensation amount of CHF 69.90 million reflects the Group’s business performance and ongoing restructuring described above and the fair value of the 2017 LTI award at the time of grant. This total amount for 2017 is 4% lower than the prior year amount of CHF 73.06 million, mainly due to the voluntary reduction to the initial 2017 LTI award proposal.
CEO compensation
Compensation for our CEO, Tidjane Thiam, has been determined based on evaluation of his performance against a range of quantitative and qualitative factors. The quantitative measures capture the Group’s financial performance and capital strength, while the qualitative assessment includes criteria related to strategy execution, leadership, talent management, collaboration and reputation. The Compensation Committee considers that Mr. Thiam’s
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proposed total compensation for 2017 of CHF 9.70 million reflects his strong performance against this suite of measures, while also recognizing that the Group is still in a transition phase, having completed the second year of its three-year restructuring plan. Mr. Thiam’s total compensation amount for 2017 is 5% lower than for the prior year, which in part reflects his voluntary proposal to reduce his 2017 LTI award opportunity by 40%, as approved by shareholders at the 2017 AGM. In future years the Compensation Committee expects the compensation for the CEO to return to levels in line with the expected improvement in Group performance.
Board of Directors compensation
Consistent with recent years, compensation of the Board continues to be based on a fixed fee structure, with pre-defined fees for Board membership, committee membership and chairing a committee. The fee amounts are set at levels comparable to those at other leading Swiss companies and global financial services firms, with 50% of the Group-level Board fees paid in Group shares. In line with industry practice, Board fees are not linked to the financial performance of the Group. Fees for specific Board leadership roles are reviewed periodically and adjusted as required, and base Board fees have remained constant for over 10 years.
In the past few years, the Chairman has voluntarily waived all or part of his chair fee. For the period from the 2017 AGM to the 2018 AGM, the Chairman has proposed to waive 30% of his chair fee, an amount equal to CHF 0.45 million, and this proposal was approved by the Board. The Board expects that the Chairman’s compensation will return to the previously approved level, as the Group completes its restructuring plan.
In line with the Group’s governance framework, at least one Board member at the Group level is appointed to the board of each major subsidiary. This is to leverage the knowledge and experience that Board members already have concerning the Group and to perform an oversight role. Going forward, Board members newly appointed to serve on subsidiary boards will receive a flat subsidiary board membership fee of CHF 100,000 (or higher amounts if a Board member serves as the chair of the subsidiary board or a committee), paid in cash. This amount is generally less than that received by other external subsidiary board members, given that Board members are already familiar with the Group’s entities and activities.
2018 AGM proposals
At the 2018 AGM on April 27, 2018, we plan to submit the following proposals related to Executive Board and Board compensation:
Maximum aggregate amount of CHF 31.0 million in total fixed compensation for the Executive Board for the 2018 AGM to 2019 AGM period (no change compared with the prior year’s proposal);
CHF 25.46 million total 2017 STI award to be granted to the Executive Board (2% lower than the prior year’s initial proposal before the voluntary reduction);
Maximum aggregate amount of CHF 58.5 million total 2018 LTI award maximum opportunity to be granted to the Executive Board (12.5% higher than the prior year’s proposal before the voluntary reduction); and
Maximum aggregate amount of CHF 12.0 million in total compensation for the Board for the 2018 AGM to 2019 AGM period (no change compared with the prior year’s proposal approved at the 2017 AGM).
In aggregate, the compensation proposals for the Executive Board at the 2018 AGM will be 5.5% higher than the initial proposals at the 2017 AGM before the voluntary reduction. The proposal for the Board remains unchanged compared with the prior year’s approved amount of CHF 12.0 million.
For the 2018 LTI awards, the maximum opportunity is designed to keep the Executive Board members focused on further achieving the Group’s strategic mid-term goals, while being aligned with market. The percentage of the maximum opportunity realized will be based on performance over the three-year period as well as changes in the share price of Credit Suisse Group during the five years prior to the settlement of the award in full. Historically, LTI awards granted in previous years have been realized at 50-60% of the initial grant value. As outlined earlier and explained in more detail later in this report, we have removed the capital-based performance metrics and introduced performance conditions that are more aligned to long-term profitability and shareholder return generation for the 2018 LTI awards. In addition, we have reduced the payout levels for achievement of target performance to 67% (from 80% previously), and reduced payout levels on the RTSR component for below-median rankings. We have not increased the LTI award maximum opportunity for the CEO (250% of base salary) or the upper range of maximum opportunities for the other Executive Board members (425% of base salary). The increase in the total LTI award maximum opportunity from the initial proposal at the 2017 AGM of CHF 52 million to the 2018 AGM proposal of CHF 58.5 million relates to three individuals whose roles have expanded in scope and impact, and the need to take into account developments in local labor markets in order to retain the required talent. The maximum opportunity for the LTI awards of the other Executive Board members remained unchanged.
On behalf of the Compensation Committee, I would like to thank you for your support and feedback, which we will continue to seek as we review and refine our compensation practices to ensure that they are fully compliant with all regulatory requirements and aligned with the interests of our shareholders.
Kai S. Nargolwala
Chair of the Compensation Committee
Member of the Board of Directors
March 2018
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Compensation design at a glance
Compensation strategy and objectives
Consistent with prior years, our key compensation objectives are to maintain compensation practices that:
foster a performance culture based on merit that differentiates and rewards excellent performance;
attract and retain employees, and motivate them to achieve results with integrity and fairness;
balance the mix of fixed and variable compensation to appropriately reflect the value and responsibility of the role performed, and to influence appropriate behaviors and actions;
promote effective risk management practices that are aligned with the Group’s compliance and control cultures;
create a culture that adheres to high conduct and ethics standards through a system of applying both malus and rewards;
encourage teamwork and collaboration across the Group;
achieve a balanced distribution of profitability between employees and shareholders over the long term, subject to Group performance and market conditions; and
take into account the long-term performance of the Group, in order to create sustainable value for shareholders.
Executive Board compensation framework 2017: key elements
>Refer to “Executive Board compensation for 2017” for further information.
Executive Board compensation: key changes for 2018
Revised metrics for assessing Executive Board performance, including removal of capital-based performance metrics and use of only Group-level metrics
Reduced STI and LTI payout levels for achievement of target performance
Reduced payout for below median RTSR ranking and zero payout for a bottom quartile ranking
Increased shareholding requirements (500,000 shares for the CEO and 300,000 shares for Executive Board members)
>Refer to “Revised Executive Board compensation design for 2018” for further information.
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Determination of Group variable incentive compensation pools
The Group variable incentive compensation pools are determined on an annual basis, with accruals made throughout the year. The primary driver of the pool amounts is economic contribution, which is considered along with the other factors shown in the illustrative example below.
>Refer to “Determination of variable incentive compensation pools” in Group compensation – Compensation framework for further information.
Group employees’ compensation framework: key elements
>Refer to “Group compensation” for further information.
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Compensation governance
The Compensation Committee
The Compensation Committee is the supervisory and governing body for compensation policies, practices and plans. In designing and setting compensation, the Compensation Committee aims to make decisions in the best interests of the Group and also to align the interests of the Group’s employees to those of shareholders. The Compensation Committee reviews proposals regarding Group, Executive Board and Board compensation, and makes recommendations to the Board for approval. Total Executive Board compensation and Board compensation are also subject to shareholder approval pursuant to the Swiss Ordinance Against Excessive Compensation with respect to Listed Stock Corporations (Compensation Ordinance) and the Articles of Association of Credit Suisse Group AG (AoA).
The Compensation Committee consists of at least three members of the Board, all of whom must be independent. The current members are Kai S. Nargolwala (Chair), Iris Bohnet, Andreas N. Koopmann and Alexandre Zeller. The Board has applied the independence criteria of the SIX Swiss Exchange Directive on Information relating to Corporate Governance, FINMA, the Swiss Code of Best Practice for Corporate Governance, and the listing standards of the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq), in determining that all of these individuals are independent.
> Refer to “Independence” in IV – Corporate Governance – Board of Directors for more information on how the Group determines the independence of its Board members.
Compensation Committee activities
The Chairman and the CEO may attend the Compensation Committee meetings, and the Compensation Committee Chair determines the attendance of other Board members, Executive Board members, senior management, compensation advisers and external legal counsel, as appropriate. The Chairman, CEO, Executive Board members and senior management do not participate in discussions which relate to their own compensation.
In addition to the 26 investor meetings held by the Compensation Committee Chair, during 2017, the Compensation Committee held 10 meetings and calls, with an overall attendance rate of 95%. The Compensation Committee’s focus areas in 2017 are summarized in the following table:
Compensation Committee activities in 2017
Jan Feb Mar Apr Jun Jul Aug Oct Dec
Compensation governance, design and disclosure
Review of compensation policy and charter updates
Review of Compensation Report
Review and refinement of Executive Board compensation design
Review of Group compensation structure and award plans
Compensation Committee self-assessment and focus areas
Risk and regulatory
Review of input from control functions
Review of any disciplinary events/potential application of malus
Review of regulatory developments
Annual compensation review
Accruals and full year forecast of variable incentive compensation pools
Performance assessment and overall Group pool recommendation
CEO and Executive Board performance objectives and target setting
CEO and Executive Board performance assessment and awards
Review of Board fees
External
Review of shareholder engagement and feedback
Review of market trends
Review of benchmarking data
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Advisers to the Compensation Committee
The Compensation Committee is authorized to retain external advisers to provide support as it carries out its responsibilities. Deloitte LLP (Deloitte) has been retained to assist the Compensation Committee in ensuring that the Group’s compensation programs remain competitive, responsive to regulatory developments and in line with the compensation policy. Deloitte has appointed a senior consultant to advise the Compensation Committee. Apart from assisting the Compensation Committee, this senior consultant does not provide any other services to the Group. Before the appointment of Deloitte in October 2017, McLagan provided the above mentioned advisory services. The Compensation Committee also obtained legal advice during 2017 on various matters relating to compensation policy and design. Prior to appointment, the Compensation Committee conducted an independence assessment of its advisers pursuant to the rules of the US Securities and Exchange Commission (SEC) and the listing standards of the NYSE and the Nasdaq.
other aspects of compensation governance
Compensation policy
The compensation policy applies to all employees and compensation plans of the Group. It contains a detailed description of the Group’s compensation principles and objectives as well as the compensation programs. It also sets out the standards and processes relating to the development, management, implementation and governance of compensation. The compensation policy is available at credit-suisse.com/compensationpolicy.
Approval authority
The approval authorities for setting the compensation policy and compensation for different groups of employees are defined in the Group’s Organizational Guidelines and Regulations (OGR) and the Compensation Committee charter available at credit-suisse.com/governance.

Action
Compensation
Committee

Board
Establish or change the Group's compensation policy R A
Establish or change compensation plans R A
Set variable incentive compensation pools for the Group and the divisions R A
Determine Executive Board compensation, including for the CEO R A 1
Determine Board compensation, including for the Chairman R A 1
Determine compensation for the Head of Internal Audit A 2 n/a
Determine compensation for MRTC and other selected members of management A n/a
R = recommendation; A = approval
1
Subject to shareholder approval requirement pursuant to the Compensation Ordinance and the AoA.
2
In consultation with the Audit Committee Chair.
Risk and control considerations
During its annual review of the Group’s performance, the Compensation Committee considers input from the Risk Committee Chair with respect to risk considerations, and the Audit Committee Chair with respect to internal control considerations. The Compensation Committee also considers input from various corporate functions including Compliance and Regulatory Affairs, General Counsel, Human Resources, Internal Audit, Product Control and Risk Management, regarding control and compliance issues and any breaches of relevant rules and regulations or the Group’s Code of Conduct.
To meet regulatory guidelines regarding employees engaged in risk-taking activities, the Compensation Committee reviews and approves the compensation for employees identified as >>>Material Risk Takers and Controllers (MRTC). The Risk Committee is involved in the review process for MRTC compensation.
> Refer to “Focus on risk and control “ in Group compensation for further information.
Performance criteria and target setting
At the beginning of the year, as part of the annual compensation review, the Compensation Committee defines the performance criteria and performance targets that will be applied to determine the Executive Board’s variable incentive compensation. For the STI awards, the performance criteria and performance levels are set on an annual basis, and are designed to reward progress towards the achievement of the Group’s annual objectives in the financial plan. For the LTI awards, the performance criteria and performance levels are set for a prospective three-year period, designed to reward achievement of the longer term business plan and the enhancement of shareholder returns. In setting the threshold, target and maximum performance levels, the Compensation Committee takes into account the Group’s ambitious financial plan, prior-year performance, analyst expectations and any publicly stated targets, in order to set performance levels which are challenging and motivating for the Executive Board. The performance criteria and performance levels are presented to the Board for approval before implementation.
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Executive Board compensation for 2017
Compensation Structure for 2017
The compensation structure and design for Executive Board members remained unchanged in 2017 and is in line with the framework described in the 2016 Annual Report. Total compensation for the Executive Board members included fixed compensation and the 2017 STI awards, as well as the fair value of the 2017 LTI awards at the time of their grant in 2017 (estimated based on a Monte Carlo pricing model).
Maximum opportunity levels
The maximum STI and LTI opportunity levels for the Executive Board members and the CEO are reviewed annually, based on internal factors as well as external benchmarking of the market levels of compensation for each role. The maximum levels for each individual vary from one another, subject to the overall maximum levels outlined in the following table.
Maximum opportunity levels for 2017
   Executive Board member CEO
Opportunity
ranges
(multiple of
base salary)

Maximum
compensation
(CHF million)
2 Maximum
opportunity
(multiple of
base salary)

Maximum
compensation
(CHF million)
2
Base salary 1 2.00 3.00
STI awards 0.75 – 2.50 5.00 1.50 4.50
LTI awards 1.25 – 4.25 8.50 2.50 7.50
Total  2.00 – 6.75 15.50 4.00 15.00
1
Equivalent amount may be provided in local currency. USD 2.0 million for Executive Board members based in the US.
2
Excluding dividend equivalents, pension and other benefits.
As part of the review of Executive Board compensation conducted at the beginning of the year, the Compensation Committee considered it necessary to adjust the upper end of the STI maximum opportunity range for 2017 to 250%, compared with 225% for 2016, to reflect the expansion of one Executive Board member’s role and to reflect developments in the local labor market.
Compensation outcomes for 2017
2017 STI awards
The 2017 STI awards have the same overall structure as the 2016 STI awards, and are designed to reward the achievement of annual objectives based on performance in 2017. The final payout of the STI award is determined based on pre-defined quantitative criteria and performance levels which are linked to our strategic plan, as well as qualitative criteria related to topics such as delivery of strategic initiatives, leadership/culture and risk and compliance. Taking into account the quantitative achievements against the target performance levels, as well as the qualitative assessment outlined below, the Compensation Committee recommended a total STI award amount of CHF 25.46 million for the Executive Board. This represented, on average, 81% of the STI maximum opportunity pre-defined for each Executive Board member. The 2017 STI compensation will be submitted for shareholder approval at the 2018 AGM.
Executive Board compensation for 2017 (audited)

in



STI awards
(Non-deferred)
1


STI awards
(Deferred)
2
Total
STI
compen-
sation
Base
salaries
and role-
based
allowances



Dividend
equivalents
3 Pension
and similar
benefits
and other
benefits
4
Total
fixed
compen-
sation

LTI awards
2017
fair value
(Deferred)
5 Total
compen-
sation,
including
LTI awards
6
2017 (CHF million, except where indicated)   
12 members 12.54 12.92 25.46 26.34 0.56 1.99 28.89 15.55 69.90
   % of total compensation, including LTI awards  36% 42% 22%
of which CEO: Tidjane Thiam 1.99 1.99 3.98 3.00 0.22 0.25 3.47 2.25 9.70
   % of total compensation, including LTI awards  41% 36% 23%
1
STI non-deferred awards for 2017 comprised CHF 12.16 million cash, with a further CHF 0.38 million granted as blocked shares to Mr. Mathers, to comply with regulatory requirements given that he was categorized as UK PRA Code Staff during 2017.
2
STI deferred awards for 2017 comprised CHF 12.34 million in deferred cash awards as well as CHF 0.58 million granted as share awards to Mr. Mathers, to comply with regulatory requirements given that he was categorized as UK PRA Code Staff during 2017.
3
Dividend equivalents were paid in respect of replacement awards and were delivered in cash, consistent with dividends paid on actual shares.
4
Other benefits consist of housing allowances, expense allowances and relocation allowances.
5
The fair value of the LTI awards as of the date of grant has been determined using a Monte Carlo pricing model. The pricing is based on a valuation and estimate by an external provider. The awards have a total maximum opportunity of CHF 31.2 million, which was the amount approved by shareholders at the 2017 AGM.
6
For the total compensation awarded to the members of the Executive Board, the Group made payments of CHF 3.05 million in 2017 to cover the mandatory employer social security contributions as required under the social security laws applicable to the individual Executive Board members based on their domicile and employment status. These contributions do not form part of the Executive Board members' compensation.
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Executive Board compensation for 2016 (audited)
This table has been updated to reflect the voluntary reduction in the 2016 STI award proposal for the Executive Board, which was approved by shareholders at the 2017 AGM.

in



STI awards
(Non-deferred)
1


STI awards
(Deferred)
2
Total
STI
compen-
sation
3 Base
salaries
and role-
based
allowances



Dividend
equivalents
4 Pension
and similar
benefits
and other
benefits
5
Total
fixed
compen-
sation

LTI awards
2016
fair value
(Deferred)
6 Total
compen-
sation,
including
LTI awards
7,8
2016 (CHF million, except where indicated, does not include replacement awards)   
13 members 9 12.81 4.20 17.01 26.99 0.60 2.00 29.59 26.46 73.06
   % of total compensation, including LTI awards  23% 41% 36%
of which joiners and leavers during 2016 (2 individuals) 2.35 1.88 4.23 2.60 0.00 0.01 2.61 3.51 10.35
   % of total compensation, including LTI awards  41% 25% 34%
of which CEO: Tidjane Thiam 2.08 0.42 2.50 3.00 0.47 0.21 3.68 4.05 10.24
   % of total compensation, including LTI awards  24% 36% 40%
1
STI non-deferred awards for 2016 comprised CHF 12.44 million cash, with a further CHF 0.37 million granted as blocked shares to Mr. Mathers, who was categorized as UK PRA Code Staff during 2016.
2
STI deferred awards for 2016 comprised CHF 3.23 million in deferred cash awards as well as CHF 0.97 million granted as share awards to Mr. Mathers, who was categorized as UK PRA Code Staff during 2016, and Mr. O'Hara, who ceased to be a member of the Executive Board during 2016.
3
STI awards included a variable compensation award of CHF 1.58 million comprising CHF 0.79 million cash and CHF 0.79 million deferred awards in respect of Mr. O'Hara relating to the period after he ceased to be a member of the Executive Board.
4
Dividend equivalents were paid in respect of replacement awards, as well as in respect of share awards granted prior to January 1, 2014, and were delivered in cash, consistent with dividends paid on actual shares.
5
Other benefits consist of housing allowances, expense allowances and relocation allowances.
6
The fair value of the LTI awards as of the date of grant has been determined using a Monte Carlo pricing model. The pricing is based on a valuation and estimate by an external provider. This has been further validated by internal valuation. The awards have a total maximum opportunity of CHF 49 million, which was the amount approved by shareholders at the 2016 AGM.
7
For Mr. Chin, who joined the Executive Board during 2016, only compensation relating to the period during which he was a member of the Executive Board is included in the table above.
8
For the total compensation awarded to the members of the Executive Board, the Group made payments of CHF 2.6 million in 2016 to cover the mandatory employer social security contributions as required under the social security laws applicable to the individual Executive Board members based on their domicile and employment status. These contributions do not form part of the Executive Board members' compensation.
9
Due to the departure of Mr. O’Hara and the appointment of Mr. Chin in his role, there were 12 active members of the Executive Board at any given point in time during 2016.
Assessment of performance against quantitative criteria (70% weighting)
The quantitative Group and divisional performance levels for the 2017 STI awards were pre-defined at the beginning of the year by the Compensation Committee, during the financial planning stage, and were based on certain assumptions regarding the Group’s capital plan. Subsequently, due to an acceleration of the Group’s capital strategy through a rights offering that was completed in June 2017, the Compensation Committee reviewed the validity of the pre-defined performance levels for the CET1 ratio metric and decided that the target performance level should be raised to 11.9% from 11.7% previously, to reflect the accelerated strengthening of the Group’s capital position through the rights offering. No other performance criteria or performance target levels were modified during the year.
The quantitative criteria and corresponding 2017 outcomes are shown in the following tables for the CEO and functional heads (70% weighting on Group metrics only) and divisional heads (30% weighting on Group metrics and 40% weighting on divisional metrics), respectively. In terms of the Group metrics, the key financial highlights considered in the quantitative assessment can be summarized as follows:
Adjusted income before taxes of CHF 2.8 billion was up 349% compared with the prior year, albeit below the target performance level;
Look-through CET1 ratio of 12.8% at year-end and look-through CET1 leverage ratio of 3.8% were both above the target performance level, mainly driven by the rapid wind-down of risk-weighted assets within the Strategic Resolution Unit and a range of internal and external capital measures; and
Adjusted operating expenses of CHF 17.8 billion (after excluding CHF 170 million for certain accounting changes in addition to the usual adjustment items) over-achieved the target performance level of CHF 18.0 billion.
> Adjusted results are non-GAAP financial measures that exclude goodwill impairment, real estate transactions, business sales, restructuring expenses and major litigation provisions. Refer to “Reconciliation of adjusted results” in II – Operating and financial review – Credit Suisse for further information.
231

STI awards: 2017 quantitative performance assessment
232

Assessment of performance against qualitative criteria (30% weighting)
The qualitative performance evaluation was based on criteria such as successful execution of business strategy, leadership initiatives, talent management, partnership and collaboration in strengthening the Group’s client focus, and contribution to the enhancement of the Group’s brand and reputation. The Compensation Committee noted that during 2017 the Executive Board continued to successfully implement the Group’s strategy. In particular, the divisional heads guided their respective businesses towards profitable growth in terms of higher adjusted income before taxes while maintaining the focus on clients and supporting the reputation of the Group. The Compensation Committee also noted the strong leadership qualities of the divisional and functional heads, the strengthening of compliance and control measures within the business and corporate functions, as well as the promotion of diversity and retention of key talent. Overall, the Compensation Committee determined that each of the Executive Board members had achieved between the target and maximum performance levels with respect to their qualitative objectives for the year.
2017 LTI awards
The 2017 LTI awards approved by shareholders at the 2017 AGM have a total maximum opportunity of CHF 31.2 million, following the 40% voluntary reduction. This represents the maximum amount payable if all Executive Board members achieve the maximum performance levels under the financial measures (50% weighting for the CET1 ratio/CET1 leverage ratio, cost target, and, as applicable, divisional performance metrics), and the Group RTSR (50% weighting) is ranked within the top four of the peer group at the end of the three-year performance measurement period. Due to commercial sensitivity of the internal financial metrics, performance against the target performance levels will only be disclosed retrospectively after the end of the three-year performance period. The fair value of the 2017 LTI awards at the time of grant was CHF 15.55 million.
> Refer to “Compensation design at a glance” and the 2016 Annual Report for further information on the 2017 LTI awards.
Compensation of the CEO and highest paid Executive Board member
The compensation for the CEO and highest paid Executive Board member, Tidjane Thiam, comprised of CHF 3.00 million base salary, which remained unchanged compared with the prior year, a 2017 STI award of CHF 3.98 million representing 88% of the maximum opportunity and a 2017 LTI award with a maximum opportunity of CHF 4.5 million (following the 40% voluntary reduction) and a fair value of CHF 2.25 million at the time of grant. In terms of realized compensation for 2017, Mr. Thiam received a base salary of CHF 3.00 million, pension and other benefits of CHF 0.25 million, dividend equivalents of CHF 0.22 million, and a CHF 1.99 million 2017 STI award in non-deferred cash.
The assessment of Mr. Thiam’s performance against the quantitative criteria is based on the same criteria and outcomes as described earlier for the Executive Board. In terms of the qualitative assessment, the Compensation Committee determined that Mr. Thiam had achieved the maximum performance level with respect to the qualitative measures. Some of the key highlights from Mr. Thiam’s qualitative assessment are summarized in the table below.
STI awards: 2017 qualitative assessment for the CEO (30% weighting)
Strategy execution
Mr. Thiam has continued to successfully lead the Group towards achieving profitable growth, reducing the operating cost base, and improving the Group’s operating leverage by embedding a focus on fixed cost efficiency and effectiveness throughout the business
He has overseen the prudent strengthening of the Group’s capital position and the orderly wind-down of legacy assets
Leadership initiatives
Mr. Thiam has displayed sound leadership and success in driving the Group towards a cohesive and profitable client-centric bank
Mr. Thiam has supported the development of an intelligence-led compliance organization and an industry-leading risk and control framework for compensation
He has instigated a change in culture which emphasizes rewarding performance and ethical conduct, and has been personally engaged in resolving significant legacy issues
Talent management
Mr. Thiam has fostered a culture of internal mobility and the development of talent within the Group, including the promotion of diversity and inclusion across the Group
Partnership and collaboration
Mr. Thiam has continued to steer an integrated approach between wealth management and investment banking, such as the establishment of the International Trading Solutions business, which has enhanced the Group’s client offering and fostered collaboration and synergies across the Group
Brand and reputation
Mr. Thiam continued to protect and build upon the Group’s reputation and brand during 2017
233

Utilization of Executive Board compensation approved at the 2017 AGM
At the 2017 AGM, shareholders approved an aggregate amount of fixed compensation to be paid to members of the Executive Board for the period from the 2017 AGM to the 2018 AGM of no more than CHF 31 million. By the time of the 2018 AGM, a total of CHF 29.1 million will have been paid to Executive Board members with respect to fixed compensation. Fixed compensation includes base salaries, role-based allowances, dividend equivalents, pension and benefits.
At the 2017 AGM, shareholders also approved an aggregate maximum amount of LTI compensation to be granted to members of the Executive Board for the 2017 financial year of no more than CHF 31.2 million. The actual 2017 LTI compensation awarded to members of the Executive Board corresponds to this maximum amount. The amount of the 2017 LTI award realized by each of the Executive Board members can only be determined after the completion of the three-year performance period.
In line with the Compensation Ordinance and as specified in the AoA, if new members join the Executive Board or members of the Executive Board are promoted during a period for which compensation has already been approved by shareholders, a further 30% of the aggregate amounts already approved may be used for the compensation of such members. No such additional amount was required in 2017.
Supplementary information
Cash settlement of share awards
The Executive Board members are permitted to elect, subject to minimum shareholding requirements, at a predefined date in advance of settlement, to receive their vested share-based awards in the form of shares, cash or 50% in the form of shares and 50% in cash, in each case based on the Group share price at the time of settlement. An election to receive cash is subject to reversal if at the time of settlement the Group share price is less than 75% of the share price at the time of election. The timing and pricing of settlement will be the same as under the previous award plan and as under the plans of the non-Executive Board population.
Contract lengths, termination and change in control provisions
All members of the Executive Board have employment contracts with the Group which are valid until terminated. The notice period for termination of employment by either the Group or the respective Executive Board member is six months. Executive Board members may be held to a non-compete period of up to one year and may be compensated for this period of time by mutual agreement. In the event of termination, there are no contractual provisions that allow for the payment of severance awards to Executive Board members beyond the regular compensation awarded during the notice period. Pre-defined conditions for all employees, including Executive Board members, apply for the payment of outstanding deferred compensation awards, depending on whether the termination of employment was voluntary, involuntary or the result of a change in control. There are no other contracts, agreements or arrangements with the members of the Executive Board that provide for other types of payments or benefits in connection with termination of employment that are not generally available to other employees of the Group.
In the case of a change in control, the treatment of outstanding awards for all employees, including Executive Board members, will be determined by the Board upon recommendation of the Compensation Committee with the aim of maximizing shareholder value, subject to circumstances and prevailing market conditions. There are no provisions in the employment contracts of Executive Board members or any other pre-determined arrangements that require the payment of any type of extraordinary benefits, including special severance awards or transaction premia, in the case of a change in control.
Former Executive Board members (audited)
During 2017 and 2016, former Executive Board members received total compensation for services they continued to perform after they stepped down from the Executive Board of CHF 1.4 million and CHF 8.0 million, respectively. In addition, a total of CHF 4.1 million was paid during 2017 to former Executive Board members pursuant to non-compete arrangements agreed upon in 2015. Some former members of the Group’s most senior executive body who no longer provide services to the Group are still eligible to receive office infrastructure and secretarial support. These services are based on existing resources and are not used on a regular basis.
Other outstanding awards
As of December 31, 2017, the outstanding cash-based deferred compensation awards granted to certain Executive Board members in prior years comprised of the Capital Opportunity Fund (COF), CCA, LTI awards (from 2012 and 2013) and deferred cash awards. The cumulative value of such cash-based awards at their grant dates was CHF 21.57 million compared with CHF 21.19 million as of December 31, 2017. These amounts also include the cash value of dividend equivalents related to unvested share awards at their respective grant dates and at December 31, 2017.
234

Executive Board holdings and values of deferred share-based awards by individual

end of


Number of
owned shares
1
Number of
unvested awards
(at maximum opportunity)
2
Number of
owned shares and
unvested awards
Value (CHF) of
unvested awards
at grant date
(at maximum opportunity)
Value (CHF) of
unvested awards
at year end
(at fair value)
3
2017   
Tidjane Thiam 1,967 1,132,835 1,134,802 20,298,771 13,941,708
James L. Amine 382,106 1,098,488 1,480,594 18,110,327 11,694,777
Pierre-Olivier Bouée 38,204 439,832 478,036 7,200,011 5,345,214
Romeo Cerutti 199,630 410,871 610,501 6,945,908 4,389,711
Brian Chin 234,328 1,098,757 1,333,085 17,798,557 16,800,518
Peter Goerke 21,953 282,112 304,065 4,750,031 2,985,514
Thomas Gottstein 354,275 354,275 6,009,654 3,639,767
Iqbal Khan 25,135 379,846 404,981 6,412,346 4,016,413
David R. Mathers 52,672 704,359 757,031 11,723,886 7,726,820
Joachim Oechslin 386,390 386,390 6,627,551 4,027,112
Helman Sitohang 394,737 826,572 1,221,309 13,516,027 9,278,836
Lara Warner 2,036 325,449 327,485 5,501,327 3,445,577
Total  1,352,768 7,439,786 8,792,554 124,894,396 87,291,967
2016   
Tidjane Thiam 81,927 1,032,118 1,114,045 20,718,964 12,550,161
James L. Amine 262,706 1,025,658 1,288,364 18,884,166 11,868,592
Pierre-Olivier Bouée 3,614 372,907 376,521 7,096,724 4,436,540
Romeo Cerutti 286,688 323,908 610,596 6,013,140 3,593,974
Brian Chin 109,013 692,600 801,613 14,516,015 10,118,886
Peter Goerke 17,640 223,951 241,591 4,407,779 2,428,892
Thomas Gottstein 64,318 273,660 337,978 5,177,166 2,858,578
Iqbal Khan 40,282 295,044 335,326 5,516,095 3,182,133
David R. Mathers 70,573 555,791 626,364 10,122,747 6,251,319
Joachim Oechslin 32,345 277,331 309,676 5,359,233 2,949,735
Helman Sitohang 244,895 777,688 1,022,583 14,138,551 9,092,974
Lara Warner 92,043 302,939 394,982 5,752,577 3,368,217
Total  1,306,044 6,153,595 7,459,639 117,703,157 72,700,001
1
Includes shares that were initially granted as deferred compensation and have vested.
2
Includes unvested shares originating from LTI awards calculated on the basis of maximum opportunity for awards that have not reached the end of their three-year performance period, given that the actual achievement level and associated number of unvested shares cannot be determined until the end of the performance period. We believe this is a more appropriate approach than our prior practice of applying the target performance level (i.e., 80% of maximum opportunity) in calculating the number of unvested shares. As such, the table for 2016 has been updated.
3
Includes the value of unvested LTI awards, which was determined based on fair value.
Executive Board loans (audited)
The majority of loans outstanding to Executive Board members are mortgages or loans against securities. Such loans are made on the same terms available to employees under the Group’s employee benefit plans. Pursuant to the AoA, each Executive Board member may be granted individual credit facilities or loans up to a maximum of CHF 20 million. As of December 31, 2017, 2016 and 2015, outstanding loans to Executive Board members amounted to CHF 26 million, CHF 25 million and CHF 26 million, respectively. The number of individuals with outstanding loans at the beginning and the end of 2017 was 8 and 8, respectively, and the highest loan outstanding was CHF 7 million to Mr. Gottstein.
All mortgage loans to Executive Board members are granted either with variable or fixed interest rates over a certain period. Typically, mortgages are granted for periods of up to ten years. Interest rates applied are based on refinancing costs plus a margin, and interest rates and other terms are consistent with those applicable to other employees. Loans against securities are granted at interest rates and on terms applicable to such loans granted to other employees. The same credit approval and risk assessment procedures apply to Executive Board members as for other employees. Unless otherwise noted, all loans to Executive Board members were made in the ordinary course of business and substantially on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and in consideration of the terms which apply to all Group employees. These loans did not involve more than the normal risk of collectability or present other unfavorable features.
> Refer to “Banking relationships with Board and Executive Board members and related party transactions” in IV – Corporate Governance – Additional information for further information.
235

Revised Executive Board compensation design for 2018
The overall compensation structure and design for the Executive Board in 2018 builds upon the existing framework. To reflect feedback after extensive consultation with shareholders and other external stakeholders, the Compensation Committee has proposed a number of changes to specific aspects of Executive Board compensation, effective from 2018, which are aligned with the Group’s strategic plan. The key changes are summarized in the following table, and further details on the 2018 STI and 2018 LTI award design are provided below.
The performance target levels for the STI and LTI awards are set on the basis of the internal stretch targets, prior year performance, analyst expectations and publicly stated targets. For instance, the RoTE metric (a non-GAAP financial measure) is based on reported unadjusted results and will be measured as an average for the three performance years of 2018, 2019 and 2020. The threshold performance level was set at 5.0%, which exceeds the RoTE achieved for 2017 of 3.0% (before the impact of the CHF 2.3 billion non-cash tax charge primarily resulting from the US tax reform). The target performance level of 7.5% is significantly higher than the RoTE achieved for 2017, and is 50% higher than the threshold performance level of 5.0%. The maximum performance level of 11.0% was set taking into consideration our publicly stated ambitious objectives for 2019 (10-11%) and 2020 (11-12%), and the fact that 2018 is the final year of our three-year restructuring plan. As such, the 100% payout level will only be achieved if the average RoTE over the three years is at least 11%. The TBVPS metric (a non-GAAP financial measure) will also be measured as an average of the three performance years based on the values at the end of 2018, 2019 and 2020, respectively. The threshold performance level was set at a level which exceeds the TBVPS achieved at the end of 2017, and the target and maximum performance levels were set in consideration of internal stretch targets.
236

237

Board of Directors compensation
Compensation structure
Board members receive fees which reflect their respective role, time commitment and scope of responsibility on the Board. The fee amounts are set at levels to attract and retain highly qualified and experienced individuals, taking into consideration levels at comparable leading Swiss companies. The base board and committee membership fees for the period from one AGM to the next are paid 50% in cash and 50% in Group shares in arrears in two equal installments, except for the Chairman and committee chairs as described below. The Group shares awarded are blocked and non-transferable for a period of four years. This ensures that the interests of Board members are closely aligned to the interests of shareholders. The fee amounts for the 2017 AGM to 2018 AGM Board period are shown in the table below, and are consistent with prior years, with the following changes:
committee chairs continue to receive chair fees, but no longer receive the committee membership fees for serving on committees that they chair;
revised Compensation Committee Chair fee to reflect the increased complexity and time commitment of this role and to further align with Swiss market practice (increased to CHF 300,000 compared with CHF 200,000 previously);
Audit Committee Chair fee reduced to CHF 480,000 from CHF 560,000 previously; and
Governance and Nominations Committee (formerly the Chairman’s and Governance Committee) membership fee reduced to CHF 50,000 from CHF 100,000 previously.
Membership fees: 2017 AGM – 2018 AGM

Role
Base
fees
Chair
fees
1 Committee
fees
CHF million   
Chairman 3,000,000 1,500,000
Board member 2 250,000
Audit Committee (AC) 480,000 150,000
Governance and Nominations Committee (GNC) No additional fee 50,000
Compensation Committee (CC) 300,000 100,000
Risk Committee (RC) 420,000 100,000
1
Committee chairs do not receive committee fees in addition to their chair fees.
2
The Vice-Chair and Lead Independent Director do not receive additional compensation for these roles.
Effective as of the 2018 AGM, the Risk Committee Chair fee will be reduced to CHF 400,000 from CHF 420,000 previously.
Compensation of the Chairman
The Chairman’s role is a full-time appointment. He is paid an annual base board fee of CHF 3.0 million in cash (divided into 12 monthly payments) plus a chair fee of CHF 1.5 million in Group shares delivered in one installment at the end of the current board period. The Chairman may also receive benefits from and make contributions to the Group pension fund in line with local market practice for the Group. For the period from the 2017 AGM to the 2018 AGM, the Chairman proposed to voluntarily waive 30% of his chair fee of CHF 1.5 million, an amount equivalent to CHF 0.45 million, and this proposal was approved by the Board. Going forward, as the Group completes its restructuring plan, the Board expects that the Chairman’s compensation will return to the previously approved level. The total compensation paid to the Chairman reflects his full-time status and active role in shaping the Group’s strategy, governing the Group’s affairs, engaging and maintaining a close working relationship with the CEO and senior management, and providing counsel and support, where appropriate. The Chairman coordinates the Board’s activities, works with the committee chairs to coordinate the tasks of the committees and ensures that Board members are provided with sufficient information to perform their duties. The Chairman drives the Board agenda on key topics such as the strategic development of the Group, corporate culture, succession planning and the structure and organization of the Group. The Chairman also steers the agenda on compensation and compensation structure, including the performance evaluation and compensation of the CEO and the Executive Board. He chairs the Board, the Governance and Nominations Committee and the shareholder meetings and takes an active role in representing the Group to regulators and supervisors, key shareholders, investors, and other external stakeholders. Moreover, he is a member of several Swiss and international industry associations on behalf of the Group, including the Swiss Bankers Association, the Swiss Finance Council, the Institute of International Finance and the European Banking Group.
Compensation of the committee chairs
The committee chair fees are fixed in advance and are not linked to the Group’s financial performance. The chair fees are paid 50% in cash and 50% in Group shares in one installment at the end of the current board period. In addition to the greater time commitment required to prepare and lead the committee work, the chair fees reflect the engagement of the three committee chairs throughout the year with regulators, shareholders, the business divisions and corporate functions and other stakeholders. Regulatory developments in the banking industry in recent years have put increasing demands on the Risk and Audit Committee Chairs, in particular, increasing the frequency of interaction with the Group’s main regulators on internal control, risk, capital and other matters under the supervision of these committees. Similarly, the greater focus of shareholders and regulators on compensation has resulted in an increased number of engagements between the Compensation Committee Chair and key shareholders and shareholder proxy advisers, as well as with regulators. The Compensation Committee held 10 meetings and calls during 2017. The Audit Committee Chair fee also considers the greater number of meetings required of the Audit Committee for the review and approval of the
238

quarterly financial results and related filings and the Audit Committee Chair’s supervisory role over the Internal Audit function. The Audit Committee held 16 meetings and calls during 2017. The Risk Committee Chair fee considers the regular interaction required between the Risk Committee Chair and the Group chief risk officer and other senior managers in the risk management function, as well as his oversight role over the Credit Risk Review function, which reports directly to him. The Risk Committee held 6 meetings during 2017, and in addition, the Risk Committee Chair held numerous meetings with regulators and other stakeholders.
> Refer to the table “Members of the Board and Board committees” in IV – Corporate Governance – Board of Directors for further information.
> Refer to “Credit risk governance” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management – Risk coverage and management – Credit risk for further information on the Credit Risk Review function.
utilization of board compensation approved at the 2017 agm
At the 2017 AGM, shareholders approved an aggregate amount of compensation to be paid to members of the Board for the period from the 2017 AGM to the 2018 AGM of CHF 12 million. Of this amount, a total of CHF 11.5 million will have been paid to Board members by the time of the 2018 AGM, of which CHF 9.8 million related to fees for Group Board membership and CHF 1.7 million related to fees paid to certain Board members for subsidiary board membership. Total Group Board compensation is 5% lower than for the prior period, and aggregate Board and subsidiary board compensation for Board members is 4% higher due to the increase in compensation related to subsidiary board fees, which were not incurred in the prior period during the start-up phase of Credit Suisse (Schweiz) AG.
Board compensation from the 2017 AGM to the 2018 AGM (audited)
   Group Subsidiaries



GNC



AC



CC



RC


Base board
fee


Committee
fee


Chair
fee

Pension
and other
benefits



Total
Of which
awarded
in Group
shares
1

Subsidiary
board fee

Pension
and other
benefits
Total
including
subsidiary
boards
2
CHF               
Urs Rohner, Chairman 3 C 3,000,000 1,050,000 216,823 4,266,823 1,050,000 4,266,823
Iris Bohnet M 250,000 100,000 350,000 175,000 350,000
Alexander Gottschling M 250,000 100,000 350,000 175,000 33,333 383,333
Alexander Gut M 250,000 150,000 400,000 200,000 150,000 550,000
Andreas N. Koopmann M M 250,000 200,000 450,000 225,000 450,000
Seraina Macia M 250,000 150,000 400,000 200,000 400,000
Kai S. Nargolwala M C 250,000 50,000 300,000 600,000 300,000 600,000
Joaquin J. Ribeiro M 250,000 150,000 400,000 200,000 400,000
Severin Schwan M M 250,000 150,000 400,000 200,000 400,000
Richard E. Thornburgh M M C 250,000 200,000 420,000 870,000 435,000 271,600 1,141,600
John Tiner M C M 250,000 150,000 480,000 880,000 440,000 218,250 1,098,250
Alexandre Zeller M M 250,000 150,000 400,000 200,000 800,000 216,823 4 1,416,823
Total  5,750,000 1,550,000 2,250,000 216,823 9,766,823 3,800,000 1,473,183 216,823 11,456,829
GNC = Governance and Nominations Committee; AC = Audit Committee; CC = Compensation Committee; RC = Risk Committee; C = Chair; M = Member
1
As of December 31, 2017, one-half of the Board member fees to be awarded in Group shares have been delivered to Board members. The applicable Group share price was CHF 16.11. The remaining shares will be delivered to Board members at or around the date of the 2018 AGM and the share price for this second share delivery will be determined at that time. Group shares are subject to a four-year blocking period.
2
At the 2017 AGM, shareholders approved a maximum amount of total compensation to be awarded to Board members until the 2018 AGM of CHF 12 million. For the total compensation awarded to members of the Board, the Group will make payments of CHF 0.5 million for the 2017/2018 Board period to cover the mandatory employer social security contributions as required under the social security laws applicable to the individual Board members based on their domicile and employment status. These contributions do not form part of the Board members' compensation.
3
The Chair fee of the Chairman is set at CHF 1.5 million to be awarded as 100% Group shares. For the period from the 2017 AGM to the 2018 AGM, the Chairman proposed to voluntarily waive 30% or CHF 0.45 million of his Chair fee and this proposal was approved by the Board. The total compensation of the Chairman includes benefits for the period from the 2017 AGM to the 2018 AGM of CHF 216,823, including pension and health insurance benefits.
4
Mr Zeller is eligible for pension and health insurance benefits in connection with his role as board member and chairman of the board of directors of the subsidiary Credit Suisse (Schweiz) AG, but not for his role as a member of the Group Board.
239

Board compensation from the 2016 AGM to the 2017 AGM (audited)
   Group Subsidiaries



GNC



AC



CC



RC


Base board
fee


Committee
fee


Chair
fee

Pension
and other
benefits



Total
Of which
awarded
in Group
shares
1

Subsidiary
board fee
Total
including
subsidiary
boards
2
CHF               
Urs Rohner, Chairman 3 C 3,000,000 750,000 230,929 3,980,929 750,000 3,980,929
Jassim Bin Hamad J.J. Al Thani 250,000 250,000 125,000 250,000
Iris Bohnet M 250,000 100,000 350,000 175,000 350,000
Noreen Doyle M M 250,000 200,000 450,000 225,000 252,000 702,000
Alexander Gut M 250,000 150,000 400,000 200,000 400,000
Andreas N. Koopmann M M 250,000 200,000 450,000 225,000 450,000
Jean Lanier M C 250,000 200,000 200,000 650,000 325,000 650,000
Seraina Macia M 250,000 150,000 400,000 200,000 400,000
Kai S. Nargolwala M M 250,000 200,000 450,000 225,000 450,000
Joaquin J. Ribeiro M 250,000 150,000 400,000 200,000 400,000
Severin Schwan M 250,000 100,000 350,000 175,000 350,000
Richard E. Thornburgh M M C 250,000 350,000 420,000 1,020,000 510,000 274,510 1,294,510
John Tiner M C M 250,000 350,000 560,000 1,160,000 580,000 137,255 1,297,255
Total  6,000,000 2,150,000 1,930,000 230,929 10,310,929 3,915,000 663,765 10,974,694
GNC = Governance and Nominations Committee; AC = Audit Committee; CC = Compensation Committee; RC = Risk Committee; C = Chair; M = Member
1
As of December 31, 2016, one-half of the Board member fees to be awarded in Group shares have been delivered to Board members. The applicable Group share price was CHF 14.39. The remaining shares will be delivered to Board members at or around the date of the 2017 AGM and the share price for this second share delivery will be determined at that time. Group shares are subject to a four-year blocking period.
2
At the 2016 AGM, shareholders approved a maximum amount of total compensation to be awarded to Board members until the 2017 AGM of CHF 12 million. For the total compensation awarded to members of the Board, the Group will make payments of CHF 0.5 million for the 2016/2017 Board period to cover the mandatory employer social security contributions as required under the social security laws applicable to the individual Board members based on their domicile and employment status. These contributions do not form part of the Board members' compensation.
3
The Chair fee of the Chairman is set at CHF 1.5 million to be awarded as 100% Group shares. For the period from the 2016 AGM to the 2017 AGM, the Chairman proposed to voluntarily waive 50% or CHF 0.75 million of his Chair fee and this proposal was approved by the Board. The total compensation of the Chairman includes benefits for the period from the 2016 AGM to the 2017 AGM of CHF 230,929, including pension and health insurance benefits and lump sum expenses.
Compensation of Board members serving on subsidiary boards
A number of Board members also serve as members on the boards of Group subsidiary companies. This practice is consistent with the Group’s legal entity governance principles, which aim to foster a close alignment of the Group’s governance practices and those of its significant subsidiary companies.
> Refer to the “Governance of Group subsidiaries” and “Biographies of the Board members” in IV – Corporate Governance – Board of Directors for further information.
With the exception of the Chairman, Board members may receive separate fees for serving on subsidiary boards, in addition to their Board fees, which are paid in cash. These fees are approved by the respective subsidiary boards and are subject to ratification by the Board. All subsidiary board fees are included in the total amount of compensation of members of the Board proposed for approval by shareholders at the AGM. The Chairman does not receive separate fees for board memberships in other Group companies, as this is considered to be included as part of the Chairman’s compensation.
Going forward, the Board members newly appointed to serve on subsidiary boards will receive a flat subsidiary board membership fee of CHF 100,000 (or higher amounts if a Board member serves as the chair of the subsidiary board or a committee). This amount is generally less than that received by other external subsidiary board members, given that Board members are already familiar with the Group’s entities and activities. Serving on a subsidiary board is nevertheless a significant additional commitment for these Board members, reflected, for example, in the number of subsidiary board meetings held throughout the year as shown below.
Number of subsidiary board meetings
Board Committee Total
Subsidiary   
Credit Suisse (Schweiz) AG 7 12 19
Credit Suisse International (CSI) / Credit Suisse Securities (Europe) Limited (CSSEL) 12 18 30
Credit Suisse Holdings (USA) Inc. 17 15 32
240

supplementary information
Board shareholdings
The table below discloses the shareholdings of the Board members, their immediate family and companies in which they have a controlling interest. As of December 31, 2017 and 2016, there were no Board members with outstanding options.
Board shareholdings by individual
end of 2017 2016
December 31 (shares)   1
Urs Rohner 189,956 197,861
Iris Bohnet 49,451 38,287
Andreas Gottschling 5,432
Alexander Gut 24,152 7,865
Andreas N. Koopmann 117,900 81,746
Seraina Macia 37,231 19,700
Kai S. Nargolwala 280,883 226,362
Joaquin J. Ribeiro 24,150 7,865
Severin Schwan 116,402 82,803
Richard E. Thornburgh 196,766 225,038
John Tiner 216,645 140,910
Alexandre Zeller 6,208
Total  1,265,176 1,028,437 2
1
Includes Group shares that are subject to a blocking period of up to four years; includes shareholdings of immediate family members.
2
Excludes 35,809 shares held by Jassim Bin Hadam J.J. Al Thani, 70,883 shares held by Noreen Doyle and 96,318 shares held by Jean Lanier as of December 31, 2016, who did not stand for re-election to the Board as of April 28, 2017.
Board loans
The majority of loans outstanding to members of the Board are mortgages or loans against securities. Such loans are made to Board members on the same terms available to third-party clients. Pursuant to the AoA, each member of the Board may be granted individual credit facilities or loans up to a maximum of CHF 20 million at market conditions. As of December 31, 2017, 2016 and 2015, outstanding loans to Board members amounted to CHF 11 million, CHF 10 million, and CHF 8 million respectively.
Board members with loans, including the Chairman, do not benefit from employee conditions, but are subject to conditions applied to clients with a comparable credit standing. Unless otherwise noted, all loans to Board members are made in the ordinary course of business and substantially on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Such loans do not involve more than the normal risk of collectability or present other unfavorable features. In addition to the loans listed below, the Group or any of its banking subsidiaries may enter into financing and other banking agreements with companies in which current Board members have a significant influence as defined by the SEC. Examples include holding executive and/or board level roles in these companies. Unless otherwise noted, loans extended by the Group to such companies are also made in the ordinary course of business and at prevailing market conditions. As of December 31, 2017, 2016 and 2015, there was no loan exposure to such related party companies that was not made in the ordinary course of business and at prevailing market conditions.
> Refer to “Banking relationships with Board and Executive Board members and related party transactions” in IV – Corporate Governance – Additional information for further information.
Board loans by individual (audited)
end of 2017 2016
December 31 (CHF)   
Urs Rohner 4,745,000 4,830,000
Alexander Gut 30,000 30,000
Andreas N. Koopmann 5,197,600 4,195,000
Seraina Macia 968,000 976,000
Total  10,940,600 10,031,000
Includes loans to immediate family members and companies, in which the respective Board member has an ownership stake of 50% or higher.
Former members of the Board
Two former members of the Board are eligible to receive office infrastructure and secretarial support. These services are based on existing resources and are not used on a regular basis. No additional fees, severance payments or other forms of compensation were paid to former members of the Board or related parties during 2017 and 2016.
241

Group compensation
Compensation framework
The key elements of our current Group employees’ compensation framework and how they applied to various employee categories are shown below.
Base salaries
All employees are paid a base salary. Salary levels are based on the skills, qualifications and relevant experience of the individual, the responsibilities required by the role and external market factors.
Role-based allowances
Role-based allowances are a component of fixed compensation awarded to certain employees identified as PRA Code Staff under UK regulatory requirements or material risk-takers under other EU regulatory requirements. These role-based allowances are determined based on the role and organizational responsibility of the individuals. Role-based allowances are deemed to be fixed compensation for the purposes of calculating the cap of variable incentive compensation as required by the Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR). Role-based allowances for 2017 were paid entirely in cash on a non-deferred basis.
Variable incentive compensation
For 2017, variable incentive compensation was paid in cash unless the total compensation awarded to an employee for 2017 was greater than or equal to CHF 250,000 or the local currency equivalent or USD 250,000 for employees whose total compensation is denominated in US dollars. In these cases a portion was paid in cash and the balance was deferred, vesting at a later date.
Generally, employees receive the cash portion of their variable incentive compensation at a regular payroll settlement date close to the grant date. To comply with CRD IV requirements, employees who hold material risk-taker roles in respect of certain Group subsidiaries in the EU receive shares for 50% of the non-deferred portion of variable incentive compensation that would have been paid to them as cash. These shares are vested at the time of grant but remain blocked, that is, subject to transfer restrictions, for a period of 12 months.
To enable closer alignment with market practice and local variations, two deferral tables have been applied since 2015: one for the Americas and another for the rest of the world. For 2017, the deferral rates ranged from 17.5% to 60% of variable incentive compensation for employees located in the Americas, and 17.5% to 85% of variable incentive compensation for employees located elsewhere. The amount of variable incentive compensation paid in cash for 2017 was capped at CHF 2 million or the local currency equivalent (or USD 2 million for employees whose total compensation is denominated in US dollars) per employee.
Compensation components by employee category
242

Deferred compensation: key features
Potential downward adjustments of performance share awards
As described in the above table, performance share awards may be subject to negative adjustments in the event of a divisional loss. The amount of potential negative adjustment is shown in the table below.
Downward adjustment if division incurs a loss
Division pre-tax loss (in CHF billion) Adjustment on award balance (in %)
(1.00) (15)
(2.00) (30)
(3.00) (45)
(4.00) (60)
(5.00) (75)
(6.00) (90)
(6.67) (100)
Determination of the variable incentive compensation pools
In determining the pools, the Compensation Committee aims to balance the distribution of the Group’s profits between shareholders and employees. The primary driver of the pool amounts is the Group’s financial performance in terms of economic contribution, measured as adjusted income before taxes excluding variable incentive compensation expenses, after deducting a capital usage charge. Non-financial factors are also considered in the determination of the pool amounts, including progress on the achievement of strategic objectives, market position and trend, risk-related issues, relative performance compared to peers, and any extraordinary events, such as, but not limited to, company reorganizations, major legacy settlements or any other exceptional circumstances. In this regard, the Compensation Committee can apply discretion to make adjustments (including negative adjustments) to the variable incentive compensation pools.
243

For 2017, the Compensation Committee noted the 349% increase in Group adjusted income before taxes, from CHF 0.6 billion in 2016 to CHF 2.8 billion in 2017, and acknowledged that the Group had made strong progress in delivering against its strategic priorities of profitable growth and positive operative leverage through both higher revenues and lower operating expenses. Further, the wind-down of the Strategic Resolution Unit is on track for completion one year ahead of schedule by the end of 2018, which should, from 2019 onwards significantly reduce the drag on the Group’s operating profits from legacy positions compared with prior years. The Compensation Committee also considered a range of other factors such as relative performance versus peers, market position and market trends, as well as control, risk and ethical considerations. In addition, the Compensation Committee took into account the impact of the reduction in DTAs due to the enactment of the US Tax Cuts and Jobs Act, which resulted in a non-cash tax charge of CHF 2.3 billion to net income in the fourth quarter of 2017, primarily related to our US DTAs. Although this event was outside of the control of management, and had minimal impact on capital, liquidity, our ability to pay dividends or the Group’s underlying results, the Compensation Committee applied a downward adjustment of approximately CHF 100 million to the total Group variable incentive compensation pool to reflect the impact of the tax charge on net income. As such, after the downward adjustment, the Compensation Committee proposed an overall Group pool of CHF 3,190 million, 3% higher than 2016, which was approved by the Board.
> Adjusted results are non-GAAP financial measures that exclude goodwill impairment, real estate transactions, business sales, restructuring expenses and major litigation provisions. Refer to “Reconciliation of adjusted results” in II – Operating and financial review – Credit Suisse for further information.
Competitive benchmarking
The assessment of the economic and competitive environment is an important element of the compensation process as the Group strives for market-informed, competitive compensation levels. Internal expertise and the services of compensation consulting firms are used to benchmark compensation levels against relevant peers, taking into account geographical variations. The Compensation Committee is provided with regular reports from an independent compensation adviser on industry and market trends, including competitor performance and pay trends. The peers considered for the purposes of Group peer benchmarking are Bank of America, Barclays, Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. Specific benchmarking may include other peers, depending on the business area or geographic location, as appropriate.
Focus on risk and control
Risk and control considerations are an integral part of the performance assessment and compensation processes. This ensures that the Group’s approach to compensation includes a focus on risk and internal control matters and discourages excessive risk taking. Senior management from the Group’s corporate functions, including Compliance and Regulatory Affairs, General Counsel, Human Resources, Internal Audit, Product Control and Risk Management, provide the Compensation Committee with comprehensive feedback on regulatory, audit, disciplinary and risk-related issues or trends across the Group, relevant to the assessment of the Group’s risk and control culture. Divisions are assessed against risk and conduct measures for the year, and the consolidated findings are presented to the Compensation Committee and the CEO. Based on these assessments, the Compensation Committee may approve adjustments to the divisional pool levels as proposed by the CEO.
Aside from risk considerations, disciplinary events may also impact compensation decisions. Conduct and Ethics Boards (CEBs) review all disciplinary events and decide on disciplinary sanctions proposed by the recommendation teams, which include representatives from the control functions. CEBs have been established at the Group-wide level, as well as for each business division and the corporate functions overall. The Group CEB meets on a quarterly basis to ensure that sanctions applied are in line with the Group’s risk appetite, market practice and regulatory requirements.
244

Malus and clawback provisions
All deferred compensation awards granted contain malus provisions that enable the Group to reduce or cancel the awards prior to settlement if the participant engages in certain detrimental conduct. Malus provisions were enforced during the course of 2017. All variable incentive compensation granted to UK PRA Code Staff and employees regulated by the Bank of Italy are subject to clawback. Other EU-regulated employees are also subject to clawback provisions as required by applicable legal or regulatory requirements.
Covered Employees (including Material Risk Takers and Controllers)
Covered employees are subject to a heightened level of scrutiny over the alignment of their compensation with performance and risk considerations.
245

compensation outcomes for 2017
Of the total variable incentive compensation awarded across the Group for 2017, 45% was deferred, compared with 43% in 2016, and subject to certain conditions including future service, performance, market and malus criteria.
Total compensation awarded
For 2017 2016
Unrestricted Deferred Total Unrestricted Deferred Total
Fixed compensation (CHF million)   
Salaries 5,504 90 5,594 5,728 5,728
Social security 671 671 697 697
Other 600 1 600 710 1 710
Total fixed compensation  6,775 90 6,865 7,135 7,135
Variable incentive compensation (CHF million)   
Cash 1,708 1,708 1,706 1,706
Share awards 38 613 651 37 566 603
Performance share awards 478 478 451 451
Contingent Capital Awards 241 241 229 229
Other cash awards 112 112 95 2 95 2
Total variable incentive compensation  1,746 1,444 3,190 1,743 1,341 3,084
Other variable compensation (CHF million)   
Severance awards 1 1 8 8
Cash-based commissions 20 20
Other 3 26 244 270 4 47 350 397 5
Total other variable compensation  27 244 271 75 350 425
Total compensation awarded (CHF million)   
Total compensation awarded  8,548 1,778 10,326 8,953 1,691 10,644
   of which guaranteed bonuses  49 72 121 27 35 62
1
Includes pension and other post-retirement expense of CHF 242 million and CHF 384 million in 2017 and 2016, respectively.
2
Restated to reflect the revised 2016 STI award proposal of the Executive Board, which was approved by shareholders at the 2017 AGM.
3
Includes replacement awards to compensate employees for the equivalent fair value of deferred awards cancelled by previous employers, as well as retention awards and sign-on payments.
4
Includes CHF 65 million of cash retention awards in Asia Pacific.
5
Includes CHF 249 million of deferred share and cash retention awards relating to the reorganization of the Global Markets and Investment Banking & Capital Markets businesses.
Number of employees awarded variable incentive and other compensation
2017 2016

MRTC
1 Other
employees

Total

MRTC
1 Other
employees

Total
Number of employees awarded variable incentive compensation
Variable incentive compensation  1,070 41,614 42,684 939 42,473 43,412
   of which cash  1,070 41,614 42,684 939 42,473 43,412
   of which share awards  983 6,011 6,994 897 6,145 7,042
   of which performance share awards  990 859 1,849 890 905 1,795
   of which Contingent Capital Awards  963 4,833 5,796 869 4,910 5,779
   of which other cash awards  41 240 281 49 176 225
Number of employees awarded other variable compensation
Severance awards 2 181 183 1 195 196
Cash-based commissions 220 220
Guaranteed bonuses 16 162 178 11 151 162
Other 2 44 3 821 865 148 3 690 838
1
Excludes individuals who may have been classified as MRTC according to regulatory requirements of jurisdictions outside of Switzerland, particularly US-based revenue producers in Global Markets and Investment Banking & Capital Markets, who were classified as Covered Employees by the US Federal Reserve.
2
Includes replacement awards to compensate employees for the equivalent fair value of deferred awards cancelled by previous employers, as well as retention awards and sign-on payments.
3
For 2017 and 2016, sign-on payments were paid to 3 and 12 MRTC, respectively.
246

Compensation awarded to Material Risk Takers and Controllers
For 2017 2016
Unrestricted Deferred Total Unrestricted Deferred Total
Fixed compensation (CHF million)   
Total fixed compensation  536 59 595 510 510
Variable incentive compensation (CHF million)   
Cash 298 298 285 285
Share awards 38 177 215 36 1 163 1 199
Performance share awards 299 299 279 279
Contingent Capital Awards 116 116 108 108
Other cash awards 35 35 28 28
Total variable incentive compensation  336 627 963 321 578 899
Other variable compensation (CHF million)   
Severance awards 1 1 1 1
Other 2 8 3 88 96 17 3 215 232
Total other variable compensation  9 88 97 18 215 233
Total compensation (CHF million)   
Total compensation  881 774 1,655 849 793 1,642
   of which guaranteed bonuses  10 25 35 3 9 12
Excluding Executive Board members who were in office on December 31, 2017. Of the total compensation awarded to MRTC for 2017 and 2016, 47% and 48%, respectively, was deferred. Of the total variable incentive compensation awarded to MRTC for 2017 and 2016, 65% and 64%, respectively, was deferred.
1
Prior period has been corrected.
2
Includes replacement awards to compensate employees for the equivalent fair value of deferred awards cancelled by previous employers, as well as retention awards and sign-on payments.
3
For 2017 and 2016, sign-on payments paid to MRTC amounted to CHF 5 million and CHF 12 million, respectively.
Group compensation and benefits expense
Compensation and benefits expenses recognized in the current year income statement include salaries, role-based allowances, variable compensation, benefits and employer taxes on compensation. Variable compensation expense generally reflects the variable incentive cash compensation for the current year, amortization of deferred compensation awards granted in prior years, as well as severance payments, commission payments, replacement awards, retention awards, and sign-on payments. Deferred variable incentive compensation granted for the current year is expensed in future periods during which it is subject to future service, performance and malus criteria and other restrictive covenants.
247

Group compensation and benefits expense
in 2017 2016
Current
compen-
sation
Deferred
compen-
sation


Total
Current
compen-
sation
Deferred
compen-
sation


Total
Fixed compensation expense (CHF million)   
Salaries 5,504 52 1 5,556 5,728 25 5,753
Social security 2 671 671 697 697
Other 3 600 600 710 710
Total fixed compensation expense  6,775 52 6,827 7,135 25 7,160
Variable incentive compensation expense (CHF million)   
Cash 1,708 1,708 1,706 1,706
Share awards 38 525 4 563 37 603 4 640
Performance share awards 348 348 370 370
Contingent Capital Awards 280 280 235 235
Contingent Capital share awards 18 18 30 30
Capital Opportunity Facility awards 14 14 13 13
Plus Bond awards 5 5
2008 Partner Asset Facility awards 5 7 7 13 13
Other cash awards 392 392 335 335
Total variable incentive compensation expense  1,746 1,584 3,330 1,743 1,604 3,347
Other variable compensation expense (CHF million)   
Severance payments 1 1 8 8
Commissions 20 20
Other 6 19 19 37 37
Total other variable compensation expense  20 20 65 65
Total compensation expense (CHF million)   
Total compensation expense  8,541 1,636 10,177 8,943 1,629 10,572
Restructuring expenses in connection with the strategic review of the Group are disclosed separately and are not part of the total compensation expenses. These restructuring expenses included cash severance expenses of CHF 192 million and CHF 218 million relating to 1,774 and 1,796 employees in 2017 and 2016, respectively.
1
Includes fixed deferred expense of CHF 4 million for share awards and CHF 48 million for other cash awards.
2
Represents the Group's portion of employees' mandatory social security.
3
Includes pension and other post-retirement expense of CHF 242 million and CHF 384 million in 2017 and 2016, respectively.
4
Includes CHF 34 million and CHF 46 million of compensation expense associated with replacement share awards granted in 2017 and 2016, respectively.
5
Includes the change in the underlying fair value of the indexed assets during the period.
6
Includes replacement awards to compensate employees for the equivalent fair value of deferred awards cancelled by previous employers, as well as retention awards and sign-on payments.
Supplementary information
Group estimated unrecognized compensation expense
The following table shows the estimated compensation expense that has not yet been recognized through the income statement for deferred compensation awards granted for 2017 and prior years that were outstanding as of December 31, 2017, with comparative information for 2016. These estimates were based on the fair value of each award on the grant date, taking into account the current estimated outcome of relevant performance criteria and estimated future forfeitures. No estimate has been included for future mark-to-market adjustments.
Group estimated unrecognized compensation expense
end of Deferred compensation 2017 Deferred compensation 2016

For
2017
For
prior-year
awards


Total

For
2016
For
prior-year
awards


Total
Estimated unrecognized compensation expense (CHF million)   
Share awards 569 472 1 1,041 565 445 1 1,010
Performance share awards 445 158 603 446 119 565
Contingent Capital Awards 229 119 348 218 109 327
Contingent Capital share awards 3 3 24 24
Other cash awards 112 194 306 95 2 181 276 2
Total estimated unrecognized compensation expense  1,355 946 2,301 1,324 878 2,202
1
Includes CHF 71 million and CHF 43 million of estimated unrecognized compensation expense associated with replacement share awards granted to new employees in 2017 and 2016, respectively, not related to prior years.
2
Restated to reflect the revised 2016 STI award proposal of the Executive Board, which was approved by shareholders at the 2017 AGM.
248

Limitations on share-based awards
The Group prohibits employees from entering into transactions to hedge the value of outstanding share-based awards but allows employees to hedge awards that have already vested. Employee pledging of unvested, or vested and undistributed share-based awards is also prohibited, except with the approval of the Compensation Committee. These provisions also apply to Executive Board members.
Impact of share-based compensation on shareholders’ equity
In general, the income statement expense recognition of share-based awards on a pre-tax basis has a neutral impact on shareholders’ equity because the reduction to shareholders’ equity from the expense recognition is offset by the obligation to deliver shares, which is recognized as an increase to equity by a corresponding amount. Shareholders’ equity includes, as additional paid-in capital, the tax benefits associated with the expensing and subsequent settlement of share-based awards.
In 2017, the Group’s share delivery obligations were covered by shares purchased in the market. The Group intends to continue to cover its future share delivery obligations through market purchases.
Share-based awards outstanding
At the end of 2017, there were 147.5 million share-based awards outstanding, of which 84.9 million were share awards, 54.2 million were performance share awards and 8.4 million were CCA share awards.
> Refer to “Note 28 – Employee deferred compensation” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Subsequent activity
In early 2018, the Group granted approximately 34.1 million new share awards and 26.5 million new performance share awards with respect to performance in 2017. Further, the Group awarded CHF 241 million of deferred variable incentive compensation in the form of CCA pursuant to the Group’s compensation policy.
In the first half of 2018, the Group plans to settle 68.1 million deferred awards from prior years, including 40.2 million share awards and 25.3 million performance share awards. The Group plans to meet this delivery obligation through market purchases.
> Refer to “Capital management” in III – Treasury, Risk, Balance sheet and Off-balance sheet for more information.
Changes to the value of outstanding deferred awards
Employees experience changes to the value of their deferred compensation awards during the vesting period due to both implicit and explicit value changes. Implicit value changes primarily reflect market-driven effects, such as changes in the Group share price, changes in the value of the COF, CCA and FX rate movements. Explicit value changes reflect risk adjustments triggered by conditions related to negative performance in the performance share awards, forfeiture, or the malus provisions in all deferred awards. The final value of an award will only be determined at settlement.
> Refer to “Note 28 – Employee deferred compensation” in VI – Consolidated financial statements – Credit Suisse Group for further information on COF.
The following table provides a comparison of the outstanding deferred compensation awards at the end of 2016 and 2017, indicating the value of changes due to ex post implicit and ex post explicit adjustments. For 2017, the change in value for the outstanding deferred compensation awards was mainly due to implicit adjustments driven primarily by changes in the Group share price, FX rate movements and changes in the value of CCA.
Outstanding deferred compensation awards

in / end


Total
outstanding
end of 2016



Granted
in 2017


Vested/
settled
in 2017


Ex post
explicit
adjustments


Ex post
implicit
adjustments


Total
outstanding
end of 2017
% of which
exposed to
ex post
explicit
adjustments
Cash-based awards (CHF million)
CCAs 806 224 (306) (29) 50 745 100%
Other cash awards 461 199 (240) (14) (4) 402 100%
Share-based awards (CHF million)
Share awards 1,069 789 (581) (69) 269 1,477 100%
Performance share awards 707 458 (364) (32) 174 943 100%
CCA share awards 197 (77) (6) 32 146 100%
Total  3,240 1,670 (1,568) (150) 521 3,713
249


Report of the Statutory Auditor
Report of the Statutory Auditor To the General Meeting of Shareholders of Credit Suisse Group AG, Zurich _____________________________________________________________________We have audited the accompanying compensation report dated March 23, 2018 of Credit Suisse Group AG (the “Group”) for the year ended December 31, 2017. The audit was limited to the information according to articles 14-16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (the “Ordinance”) contained in the sections marked with (audited) on pages 230 to 241 of the compensation report.Responsibility of the Board of DirectorsThe Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the compensation system and defining individual compensation packages. Auditor's ResponsibilityOur responsibility is to express an opinion on the accompanying compensation report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14 16 of the Ordinance.An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to compensation, loans and credits in accordance with articles 14 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the compensation report.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OpinionIn our opinion, the compensation report for the year ended December 31, 2017 of the Group complies with Swiss law and articles 14 16 of the Ordinance.KPMG AGNicholas EdmondsRalph DichtLicensed Audit ExpertLicensed Audit ExpertAuditor in ChargeZurich, SwitzerlandMarch 23, 2018


250


Consolidated financial statements – Credit Suisse Group
Report of the Independent Registered Public Accounting Firm
Consolidated financial statements
Notes to the consolidated financial statements
Controls and procedures
Report of the Independent Registered Public Accounting Firm
251


Consolidated statements of operations
Consolidated statements of comprehensive income
Consolidated balance sheets
Consolidated balance sheets (continued)
Consolidated statements of changes in equity
Consolidated statements of changes in equity (continued)
Consolidated statements of cash flows
Consolidated statements of cash flows (continued)
Supplemental cash flow information
1 Summary of significant accounting policies
2 Recently issued accounting standards
3 Business developments, significant shareholders and subsequent events
4 Segment information
5 Net interest income
6 Commissions and fees
7 Trading revenues
8 Other revenues
9 Provision for credit losses
10 Compensation and benefits
11 General and administrative expenses
12 Restructuring expenses
13 Earnings per share
14 Securities borrowed, lent and subject to repurchase agreements
15 Trading assets and liabilities
16 Investment securities
17 Other investments
18 Loans, allowance for loan losses and credit quality
19 Premises and equipment
20 Goodwill
21 Other intangible assets
22 Other assets and other liabilities
23 Deposits
24 Long-term debt
25 Accumulated other comprehensive income and additional share information
26 Offsetting of financial assets and financial liabilities
27 Tax
28 Employee deferred compensation
29 Related parties
30 Pension and other post-retirement benefits
31 Derivatives and hedging activities
32 Guarantees and commitments
33 Transfers of financial assets and variable interest entities
34 Financial instruments
35 Assets pledged and collateral
36 Capital adequacy
37 Assets under management
38 Litigation
39 Significant subsidiaries and equity method investments
40 Subsidiary guarantee information
41 Credit Suisse Group parent company
42 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)


252

Report of the Independent Registered Public Accounting Firm
Report of the Independent Registered Public Accounting FirmTo the shareholders and Board of DirectorsCredit Suisse Group AG, Zurich_____________________________________________________________________Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Credit Suisse Group AG and subsidiaries (the “Group”) as of December31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the threeyear period ended December31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Group’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 23, 2018 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.Basis for OpinionThese consolidated financial statements are the responsibility of the Group’s management and the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.KPMG AGNicholas EdmondsAnthony AnzevinoLicensed Audit ExpertGlobal Lead PartnerAuditor in ChargeWe have served as the Group’s auditor since 1989.Zurich, SwitzerlandMarch 23, 2018


253

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254

Consolidated financial statements
Consolidated statements of operations
      Reference
to notes

in
2017 2016 2015
Consolidated statements of operations (CHF million)   
Interest and dividend income 5 17,057 17,374 19,341
Interest expense 5 (10,500) (9,812) (10,042)
Net interest income 5 6,557 7,562 9,299
Commissions and fees 6 11,817 11,092 12,044
Trading revenues 7 1,317 313 1,340
Other revenues 8 1,209 1,356 1,114
Net revenues  20,900 20,323 23,797
Provision for credit losses  9 210 252 324
Compensation and benefits 10 10,177 10,572 11,546
General and administrative expenses 11 6,835 9,770 8,574
Commission expenses 1,430 1,455 1,623
Goodwill impairment 20 0 0 3,797
Restructuring expenses 12 455 540 355
Total other operating expenses 8,720 11,765 14,349
Total operating expenses  18,897 22,337 25,895
Income/(loss) before taxes  1,793 (2,266) (2,422)
Income tax expense 27 2,741 441 523
Net income/(loss)  (948) (2,707) (2,945)
Net income/(loss) attributable to noncontrolling interests 35 3 (1)
Net income/(loss) attributable to shareholders  (983) (2,710) (2,944)
Earnings/(loss) per share (CHF)   
Basic earnings/(loss) per share 13 (0.41) (1.27) (1.65)
Diluted earnings/(loss) per share 13 (0.41) (1.27) (1.65)
Consolidated statements of comprehensive income
in 2017 2016 2015
Comprehensive income/(loss) (CHF million)   
Net income/(loss) (948) (2,707) (2,945)
   Gains/(losses) on cash flow hedges  (27) (20) 16
   Foreign currency translation  (1,031) 515 (1,156)
   Unrealized gains/(losses) on securities  (13) 1 (4)
   Actuarial gains/(losses)  695 394 (661)
   Net prior service credit/(cost)  (121) 36 155
   Gains/(losses) on liabilities related to credit risk  (1,976) (1,043)
Other comprehensive income/(loss), net of tax (2,473) (117) (1,650)
Comprehensive income/(loss)  (3,421) (2,824) (4,595)
Comprehensive income/(loss) attributable to noncontrolling interests 28 (2) (19)
Comprehensive income/(loss) attributable to shareholders  (3,449) (2,822) (4,576)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
255

Consolidated balance sheets
      Reference
to notes

end of
2017 2016
Assets (CHF million)   
Cash and due from banks 109,815 121,161
   of which reported at fair value  212 200
   of which reported from consolidated VIEs  232 369
Interest-bearing deposits with banks 726 772
   of which reported at fair value  0 26
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 14 115,346 134,839
   of which reported at fair value  77,498 87,331
Securities received as collateral, at fair value 38,074 32,564
   of which encumbered  23,632 30,762
Trading assets, at fair value 15 156,334 165,150
   of which encumbered  49,237 52,322
   of which reported from consolidated VIEs  1,348 2,744
Investment securities 16 2,191 2,489
   of which reported at fair value  2,191 2,489
   of which reported from consolidated VIEs  381 511
Other investments 17 5,964 6,777
   of which reported at fair value  3,506 4,096
   of which reported from consolidated VIEs  1,833 2,006
Net loans 18 279,149 275,976
   of which reported at fair value  15,307 19,528
   of which encumbered  186 132
   of which reported from consolidated VIEs  267 284
   allowance for loan losses  (882) (938)
Premises and equipment 19 4,686 4,711
   of which reported from consolidated VIEs  151 199
Goodwill 20 4,742 4,913
Other intangible assets 21 223 213
   of which reported at fair value  158 138
Brokerage receivables 46,968 33,431
Other assets 22 32,071 36,865
   of which reported at fair value  9,018 9,383
   of which encumbered  134 257
   of which reported from consolidated VIEs  2,398 2,617
Total assets  796,289 819,861
The accompanying notes to the consolidated financial statements are an integral part of these statements.
256

Consolidated balance sheets (continued)
      Reference
to notes

end of
2017 2016
Liabilities and equity (CHF million)   
Due to banks 23 15,413 22,800
   of which reported at fair value  197 437
Customer deposits 23 361,162 355,833
   of which reported at fair value  3,511 3,576
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 14 26,496 33,016
   of which reported at fair value  15,262 19,634
Obligation to return securities received as collateral, at fair value 38,074 32,564
Trading liabilities, at fair value 15 39,119 44,930
   of which reported from consolidated VIEs  3 18
Short-term borrowings 25,889 15,385
   of which reported at fair value  11,019 4,061
   of which reported from consolidated VIEs  0 1
Long-term debt 24 173,032 193,315
   of which reported at fair value  63,628 72,868
   of which reported from consolidated VIEs  863 1,759
Brokerage payables 43,303 39,852
Other liabilities 22 31,612 39,855
   of which reported at fair value  8,624 9,493
   of which reported from consolidated VIEs  204 244
Total liabilities  754,100 777,550
Common shares 102 84
Additional paid-in capital 35,668 32,131
Retained earnings 24,973 25,954
Treasury shares, at cost (103) 0
Accumulated other comprehensive income/(loss) 25 (18,738) (16,272)
Total shareholders' equity  41,902 41,897
Noncontrolling interests 287 414
Total equity  42,189 42,311
Total liabilities and equity  796,289 819,861
      Reference
to notes

end of
2017 2016
Additional share information   
Par value (CHF) 0.04 0.04
Authorized shares 1 3,271,129,950 2,797,379,244
Common shares issued 25 2,556,011,720 2,089,897,378
Treasury shares 25 (5,757,666) 0
Shares outstanding 25 2,550,254,054 2,089,897,378
1
Includes issued shares and unissued shares (conditional, conversion and authorized capital).
The accompanying notes to the consolidated financial statements are an integral part of these statements.
257

Consolidated statements of changes in equity
   Attributable to shareholders




Common
shares



Additional
paid-in
capital




Retained
earnings



Treasury
shares,
at cost
Accumu-
lated other
compre-
hensive
income/
(loss)


Total
share-
holders'
equity



Non-
controlling
interests




Total
equity
2017 (CHF million)   
Balance at beginning of period  84 32,131 25,954 0 (16,272) 41,897 414 42,311
Purchase of subsidiary shares from non- controlling interests, not changing ownership   1, 2 (163) (163)
Sale of subsidiary shares to noncontrolling interests, not changing ownership   2 65 65
Net income/(loss) (983) (983) 35 (948)
Cumulative effect of accounting changes, net of tax 2 2 2
Total other comprehensive income/(loss), net of tax (2,466) (2,466) (7) (2,473)
Issuance of common shares 18 5,195 5,213 5,213
Sale of treasury shares 1 12,033 12,034 12,034
Repurchase of treasury shares (12,757) (12,757) (12,757)
Share-based compensation, net of tax 36 621 657 657
Financial instruments indexed to own shares 3 19 19 19
Dividends paid (1,546) 4 (1,546) (4) (1,550)
Changes in scope of consolidation, net (41) (41)
Other (168) (168) (12) (180)
Balance at end of period  102 35,668 24,973 (103) (18,738) 41,902 287 42,189
2016 (CHF million)   
Balance at beginning of period  78 31,925 29,139 (125) (16,635) 44,382 636 45,018
Purchase of subsidiary shares from non- controlling interests, changing ownership (13) (13) (6) (19)
Purchase of subsidiary shares from non- controlling interests, not changing ownership (103) (103)
Sale of subsidiary shares to noncontrolling interests, not changing ownership 112 112
Net income/(loss) (2,710) (2,710) 3 (2,707)
Cumulative effect of accounting changes, net of tax (475) 475
Total other comprehensive income/(loss), net of tax (112) (112) (5) (117)
Issuance of common shares 6 1,661 1,667 1,667
Sale of treasury shares 7 16,160 16,167 16,167
Repurchase of treasury shares (16,197) (16,197) (16,197)
Share-based compensation, net of tax 178 162 340 340
Financial instruments indexed to own shares (164) (164) (164)
Dividends paid (1,435) (1,435) (1,435)
Changes in scope of consolidation, net (194) (194)
Other (28) (28) (29) (57)
Balance at end of period  84 32,131 25,954 0 (16,272) 41,897 414 42,311
1
Distributions to owners in funds include the return of original capital invested and any related dividends.
2
Transactions with and without ownership changes related to fund activity are all displayed under "not changing ownership".
3
Includes certain call options the Group purchased on its own shares to economically hedge share-based compensation awards. In accordance with US GAAP, these call options were designated as equity instruments and, as such, were initially recognized in shareholders' equity at their fair values and not subsequently remeasured.
4
Paid out of capital contribution reserves.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
258

Consolidated statements of changes in equity (continued)
   Attributable to shareholders




Common
shares








Additional
paid-in
capital









Retained
earnings








Treasury
shares,
at cost





Accumu-
lated other
compre-
hensive
income/
(loss)







Total
share-
holders'
equity








Non-
controlling
interests









Total
equity





2015 (CHF million)   
Balance at beginning of period  64 27,007 32,083 (192) (15,003) 43,959 1,042 45,001
Purchase of subsidiary shares from non- controlling interests, not changing ownership (381) (381)
Sale of subsidiary shares to noncontrolling interests, not changing ownership 55 55
Net income/(loss) (2,944) (2,944) (1) (2,945)
Total other comprehensive income/(loss), net of tax (1,632) (1,632) (18) (1,650)
Issuance of common shares 14 6,731 6,745 6,745
Sale of treasury shares (37) 18,789 18,752 18,752
Repurchase of treasury shares (19,761) (19,761) (19,761)
Share-based compensation, net of tax (321) 1,039 718 718
Financial instruments indexed to own shares (106) (106) (106)
Dividends paid (1,137) (1,137) (1,137)
Changes in scope of consolidation (58) (58)
Other (212) (212) (3) (215)
Balance at end of period  78 31,925 29,139 (125) (16,635) 44,382 636 45,018
The accompanying notes to the consolidated financial statements are an integral part of these statements.
259

Consolidated statements of cash flows
in 2017 2016 2015
Operating activities of continuing operations (CHF million)   
Net income/(loss)  (948) (2,707) (2,945)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities of continuing operations (CHF million)      
Impairment, depreciation and amortization 894 937 4,889
Provision for credit losses 210 252 324
Deferred tax provision/(benefit) 2,238 (193) 32
Share of net income/(loss) from equity method investments (153) (65) (134)
Trading assets and liabilities, net 4,652 21,100 26,245
(Increase)/decrease in other assets (15,597) 9,611 11,395
Increase/(decrease) in other liabilities (1,931) (1,255) (22,805)
Other, net 2,093 (905) (1,933)
Total adjustments (7,594) 29,482 18,013
Net cash provided by/(used in) operating activities of continuing operations  (8,542) 26,775 15,068
Investing activities of continuing operations (CHF million)   
(Increase)/decrease in interest-bearing deposits with banks 40 117 349
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 14,286 (7,056) 36,964
Purchase of investment securities (86) (88) (376)
Proceeds from sale of investment securities 14 14 19
Maturities of investment securities 422 363 908
Investments in subsidiaries and other investments (1,094) (1,403) (594)
Proceeds from sale of other investments 1,970 1,737 1,938
(Increase)/decrease in loans (13,674) (3,745) (5,446)
Proceeds from sales of loans 9,938 2,468 1,579
Capital expenditures for premises and equipment and other intangible assets (1,068) (1,164) (1,102)
Proceeds from sale of premises and equipment and other intangible assets 1 55 13
Other, net 65 749 409
Net cash provided by/(used in) investing activities of continuing operations  10,814 (7,953) 34,661
The accompanying notes to the consolidated financial statements are an integral part of these statements.
260

Consolidated statements of cash flows (continued)
in 2017 2016 2015
Financing activities of continuing operations (CHF million)   
Increase/(decrease) in due to banks and customer deposits 3,423 10,267 (29,149)
Increase/(decrease) in short-term borrowings 5,018 6,594 (18,148)
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (5,251) (14,525) (22,149)
Issuances of long-term debt 43,556 52,984 77,858
Repayments of long-term debt (62,554) (47,132) (49,365)
Issuances of common shares 4,253 725 6,035
Sale of treasury shares 12,034 16,167 18,752
Repurchase of treasury shares (12,757) (16,197) (19,761)
Dividends paid (590) (493) (427)
Other, net 77 377 186
Net cash provided by/(used in) financing activities of continuing operations  (12,791) 8,767 (36,168)
Effect of exchange rate changes on cash and due from banks (CHF million)   
Effect of exchange rate changes on cash and due from banks  (827) 1,244 (582)
Net increase/(decrease) in cash and due from banks (CHF million)   
Net increase/(decrease) in cash and due from banks  (11,346) 28,833 12,979
Cash and due from banks at beginning of period 121,161 92,328 79,349
Cash and due from banks at end of period  109,815 121,161 92,328
Supplemental cash flow information
in 2017 2016 2015
Cash paid for income taxes and interest (CHF million)   
Cash paid for income taxes 540 662 1,010
Cash paid for interest 9,961 9,136 10,208
Assets acquired and liabilities assumed in business acquisitions (CHF million)   
Fair value of assets acquired 0 0 3
Assets and liabilities sold in business divestitures (CHF million)   
Assets sold 1,777 425 35
Liabilities sold 1,658 383 7
The accompanying notes to the consolidated financial statements are an integral part of these statements.
261

Notes to the consolidated financial statements
1 Summary of significant accounting policies
The accompanying consolidated financial statements of Credit Suisse Group AG (the Group) are prepared in accordance with accounting principles generally accepted in the US (US GAAP) and are stated in Swiss francs (CHF). The financial year for the Group ends on December 31. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation which had no impact on net income/(loss) or total shareholders’ equity.
In preparing the consolidated financial statements, management is required to make estimates and assumptions including, but not limited to, the >>>fair value measurements of certain financial assets and liabilities, the allowance for loan losses, the evaluation of variable interest entities (VIEs), the impairment of assets other than loans, recognition of deferred tax assets, tax uncertainties, pension liabilities and various contingencies. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. While management evaluates its estimates and assumptions on an ongoing basis, actual results could differ materially from management’s estimates. Market conditions may increase the risk and complexity of the judgments applied in these estimates.
Principles of consolidation
The consolidated financial statements include the financial statements of the Group and its subsidiaries. The Group’s subsidiaries are entities in which it holds, directly or indirectly, more than 50% of the voting rights or where it exercises control. The Group consolidates limited partnerships in cases where it is the general partner and the limited partners do not have either substantive kick out rights and/or substantive participating rights or is a limited partner with substantive rights to kick out the general partner or dissolve the partnership and participate in significant decisions made in the ordinary course of business. The Group also consolidates VIEs if the Group is the primary beneficiary in accordance with Accounting Standards Codification (ASC) Topic 810 – Consolidation. The effects of material intercompany transactions and balances have been eliminated.
Where a Group subsidiary is a separate legal entity and determined to be an investment company as defined by ASC Topic 946 – Financial Services – Investment Companies, interests in other entities held by this Group subsidiary are not consolidated and are carried at fair value.
Group entities that qualify as broker-dealer entities as defined by ASC Topic 940 – Financial Services – Brokers and Dealers do not consolidate investments in voting interest entities that would otherwise qualify for consolidation when the investment is held on a temporary basis for trading purposes. In addition, subsidiaries that are strategic components of a broker-dealer’s operations are consolidated regardless of holding intent.
Foreign currency translation
Transactions denominated in currencies other than the functional currency of the related entity are recorded by remeasuring them in the functional currency of the related entity using the foreign exchange rate on the date of the transaction. As of the dates of the consolidated balance sheets, monetary assets and liabilities, such as receivables and payables, are reported using the year-end spot foreign exchange rates. Foreign exchange rate differences are recorded in the consolidated statements of operations. Non-monetary assets and liabilities are recorded using the historic exchange rate.
For the purpose of consolidation, the assets and liabilities of Group companies with functional currencies other than the Swiss franc are translated into Swiss franc equivalents using year-end spot foreign exchange rates, whereas revenues and expenses are translated at weighted average foreign exchange rates for the period. Translation adjustments arising from consolidation are included in accumulated other comprehensive income/(loss) (AOCI) within total shareholders’ equity. Cumulative translation adjustments are released from AOCI and recorded in the consolidated statements of operations when the Group disposes and loses control of a consolidated foreign subsidiary.
Fair value measurement and option
The fair value measurement guidance establishes a single authoritative definition of fair value and sets out a framework for measuring fair value. The fair value option creates an alternative measurement treatment for certain financial assets and financial liabilities. The fair value option can be elected at initial recognition of the eligible item or at the date when the Group enters into an agreement which gives rise to an eligible item (e.g., a firm commitment or a written loan commitment). If not elected at initial recognition, the fair value option can be applied to an item upon certain triggering events that give rise to a new basis of accounting for that item. The application of the fair value option to a financial asset or a financial liability does not change its classification on the face of the balance sheet and the election is irrevocable. Changes in fair value resulting from the election are recorded in trading revenues.
> Refer to “Fair value option” in Note 34 – Financial instruments for further information.
Cash and due from banks
Cash and due from banks consists of currency on hand, demand deposits with banks or other financial institutions and cash equivalents. Cash equivalents are defined as short-term, highly liquid instruments with original maturities of three months or less, which are held for cash management purposes.
Reverse repurchase and repurchase agreements
Purchases of securities under resale agreements (>>>reverse repurchase agreements) and securities sold under agreements
262

to repurchase substantially identical securities (>>>repurchase agreements) do not constitute economic sales and are therefore treated as collateralized financing transactions and are carried in the consolidated balance sheet at the amount of cash disbursed or received, respectively. Reverse repurchase agreements are recorded as collateralized assets while repurchase agreements are recorded as liabilities, with the underlying securities sold continuing to be recognized in trading assets or investment securities. The fair value of securities to be repurchased and resold is monitored on a daily basis, and additional collateral is obtained as needed to protect against credit exposure.
Assets and liabilities recorded under these agreements are accounted for on one of two bases, the accrual basis or the fair value basis. Under the accrual basis, interest earned on reverse repurchase agreements and interest incurred on repurchase agreements are reported in interest and dividend income and interest expense, respectively. The fair value basis of accounting may be elected pursuant to ASC Topic 825 – Financial Instruments, and any resulting change in fair value is reported in trading revenues. Accrued interest income and expense are recorded in the same manner as under the accrual method. The Group has elected the fair value basis of accounting on selected agreements.
Reverse repurchase and repurchase agreements are netted if they are with the same counterparty, have the same maturity date, settle through the same clearing institution and are subject to the same enforceable master netting agreement.
Securities lending and borrowing transactions
Securities borrowed and securities loaned that are cash-collateralized are included in the consolidated balance sheets at amounts equal to the cash advanced or received. If securities received in a securities lending and borrowing transaction as collateral may be sold or repledged, they are recorded as securities received as collateral in the consolidated balance sheet and a corresponding liability to return the security is recorded. Securities lending transactions against non-cash collateral in which the Group has the right to resell or repledge the collateral received are recorded at the fair value of the collateral initially received. For securities lending transactions, the Group receives cash or securities collateral in an amount generally in excess of the market value of securities lent. The Group monitors the fair value of securities borrowed and loaned on a daily basis with additional collateral obtained as necessary.
Fees and interest received or paid are recorded in interest and dividend income and interest expense, respectively, on an accrual basis. If the fair value basis of accounting is elected, any resulting change in fair value is reported in trading revenues. Accrued interest income and expense are recorded in the same manner as under the accrual method.
Transfers of financial assets
The Group transfers various financial assets, which may result in the sale of these assets to special purpose entities (SPEs), which in turn issue securities to investors. The Group values its beneficial interests at fair value using quoted market prices, if such positions are traded on an active exchange or financial models that incorporate observable and unobservable inputs.
> Refer to “Note 33 – Transfers of financial assets and variable interest entities” for further information on the Group’s transfer activities.
Trading assets and liabilities
Trading assets and liabilities include debt and equity securities, derivative instruments, certain loans held in broker-dealer entities, commodities and precious metals. Items included in the trading portfolio are carried at fair value and classified as held for trading purposes based on management’s intent. Regular-way security transactions are recorded on a trade-date basis. Unrealized and realized gains and losses on trading positions are recorded in trading revenues.
Derivatives
Freestanding >>>derivative contracts are carried at fair value in the consolidated balance sheets regardless of whether these instruments are held for trading or risk management purposes. Commitments to originate mortgage loans that will be held for sale are considered derivatives for accounting purposes. When derivative features embedded in certain contracts that meet the definition of a derivative are not considered clearly and closely related to the host contract, either the embedded feature is accounted for separately at fair value or the entire contract, including the embedded feature, is accounted for at fair value. In both cases, changes in fair value are recorded in the consolidated statements of operations. If separated for measurement purposes, the derivative is recorded in the same line item in the consolidated balance sheets as the host contract.
Derivatives classified as trading assets and liabilities include those held for trading purposes and those used for risk management purposes that do not qualify for hedge accounting. Derivatives held for trading purposes arise from proprietary trading activity and from customer-based activity. Realized gains and losses, changes in unrealized gains and losses and interest flows are included in trading revenues. Derivative contracts designated and qualifying as fair value hedges, cash flow hedges or net investment hedges are reported as other assets or other liabilities.
The fair value of exchange-traded derivatives is typically derived from observable market prices and/or observable market parameters. Fair values for >>>over-the-counter (OTC) derivatives are determined on the basis of proprietary models using various input parameters. Derivative contracts are recorded on a net basis per counterparty, where an enforceable master netting agreement exists. Where no such agreement exists, fair values are recorded on a gross basis.
Where hedge accounting is applied, the Group formally documents all relationships between hedging instruments and hedged items, including the risk management objectives and strategy for undertaking hedge transactions. At inception of a hedge and on an ongoing basis, the hedge relationship is formally assessed to determine whether the derivatives that are used in hedging
263

transactions are highly effective in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risk. The Group discontinues hedge accounting prospectively in the following circumstances:
(i) the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including forecasted transactions);
(ii) the derivative expires or is sold, terminated or exercised;
(iii) the derivative is no longer designated as a hedging instrument because it is unlikely that the forecasted transaction will occur; or
(iv) the designation of the derivative as a hedging instrument is otherwise no longer appropriate.
For derivatives that are designated and qualify as fair value hedges, the carrying value of the underlying hedged items is adjusted to fair value for the risk being hedged. Changes in the fair value of these derivatives are recorded in the same line item of the consolidated statements of operations as the change in fair value of the risk being hedged for the hedged assets or liabilities to the extent the hedge is effective. The change in fair value representing hedge ineffectiveness is recorded separately in trading revenues.
When the Group discontinues fair value hedge accounting because it determines that the derivative no longer qualifies as an effective fair value hedge, the derivative will continue to be carried in the consolidated balance sheets at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value attributable to the hedged risk. Interest-related fair value adjustments made to the underlying hedged items will be amortized to the consolidated statements of operations over the remaining life of the hedged item. Any unamortized interest-related fair value adjustment is recorded in the consolidated statements of operations upon sale or extinguishment of the hedged asset or liability, respectively. Any other fair value hedge adjustments remain part of the carrying amount of the hedged asset or liability and are recognized in the consolidated statements of operations upon disposition of the hedged item as part of the gain or loss on disposition.
For hedges of the variability of cash flows from forecasted transactions and floating rate assets or liabilities, the effective portion of the change in the fair value of a designated derivative is recorded in AOCI. These amounts are reclassified into the line item in the consolidated statements of operations in which the hedged item is recorded when the variable cash flow from the hedged item impacts earnings (for example, when periodic settlements on a variable rate asset or liability are recorded in the consolidated statements of operations or when the hedged item is disposed of). The change in fair value representing hedge ineffectiveness is recorded separately in trading revenues.
When hedge accounting is discontinued on a cash flow hedge, the net gain or loss will remain in AOCI and be reclassified into the consolidated statements of operations in the same period or periods during which the formerly hedged transaction is reported in the consolidated statements of operations. When the Group discontinues hedge accounting because it is probable that a forecasted transaction will not occur within the specified date or period plus two months, the derivative will continue to be carried in the consolidated balance sheets at its fair value, and gains and losses that were previously recorded in AOCI will be recognized immediately in the consolidated statements of operations.
For hedges of a net investment in a foreign operation, the change in the fair value of the hedging derivative is recorded in AOCI to the extent the hedge is effective. The change in fair value representing hedge ineffectiveness is recorded in trading revenues. The Group uses the forward method of determining effectiveness for net investment hedges, which results in the time value portion of a foreign currency forward being reported in AOCI to the extent the hedge is effective.
Investment securities
Investment securities include debt securities classified as held-to-maturity and debt and marketable equity securities classified as available-for-sale. Regular-way security transactions are recorded on a trade-date basis.
Debt securities where the Group has the positive intent and ability to hold such securities to maturity are classified as such and are carried at amortized cost, net of any unamortized premium or discount.
Debt and equity securities classified as available-for-sale are carried at fair value. Unrealized gains and losses, which represent the difference between fair value and amortized cost, are recorded in AOCI. Amounts reported in AOCI are net of income taxes.
Amortization of premiums or discounts is recorded in interest and dividend income using the effective yield method through the maturity date of the security.
Recognition of an impairment on debt securities is recorded in the consolidated statements of operations if a decline in fair value below amortized cost is considered other-than-temporary, that is, amounts due according to the contractual terms of the security are not considered collectible, typically due to deterioration in the creditworthiness of the issuer. No impairment is recorded in connection with declines resulting from changes in interest rates to the extent the Group does not intend to sell the investments, nor is it more likely than not that the Group will be required to sell the investments before the recovery of their amortized cost bases, which may be maturity.
Recognition of an impairment on equity securities is recorded in the consolidated statements of operations if a decline in fair value below the cost basis of an investment is considered other-than-temporary. The Group generally considers unrealized losses on equity securities to be other-than-temporary if the fair value has been below cost for more than six months or has decreased by more than 20% below cost.
Recognition of an impairment for debt or equity securities establishes a new cost basis, which is not adjusted for subsequent recoveries.
Unrealized losses on available-for-sale securities are recognized in the consolidated statements of operations when a decision has been made to sell a security.
264

Other investments
Other investments include equity method investments and non-marketable equity securities such as private equity, hedge funds, and restricted stock investments, certain investments in non-marketable mutual funds for which the Group has neither significant influence nor control over the investee, real estate held for investment and the life finance business.
Equity method investments are investments where the Group has the ability to significantly influence the operating and financial policies of an investee. Significant influence is typically characterized by ownership of 20% to 50% of the voting stock or in-substance common stock of a corporation or 5% or more of limited partnership interests. Equity method investments are accounted for under the equity method of accounting or the fair value option. Under the equity method of accounting, the Group’s share of the profit or loss, and any impairment on the investee, if applicable, is reported in other revenues. Under the fair value option, changes in fair value are reported in other revenues. The Group has elected the fair value basis of accounting on some of its equity method investments.
The Group’s other non-marketable equity securities are carried at cost less other-than-temporary impairment or at fair value if elected under the fair value option. Non-marketable equity securities held by the Group’s subsidiaries that are determined to be investment companies as defined by ASC Topic 946 – Financial Services – Investment Companies are carried at fair value, with changes in fair value recorded in other revenues.
Equity method investments and non-marketable equity securities held by broker-dealer entities as defined by ASC Topic 940 – Financial Services – Brokers and Dealers are measured at fair value and reported in trading assets when the intent of the broker-dealer entity is to hold the asset temporarily for trading purposes. Changes in fair value are reported in trading revenues.
Real estate held for investment purposes is carried at cost less accumulated depreciation and is depreciated over its estimated useful life, generally 40 to 67 years. Land is carried at historical cost and is not depreciated. These assets are tested for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying amount may not be recoverable. Recognition of an impairment on such assets establishes a new cost base, which is not adjusted for subsequent recoveries in value.
In connection with the life finance business, the Group invests in single premium immediate annuities (SPIA), which are carried at fair value with the related fair value changes reported in trading revenues. The life finance business also invests in life settlement contracts.
Loans
Loans held-to-maturity
Loans, which the Group intends to hold until maturity, are carried at outstanding principal balances plus accrued interest, net of the following items: unamortized premiums, discounts on purchased loans, deferred loan origination fees and direct loan origination costs on originated loans. Interest income is accrued on the unpaid principal balance and net deferred premiums/discounts and fees/costs are amortized as an adjustment to the loan yield over the term of the related loans.
Lease financing transactions where the Group is the lessor are classified as loans. Unearned income is amortized to interest and dividend income over the lease term using the effective interest method.
In accordance with Group policies, impaired loans include non-performing loans, non-interest-earning loans, restructured loans and potential problem loans.
> Refer to “Note 18 – Loans, allowance for loan losses and credit quality” for further information.
Allowance for loan losses on loans held-to-maturity
The allowance for loan losses is composed of the following components: probable credit losses inherent in the portfolio and those losses specifically identified. Changes in the allowance for loan losses are recorded in the consolidated statements of operations in provision for credit losses and in interest income (for provisions on past due interest).
The Group evaluates many factors when estimating the allowance for loan losses, including the volatility of default probabilities, rating changes, the magnitude of potential loss, internal risk ratings, and geographic, industry and other economic factors. The component of the allowance representing probable losses inherent in the portfolio is for loans not specifically identified as impaired and that, on a portfolio basis, are considered to contain probable inherent loss. The estimate of this component of the allowance for the consumer loans portfolio involves applying historical and current default probabilities, historical recovery experience and related current assumptions to homogenous loans based on internal risk rating and product type. To estimate this component of the allowance for the corporate & institutional loans portfolio, the Group segregates loans by risk, industry or country rating. Excluded from this estimate process are consumer and corporate & institutional loans that have been specifically identified as impaired or are held at fair value. For lending-related commitments, a provision for losses is estimated based on historical loss and recovery experience and recorded in other liabilities. Changes in the estimate of losses for lending-related commitments are recorded in the consolidated statements of operations in provision for credit losses.
The estimate of the component of the allowance for specifically identified credit losses on impaired loans is based on a regular and detailed analysis of each loan in the portfolio considering collateral and counterparty risk. The Group considers a loan impaired when, based on current information and events, it is probable that the Group will be unable to collect the amounts due according to the contractual terms of the loan agreement. For non-collateral-dependent impaired loans, an impairment is measured using the present value of estimated future cash flows, except that as a practical expedient an impairment may be measured based on a loan’s observable market price. For collateral-dependent impaired loans, an impairment is measured using the fair value of the collateral.
265

A loan is classified as non-performing no later than when the contractual payments of principal and/or interest are more than 90 days past due except for subprime residential loans which are classified as non-performing no later than when the contractual payments of principal and/or interest are more than 120 days past due. The additional 30 days ensure that these loans are not incorrectly assessed as non-performing during the time when servicing of them typically is being transferred. However, management may determine that a loan should be classified as non-performing notwithstanding that contractual payments of principal and/or interest are less than 90 days past due or, in the case of subprime residential loans, 120 days past due. For non-performing loans, a provision is recorded in an amount equal to any accrued but unpaid interest at the date the loan is classified as non-performing, resulting in a charge to the consolidated statements of operations. In addition, the Group continues to add accrued interest receivable to the loan’s balance for collection purposes; however, a provision is recorded resulting in no interest income recognition. Thereafter, the outstanding principal balance is evaluated at least annually for collectability and a provision is established as necessary.
A loan can be further downgraded to non-interest-earning when the collection of interest is considered so doubtful that further accrual of interest is deemed inappropriate. At that time, and on at least a quarterly basis thereafter depending on various risk factors, the outstanding principal balance, net of provisions previously recorded, is evaluated for collectability and additional provisions are established as required.
Generally, non-performing loans and non-interest-earning loans may be restored to performing status only when delinquent principal and interest are brought up to date in accordance with the terms of the loan agreement and when certain performance criteria are met.
Interest collected on non-performing loans and non-interest-earning loans is accounted for using the cash basis or the cost recovery method or a combination of both.
Loans that were modified in a troubled debt restructuring are reported as restructured loans. Generally, a restructured loan would have been considered impaired and an associated allowance for loan losses would have been established prior to the restructuring. Loans modified in a troubled debt restructuring are reported as restructured loans to the end of the reporting year in which the loan was modified or for as long as an allowance for loan losses based on the terms specified by the restructuring agreement is associated with the restructured loan or an interest concession made at the time of the restructuring exists. In making the determination of whether an interest rate concession has been made, market interest rates for loans with comparable risk to borrowers of the same credit quality are considered. Loans that have been restructured in a troubled debt restructuring and are performing according to the new terms continue to accrue interest. Loan restructurings may include the receipt of assets in satisfaction of the loan, the modification of loan terms (e.g., reduction of interest rates, extension of maturity dates at a stated interest rate lower than the current market rate for new loans with similar risk, or reduction in principal amounts and/or accrued interest balances) or a combination of both.
Potential problem loans are impaired loans where contractual payments have been received according to schedule, but where doubt exists as to the collection of future contractual payments. Potential problem loans are evaluated for impairment on an individual basis and an allowance for loan losses is established as necessary. Potential problem loans continue to accrue interest.
The amortization of net loan fees or costs on impaired loans is generally discontinued during the periods in which matured and unpaid interest or principal is outstanding. On settlement of a loan, if the loan balance is not collected in full, an allowance is established for the uncollected amount, if necessary, and the loan is then written off, net of any deferred loan fees and costs.
Write-off of a loan occurs when it is considered certain that there is no possibility of recovering the outstanding principal. Recoveries of loans previously written off are recorded based on the cash or estimated fair value of other assets received.
> Refer to “Impaired loans” in Note 18 – Loans, allowance for loan losses and credit quality for further information on the write-off of a loan and related accounting policies.
Loans held-for-sale
Loans, which the Group intends to sell in the foreseeable future, are considered held-for-sale and are carried at the lower of amortized cost or market value determined on either an individual method basis, or in the aggregate for pools of similar loans if sold or securitized as a pool. Loans held-for-sale are included in other assets. Revaluation losses incurred at the transfer into the held-for-sale category are generally recorded as credit losses. Gains and losses on loans held-for-sale subsequent to the transfer into the held-for-sale category are recorded in other revenues.
Purchased impaired loans
Purchased loans for which it is probable at acquisition that all contractually required payments will not be received are recorded at their net purchase price and no allowances are carried over. The excess of the estimated cash flows to be collected over the amount paid is accreted into interest income over the estimated recovery period when reasonable estimates can be made about the timing and amount of recovery. The Group does not consider such loans to be impaired at the time of acquisition. Such loans are deemed impaired only if the Group’s estimate of cash to be received decreases below the estimate at the time of acquisition. Increases in the estimated expected recovery are recorded as a reversal of allowances, if any, and then recognized as an adjustment of the effective yield of the loan.
Loans held at fair value under the fair value option
Loans and loan commitments for which the fair value option is elected are reported at fair value with changes in fair value reported in trading revenues. The application of the fair value
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option does not change the loan’s classification. Loan commitments carried at fair value are recorded in other assets or other liabilities, respectively.
Premises and equipment
Premises and equipment (including equipment under operating leases where the Group is the lessor), with the exception of land, are carried at cost less accumulated depreciation.
Buildings are depreciated on a straight-line basis over their estimated useful lives, generally 40 to 67 years, and building improvements are depreciated on a straight-line basis over their estimated useful lives, generally not exceeding five to ten years. Land is carried at historical cost and is not depreciated. Leasehold improvements, such as alterations and improvements to rented premises, are depreciated on a straight-line basis over the shorter of the lease term or estimated useful life, which generally does not exceed ten years. Equipment, such as computers, machinery, furnishings, vehicles and other tangible non-financial assets, is depreciated using the straight-line method over its estimated useful lives, generally three to ten years. Certain leasehold improvements and equipment, such as data center power generators, may have estimated useful lives greater than ten years.
The Group capitalizes costs relating to the acquisition, installation and development of software with a measurable economic benefit, but only if such costs are identifiable and can be reliably measured. The Group depreciates capitalized software costs on a straight-line basis over the estimated useful life of the software, generally not exceeding seven years, taking into consideration the effects of obsolescence, technology, competition and other economic factors.
The Group reflects finance leasing activities for which it is the lessee by recording an asset in premises and equipment and a corresponding liability in other liabilities at an amount equal to the smaller of the present value of the minimum lease payments or fair value, and the leased asset is depreciated over the shorter of the asset’s estimated useful life or the lease term.
Goodwill and other intangible assets
Goodwill arises on the acquisition of subsidiaries and equity method investments. It is measured as the excess of the fair value of the consideration transferred, the fair value of any noncontrolling interest in the acquiree and the fair value of any previously held equity interest in the acquired subsidiary, over the net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortized; instead it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill is allocated to the Group’s reporting units for the purposes of the impairment test.
Other intangible assets may be acquired individually or as part of a group of assets assumed in a business combination. Other intangible assets include but are not limited to: patents, licenses, copyrights, trademarks, branch networks, mortgage servicing rights, customer base and deposit relationships. Acquired intangible assets are initially measured at the amount of cash disbursed or the fair value of other assets distributed. Other intangible assets that have a finite useful life are amortized over that period. Other intangible assets acquired after January 1, 2002 that are determined to have an indefinite useful life are not amortized; instead they are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the indefinite intangible asset may be impaired. Mortgage servicing rights are included in non-amortizing other intangible assets and are carried at fair value, with changes in fair value recognized through earnings in the period in which they occur. Mortgage servicing rights represent the right to perform specified mortgage servicing activities on behalf of third parties. Mortgage servicing rights are either purchased from third parties or retained upon sale of acquired or originated loans.
Recognition of an impairment on non-financial assets
The Group evaluates premises and equipment and finite intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where the carrying amount of an asset exceeds the recoverable amount, the asset is considered impaired and an impairment is recorded in general and administrative expenses. Recognition of an impairment on such assets establishes a new cost base, which is not adjusted for subsequent recoveries in value.
Income taxes
Deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities at the dates of the consolidated balance sheets and their respective tax bases. Deferred tax assets and liabilities are computed using currently enacted tax rates and are recorded in other assets and other liabilities, respectively. Income tax expense or benefit is recorded in income tax expense/(benefit), except to the extent the tax effect relates to transactions recorded directly in total shareholders’ equity. Deferred tax assets are reduced by a valuation allowance, if necessary, to the amount that management believes will more likely than not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates in the period in which changes are approved by the relevant authority. Deferred tax assets and liabilities are presented on a net basis for the same tax-paying component within the same tax jurisdiction.
The Group follows the guidance in ASC Topic 740 – Income Taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The Group determines whether it is more likely than not that an income tax position will be sustained upon examination based on the technical merits of the position. Sustainable income tax positions are then measured to determine the amount of benefit eligible for recognition in the consolidated financial statements. Each such sustainable income tax position is measured at the
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largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
Life settlement contracts
Life settlement contracts are initially recognized at the transaction price and subsequently carried at fair value unless the Group elects to apply the investment method. The contracts that are not accounted for under the investment method are carried at fair value and are recorded in trading assets.
Under the investment method, the contracts are initially recognized at the transaction price plus any directly related external costs and are recorded in other investments. Subsequently, all continuing premium payments made are capitalized unless the aggregated carrying value exceeds fair value, in which case an impairment allowance is established so that the carrying value does not exceed fair value.
Brokerage receivables and brokerage payables
The Group recognizes receivables and payables from transactions in financial instruments purchased from and sold to customers, banks and broker-dealers. The Group is exposed to risk of loss resulting from the inability of counterparties to pay for or deliver financial instruments purchased or sold, in which case the Group would have to sell or purchase, respectively, these financial instruments at prevailing market prices. To the extent an exchange or clearing organization acts as counterparty to a transaction, credit risk is generally considered to be limited. The Group establishes credit limits for each customer and requires them to maintain margin collateral in compliance with applicable regulatory and internal guidelines. In order to conduct trades with an exchange or a third-party bank, the Group is required to maintain a margin. This is usually in the form of cash and deposited in a separate margin account with the exchange or broker. If available information indicates that it is probable that a brokerage receivable is impaired, an allowance is established. Write-offs of brokerage receivables occur if the outstanding amounts are considered uncollectible.
Other assets
Derivative instruments used for hedging
Derivative instruments are carried at fair value. The fair values of derivative instruments held for hedging are included as other assets or other liabilities in the consolidated balance sheets. The accounting treatment used for changes in fair value of hedging derivatives depends on the designation of the derivative as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation. Changes in fair value representing hedge ineffectiveness are reported in trading revenues.
Customer deposits
Customer deposits represent funds held from customers (both retail and commercial) and banks and consist of interest-bearing demand deposits, savings deposits and time deposits. Interest is accrued based on the contractual provisions of the deposit contract.
Long-term debt
Total long-term debt is composed of debt issuances which do not contain derivative features (vanilla debt), as well as hybrid debt instruments with embedded derivatives, which are issued as part of the Group’s structured product activities. Long-term debt includes both Swiss franc and foreign currency denominated fixed and variable rate bonds.
The Group actively manages interest rate risk and foreign currency risk on vanilla debt through the use of derivative contracts, primarily interest rate and currency swaps. In particular, fixed rate debt is hedged with receive-fixed, pay-floating interest rate swaps. The Group elected to fair value this fixed rate debt upon implementation of the fair value option on January 1, 2007, with changes in fair value recognized as a component of trading revenues, except for changes in fair value attributed to own credit risk, which, since 2016, are recorded in other comprehensive income, net of tax, and recycled to trading revenue when the debt is de-recognized. The Group did not elect to apply the fair value option to fixed-rate debt issued by the Group since January 1, 2008 and instead applies hedge accounting per the guidance of ASC Topic 815 – Derivatives and Hedging.
For capital management purposes, the Group issues hybrid capital instruments in the form of low- and high-trigger tier 1 and tier 2 capital notes, with a write-off or contingent share conversion feature. Typically, these instruments have an embedded derivative that is bifurcated for accounting purposes. The embedded derivative is measured separately and changes in fair value are recorded in trading revenue. The host contract is generally accounted for under the amortized cost method unless the fair value option has been elected and the entire instrument is carried at fair value.
The Group’s long-term debt also includes various equity-linked and other indexed instruments with embedded derivative features, for which payments and redemption values are linked to commodities, stocks, indices, currencies or other assets. The Group elected to account for substantially all of these instruments at fair value. Changes in the fair value of these instruments are recognized as a component of trading revenues, except for changes in fair value attributed to own credit risk, which is recorded in other comprehensive income, net of tax, and recycled to trading revenue when the debt is de-recognized.
Other liabilities
Guarantees
In cases where the Group acts as a guarantor, the Group recognizes in other liabilities, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing such a guarantee, including its ongoing obligation to perform over the term of the guarantee in the event that certain events or conditions occur.
Pension and other post-retirement benefits
Credit Suisse sponsors a number of post-employment benefit plans for its employees worldwide, which include defined benefit
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pension plans and other post-employment benefits. The major plans are located in Switzerland, the UK and the US.
The Group uses the projected unit credit actuarial method to determine the present value of its projected benefit obligations (PBO) and the current and past service costs or credits related to its defined benefit and other post-retirement benefit plans. The measurement date used to perform the actuarial valuation is December 31 and is performed by independent qualified actuaries.
Certain key assumptions are used in performing the actuarial valuations. These assumptions must be made concerning the future events that will determine the amount and timing of the benefit payments and thus require significant judgment and estimates by Group management. This includes making assumptions with regard to discount rates, salary increases, interest rate on savings balances, expected long-term rate of return on plan assets and mortality (future life expectancy).
The assumed discount rates reflect the rates at which the pension benefits could be effectively settled. These rates are determined based on yield curves, constructed from high-quality corporate bonds currently available and observable in the market and are expected to be available during the period to maturity of the pension benefits. In countries where there is no deep market in high-quality corporate bonds with longer durations, the best available market information, including governmental bond yields and risk premiums, is used to construct the yield curve.
Salary increases are determined by reviewing historical practice and external market data as well as considering internal projections.
The interest rate on savings balances is applicable only to the Credit Suisse Swiss pension plan (Swiss pension plan). The Board of Trustees of the Swiss pension plan sets the interest rate to be applied on the accumulated savings balance on an annual basis. Credit Suisse estimates the future interest rate on savings balances, taking into consideration actions and rates approved by the Board of Trustees of the Swiss pension plan and expected future changes in the interest rate environment based on the yield curve used for the discount rate.
The expected long-term rate of return on plan assets is determined on a plan-by-plan basis, taking into account asset allocation, historical rate of return, benchmark indices for similar-type pension plan assets, long-term expectations of future returns and investment strategy.
Mortality assumptions are based on standard mortality tables and standard models and methodologies for projecting future improvements to mortality as developed and published by external independent actuarial societies and actuarial organizations.
Health care cost trend rates are determined by reviewing external data and the Group’s own historical trends for health care costs.
The funded status of the Group’s defined benefit post-retirement and pension plans is recognized in the consolidated balance sheets.
Actuarial gains and losses in excess of 10% of the greater of the PBO or the market value of plan assets and unrecognized prior service costs or credits are amortized to net periodic pension and other post-retirement benefit costs on a straight-line basis over the average remaining service life of active employees expected to receive benefits.
The Group records pension expense for defined contribution plans when the employee renders service to the company, essentially coinciding with the cash contributions to the plans.
Share-based compensation
For all share-based awards granted to employees, compensation expense is measured at grant date or modification date based on the fair value of the number of awards for which the requisite service is expected to be rendered and is recognized in the consolidated statements of operations over the required service period on a straight-line basis.
Windfall and shortfall tax benefits, representing the incremental tax effects of the difference between the compensation expense recorded in the US GAAP accounts and the tax deduction received, are recorded in the income statement at the point in time the deduction for tax purposes is recorded.
Compensation expense for share-based awards that vest in their entirety at the end of the vesting period (cliff vesting) and awards that vest in annual installments (graded vesting), which only contain a service condition that affects vesting, is recognized on a straight-line basis over the service period for the entire award. However, if awards with graded vesting contain a performance condition, then each installment is expensed as if it were a separate award (“front-loaded” expense recognition). Furthermore, recognition of compensation expense is accelerated to the date an employee becomes eligible for retirement.
Certain share-based awards also contain a performance condition. In the event of either a negative return on equity (ROE) of the Group or a divisional loss, any outstanding performance share awards will be subject to a reduction. The amount of compensation expense recorded includes an estimate of any expected reductions. For each reporting period after the grant date, the expected number of shares to be ultimately delivered upon vesting is reassessed and reflected as an adjustment to the cumulative compensation expense recorded in the income statement. The basis for the ROE calculation may vary from year to year, depending on the Compensation Committee’s determination for the year in which the performance shares are granted.
Certain employees own non-substantive equity interests in the form of carried interests in private equity funds managed by the Group. Expenses recognized under these ownership interests are reflected in the consolidated statements of operations in compensation and benefits.
Own shares, own bonds and financial instruments on own shares
The Group may buy and sell own shares, own bonds and financial instruments on own shares within its normal trading and market-making activities. In addition, the Group may hold its own shares to satisfy commitments arising from employee share-based compensation awards. Own shares are recorded at cost and reported
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as treasury shares, resulting in a reduction to total shareholders’ equity. Financial instruments on own shares are recorded as assets or liabilities or as equity when the criteria for equity classification are met. Dividends received by subsidiaries on own shares and unrealized and realized gains and losses on own shares classified in total shareholders’ equity are excluded from the consolidated statements of operations.
Any holdings of bonds issued by any Group entity are eliminated in the consolidated financial statements.
Net interest income
Interest income and interest expense arising from interest-bearing assets and liabilities other than those carried at fair value or the lower of cost or market are accrued, and any related net deferred premiums, discounts, origination fees or costs are amortized as an adjustment to the yield over the life of the related asset and liability. Interest from debt securities and dividends on equity securities carried as trading assets and trading liabilities are recorded in interest and dividend income.
> Refer to “Loans” for further information on interest on loans.
Commissions and fees
Fee revenue is recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Fee income can be divided into two broad categories: income earned from services that are provided over a certain period of time, for which customers are generally billed on an annual or semi-annual basis, and income earned from providing transaction-type services. Fees earned from services that are provided over a certain period of time are recognized ratably over the service period. Fees earned from providing transaction-type services are recognized when the service has been completed. Performance-linked fees or fee components are recognized at any contractual measurement date when the contractually agreed thresholds are met.
Revenues from underwriting and fees from mergers and acquisitions (M&A) and other corporate finance advisory services are recorded at the time the underlying transactions are substantially completed and there are no other contingencies associated with the fees.
Transaction-related expenses are deferred until the related revenue is recognized, assuming they are deemed direct and incremental; otherwise, they are expensed as incurred. Underwriting fees are reported net of related expenses. Expenses associated with financial advisory services are recorded in operating expenses unless reimbursed by the client.
In circumstances where the Group contracts to provide multiple products, services or rights to a counterparty, an evaluation is made as to whether separate revenue recognition events have occurred. This evaluation considers the stand-alone value of items already delivered and if there is a right of return or warranties on delivered items and services, and the probability of delivery of remaining undelivered items or services. This evaluation is made on a transaction-by-transaction basis.
If the criteria noted are met, the transaction is considered a multiple-deliverable arrangement where revenue recognition is determined separately for each deliverable. The consideration received on the total arrangement is allocated to the multiple deliverables based on the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence or third-party evidence is available.
Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis.
2 Recently issued accounting standards
Recently adopted accounting standards
ASC Topic 350 – Intangibles - Goodwill and Other
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, “Simplifying the Test for Goodwill Impairment” (ASU 2017-04), an update to Accounting Standards Codification (ASC) Topic 805 – Business Combinations. ASU 2017-04 simplified the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 was effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 was to be applied on a prospective basis. The Group elected to early adopt ASU 2017-04 on January 1, 2017, which did not have a material impact on the Group’s financial position, results of operations or cash flows.
ASC Topic 718 – Compensation – Stock Compensation
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09), an update to ASC Topic 718 – Compensation—Stock Compensation. The amendments in ASU 2016-09 provided simplification updates for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The adoption of ASU 2016-09 on January 1, 2017 resulted in the recognition of previously unrecorded deferred tax asset net operating loss balances which arose due to prior tax windfalls that did not immediately result in cash tax savings. The adjustment resulted in an increase in retained earnings of CHF 85 million upon adoption.
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ASC Topic 740 – Income Taxes
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASU 2016-16), an update to ASC Topic 740 – Income Taxes. The amendments in ASU 2016-16 eliminated the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 was required to be applied on a modified retrospective basis through a cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 was effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption was permitted. The Group elected to early adopt ASU 2016-16 on January 1, 2017, which resulted in a reclassification from other assets to deferred tax assets. The net impact upon adoption was a reduction in retained earnings of CHF 81 million.
ASC Topic 825 – Financial Instruments – Overall
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), an update to ASC Topic 825 – Financial Instruments – Overall. The amendments in ASU 2016-01 addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments primarily affected the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Early adoption of the full standard was not permitted; however, certain sections of ASU 2016-01 relating to fair value option-elected financial liabilities could be early adopted in isolation. The amendments to ASU 2016-01 required the changes in fair value relating to instrument-specific credit risk of fair value option elected financial liabilities to be presented separately in AOCI. The Group early adopted these sections of the update on January 1, 2016. As a result of the adoption, the Group reclassified CHF 475 million, net of tax, from retained earnings to AOCI.
The adoption of the remaining amendments to ASU 2016-01 on January 1, 2018 resulted in a reclassification of unrealized gains and losses previously reported in AOCI for available-for-sale equity securities to retained earnings of CHF 21 million, net of tax. ASU 2016-01 also required that certain equity instruments without readily determinable fair value be measured at fair value, excluding instances in which measurement alternative is applied; however, this requirement did not have a material impact on the Group’s financial position, results of operations or cash flows.
Standards to be adopted in future periods
ASC Topic 220 – Income Statements – Reporting Comprehensive Income
In January 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (ASU 2018-02), an update to ASC Topic 220 – Income Statement – Reporting Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from AOCI to retained earnings for the stranded tax effects resulting from the US Tax Cuts and Jobs Act.
ASU 2018-02 is effective for annual reporting periods and interim periods within those periods beginning after December 15, 2018. Early adoption is permitted in any period for which financial statements have not yet been issued. The Group may elect to apply the amendments to ASU 2018-02 to the beginning of the period (annual or interim) of adoption or retrospectively for each period in which the tax effects of the US Tax Cuts and Jobs Act related to items remaining in AOCI are recognized. The Group is currently evaluating the impact of the adoption of ASU 2018-02 on the Group’s financial position, results of operations and cash flows.
ASC Topic 230 – Statement of Cash Flows
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash (a consensus of the FASB Emerging Issues Task Force)” (ASU 2016-18), an update to ASC Topic 230 – Statement of Cash Flows. ASU 2016-18 required that cash amounts described as restricted cash and cash equivalents be included in cash and cash equivalents when reconciling total amounts in the statements of cash flows. ASU 2016-18 was required to be applied retrospectively to all periods presented beginning in the year of adoption. The adoption of ASU 2016-18 on January 1, 2018 did not have an impact on the Group’s financial position, results of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (ASU 2016-15), an update to ASC Topic 230 – Statement of Cash Flows. The amendments in ASU 2016-15 provided guidance regarding classification of certain cash receipts and payments where diversity in practice was observed. ASU 2016-15 was required to be applied retrospectively to all periods presented beginning in the year of adoption. The adoption of ASU 2016-15 on January 1, 2018 did not have an impact on the Group’s financial position, results of operations and cash flows and, as such, prior periods were not restated.
ASC Topic 326 – Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), creating ASC Topic 326 – Financial Instruments – Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on financial assets measured at amortized cost basis (including, but not limited to loans), net investments in leases recognized as lessor and off-balance sheet credit exposures. ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss methodology for recognizing credit losses. Instead, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Group will incorporate forward-looking information and macroeconomic factors into its credit loss estimates. ASU 2016-13 requires enhanced disclosures
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to help investors and other financial statement users to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. As the Group is a US Securities and Exchange Commission (SEC) filer, ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. Early adoption will be permitted for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2018; however, the Group does not intend to early adopt ASU 2016-13.
The Group has established a cross-functional implementation team and governance structure for the project. The Group has decided on a current expected credit loss (CECL) methodology while it is adjusting for key interpretive issues. Furthermore, the Group will continue to monitor the initial scope assessment, as a basis to determine the requirements and data sourcing of the CECL models, and to design, build and test the models until the effective date.
The Group expects that the new CECL methodology would generally result in increased and more volatile allowance for loan losses. The main impact drivers include:
the remaining life of the loans measured at amortized cost and the off-balance sheet credit exposures at the adoption date and subsequent reporting dates because of the new requirement to measure lifetime expected credit losses;
the point of time in the economic cycle at the adoption date and subsequent reporting dates because of the new requirement to incorporate reasonable and supportable forward looking information and macroeconomic factors; and
the credit quality of the loans measured at amortized cost and the off-balance sheet credit exposures at the adoption date and subsequent reporting dates.
Upon adoption of the standard, the Group expects an adjustment to be posted to retained earnings for any changes in loan losses. As the implementation progresses, the Group will continue to evaluate the extent of the impact of the adoption of ASU 2016-13 on the Group’s financial position, results of operations and cash flows.
ASC Topic 606 – Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), creating ASC Topic 606 – Revenue from Contracts with Customers and superseding ASC Topic 605 – Revenue Recognition. The core principle of the guidance was that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflected the consideration to which the entity expected to be entitled in exchange for those goods or services. ASU 2014-09 outlined key steps that an entity should follow to achieve the core principle. ASU 2014-09 also included disclosure requirements that enabled users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
ASU 2014-09 and its subsequent amendments were effective for the annual reporting period beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption was permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
The Group established a cross-functional implementation team and governance structure for the project. The Group’s implementation efforts included the identification of revenue and costs within the scope of the guidance, as well as the evaluation of revenue contracts under the new guidance and related accounting policies. The guidance did not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other US GAAP guidance.
The Group adopted ASU 2014-09 on January 1, 2018 using the modified retrospective approach with a transition adjustment recognized in retained earnings without restating comparatives. As a result of adoption, there was a decrease in retained earnings, net of tax, of CHF 44 million due to a change in timing of the recognition of certain fees in investment banking and private banking.
Additionally, the new revenue recognition criteria required the Group to present underwriting revenue, reimbursed expenses in fund management and in investment banking advisory, gross of offsetting expenses in contrast to prior periods in which the financial statements presented these amounts net of offsetting expenses; this change in presentation from net to gross would have increased the revenues and expenses in 2017 by approximately CHF 0.2 billion, which was not included in the previously stated transition amount. Furthermore, with the adoption of ASU 2014-09, the brokerage, clearing and exchange expenses, which are incurred when acting as an agent on behalf of clients buying or selling exchange traded cash securities, exchange traded derivatives or centrally cleared OTC derivatives, are offset against the commission income. The change in presentation of brokerage, clearing and exchange expenses would have decreased the revenues and expenses in 2017 by approximately CHF 0.1 billion, which was not included in the previously stated transition amount.
ASC Topic 715 – Compensation – Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07), an update to ASC Topic 715 – Compensation – Retirement Benefits. The amendments in ASU 2017-07 required that the service cost component of the net periodic benefit cost be presented in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost should be reported separately from the line item(s) that included the service cost and outside of any subtotal of operating income. ASU 2017-07 was required to be applied retrospectively to all periods presented beginning in the year of adoption. The adoption of ASU 2017-07 on January 1, 2018 resulted in a restatement that, upon adoption, increased compensation and benefits and reduced general and administrative
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expenses by CHF 153 million and CHF 37 million as of December 31, 2017 and 2016, respectively.
ASC Topic 815 – Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting Hedging Activities” (ASU 2017-12), an update to ASC Topic 815 – Derivatives and Hedging. ASU 2017-12 makes changes to the hedge accounting model intended to facilitate financial reporting that more closely reflects an entity’s risk management activities and to simplify application of hedge accounting. The amendments in ASU 2017-12 provide more hedging strategies that will be eligible for hedge accounting, ease the documentation and effectiveness assessment requirements and result in changes to the presentation and disclosure requirements of hedge accounting activities. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, and for the interim periods within those annual reporting periods. Early adoption, including adoption in an interim period, is permitted. The Group is currently evaluating the impact of the adoption of ASU 2017-12 on the Group’s financial position, results of operations and cash flows.
ASC Topic 842 – Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02), creating ASC Topic 842 – Leases and superseding ASC Topic 840 – Leases. ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 also includes disclosure requirements to provide more information about the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting is substantially unchanged compared to the current accounting guidance. Under the current lessee accounting model the Group is required to distinguish between finance leases, which are recognized on the balance sheet, and operating leases, which are not. ASU 2016-02 will require lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with a lease term of greater than twelve months. ASU 2016-02, as amended by ASU 2018-01 ”Land Easement Practical Expedient for Transition to Topic 842”, is effective for annual reporting periods beginning after December 15, 2018, and for the interim periods within those annual reporting periods. Early adoption is permitted; however the Group does not intend to early adopt ASU 2016-02.
The Group has established a cross-functional implementation team and governance structure for the project. The Group is currently reviewing its existing contracts to determine the impact of the adoption of ASU 2016-02. The Group expects an increase in total assets and total liabilities as a result of recognizing right-of-use assets and lease liabilities for all leases under the new guidance. The Group does not expect a material change to the timing of expense recognition and is currently evaluating the impact of the adoption of ASU 2016-02 on the Group’s financial position, results of operations and cash flows.
3 Business developments, significant shareholders and subsequent events
The Group’s significant business developments for 2017 as well as the Group’s significant shareholders are discussed below.
Business developments
Capital increase
On May 18, 2017, the Group held an Extraordinary General Meeting at which shareholders approved a capital increase by way of a rights offering. By the end of the rights exercise period on June 7, 2017, 99.2% of the rights had been exercised and 390,206,406 newly issued shares were subscribed. The remaining 3,026,166 newly issued shares that were not subscribed were sold in the market. The capital increase resulted in 393,232,572 newly issued shares and net proceeds for the Group of CHF 4.1 billion.
Legal entity structure
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, the following equity stakes held by the Group were transferred to Credit Suisse (Schweiz) AG: (i) 100% equity stake in Neue Aargauer Bank AG, (ii) 100% equity stake in BANK-now AG, and (iii) 50% equity stake in Swisscard AECS GmbH. The transfer of these equity stakes took place by way of an a-fonds-perdu contribution from the Group to Credit Suisse AG and immediately thereafter via a subsequent sale of those equity stakes from Credit Suisse AG to Credit Suisse (Schweiz) AG. The a-fonds-perdu contribution and the subsequent sale took place at the respective equity stakes’ aggregate Swiss GAAP carrying value as recorded by the Group. The transfer was completed on March 31, 2017.
273

Significant shareholders
Significant shareholders registered in the share register
The following table includes significant shareholders (including nominees) with holdings in Group shares of at least 5% of the voting rights, which were registered in the share register as of December 31, 2017 and 2016, respectively.
Significant shareholders registered in the share register
end of    2017 2016
Number
of shares
(million)
Total nominal
value
(CHF million)
Share-
holding
(%)
Number
of shares
(million)
Total nominal
value
(CHF million)
Share-
holding
(%)
Direct shareholders   1
Chase Nominees Ltd. 2 329 13 12.88 335 13 16.03
Nortrust Nominees Ltd. 2 140 6 5.49 113 5 5.39
The Bank of New York Mellon 2 3 107 4 5.14
Crescent Holding GmbH 3 107 4 5.10
1
As registered in the share register of the Group on December 31 of the reporting period; includes shareholders registered as nominees or ADS depositary bank.
2
Nominee holdings exceeding 2% are registered with a right to vote only if the nominee confirms that no individual shareholder holds more than 0.5% of the outstanding share capital or if the nominee discloses the identity of any beneficial owner holding more than 0.5% of the outstanding capital.
3
Participation was lower than the disclosure threshold of 5%.
Information received from shareholders not registered in the share register
In addition to the shareholdings registered in the share register of the Group, the Group has obtained and reported to the >>>SIX Swiss Exchange (SIX) the following information from its shareholders in accordance with the notification requirements of the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading. These shareholders may hold their shareholdings in Group shares through a nominee.
In a disclosure notification that the Group published on November 9, 2013, the Group was notified that as of November 4, 2013, Harris Associates L.P. held 81.5 million shares, or 5.17% of the voting rights, of the registered Group shares issued as of the date of the notified transaction. No further disclosure notification has been received from Harris Associates L.P. relating to holdings of registered Group shares since 2013. This position includes the reportable position of Harris Associates Investment Trust (4.97% of the voting rights), as published by the SIX on November 28, 2017.
In a disclosure notification that the Group published on May 12, 2017, the Group was notified that as of May 8, 2017, Norges Bank held 106.1 million shares, or 5.08% of the voting rights, of the registered Group shares issued as of the date of the notified transaction. In a disclosure notification that the Group published on February 15, 2018, the Group was notified that Norges Bank’s shareholdings and voting rights of Group shares had fallen below the 5% threshold as of February 13, 2018.
In 2017, the Group received disclosure notifications from The Olayan Group and The Capital Group Companies, Inc. that their holdings of registered Group shares and voting rights had fallen below the 5% threshold. BlackRock, Inc.’s as well as Qatar Holding LLC’s holdings of registered Group shares and voting rights remained below the 5% threshold both as of December 31, 2017 and as of December 31, 2016.
Subsequent events
There were no subsequent events.
274

4 Segment information
The Group is a global financial services company domiciled in Switzerland and serves its clients through three regionally focused divisions: Swiss Universal Bank, International Wealth Management and Asia Pacific. These regional businesses are supported by two other divisions specialized in investment banking capabilities: Global Markets and Investment Banking & Capital Markets. The Strategic Resolution Unit consolidates the remaining portfolios from the former non-strategic units plus additional businesses and positions that do not fit with the strategic direction.
The segment information reflects the Group’s six reportable segments, which are managed and reported on a pre-tax basis, as follows:
The Swiss Universal Bank division offers comprehensive advice and a wide range of financial solutions to private, corporate and institutional clients primarily domiciled in the Group’s home market Switzerland. The Private Clients business has a leading franchise in the Group’s home market and serves >>>ultra-high-net-worth individuals (UHNWI), >>>high-net-worth individuals, >>>affluent and retail clients. The Corporate & Institutional Clients business serves large corporate clients, small and medium-sized enterprises, institutional clients, external asset managers and financial institutions.
The International Wealth Management division through its Private Banking business offers comprehensive advisory services and tailored investment and financing solutions to wealthy private clients and external asset managers in Europe, the Middle East, Africa and Latin America. The Asset Management business offers investment solutions and services globally to a broad range of clients, including pension funds, governments, foundations and endowments, corporations and individuals.
In the Asia Pacific division the wealth management, financing and underwriting and advisory teams work closely together to deliver integrated advisory services and solutions to target ultra-high-net-worth, entrepreneur and corporate clients. The Wealth Management & Connected business combines activities in wealth management with the financing, underwriting and advisory activities. The Markets business represents the Group’s equities and fixed income trading business in Asia Pacific, which supports the wealth management activities, but also deals extensively with a broader range of institutional clients.
The Global Markets division offers a broad range of financial products and services to client-driven businesses and also supports the Group’s global wealth management businesses and their clients. The suite of products and services includes global securities sales, trading and execution, prime brokerage and comprehensive investment research. Clients include financial institutions, corporations, governments, institutional investors, such as pension funds and hedge funds, and private individuals around the world.
The Investment Banking & Capital Markets division offers a broad range of investment banking services to corporations, financial institutions, financial sponsors and UHNWI and sovereign clients. The range of products and services includes advisory services related to mergers and acquisitions, divestitures, takeover defense mandates, business restructurings and spin-offs. The division also engages in debt and equity underwriting of public securities offerings and private placements.
The Strategic Resolution Unit was created to facilitate the immediate right-sizing of the business divisions from a capital perspective and includes remaining portfolios from the former non-strategic units plus transfers of additional exposures from the business divisions. The Strategic Resolution Unit also includes noncontrolling interest-related revenues and expenses resulting from the consolidation of certain private equity funds and other entities in which the Group does not have a significant economic interest (SEI) in such revenues and expenses. The consolidation of these entities does not affect net income attributable to shareholders as the amounts recorded in net revenues and total operating expenses are offset by corresponding amounts reported as noncontrolling interests.
Corporate Center includes parent company operations such as Group financing, expenses for projects sponsored by the Group and certain expenses that have not been allocated to the segments. In addition, the Corporate Center includes consolidation and elimination adjustments required to eliminate intercompany revenues and expenses. For the operations discontinued in prior years, the revenues, expenses and gains from disposals were included in the results of the segments. The reclassification of these revenues and expenses from the segment results to discontinued operations for Group reporting was effected through the Corporate Center.
Revenue sharing and cost allocation
Responsibility for each product is allocated to a specific segment, which records all related revenues and expenses. Revenue-sharing and service level agreements govern the compensation received by one segment for generating revenue or providing services on behalf of another. These agreements are negotiated periodically by the relevant segments on a product-by-product basis. The aim of revenue-sharing and service level agreements is to reflect the pricing structure of unrelated third-party transactions.
Corporate services and business support in finance, operations, human resources, legal, compliance, risk management and IT are provided by corporate functions, and the related costs are allocated to the segments and Corporate Center based on their requirements and other relevant measures.
275

Funding
The Group centrally manages its funding activities. New securities for funding and capital purposes are issued primarily by Credit Suisse AG, the direct bank subsidiary of the Group (the Bank). The Bank lends funds to its operating subsidiaries and affiliates on both a senior and subordinated basis, as needed, the latter typically to meet capital requirements, or as desired by management to capitalize on opportunities. Capital is distributed to the segments considering factors such as regulatory capital requirements, utilized economic capital and the historic and future potential return on capital.
Transfer pricing, using market rates, is used to record net revenues and expenses in each of the segments for this capital and funding. The Group’s funds transfer pricing system is designed to allocate funding costs to its businesses in a way that incentivizes their efficient use of funding. The Group’s funds transfer pricing system is an essential tool that allocates to the businesses the short-term and long-term costs of funding their balance sheet usages and off-balance sheet contingencies. The funds transfer pricing framework ensures the full funding costs allocation under normal business conditions, but it is of even greater importance in a stressed capital markets environment where raising funds is more challenging and expensive. Under this framework, the Group’s businesses are also credited to the extent they provide long-term stable funding.
Net revenues and income/(loss) before taxes
in 2017 2016 2015
Net revenues (CHF million)   
Swiss Universal Bank 5,396 5,759 5,721
International Wealth Management 5,111 4,698 4,552
Asia Pacific 3,504 3,597 3,839
Global Markets 5,551 5,497 6,826
Investment Banking & Capital Markets 2,139 1,972 1,787
Strategic Resolution Unit (886) (1,271) 511
Corporate Center 85 71 561
Net revenues  20,900 20,323 23,797
Income/(loss) before taxes (CHF million)   
Swiss Universal Bank 1,765 2,025 1,675
International Wealth Management 1,351 1,121 723
Asia Pacific 729 725 377
Global Markets 450 48 (1,931)
Investment Banking & Capital Markets 369 261 (314)
Strategic Resolution Unit (2,135) (5,759) (2,652)
Corporate Center (736) (687) (300)
Income/(loss) before taxes  1,793 (2,266) (2,422)
Total assets
end of 2017 2016
Total assets (CHF million)   
Swiss Universal Bank 228,857 228,363
International Wealth Management 94,753 91,083
Asia Pacific 96,497 97,221
Global Markets 242,159 239,700
Investment Banking & Capital Markets 20,803 20,784
Strategic Resolution Unit 45,629 80,297
Corporate Center 67,591 62,413
Total assets  796,289 819,861
Net revenues and income/(loss) before taxes by geographic location
in 2017 2016 2015
Net revenues (CHF million)   
Switzerland 7,775 8,426 8,548
EMEA 1,231 2,064 3,846
Americas 8,928 7,217 8,470
Asia Pacific 2,966 2,616 2,933
Net revenues  20,900 20,323 23,797
Income/(loss) before taxes (CHF million)   
Switzerland 1,736 2,111 1,746
EMEA (2,769) (2,460) (1,464)
Americas 2,746 (1,573) (2,877)
Asia Pacific 80 (344) 173
Income/(loss) before taxes  1,793 (2,266) (2,422)
The designation of net revenues and income/(loss) before taxes is based on the location of the office recording the transactions. This presentation does not reflect the way the Group is managed.
Total assets by geographic location
end of 2017 2016
Total assets (CHF million)   
Switzerland 241,757 248,496
EMEA 154,023 156,494
Americas 318,405 333,185
Asia Pacific 82,104 81,686
Total assets  796,289 819,861
The designation of total assets by region is based upon customer domicile.
276

5 Net interest income
in 2017 2016 2015
Net interest income (CHF million)
Loans 5,979 5,628 5,413
Investment securities 47 60 65
Trading assets 6,697 7,483 9,046
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 2,515 2,767 2,625
Other 1,819 1,436 2,192
Interest and dividend income 17,057 17,374 19,341
Deposits (1,354) (1,043) (884)
Short-term borrowings (166) (84) (105)
Trading liabilities (3,542) (3,602) (3,854)
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (1,284) (1,387) (1,264)
Long-term debt (3,722) (3,494) (3,728)
Other (432) (202) (207)
Interest expense (10,500) (9,812) (10,042)
Net interest income  6,557 7,562 9,299
6 Commissions and fees
in 2017 2016 2015
Commissions and fees (CHF million)   
Lending business 1,839 1,818 1,578
Investment and portfolio management 3,494 3,209 3,436
Other securities business 46 46 65
Fiduciary business 3,540 3,255 3,501
Underwriting 1,806 1,364 1,644
Brokerage 3,004 3,028 3,648
Underwriting and brokerage 4,810 4,392 5,292
Other services 1,628 1,627 1,673
Commissions and fees  11,817 11,092 12,044
7 Trading revenues
in 2017 2016 2015
Trading revenues (CHF million)   
Interest rate products 3,228 6,231 2,965
Foreign exchange products 1,989 (2,529) (1,121)
Equity/index-related products (2,888) (1,796) (259)
Credit products (1,096) (2,124) 1
Commodity and energy products 86 177 (46)
Other products (2) 354 (200)
Trading revenues  1,317 313 1,340
Represents revenues on a product basis which are not representative of business results within segments, as segment results utilize financial instruments across various product types.
Trading revenues include revenues from trading financial assets and liabilities as follows:
Equities;
Commodities;
Listed and >>>OTC derivatives;
>>>Derivatives linked to funds of hedge funds and providing financing facilities to funds of hedge funds;
Market making in the government bond and associated OTC derivative swap markets;
Domestic, corporate and sovereign debt, convertible and non-convertible preferred stock and short-term securities such as floating rate notes and >>>commercial paper (CP);
Market making and positioning in foreign exchange products;
Credit derivatives on investment grade and high yield credits;
Trading and securitizing all forms of securities that are based on underlying pools of assets; and
Life settlement contracts.
Trading revenues also include changes in the >>>fair value of financial assets and liabilities elected to fair value under US GAAP. The main components include certain instruments from the following categories:
Central bank funds purchased/sold;
Securities purchased/sold under resale/>>>repurchase agreements;
Securities borrowing/lending transactions;
Loans and loan commitments; and
Customer deposits, short-term borrowings and long-term debt.
Managing the risks
As a result of the Group’s broad involvement in financial products and markets, its trading strategies are correspondingly diverse and exposures are generally spread across a diversified range of risk factors and locations. The Group uses an economic capital limit structure to limit overall risk taking. The level of risk incurred by its divisions is further restricted by a variety of specific limits, including consolidated controls over trading exposures. Also, as part of its overall risk management, the Group holds a portfolio of economic hedges. Hedges are impacted by market movements, similar to trading securities, and may result in gains or losses on the hedges which offset losses or gains on the portfolios they were designed to economically hedge. The Group manages its trading risk with regard to both market and credit risk. For market risk, it uses tools capable of calculating comparable exposures across its
277

many activities, as well as focused tools that can specifically model unique characteristics of certain instruments or portfolios.
The principal measurement methodology for trading assets, as well as most instruments for which the fair value option was elected, is >>>value-at-risk. The Group holds securities as collateral and enters into >>>credit default swaps (CDS) to mitigate the credit risk on these products.
8 Other revenues
in 2017 2016 2015
Other revenues (CHF million)   
Noncontrolling interests without SEI 3 4 9
Loans held-for-sale 3 (51) (19)
Long-lived assets held-for-sale (18) 437 36
Equity method investments 233 208 243
Other investments 80 0 144
Other 908 758 701
Other revenues  1,209 1,356 1,114
9 Provision for credit losses
in 2017 2016 2015
Provision for credit losses (CHF million)   
Provision for loan losses 190 249 295
Provision for lending-related and other exposures 20 3 29
Provision for credit losses  210 252 324
10 Compensation and benefits
in 2017 2016 2015
Compensation and benefits (CHF million)   
Salaries and variable compensation 8,906 9,165 10,051
Social security 671 697 788
Other 1 600 710 707
Compensation and benefits  10,177 10,572 11,546
1
Includes pension and other post-retirement expense of CHF 242 million, CHF 384 million and CHF 359 million in 2017, 2016 and 2015, respectively.
11 General and administrative expenses
in 2017 2016 2015
General and administrative expenses (CHF million)   
Occupancy expenses 1,000 1,004 1,022
IT, machinery, etc. 1,156 1,166 1,268
Provisions and losses 698 3,009 1,158
Travel and entertainment 321 328 381
Professional services 2,446 2,984 3,241
Amortization and impairment of other intangible assets 9 8 19
Other 1,205 1,271 1,485
General and administrative expenses  6,835 9,770 8,574
12 Restructuring expenses
In connection with the ongoing implementation of the revised Group strategy, restructuring expenses of CHF 455 million, CHF 540 million and CHF 355 million were recognized in 2017, 2016 and 2015, respectively. Restructuring expenses primarily include termination costs, expenses in connection with the acceleration of certain deferred compensation awards and real estate contract termination costs.
Restructuring expenses by segment
in 2017 2016 2015
Restructuring expenses by segment (CHF million)   
Swiss Universal Bank 59 60 42
International Wealth Management 70 54 36
Asia Pacific 63 53 3
Global Markets 150 217 96
Investment Banking & Capital Markets 42 28 22
Strategic Resolution Unit 57 121 156
Corporate Center 14 7 0
Total restructuring expenses  455 540 355
278

Restructuring expenses by type
in 2017 2016 2015
Restructuring expenses by type (CHF million)   
Compensation and benefits-related expenses 343 385 309
   of which severance expenses  192 218 191
   of which accelerated deferred compensation  102 140 87
   of which pension expenses  49 27 31
General and administrative-related expenses 112 155 46
Total restructuring expenses  455 540 355
Restructuring provision
in    2017 2016 2015
Compen-
sation and
benefits
General and
administrative
expenses


Total
Compen-
sation and
benefits
General and
administrative
expenses


Total
Compen-
sation and
benefits
General and
administrative
expenses


Total
Restructuring provision (CHF million)   
Balance at beginning of period  217 94 311 187 12 199 0 0 0
Net additional charges 1 192 88 280 218 137 355 191 46 237
Utilization (213) (72) (285) (188) (55) (243) (4) (34) (38)
Balance at end of period  196 110 306 217 94 311 187 12 199
1
The following items for which expense accretion was accelerated in 2017, 2016 and 2015 due to the restructuring of the Group are not included in the restructuring provision: unsettled share-based compensation of CHF 71 million, CHF 34 million and CHF 23 million, respectively; unsettled pension obligations of CHF 49 million, CHF 27 million and CHF 31 million, respectively, which remain classified as a component of total shareholders’ equity; unsettled cash-based deferred compensation of CHF 31 million, CHF 106 million and CHF 64 million, respectively, which remain classified as compensation liabilities; and accelerated accumulated depreciation and impairment of CHF 24 million, CHF 18 million and CHF 0 million, respectively, which remain classified as premises and equipment. The settlement date for the unsettled share-based compensation remains unchanged at three years.
13 Earnings per share
in 2017 2016 2015
Basic net income/(loss) attributable to shareholders (CHF million)   
Net income/(loss) attributable to shareholders for basic earnings per share  (983) (2,710) (2,944)
Available for common shares (983) (2,713) (2,958)
Available for unvested share-based payment awards 0 3 14
Diluted net income/(loss) attributable to shareholders (CHF million)   
Net income/(loss) attributable to shareholders for diluted earnings per share  (983) (2,710) (2,944)
Available for common shares (983) (2,713) (2,958)
Available for unvested share-based payment awards 0 3 14
Weighted-average shares outstanding (million)   
Weighted-average shares outstanding for basic earnings per share available for common shares    2,413.8 2,136.8 1,794.7
Dilutive share options and warrants 0.0 0.0 0.0
Dilutive share awards 0.0 0.0 0.0
Weighted-average shares outstanding for diluted earnings per share available for common shares   1, 2 2,413.8 2,136.8 1,794.7
Weighted-average shares outstanding for basic/diluted earnings per share available for unvested share-based payment awards    0.1 3.0 25.7
Basic earnings/(loss) per share available for common shares (CHF)   
Basic earnings/(loss) per share available for common shares  (0.41) (1.27) (1.65)
Diluted earnings/(loss) per share available for common shares  (0.41) (1.27) (1.65)
Prior periods have been adjusted to reflect the increase in the number of shares outstanding as a result of the discount element in the 2017 rights issue and scrip dividend, as required under US GAAP.
1
Weighted-average potential common shares relating to instruments that were not dilutive for the respective periods (and therefore not included in the diluted earnings per share calculation above) but could potentially dilute earnings per share in the future were 9.8 million, 11.3 million and 7.6 million for 2017, 2016 and 2015, respectively.
2
Due to the net losses in 2017, 2016 and 2015, 2.9 million, 3.2 million and 0.9 million, respectively, of weighted-average share options and warrants outstanding and 57.7 million, 54.6 million and 47.8 million, respectively, of weighted-average share awards outstanding were excluded from the diluted earnings per share calculation, as the effect would be antidilutive.
279

14 Securities borrowed, lent and subject to repurchase agreements
end of 2017 2016
Securities borrowed or purchased under agreements to resell (CHF million)   
Central bank funds sold and securities purchased under resale agreements 70,009 81,513
Deposits paid for securities borrowed 45,337 53,326
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions    115,346 134,839
Securities lent or sold under agreements to repurchase (CHF million)   
Central bank funds purchased and securities sold under repurchase agreements 20,606 26,106
Deposits received for securities lent 5,890 6,910
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions    26,496 33,016
>>>Repurchase and >>>reverse repurchase agreements represent collateralized financing transactions used to earn net interest income, increase liquidity or facilitate trading activity. These instruments are collateralized principally by government securities, money market instruments and corporate bonds and have terms ranging from overnight to a longer or unspecified period of time.
In the event of counterparty default, the reverse repurchase agreement or securities lending agreement provides the Group with the right to liquidate the collateral held. In the Group’s normal course of business, a significant portion of the collateral received that may be sold or repledged has been sold or repledged as of December 31, 2017 and 2016.
15 Trading assets and liabilities
end of 2017 2016
Trading assets (CHF million)   
Debt securities 72,765 65,668
Equity securities 55,722 63,871
Derivative instruments 1 19,621 26,782
Other 8,226 8,829
Trading assets  156,334 165,150
Trading liabilities (CHF million)   
Short positions 24,465 24,565
Derivative instruments 1 14,654 20,365
Trading liabilities  39,119 44,930
1
Amounts shown after counterparty and cash collateral netting.
Cash collateral on derivative instruments
end of 2017 2016
Cash collateral – netted (CHF million)   1
Cash collateral paid 23,288 33,429
Cash collateral received 14,996 22,948
Cash collateral – not netted (CHF million)   2
Cash collateral paid 5,141 5,705
Cash collateral received 8,644 11,497
1
Recorded as cash collateral netting on derivative instruments in Note 26 – Offsetting of financial assets and financial liabilities.
2
Recorded as cash collateral on derivative instruments in Note 22 – Other assets and other liabilities.
280

16 Investment securities
end of 2017 2016
Investment securities (CHF million)   
Securities available-for-sale 2,191 2,489
Total investment securities  2,191 2,489
Investment securities by type
end of    2017 2016

Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses

Fair
value

Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses

Fair
value
Investment securities by type (CHF million)   
Debt securities issued by Swiss federal, cantonal or local governmental entities 199 13 0 212 241 18 0 259
Debt securities issued by foreign governments 1,215 21 0 1,236 1,309 34 0 1,343
Corporate debt securities 238 0 0 238 287 0 0 287
Residential mortgage-backed securities 1 207 0 0 207 497 0 0 497
Commercial mortgage-backed securities 173 0 0 173 14 0 0 14
Debt securities available-for-sale 2,032 34 0 2,066 2,348 52 0 2,400
Banks, trust and insurance companies 95 30 0 125 66 23 0 89
Equity securities available-for-sale 95 30 0 125 66 23 0 89
Securities available-for-sale  2,127 64 0 2,191 2,414 75 0 2,489
1
Relate to the consolidation of RMBS securitization VIEs where the assets are carried at fair value under the fair value option as are the VIEs’ liabilities recorded in long-term debt.
Proceeds from sales, realized gains and realized losses from available-for-sale securities
in    2017 2016 2015
Debt
securities
Equity
securities
Debt
securities
Equity
securities
Debt
securities
Equity
securities
Additional information (CHF million)   
Proceeds from sales 7 7 9 4 1 17
Realized gains 0 0 0 0 0 2
Amortized cost, fair value and average yield of debt securities
      Debt securities
available-for-sale

end of

Amortized
cost

Fair
value
Average
yield
(in %)
2017 (CHF million, except where indicated)   
Due within 1 year 728 731 0.91
Due from 1 to 5 years 838 861 0.89
Due from 5 to 10 years 252 259 0.52
Due after 10 years 214 215 4.28
Total debt securities  2,032 2,066 1.21
281

17 Other investments
end of 2017 2016
Other investments (CHF million)   
Equity method investments 3,066 3,121
Non-marketable equity securities 1 1,292 1,731
Real estate held for investment 2 232 268
Life finance instruments 3 1,374 1,657
Total other investments  5,964 6,777
1
Includes private equity, hedge funds and restricted stock investments as well as certain investments in non-marketable mutual funds for which the Group has neither significant influence nor control over the investee.
2
As of December 31, 2017 and 2016, real estate held for investment included foreclosed or repossessed real estate of CHF 41 million and CHF 29 million, respectively, of which CHF 21 million and CHF 27 million, respectively were related to residential real estate.
3
Includes life settlement contracts at investment method and SPIA contracts.
Non-marketable equity securities held by subsidiaries that are considered investment companies are held by separate legal entities that are within the scope of ASC Topic 946 – Financial Services – Investment Companies. In addition, non-marketable equity securities held by subsidiaries that are considered broker-dealer entities are held by separate legal entities that are within the scope of ASC Topic 940 – Financial Services – Brokers and Dealers. Non-marketable equity securities include investments in entities that regularly calculate net asset value (NAV) per share or its equivalent.
> Refer to “Note 34 – Financial instruments” for further information on such investments.
Substantially all non-marketable equity securities are carried at >>>fair value. There were no non-marketable equity securities not carried at fair value that have been in a continuous unrealized loss position.
The Group performs a regular impairment analysis of real estate portfolios. The carrying values of the impaired properties were written down to their respective fair values, establishing a new cost base. For these properties, the fair values were measured based on either discounted cash flow analyses or external market appraisals. Impairments of CHF 16 million, CHF 31 million and CHF 21 million were recorded in 2017, 2016 and 2015, respectively.
The accumulated depreciation related to real estate held for investment amounted to CHF 389 million, CHF 386 million and CHF 365 million for 2017, 2016 and 2015, respectively.
282

18 Loans, allowance for loan losses and credit quality
Loans are divided in two portfolio segments, “consumer” and “corporate & institutional”. Consumer loans are disaggregated into the classes of mortgages, loans collateralized by securities and consumer finance. Corporate and institutional loans are disaggregated into the classes of real estate, commercial and industrial loans, financial institutions, and governments and public institutions.
The determination of the loan classes is primarily driven by the customer segmentation in the private banking, corporate and institutional as well as investment banking businesses across the Group’s core business divisions, all of which are engaged in lending activities.
The Group assigns both counterparty and transaction ratings to its credit exposures. The counterparty rating reflects the >>>probability of default (PD) of the counterparty. For lombard loans, the PD is primarily based on the collateral. The transaction rating reflects the expected loss or the >>>loss given default (LGD), considering collateral, on a given transaction if the counterparty defaults. Credit risk is assessed and monitored on the single obligor and single obligation level as well as on the credit portfolio level as represented by the classes of loans. Credit limits are used to manage counterparty credit risk.
Loans
end of 2017 2016
Loans (CHF million)   
Mortgages 106,039 104,335
Loans collateralized by securities 42,016 37,268
Consumer finance 4,242 3,490
Consumer 152,297 145,093
Real estate 26,599 26,016
Commercial and industrial loans 81,670 83,740
Financial institutions 15,697 17,921
Governments and public institutions 3,874 4,273
Corporate & institutional 127,840 131,950
Gross loans  280,137 277,043
   of which held at amortized cost  264,830 257,515
   of which held at fair value  15,307 19,528
Net (unearned income)/deferred expenses (106) (129)
Allowance for loan losses (882) (938)
Net loans  279,149 275,976
Gross loans by location (CHF million)   
Switzerland 157,696 158,766
Foreign 122,441 118,277
Gross loans  280,137 277,043
Impaired loan portfolio (CHF million)   
Non-performing loans 1,048 1,236
Non-interest-earning loans 223 265
Non-performing and non-interest-earning loans 1,271 1,501
Restructured loans 290 358
Potential problem loans 549 613
Other impaired loans 839 971
Gross impaired loans  2,110 2,472
283

Allowance for loan losses
   2017 2016 2015

Consumer
Corporate &
institutional

Total

Consumer
Corporate &
institutional

Total

Consumer
Corporate &
institutional

Total
Allowance for loan losses (CHF million)   
Balance at beginning of period  216 722 938 216 650 866 251 507 758
Net movements recognized in statements of operations 54 136 190 63 186 249 66 229 295
Gross write-offs (60) (242) (302) (86) (192) (278) (118) (111) (229)
Recoveries 12 41 53 13 53 66 12 16 28
Net write-offs (48) (201) (249) (73) (139) (212) (106) (95) (201)
Provisions for interest (1) 14 13 10 8 18 6 12 18
Foreign currency translation impact and other adjustments, net (1) (9) (10) 0 17 17 (1) (3) (4)
Balance at end of period  220 662 882 216 722 938 216 650 866
   of which individually evaluated for impairment  179 475 654 172 528 700 170 480 650
   of which collectively evaluated for impairment  41 187 228 44 194 238 46 170 216
Gross loans held at amortized cost (CHF million)   
Balance at end of period  152,277 112,553 264,830 145,070 112,445 257,515 144,855 108,331 253,186
   of which individually evaluated for impairment 1 632 1,478 2,110 662 1,810 2,472 647 1,326 1,973
   of which collectively evaluated for impairment  151,645 111,075 262,720 144,408 110,635 255,043 144,208 107,005 251,213
1
Represents gross impaired loans both with and without a specific allowance.
Purchases, reclassifications and sales
in    2017 2016 2015

Consumer
Corporate &
institutional

Total

Consumer
Corporate &
institutional

Total

Consumer
Corporate &
institutional

Total
Loans held at amortized cost (CHF million)   
Purchases 1 0 3,381 3,381 30 3,405 3,435 389 4,294 4,683
Reclassifications from loans held-for-sale 2 0 63 63 0 125 125 0 355 355
Reclassifications to loans held-for-sale 3 0 7,407 7,407 1,632 2,768 4,400 1,641 735 2,376
Sales 3 0 7,051 7,051 72 2,087 2,159 0 373 373
1
Includes drawdowns under purchased loan commitments.
2
Includes loans previously reclassified to held-for-sale that were not sold and were reclassified back to loans held-to-maturity.
3
All loans held at amortized cost which are sold are reclassified to loans held-for-sale on or prior to the date of the sale.
284

Credit quality of loans held at amortized cost
Management monitors the credit quality of loans through its credit risk management processes, which are structured to assess, measure, monitor and manage risk on a consistent basis. This process requires careful consideration of proposed extensions of credit, the setting of specific limits, monitoring during the life of the exposure, active use of credit mitigation tools and a disciplined approach to recognizing credit impairment.
Management evaluates many factors when assessing the credit quality of loans. These factors include the volatility of default probabilities, rating changes, the magnitude of potential loss, internal risk ratings, and geographic, industry and other economic factors. For the purpose of credit quality disclosures, the Group uses detailed internal risk ratings which are aggregated to the credit quality indicators investment grade and non-investment grade.
The Group employs a set of credit ratings for the purpose of internally rating counterparties. Credit ratings are intended to reflect the risk of default of each counterparty. Ratings are assigned based on internally developed rating models and processes, which are subject to governance and internally independent validation procedures.
Internal ratings are assigned to all loans reflecting the Group’s internal view of the credit quality of the counterparty. Internal ratings may differ from a counterparty’s external ratings, if such ratings are available. Internal ratings are regularly reviewed depending on exposure type, client segment, collateral or event-driven developments. For the calculation of internal risk estimates (e.g., an estimate of expected loss in the event of a counterparty default) and >>>risk-weighted assets, a >>>PD, >>>LGD and >>>exposure at default are assigned to each facility. These three parameters are primarily derived from internally developed statistical models that have been backtested against internal experience, validated by a function independent of the model owners on a regular basis and approved by the Group’s main regulators for application in the regulatory capital calculation in the >>>A-IRB approach under the Basel framework. For the majority of clients and counterparties, internal ratings or PDs are calculated directly by proprietary statistical rating models. These models are based on internally compiled data comprising both quantitative factors (e.g., primarily balance sheet information for corporates and loan-to-value ratio and the borrower’s income level for mortgage lending) and qualitative factors (e.g., credit histories from credit reporting bureaus) concentrating on economic trends and financial fundamentals. For statistical rating models calculating a PD, an equivalent rating based on the Standard & Poor’s rating scale is assigned based on the PD band associated with each rating, which is used for disclosure purposes. For the remaining facilities where statistical rating models are not used, a PD is determined through an internal rating assigned on the basis of a structured expert approach. Credit officers make use of peer analyses, industry comparisons, external ratings and research as well as the judgment of credit experts for the purpose of their analysis. The PD for each internal rating is calibrated to historical default experience using internal data and external data from Standard & Poor’s.
>>>Reverse repurchase agreements are fully collateralized and in the event of counterparty default the reverse repurchase agreement provides the Group the right to liquidate the collateral held. Group risk management manages these instruments on the basis of the value of the underlying collateral, as opposed to loans, which are risk-managed on the ability of the counterparty to repay. Therefore the underlying collateral coverage is the most appropriate credit quality indicator for reverse repurchase agreements. As such, reverse repurchase agreements have not been included in the following tables.
The following tables present the Group’s recorded investment in loans held at amortized cost by aggregated internal counterparty credit ratings investment grade and non-investment grade that are used as credit quality indicators for the purpose of this disclosure, and a related aging analysis.
285

Gross loans held at amortized cost by internal counterparty rating
      Investment
grade
Non-investment
grade
end of AAA to BBB BB to C D Total
2017 (CHF million)   
Mortgages 94,553 11,214 272 106,039
Loans collateralized by securities 38,387 3,530 99 42,016
Consumer finance 1,801 2,241 180 4,222
Consumer 134,741 16,985 551 152,277
Real estate 20,278 5,640 85 26,003
Commercial and industrial loans 39,475 35,250 1,300 76,025
Financial institutions 7,258 2,022 46 9,326
Governments and public institutions 1,124 74 1 1,199
Corporate & institutional 68,135 42,986 1,432 112,553
Gross loans held at amortized cost  202,876 59,971 1,983 264,830
Value of collateral 1 189,048 49,271 1,422 239,741
2016 (CHF million)   
Mortgages 92,533 11,613 189 104,335
Loans collateralized by securities 34,136 2,916 216 37,268
Consumer finance 1,164 2,119 184 3,467
Consumer 127,833 16,648 589 145,070
Real estate 19,594 5,878 84 25,556
Commercial and industrial loans 36,469 35,945 1,459 73,873
Financial institutions 9,695 1,887 107 11,689
Governments and public institutions 1,253 60 14 1,327
Corporate & institutional 67,011 43,770 1,664 112,445
Gross loans held at amortized cost  194,844 60,418 2,253 257,515
Value of collateral 1 180,276 51,344 1,480 233,100
1
Includes the value of collateral up to the amount of the outstanding related loans. For mortgages, the value of collateral is determined at the time of granting the loan and thereafter regularly reviewed according to the Group's risk management policies and directives, with maximum review periods determined by property type, market liquidity and market transparency.
Value of collateral
In the Group’s private banking, corporate and institutional businesses, all collateral values for loans are regularly reviewed according to the Group’s risk management policies and directives, with maximum review periods determined by collateral type, market liquidity and market transparency. For example, traded securities are revalued on a daily basis and property values are appraised over a period of more than one year considering the characteristics of the property, current developments in the relevant real estate market and the current level of credit exposure to the borrower. If the credit exposure to a borrower has changed significantly, in volatile markets or in times of increasing general market risk, collateral values may be appraised more frequently. Management judgment is applied in assessing whether markets are volatile or general market risk has increased to a degree that warrants a more frequent update of collateral values. Movements in monitored risk metrics that are statistically different compared to historical experience are considered in addition to analysis of externally-provided forecasts, scenario techniques and macro-economic research. For impaired loans, the fair value of collateral is determined within 90 days of the date the impairment was identified and thereafter regularly revalued by Group credit risk management within the impairment review process.
In the Group’s investment banking businesses, few loans are collateral dependent. The collateral values for these loans are appraised on at least an annual basis, or when a loan-relevant event occurs.
286

Gross loans held at amortized cost – aging analysis
   Current Past due

end of

Up to
30 days
31–60
days
61–90
days
More than
90 days

Total

Total
2017 (CHF million)   
Mortgages 105,689 102 27 14 207 350 106,039
Loans collateralized by securities 41,867 37 0 0 112 149 42,016
Consumer finance 3,701 297 39 40 145 521 4,222
Consumer 151,257 436 66 54 464 1,020 152,277
Real estate 25,871 37 12 15 68 132 26,003
Commercial and industrial loans 74,831 429 40 201 524 1,194 76,025
Financial institutions 8,947 333 1 2 43 379 9,326
Governments and public institutions 1,197 1 0 0 1 2 1,199
Corporate & institutional 110,846 800 53 218 636 1,707 112,553
Gross loans held at amortized cost  262,103 1,236 119 272 1,100 2,727 264,830
2016 (CHF million)   1
Mortgages 104,013 106 34 6 176 322 104,335
Loans collateralized by securities 36,953 93 1 1 220 315 37,268
Consumer finance 2,963 276 36 40 152 504 3,467
Consumer 143,929 475 71 47 548 1,141 145,070
Real estate 25,381 93 17 2 63 175 25,556
Commercial and industrial loans 72,234 618 131 131 759 1,639 73,873
Financial institutions 11,542 43 0 0 104 147 11,689
Governments and public institutions 1,269 44 0 0 14 58 1,327
Corporate & institutional 110,426 798 148 133 940 2,019 112,445
Gross loans held at amortized cost  254,355 1,273 219 180 1,488 3,160 257,515
1
Prior period has been corrected.
Impaired loans
Categories of impaired loans
In accordance with Group policies, impaired loans include non-performing loans, non-interest-earning loans, restructured loans and potential problem loans.
> Refer to “Loans” in Note 1 – Summary of significant accounting policies for further information on categories of impaired loans.
As of December 31, 2017 and 2016, the Group did not have any material commitments to lend additional funds to debtors whose loan terms had been modified in troubled debt restructurings.
287

Gross impaired loans by category
      Non-performing and
non-interest-earning loans

Other impaired loans

end of

Non-
performing
Non-
interest-
earning


Total

Re-
structured

Potential
problem


Total


Total
2017 (CHF million)   
Mortgages 236 17 253 13 66 79 332 1
Loans collateralized by securities 96 16 112 0 2 2 114
Consumer finance 176 9 185 0 1 1 186
Consumer 508 42 550 13 69 82 632
Real estate 73 4 77 0 19 19 96
Commercial and industrial loans 465 134 599 277 458 735 1,334
Financial institutions 1 43 44 0 3 3 47
Governments and public institutions 1 0 1 0 0 0 1
Corporate & institutional 540 181 721 277 480 757 1,478
Gross impaired loans  1,048 223 1,271 290 549 839 2,110
2016 (CHF million)   
Mortgages 190 11 201 13 40 53 254 1
Loans collateralized by securities 193 17 210 0 13 13 223
Consumer finance 180 4 184 0 1 1 185
Consumer 563 32 595 13 54 67 662
Real estate 62 5 67 0 19 19 86
Commercial and industrial loans 539 182 721 345 513 858 1,579
Financial institutions 58 46 104 0 27 27 131
Governments and public institutions 14 0 14 0 0 0 14
Corporate & institutional 673 233 906 345 559 904 1,810
Gross impaired loans  1,236 265 1,501 358 613 971 2,472
1
As of December 31, 2017 and 2016, CHF 90 million and CHF 62 million, respectively, were related to consumer mortgages secured by residential real estate for which formal foreclosure proceedings according to local requirements of the applicable jurisdiction were in process.
Write-off and recovery of loans
Write-off of a loan occurs when it is considered certain that there is no possibility of recovering the entire outstanding principal. In the Group’s investment banking businesses, a loan is written down to its net book value once the loan provision is greater than 80% of the loan notional amount, unless repayment of the loan is anticipated to occur within the next two quarters. In the Group’s private banking, corporate and institutional businesses, write-offs are made, based on an individual counterparty assessment performed by Group credit risk management, if it is certain that parts of a loan or the entire loan will not be recoverable. For collateralized loans, the collateral is assessed and the unsecured exposure is written off. Write-offs on uncollateralized loans are based on the borrower’s ability to pay back the outstanding loan out of free cash flow. The Group evaluates the recoverability of the loans granted, if a borrower is expected to default wholly or partly on its contractual payment obligations or to meet these only with third-party support. Adjustments are made to reflect the estimated realizable value of the loan or any collateral. Triggers to assess the creditworthiness of a borrower to absorb the adverse developments include i) a default on interest or principal payments by more than 90 days, ii) a waiver of interest or principal by the Group, iii) a downgrade of the loan to non-interest-earning, iv) the collection of the debt through seizure order, bankruptcy proceedings or realization of collateral, or v) the insolvency of the borrower. Based on such assessment, Group credit risk management evaluates the need for write-offs individually and on an ongoing basis.
Recoveries of loans previously written off are recorded based on the cash or estimated fair value of other assets received.
288

Gross impaired loan details
end of    2017 2016

Recorded
investment
Unpaid
principal
balance
Associated
specific
allowance

Recorded
investment
Unpaid
principal
balance
Associated
specific
allowance
Gross impaired loan detail (CHF million)   
Mortgages 254 239 36 211 198 21
Loans collateralized by securities 111 97 49 209 193 54
Consumer finance 180 160 94 177 160 97
Consumer 545 496 179 597 551 172
Real estate 86 79 11 65 59 10
Commercial and industrial loans 997 959 427 1,283 1,250 472
Financial institutions 47 46 37 126 122 46
Governments and public institutions 1 1 0 14 14 0
Corporate & institutional 1,131 1,085 475 1,488 1,445 528
Gross impaired loans with a specific allowance  1,676 1,581 654 2,085 1,996 700
Mortgages 78 78 43 43
Loans collateralized by securities 3 3 14 14
Consumer finance 6 6 8 8
Consumer 87 87 65 65
Real estate 10 10 21 21
Commercial and industrial loans 337 337 296 296
Financial institutions 0 0 5 5
Corporate & institutional 347 347 322 322
Gross impaired loans without specific allowance  434 434 387 387
Gross impaired loans  2,110 2,015 654 2,472 2,383 700
   of which consumer 632 583 179 662 616 172
   of which corporate & institutional  1,478 1,432 475 1,810 1,767 528
289

Gross impaired loan details (continued)
in    2017 2016 2015

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)
Gross impaired loan detail (CHF million)   
Mortgages 229 2 1 195 2 1 190 2 2
Loans collateralized by securities 116 1 1 153 1 1 82 0 0
Consumer finance 167 5 5 205 1 1 228 1 1
Consumer 512 8 7 553 4 3 500 3 3
Real estate 78 1 0 72 1 0 74 0 0
Commercial and industrial loans 1,163 17 5 1,039 10 4 626 7 3
Financial institutions 76 1 1 154 1 0 149 1 1
Governments and public institutions 5 0 0 5 0 0 0 0 0
Corporate & institutional 1,322 19 6 1,270 12 4 849 8 4
Gross impaired loans with a specific allowance  1,834 27 13 1,823 16 7 1,349 11 7
Mortgages 83 3 0 83 3 0 51 4 0
Loans collateralized by securities 7 0 0 24 0 0 33 0 0
Consumer finance 3 0 0 11 0 0 7 0 0
Consumer 93 3 0 118 3 0 91 4 0
Real estate 27 1 0 31 1 0 12 1 0
Commercial and industrial loans 271 11 1 307 7 1 98 3 1
Financial institutions 0 0 0 5 0 0 4 0 0
Governments and public institutions 0 0 0 5 0 0 0 0 0
Corporate & institutional 298 12 1 348 8 1 114 4 1
Gross impaired loans without specific allowance  391 15 1 466 11 1 205 8 1
Gross impaired loans  2,225 42 14 2,289 27 8 1,554 19 8
   of which consumer 605 11 7 671 7 3 591 7 3
   of which corporate & institutional  1,620 31 7 1,618 20 5 963 12 5
Allowance for specifically identified credit losses on impaired loans
The Group considers a loan impaired when, based on current information and events, it is probable that the Group will be unable to collect the amounts due according to the contractual terms of the loan agreement. The Group performs an in-depth review and analysis of impaired loans considering factors such as recovery and exit options as well as collateral and counterparty risk. In general, all impaired loans are individually assessed. The trigger to detect an impaired loan is non-payment of interest, principal amounts or other contractual payment obligations. In addition, loans to corporates and institutions managed on the Swiss platform are regularly reviewed depending on exposure type, client segment, collateral or event-driven developments. All other corporate and institutional loans are reviewed at least annually based on the borrower’s financial statements and any indications of difficulties they may experience. Loans that are not impaired, but which are of special concern due to changes in covenants, downgrades, negative financial news and other adverse developments, are either transferred to recovery management or included on a watch list. All loans on the watch list are reviewed at least quarterly to determine whether they should be released, remain on the watch list or be moved to recovery management. For loans in recovery management from the Swiss platform, larger positions are reviewed on a quarterly basis for any event-driven changes. Otherwise, these loans are reviewed at least annually. All other loans in recovery management are reviewed on at least a quarterly basis. If an individual loan specifically identified for evaluation is considered impaired, the allowance is determined as a reasonable estimate of credit losses existing as of the end of the reporting period. Thereafter, the allowance is revalued by credit risk management at least annually or more frequently depending on the risk profile of the borrower or credit relevant events. For non-collateral-dependent impaired loans, an impairment is measured using the present value of estimated future cash flows, except that as a practical expedient an impairment may be measured based on a loan’s observable market price. If the present value of estimated future cash flows is used, the impaired loan and related allowance are revalued to reflect the passage of time. For collateral-dependent impaired loans, an impairment is measured using the fair value of the collateral.
290

Restructured loans held at amortized cost
in    2017 2016 2015


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification
Restructured loans (CHF million, except where indicated)   
Mortgages 0 0 0 0 0 0 1 13 13
Loans collateralized by securities 0 0 0 0 0 0 1 0 0
Commercial and industrial loans 15 123 119 16 201 201 13 207 210
Financial institutions 0 0 0 0 0 0 1 2 2
Total  15 123 119 16 201 201 16 222 225
In 2017, the loan modifications of the Group included extended loan repayment terms, including the suspension of quarterly and annual loan amortizations, modifications of covenants, a waiver of a loan termination and waivers of claims.
In 2017 and 2015, the Group reported the default of one loan within commercial and industrial loans with a recorded investment amount of CHF 48 million and CHF 65 million, respectively, which had been restructured within the previous 12 months. In 2016, the Group did not experience a default of such loans.
19 Premises and equipment
end of 2017 2016
Premises and equipment (CHF million)   
Buildings and improvements 2,163 2,197
Land 346 328
Leasehold improvements 2,102 2,164
Software 5,727 6,676
Equipment 2,149 2,119
Premises and equipment  12,487 13,484
Accumulated depreciation (7,801) (8,773)
Total premises and equipment, net  4,686 4,711
Depreciation and impairment
in 2017 2016 2015
CHF million   
Depreciation 826 887 1,012
Impairment 33 25 24
291

20 Goodwill
Goodwill

2017

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit

Credit
Suisse
Group
Gross amount of goodwill (CHF million)   
Balance at beginning of period  623 1,612 2,318 3,195 1,044 12 8,804
Foreign currency translation impact (13) (55) (50) (17) (23) 0 (158)
Other 0 (13) 0 0 0 0 (13)
Balance at end of period  610 1,544 2,268 3,178 1,021 12 8,633
Accumulated impairment (CHF million)   
Balance at beginning of period  0 0 772 2,719 388 12 3,891
Balance at end of period  0 0 772 2,719 388 12 3,891
Net book value (CHF million)   
Net book value  610 1,544 1,496 459 633 0 4,742
2016
Gross amount of goodwill (CHF million)   
Balance at beginning of period  610 1,573 2,294 3,183 1,027 12 8,699
Goodwill acquired during the year 5 0 0 0 0 0 5
Foreign currency translation impact 9 32 37 12 17 0 107
Other (1) 7 (13) 0 0 0 (7)
Balance at end of period  623 1,612 2,318 3,195 1,044 12 8,804
Accumulated impairment (CHF million)   
Balance at beginning of period  0 0 772 2,719 388 12 3,891
Balance at end of period  0 0 772 2,719 388 12 3,891
Net book value (CHF million)   
Net book value  623 1,612 1,546 476 656 0 4,913
In accordance with US GAAP, the Group continually assesses whether or not there has been a triggering event requiring a review of goodwill. As of December 31, 2017 and 2016, the Group’s market capitalization was below book value.
On December 7, 2016, and on February 14, 2017, the Group announced a reorganization and change to financial reporting affecting its Swiss Universal Bank and Asia Pacific segments. During the first quarter of 2017, these measures were implemented. The Group determined that these changes constituted triggering events. The Group’s reporting units as a result of these measures are defined as follows: Swiss Universal Bank – Private Clients (formerly Private Banking), Swiss Universal Bank – Corporate & Institutional Clients (formerly Corporate & Institutional Banking), International Wealth Management – Private Banking, International Wealth Management – Asset Management, Asia Pacific – Wealth Management & Connected (formerly Private Banking), Asia Pacific – Markets (formerly Investment Banking), Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit.
The carrying value of each reporting unit for the purpose of the goodwill impairment test is determined by considering the reporting units’ >>>risk-weighted assets usage, leverage ratio exposure, deferred tax assets, goodwill and intangible assets. Any residual equity, after considering the total of these elements, is allocated to the reporting units on a pro-rata basis.
In estimating the >>>fair value of its reporting units, the Group applied a combination of the market approach and the income approach. Under the market approach, consideration was given to price to projected earnings multiples or price to book value multiples for similarly traded companies and prices paid in recent transactions that have occurred in its industry or in related industries. Under the income approach, a discount rate was applied that reflects the risk and uncertainty related to the reporting unit’s projected cash flows, which were determined from the Group’s financial plan.
In determining the estimated fair value, the Group relied upon its updated five-year strategic business plan which included significant management assumptions and estimates based on its view of current and future economic conditions and regulatory changes.
Goodwill is tested for impairment before and immediately after a reorganization or restructuring of reporting units. As a result, the goodwill impairment test was performed during the first quarter of 2017 under the old business structure and then again under the modified structure according to the measures implemented in connection with the announcements on December 7, 2016 and February 14, 2017. Based on its goodwill impairment analysis performed during the first quarter of 2017, the Group concluded that the estimated fair value for all of its reporting units with goodwill impacted by the measures implemented in connection with the
292

December 7, 2016 and February 14, 2017 announcements substantially exceeded their related carrying values and that no impairment was necessary.
Based on its goodwill impairment analysis performed as of December 31, 2017, the Group concluded that the estimated fair value for all of the reporting units with goodwill substantially exceeded their related carrying values and no impairment was necessary as of December 31, 2017.
The Group engaged the services of an independent valuation specialist to assist in the valuation of the Global Markets reporting unit and the Asia Pacific – Markets reporting unit as of December 31, 2017. The valuations were also performed using a combination of the market approach and income approach.
The results of the impairment evaluation of each reporting unit’s goodwill would be significantly impacted by adverse changes in the underlying parameters used in the valuation process. If actual outcomes adversely differ by a significant margin from its best estimates of the key economic assumptions and associated cash flows applied in the valuation of the reporting unit, the Group could potentially incur material impairment charges in the future.
As a result of acquisitions, the Group has recorded goodwill as an asset in its consolidated balance sheets, the most significant component of which arose from the acquisition of Donaldson, Lufkin & Jenrette Inc. in 2000.
21 Other intangible assets
end of    2017 2016

Gross
carrying
amount
Accumu-
lated
amorti-
zation

Net
carrying
amount

Gross
carrying
amount
Accumu-
lated
amorti-
zation

Net
carrying
amount
Other intangible assets (CHF million)   
Trade names/trademarks 27 (26) 1 28 (26) 2
Client relationships 47 (18) 29 50 (14) 36
Other 5 (3) 2 6 (3) 3
Total amortizing other intangible assets  79 (47) 32 84 (43) 41
Non-amortizing other intangible assets 191 191 172 172
   of which mortgage servicing rights, at fair value  158 158 138 138
Total other intangible assets  270 (47) 223 256 (43) 213
Additional information
in 2017 2016 2015
Aggregate amortization and impairment (CHF million)   
Aggregate amortization 7 8 18
Impairment 2 0 16
   of which related to restructuring expenses  0 0 15
Estimated amortization
Estimated amortization (CHF million)   
2018 8
2019 4
2020 3
2021 2
2022 2
293

22 Other assets and other liabilities
end of 2017 2016
Other assets (CHF million)   
Cash collateral on derivative instruments 5,141 5,705
Cash collateral on non-derivative transactions 490 1,237
Derivative instruments used for hedging 50 148
Assets held-for-sale 8,300 8,214
   of which loans 1 8,130 8,062
   of which real estate 2 141 122
   of which long-lived assets  29 30
Assets held for separate accounts 190 431
Interest and fees receivable 4,669 4,787
Deferred tax assets 3 5,522 5,828
Prepaid expenses 379 394
Failed purchases 1,327 2,423
Defined benefit pension and post-retirement plan assets 2,170 1,061
Other 3 3,833 6,637
Other assets  32,071 36,865
1
Included as of December 31, 2017 and 2016 were CHF 534 million and CHF 681 million, respectively, in restricted loans, which represented collateral on secured borrowings.
2
As of December 31, 2017 and 2016, real estate held-for-sale included foreclosed or repossessed real estate of CHF 8 million and CHF 16 million, respectively, of which CHF 5 million and CHF 13 million, respectively were related to residential real estate.
3
Includes a reclassification from other assets to deferred tax assets in the first quarter of 2017 as a result of the early adoption of ASU 2016-16. Refer to "Note 2 - Recently issued accounting standards" for further information.
end of 2017 2016
Other liabilities (CHF million)   
Cash collateral on derivative instruments 8,644 11,497
Cash collateral on non-derivative transactions 473 369
Derivative instruments used for hedging 99 2
Deposits held-for-sale 0 1,577
Provisions 1,007 4,077
   of which off-balance sheet risk  106 88
Restructuring liabilities 306 311
Liabilities held for separate accounts 190 431
Interest and fees payable 5,591 6,039
Current tax liabilities 700 636
Deferred tax liabilities 394 129
Failed sales 720 737
Defined benefit pension and post-retirement plan liabilities 541 516
Other 12,947 13,534
Other liabilities  31,612 39,855
23 Deposits
end of    2017 2016
Switzer-
land

Foreign

Total
Switzer-
land

Foreign

Total
Deposits (CHF million)   
Non-interest-bearing demand deposits 2,593 2,058 4,651 2,963 1,645 4,608
Interest-bearing demand deposits 125,323 32,732 158,055 122,053 33,440 155,493
Savings deposits 64,068 18 64,086 63,005 2 63,007
Time deposits 32,531 117,252 149,783 1 35,718 119,807 155,525 1
Total deposits  224,515 152,060 376,575 2 223,739 154,894 378,633 2
   of which due to banks  15,413 22,800
   of which customer deposits  361,162 355,833
The designation of deposits in Switzerland versus foreign deposits is based upon the location of the office where the deposit is recorded.
1
Included CHF 149,659 million and CHF 155,458 million as of December 31, 2017 and 2016, respectively, of the Swiss franc equivalent of individual time deposits greater than USD 100,000 in Switzerland and foreign offices.
2
Not included as of December 31, 2017 and 2016 were CHF 135 million and CHF 132 million, respectively, of overdrawn deposits reclassified as loans. Prior period has been corrected.
294

24 Long-term debt
end of 2017 2016
Long-term debt (CHF million)
Senior 148,542 168,601
Subordinated 23,627 22,955
Non-recourse liabilities from consolidated VIEs 863 1,759
Long-term debt  173,032 193,315
   of which reported at fair value  63,628 72,868
   of which structured notes  51,465 59,544
Structured notes by product
end of 2017 2016
Structured notes (CHF million)   
Equity 32,059 35,980
Fixed income 14,471 16,395
Credit 4,678 5,713
Other 257 1,456
Total structured notes  51,465 59,544
Total long-term debt includes debt issuances managed by Treasury that do not contain derivative features (vanilla debt), as well as hybrid debt instruments with embedded >>>derivatives, which are issued as part of the Group’s structured product activities. Long-term debt includes both Swiss franc and foreign exchange denominated fixed and variable rate bonds.
The interest rate ranges presented in the table below are based on the contractual terms of the Group’s vanilla debt. Interest rate ranges for future coupon payments on structured products for which >>>fair value has been elected are not included in the table below as these coupons are dependent upon the embedded derivative and prevailing market conditions at the time each coupon is paid. In addition, the effects of derivatives used for hedging are not included in the interest rate ranges on the associated debt.
Long-term debt by maturities
end of 2018 2019 2020 2021 2022 Thereafter Total
Group parent company (CHF million)
Senior debt 
   Fixed rate  0 0 0 0 0 7,587 7,587
   Variable rate  0 2,700 0 0 970 979 4,649
   Interest rate (range in %) 1 0.2 1.9 0.6 4.3
Subordinated debt 
   Fixed rate  290 0 0 0 1,576 5,255 7,121
   Interest rates (range in %) 1 6.0 7.1 3.9 7.5
Subtotal – Group parent company  290 2,700 0 0 2,546 13,821 19,357
Subsidiaries (CHF million)
Senior debt 
   Fixed rate  9,752 16,272 9,210 7,669 8,264 26,378 77,545
   Variable rate  13,362 6,522 7,107 6,434 4,525 20,811 58,761
   Interest rates (range in %) 1 0.1 8.5 0.1 7.5 0.1 7.2 0.1 7.2 0.1 8.2 0.1 7.1
Subordinated debt 
   Fixed rate  10,038 0 1,837 0 111 4,316 16,302
   Variable rate  0 201 0 0 3 0 204
   Interest rates (range in %) 1 4.9 13.3 1.6 3.4 7.0 7.6 5.7 8.0
Non-recourse liabilities from consolidated VIEs 
   Fixed rate  244 344 0 27 5 0 620
   Variable rate  71 0 0 1 0 171 243
   Interest rates (range in %) 1 2.8 2.9 3.0 9.3 10.3 0.0 0.6 10.7
Subtotal – Subsidiaries  33,467 23,339 18,154 14,131 12,908 51,676 153,675
Total long-term debt  33,757 26,039 18,154 14,131 15,454 65,497 173,032
   of which structured notes  9,992 7,339 6,385 3,863 3,956 19,930 51,465
The maturity of perpetual debt is based on the earliest callable date. The maturity of all other debt is based on contractual maturity and includes certain structured notes that have mandatory early redemption features based on stipulated movements in markets or the occurrence of a market event. Within this population there are approximately CHF 3.1 billion of such notes with a contractual maturity of greater than one year that have an observable likelihood of redemption occurring within one year based on a modelling assessment.
1
Excludes structured notes for which fair value has been elected as the related coupons are dependent upon the embedded derivatives and prevailing market conditions at the time each coupon is paid.
295

The Group and the Bank maintain a shelf registration statement with the SEC, which allows each entity to issue, from time to time, senior and subordinated debt securities, warrants and guarantees.
> Refer to “Note 40 – Subsidiary guarantee information” for further information on subsidiary guarantees.
The Group maintains a euro medium-term note program that allows the Bank to issue senior debt securities and that allows Credit Suisse Group AG to issue securities, which contain certain features that are designed to allow for statutory bail-in by the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) under Swiss banking laws and regulations.
The Group maintains a senior debt program that allows the Group to issue senior debt securities with certain features that are designed to allow for statutory bail-in by FINMA.
The Bank maintains a JPY 500 billion Samurai shelf registration statement that allows it to issue, from time to time, senior and subordinated debt securities.
25 Accumulated other comprehensive income and additional share information
Accumulated other comprehensive income


Gains/
(losses)
on cash
flow hedges



Cumulative
translation
adjustments

Unrealized
gains/
(losses)
on
securities



Actuarial
gains/
(losses)


Net prior
service
credit/
(cost)
Gains/
(losses)
on
liabilities
relating to
credit risk
Accumu-
lated other
compre-
hensive
income/
(loss)
2017 (CHF million)   
Balance at beginning of period  (35) (12,095) 61 (4,278) 643 (568) (16,272)
Increase/(decrease) (61) (1,054) (13) 337 0 (2,008) (2,799)
Increase/(decrease) due to equity method investments 1 0 0 0 0 0 1
Reclassification adjustments, included in net income/(loss) 33 30 0 358 (121) 32 332
Total increase/(decrease) (27) (1,024) (13) 695 (121) (1,976) (2,466)
Balance at end of period  (62) (13,119) 48 (3,583) 522 (2,544) (18,738)
2016 (CHF million)   
Balance at beginning of period  (15) (12,615) 60 (4,672) 607 (16,635)
Increase/(decrease) (6) 441 1 7 142 (1,043) (458)
Increase/(decrease) due to equity method investments (6) 0 0 0 0 0 (6)
Reclassification adjustments, included in net income/(loss) (8) 79 0 387 (106) 0 352
Cumulative effect of accounting changes, net of tax 0 0 0 0 0 475 475
Total increase/(decrease) (20) 520 1 394 36 (568) 363
Balance at end of period  (35) (12,095) 61 (4,278) 643 (568) (16,272)
2015 (CHF million)   
Balance at beginning of period  (31) (11,478) 64 (4,010) 452 (15,003)
Increase/(decrease) 0 (1,142) (3) (1,031) 238 (1,938)
Increase/(decrease) due to equity method investments (15) (1) 0 0 0 (16)
Reclassification adjustments, included in net income/(loss) 31 6 (1) 369 (83) 322
Total increase/(decrease) 16 (1,137) (4) (662) 155 (1,632)
Balance at end of period  (15) (12,615) 60 (4,672) 607 (16,635)
Refer to "Note 27 – Tax" and "Note 30 – Pension and other post-retirement benefits" for income tax expense/(benefit) on the movements of accumulated other comprehensive income/(loss).
296

Details of significant reclassification adjustments
in 2017 2016 2015
Reclassification adjustments, included in net income/(loss) (CHF million)   
Cumulative translation adjustments 
   Reclassification adjustments 1 30 79 6
Actuarial gains/(losses) 
   Amortization of recognized actuarial losses 2 444 513 472
   Tax expense/(benefit)  (86) (126) (103)
   Net of tax  358 387 369
Net prior service credit/(cost) 
   Amortization of recognized prior service credit/(cost) 2 (153) (134) (110)
   Tax expense/(benefit)  32 28 27
   Net of tax  (121) (106) (83)
1
Includes net releases of CHF 23 million on the sale of Credit Suisse (Monaco) S.A.M. in 2017 and net releases of CHF 59 million on the sale of Credit Suisse (Gibraltar) Limited in 2016. In addition, it includes net releases of CHF 17 million on the liquidation of Credit Suisse Principal Investments Limited and AJP Cayman Ltd. in 2016. These were reclassified from cumulative translation adjustments and included in net income in other revenues.
2
These components are included in the computation of total benefit costs. Refer to "Note 30 – Pension and other post-retirement benefits" for further information.
Additional share information
2017 2016 2015
Common shares issued   
Balance at beginning of period  2,089,897,378 1,957,379,244 1,607,168,947
Issuance of common shares 466,114,342 132,518,134 350,210,297
   of which share-based compensation  0 30,000,000 0
Balance at end of period  2,556,011,720 2,089,897,378 1,957,379,244
Treasury shares   
Balance at beginning of period  0 (5,910,224) (7,666,658)
Sale of treasury shares 809,307,879 1,218,245,936 766,096,105
Repurchase of treasury shares (857,049,873) (1,224,501,214) (808,768,832)
Share-based compensation 41,984,328 12,165,502 44,429,161
Balance at end of period  (5,757,666) 0 (5,910,224)
Common shares outstanding   
Balance at end of period  2,550,254,054 1 2,089,897,378 2 1,951,469,020
1
At par value CHF 0.04 each, fully paid. In addition to the treasury shares, a maximum of 653,000,000 unissued shares (conditional, conversion and authorized capital) were available for issuance without further approval of the shareholders. 505,062,294 of these shares were reserved for capital instruments.
2
At par value CHF 0.04 each, fully paid. In addition to the treasury shares, a maximum of 653,000,000 unissued shares (conditional, conversion and authorized capital) were available for issuance without further approval of the shareholders. 415,099,918 of these shares were reserved for capital instruments.
297

26 Offsetting of financial assets and financial liabilities
The disclosures set out in the tables below include >>>derivatives, >>>reverse repurchase and >>>repurchase agreements, and securities lending and borrowing transactions that:
are offset in the Group’s consolidated balance sheets; or
are subject to an enforceable master netting agreement or similar agreement (enforceable master netting agreements), irrespective of whether they are offset in the Group’s consolidated balance sheets.
Similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities lending agreements.
Derivatives
The Group transacts bilateral >>>OTC derivatives (OTC derivatives) mainly under International Swaps and Derivatives Association (ISDA) Master Agreements and Swiss Master Agreements for OTC derivative instruments. These agreements provide for the net settlement of all transactions under the agreement through a single payment in the event of default or termination under the agreement. They allow the Group to offset balances from derivative assets and liabilities as well as the receivables and payables to related cash collateral transacted with the same counterparty. Collateral for OTC derivatives is received and provided in the form of cash and marketable securities. Such collateral may be subject to the standard industry terms of an ISDA Credit Support Annex. The terms of an ISDA Credit Support Annex provide that securities received or provided as collateral may be pledged or sold during the term of the transactions and must be returned upon maturity of the transaction. These terms also give each counterparty the right to terminate the related transactions upon the other counterparty’s failure to post collateral. Financial collateral received or pledged for OTC derivatives may also be subject to collateral agreements which restrict the use of financial collateral.
For derivatives transacted with exchanges (exchange-traded derivatives) and central clearing counterparties (OTC-cleared derivatives), positive and negative replacement values (NRV) and related cash collateral may be offset if the terms of the rules and regulations governing these exchanges and central clearing counterparties permit such netting and offset.
Where no such agreements exist, fair values are recorded on a gross basis.
Exchange-traded derivatives or OTC-cleared derivatives, which are fully margined and for which the daily margin payments constitute settlement of the outstanding exposure, are not included in the offsetting disclosures because they are not subject to offsetting due to the daily settlement. The daily margin payments, which are not settled until the next settlement cycle is conducted, are presented in brokerage receivables or brokerage payables. The notional amount for these daily settled derivatives is included in the fair value of derivative instruments table in “Note 31 – Derivatives and hedging activities”.
Under US GAAP, the Group elected to account for substantially all financial instruments with an embedded derivative that is not considered clearly and closely related to the host contract at fair value. There is an exception for certain bifurcatable hybrid debt instruments which the Group did not elect to account for at fair value. However, these bifurcated embedded derivatives are generally not subject to enforceable master netting agreements and are not recorded as derivative instruments under trading assets and liabilities or other assets and other liabilities. Information on bifurcated embedded derivatives has therefore not been included in the offsetting disclosures.
298

The following table presents the gross amount of derivatives subject to enforceable master netting agreements by contract and transaction type, the amount of offsetting, the amount of derivatives not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
Offsetting of derivatives
end of    2017 2016
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
Gross derivatives subject to enforceable master netting agreements (CHF billion)   
OTC-cleared 2.5 1.8 8.2 7.5
OTC 83.3 79.0 129.1 121.7
Exchange-traded 0.1 0.2 0.1 0.1
Interest rate products  85.9 81.0 137.4 129.3
OTC-cleared 0.2 0.2 0.0 0.0
OTC 29.1 34.6 59.3 69.2
Exchange-traded 0.0 0.0 0.0 0.1
Foreign exchange products  29.3 34.8 59.3 69.3
OTC 11.7 11.7 11.2 11.5
Exchange-traded 9.2 9.8 11.5 13.0
Equity/index-related products  20.9 21.5 22.7 24.5
OTC-cleared 3.6 3.8 2.1 2.3
OTC 3.9 4.7 5.8 6.2
Credit derivatives  7.5 8.5 7.9 8.5
OTC 1.4 0.9 2.2 1.1
Exchange-traded 0.0 0.0 0.0 0.1
Other products 1 1.4 0.9 2.2 1.2
OTC-cleared 6.3 5.8 10.3 9.8
OTC 129.4 130.9 207.6 209.7
Exchange-traded 9.3 10.0 11.6 13.3
Total gross derivatives subject to enforceable master netting agreements  145.0 146.7 229.5 232.8
Offsetting (CHF billion)   
OTC-cleared (5.7) (5.4) (8.5) (7.8)
OTC (114.5) (122.1) (188.6) (199.1)
Exchange-traded (8.6) (9.6) (11.1) (11.9)
Offsetting  (128.8) (137.1) (208.2) (218.8)
   of which counterparty netting  (113.8) (113.8) (184.7) (184.7)
   of which cash collateral netting  (15.0) (23.3) (23.5) (34.1)
Net derivatives presented in the consolidated balance sheets (CHF billion)   
OTC-cleared 0.6 0.4 1.8 2.0
OTC 14.9 8.8 19.0 10.6
Exchange-traded 0.7 0.4 0.5 1.4
Total net derivatives subject to enforceable master netting agreements  16.2 9.6 21.3 14.0
Total derivatives not subject to enforceable master netting agreements 2 3.4 5.2 5.6 6.4
Total net derivatives presented in the consolidated balance sheets  19.6 14.8 26.9 20.4
   of which recorded in trading assets and trading liabilities  19.6 14.7 26.8 20.4
   of which recorded in other assets and other liabilities  0.0 0.1 0.1 0.0
1
Primarily precious metals, commodity and energy products.
2
Represents derivatives where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
299

Reverse repurchase and repurchase agreements and securities lending and borrowing transactions
Reverse repurchase and repurchase agreements are generally covered by global master repurchase agreements. In certain situations, for example, in the event of default, all contracts under the agreements are terminated and are settled net in one single payment. Global master repurchase agreements also include payment or settlement netting provisions in the normal course of business that state that all amounts in the same currency payable by each party to the other under any transaction or otherwise under the global master repurchase agreement on the same date shall be set off.
Transactions under such agreements are netted in the consolidated balance sheets if they are with the same counterparty, have the same maturity date, settle through the same clearing institution and are subject to the same master netting agreement. The amounts offset are measured on the same basis as the underlying transaction (i.e., on an accrual basis or fair value basis).
Securities lending and borrowing transactions are generally executed under global master securities lending agreements with netting terms similar to ISDA Master Agreements. In certain situations, for example in the event of default, all contracts under the agreement are terminated and are settled net in one single payment. Transactions under these agreements are netted in the consolidated balance sheets if they meet the same right of offset criteria as for reverse repurchase and repurchase agreements. In general, most securities lending and borrowing transactions do not meet the criterion of having the same settlement date specified at inception of the transaction, and therefore they are not eligible for netting in the consolidated balance sheets. However, securities lending and borrowing transactions with explicit maturity dates may be eligible for netting in the consolidated balance sheets.
Reverse repurchase and repurchase agreements are collateralized principally by government securities, money market instruments and corporate bonds and have terms ranging from overnight to a longer or unspecified period of time. In the event of counterparty default, the reverse repurchase agreement or securities lending agreement provides the Group with the right to liquidate the collateral held. As is the case in the Group’s normal course of business, a significant portion of the collateral received that may be sold or repledged was sold or repledged as of December 31, 2017 and December 31, 2016. In certain circumstances, financial collateral received may be restricted during the term of the agreement (e.g., in tri-party arrangements).
The following table presents the gross amount of securities purchased under resale agreements and securities borrowing transactions subject to enforceable master netting agreements, the amount of offsetting, the amount of securities purchased under resale agreements and securities borrowing transactions not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
Offsetting of securities purchased under resale agreements and securities borrowing transactions
end of    2017 2016

Gross

Offsetting
Net
book value

Gross

Offsetting
Net
book value
Securities purchased under resale agreements and securities borrowing transactions (CHF billion)      
Securities purchased under resale agreements 89.4 (28.8) 60.6 99.9 (26.9) 73.0
Securities borrowing transactions 18.7 (5.0) 13.7 24.0 (4.5) 19.5
Total subject to enforceable master netting agreements  108.1 (33.8) 74.3 123.9 (31.4) 92.5
Total not subject to enforceable master netting agreements 1 41.0 41.0 42.2 42.2
Total  149.1 (33.8) 115.3 2 166.1 (31.4) 134.7 2
1
Represents securities purchased under resale agreements and securities borrowing transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
2
CHF 77,498 million and CHF 87,331 million of the total net amount as of the end of 2017 and 2016, respectively, are reported at fair value.
The following table presents the gross amount of securities sold under repurchase agreements and securities lending transactions subject to enforceable master netting agreements, the amount of offsetting, the amount of securities sold under repurchase agreements and securities lending transactions not subject to enforceable master netting agreements and the net amount presented in the consolidated balance sheets.
300

Offsetting of securities sold under repurchase agreements and securities lending transactions
end of    2017 2016

Gross

Offsetting
Net
book value

Gross

Offsetting
Net
book value
Securities sold under repurchase agreements and securities lending transactions (CHF billion)      
Securities sold under repurchase agreements 49.4 (31.5) 17.9 51.3 (29.0) 22.3
Securities lending transactions 7.1 (2.3) 4.8 8.3 (2.4) 5.9
Obligation to return securities received as collateral, at fair value 37.0 0.0 37.0 31.9 0.0 31.9
Total subject to enforceable master netting agreements  93.5 (33.8) 59.7 91.5 (31.4) 60.1
Total not subject to enforceable master netting agreements 1 4.9 4.9 5.5 5.5
Total  98.4 (33.8) 64.6 97.0 (31.4) 65.6
   of which securities sold under repurchase agreements and securities    lending transactions 60.3 (33.8) 26.5 2 64.4 (31.4) 33.0 2
   of which obligation to return securities received as collateral, at fair value 38.1 0.0 38.1 32.6 0.0 32.6
1
Represents securities sold under repurchase agreements and securities lending transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
2
CHF 15,262 million and CHF 19,634 million of the total net amount as of the end of 2017 and 2016, respectively, are reported at fair value.
The following table presents the net amount presented in the consolidated balance sheets of financial assets and liabilities subject to enforceable master netting agreements and the gross amount of financial instruments and cash collateral not offset in the consolidated balance sheets. The table excludes derivatives, reverse repurchase and repurchase agreements and securities lending and borrowing transactions not subject to enforceable master netting agreements where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place. Net exposure reflects risk mitigation in the form of collateral.
Amounts not offset in the consolidated balance sheets
end of    2017 2016


Net
book value


Financial
instruments
1 Cash
collateral
received/
pledged
1

Net
exposure


Net
book value


Financial
instruments
1 Cash
collateral
received/
pledged
1

Net
exposure
Financial assets subject to enforceable master netting agreements (CHF billion)      
Derivatives 16.2 5.2 0.0 11.0 21.3 6.3 0.0 15.0
Securities purchased under resale agreements 60.6 60.6 0.0 0.0 73.0 73.0 0.0 0.0
Securities borrowing transactions 13.7 13.2 0.0 0.5 19.5 18.6 0.0 0.9
Total financial assets subject to enforceable master netting agreements    90.5 79.0 0.0 11.5 113.8 97.9 0.0 15.9
Financial liabilities subject to enforceable master netting agreements (CHF billion)      
Derivatives 9.6 2.1 0.0 7.5 14.0 3.3 0.0 10.7
Securities sold under repurchase agreements 17.9 17.9 0.0 0.0 22.3 22.3 0.0 0.0
Securities lending transactions 4.8 4.4 0.0 0.4 5.9 5.7 0.0 0.2
Obligation to return securities received as collateral, at fair value 37.0 32.7 0.0 4.3 31.9 30.4 0.0 1.5
Total financial liabilities subject to enforceable master netting agreements    69.3 57.1 0.0 12.2 74.1 61.7 0.0 12.4
1
The total amount reported in financial instruments (recognized financial assets and financial liabilities and non-cash financial collateral) and cash collateral is limited to the amount of the related instruments presented in the consolidated balance sheets and therefore any over-collateralization of these positions is not included.
Net exposure is subject to further credit mitigation through the transfer of the exposure to other market counterparties by the use of >>>CDS and credit insurance contracts. Therefore the net exposure presented in the table above is not representative of the Group’s counterparty exposure.
301

27 Tax
Details of current and deferred taxes
in 2017 2016 2015
Current and deferred taxes (CHF million)   
Switzerland 82 133 28
Foreign 421 501 463
Current income tax expense  503 634 491
Switzerland 244 (125) 196
Foreign 1,994 (68) (164)
Deferred income tax expense/(benefit)  2,238 (193) 32
Income tax expense  2,741 441 523
Income tax expense/(benefit) reported in shareholders' equity related to:
   Gains/(losses) on cash flow hedges  (24) (6) (4)
   Cumulative translation adjustment  1 (4) (14)
   Unrealized gains/(losses) on securities  1 1 (2)
   Actuarial gains/(losses)  172 136 (174)
   Net prior service credit/(cost)  (32) 10 37
   Share-based compensation and treasury shares  3 104 25
Reconciliation of taxes computed at the Swiss statutory rate
in 2017 2016 2015
Income/(loss) before taxes (CHF million)   
Switzerland 1,736 2,111 1,746
Foreign 57 (4,377) (4,168)
Income/(loss) before taxes  1,793 (2,266) (2,422)
Reconciliation of taxes computed at the Swiss statutory rate (CHF million)   
Income tax expense/(benefit) computed at the statutory tax rate of 22% 394 (499) (533)
Increase/(decrease) in income taxes resulting from
   Foreign tax rate differential  (110) (498) (715)
   Non-deductible amortization of other intangible assets and goodwill impairment  0 1 1,432
   Other non-deductible expenses  354 1,540 391
   Additional taxable income  0 87 16
   Lower taxed income  (276) (219) (276)
   (Income)/loss taxable to noncontrolling interests  7 (11) 6
   Changes in tax law and rates  2,095 145 347
   Changes in deferred tax valuation allowance  123 76 (103)
   Change in recognition of outside basis difference  (19) 218 262
   Tax deductible impairments of Swiss subsidiary investments  88 (68) (258)
   (Windfall tax benefits) /shortfall tax charges on share-based compensation 1 91
   Other  (6) (331) (46)
Income tax expense  2,741 441 523
1
As a result of the adoption of ASU 2016-09 windfall tax benefits and shortfall tax charges on share-based compensation are now recognized in the consolidated statements of operations and no longer in shareholders' equity. Refer to "Note 2 - Recently issued accounting standards" for further information.
302

2017
Foreign tax rate differential of CHF 110 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to losses incurred in lower tax jurisdictions, mainly in Guernsey. The foreign tax rate expense of CHF 2,415 million comprised not only the foreign tax benefit based on statutory tax rates but also the tax impacts related to additional reconciling items as explained below.
Other non-deductible expenses of CHF 354 million included the impact of CHF 217 million relating to non-deductible interest expenses (including a contingency accrual of CHF 155 million), CHF 57 million related to the non-deductible portion of the litigation provisions and settlement charges, CHF 27 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 10 million related to non-deductible foreign exchange losses, and other various smaller non-deductible expenses of CHF 43 million.
Lower taxed income of CHF 276 million included a tax benefit of CHF 86 million related to non-taxable life insurance income, CHF 78 million related to non-taxable dividend income, CHF 31 million in respect of income taxed at rates lower than the statutory tax rate, CHF 25 million related to exempt income, and various smaller items.
Changes in tax law and rates of CHF 2,095 million mainly reflected the impact of the US tax reform enacted on December 22, 2017 which resulted in a reduction of the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The US tax reform required a re-assessment of the deferred tax assets.
Changes in deferred tax valuation allowances of CHF 123 million included the net impact of the increase in valuation allowances on deferred tax assets of CHF 320 million, mainly in respect of two of the Group’s operating entities in the UK. Also included was a tax benefit from the release of valuation allowances of CHF 197 million, mainly in respect of two of the Group’s operating entities, one in the UK and one in Switzerland.
Other of CHF 6 million included CHF 105 million from own credit valuation gains, CHF 85 million relating to tax deductibility of previously taken litigation accruals and CHF 49 million from a favorable court decision, partially offset by CHF 248 million relating to the net re-assessment of deferred tax balances in respect of two of the Group’s operating entities in Switzerland reflecting the establishment of Credit Suisse Asset Management & Investor Services (Schweiz) Holding AG, the impact of adverse earnings mix of the current year and changes in forecasted future profitability, CHF 17 million from prior year adjustments and CHF 16 million relating to the increase of tax contingency accruals. The remaining balance included various smaller items.
2016
Foreign tax rate differential of CHF 498 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to profits earned in lower tax jurisdictions, mainly the Bahamas. The foreign tax rate expense of CHF 433 million was not only impacted by the foreign tax benefit based on statutory tax rates but also by tax impacts related to additional reconciling items as explained below.
Other non-deductible expenses of CHF 1,540 million included the impact of CHF 983 million related to the non-deductible portion of the litigation provisions and settlement charges, CHF 420 million relating to non-deductible interest expenses, CHF 52 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 31 million related to non-deductible foreign exchange losses, CHF 25 million related to onerous lease provisions, and other various smaller non-deductible expenses of CHF 29 million.
Lower taxed income of CHF 219 million included a tax benefit of CHF 71 million related to non-taxable life insurance income, CHF 58 million related to non-taxable dividend income, CHF 19 million in respect of income taxed at rates lower than the statutory tax rate, CHF 11 million related to exempt income, and various smaller items.
Changes in tax law and rates of CHF 145 million reflected a tax expense of CHF 139 million caused by the reduction of deferred tax assets from the enactment of UK corporation tax rate changes, and CHF 6 million related to changes in other countries.
Changes in deferred tax valuation allowances of CHF 76 million included the net impact of the increase in valuation allowances on deferred tax assets of CHF 308 million, mainly in respect of four of the Group’s operating entities, two in the UK, one in Hong Kong and one in Switzerland. Additionally, 2016 included an accrual of valuation allowances of CHF 91 million for previously recognized deferred tax assets in respect of one of the Group’s operating entities in Hong Kong. Also included was a tax benefit from the release of valuation allowances of CHF 193 million, mainly in respect of one of the Group’s operating entities in the UK. The change in UK corporation tax rates caused a release of valuation allowances of CHF 130 million in respect of four of the Group’s operating entities in the UK.
Change in recognition of outside basis difference of CHF 218 million reflected a tax expense related to the expected reversal of the outside basis differences relating to Swiss subsidiary investments.
Other of CHF 331 million included a tax benefit of CHF 392 million relating to the re-assessment of deferred tax balances in Switzerland reflecting changes in forecasted future profitability, CHF 37 million from own credit valuation gains and CHF 33 million from prior year adjustments, partially offset by CHF 89 million tax litigation expense and associated interest and penalties relating to two Italian income tax matters which have been resolved as part of an agreement with the Italian tax authorities, and CHF 22 million relating to the increase of tax contingency accruals. The remaining balance included various smaller items.
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2015
Foreign tax rate differential of CHF 715 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as Brazil and the US, partially offset by foreign tax rate differential related to profits earned in lower tax jurisdictions, mainly Guernsey and the Bahamas. The foreign tax rate benefit in relation to total foreign tax expense of CHF 299 million was more than offset by tax impacts related to additional reconciling items as explained below.
Non-deductible amortization of other intangible assets and goodwill impairment of CHF 1,432 million reflected the non-deductible nature of the goodwill impairment.
Other non-deductible expenses of CHF 391 million included the impact of CHF 219 million relating to non-deductible interest expenses, CHF 69 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 50 million related to the non-deductible portion of the litigation provisions and settlement charges, and other various smaller non-deductible expenses of CHF 53 million.
Lower taxed income of CHF 276 million included a tax benefit of CHF 59 million related to non-taxable dividend income, CHF 58 million related to non-taxable life insurance income, CHF 50 million related to exempt income, CHF 49 million related to non-taxable foreign exchange gains, CHF 16 million in respect of income taxed at rates lower than the statutory tax rate, and various smaller items.
Changes in tax law and rates of CHF 347 million reflected a tax expense of CHF 189 million related to the change in New York City tax law, CHF 175 million caused by the reduction of deferred tax assets from the enactment of UK corporation tax rate changes and introduction of the bank corporation tax surcharge, and CHF 10 million related to changes in other countries, partially offset by a tax benefit of CHF 16 million from a change in the Brazil tax rate and CHF 11 million related to a change in New York state tax law.
Changes in deferred tax valuation allowances of CHF 103 million included the net impact of the release of valuation allowances of CHF 109 million, mainly in respect of two of the Group’s operating entities, one in the UK and one in Hong Kong, relating to current year earnings. Additionally, 2015 included a release of valuation allowances of CHF 88 million for previously recognized deferred tax assets in respect of one of the Group’s operating entities in Hong Kong. The change in UK corporation tax rates and introduction of the bank corporation tax surcharge in 2015 caused a release of valuation allowances of CHF 162 million in respect of four of the Group’s operating entities in the UK. Also included was a tax expense of CHF 256 million resulting from the increase in valuation allowances on deferred tax assets mainly from three of the Group’s operating entities, two in the UK and one in Switzerland.
Change in recognition of outside basis difference of CHF 262 million reflected a tax expense related to the expected reversal of the outside basis differences relating to Swiss subsidiary investments.
Other of CHF 46 million included a tax benefit of CHF 155 million relating to the re-assessment of deferred tax balances in Switzerland reflecting changes in forecasted future profitability, partially offset by a tax expense of CHF 48 million relating to the increase of tax contingency accruals and a tax expense of CHF 28 million from prior year adjustments. The remaining balance included various smaller items.
As of December 31, 2017, the Group had accumulated undistributed earnings from foreign subsidiaries of CHF 5.1 billion. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.
Deferred tax assets and liabilities
end of 2017 2016
Deferred tax assets and liabilities (CHF million)   
Compensation and benefits 1,103 1,992
Loans 330 326
Investment securities 1,039 469
Provisions 441 1,341
Derivatives 97 105
Real estate 337 347
Net operating loss carry-forwards 6,829 6,548
Goodwill and intangible assets 696 44
Other 135 75
Gross deferred tax assets before valuation allowance    11,007 11,247
Less valuation allowance (4,279) (4,188)
Gross deferred tax assets net of valuation allowance    6,728 7,059
Compensation and benefits (512) (252)
Loans (36) (29)
Investment securities (197) (267)
Provisions (520) (360)
Business combinations (1) (1)
Derivatives (154) (238)
Leasing 0 (8)
Real estate (54) (51)
Other (126) (154)
Gross deferred tax liabilities  (1,600) (1,360)
Net deferred tax assets  5,128 5,699
   of which deferred tax assets  5,522 5,828
      of which net operating losses  2,213 2,178
      of which deductible temporary differences  3,309 3,650
   of which deferred tax liabilities  (394) (129)
The decrease in net deferred tax assets from 2016 to 2017 of CHF 571 million was primarily due to the impact of CHF 2,097 million in connection with the re-assessment of deferred tax assets following the US tax reform, CHF 330 million related to current year earnings, foreign exchange translation gains of CHF 221 million, which are included within the currency translation adjustments
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recorded in AOCI, and the tax impacts directly recorded in equity and other comprehensive income, mainly related to the pension plan re-measurement and other tax recorded directly in equity of CHF 125 million. These decreases were partially offset by an increase of deferred tax assets of CHF 2,070 million from the adoption of new accounting standards relating to intra-entity asset transfers rules and share-based payment, and CHF 132 million from the re-measurement of deferred tax balances in the US relating to the tax deductibility on previously taken litigation accruals and in Switzerland.
> Refer to “Note 2 – Recently issued accounting standards” for further information on the early adoption of ASU 2016-16.
The most significant net deferred tax assets arise in the US and Switzerland and these decreased from CHF 5,105 million, net of a valuation allowance of CHF 829 million as of the end of 2016, to CHF 4,809 million, net of a valuation allowance of CHF 541 million as of the end of 2017.
Due to uncertainty concerning its ability to generate the necessary amount and mix of taxable income in future periods, the Group recorded a valuation allowance against deferred tax assets in the amount of CHF 4.3 billion as of December 31, 2017 compared to CHF 4.2 billion as of December 31, 2016.
Amounts and expiration dates of net operating loss carry-forwards
end of 2017 Total
Net operating loss carry-forwards (CHF million)   
Due to expire within 1 year 1,403
Due to expire within 2 to 5 years 4,714
Due to expire within 6 to 10 years 5,157
Due to expire within 11 to 20 years 8,659
Amount due to expire  19,933
Amount not due to expire 19,263
Total net operating loss carry-forwards  39,196
Movements in the valuation allowance
in 2017 2016 2015
Movements in the valuation allowance (CHF million)   
Balance at beginning of period  4,188 3,905 4,107
Net changes 91 283 (202)
Balance at end of period  4,279 4,188 3,905
As part of its normal practice, the Group has conducted a detailed evaluation of its expected future results. This evaluation is dependent on management estimates and assumptions in developing the expected future results, which are based on a strategic business planning process influenced by current economic conditions and assumptions of future economic conditions that are subject to change. This evaluation took into account both positive and negative evidence related to expected future taxable income and also considered stress scenarios. This evaluation has indicated the expected future results that are likely to be earned in jurisdictions where the Group has significant gross deferred tax assets, primarily in the US, Switzerland and UK. The Group then compared those expected future results with the applicable law governing utilization of deferred tax assets. US tax law allowed for a 20-year carry-forward period for existing net operating losses as of the end of 2017 and any new net operating losses will have an unlimited carry-forward period, Swiss tax law allows for a seven-year carry-forward period for net operating losses and UK tax law allows for an unlimited carry-forward period for net operating losses.
Tax benefits associated with share-based compensation
in 2017 2016 2015
Tax benefits associated with share-based compensation (CHF million)   
Tax benefits recorded in the consolidated statements of operations   1 314 391 448
Windfall tax benefits/(shortfall tax charges) recorded in additional paid-in capital 2 (110) (28)
1
Calculated at the statutory tax rate before valuation allowance considerations.
2
As a result of the adoption of ASU 2016-09 windfall tax benefits and shortfall tax charges on share-based compensation are now recognized in the consolidated statements of operations and no longer in additional paid-in capital. Refer to "Note 2 - Recently issued accounting standards" for further information.
> Refer to “Note 28 – Employee deferred compensation” for further information on share-based compensation.
If, upon settlement of share-based compensation, the tax deduction exceeds the cumulative compensation cost that the Group had recognized in the consolidated financial statements, the utilized tax benefit associated with any excess deduction is considered a “windfall” and recognized in the consolidated statements of operations and reflected as an operating cash inflow in the consolidated statements of cash flows. If, upon settlement, the tax deduction is lower than the cumulative compensation cost that the Group had recognized in the consolidated financial statements, the tax charge associated with the lower deduction is considered a “shortfall”. Tax charges arising on shortfalls are recognized in the consolidated statements of operations.
> Refer to “Note 2 – Recently issued accounting standards” for further information on the adoption of ASU 2016-09.
Uncertain tax positions
US GAAP requires a two-step process in evaluating uncertain income tax positions. In the first step, an enterprise determines whether it is more likely than not that an income tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Income tax positions meeting the more-likely-than-not recognition threshold are then measured to determine the amount of benefit eligible for recognition in the consolidated financial statements. Each income tax position is measured at the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement.
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Reconciliation of the beginning and ending amount of gross unrecognized tax benefits
2017 2016 2015
Movements in gross unrecognized tax benefits (CHF million)   
Balance at beginning of period  410 369 389
Increases in unrecognized tax benefits as a result of tax positions taken during a prior period 131 52 44
Decreases in unrecognized tax benefits as a result of tax positions taken during a prior period (104) (43) (3)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period 117 17 15
Decreases in unrecognized tax benefits relating to settlements with tax authorities (73) (2) 0
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations (3) (7) (22)
Other (including foreign currency translation) 3 24 (54)
Balance at end of period  481 410 369
   of which, if recognized, would affect the effective tax rate  481 410 369
Interest and penalties
in 2017 2016 2015
Interest and penalties (CHF million)   
Interest and penalties recognized in the consolidated statements of operations 29 2 13
Interest and penalties recognized in the consolidated balance sheets 115 86 86
Interest and penalties are reported as tax expense. The Group is currently subject to ongoing tax audits, inquiries and litigation with the tax authorities in a number of jurisdictions, including Brazil, the Netherlands, the US, the UK and Switzerland. Although the timing of completion is uncertain, it is reasonably possible that some of these will be resolved within 12 months of the reporting date.
It is reasonably possible that there will be a decrease of between zero and CHF 5 million in unrecognized tax benefits within 12 months of the reporting date.
The Group remains open to examination from federal, state, provincial or similar local jurisdictions from the following years onward in these major countries: Brazil – 2013; Switzerland – 2011; the US – 2010; the UK – 2009; and the Netherlands – 2006.
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28 Employee deferred compensation
Payment of deferred compensation to employees is determined by the nature of the business, role, location and performance of the employee. Unless there is a contractual obligation, granting deferred compensation is solely at the discretion of senior management. Special deferred compensation granted as part of a contractual obligation is typically used to compensate new senior employees in a single year for forfeited awards from previous employers upon joining the Group. It is the Group’s policy not to make multi-year guarantees.
Compensation expense recognized in the consolidated statement of operations for share-based and other awards that were granted as deferred compensation is recognized in accordance with the specific terms and conditions of each respective award and is primarily recognized over the future requisite service and vesting period, which is determined by the plan, retirement eligibility of employees, two-year moratorium periods on early retirement and certain other terms. All deferred compensation plans are subject to restrictive covenants, which generally include non-compete and non-solicit provisions. Compensation expense for share-based and other awards that were granted as deferred compensation also includes the current estimated outcome of applicable performance criteria, estimated future forfeitures and mark-to-market adjustments for certain cash awards that are still outstanding.
The following tables show the compensation expense for deferred compensation awards granted in 2017 and prior years that was recognized in the consolidated statements of operations during 2017, 2016 and 2015, the total shares delivered, the estimated unrecognized compensation expense for deferred compensation awards granted in 2017 and prior years outstanding as of December 31, 2017 and the remaining requisite service period over which the estimated unrecognized compensation expense will be recognized. The estimated unrecognized compensation expense was based on the >>>fair value of each award on the grant date and included the current estimated outcome of relevant performance criteria and estimated future forfeitures but no estimate for future mark-to-market adjustments. The recognition of compensation expense for the deferred compensation awards granted in February 2018 began in 2018 and thus had no impact on the 2017 consolidated financial statements.
Deferred compensation awards for 2017
In February 2018, the Group granted share awards, performance share awards and Contingent Capital Awards (CCA) as deferred compensation. Deferred compensation was awarded to employees with total compensation of CHF/USD 250,000 or the local currency equivalent or higher.
Deferred compensation expense
in 2017 2016 2015
Deferred compensation expense (CHF million)   
Share awards 529 628 852
Performance share awards 348 370 563
Contingent Capital Awards 280 235 430
Contingent Capital share awards 18 30
Capital Opportunity Facility awards 14 13 16
Plus Bond awards 1 5 22
2011 Partner Asset Facility awards 2 2
Restricted Cash Awards 39
2008 Partner Asset Facility awards 3 7 13 34
Other cash awards 440 335 414
Total deferred compensation expense  1,636 1,629 2,372
Total shares delivered (million)   
Total shares delivered 42.0 42.1 44.4
1
Compensation expense primarily relates to mark-to-market changes of the underlying assets of the Plus Bonds and the amortization of the voluntary Plus Bonds elected in the first quarter of 2013 and expensed over a three-year period.
2
Compensation expense mainly includes the change in the underlying fair value of the indexed assets prior to the Contingent Capital Awards conversion.
3
Compensation expense mainly includes the change in the underlying fair value of the indexed assets during the period.
Estimated unrecognized deferred compensation
end of 2017
Estimated unrecognized compensation expense (CHF million)   
Share awards 472
Performance share awards 158
Contingent Capital Awards 119
Contingent Capital share awards 3
Other cash awards 194
Total  946
Aggregate remaining weighted-average requisite service period (years)   
Aggregate remaining weighted-average requisite service period 1.4
Does not include the estimated unrecognized compensation expense relating to grants made in 2018 for 2017.
Share awards
Share awards granted in February 2018 are similar to those granted in February 2017. Each share award granted entitles the holder of the award to receive one Group share, subject to service conditions. Share awards vest over three years with one third of the share awards vesting on each of the three anniversaries of the grant date (ratable vesting), with the exception of awards granted to individuals classified as risk managers or senior managers under the UK PRA Remuneration Code. Share awards granted to risk managers vest over five years with one fifth of the award vesting on each of the five anniversaries of the grant date, while share
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awards granted to senior managers vest over five years commencing on the third anniversary of the grant date, with one fifth of the award vesting on each of the third to seventh anniversaries of the grant date. Share awards are expensed over the service period of the awards. The value of the share awards is solely dependent on the Group share price at the time of delivery.
The Group’s share awards include other awards, such as blocked shares and special awards, which may be granted to new employees. Other share awards entitle the holder to receive one Group share and are generally subject to continued employment with the Group, contain restrictive covenants and cancellation provisions and generally vest between zero and five years.
On February 15, 2018, the Group granted 34.1 million share awards with a total value of CHF 613 million. The number of share awards granted to employees was generally determined by dividing the deferred component of variable compensation being granted as share awards by the average price of a Group share over the ten consecutive trading days ended February 28, 2018. The fair value of each share award was CHF 17.22, the Group share price on the grant date. The majority of share awards granted include the right to receive dividend equivalents on vested shares. The estimated unrecognized compensation expense of CHF 569 million was determined based on the fair value of the awards on the grant date, includes the current estimated future forfeitures and will be recognized over the vesting period, subject to early retirement rules.
Share awards granted for previous years
For compensation year 2017 2016 2015
Share awards granted for previous years   
Shares awarded (million) 34.1 37.8 28.8
Value of shares awarded (CHF million) 613 566 549
Fair value of each share awarded (CHF) 1 17.22 15.42 18.62
1
Based on the Group’s share price on the grant date.
In order to comply with Capital Requirements Directive IV requirements, employees who hold key roles in respect of certain Group subsidiaries receive shares that are subject to transfer restrictions for 50% of the amount that would have been paid to them in cash. These shares are vested at the time of grant but remain blocked, that is, subject to transfer restrictions, for six months to three years from the date of grant, depending on the location.
On February 15, 2018, the Group granted 2.1 million blocked shares with a total value of CHF 38 million that vested immediately upon grant, have no future service requirements and were attributed to services performed in 2017.
Blocked share awards granted for previous years
For compensation year 2017 2016 2015
Blocked share awards granted for previous years   
Shares awarded (million) 2.1 2.5 0.6
Value of shares awarded (CHF million) 38 37 12
Share award activities
   2017 2016 2015

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Share awards   
Balance at beginning of period  73.2 18.77 80.3 21.58 77.1 28.64
Granted 54.3 1 14.53 39.7 17.47 47.5 2 16.67
Settled (38.2) 19.74 (37.7) 22.64 (40.3) 29.00
Forfeited (4.4) 16.47 (9.1) 21.87 (4.0) 24.29
Balance at end of period  84.9 15.73 73.2 18.77 80.3 21.58
   of which vested  8.5 8.1 4.7
   of which unvested  76.4 65.1 75.6
1
Includes an adjustment for share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional shares granted.
2
Includes an adjustment for share awards granted in the fourth quarter of 2015 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on November 19, 2015. The number of deferred share-based awards held by each individual was increased by 2.89%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional shares granted.
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Performance share awards
Managing directors and all >>>material risk takers and controllers (employees whose activities are considered to have a potentially material impact on the Group’s risk profile) received a portion of their deferred variable compensation in the form of performance share awards. Performance share awards are similar to share awards, except that the full balance of outstanding performance share awards, including those awarded in prior years, are subject to performance-based malus provisions. Performance share awards granted in 2015 were subject to a negative adjustment in the event of a negative strategic ROE of the Group, which was calculated based on Core Results, adjusted for the goodwill impairment charge related to the re-organization of the former Investment Banking division. However, following the change in the Group’s financial reporting structure in 2015, the strategic ROE is no longer calculated, and consequently, any negative adjustment to performance share awards is subject to the discretion of the Compensation Committee. Starting in 2016, the ROE calculation is based on adjusted results, which the Compensation Committee considered as the most accurate reflection of the operating performance of the businesses.
Performance share awards granted from 2016 and onward are subject to a negative adjustment in the event of a divisional loss by the division in which the employees worked as of December 31, 2017, or a negative ROE of the Group, whichever results in a larger adjustment. For employees in corporate functions and the Strategic Resolution Unit, the negative adjustment only applies in the event of a negative ROE of the Group and is not linked to the performance of the divisions. The basis for the ROE calculation may vary from year to year, depending on the Compensation Committee’s determination for the year in which the performance shares are granted.
On February 15, 2018, the Group granted 26.5 million performance share awards with a total value of CHF 478 million. The number of performance share awards granted to employees was generally determined by dividing the deferred component of variable compensation being granted as performance share awards by the average price of a Group share over the ten consecutive trading days ended February 28, 2018. The fair value of each performance share award was CHF 17.22, the Group share price on the grant date. The majority of performance share awards granted include the right to receive dividend equivalents on vested shares. The estimated unrecognized compensation expense of CHF 445 million was determined based on the fair value of the awards on the grant date, includes the current estimated outcome of the relevant performance criteria and estimated future forfeitures and will be recognized over the vesting period, subject to early retirement rules. There was no negative adjustment applied to performance share awards granted in 2017 or in previous years as the 2017 divisional adjusted results and the adjusted ROE of the Group were both positive.
Performance share awards granted for previous years
For compensation year 2017 2016 2015
Performance share awards granted for previous years   
Performance shares awarded (million) 26.5 29.7 21.3
Value of performance shares awarded (CHF million) 478 451 429
Fair value of each performance share awarded (CHF)   1 17.22 15.42 18.62
1
Based on the Group’s share price on the grant date.
Performance share award activities
   2017 2016 2015
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Performance share awards   
Balance at beginning of period  48.4 19.11 55.9 21.01 48.2 26.89
Granted 31.8 1 14.41 21.4 18.62 32.5 2 16.11
Settled (23.9) 20.41 (26.5) 22.67 (23.4) 26.24
Forfeited (2.1) 16.38 (2.4) 19.64 (1.4) 21.75
Balance at end of period  54.2 15.88 48.4 19.11 55.9 21.01
   of which vested  6.7 6.8 3.3
   of which unvested  47.5 41.6 52.6
1
Includes an adjustment for performance share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional performance shares granted.
2
Includes an adjustment for performance share awards granted in the fourth quarter of 2015 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on November 19, 2015. The number of deferred share-based awards held by each individual was increased by 2.89%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional performance shares granted.
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Contingent Capital Awards
CCA were granted in February 2018, February 2017 and January 2016 to managing directors and directors as part of the 2017, 2016 and 2015 deferred variable compensation and have rights and risks similar to those of certain contingent capital instruments issued by the Group in the market. CCA are scheduled to vest on the third anniversary of the grant date, other than those granted to individuals classified as risk managers or senior managers under the UK PRA Remuneration Code, where CCA vest on the fifth and seventh anniversaries of the grant date, respectively, and will be expensed over the vesting period. CCA provide a conditional right to receive semi-annual cash payments of interest equivalents until settled, with rates being dependent upon the vesting period and currency of denomination:
CCA granted in 2018, 2017 and 2016 that are denominated in US dollars receive interest equivalents at a rate of 3.05%, 4.27% and 5.41%, respectively, per annum over the six-month US dollar >>>London Interbank Offered Rate (LIBOR) and vest three, five or seven years from the date of grant;
CCA granted in 2018, 2017 and 2016 that are denominated in Swiss francs receive interest equivalents at a rate of 2.24%, 3.17% and 4.23%, respectively, per annum over the six-month Swiss franc LIBOR and vest three years from the date of grant;
CCA granted in 2017 that are denominated in Swiss francs receive interest equivalents at a rate of 3.03% per annum over the six-month Swiss franc LIBOR and vest five years from the date of grant; and
CCA granted in 2017 that are denominated in Swiss francs receive interest equivalents at a rate of 2.93% per annum over the six-month Swiss franc LIBOR and vest seven years from the date of grant.
The rates were set in line with market conditions at the time of grant and existing high-trigger and low-trigger contingent capital instruments that the Group has issued. For CCA granted in February 2018, employees who received compensation in Swiss francs received CCA denominated in Swiss francs and all other employees received CCA denominated in US dollars.
As CCA qualify as going concern loss-absorbing capital of the Group, the timing and form of distribution upon settlement is subject to approval by >>>FINMA. At settlement, employees will receive either a contingent capital instrument or a cash payment based on the fair value of the CCA. The fair value will be determined by the Group. In the case of a cash settlement, the CCA award will be converted into the local currency of each respective employee.
CCA have loss-absorbing features such that prior to settlement, the principal amount of the CCA would be written down to zero and forfeited if any of the following trigger events were to occur:
the Group’s reported common equity tier 1 (CET1) ratio falls below 7%; or
FINMA determines that cancellation of the CCA and other similar contingent capital instruments is necessary, or that the Group requires public sector capital support, in either case to prevent it from becoming insolvent or otherwise failing.
On February 15, 2018, the Group awarded CHF 241 million of CCA that will be expensed over the vesting period. The estimated unrecognized compensation expense of CHF 229 million was determined based on the fair value of the awards on the grant date and includes the current estimated outcome of the relevant performance criteria, the estimated future forfeitures and the expected semi-annual cash payments of interest equivalents and will be recognized over the vesting period.
Contingent Capital Awards granted for previous years
For compensation year 2017 2016 2015
Contingent Capital Awards granted for previous years   
CCA awarded (CHF million) 241 229 226
Contingent Capital share awards
In March 2016, the Group executed a voluntary exchange offer, under which employees had the right to voluntarily convert all or a portion of their respective CCA into Contingent Capital share awards at a conversion price of CHF 14.57. CCA holders elected to convert CHF 226 million of their CCA into Contingent Capital share awards during the election period. This fair value represented an approximate conversion rate of 15%. Each Contingent Capital share award had a grant-date fair value of CHF 14.45 and contains the same contractual term, vesting period, performance criteria and other terms and conditions as the original CCA.
Contingent Capital share award activities
2017 2016
Contingent Capital share awards (million)   
Balance at beginning of period  13.5
Granted 0.3 1 16.4
Settled (5.0) (2.6)
Forfeited (0.4) (0.3)
Balance at end of period  8.4 13.5
   of which vested  1.3 1.0
   of which unvested  7.1 12.5
1
Includes an adjustment for Contingent Capital share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional Contingent Capital shares granted.
Other deferred compensation
During 2017, the Group granted deferred cash retention awards of CHF 65 million relating to the reorganization of the Asia Pacific business. These awards will be expensed over a two-year period from the grant date. Amortization of these awards totaled CHF 28 million in 2017 and was recognized in the Corporate Center. The Group granted deferred fixed cash awards of CHF 90 million to certain employees in the US. These awards will be expensed in the
310

Global Markets, Investment Banking & Capital Markets and International Wealth Management divisions over a three-year period from the grant date. Amortization of these awards totaled CHF 48 million in 2017.
In 2016, the Group granted deferred share and cash retention awards of CHF 249 million relating to the reorganization of the Global Markets and Investment Banking & Capital Markets businesses. These awards will be expensed over a period of up to seven years from the grant date. Amortization of these awards in 2016 of CHF 118 million was recognized in the Corporate Center.
Plus Bond awards
Managing directors and directors in the former Investment Banking division received a portion of 2012 deferred variable compensation in the form of Plus Bond awards. The Plus Bond award was essentially a fixed income instrument, denominated in US dollars, which provided a coupon payment that was commensurate with market-based pricing. Plus Bond award holders were entitled to receive semi-annual cash payments on their adjusted award amounts at the rate of LIBOR plus 7.875% per annum until settlement. The Plus Bond settled in July 2016 based on the amount of the initial award less any portfolio losses in excess of a first loss portion retained by the Group of USD 600 million. The value of the Plus Bond awards was based on the performance of a portfolio of unrated and sub-investment-grade asset-backed securities (ABS) that were held in inventory by various trading desks. The Plus Bond award plan contributed to a reduction of the Group’s >>>risk-weighted assets and constituted a risk transfer from the Group to the Plus Bond award holders. Final payout upon settlement of these awards was 100% of the amount awarded.
2011 Partner Asset Facility
As part of the 2011 annual compensation process, the Group awarded a portion of deferred variable compensation for senior employees in the form of 2011 Partner Asset Facility (PAF2) units. PAF2 units are essentially fixed income structured notes that are exposed to a portion of the credit risk that arises in the Group’s >>>derivative activities, including both current and possible future swaps and other derivative transactions. The value of the award (for both the interest accrual and the final redemption) will be reduced if the amount of realized credit losses from a specific reference portfolio exceeds a pre-defined threshold. The Group will bear the first USD 500 million of such losses and the PAF2 holders will bear any losses in excess of USD 500 million, up to the full amount of the deferred compensation awarded. As a result, the PAF2 plan is a transfer of risk from the Group to employees.
Employees at the managing director and director levels, including certain members of the Executive Board, received PAF2 awards. The PAF2 awards vested in the first quarter of 2012.
PAF2 awards were linked to a portfolio of the Group’s credit exposures, providing risk offset and capital relief. Due to regulatory changes, this capital relief would no longer be available. As a result, the Group restructured the awards in March 2014, requiring PAF2 holders to reallocate the exposure of their awards from the pool of counterparty credit risks in the original PAF2 structure to one of the following options, or a combination thereof: i) Capital Opportunity Facility (COF): participants elected for their award to be referenced to a COF. The COF is a seven-year facility that is linked to the performance of a portfolio of risk-transfer and capital mitigation transactions to be entered into with the Group chosen by a COF management team. The value of the COF awards will be reduced if there are losses from the COF portfolio, up to the full amount of the award. Participants who elect the COF will receive semi-annual US dollar cash distributions of 6.5% per annum until settlement in cash in 2021, and such semi-annual distributions will reduce the cash settlement amount payable in 2021; and ii) CCA: participants elected to receive CCA, with similar terms to the instruments granted as part of the 2013 compensation awards.
Settlement of the PAF2 CCA occurred in the first half of 2016, following regulatory approvals. Final payout upon settlement of these awards was 94% of the amount awarded.
2008 Partner Asset Facility
As part of the 2008 annual compensation process, the Group granted employees in the former Investment Banking division with the corporate title of managing director or director the majority of the deferred compensation in the form of 2008 Partner Asset Facility (PAF) awards, denominated in US dollars. The PAF awards are indexed to, and represent a first-loss interest in, a specified pool of illiquid assets (Asset Pool) that originated in the former Investment Banking division.
The notional value of the Asset Pool was based on the fair market value of the assets within the Asset Pool on December 31, 2008, and those assets will remain static throughout the contractual term of the award or until liquidated. The PAF holders will participate in the potential gains on the Asset Pool if the assets within the pool are liquidated at prices above the initial fair market value. If the assets within the Asset Pool are liquidated at prices below the initial fair market value, the PAF holders will bear the first loss on the Asset Pool. As a result, a significant portion of risk positions associated with the Asset Pool has been transferred to the employees and removed from the Group’s risk-weighted assets, resulting in a reduction in capital usage.
The PAF awards, which had a contractual term of eight years, are fully vested. Each PAF holder received a semi-annual cash interest payment of LIBOR plus 250 basis points applied to the notional value of the PAF award granted throughout the contractual term of the award. Beginning in the fifth year after the grant date, the PAF holders received an annual cash payment equal to 20% of the notional value of the PAF awards if the fair market value of the Asset Pool in that year has not declined below the initial fair market value of the Asset Pool. In the final year of the contractual term, the PAF holders received a final settlement in cash equal to the notional value, less all previous cash payments made to the PAF holder, plus any related gains or less any related losses on the liquidation of the Asset Pool. During 2017, the final settlement of the outstanding PAF awards of CHF 789 million was made.
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Other cash awards
Other cash awards consist of voluntary deferred compensation plans and employee investment plans. The compensation expense related to these awards was primarily driven by mark to market and performance adjustments, as the majority of the awards are fully vested.
Delivered shares
In 2015, the Group delivered all of its shares through market purchases. In 2016, the Group’s share delivery obligations were covered mainly through the issuance of shares from conditional capital, with a portion covered by shares purchased in the market. In 2017, the Group returned to fully cover its share delivery obligations through market purchases.
29 Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, or if another party controls both. The Group’s related parties include key management personnel, close family members of key management personnel and entities that are controlled, significantly influenced, or for which significant voting power is held, by key management personnel or their close family members. Key management personnel are those individuals having authority and responsibility for planning, directing and controlling the activities of the Group, that is, members of the Executive Board and the Board of Directors.
Banking relationships
The Group is a global financial services provider. Many of the members of the Executive Board and the Board of Directors, their close family members or companies associated with them maintain banking relationships with the Group. The Group or any of its banking subsidiaries may from time to time enter into financing and other banking agreements with companies in which current members of the Executive Board or the Board of Directors have a significant influence as defined by the SEC, such as holding executive and/or board level roles in these companies. With the exception of the transactions described below, relationships with members of the Executive Board or the Board of Directors and such companies are in the ordinary course of business and are entered into on an arm’s length basis. Also, unless otherwise noted, all loans to members of the Executive Board, members of the Board of Directors, their close family members or companies associated with them were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features. As of December 31, 2017, 2016 and 2015, there were no loan exposures to such related parties that were not made in the ordinary course of business and at prevailing market conditions.
Related party loans
Executive Board and Board of Directors loans
The majority of loans outstanding to members of the Executive Board and the Board of Directors are mortgages or loans against securities.
All mortgage loans to members of the Executive Board are granted either with variable or fixed interest rates over a certain period. Typically, mortgages are granted for periods of up to ten years. Interest rates applied are based on refinancing costs plus a margin, and interest rates and other terms are consistent with those applicable to other employees. Loans against securities are granted at interest rates and on terms applicable to such loans granted to other employees. The same credit approval and risk assessment procedures apply to members of the Executive Board as for other employees. Unless otherwise noted, all loans to members of the Executive Board were made in the ordinary course of business and substantially on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and in consideration of the terms which apply to all Group employees. These loans did not involve more than the normal risk of collectability or present other unfavorable features. The highest loan outstanding to an Executive Board member was CHF 7 million to Thomas Gottstein as of December 31, 2017.
Members of the Board of Directors with loans, including the Chairman of the Board of Directors, do not benefit from employee conditions, but are subject to conditions applied to clients with a comparable credit standing. Unless otherwise noted, all loans to members of the Board of Directors were made in the ordinary course of business and substantially on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Such loans did not involve more than the normal risk of collectability or present other unfavorable features.
312

Executive Board and Board of Directors loans
in 2017 2016 2015
Loans to members of the Executive Board (CHF million)   
Balance at beginning of period  25 1 26 5
Additions 3 6 21
Reductions (2) (7) 0
Balance at end of period  26 1 25 26
Loans to members of the Board of Directors (CHF million)   
Balance at beginning of period  10 2 8 16
Additions 1 3 1
Reductions 0 (1) (9)
Balance at end of period  11 2 10 8
1
The number of individuals with outstanding loans at the beginning and the end of the year was eight.
2
The number of individuals with outstanding loans at the beginning and the end of the year was four.
Equity method investees loans
The Group or its subsidiaries grant loans to equity method investees in the normal course of business.
> Refer to “Note 39 – Significant subsidiaries and equity method investments” for a list of equity method investments.
Loans made by the Group or any subsidiaries to equity method investees
in 2017 2016 2015
Loans to equity method investees (CHF million)   
Balance at beginning of period  173 135 13
Net borrowings/(repayments) 0 38 122
Balance at end of period  173 173 135
Other related party transactions
Tier 1 capital instruments
Beginning in February 2011, the Group entered into agreements with entities affiliated with Qatar Investment Authority (QIA) and The Olayan Group, each of which has significant holdings of Group shares and other Group financial products. The agreements were amended in 2012 and 2013 and, as a result, QIA and The Olayan Group agreed to purchase new tier 1 high-trigger capital instruments (new Tier 1 Capital Notes) in exchange for their holdings of previously issued notes.
The following new Tier 1 Capital Notes were outstanding as of December 31, 2017:
USD 1.725 billion 9.5%, held by an affiliate of The Olayan Group;
USD 1.72 billion 9.5%, held by an affiliate of QIA; and
CHF 2.5 billion 9.0%, held by an affiliate of QIA.
Under their terms, the new Tier 1 Capital Notes will be converted into Group ordinary shares if the Group’s reported CET1 ratio, as determined under >>>Basel Committee on Banking Supervision regulations as of the end of any calendar quarter, falls below 7% (or any lower applicable minimum threshold), unless >>>FINMA, at the Group’s request, has agreed on or prior to the publication of the Group’s quarterly results that actions, circumstances or events have restored, or will imminently restore, the ratio to above the applicable threshold. The new Tier 1 Capital Notes will also be converted if FINMA determines that conversion is necessary, or that the Group requires public sector capital support, to prevent the Group from becoming insolvent, bankrupt or unable to pay a material amount of the Group’s debts, or other similar circumstances. In addition, conversion of the new Tier 1 Capital Notes issued to the entities affiliated with The Olayan Group will be triggered if, in the event of a request by FINMA for an interim report prior to the end of any calendar quarter, the Group’s reported CET1 ratio, as of the end of any such interim period, falls below 5%. The conversion price will be the higher of a given floor price per share (subject to customary adjustments) or the daily volume weighted average sales price of the Group’s ordinary shares over a five-day period preceding the notice of conversion. The new Tier 1 Capital Notes are deeply subordinated, perpetual and callable by the Group no earlier than 2018 and in certain other circumstances with FINMA approval. Interest, which is payable on the USD 1.725 billion and the USD 1.72 billion new Tier 1 Capital Notes at a fixed rate of 9.5% and on the CHF 2.5 billion new Tier 1 Capital Notes at a fixed rate of 9.0%, will reset after the first call date. Interest payments will generally be discretionary (unless triggered), subject to suspension in certain circumstances and non-cumulative.
At the time of the original transaction, the Group determined that this was a material transaction and deemed QIA and The Olayan Group to be related parties of the Group’s then Board of Directors members Jassim Bin Hamad J.J. Al Thani and Aziz R.D. Syriani for purposes of evaluating the terms and corporate governance of the original transaction. At that time, the Board of Directors (except for Mr. Bin Hamad J.J. Al Thani and Mr. Syriani, who abstained from participating in the determination process) determined that the terms of the original transaction, given its size, the nature of the contingent capital instrument, for which there was no established market, and the terms of the notes issued and held by QIA and The Olayan Group, were fair. As of April 26, 2013 and April 28, 2017, respectively, Mr. Syriani and Mr. Bin Hamad J.J. Al Thani retired from the Board of Directors and no other person affiliated with The Olayan Group or with QIA has been elected as a member of the Board of Directors.
Liabilities due to own pension plans
Liabilities due to the Group’s own defined benefit pension plans as of December 31, 2017 and 2016 of CHF 336 million and CHF 521 million, respectively, were reflected in various liability accounts in the Group’s consolidated balance sheets. Certain unconsolidated SPEs wholly owned by the Group had liabilities to the pension plans of the Group with a notional value of CHF 53 million as of December 31, 2016.
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30 Pension and other post-retirement benefits
The Group sponsors defined contribution pension plans, defined benefit pension plans and other post-retirement defined benefit plans such as post-retirement health care.
Defined contribution pension plans
Defined contribution plans provide each participant with an individual account. The benefits to be provided to a participant are solely based on the contributions made to that employee’s account and are affected by income, expenses and gains and losses allocated to the account. As such, there are no stipulations of a defined annuity benefit at retirement and the participants bear the full actuarial as well as investment risk.
The Group contributes to various defined contribution pension plans primarily in the US and the UK as well as other countries throughout the world. During 2017, 2016 and 2015, the Group contributed to these plans and recognized as expense CHF 165 million, CHF 161 million and CHF 157 million, respectively.
Defined benefit pension and other Post-Retirement benefit plans
Defined benefit pension plans
Defined benefit pension plans are pension plans that define specific benefits for an employee upon that employee’s retirement. These benefits are usually determined by taking into account the employee’s salary, years of service and age of retirement. Retirees bear neither the actuarial risk (for example, the risk that the retirees of the plan live longer than expected), nor the investment risk (that is, that plan assets invested and associated returns will be insufficient to meet the expected benefits due to low or negative returns on contributions). The Group’s funding policy for these plans is in accordance with local laws and tax requirements.
Swiss pension plan
The Group’s most significant defined benefit pension plan, the Credit Suisse Swiss Pension Plan (Swiss pension plan), is located and covers its employees in Switzerland and is set up as a trust domiciled in Zurich. The Swiss pension plan provides benefits in the event of retirement, death and disability and meets or exceeds the minimum benefits required under the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). Benefits in the Swiss pension plan are determined on the basis of the accumulated employer and employee contributions and accumulated interest credited. Although the Swiss pension plan is largely defined contribution in nature, it is treated as a defined benefit plan under US GAAP, mainly due to a guaranteed minimum return on contributions and guaranteed payment of lifetime pensions. As of December 31, 2017 and 2016, the Swiss pension plan comprised 73% and 73%, respectively, of all the Group’s employees participating in defined benefit plans, 81% and 80%, respectively, of the >>>fair value of plan assets, and 82% and 82%, respectively, of the pension benefit obligation of the Group’s defined benefit plans.
Employee contributions in the savings section depend on their age and are determined as a percentage of the pensionable salary. The employees can select between three different levels of contributions which vary between 5% and 14% depending on their age. The Group’s contribution varies between 7.5% and 25% of the pensionable salary depending on the employee’s age.
The Swiss Federal council sets the minimum statutory interest rate on savings balances on an annual basis that applies to the BVG minimum pensionable salary (1.0% as of January 1, 2018 and 2017). The statutory interest rate on savings balances does not apply to extra mandatory benefits. The Board of Trustees of the Swiss pension fund sets the interest rate to be applied on the accumulated savings balance on an annual basis.
When employees retire, their savings balance is converted into an annuity and the conversion rate is the percentage used to convert the assets accrued in the Swiss pension plan to an annual lifetime retirement pension. The level of the conversion rate depends on the life expectancy of future retirees and on the long-term potential for returns in the capital markets. The Board of Trustees of the Swiss pension plan has the responsibility to set the conversion rates for the plan. In December 2016, the Board of Trustees of the Swiss pension plan decided in favor of further decreases in conversion rates. In the future, decisions on conversion rates will be set for a planning horizon of at least eight years.
International pension plans
Various defined benefit pension plans cover the Group’s employees outside Switzerland. These plans provide benefits in the event of retirement, death, disability or termination of employment. Retirement benefits under the international pension plans depend on age, contributions and salary. The Group’s principal defined benefit pension plans outside Switzerland are located in the US and in the UK. Both of these plans are funded, closed to new participants and have ceased accruing new benefits. Smaller defined benefit pension plans, both funded and unfunded, are operated in other locations.
Other post-retirement defined benefit plans
In the US, the Group’s defined benefit plans provide post-retirement benefits other than pension benefits that primarily focus on health and welfare benefits for certain retired employees. In exchange for the current services provided by the employee, the Group promises to provide health and welfare benefits after the employee retires. The Group’s obligation for that compensation is incurred as employees render the services necessary to earn their post-retirement benefits.
314

Components of net periodic benefit costs
      Defined benefit
pension plans
Other post-retirement
defined benefit plans
   Switzerland International International
in 2017 2016 2015 2017 2016 2015 2017 2016 2015
Net periodic benefit costs (CHF million)   
Service costs on benefit obligation 243 288 298 22 20 21 0 0 0
Interest costs on benefit obligation 57 141 189 91 124 129 6 8 7
Expected return on plan assets (473) (536) (592) (133) (175) (195) 0 0 0
Amortization of recognized prior service cost/(credit) (131) (116) (85) 0 0 0 0 0 (23)
Amortization of recognized actuarial losses/(gains) 340 366 351 60 41 84 7 10 14
Settlement losses/(gains) 37 24 24 0 72 (1) 0 0 0
Curtailment losses/(gains) (23) (18) (2) (10) 0 0 0 0 0
Special termination benefits 19 22 9 0 0 0 0 0 0
Net periodic benefit costs/(credits)  69 171 192 30 82 38 13 18 (2)
Net periodic benefit costs of defined benefit plans
The net periodic benefit costs for defined benefit pension and other post-retirement defined benefit plans are the costs of the respective plan for a period during which an employee renders services. The actual amount to be recognized is determined using the standard actuarial methodology which considers, among other factors, current service cost, interest cost, expected return on plan assets and the amortization of both prior service cost/(credit) and actuarial losses/(gains) recognized in AOCI.
Net periodic benefit costs reflected in compensation and benefits – other for 2017, 2016 and 2015 were CHF 112 million, CHF 271 million and CHF 228 million, respectively.
Since the second quarter of 2011, as part of its strategic plan, the Group has launched a number of cost efficiency measures, including headcount reduction. This resulted in curtailment gains of CHF 23 million, CHF 18 million and CHF 2 million in 2017, 2016 and 2015, respectively, reflecting the immediate recognition of a credit relating to the years of service no longer expected to be rendered. Additional costs of CHF 37 million, CHF 24 million and CHF 24 million in 2017, 2016 and 2015, respectively, related to the settlement of the pension obligation for employees in Switzerland whose employment has effectively been terminated or who have left the Group due to a sale of their business. Special termination benefit costs of CHF 19 million, CHF 22 million and CHF 9 million have been recognized in 2017, 2016 and 2015, respectively, relating to early retirements in Switzerland in the context of the cost efficiency measures.
During the second half of 2016, lump-sum settlement offers were made to terminated vested members of the pension fund in the US. As a result of members accepting this offer, there was an additional cost of CHF 72 million relating to the settlement of pension obligations for these members.
Benefit obligation
The benefit obligation is expressed as either accumulated benefit obligation (ABO) or PBO. While the ABO refers to the actuarial present value based on employee services rendered prior to that date and takes into account current and past compensation levels, the PBO also applies an assumption as to future compensation levels.
The table “Obligations and funded status of the plans” shows the changes in the PBO, the ABO, the fair value of plan assets and the amounts recognized in the consolidated balance sheets for the defined benefit pension and other post-retirement defined benefit plans.
US GAAP requires an employer to recognize the funded status of the defined benefit pension and other post-retirement defined benefit plans on the balance sheet. The funded status of these plans is determined as the difference between the fair value of plan assets and the PBO. The funded status may vary from year to year due to changes in the fair value of plan assets and variations of the PBO following changes in the underlying assumptions and census data used to determine the PBO. In 2017 and 2016, the curtailments, settlements and special termination benefits in Switzerland, which impacted the PBO, related to the headcount reduction in the context of the cost efficiency measures.
In 2015, the Board of Trustees of the Swiss pension plan changed a number of retirement benefits, reflecting the plan’s ability to finance benefits on an ongoing long-term basis, which became effective as of January 1, 2017. These changes reflect the prospective higher costs of providing retirement benefits due to lower expected asset returns, lower interest rates and increased life expectancy. These considerations have resulted in incremental reductions of conversion rates, the introduction of the reference age 65 for all insured persons, changes to the bridging pension related to the Swiss Old-Age and Survivors Insurance, enhanced lump-sum withdrawal options on retirement and the reduction of the maximum retirement pension. Furthermore, the Board of Trustees of the Swiss pension plan also agreed to improve death and disability benefits and to introduce a cohabiting partner’s pension. In 2016, the Board of Trustees of the Swiss pension plan made additional amendments to plan conditions leading to further decreases in future conversion rates. These changes resulted in a CHF 179 million reduction in the PBO for the Swiss pension plan in December 2016.
315

Obligations and funded status of the plans
      Defined benefit
pension plans
Other post-retirement
defined benefit plans
   Switzerland International International
in / end of 2017 2016 2017 2016 2017 2016
PBO (CHF million)   1
Beginning of the measurement period  15,885 16,088 3,337 3,366 184 180
Plan participant contributions 205 202 0 0 0 0
Service cost 243 288 22 20 0 0
Interest cost 57 141 91 124 6 8
Plan amendments 0 (179) 0 0 0 0
Settlements (144) (70) 0 (278) 0 0
Curtailments (22) (4) (11) 0 0 0
Special termination benefits 19 22 1 1 0 0
Actuarial losses/(gains) 471 134 171 476 2 1
Benefit payments (829) (737) (287) (150) (11) (11)
Exchange rate losses/(gains) 0 0 66 (222) (8) 6
End of the measurement period  15,885 15,885 3,390 3,337 173 184
Fair value of plan assets (CHF million)   
Beginning of the measurement period  15,951 15,602 4,000 3,712 0 0
Actual return on plan assets 1,398 510 256 824 0 0
Employer contributions 415 444 22 232 11 11
Plan participant contributions 205 202 0 0 0 0
Settlements (144) (70) 0 (278) 0 0
Benefit payments (829) (737) (287) (150) (11) (11)
Exchange rate gains/(losses) 0 0 97 (340) 0 0
End of the measurement period  16,996 15,951 4,088 4,000 0 0
Funded status recognized (CHF million)   
Funded status of the plan – overfunded/(underfunded) 1,111 66 698 663 (173) (184)
Funded status recognized in the consolidated balance sheet as of December 31  1,111 66 698 663 (173) (184)
Total amount recognized (CHF million)
Noncurrent assets 1,111 66 1,058 995 0 0
Current liabilities 0 0 (11) (11) (11) (12)
Noncurrent liabilities 0 0 (349) (321) (162) (172)
Net amount recognized in the consolidated balance sheet as of December 31  1,111 66 698 663 (173) (184)
ABO (CHF million)   2
End of the measurement period  14,841 14,962 3,351 3,281 173 184
1
Including estimated future salary increases.
2
Excluding estimated future salary increases.
The net amount recognized in the consolidated balance sheets as of December 31, 2017 and 2016 for the defined benefit pension plans was an overfunding of CHF 1,809 million and CHF 729 million, respectively.
In 2018, the Group expects to contribute CHF 396 million to the Swiss and international defined benefit pension plans and CHF 11 million to other post-retirement defined benefit plans.
PBO or ABO in excess of plan assets
The following table shows the aggregate PBO and ABO, as well as the aggregate fair value of plan assets for those plans with PBO in excess of plan assets and those plans with ABO in excess of plan assets as of December 31, 2017 and 2016, respectively.
316

Defined benefit pension plans in which PBO or ABO exceeded plan assets
   PBO exceeds fair value of plan assets 1 ABO exceeds fair value of plan assets 1
   Switzerland International Switzerland International
December 31 2017 2016 2017 2016 2017 2016 2017 2016
CHF million   
PBO 0 0 1,464 1,426 0 0 1,447 1,407
ABO 0 0 1,433 1,391 0 0 1,420 1,378
Fair value of plan assets 0 0 1,104 1,095 0 0 1,088 1,079
1
Includes only those defined benefit pension plans where the PBO/ABO exceeded the fair value of plan assets.
Amount recognized in AOCI and other comprehensive income
The following table shows the actuarial gains/(losses) and prior service credit/(cost) which were recorded in AOCI and subsequently recognized as components of net periodic benefit costs.
Amounts recognized in AOCI, net of tax
      Defined benefit
pension plans
Other post-retirement
defined benefit plans

Total
end of 2017 2016 2017 2016 2017 2016
Amounts recognized in AOCI (CHF million)   
Actuarial gains/(losses) (3,547) (4,239) (36) (39) (3,583) (4,278)
Prior service credit/(cost) 519 640 3 3 522 643
Total  (3,028) (3,599) (33) (36) (3,061) (3,635)
The following tables show the changes in other comprehensive income due to actuarial gains/(losses) and prior service credit/(cost) recognized in AOCI during 2017 and 2016 and the amortization of the aforementioned items as components of net periodic benefit costs for these periods as well as the amounts expected to be amortized in 2018.
Amounts recognized in other comprehensive income
      Defined benefit
pension plans
Other post-retirement
defined benefit plans
in Gross Tax Net Gross Tax Net Total net
2017 (CHF million)   
Actuarial gains/(losses) 406 (82) 324 (2) 1 (1) 323
Amortization of actuarial losses/(gains) 400 (76) 324 7 (3) 4 328
Amortization of prior service cost/(credit) (131) 26 (105) 0 0 0 (105)
Immediate recognition due to curtailment/settlement 36 (8) 28 0 0 0 28
Total  711 (140) 571 5 (2) 3 574
2016 (CHF million)   
Actuarial gains/(losses) 13 (9) 4 (1) 0 (1) 3
Prior service credit/(cost) 180 (38) 142 0 0 0 142
Amortization of actuarial losses/(gains) 408 (91) 317 10 (4) 6 323
Amortization of prior service cost/(credit) (116) 24 (92) 0 0 0 (92)
Immediate recognition due to curtailment/settlement 82 (28) 54 0 0 0 54
Total  567 (142) 425 9 (4) 5 430
317

Amounts in AOCI, net of tax, expected to be amortized in 2018

in 2018
Defined benefit
pension plans
Other post-retirement
defined benefit plans
CHF million   
Amortization of actuarial losses/(gains) 282 6
Amortization of prior service cost/(credit) (100) 0
Total  182 6
Assumptions
The measurement of both the net periodic benefit costs and the benefit obligation is determined using explicit assumptions, each of which individually represents the best estimate of a particular future event.
Weighted-average assumptions used to determine net periodic benefit costs and benefit obligation
      Defined benefit
pension plans
Other post-retirement
defined benefit plans
   Switzerland International International
December 31 2017 2016 2015 2017 2016 2015 2017 2016 2015
Net periodic benefit cost (%)   
Discount rate - service costs 1.01 0.90 1.25 2.92 4.05 3.82 4.03 4.50 4.20
Discount rate - interest costs 0.37 0.90 1.25 2.79 4.05 3.82 3.48 4.50 4.20
Salary increases 0.50 0.80 1.00 3.55 3.56 4.19
Interest rate on savings balances 0.85 1.25 1.25
Expected long-term rate of return on plan assets 3.00 3.50 4.00 3.88 5.07 6.00
Benefit obligation (%)   
Discount rate 0.86 0.85 0.90 2.83 3.10 4.05 3.70 4.21 4.50
Salary increases 0.50 0.50 0.80 2.97 3.55 3.56
Interest rate on savings balances 0.86 0.85 1.25
Net periodic benefit cost and benefit obligation assumptions
The assumptions used to determine the benefit obligation as of the measurement date are also used to calculate the net periodic benefit costs for the 12-month period following this date.
The discount rates are determined based on yield curves, constructed from high-quality corporate bonds currently available and observable in the market and are expected to be available during the period to maturity of the pension benefits. In countries where there is no deep market in high-quality corporate bonds with longer durations, the best available market information, including governmental bond yields and risk premiums, is used to construct the yield curve. Credit Suisse adopted the spot rate approach for the valuation as at December 31, 2016, whereby individual spot rates on the yield curve are applied to each year’s cash flow in measuring the plan’s benefit obligation as well as future service costs and interest costs.
The assumption pertaining to salary increases is used to calculate the PBO, which is measured using an assumption as to future compensation levels.
When Credit Suisse estimates the interest rate on savings balances, expected future changes in the interest rate environment are taken into consideration. Specifically, Credit Suisse uses the cash flow weighted average of the yield curve used for the discount rate as the best estimate for the interest rate on savings balances for these long term projections.
The expected long-term rate of return on plan assets assumption is applied to the market-related value of assets to calculate the expected return on plan assets as a component of the net periodic benefit costs. It reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the PBO. In estimating that rate, appropriate consideration is given to the returns being earned by the plan assets and the rates of return expected to be available for reinvestment. The expected long-term rate of return on plan assets is based on total return forecasts, expected volatility and correlation estimates, reflecting interrelationships between and within asset classes held. Where possible, similar, if not related, approaches are followed to forecast returns for the various asset classes.
The expected long-term rate of return on debt securities reflects both accruing interest and price returns. The probable long-term relationship between the total return and certain exogenous variables is used, which links the total return forecasts on debt securities to forecasts of the macroeconomic environment.
The expected long-term rate of ROE securities is based on a two-stage dividend discount model which considers economic and market forecasts to compute a market-implied equity risk premium. Dividends are estimated using market consensus earnings
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and the historical payout ratio. A subsequent scenario analysis is used to stress test the level of the return.
The expected long-term rate of return on real estate is based on economic models that reflect both the rental and the capital market side of the direct real estate market. This allows for a replicable and robust forecasting methodology for expected returns on real estate equity, fund and direct market indices.
The expected long-term rate of return on private equity and hedge funds is estimated by determining the key factors in their historical performance using private equity and hedge fund benchmarks and indices. To capture these factors, multiple linear regression models with lagged returns are used.
Mortality assumptions are based on standard mortality tables and standard models and methodologies for projecting future improvements to mortality as developed and published by external independent actuarial societies and actuarial organizations.
Mortality tables and life expectancies for major plans
            Life expectancy at age 65
for a male member currently
Life expectancy at age 65
for a female member currently
      aged 65 aged 45 aged 65 aged 45
December 31 2017 2016 2017 2016 2017 2016 2017 2016
Life expectancy (years)   
Switzerland BVG 2015 tables 1 21.6 21.2 23.1 22.4 23.5 23.0 25.1 24.4
UK SAPS S2 light tables 2 23.8 24.0 25.4 25.5 24.8 25.1 26.6 26.8
US RP-2014 mortality tables 3 21.5 21.4 22.7 22.6 23.3 23.3 24.4 24.4
1
The BVG 2015 tables were used, which included proposed CMI projections in 2016 and final CMI projections in 2017, with a long-term rate of improvement of 1.25% per annum.
2
95% of Self-Administered Pension Scheme (SAPS) S2 light tables were used, which included proposed CMI projections in 2016 and final CMI projections in 2017, with a long-term rate of improvement of 1.5% per annum.
3
The Retirement Projection 2014 (RP-2014) mortality tables were used, with projections based on the Social Security Administration's intermediate improvement scale.
Under US GAAP, the assumptions used to value the PBO should always represent the best estimate as of the measurement date. Credit Suisse regularly reviews the actuarial assumptions used to value and measure the defined benefit obligation on a periodic basis as required by US GAAP.
> Refer to “Critical accounting estimates” in II – Operating and financial review and “Note 1- Summary of significant accounting policies” for further information.
Review of assumptions
As part of its reviews in 2016 and 2017, Credit Suisse concluded that additional refinements to the assumptions for the Swiss pension plan were required in order to reflect the best estimate. As a result, Credit Suisse enhanced its methodology for determining the actuarial assumptions for the Swiss pension plan as follows:
For estimating the discount rates used for discounting expected future cash flows when valuing the PBO, Credit Suisse introduced a more standardized approach for setting this assumption and improved the construction of the yield curve where the market for high-quality Swiss corporate bonds with long-term maturities was not sufficiently deep. The individual spot rates on the yield curve were applied for discounting each respective year’s cash flow in measuring the Swiss pension plan’s benefit obligation as of December 31, 2016. These improvements and refinements in estimates resulted in an incremental decrease to the PBO of approximately CHF 440 million.
In Switzerland, the mortality tables used for the occupational pension fund are the BVG series, which are currently reviewed every five years. Prior to 2016, Credit Suisse used the periodic BVG 2015 tables with allowances for future improvements in life expectancy until 2020, which was based on the applicable current BVG generational table improvement scale. For 2016, Credit Suisse refined its methodology to incorporate future improvements in life expectancy on a continuous basis by applying future expected improvements to the periodic BVG 2015 tables using the Continuous Mortality Investigation (CMI) model with a long-term improvement rate of 1.25%. The move to the generational table resulted in an incremental increase to the PBO of CHF 175 million.
In setting the assumption for the future interest rate on savings balances and future conversion rates, management took into consideration the expected level of future interest rates based on the yield curve used for the discount rate in addition to the legal minimum requirements, current rates approved by the Board of Trustees of the Swiss pension fund and historical trends.
For discounting expected future cash flows, Credit Suisse adopted the “spot rate approach” for the valuation as of December 31, 2016, whereby individual spot rates on the yield curve are applied to each year’s cash flow in measuring the plan’s benefit obligation as well as future service costs and interest costs. Under the previous methodology, a single weighted-average discount rate derived from the yield curve was applied to each cash flow. Incorporating the “spot rate approach” reduced the 2017 net periodic benefit costs by CHF 87 million as compared to the prior methodology. There was no significant change in the PBO as a result of the change.
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As part of its review during 2017, Credit Suisse adopted the final version of the CMI model as published in early 2017 for the valuation of the Swiss pension plan. This resulted in an increase in the PBO of CHF 140 million.
Health care cost assumptions
The health care cost trend is used to determine the appropriate other post-retirement defined benefit costs. In determining those costs, an annual weighted-average rate is assumed in the cost of covered health care benefits.
The following table provides an overview of the assumed health care cost trend rates and the sensitivity of a one percentage point increase or decrease of the rate.
Health care cost trend rates and sensitivity
in / end of 2017 2016 2015
Health care cost trend rate (%)   
Annual weighted-average health care cost trend rate 1 8.3 8.3 8.0
Increase/(decrease) in post-retirement expenses (CHF million)   
One percentage point increase in health care cost trend rates 0.1 0.2 0.2
One percentage point decrease in health care cost trend rates (0.1) (0.2) (0.2)
Increase/(decrease) in post-retirement benefit obligation (CHF million)   
One percentage point increase in health care cost trend rates 3 4 4
One percentage point decrease in health care cost trend rates (3) (4) (4)
1
The annual health care cost trend rate is assumed to decrease gradually to achieve the long-term health care cost trend rate of 5% by 2026.
The annual health care cost trend rate used to determine the net periodic benefit costs for 2018 is 8.2%.
Plan assets and investment strategy
Plan assets, which are assets that have been segregated and restricted to provide for plan benefits, are measured at their fair value as of the measurement date.
The Group’s defined benefit pension plans employ a total return investment approach, whereby a diversified mix of debt and equity securities and alternative investments, specifically hedge funds and private equity, are used to maximize the long-term return of plan assets while incurring a prudent level of risk. The intent of this strategy is to meet or outperform plan liabilities over the long term. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. Furthermore, equity securities are diversified across different geographic regions as well as across growth, value and small and large capitalization stocks. Real estate and alternative investments, such as private equity and hedge funds, are used to enhance long-term returns while improving portfolio diversification. >>>Derivatives may be used to hedge or increase market exposure, but are not used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through periodic asset/liability studies and quarterly investment portfolio reviews. To limit investment risk, the Group pension plans follow defined strategic asset allocation guidelines. At times of major market uncertainties and stress, these guidelines may be further restricted.
As of December 31, 2016, the total fair value of Group debt securities included in plan assets of the Group’s defined benefit pension plans was CHF 54 million. As of December 31, 2017 and 2016, the total fair value of Group equity securities and options was CHF 118 million and CHF 90 million, respectively.
Fair value hierarchy of plan assets
> Refer to “Fair value measurement” in Note 34 – Financial instruments for discussion of the fair value hierarchy.
Fair value of plan assets
The following tables present the plan assets measured at fair value on a recurring basis as of December 31, 2017 and 2016 for the Group’s defined benefit pension plans.
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Plan assets measured at fair value on a recurring basis
end of    2017 2016 1




Level 1




Level 2




Level 3
Assets
measured
at net asset
value
per share




Total




Level 1




Level 2




Level 3
Assets
measured
at net asset
value
per share




Total
Plan assets at fair value (CHF million)   
Cash and cash equivalents 384 0 0 0 384 440 0 0 0 440
Debt securities 3,144 325 37 742 4,248 3,186 438 0 748 4,372
   of which corporates  3,144 325 37 742 4,248 3,186 438 0 748 4,372
Equity securities 6,780 10 0 0 6,790 6,011 0 0 0 6,011
Real estate 727 0 1,257 0 1,984 729 0 1,204 0 1,933
   of which direct  0 0 1,244 0 1,244 0 0 1,204 0 1,204
   of which indirect  727 0 13 0 740 729 0 0 0 729
Alternative investments 513 14 0 3,063 3,590 329 (35) 0 2,901 3,195
   of which private equity  0 0 0 1,313 1,313 0 0 0 1,107 1,107
   of which hedge funds  153 0 0 1,292 1,445 0 0 0 1,293 1,293
   of which other  360 14 0 458 832 329 (35) 0 501 795
Switzerland  11,548 349 1,294 3,805 16,996 10,695 403 1,204 3,649 15,951
Cash and cash equivalents 70 133 0 0 203 49 170 0 0 219
Debt securities 1,991 1,080 0 370 3,441 1,380 865 7 274 2,526
   of which governments  1,622 9 0 0 1,631 1,009 7 0 0 1,016
   of which corporates  369 1,071 0 370 1,810 371 858 7 274 1,510
Equity securities 55 14 0 147 216 240 143 0 226 609
Real estate – indirect 0 0 0 27 27 0 0 0 58 58
Alternative investments 0 33 0 76 109 0 321 0 177 498
   of which hedge funds  0 0 0 76 76 0 0 0 177 177
   of which other  0 33 2 0 0 33 0 321 2 0 0 321
Other investments 0 92 0 0 92 0 90 0 0 90
International  2,116 1,352 0 620 4,088 1,669 1,589 7 735 4,000
Total plan assets at fair value  13,664 1,701 1,294 4,425 21,084 12,364 1,992 1,211 4,384 19,951
The Swiss pension fund uses exchange-traded futures to manage the economic exposure of the portfolio. Under US GAAP, these futures are not carried at fair value as they are settled on a daily basis and are considered brokerage receivables and payables. Consequently, they are excluded from this table. These futures increased the economic exposure to cash and cash equivalents by CHF 1,405 million and CHF 194 million in 2017 and 2016, respectively, decreased the economic exposure to debt securities – corporate bonds by CHF 76 million in 2017 and decreased the economic exposure to equity securities by CHF 1,329 million and CHF 194 million in 2017 and 2016, respectively.
1
Prior period has been corrected to reclassify the leveling of certain plan assets.
2
Primarily related to derivative instruments.
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Plan assets measured at fair value on a recurring basis for level 3
      Actual return
on plan assets

Balance at
beginning
of period


Transfers
in


Transfers
out
On assets
still held at
reporting
date

On assets
sold during
the period

Purchases,
sales,
settlements
Foreign
currency
translation
impact

Balance
at end
of period
2017 (CHF million)   
Debt securities – corporates 7 35 0 1 0 (6) 0 37
Real estate 1,204 13 0 42 1 (3) 0 1,257
   of which direct  1,204 0 0 42 1 (3) 0 1,244
   of which indirect  0 13 0 0 0 0 0 13
Total plan assets at fair value  1,211 48 0 43 1 (9) 0 1,294
   of which Switzerland  1,204 48 0 43 1 (2) 0 1,294
   of which International  7 0 0 0 0 (7) 0 0
2016 (CHF million)   1
Debt securities – corporates 1 6 0 0 0 0 0 7
Real estate 1,156 0 0 48 0 0 0 1,204
   of which direct  1,156 0 0 48 0 0 0 1,204
Total plan assets at fair value  1,157 6 0 48 0 0 0 1,211
   of which Switzerland  1,156 0 0 48 0 0 0 1,204
   of which International  1 6 0 0 0 0 0 7
1
Prior period has been corrected to reclassify the leveling of certain plan assets.
Qualitative disclosures of valuation techniques used to measure fair value
Cash and cash equivalents
Cash and cash equivalents includes money market instruments such as bankers’ acceptances, certificates of deposit, >>>CP, book claims, treasury bills, other rights and commingled funds. Valuations of money market instruments and commingled funds are generally based on observable inputs.
Debt securities
Debt securities include government and corporate bonds which are generally quoted in active markets or as units in mutual funds. Debt securities for which market prices are not available, are valued based on yields reflecting the perceived risk of the issuer and the maturity of the security, recent disposals in the market or other modeling techniques, which may involve judgment. Units in mutual funds which are not directly quoted on a public stock exchange and/or for which a fair value is not readily determinable are measured at fair value using NAV.
Equity securities
Equity securities held include common equity shares, convertible bonds and shares in investment companies and units in mutual funds. The common equity shares are generally traded on public stock exchanges for which quoted prices are regularly available. Convertible bonds are generally valued using observable pricing sources. Shares in investment companies and units in mutual funds, which are not directly quoted on a public stock exchange and/or for which a fair value is not readily determinable, are measured at fair value using NAV.
Real estate
Real estate includes direct real estate as well as investments in real estate investment companies, trusts or mutual funds. Direct real estate is initially measured at its transaction price, which is the best estimate of fair value. Thereafter, direct real estate is individually measured at fair value based on a number of factors that include any recent rounds of financing involving third-party investors, comparable company transactions, multiple analyses of cash flows or book values, or discounted cash flow analyses. The availability of information used in these modeling techniques is often limited and involves significant judgment in evaluating these different factors over time. Real estate investment companies, trusts and mutual funds, which are not directly quoted on a public stock exchange and/or for which a fair value is not readily determinable, are measured at fair value using NAV.
Alternative investments
Private equity includes direct investments, investments in partnerships that make private equity and related investments in various portfolio companies and funds and fund of funds partnerships. Private equity consists of both publicly traded securities and private securities. Publicly traded investments that are restricted or that are not quoted in active markets are valued based on publicly available quotes with appropriate adjustments for liquidity or trading restrictions. Private equity is valued taking into account a number of factors, such as the most recent round of financing involving unrelated new investors, earnings multiple analyses using comparable companies or discounted cash flow analyses. Private equity for which a fair value is not readily determinable is measured at fair value using NAV provided by the general partner.
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Hedge funds that are not directly quoted on a public stock exchange, and/or for which a fair value is not readily determinable, are measured at fair value using NAV provided by the fund administrator.
Derivatives
Derivatives include both >>>OTC and exchange-traded derivatives. The fair value of OTC derivatives is determined on the basis of inputs that include those characteristics of the derivative that have a bearing on the economics of the instrument. The determination of the fair value of many derivatives involves only a limited degree of subjectivity since the required inputs are generally observable in the marketplace. Other more complex derivatives may use unobservable inputs. Such inputs include long-dated volatility assumptions on OTC option transactions and recovery rate assumptions for credit derivative transactions. The fair value of exchange-traded derivatives is typically derived from the observable exchange prices and/or observable inputs.
Plan asset allocation
The following table shows the plan asset allocation as of the measurement date calculated based on the fair value at that date including the performance of each asset class.
Weighted-average plan asset allocation
   Switzerland International
December 31 2017 2016 2017 2016
Weighted-average plan asset allocation (%)   
Cash and cash equivalents 2.3 2.8 5.0 5.5
Debt securities 25.0 27.4 84.0 63.2
Equity securities 39.9 37.7 5.3 15.3
Real estate 11.7 12.1 0.7 1.4
Alternative investments 21.1 20.0 2.7 12.4
Insurance 0.0 0.0 2.3 2.2
Total  100.0 100.0 100.0 100.0
The following table shows the target plan asset allocation for 2018 in accordance with the Group’s investment strategy. The target plan asset allocation is used to determine the expected return on plan assets to be considered in the net periodic benefit costs for 2018.
Weighted-average target plan asset allocation for 2018
Switzerland International
2018 (%)   
Cash and cash equivalents 10.0 0.3
Debt securities 32.0 89.0
Equity securities 30.0 5.1
Real estate 10.0 0.6
Alternative investments 18.0 2.7
Insurance 0.0 2.3
Total  100.0 100.0
Estimated future benefit payments for defined benefit plans
The following table shows the estimated future benefit payments for defined benefit pension and other post-retirement defined benefit plans.
Estimated future benefit payments for defined benefit plans
Defined benefit
pension plans
Other post-retirement
defined benefit plans
Estimated future benefit payments (CHF million)   
2018 1,195 11
2019 931 11
2020 922 12
2021 926 12
2022 896 12
For five years thereafter 4,652 55
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31 Derivatives and hedging activities
>>>Derivatives are generally either privately negotiated >>>OTC contracts or standard contracts transacted through regulated exchanges. The Group’s most frequently used freestanding derivative products, entered into for trading and risk management purposes, include interest rate, credit default and cross-currency swaps, interest rate and foreign exchange options, foreign exchange forward contracts and foreign exchange and interest rate futures.
The Group also enters into contracts that are not considered derivatives in their entirety but include embedded derivative features. Such transactions primarily include issued and purchased structured debt instruments where the return may be calculated by reference to an equity security, index or third-party credit risk, or that have non-standard interest or foreign exchange terms.
On the date a derivative contract is entered into, the Group designates it as belonging to one of the following categories:
trading activities;
a risk management transaction that does not qualify as a hedge under accounting standards (referred to as an economic hedge);
a hedge of the >>>fair value of a recognized asset or liability;
a hedge of the variability of cash flows to be received or paid relating to a recognized asset or liability or a forecasted transaction; or
a hedge of a net investment in a foreign operation.
Trading activities
The Group is active in most of the principal trading markets and transacts in many trading and hedging products. As noted above, this includes the use of swaps, futures, options and structured products, such as custom transactions using combinations of derivatives, in connection with its sales and trading activities. Trading activities include market making, positioning and arbitrage activities. The majority of the Group’s derivatives were used for trading activities.
Economic hedges
Economic hedges arise when the Group enters into derivative contracts for its own risk management purposes, but the contracts entered into do not qualify for hedge accounting under US GAAP. These economic hedges include the following types:
interest rate derivatives to manage net interest rate risk on certain core banking business assets and liabilities;
foreign exchange derivatives to manage foreign exchange risk on certain core banking business revenue and expense items, as well as on core banking business assets and liabilities;
credit derivatives to manage credit risk on certain loan portfolios;
futures to manage risk on equity positions including convertible bonds; and
equity derivatives to manage equity/index risks on certain structured products.
Derivatives used in economic hedges are included as trading assets or trading liabilities in the consolidated balance sheets.
Hedge accounting
Fair value hedges
The Group designates fair value hedges as part of an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize fluctuations in earnings that are caused by interest rate volatility. In addition to hedging changes in fair value due to interest rate risk associated with fixed rate loans, >>>repurchase agreements and long-term debt instruments, the Group uses:
cross-currency swaps to convert foreign-currency-denominated fixed rate assets or liabilities to floating rate functional currency assets or liabilities; and
foreign exchange forward contracts to hedge the foreign exchange risk associated with available-for-sale securities.
Cash flow hedges
The Group designates cash flow hedges as part of its strategy to mitigate its risk to variability of cash flows on loans, deposits and other debt obligations by using interest rate swaps to convert variable rate assets or liabilities to fixed rates. The Group also uses cross-currency swaps to convert foreign-currency-denominated fixed and floating rate assets or liabilities to fixed rate assets or liabilities based on the currency profile to which the Group elects to be exposed. This includes, but is not limited to, Swiss francs and US dollars. Further, the Group uses derivatives to hedge its cash flows associated with forecasted transactions. As of the end of 2017, the maximum length of time over which the Group hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was five years.
Net investment hedges
The Group designates net investment hedges as part of its strategy to hedge selected net investments in foreign operations against adverse movements in foreign exchange rates, typically using forward foreign exchange contracts.
Hedge effectiveness assessment
The Group assesses the effectiveness of hedging relationships both prospectively and retrospectively. The prospective assessment is made both at the inception of a hedging relationship and on an ongoing basis, and requires the Group to justify its expectation that the relationship will be highly effective over future periods. The retrospective assessment is also performed on an ongoing basis and requires the Group to determine whether or not the hedging relationship has actually been effective. If the Group concludes, through a retrospective evaluation, that hedge accounting
324

is appropriate for the current period, then it measures the amount of hedge ineffectiveness to be recognized in earnings.
Fair value of derivative instruments
The tables below present gross derivative replacement values by type of contract and whether the derivative is used for trading purposes or in a qualifying hedging relationship. Notional amounts have also been provided as an indication of the volume of derivative activity within the Group.
Information on bifurcated embedded derivatives has not been included in these tables. Under US GAAP, the Group elected to account for substantially all financial instruments with an embedded derivative that is not considered clearly and closely related to the host contract at fair value.
> Refer to “Note 34 – Financial instruments” for further information.
Fair value of derivative instruments
   Trading Hedging 1

end of 2017

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative instruments (CHF billion)   
Forwards and forward rate agreements 8,509.3 1.2 1.2 0.0 0.0 0.0
Swaps 13,047.8 60.4 56.6 46.8 0.2 0.2
Options bought and sold (OTC) 2,374.5 25.2 24.0 0.0 0.0 0.0
Futures 547.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 419.2 0.2 0.3 0.0 0.0 0.0
Interest rate products  24,898.6 87.0 82.1 46.8 0.2 0.2
Forwards 1,387.9 10.7 11.1 13.3 0.0 0.2
Swaps 581.1 15.2 19.9 0.0 0.0 0.0
Options bought and sold (OTC) 414.8 4.6 4.8 2.1 0.0 0.0
Futures 13.0 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 5.4 0.0 0.0 0.0 0.0 0.0
Foreign exchange products  2,402.2 30.5 35.8 15.4 0.0 0.2
Forwards 0.9 0.0 0.1 0.0 0.0 0.0
Swaps 198.7 3.8 4.9 0.0 0.0 0.0
Options bought and sold (OTC) 221.3 8.3 7.9 0.0 0.0 0.0
Futures 32.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 373.2 9.3 10.3 0.0 0.0 0.0
Equity/index-related products  826.9 21.4 23.2 0.0 0.0 0.0
Credit derivatives 2 524.9 7.7 8.9 0.0 0.0 0.0
Forwards 7.0 0.0 0.1 0.0 0.0 0.0
Swaps 17.9 1.5 1.4 0.0 0.0 0.0
Options bought and sold (OTC) 10.1 0.1 0.0 0.0 0.0 0.0
Futures 15.6 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 2.1 0.0 0.0 0.0 0.0 0.0
Other products 3 52.7 1.6 1.5 0.0 0.0 0.0
Total derivative instruments  28,705.3 148.2 151.5 62.2 0.2 0.4
The notional amount, PRV and NRV (trading and hedging) was CHF 28,767.5 billion, CHF 148.4 billion and CHF 151.9 billion, respectively, as of December 31, 2017.
1
Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2
Primarily credit default swaps.
3
Primarily precious metals, commodity and energy products.
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Fair value of derivative instruments (continued)
   Trading Hedging 1

end of 2016

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative instruments (CHF billion)   
Forwards and forward rate agreements 8,321.9 3.3 3.2 0.0 0.0 0.0
Swaps 13,190.0 91.0 85.5 47.5 1.0 1.0
Options bought and sold (OTC) 2,164.4 43.1 41.1 0.0 0.0 0.0
Futures 522.1 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 468.0 0.2 0.2 0.0 0.0 0.0
Interest rate products  24,666.4 137.6 130.0 47.5 1.0 1.0
Forwards 1,211.6 19.2 20.8 11.0 0.1 0.0
Swaps 819.4 34.5 42.0 0.0 0.0 0.0
Options bought and sold (OTC) 416.8 8.1 8.4 4.8 0.0 0.0
Futures 17.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 4.1 0.0 0.0 0.0 0.0 0.0
Foreign exchange products  2,469.7 61.8 71.2 15.8 0.1 0.0
Forwards 1.3 0.0 0.0 0.0 0.0 0.0
Swaps 191.0 4.7 5.3 0.0 0.0 0.0
Options bought and sold (OTC) 206.5 7.7 7.4 0.0 0.0 0.0
Futures 41.5 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 355.9 11.6 13.1 0.0 0.0 0.0
Equity/index-related products  796.2 24.0 25.8 0.0 0.0 0.0
Credit derivatives 2 558.7 8.1 9.2 0.0 0.0 0.0
Forwards 7.2 0.1 0.2 0.0 0.0 0.0
Swaps 20.1 2.0 1.4 0.0 0.0 0.0
Options bought and sold (OTC) 20.2 0.4 0.3 0.0 0.0 0.0
Futures 14.3 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 3.4 0.0 0.1 0.0 0.0 0.0
Other products 3 65.2 2.5 2.0 0.0 0.0 0.0
Total derivative instruments  28,556.2 234.0 238.2 63.3 1.1 1.0
The notional amount, PRV and NRV (trading and hedging) was CHF 28,619.5 billion, CHF 235.1 billion and CHF 239.2 billion, respectively, as of December 31, 2016.
1
Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2
Primarily credit default swaps.
3
Primarily precious metals, commodity and energy products.
Fair value hedges
in 2017 2016 2015
Gains/(losses) recognized in income on derivatives (CHF million)   
Interest rate products (285) (116) (117)
Total  (285) (116) (117)
Gains/(losses) recognized in income on hedged items (CHF million)   
Interest rate products 290 111 101
Total  290 111 101
Details of fair value hedges (CHF million)   
Net gains/(losses) on the ineffective portion 5 (5) (16)
Represents gains/(losses) recognized in trading revenues.
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Cash flow hedges
in 2017 2016 2015
Gains/(losses) recognized in AOCI on derivatives (CHF million)   
Interest rate products (56) (5) 21
Foreign exchange products (30) (9) (32)
Total  (86) (14) (11)
Gains/(losses) reclassified from AOCI into income (CHF million)   
Interest rate products 1 (11) 29 37
Foreign exchange products (24) 2,3 (16) 2,3,4 (61) 2,3,4
Total  (35) 13 (24)
Details of cash flow hedges (CHF million)   
Net gains/(losses) on the ineffective portion 2 (1) (1) (12)
Represents gains/(losses) on effective portion.
1
Included in interest and dividend income.
2
Included in trading revenues.
3
Included in other revenues.
4
Included in total other operating expenses.
The net loss associated with cash flow hedges expected to be reclassified from AOCI within the next 12 months was CHF 39 million.
Net investment hedges
in 2017 2016 2015
Gains/(losses) recognized in AOCI on derivatives (CHF million)   
Foreign exchange products (475) (536) 440
Total  (475) (536) 440
Represents gains/(losses) on effective portion.
The Group includes all derivative instruments not included in hedge accounting relationships in its trading activities.
> Refer to “Note 7 – Trading revenues” for gains and losses on trading activities by product type.
Disclosures relating to contingent credit risk
Certain of the Group’s derivative instruments contain provisions that require it to maintain a specified credit rating from each of the major credit rating agencies. If the ratings fall below the level specified in the contract, the counterparties to the agreements could request payment of additional collateral on those derivative instruments that are in a net liability position. Certain of the derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Group or the counterparty. Such derivative contracts are reflected at close-out costs.
The following table provides the Group’s current net exposure from contingent credit risk relating to derivative contracts with bilateral counterparties and SPEs that include credit support agreements, the related collateral posted and the additional collateral required in a one-notch, two-notch and a three-notch downgrade event, respectively. The table also includes derivative contracts with contingent credit risk features without credit support agreements that have accelerated termination event conditions. The current net exposure for derivative contracts with bilateral counterparties and contracts with accelerated termination event conditions is the aggregate fair value of derivative instruments that were in a net liability position. For SPEs, the current net exposure is the contractual amount that is used to determine the collateral payable in the event of a downgrade. The contractual amount could include both the NRV and a percentage of the notional value of the derivative.
Contingent credit risk
end of    2017 2016

Bilateral
counterparties
Special
purpose
entities

Accelerated
terminations


Total

Bilateral
counterparties
Special
purpose
entities

Accelerated
terminations


Total
Contingent credit risk (CHF billion)   
Current net exposure 5.4 0.1 1.2 6.7 10.5 0.2 1.1 11.8
Collateral posted 4.4 0.1 4.5 9.5 0.2 9.7
Impact of a one-notch downgrade event 0.2 0.1 0.1 0.4 0.3 0.2 0.0 0.5
Impact of a two-notch downgrade event 0.9 0.2 0.5 1.6 1.3 0.4 0.5 2.2
Impact of a three-notch downgrade event 1.0 0.4 0.7 2.1 1.5 0.7 0.7 2.9
The impact of a downgrade event reflects the amount of additional collateral required for bilateral counterparties and special purpose entities and the amount of additional termination expenses for accelerated terminations, respectively.
Credit derivatives
Credit derivatives are contractual agreements in which the buyer generally pays a fee in exchange for a contingent payment by the seller if there is a credit event on the underlying referenced entity or asset. They are generally privately negotiated OTC contracts, with numerous settlement and payment terms, and most are structured so that they specify the occurrence of an identifiable credit event, which can include bankruptcy, insolvency, receivership, material adverse restructuring of debt or failure to meet obligations when due.
The Group enters into credit derivative contracts in the normal course of business, buying and selling protection to facilitate client transactions and as a market maker. This includes providing structured credit products for its clients to enable them to hedge their credit risk. The referenced instruments of these structured credit products are both investment grade and non-investment grade and could include corporate bonds, sovereign debt, ABS and loans.
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These instruments can be formed as single items (single-named instruments) or combined on a portfolio basis (multi-named instruments). The Group purchases protection to economically hedge various forms of credit exposure, for example, the economic hedging of loan portfolios or other cash positions. Finally, the Group also takes proprietary positions which can take the form of either purchased or sold protection.
The credit derivatives most commonly transacted by the Group are >>>CDS and credit swaptions. CDSs are contractual agreements in which the buyer of the swap pays an upfront and/or a periodic fee in return for a contingent payment by the seller of the swap following a credit event of the referenced entity or asset. Credit swaptions are options with a specified maturity to buy or sell protection under a CDS on a specific referenced credit event.
In addition, to reduce its credit risk, the Group enters into legally enforceable >>>netting agreements with its derivative counterparties. Collateral on these derivative contracts is usually posted on a net counterparty basis and cannot be allocated to a particular derivative contract.
> Refer to “Note 26 – Offsetting of financial assets and financial liabilities” for further information on netting.
Credit protection sold
Credit protection sold is the maximum potential payout, which is based on the notional value of derivatives and represents the amount of future payments that the Group would be required to make as a result of credit risk-related events. The Group believes that the maximum potential payout is not representative of the actual loss exposure based on historical experience. This amount has not been reduced by the Group’s rights to the underlying assets and the related cash flows. In accordance with most credit derivative contracts, should a credit event (or settlement trigger) occur, the Group is usually liable for the difference between the credit protection sold and the recourse it holds in the value of the underlying assets. The maximum potential amount of future payments has not been reduced for any cash collateral paid to a given counterparty as such payments would be calculated after netting all derivative exposures, including any credit derivatives with that counterparty in accordance with a related master netting agreement. Due to such netting processes, determining the amount of collateral that corresponds to credit derivative exposures only is not possible.
To reflect the quality of the payment risk on credit protection sold, the Group assigns an internally generated rating to those instruments referenced in the contracts. Internal ratings are assigned by experienced credit analysts based on expert judgment that incorporates analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed, and their relative importance, are dependent on the type of counterparty. The analysis emphasizes a forward-looking approach, concentrating on economic trends and financial fundamentals, and making use of peer analysis, industry comparisons and other quantitative tools. External ratings and market information are also used in the analysis process where available.
Credit protection purchased
Credit protection purchased represents those instruments where the underlying reference instrument is identical to the reference instrument of the credit protection sold. The maximum potential payout amount of credit protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
The Group also considers estimated recoveries that it would receive if the specified credit event occurred, including both the anticipated value of the underlying referenced asset that would, in most instances, be transferred to the Group and the impact of any purchased protection with an identical reference instrument and product type.
Other protection purchased
In the normal course of business, the Group purchases protection to offset the risk of credit protection sold that may have similar, but not identical, reference instruments, and may use similar, but not identical, products, which reduces the total credit derivative exposure. Other protection purchased is based on the notional value of the instruments.
The Group purchases its protection from banks and broker dealers, other financial institutions and other counterparties.
Fair value of credit protection sold
The fair values of the credit protection sold give an indication of the amount of payment risk, as the negative fair values increase when the potential payment under the derivative contracts becomes more probable.
Credit protection sold/purchased
The following tables do not include all credit derivatives and differ from the credit derivatives in the “Fair value of derivative instruments” table. This is due to the exclusion of certain credit derivative instruments under US GAAP, which defines a credit derivative as a derivative instrument (a) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (b) that exposes the seller to potential loss from credit risk-related events specified in the contract.
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>>>Total return swaps (TRS) of CHF 6.7 billion and CHF 7.8 billion as of December 31, 2017 and 2016, respectively, were also excluded because a TRS does not expose the seller to potential loss from credit risk-related events specified in the contract. A TRS only provides protection against a loss in asset value and not against additional amounts as a result of specific credit events.
Credit protection sold/purchased
end of    2017 2016   

Credit
protection
sold

Credit
protection
purchased
1 Net credit
protection
(sold)/
purchased

Other
protection
purchased
Fair value
of credit
protection
sold

Credit
protection
sold

Credit
protection
purchased
1 Net credit
protection
(sold)/
purchased

Other
protection
purchased
Fair value
of credit
protection
sold
Single-name instruments (CHF billion)   
Investment grade 2 (57.6) 53.8 (3.8) 15.3 0.9 (72.4) 67.4 (5.0) 14.3 0.7
Non-investment grade (28.2) 25.5 (2.7) 14.3 0.5 (30.3) 28.1 (2.2) 18.1 (1.0)
Total single-name instruments  (85.8) 79.3 (6.5) 29.6 1.4 (102.7) 95.5 (7.2) 32.4 (0.3)
   of which sovereign  (21.0) 19.2 (1.8) 6.2 0.2 (27.7) 25.6 (2.1) 6.5 (0.9)
   of which non-sovereign  (64.8) 60.1 (4.7) 23.4 1.2 (75.0) 69.9 (5.1) 25.9 0.6
Multi-name instruments (CHF billion)   
Investment grade 2 (107.1) 104.7 (2.4) 59.3 0.7 (115.0) 113.9 (1.1) 41.2 0.0
Non-investment grade (21.0) 19.6 (1.4) 12.0 3 0.9 (20.9) 19.5 (1.4) 9.8 3 0.3
Total multi-name instruments  (128.1) 124.3 (3.8) 71.3 1.6 (135.9) 133.4 (2.5) 51.0 0.3
   of which sovereign  (0.3) 0.3 0.0 0.3 0.0 (0.3) 0.2 (0.1) 0.7 0.1
   of which non-sovereign  (127.8) 124.0 (3.8) 71.0 1.6 (135.6) 133.2 (2.4) 50.3 0.2
Total instruments (CHF billion)   
Investment grade 2 (164.7) 158.5 (6.2) 74.6 1.6 (187.4) 181.3 (6.1) 55.5 0.7
Non-investment grade (49.2) 45.1 (4.1) 26.3 1.4 (51.2) 47.6 (3.6) 27.9 (0.7)
Total instruments  (213.9) 203.6 (10.3) 100.9 3.0 (238.6) 228.9 (9.7) 83.4 0.0
   of which sovereign  (21.3) 19.5 (1.8) 6.5 0.2 (28.0) 25.8 (2.2) 7.2 (0.8)
   of which non-sovereign  (192.6) 184.1 (8.5) 94.4 2.8 (210.6) 203.1 (7.5) 76.2 0.8
1
Represents credit protection purchased with identical underlyings and recoveries.
2
Based on internal ratings of BBB and above.
3
Includes synthetic securitized loan portfolios.
The following table reconciles the notional amount of credit derivatives included in the table “Fair value of derivative instruments” to the table “Credit protection sold/purchased”.
Credit derivatives
end of 2017 2016
Credit derivatives (CHF billion)   
Credit protection sold 213.9 238.6
Credit protection purchased 203.6 228.9
Other protection purchased 100.9 83.4
Other instruments 1 6.5 7.8
Total credit derivatives  524.9 558.7
1
Consists of total return swaps and other derivative instruments.
The segregation of the future payments by maturity range and underlying risk gives an indication of the current status of the potential for performance under the derivative contracts.
Maturity of credit protection sold

end of
Maturity
less
than
1 year
Maturity
between
1 to 5
years
Maturity
greater
than
5 years



Total
2017 (CHF billion)   
Single-name instruments 21.6 59.4 4.8 85.8
Multi-name instruments 31.2 79.9 17.0 128.1
Total instruments  52.8 139.3 21.8 213.9
2016 (CHF billion)   
Single-name instruments 24.2 72.7 5.8 102.7
Multi-name instruments 27.5 84.7 23.7 135.9
Total instruments  51.7 157.4 29.5 238.6
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32 Guarantees and commitments
Guarantees
In the ordinary course of business, guarantees are provided that contingently obligate the Group to make payments to third parties if the counterparty fails to fulfill its obligation under a borrowing or other contractual arrangement. The total gross amount disclosed within the Guarantees table reflects the maximum potential payment under the guarantees. The carrying value represents the higher of the initial fair value (generally the related fee received or receivable) less cumulative amortization and the Group’s current best estimate of payments that will be required under existing guarantee arrangements.
Guarantees provided by the Group are classified as follows: credit guarantees and similar instruments, performance guarantees and similar instruments, derivatives and other guarantees. The Group no longer provides guarantees for securities lending indemnifications.
Guarantees

end of
Maturity
less
than
1 year
Maturity
between
1 to 3
years
Maturity
between
3 to 5
years
Maturity
greater
than
5 years

Total
gross
amount

Total
net
amount
1

Carrying
value


Collateral
received
2017 (CHF million)   
Credit guarantees and similar instruments 1,817 520 314 435 3,086 2,837 12 1,603
Performance guarantees and similar instruments 4,931 1,639 373 200 7,143 6,216 44 3,012
Derivatives 2 15,520 6,860 1,397 727 24,504 24,504 403 3
Other guarantees 4,461 1,006 708 503 6,678 6,673 47 3,833
Total guarantees  26,729 10,025 2,792 1,865 41,411 40,230 506 8,448
2016 (CHF million)   
Credit guarantees and similar instruments 1,962 500 262 409 3,133 2,913 13 2,043
Performance guarantees and similar instruments 5,109 1,571 194 240 7,114 6,124 76 3,090
Derivatives 2 15,864 3,377 3,590 976 23,807 23,807 684 3
Other guarantees 3,460 888 531 581 5,460 5,456 44 3,668
Total guarantees  26,395 6,336 4,577 2,206 39,514 38,300 817 8,801
1
Total net amount is computed as the gross amount less any participations.
2
Excludes derivative contracts with certain active commercial and investment banks and certain other counterparties, as such contracts can be cash settled and the Group had no basis to conclude it was probable that the counterparties held, at inception, the underlying instruments.
3
Collateral for derivatives accounted for as guarantees is not significant.
Credit guarantees and similar instruments
Credit guarantees and similar instruments are contracts that require the Group to make payments should a third party fail to do so under a specified existing credit obligation. The position includes standby letters of credit, commercial and residential mortgage guarantees and other guarantees associated with VIEs.
Standby letters of credit are made in connection with the corporate lending business and other corporate activities, where the Group provides guarantees to counterparties in the form of standby letters of credit, which represent obligations to make payments to third parties if the counterparties fail to fulfill their obligations under a borrowing arrangement or other contractual obligation.
Commercial and residential mortgage guarantees are made in connection with the Group’s commercial mortgage activities in the US, where the Group sells certain commercial and residential mortgages to Fannie Mae and agrees to bear a percentage of the losses triggered by the borrowers failing to perform on the mortgage. The Group also issues guarantees that require it to reimburse Fannie Mae for losses on certain whole loans underlying mortgage-backed securities issued by Fannie Mae, which are triggered by borrowers failing to perform on the underlying mortgages.
The Group also provides guarantees to VIEs and other counterparties under which it may be required to buy assets from such entities upon the occurrence of certain triggering events such as rating downgrades and/or substantial decreases in the >>>fair value of those assets.
Performance guarantees and similar instruments
Performance guarantees and similar instruments are arrangements that require contingent payments to be made when certain performance-related targets or covenants are not met. Such covenants may include a customer’s obligation to deliver certain products and services or to perform under a construction contract. Performance guarantees are frequently executed as part of project finance transactions. The position includes private equity fund guarantees and guarantees related to residential mortgage securitization activities.
For private equity fund guarantees, the Group has provided investors in private equity funds sponsored by a Group entity
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guarantees on potential obligations of certain general partners to return amounts previously paid as carried interest to those general partners if the performance of the remaining investments declines. To manage its exposure, the Group generally withholds a portion of carried interest distributions to cover any repayment obligations. In addition, pursuant to certain contractual arrangements, the Group is obligated to make cash payments to certain investors in certain private equity funds if specified performance thresholds are not met.
Further, as part of the Group’s residential mortgage securitization activities in the US, the Group may guarantee the collection by the servicer and remittance to the securitization trust of prepayment penalties. The Group will have to perform under these guarantees in the event the servicer fails to remit the prepayment penalties.
Derivatives
>>>Derivatives are issued in the ordinary course of business, generally in the form of written put options. Disclosures about derivative contracts are not required under US GAAP if such contracts may be cash settled and the Group has no basis to conclude it is probable that the counterparties held, at inception, the underlying instruments related to the derivative contracts. The Group has concluded that these conditions were met for certain active commercial and investment banks and certain other counterparties, and accordingly, the Group has not included such contracts as guarantees.
The Group manages its exposure to these derivatives by engaging in various hedging strategies to reduce its exposure. For some contracts, such as written interest rate caps or foreign exchange options, the maximum payout is not determinable as interest rates or exchange rates could theoretically rise without limit. For these contracts, notional amounts were disclosed in the table above in order to provide an indication of the underlying exposure. In addition, the Group carries all derivatives at fair value in the consolidated balance sheets and has considered the performance triggers and probabilities of payment when determining those fair values. It is more likely than not that written put options that are in-the-money to the counterparty will be exercised, for which the Group’s exposure was limited to the carrying value reflected in the table.
Other guarantees
Other guarantees include bankers’ acceptances, residual value guarantees, deposit insurance, contingent considerations in business combinations, the minimum value of an investment in mutual funds or private equity funds and all other guarantees that were not allocated to one of the categories above.
Deposit-taking banks and securities dealers in Switzerland and certain other European countries are required to ensure the payout of privileged deposits in case of specified restrictions or compulsory liquidation of a deposit-taking bank. In Switzerland, deposit-taking banks and securities dealers jointly guarantee an amount of up to CHF 6 billion. Upon occurrence of a payout event triggered by a specified restriction of business imposed by >>>FINMA or by the compulsory liquidation of another deposit-taking bank, the Group’s contribution will be calculated based on its share of privileged deposits in proportion to total privileged deposits. Based on FINMA’s estimate for the Group’s banking subsidiaries in Switzerland, the Group’s share in the deposit insurance guarantee program for the period July 1, 2017 to June 30, 2018 is CHF 0.5 billion. These deposit insurance guarantees were reflected in other guarantees.
Representations and warranties on residential mortgage loans sold
In connection with the former Investment Banking division’s sale of US residential mortgage loans, the Group has provided certain representations and warranties relating to the loans sold. The Group has provided these representations and warranties relating to sales of loans to: the US government-sponsored enterprises Fannie Mae and Freddie Mac; institutional investors, primarily banks; and non-agency, or private label, securitizations. The loans sold are primarily loans that the Group has purchased from other parties. The scope of representations and warranties, if any, depends on the transaction, but can include: ownership of the mortgage loans and legal capacity to sell the loans; loan-to-value ratios and other characteristics of the property, the borrower and the loan; validity of the liens securing the loans and absence of delinquent taxes or related liens; conformity to underwriting standards and completeness of documentation; and origination in compliance with law. If it is determined that representations and warranties were breached, the Group may be required to repurchase the related loans or indemnify the investors to make them whole for losses. Whether the Group will incur a loss in connection with repurchases and make whole payments depends on: the extent to which claims are made; the validity of such claims made within the statute of limitations (including the likelihood and ability to enforce claims); whether the Group can successfully claim against parties that sold loans to the Group and made representations and warranties to the Group; the residential real estate market, including the number of defaults; and whether the obligations of the securitization vehicles were guaranteed or insured by third parties.
During 2017, the Group received repurchase claims for residential mortgage loans that were not significant, and loans repurchased during this period and related losses were not material. The balance of outstanding repurchase claims as of the end of 2017 was not significant.
Repurchase claims on residential mortgage loans sold that are subject to arbitration or litigation proceedings, or become so during the reporting period, are not included in this Guarantees and commitments disclosure but are addressed in litigation and related loss contingencies and provisions. The Group is involved in litigation relating to representations and warranties on residential mortgages sold.
> Refer to “Note 38 – Litigation” for further information.
331

Disposal-related contingencies and other indemnifications
The Group has certain guarantees for which its maximum contingent liability cannot be quantified. These guarantees are not reflected in the “Guarantees” table and are discussed below.
Disposal-related contingencies
In connection with the sale of assets or businesses, the Group sometimes provides the acquirer with certain indemnification provisions. These indemnification provisions vary by counterparty in scope and duration and depend upon the type of assets or businesses sold. They are designed to transfer the potential risk of certain unquantifiable and unknowable loss contingencies, such as litigation, tax and intellectual property matters, from the acquirer to the seller. The Group closely monitors all such contractual agreements in order to ensure that indemnification provisions are adequately provided for in the Group’s consolidated financial statements.
Other indemnifications
The Group provides indemnifications to certain counterparties in connection with its normal operating activities for which it is not possible to estimate the maximum amount that it could be obligated to pay. As a normal part of issuing its own securities, the Group typically agrees to reimburse holders for additional tax withholding charges or assessments resulting from changes in applicable tax laws or the interpretation of those laws. Securities that include these agreements to pay additional amounts generally also include a related redemption or call provision if the obligation to pay the additional amounts results from a change in law or its interpretation and the obligation cannot be avoided by the issuer taking reasonable steps to avoid the payment of additional amounts. Since such potential obligations are dependent on future changes in tax laws, the related liabilities the Group may incur as a result of such changes cannot be reasonably estimated. In light of the related call provisions typically included, the Group does not expect any potential liabilities in respect of tax gross-ups to be material.
The Group is a member of numerous securities exchanges and clearing houses and may, as a result of its membership arrangements, be required to perform if another member defaults and available amounts as defined in the relevant exchange’s or clearing house’s default waterfalls are not sufficient to cover losses of another member’s default. The exchange’s or clearing house’s default management procedures may provide for cash calls to non-defaulting members which may be limited to the amount (or a multiple of the amount) of the Group’s contribution to the guarantee fund. However, if these cash calls are not sufficient to cover losses, the default waterfall and default management procedures may foresee further loss allocation. Furthermore, some clearing house arrangements require members to assume a proportionate share of non-default losses, if such losses exceed the specified resources allocated for such purpose by the clearing house. Non-default losses result from the clearing house’s investment of guarantee fund contributions and initial margin or are other losses unrelated to the default of a clearing member. The Group has determined that it is not possible to reasonably estimate the maximum potential amount of future payments due under the membership arrangements. In addition, the Group believes that any potential requirement to make payments under these membership arrangements is remote.
Lease commitments
Lease commitments (CHF million)   
2018 570
2019 541
2020 498
2021 388
2022 353
Thereafter 2,884
Future operating lease commitments  5,234
Less minimum non-cancellable sublease rentals 216
Total net future minimum lease commitments  5,018
Rental expense for operating leases
in 2017 2016 2015
Rental expense for operating leases (CHF million)   
Minimum rental expense 575 550 558
Sublease rental income (65) (89) (92)
Total net expenses for operating leases  510 461 466
Operating lease commitments
The Group has contractual commitments under operating lease arrangements for certain premises and equipment. Under operating leases, the leased property is not reported on the balance sheet of the lessee. Lease payments required by the contract are generally expensed on a straight-line basis over the term of the lease. The related commitments for future rental expenses under operating leases are included in the table “Lease commitments”.
From time to time, the Group may enter into sale-leaseback transactions, in which an asset is sold and immediately leased back. If specific criteria are met, such asset is derecognized from the balance sheet and an operating lease is recognized. If the present value of the lease payments is equal to or higher than 10% of the fair value of the property sold, any resulting gains up to an amount equal to the present value of the lease payments are deferred and recognized in the statement of operations over the term of the lease as a reduction of rental expense. Gains on sale-leaseback transactions for which the lease payments are lower than 10% of the fair value of the property sold or gains in excess of the present value of the lease payments are recognized in the statements of operations upon completion of the sale.
Sale-leaseback transactions
During 2017, we did not enter into any sale-leaseback transactions. In 2016 and 2015, the Group entered into several smaller sale-leaseback transactions in respect of own property, which
332

were all recognized as operating lease arrangements with lease terms of between one and five years and between two and eighteen years, respectively. The total contractual rental expenses were CHF 30 million for the 2016 sale-leaseback transactions and CHF 80 million for the 2015 sale-leaseback transactions.
Other commitments

end of
Maturity
less
than
1 year
Maturity
between
1 to 3
years
Maturity
between
3 to 5
years
Maturity
greater
than
5 years

Total
gross
amount

Total
net
amount
1

Collateral
received
2017 (CHF million)   
Irrevocable commitments under documentary credits 4,976 113 1 1 5,091 5,000 3,218
Irrevocable loan commitments 2 24,296 33,649 40,425 8,031 106,401 101,270 42,307
Forward reverse repurchase agreements 12 0 0 0 12 12 12
Other commitments 219 13 11 104 347 347 0
Total other commitments  29,503 33,775 40,437 8,136 111,851 106,629 45,537
2016 (CHF million)   
Irrevocable commitments under documentary credits 4,356 0 0 0 4,356 4,281 2,748
Irrevocable loan commitments 2 30,382 34,464 44,523 7,606 116,975 113,016 46,068
Forward reverse repurchase agreements 84 0 0 0 84 84 84
Other commitments 487 24 75 51 637 637 0
Total other commitments  35,309 34,488 44,598 7,657 122,052 118,018 48,900
1
Total net amount is computed as the gross amount less any participations.
2
Irrevocable loan commitments do not include a total gross amount of CHF 108,663 million and CHF 95,743 million of unused credit limits as of December 31, 2017 and 2016, respectively, which were revocable at the Group's sole discretion upon notice to the client.
Other commitments
Irrevocable commitments under documentary credits
Irrevocable commitments under documentary credits include exposures from trade finance related to commercial letters of credit under which the Group guarantees payments to exporters against presentation of shipping and other documents.
Irrevocable loan commitments
Irrevocable loan commitments are irrevocable credit facilities extended to clients and include fully or partially undrawn commitments that are legally binding and cannot be unconditionally cancelled by the Group. Commitments to originate mortgage loans that will be held for sale are considered derivatives for accounting purposes and are not included in this disclosure. Such commitments are reflected as derivatives in the consolidated balance sheets.
Forward reverse repurchase agreements
Forward reverse repurchase agreements represent transactions in which the initial cash exchange of the >>>reverse repurchase transactions takes place on specified future dates. The Group enters into forward reverse repurchase agreements with counterparties that may have existing funded reverse repurchase agreements. Depending on the details of the counterparty contract with Credit Suisse, both a counterparty’s existing funded reverse repurchase agreement and any forward reverse repurchase agreements under contract with the same counterparty are considered.
Other commitments
Other commitments include private equity commitments, firm commitments in underwriting securities, commitments arising from deferred payment letters of credit and from acceptances in circulation and liabilities for call and put options on shares and other equity instruments.
333

33 Transfers of financial assets and variable interest entities
In the normal course of business, the Group enters into transactions with, and makes use of, SPEs. An SPE is an entity in the form of a trust or other legal structure designed to fulfill a specific limited need of the company that organized it and is generally structured to isolate the SPE’s assets from creditors of other entities, including the Group. The principal uses of SPEs are to assist the Group and its clients in securitizing financial assets and creating investment products. The Group also uses SPEs for other client-driven activity, such as to facilitate financings, and for Group tax or regulatory purposes.
Transfers of financial assets
Securitizations
The majority of the Group’s securitization activities involve mortgages and mortgage-related securities and are predominantly transacted using SPEs. In a typical securitization, the SPE purchases assets financed by proceeds received from the SPE’s issuance of debt and equity instruments, certificates, >>>CP and other notes of indebtedness. These assets and liabilities are recorded on the balance sheet of the SPE and not reflected on the Group’s consolidated balance sheet, unless either the Group sold the assets to the entity and the accounting requirements for sale were not met or the Group consolidates the SPE.
The Group purchases commercial and residential mortgages for the purpose of securitization and sells these mortgage loans to SPEs. These SPEs issue >>>commercial mortgage-backed securities (CMBS), >>>residential mortgage-backed securities (RMBS) and ABS that are collateralized by the assets transferred to the SPE and that pay a return based on the returns on those assets. Investors in these mortgage-backed securities or ABS typically have recourse to the assets in the SPEs, unless a third-party guarantee has been received to further enhance the creditworthiness of the assets. The investors and the SPEs have no recourse to the Group’s assets. The Group is typically an underwriter of, and makes a market in, these securities.
The Group also transacts in re-securitizations of previously issued RMBS securities. Typically, certificates issued out of an existing securitization vehicle are sold into a newly created and separate securitization vehicle. Often, these re-securitizations are initiated in order to repackage an existing security to give the investor a higher rated tranche.
The Group also uses SPEs for other asset-backed financings relating to client-driven activity and for Group tax or regulatory purposes. Types of structures included in this category include managed >>>collateralized loan obligations (CLOs), CLOs, leveraged finance, repack and other types of transactions, including life insurance structures, emerging market structures set up for financing, loan participation or loan origination purposes, and other alternative structures created for the purpose of investing in venture capital-like investments. CLOs are collateralized by loans transferred to the CLO vehicle and pay a return based on the returns on the loans. Leveraged finance structures are used to assist in the syndication of certain loans held by the Group, while repack structures are designed to give a client collateralized exposure to specific cash flows or credit risk backed by collateral purchased from the Group. In these asset-backed financing structures, investors typically only have recourse to the collateral of the SPE and do not have recourse to the Group’s assets.
When the Group transfers assets into an SPE, it must assess whether that transfer is accounted for as a sale of the assets. Transfers of assets may not meet sale requirements if the assets have not been legally isolated from the Group and/or if the Group’s continuing involvement is deemed to give it effective control over the assets. If the transfer is not deemed a sale, it is instead accounted for as a secured borrowing, with the transferred assets as collateral.
Gains and losses on securitization transactions depend, in part, on the carrying values of mortgages and loans involved in the transfer and are allocated between the assets sold and any beneficial interests retained according to the relative >>>fair values at the date of sale.
The Group does not retain material servicing responsibilities from securitization activities.
The following table provides the gains or losses and proceeds from the transfer of assets relating to 2017, 2016 and 2015 securitizations of financial assets that qualify for sale accounting and subsequent derecognition, along with the cash flows between the Group and the SPEs used in any securitizations in which the Group still has continuing involvement, regardless of when the securitization occurred.
334

Securitizations
in 2017 2016 2015
Gains and cash flows (CHF million)   
CMBS 
Net gain/(loss) 1 37 (2) 1
Proceeds from transfer of assets 6,604 3,954 9,813
Cash received on interests that continue to be held 28 69 148
RMBS 
Net gain/(loss) 1 0 (4) 5
Proceeds from transfer of assets 14,817 9,866 20,062
Purchases of previously transferred financial assets or its underlying collateral (2) 0 (1)
Servicing fees 3 2 3
Cash received on interests that continue to be held 368 529 457
Other asset-backed financings 
Net gain 1 31 26 24
Proceeds from transfer of assets 7,664 2,813 1,740
Fees 2 135 137 0
Cash received on interests that continue to be held 4 2 3
1
Includes underwriting revenues, deferred origination fees, gains or losses on the sale of collateral to the SPE and gains or losses on the sale of newly issued securities to third parties, but excludes net interest income on assets prior to the securitization. The gains or losses on the sale of the collateral is the difference between the fair value on the day prior to the securitization pricing date and the sale price of the loans.
2
Represents management fees and performance fees earned for investment management services provided to managed CLOs.
Continuing involvement in transferred financial assets
The Group may have continuing involvement in the financial assets that are transferred to an SPE, which may take several forms, including, but not limited to, servicing, recourse and guarantee arrangements, agreements to purchase or redeem transferred assets, derivative instruments, pledges of collateral and beneficial interests in the transferred assets. Beneficial interests, which are valued at fair value, include rights to receive all or portions of specified cash inflows received by an SPE, including, but not limited to, senior and subordinated shares of interest, principal, or other cash inflows to be “passed through” or “paid through”, premiums due to guarantors, CP obligations, and residual interests, whether in the form of debt or equity.
The Group’s exposure resulting from continuing involvement in transferred financial assets is generally limited to beneficial interests typically held by the Group in the form of instruments issued by SPEs that are senior, subordinated or residual tranches. These instruments are held by the Group typically in connection with underwriting or market-making activities and are included in trading assets in the consolidated balance sheets. Any changes in the fair value of these beneficial interests are recognized in the consolidated statements of operations.
Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements, such as collateral accounts, or from liquidity facilities, such as lines of credit or liquidity put option of asset purchase agreements. The SPE may also enter into a derivative contract in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors, or to limit or change the credit risk of the SPE. The Group may be the provider of certain credit enhancements as well as the counterparty to any related derivative contract.
The following table provides the outstanding principal balance of assets to which the Group continued to be exposed after the transfer of the financial assets to any SPE and the total assets of the SPE as of December 31, 2017 and 2016, regardless of when the transfer of assets occurred.
Principal amounts outstanding and total assets of SPEs resulting from continuing involvement
end of 2017 2016
CHF million   
CMBS 
Principal amount outstanding 19,918 28,779
Total assets of SPE 31,586 40,234
RMBS 
Principal amount outstanding 35,645 38,319
Total assets of SPE 36,770 39,680
Other asset-backed financings 
Principal amount outstanding 20,916 19,777
Total assets of SPE 39,330 36,049
Principal amount outstanding relates to assets transferred from the Group and does not include principal amounts for assets transferred from third parties.
Fair value of beneficial interests
The fair value measurement of the beneficial interests held at the time of transfer and as of the reporting date that result from any continuing involvement is determined using fair value estimation techniques, such as the present value of estimated future cash flows that incorporate assumptions that market participants customarily use in these valuation techniques. The fair value of the assets or liabilities that result from any continuing involvement does not include any benefits from financial instruments that the Group may utilize to hedge the inherent risks.
Key economic assumptions at the time of transfer
> Refer to “Fair value measurement” in Note 34 – Financial instruments for further information on the fair value hierarchy.
335

Key economic assumptions used in measuring fair value of beneficial interests at time of transfer
at time of transfer, in 2017 2016 2015
CMBS RMBS CMBS RMBS CMBS RMBS
CHF million, except where indicated
Fair value of beneficial interests 445 2,400 69 2,068 1,512 2,110
   of which level 2  444 2,221 69 1,827 1,442 1,695
   of which level 3  1 179 0 241 70 415
Weighted-average life, in years 10.0 6.0 8.4 7.2 8.2 9.0
Prepayment speed assumption (rate per annum), in % 1 2 1.0 22.9 2 5.0 33.0 2 1.1 30.1
Cash flow discount rate (rate per annum), in % 3 2.4 9.0 2.0 29.5 2.4 4.9 1.2 24.4 1.7 7.2 1.7 33.7
Expected credit losses (rate per annum), in % 0.6 3.4 0.8 6.3 0.0 0.0 2.5 11.2 0.7 5.9 0.5 15.9
Transfers of assets in which the Group does not have beneficial interests are not included in this table.
1
Prepayment speed assumption (PSA) is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the constant prepayment rate (CPR) assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR.
2
To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances.
3
The rate was based on the weighted-average yield on the beneficial interests.
Key economic assumptions as of the reporting date
The following table provides the sensitivity analysis of key economic assumptions used in measuring the fair value of beneficial interests held in SPEs as of December 31, 2017 and 2016.
Key economic assumptions used in measuring fair value of beneficial interests held in SPEs
end of    2017 2016



CMBS
1


RMBS
Other asset-
backed
financing
activities
2


CMBS
1


RMBS
Other asset-
backed
financing
activities
2
CHF million, except where indicated
Fair value of beneficial interests 579 1,985 665 258 1,851 443
   of which non-investment grade  100 508 50 70 523 32
Weighted-average life, in years 4.7 8.1 6.4 7.2 8.1 5.6
Prepayment speed assumption (rate per annum), in % 3 1.0 25.0 2.0 26.9
Impact on fair value from 10% adverse change (35.0) (28.7)
Impact on fair value from 20% adverse change (68.1) (55.9)
Cash flow discount rate (rate per annum), in % 4 2.7 12.3 1.9 30.6 1.0 11.7 2.3 28.8 1.7 47.2 0.8 21.2
Impact on fair value from 10% adverse change (8.8) (49.2) (12.4) (6.0) (48.1) (8.3)
Impact on fair value from 20% adverse change (17.0) (95.3) (24.5) (11.7) (93.5) (16.4)
Expected credit losses (rate per annum), in % 0.6 6.3 0.5 28.2 0.7 10.2 0.7 28.0 0.9 44.9 0.9 21.2
Impact on fair value from 10% adverse change (3.9) (23.6) (6.6) (3.5) (27.3) (5.1)
Impact on fair value from 20% adverse change (7.8) (46.1) (12.9) (6.9) (53.3) (10.0)
1
To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances.
2
CDOs and CLOs within this category are generally structured to be protected from prepayment risk.
3
PSA is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the CPR assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR.
4
The rate was based on the weighted-average yield on the beneficial interests.
336

These sensitivities are hypothetical and do not reflect economic hedging activities. Changes in fair value based on a 10% or 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the beneficial interests is calculated without changing any other assumption. In practice, changes in one assumption may result in changes in other assumptions (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
Transfers of financial assets where sale treatment was not achieved
The following table provides the carrying amounts of transferred financial assets and the related liabilities where sale treatment was not achieved as of December 31, 2017 and 2016.
> Refer to “Note 35 – Assets pledged and collateral” for further information.
Carrying amounts of transferred financial assets and liabilities where sale treatment was not achieved
end of 2017 2016
CHF million   
Other asset-backed financings 
Trading assets 347 240
Other assets 48 12
Liability to SPE, included in other liabilities (395) (252)
Transfers of financial assets accounted for as a sale retaining substantially all of the exposure to economic return
US GAAP requires the disclosure of a transaction accounted for as a sale that comprises both of the following: a transfer of financial assets to a transferee and an agreement entered into in contemplation of the initial transfer with the transferee that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. In the ordinary course of business, the Group transfers a financial asset accounted for as a sale and, in some instances, enters into an agreement in contemplation of that initial transfer with the same counterparty to retain substantially all of the economics of that transferred financial asset. As of December 31, 2016, the Group had an agreement in the form of a longevity swap on life insurance policies; this longevity swap was terminated in the fourth quarter of 2017.
The following table presents information about the transfers of financial assets accounted for as sales with agreements that result in the Group retaining substantially all of the exposure to the economic return on the transferred assets at the date of sale and remained outstanding as of December 31, 2016, gross cash proceeds received for assets derecognized at the date of sale and the fair values of transferred assets and the aforementioned agreements as of December 31, 2016. There were no such transactions outstanding as of December 31, 2017.
Transfer of financial assets accounted for as sales – by transaction type
      at date of
derecognition

end of


Carrying
amount
derecognized
Gross cash
proceeds
received for
assets
derecognized

Fair value
of
transferred
assets

Gross
derivative
assets
recorded
1
Gross
derivative
liabilities
recorded
1
2016 (CHF million)   
Sales with longevity swaps 277 340 374 556
Total transactions outstanding  277 340 374 556 2
1
Balances presented on a gross basis, before application of counterparty and cash collateral netting.
2
As of December 31, 2016, gross derivative assets of CHF 556 million were included in other products, as disclosed in Note 31 – Derivatives and hedging activities.
Securities sold under repurchase agreements and securities lending transactions accounted for as secured borrowings
For securities sold under repurchase agreements and securities lending transactions accounted for as secured borrowings, US GAAP requires the disclosure of the collateral pledged and the associated risks to which a transferor continues to be exposed after the transfer. This provides an understanding of the nature and risks of short-term collateralized financing obtained through these types of transactions.
Securities sold under repurchase agreements and securities lending transactions represent collateralized financing transactions used to earn net interest income, increase liquidity or facilitate trading activities. These transactions are collateralized principally by government debt securities, corporate debt securities, asset-backed securities, equity securities and other collateral and have terms ranging from on demand to a longer period of time.
In the event of the Group’s default or a decline in fair value of collateral pledged, the repurchase agreement provides the counterparty with the right to liquidate the collateral held or request
337

additional collateral. Similarly, in the event of the Group's default, the securities lending transaction provides the counterparty the right to liquidate the securities borrowed.
The following tables provide the gross obligation relating to securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral by the class of collateral pledged and by remaining contractual maturity as of December 31, 2017 and 2016.
Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by class of collateral pledged
end of 2017 2016
CHF billion   
Government debt securities 31.4 29.4
Corporate debt securities 15.1 13.9
Asset-backed securities 5.0 10.3
Equity securities 0.0 1.1
Other 0.6 0.3
Securities sold under repurchase agreements  52.1 55.0
Government debt securities 2.7 2.5
Corporate debt securities 0.4 0.5
Equity securities 4.8 6.0
Other 0.3 0.4
Securities lending transactions  8.2 9.4
Government debt securities 1.8 0.7
Corporate debt securities 0.6 0.4
Equity securities 35.6 31.5
Other 0.1 0.0
Obligation to return securities received as collateral, at fair value    38.1 32.6
Total  98.4 97.0
Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by remaining contractual maturity
   Remaining contractual maturities

end of

On demand
1 Up to
30 days
2 31–90
days
More than
90 days

Total
2017 (CHF billion)   
Securities sold under repurchase agreements 7.2 32.5 5.2 7.2 52.1
Securities lending transactions 5.7 2.2 0.0 0.3 8.2
Obligation to return securities received as collateral, at fair value 37.9 0.0 0.0 0.2 38.1
Total  50.8 34.7 5.2 7.7 98.4
2016 (CHF billion)   
Securities sold under repurchase agreements 6.8 31.9 8.4 7.9 55.0
Securities lending transactions 6.7 2.4 0.0 0.3 9.4
Obligation to return securities received as collateral, at fair value 32.2 0.4 0.0 0.0 32.6
Total  45.7 34.7 8.4 8.2 97.0
1
Includes contracts with no contractual maturity that may contain termination arrangements subject to a notice period.
2
Includes overnight transactions.
> Refer to “Note 26 – Offsetting of financial assets and financial liabilities” for further information on the gross amount of securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral and the net amounts disclosed in the consolidated balance sheets.
338

Variable interest entities
As a normal part of its business, the Group engages in various transactions that include entities that are considered VIEs and are grouped into three primary categories: >>>collateralized debt obligations (CDOs)/>>>CLOs, CP conduits and financial intermediation. VIEs are SPEs that typically either lack sufficient equity to finance their activities without additional subordinated financial support or are structured such that the holders of the voting rights do not substantively participate in the gains and losses of the entity. VIEs may be sponsored by the Group or third parties. Such entities are required to be assessed for consolidation, compelling the primary beneficiary to consolidate the VIE. The consolidation assessment requires an entity to determine whether it has the power to direct the activities that most significantly affect the economics of the VIE as well as whether the reporting entity has potentially significant benefits or losses in the VIE. The primary beneficiary assessment must be re-evaluated on an ongoing basis.
Application of the requirements for consolidation of VIEs may require the exercise of significant management judgment. In the event consolidation of a VIE is required, the exposure to the Group is limited to that portion of the VIE’s assets attributable to any variable interest held by the Group prior to any risk management activities to hedge the Group’s net exposure. Any interests held in the VIE by third parties, even though consolidated by the Group, will not typically impact its results of operations.
Transactions with VIEs are generally executed to facilitate securitization activities or to meet specific client needs, such as providing liquidity or investing opportunities, and, as part of these activities, the Group may hold interests in the VIEs. Securitization-related transactions with VIEs involve selling or purchasing assets as well as possibly entering into related >>>derivatives with those VIEs, providing liquidity, credit or other support. Other transactions with VIEs include derivative transactions in the Group’s capacity as the prime broker. The Group also enters into lending arrangements with VIEs for the purpose of financing projects or the acquisition of assets. Typically, the VIE’s assets are restricted in nature in that they are held primarily to satisfy the obligations of the entity. Further, the Group is involved with VIEs which were formed for the purpose of offering alternative investment solutions to clients. Such VIEs relate primarily to private equity investments, fund-linked vehicles or funds of funds, where the Group acts as structurer, manager, distributor, broker, market maker or liquidity provider.
As a consequence of these activities, the Group holds variable interests in VIEs. Such variable interests consist of financial instruments issued by VIEs and which are held by the Group, certain derivatives with VIEs or loans to VIEs. Guarantees issued by the Group to or on behalf of VIEs may also qualify as variable interests. For such guarantees, including derivatives that act as guarantees, the notional amount of the respective guarantees is presented to represent the exposure. In general, investors in consolidated VIEs do not have recourse to the Group in the event of a default, except where a guarantee was provided to the investors or where the Group is the counterparty to a derivative transaction involving VIEs.
Total assets of consolidated and non-consolidated VIEs for which the Group has involvement represent the total assets of the VIEs even though the Group’s involvement may be significantly less due to interests held by third-party investors. The asset balances for non-consolidated VIEs where the Group has significant involvement represent the most current information available to the Group regarding the remaining principal balance of assets owned. In most cases, the asset balances represent an amortized cost basis without regards to impairments in fair value, unless fair value information is readily available.
The Group’s maximum exposure to loss is different from the carrying value of the assets of the VIE. This maximum exposure to loss consists of the carrying value of the Group variable interests held as trading assets, derivatives and loans and the notional amount of guarantees to VIEs, rather than the amount of total assets of the VIEs. The maximum exposure to loss does not reflect the Group’s risk management activities, including effects from financial instruments that the Group may utilize to economically hedge the risks inherent in these VIEs. The economic risks associated with VIE exposures held by the Group, together with all relevant >>>risk mitigation initiatives, are included in the Group’s risk management framework.
The Group has not provided financial or other support to consolidated or non-consolidated VIEs that it was not contractually required to provide.
Collateralized debt and loan obligations
The Group engages in CDO/CLO transactions to meet client and investor needs, earn fees and sell financial assets and, for CLOs, loans. The Group may act as underwriter, placement agent or asset manager and may warehouse assets prior to the closing of a transaction. As part of its structured finance business, the Group purchases loans and other debt obligations from and on behalf of clients for the purpose of securitization. The loans and other debt obligations are sold to VIEs, which in turn issue CDO/CLOs to fund the purchase of assets such as investment grade and high yield corporate debt instruments.
Typically, the collateral manager in a managed CDO/CLO is deemed to be the entity that has the power to direct the activities that most affect the economics of the entity. In a static CDO/CLO this “power” role is more difficult to analyze and may be the sponsor of the entity or the >>>CDS counterparty.
CDO/CLOs provide credit risk exposure to a portfolio of ABS or loans (cash CDO/CLOs) or a reference portfolio of securities or loans (synthetic CDO/CLOs). Cash CDO/CLO transactions hold actual securities or loans whereas synthetic CDO/CLO transactions use CDS to exchange the underlying credit risk instead of using cash assets. The Group may also act as a derivative counterparty to the VIEs, which are typically not variable interests, and may invest in portions of the notes or equity issued by the VIEs.
339

The CDO/CLO entities may have actively managed portfolios or static portfolios.
The securities issued by these VIEs are payable solely from the cash flows of the related collateral, and third-party creditors of these VIEs do not have recourse to the Group in the event of default.
The Group’s exposure in CDO/CLO transactions is typically limited to interests retained in connection with its underwriting or market-making activities. Unless the Group has been deemed to have “power” over the entity and these interests are potentially significant, the Group is not the primary beneficiary of the vehicle and does not consolidate the entity. The Group’s maximum exposure to loss does not include any effects from financial instruments used to economically hedge the risks of the VIEs.
Commercial paper conduit
In the second quarter of 2016, the Group established Alpine Securitization Ltd (Alpine), a multi-seller asset-backed CP conduit used for client and Group financing purposes. The Group acts as the administrator and provider of liquidity and credit enhancement facilities for Alpine. Alpine discloses to CP investors certain portfolio and asset data and submits its portfolio to rating agencies for public ratings. This CP conduit purchases assets such as loans and receivables or enters into reverse repurchase agreements and finances such activities through the issuance of CP backed by these assets. The CP conduit can enter into liquidity facilities with third-party entities pursuant to which it may purchase assets from these entities to provide them with liquidity and credit support. The financing transactions are structured to provide credit support to the CP conduit in the form of over-collateralization and other asset-specific enhancements. Alpine is a separate legal entity that is wholly owned by the Group. However, its assets are available to satisfy only the claims of its creditors. In addition, the Group, as administrator and liquidity facility provider, has significant exposure to and power over the activities of Alpine. Alpine is considered a VIE for accounting purposes and the Group is deemed the primary beneficiary and consolidates this entity.
The overall average maturity of the conduit’s outstanding CP was approximately 148 days as of December 31, 2017. Alpine was rated A-1(sf) by Standard & Poor’s and P-1(sf) by Moody’s and had exposures in a reverse repurchase agreement, credit card receivables, car loans, commercial paper, student loans and advance financing receivables.
The Group’s commitment to this CP conduit consists of obligations under liquidity agreements. The liquidity agreements are asset-specific arrangements, which require the Group to purchase assets from the CP conduit in certain circumstances, including a lack of liquidity in the CP market such that the CP conduit cannot refinance its obligations or, in some cases, a default of an underlying asset. The asset-specific credit enhancements provided by the client seller of the assets remain unchanged as a result of such a purchase. In entering into such agreements, the Group reviews the credit risk associated with these transactions on the same basis that would apply to other extensions of credit.
The Group’s economic risks associated with the CP conduit are included in the Group’s risk management framework including counterparty, economic risk capital and scenario analysis.
Financial intermediation
The Group has significant involvement with VIEs in its role as a financial intermediary on behalf of clients.
The Group considers the likelihood of incurring a loss equal to the maximum exposure to be remote because of the Group’s risk mitigation efforts, including, but not limited to, economic hedging strategies and collateral arrangements. The Group’s economic risks associated with consolidated and non-consolidated VIE exposures arising from financial intermediation, together with all relevant risk mitigation initiatives, are included in the Group’s risk management framework.
Financial intermediation consists of securitizations, funds, loans, and other vehicles.
Securitizations
Securitizations are primarily >>>CMBS, >>>RMBS and ABS vehicles. The Group acts as an underwriter, market maker, liquidity provider, derivative counterparty and/or provider of credit enhancements to VIEs related to certain securitization transactions.
The maximum exposure to loss is the carrying value of the loan securities and derivative positions that are variable interests, if any, plus the exposure arising from any credit enhancements the Group provided. The Group’s maximum exposure to loss does not include any effects from financial instruments used to economically hedge the risks of the VIEs.
The activities that have the most significant impact on the securitization vehicle are the decisions relating to defaulted loans, which are controlled by the servicer. The party that controls the servicing has the ability to make decisions that significantly affect the result of the activities of the securitization vehicle. If a securitization vehicle has multiple parties that control servicing over specific assets, the Group determines it has power when it has control over the servicing of greater than 50% of the assets in the securitization vehicle. When a servicer or its related party also has an economic interest that has the potential to absorb a significant portion of the gains and/or losses, it will be deemed the primary beneficiary and consolidate the vehicle. If the Group determines that it controls the relevant servicing, it then determines if it has the obligation to absorb losses from, or the right to receive benefits of, the securitization vehicle that could potentially be significant to the vehicle, primarily by evaluating the amount and nature of securities issued by the vehicle that it holds. Factors considered in this analysis include the level of subordination of the securities held as well as the size of the position, based on the percentage of the class of securities and the total deal classes of securities issued. The more subordinated the level of securities held, the more likely it is that the Group will be the primary beneficiary. This consolidation analysis is performed each reporting period based on changes in inventory and the levels of assets remaining in the securitization. The Group typically consolidates securitization vehicles when it is
340

the servicer and has holdings stemming from its role as underwriter. Short-term market making holdings in vehicles are not typically considered to be potentially significant for the purposes of this assessment.
In the case of re-securitizations of previously issued RMBS securities, the re-securitization vehicles are passive in nature and do not have any significant ongoing activities that require management, and decisions relating to the design of the securitization transaction at its inception are the key power relating to the vehicle. Activities at inception include selecting the assets and determining the capital structure. The power over a re-securitization vehicle is typically shared between the Group and the investor(s) involved in the design and creation of the vehicle. The Group concludes that it is the primary beneficiary of a re-securitization vehicle when it owns substantially all of the bonds issued from the vehicle.
Funds
Funds include investment structures such as mutual funds, funds of funds, private equity funds and fund-linked products where the investors’ interest is typically in the form of debt rather than equity, thereby making them VIEs. The Group may have various relationships with such VIEs in the form of structurer, investment advisor, investment manager, administrator, custodian, underwriter, placement agent, market maker and/or as prime broker. These activities include the use of VIEs in structuring fund-linked products, hedge funds of funds or private equity investments to provide clients with investment opportunities in alternative investments. In such transactions, a VIE holds underlying investments and issues securities that provide the investors with a return based on the performance of those investments.
The maximum exposure to loss consists of the fair value of instruments issued by such structures that are held by the Group as a result of underwriting or market-making activities, financing provided to the vehicles and the Group’s exposure resulting from principal protection and redemptions features. The investors typically retain the risk of loss on such transactions, but for certain fund types, the Group may provide principal protection on the securities to limit the investors’ exposure to downside market risk. The Group’s maximum exposure to loss does not include any effects from financial instruments used to economically hedge the risk of the VIEs.
Another model is used to assess funds for consolidation under US GAAP. Rather than the consolidation model which incorporates power and the potential to absorb significant risk and rewards, a previous consolidation model is used which results in the Group being the primary beneficiary and consolidating the funds if it holds more than 50% of their outstanding issuances.
Loans
Loans are single-financing vehicles where the Group provides financing for specified assets or business ventures and the respective owner of the assets or manager of the businesses provides the equity in the vehicle. These tailored lending arrangements are established to purchase, lease or otherwise finance and manage clients’ assets.
The maximum exposure to loss is the carrying value of the Group’s loan exposure, which is subject to the same credit risk management procedures as loans issued directly to clients. The clients’ creditworthiness is carefully reviewed, loan-to-value ratios are strictly set and, in addition, clients provide equity, additional collateral or guarantees, all of which significantly reduce the Group’s exposure. The Group considers the likelihood of incurring a loss equal to the maximum exposure to be remote because of the Group’s risk mitigation efforts, which includes over-collateralization and effective monitoring to ensure that a sufficient loan-to-value ratio is maintained.
The third-party sponsor of the VIE will typically have control over the assets during the life of the structure and have the potential to absorb significant gains and losses; the Group is typically not the primary beneficiary of these structures and will not have to consolidate them. However, a change in the structure, such as a default of the sponsor, may result in the Group gaining control over the assets. If the Group’s lending is significant, it may then be required to consolidate the entity.
Other
Other includes additional vehicles where the Group provides financing and trust preferred issuance vehicles. Trust preferred issuance vehicles are utilized to assist the Group in raising capital-efficient financing. The VIE issues preference shares which are guaranteed by the Group and uses the proceeds to purchase the debt of the Group. The Group’s guarantee of its own debt is not considered a variable interest and, as it has no holdings in these vehicles, the Group has no maximum exposure to loss. Non-consolidated VIEs include only the total assets of trust preferred issuance vehicles, as the Group has no variable interests with these entities.
341

Consolidated VIEs
The Group has significant involvement with VIEs in its role as a financial intermediary on behalf of clients. The Group consolidates all VIEs related to financial intermediation for which it was the primary beneficiary.
The consolidated VIEs table provides the carrying amounts and classifications of the assets and liabilities of consolidated VIEs as of December 31, 2017 and 2016.
Consolidated VIEs in which the Group was the primary beneficiary
   Financial intermediation

end of
CDO/
CLO
CP
Conduit
Securi-
tizations

Funds

Loans

Other

Total
2017 (CHF million)   
Cash and due from banks 22 0 96 32 70 12 232
Trading assets 17 0 10 179 1,122 20 1,348
Investment securities 0 0 381 0 0 0 381
Other investments 0 0 0 350 1,197 286 1,833
Net loans 0 0 0 3 21 243 267
Premises and equipment 0 0 0 0 151 0 151
Other assets 83 4 1,070 21 32 1,188 2,398
   of which loans held-for-sale  83 0 152 0 3 0 238
Total assets of consolidated VIEs  122 4 1,557 585 2,593 1,749 6,610
Trading liabilities 0 0 0 0 3 0 3
Long-term debt 51 0 752 0 26 34 863
Other liabilities 0 0 1 26 111 66 204
Total liabilities of consolidated VIEs  51 0 753 26 140 100 1,070
2016 (CHF million)   
Cash and due from banks 43 1 41 52 50 182 369
Trading assets 0 0 0 478 933 1,333 2,744
Investment securities 0 0 511 0 0 0 511
Other investments 0 0 0 228 1,446 332 2,006
Net loans 0 0 0 0 30 254 284
Premises and equipment 0 0 0 0 199 0 199
Other assets 0 1 1,483 48 51 1,034 2,617
   of which loans held-for-sale  0 0 415 0 7 0 422
Total assets of consolidated VIEs  43 2 2,035 806 2,709 3,135 8,730
Trading liabilities 0 0 0 0 18 0 18
Short-term borrowings 0 0 0 1 0 0 1
Long-term debt 54 0 1,639 7 57 2 1,759
Other liabilities 0 0 1 15 124 104 244
Total liabilities of consolidated VIEs  54 0 1,640 23 199 106 2,022
342

Non-consolidated VIEs
The non-consolidated VIEs table provides the carrying amounts and classification of the assets of variable interests recorded in the Group’s consolidated balance sheets, maximum exposure to loss and total assets of the non-consolidated VIEs.
Total variable interest assets for which the company has involvement represent the carrying value of the variable interests in non-consolidated VIEs that are recorded in the consolidated balance sheet of the Group (for example, direct holdings in investment funds, loans and other receivables).
Maximum exposure to loss represents the carrying value of total variable interest assets in non-consolidated VIEs of the Group and the notional amounts of guarantees and off-balance sheet commitments which are variable interests that have been extended to non-consolidated VIEs. Such amounts, particularly notional amounts of derivatives and guarantees, do not represent the anticipated losses in connection with these transactions as they do not take into consideration the effect of collateral, recoveries or the probability of loss. In addition, they exclude the effect of offsetting financial instruments that are held to mitigate these risks and have not been reduced by unrealized losses previously recorded by the Group in connection with guarantees or derivatives.
Total assets of non-consolidated VIEs are the assets of the non-consolidated VIEs themselves and are typically unrelated to the exposures the Group has with these entities due to variable interests held by third-party investors. Accordingly, these amounts are not considered for risk management purposes.
Certain VIEs have not been included in the following table, including VIEs structured by third parties in which the Group’s interest is in the form of securities held in the Group’s inventory, certain repurchase financings to funds and single-asset financing vehicles not sponsored by the Group to which the Group provides financing but has very little risk of loss due to over-collateralization and guarantees, failed sales where the Group does not have any other holdings and other entities out of scope.
Non-consolidated VIEs
   Financial intermediation

end of
CDO/
CLO
Securi-
tizations

Funds

Loans

Other

Total
2017 (CHF million)   
Trading assets 746 4,573 1,014 224 2,388 8,945
Net loans 620 1,563 2,438 4,591 328 9,540
Other assets 9 11 67 1 437 525
Total variable interest assets  1,375 6,147 3,519 4,816 3,153 19,010
Maximum exposure to loss  1,375 7,617 3,526 7,061 4,079 23,658
Total assets of non-consolidated VIEs  15,874 64,839 66,703 16,270 35,198 198,884
2016 (CHF million)   
Trading assets 440 3,881 1,526 528 191 6,566
Net loans 4 105 2,007 6,588 1 608 9,312
Other assets 5 14 20 4 520 563
Total variable interest assets  449 4,000 3,553 7,120 1 1,319 16,441
Maximum exposure to loss  449 7,171 3,553 11,169 1 1,821 24,163
Total assets of non-consolidated VIEs  9,774 65,820 68,546 34,216 1 37,087 215,443
1
Prior period has been corrected.
343

34 Financial instruments
The disclosure of the Group’s financial instruments below includes the following sections:
Concentration of credit risk;
Fair value measurement (including fair value hierarchy, transfers between levels; level 3 reconciliation; qualitative and quantitative disclosures of valuation techniques and nonrecurring fair value changes);
Fair value option; and
Disclosures about >>>fair value of financial instruments not carried at fair value.
Concentrations of credit risk
Credit risk concentrations arise when a number of counterparties are engaged in similar business activities, are located in the same geographic region or when there are similar economic features that would cause their ability to meet contractual obligations to be similarly impacted by changes in economic conditions.
The Group regularly monitors the credit risk portfolio by counterparty, industry, country and product to ensure that such potential concentrations are identified, using a comprehensive range of quantitative tools and metrics. Credit limits relating to counterparties and products are managed through counterparty limits which set the maximum credit exposures the Group is willing to assume to specific counterparties over specified periods. Country limits are established to avoid any undue country risk concentration.
From an industry point of view, the combined credit exposure of the Group is diversified. A large portion of the credit exposure is with individual clients, particularly through residential mortgages in Switzerland, or relates to transactions with financial institutions. In both cases, the customer base is extensive and the number and variety of transactions are broad. For transactions with financial institutions, the business is also geographically diverse, with operations focused in the Americas, Europe and, to a lesser extent, Asia Pacific.
Fair value measurement
A significant portion of the Group’s financial instruments is carried at >>>fair value. Deterioration of financial markets could significantly impact the fair value of these financial instruments and the results of operations.
The fair value of the majority of the Group’s financial instruments is based on quoted prices in active markets or observable inputs. These instruments include government and agency securities, certain >>>CP, most investment grade corporate debt, certain high yield debt securities, exchange-traded and certain >>>OTC derivative instruments and most listed equity securities.
In addition, the Group holds financial instruments for which no prices are available and which have little or no observable inputs. For these instruments, the determination of fair value requires subjective assessment and judgment, depending on liquidity, pricing assumptions, the current economic and competitive environment and the risks affecting the specific instrument. In such circumstances, valuation is determined based on management’s own judgments about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These instruments include certain OTC derivatives, including equity and credit derivatives, certain corporate equity-linked securities, mortgage-related and >>>CDO securities, private equity investments, certain loans and credit products, including leveraged finance, certain syndicated loans and certain high yield bonds, and life finance instruments. The fair value measurement disclosures exclude derivative transactions that are daily settled.
The fair value of financial assets and liabilities is impacted by factors such as benchmark interest rates, prices of financial instruments issued by third parties, commodity prices, foreign exchange rates and index prices or rates. In addition, valuation adjustments are an integral part of the valuation process when market prices are not indicative of the credit quality of a counterparty, and are applied to both OTC derivatives and debt instruments. The impact of changes in a counterparty’s credit spreads (known as >>>credit valuation adjustments) is considered when measuring the fair value of assets, and the impact of changes in the Group’s own credit spreads (known as >>>debit valuation adjustments) is considered when measuring the fair value of its liabilities. For OTC derivatives, the impact of changes in both the Group’s and the counterparty’s credit standing is considered when measuring their fair value, based on current >>>CDS prices. The adjustments also take into account contractual factors designed to reduce the Group’s credit exposure to a counterparty, such as collateral held and master >>>netting agreements. For hybrid debt instruments with embedded derivative features, the impact of changes in the Group’s credit standing is considered when measuring their fair value, based on current funded debt spreads.
US GAAP permits a reporting entity to measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or paid to transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date. As such, the Group continues to apply bid and offer adjustments to net portfolios of cash securities and/or derivative instruments to adjust the value of the net position from a mid-market price to the appropriate bid or offer level that would be realized under normal market conditions for the net long or net short position for a specific market risk. In addition, the Group reflects the net exposure to credit risk for its derivative instruments where the Group has legally enforceable agreements with its counterparties that mitigate credit risk exposure in the event of default. Valuation adjustments are recorded in a reasonable and consistent manner that results in an allocation to the relevant disclosures in the notes to the financial statements as if the valuation adjustment had been allocated to the individual unit of account.
344

Fair value hierarchy
The levels of the fair value hierarchy are defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access. This level of the fair value hierarchy provides the most reliable evidence of fair value and is used to measure fair value whenever available.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include: (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current or price quotations vary substantially either over time or among market makers, or in which little information is publicly available; (iii) inputs other than quoted prices that are observable for the asset or liability; or (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Inputs that are unobservable for the asset or liability. These inputs reflect the Group’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available in the circumstances, which include the Group’s own data. The Group’s own data used to develop unobservable inputs is adjusted if information indicates that market participants would use different assumptions.
The Group records net open positions at bid prices if long, or at ask prices if short, unless the Group is a market maker in such positions, in which case mid-pricing is utilized. Fair value measurements are not adjusted for transaction costs.
345

Assets and liabilities measured at fair value on a recurring basis

end of 2017




Level 1




Level 2




Level 3



Netting
impact
1 Assets
measured
at net
asset value
per share
2



Total
Assets (CHF million)   
Cash and due from banks 0 212 0 212
Interest-bearing deposits with banks 0 0 0 0
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 0 77,498 0 77,498
   Debt  576 802 0 1,378
      of which corporates  0 726 0 726
   Equity  36,121 529 46 36,696
Securities received as collateral 36,697 1,331 46 38,074
   Debt  29,828 40,645 2,292 72,765
      of which foreign governments  29,561 4,256 270 34,087
      of which corporates  179 10,231 1,412 11,822
      of which RMBS  0 21,399 320 21,719
      of which CMBS  0 2,501 16 2,517
      of which CDO  0 2,255 126 2,381
   Equity  51,025 3,481 163 1,053 55,722
   Derivatives  3,577 141,347 3,289 (128,592) 19,621
      of which interest rate products  1,219 84,932 801
      of which foreign exchange products  19 30,302 188
      of which equity/index-related products  2,338 18,251 833
      of which credit derivatives  0 7,107 634
   Other  2,922 2,294 3,010 8,226
Trading assets 87,352 187,767 8,754 (128,592) 1,053 156,334
   Debt  244 1,780 42 2,066
      of which foreign governments  97 1,139 0 1,236
      of which corporates  0 238 0 238
      of which RMBS  0 167 40 207
      of which CMBS  0 171 2 173
   Equity  6 119 0 125
Investment securities 250 1,899 42 2,191
   Private equity  0 0 29 351 380
      of which equity funds  0 0 22 141 163
   Hedge funds  0 0 0 391 391
      of which debt funds  0 0 0 239 239
   Other equity investments  25 9 271 1,122 1,427
      of which private  18 9 271 1,122 1,420
   Life finance instruments  0 7 1,301 1,308
Other investments 25 16 1,601 1,864 3,506
Loans 0 10,777 4,530 15,307
      of which commercial and industrial loans  0 3,437 2,207 5,644
      of which financial institutions  0 4,890 1,480 6,370
Other intangible assets (mortgage servicing rights) 0 0 158 158
Other assets 101 7,570 1,511 (164) 9,018
      of which loans held-for-sale  0 5,800 1,350 7,150
Total assets at fair value  124,425 287,070 16,642 (128,756) 2,917 302,298
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
346

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2017




Level 1




Level 2




Level 3



Netting
impact
1 Liabilities
measured
at net
asset value
per share
2



Total
Liabilities (CHF million)   
Due to banks 0 197 0 197
Customer deposits 0 3,056 455 3,511
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 0 15,262 0 15,262
   Debt  576 802 0 1,378
      of which corporates  0 726 0 726
   Equity  36,121 529 46 36,696
Obligation to return securities received as collateral 36,697 1,331 46 38,074
   Debt  5,160 4,139 2 9,301
      of which foreign governments  5,108 746 0 5,854
      of which corporates  12 3,334 2 3,348
   Equity  14,217 883 55 9 15,164
   Derivatives  3,731 144,615 3,169 (136,861) 14,654
      of which interest rate products  1,254 80,534 317
      of which foreign exchange products  8 35,707 100
      of which equity/index-related products  2,468 19,459 1,301
      of which credit derivatives  0 7,982 898
Trading liabilities 23,108 149,637 3,226 (136,861) 9 39,119
Short-term borrowings 0 10,174 845 11,019
Long-term debt 0 51,127 12,501 63,628
      of which treasury debt over two years  0 936 0 936
      of which structured notes over one year and up to two years  0 6,216 149 6,365
      of which structured notes over two years  0 32,782 12,259 45,041
      of which other debt instruments over two years  0 2,221 61 2,282
      of which other subordinated bonds  0 5,567 0 5,567
      of which non-recourse liabilities  0 833 30 863
Other liabilities 0 7,379 1,478 (233) 8,624
      of which failed sales  0 439 223 662
Total liabilities at fair value  59,805 238,163 18,551 (137,094) 9 179,434
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
347

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2016




Level 1




Level 2




Level 3



Netting
impact
1 Assets
measured
at net
asset value
per share
2



Total
Assets (CHF million)   
Cash and due from banks 0 200 0 200
Interest-bearing deposits with banks 0 25 1 26
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 0 87,157 174 87,331
   Debt  619 419 1 1,039
      of which corporates  1 375 1 377
   Equity  30,706 750 69 31,525
Securities received as collateral 31,325 1,169 70 32,564
   Debt  29,498 32,193 3,977 65,668
      of which foreign governments  29,226 2,408 292 31,926
      of which corporates  180 12,326 1,674 14,180
      of which RMBS  0 14,153 605 14,758
      of which CMBS  0 2,227 65 2,292
      of which CDO  0 1,074 1,165 2,239
   Equity  58,490 3,795 240 1,346 63,871
   Derivatives  5,631 224,142 4,305 (207,296) 26,782
      of which interest rate products  3,074 133,834 748
      of which foreign exchange products  18 61,448 355
      of which equity/index-related products  2,538 20,519 914
      of which credit derivatives  0 7,388 688
   Other  2,267 2,319 4,243 8,829
Trading assets 95,886 262,449 12,765 (207,296) 1,346 165,150
   Debt  294 2,034 72 2,400
      of which foreign governments  103 1,240 0 1,343
      of which corporates  0 287 0 287
      of which RMBS  0 425 72 497
      of which CMBS  0 14 0 14
   Equity  3 86 0 89
Investment securities 297 2,120 72 2,489
   Private equity  0 0 8 574 582
      of which equity funds  0 0 0 240 240
   Hedge funds  0 0 0 546 546
      of which debt funds  0 0 0 292 292
   Other equity investments  22 64 310 984 1,380
      of which private  15 64 310 984 1,373
   Life finance instruments  0 0 1,588 1,588
Other investments 22 64 1,906 2,104 4,096
Loans 0 12,943 6,585 19,528
      of which commercial and industrial loans  0 6,051 3,816 9,867
      of which financial institutions  0 4,403 1,829 6,232
Other intangible assets (mortgage servicing rights) 0 0 138 138
Other assets 260 8,359 1,679 (915) 9,383
      of which loans held-for-sale  0 4,640 1,316 5,956
Total assets at fair value  127,790 374,486 23,390 (208,211) 3,450 320,905
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
348

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2016




Level 1




Level 2




Level 3



Netting
impact
1 Liabilities
measured
at net
asset value
per share
2



Total
Liabilities (CHF million)   
Due to banks 0 437 0 437
Customer deposits 0 3,166 410 3,576
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 0 19,634 0 19,634
   Debt  619 419 1 1,039
      of which corporates  1 375 1 377
   Equity  30,706 750 69 31,525
Obligation to return securities received as collateral 31,325 1,169 70 32,564
   Debt  4,376 3,564 23 7,963
      of which foreign governments  4,374 547 0 4,921
      of which corporates  0 2,760 23 2,783
   Equity  16,365 191 41 1 16,598
   Derivatives  5,407 229,051 3,673 (217,762) 20,369
      of which interest rate products  2,946 126,422 538
      of which foreign exchange products  18 71,006 150
      of which equity/index-related products  2,442 22,219 1,181
      of which credit derivatives  0 8,350 851
Trading liabilities 26,148 232,806 3,737 (217,762) 1 44,930
Short-term borrowings 0 3,545 516 4,061
Long-term debt 0 59,453 13,415 72,868
      of which treasury debt over two years  0 3,217 0 3,217
      of which structured notes over one year and up to two years  0 6,852 326 7,178
      of which structured notes over two years  0 39,824 12,434 52,258
      of which other debt instruments over two years  0 2,311 634 2,945
      of which other subordinated bonds  0 5,482 1 5,483
      of which non-recourse liabilities  0 1,742 17 1,759
Other liabilities 0 8,823 1,684 (1,014) 9,493
      of which failed sales  0 507 219 726
Total liabilities at fair value  57,473 329,033 19,832 (218,776) 1 187,563
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
Transfers between level 1 and level 2
All transfers between level 1 and level 2 are reported through the last day of the reporting period.
In 2017, transfers to level 1 out of level 2 were from trading assets and trading liabilities. The transfers from trading assets were primarily in exchange-traded derivatives and equity securities as prices became observable. The transfers from trading liabilities were primarily in exchange traded derivatives as prices became observable.
In 2017, transfers out of level 1 to level 2 were primarily from trading assets and trading liabilities. The transfers from trading assets were primarily in equity and debt securities for which suitable closing prices were unobtainable as of the end of 2017. The transfers from trading liabilities were primarily in equity securities and exchange-traded derivatives for which suitable closing prices were unobtainable as of the end of 2017.
Transfers between level 1 and level 2
in    2017 2016
Transfers
to level 1
out of level 2
Transfers
out of level 1
to level 2
Transfers
to level 1
out of level 2
Transfers
out of level 1
to level 2
Assets (CHF million)   
Securities received as collateral  0 136 0 0
   Debt  16 237 2,012 1,698
   Equity  924 412 723 1,074
   Derivatives  3,202 13 3,404 0
Trading assets  4,142 662 6,139 2,772
Investment securities  0 0 0 1,229
Liabilities (CHF million)   
Obligations to return securities received as collateral    0 136 0 0
   Debt  3 44 2 46
   Equity  102 165 108 166
   Derivatives  3,814 91 4,047 29
Trading liabilities  3,919 300 4,157 241
349

Assets and liabilities measured at fair value on a recurring basis for level 3
     
Trading revenues

Other revenues
Accumulated other
comprehensive income

2017

Balance at
beginning
of period


Transfers
in


Transfers
out



Purchases



Sales



Issuances



Settlements

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other
Foreign
currency
translation
impact

Balance
at end
of period
Assets (CHF million)   
Interest-bearing deposits with banks 1 40 0 0 (41) 0 0 0 0 0 0 0 0 0 0
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 174 0 0 0 0 26 (193) 0 0 0 0 0 0 (7) 0
Securities received as collateral 70 3 (1) 65 (86) 0 0 0 0 0 0 0 0 (5) 46
   Debt  3,977 608 (1,074) 2,747 (3,705) 0 0 (4) (80) 6 1 0 0 (184) 2,292
      of which corporates  1,674 276 (654) 2,203 (2,005) 0 0 (4) 14 6 0 0 0 (98) 1,412
      of which RMBS  605 280 (229) 85 (305) 0 0 3 (95) 0 0 0 0 (24) 320
      of which CMBS  65 6 (17) 2 (13) 0 0 (3) (21) 0 0 0 0 (3) 16
      of which CDO  1,165 39 (157) 174 (1,047) 0 0 0 (16) 0 0 0 0 (32) 126
   Equity  240 49 (35) 146 (260) 0 0 0 33 0 0 0 0 (10) 163
   Derivatives  4,305 416 (839) 0 0 1,317 (1,817) 123 (63) 0 0 0 0 (153) 3,289
      of which interest rate products  748 56 (53) 0 0 118 (183) 6 104 0 0 0 0 5 801
      of which equity/index-related products  914 142 (98) 0 0 443 (597) 14 58 0 0 0 0 (43) 833
      of which credit derivatives  688 216 (252) 0 0 381 (297) 38 (110) 0 0 0 0 (30) 634
   Other  4,243 86 (98) 12,917 (14,067) 0 (251) 2 362 0 0 0 0 (184) 3,010
Trading assets 12,765 1,159 (2,046) 15,810 (18,032) 1,317 (2,068) 121 252 6 1 0 0 (531) 8,754
Investment securities 72 0 (17) 100 (113) 0 (90) (1) 95 0 0 0 0 (4) 42
   Equity  318 23 (22) 165 (171) 0 0 0 (7) 0 9 0 0 (15) 300
   Life finance instruments  1,588 0 0 185 (418) 0 0 0 16 0 0 0 0 (70) 1,301
Other investments 1,906 23 (22) 350 (589) 0 0 0 9 0 9 0 0 (85) 1,601
Loans 6,585 1,130 (947) 106 (580) 1,151 (2,743) 15 85 0 0 0 0 (272) 4,530
   of which commercial and industrial loans  3,816 448 (482) 71 (395) 590 (1,705) (2) 21 0 0 0 0 (155) 2,207
   of which financial institutions  1,829 352 (126) 33 (176) 444 (821) 28 (6) 0 0 0 0 (77) 1,480
Other intangible assets (mortgage servicing rights) 138 0 0 23 (1) 0 0 0 0 0 4 0 0 (6) 158
Other assets 1,679 347 (132) 759 (1,056) 1,054 (885) (1) (172) 0 (4) 0 0 (78) 1,511
   of which loans held-for-sale 2 1,316 286 (113) 667 (904) 1,053 (885) (2) 0 0 (4) 0 0 (64) 1,350
Total assets at fair value  23,390 2,702 (3,165) 17,213 (20,498) 3,548 (5,979) 134 269 6 10 0 0 (988) 16,642
Liabilities (CHF million)   
Customer deposits 410 0 0 0 0 35 (3) 0 (61) 0 0 0 42 32 455
Obligation to return securities received as collateral 70 3 (1) 65 (86) 0 0 0 0 0 0 0 0 (5) 46
Trading liabilities 3,737 566 (1,049) 113 (134) 1,193 (1,625) 140 461 0 (9) 0 0 (167) 3,226
   of which interest rate derivatives  538 57 (36) 0 0 45 (258) 6 (14) 0 0 0 0 (21) 317
   of which foreign exchange derivatives  150 11 (1) 0 0 9 (12) 0 (52) 0 0 0 0 (5) 100
   of which equity/index-related derivatives  1,181 54 (188) 0 0 543 (692) 17 441 0 0 0 0 (55) 1,301
   of which credit derivatives  851 377 (392) 0 0 350 (376) 61 66 0 0 0 0 (39) 898
Short-term borrowings 516 95 (172) 0 0 865 (472) (2) 19 4 10 0 6 (24) 845
Long-term debt 13,415 1,172 (3,004) 0 0 4,540 (4,479) (12) 1,400 0 0 88 21 (640) 12,501
   of which structured notes over two years  12,434 995 (2,886) 0 0 3,913 (3,079) (14) 1,390 0 0 87 17 (598) 12,259
Other liabilities 1,684 150 (102) 211 (304) 9 (403) (25) (6) 0 330 0 0 (66) 1,478
   of which failed sales  219 80 (70) 189 (218) 0 0 (7) 40 0 0 0 0 (10) 223
Total liabilities at fair value  19,832 1,986 (4,328) 389 (524) 6,642 (6,982) 101 1,813 4 331 88 69 (870) 18,551
Net assets/(liabilities) at fair value  3,558 716 1,163 16,824 (19,974) (3,094) 1,003 33 (1,544) 2 (321) (88) (69) (118) (1,909)
1
For all transfers to level 3 or out of level 3, the Group determines and discloses as level 3 events only gains or losses through the last day of the reporting period.
2
Includes unrealized losses recorded in trading revenues of CHF (39) million primarily related to subprime exposures in securitized products business and market movements across the wider loans held-for-sale portfolio.
350 / 351

Assets and liabilities measured at fair value on a recurring basis for level 3 (continued)
     
Trading revenues

Other revenues
Accumulated other
comprehensive income

2016

Balance at
beginning
of period


Transfers
in


Transfers
out



Purchases






Sales






Issuances






Settlements

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other
Foreign
currency
translation
impact

Balance
at end
of period
Assets (CHF million)   
Interest-bearing deposits with banks 0 0 0 49 (49) 0 0 0 1 0 0 0 0 0 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 158 0 0 0 0 279 (270) 0 1 0 0 0 0 6 174
Securities received as collateral 0 0 0 100 (33) 0 0 0 0 0 0 0 0 3 70
   Debt  4,563 1,574 (1,487) 3,753 (4,514) 0 0 (1) (134) 0 10 0 0 213 3,977
      of which corporates  1,745 836 (677) 2,642 (2,945) 0 0 0 (42) 0 8 0 0 107 1,674
      of which RMBS  814 587 (573) 525 (668) 0 0 (6) (91) 0 0 0 0 17 605
      of which CMBS  215 26 (12) 51 (169) 0 0 (1) (45) 0 0 0 0 0 65
      of which CDO  1,298 82 (166) 488 (578) 0 0 2 2 0 2 0 0 35 1,165
   Equity  871 111 (136) 527 (1,057) 0 0 (45) (38) 0 0 0 0 7 240
   Derivatives  4,831 1,683 (1,017) 0 0 1,484 (2,972) 7 173 0 (22) 0 0 138 4,305
      of which interest rate products  791 48 (60) 0 0 130 (293) 0 117 0 0 0 0 15 748
      of which equity/index-related products  936 282 (328) 0 0 428 (473) 9 32 0 (22) 0 0 50 914
      of which credit derivatives  1,568 961 (617) 0 0 543 (1,710) 1 (64) 0 0 0 0 6 688
   Other  4,266 858 (1,221) 3,848 (3,644) 0 (314) 7 290 0 0 0 0 153 4,243
Trading assets 14,531 4,226 (3,861) 8,128 (9,215) 1,484 (3,286) (32) 291 0 (12) 0 0 511 12,765
Investment securities 148 18 (38) 95 (121) 0 (124) (10) 100 0 0 0 0 4 72
   Equity  366 7 (2) 146 (281) 0 0 0 31 0 22 0 0 29 318
   Life finance instruments  1,669 0 0 186 (353) 0 0 0 33 0 0 0 0 53 1,588
Other investments 2,035 7 (2) 332 (634) 0 0 0 64 0 22 0 0 82 1,906
Loans 8,950 969 (1,942) 524 (1,443) 3,574 (4,281) (43) (11) 0 0 0 0 288 6,585
   of which commercial and industrial loans  5,735 486 (583) 97 (1,007) 1,994 (2,987) (14) (74) 0 0 0 0 169 3,816
   of which financial institutions  1,729 77 (348) 335 (348) 974 (701) 1 41 0 0 0 0 69 1,829
Other intangible assets (mortgage servicing rights) 112 0 0 16 (1) 0 0 0 0 0 6 0 0 5 138
Other assets 7,087 572 (1,497) 2,464 (6,801) 898 (975) (46) (208) 0 (9) 0 0 194 1,679
   of which loans held-for-sale  6,768 355 (1,251) 2,192 (6,696) 898 (975) (59) (88) 0 (8) 0 0 180 1,316
Total assets at fair value  33,021 5,792 (7,340) 11,708 (18,297) 6,235 (8,936) (131) 238 0 7 0 0 1,093 23,390
Liabilities (CHF million)   
Customer deposits 254 0 (41) 0 0 240 (20) 0 (64) 0 0 0 41 0 410
Obligation to return securities received as collateral 0 0 0 100 (33) 0 0 0 0 0 0 0 0 3 70
Trading liabilities 4,615 1,588 (1,026) 51 (52) 1,259 (3,494) 100 589 0 (12) 0 0 119 3,737
      of which interest rate derivatives  578 87 (28) 0 0 141 (244) 14 (25) 0 0 0 0 15 538
      of which foreign exchange derivatives  329 55 (5) 0 0 14 (408) 2 160 0 0 0 0 3 150
      of which equity/index-related derivatives  1,347 130 (293) 0 0 423 (748) 32 227 0 0 0 0 63 1,181
      of which credit derivatives  1,757 940 (689) 0 0 421 (1,806) 50 162 0 0 0 0 16 851
Short-term borrowings 72 45 (30) 0 0 598 (205) 1 17 (3) 3 0 0 18 516
Long-term debt 14,123 3,865 (2,393) 0 0 4,510 (7,149) (64) (124) 0 0 1 240 406 13,415
   of which structured notes over two years  9,924 3,484 (2,166) 0 0 4,044 (3,004) (78) (403) 0 0 1 240 392 12,434
Other liabilities 2,491 208 (226) 219 (376) 17 (612) (72) (160) (1) 139 0 0 57 1,684
   of which failed sales  454 44 (121) 142 (308) 0 0 (3) 3 0 0 0 0 8 219
Total liabilities at fair value  21,555 5,706 (3,716) 370 (461) 6,624 (11,480) (35) 258 (4) 130 1 281 603 19,832
Net assets/(liabilities) at fair value  11,466 86 (3,624) 11,338 (17,836) (389) 2,544 (96) (20) 4 (123) (1) (281) 490 3,558
1
For all transfers to level 3 or out of level 3, the Group determines and discloses as level 3 events only gains or losses through the last day of the reporting period.
352 / 353

Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
in    2017 2016
Trading
revenues
Other
revenues
Total
revenues
Trading
revenues
Other
revenues
Total
revenues
Gains and losses on assets and liabilities (CHF million)   
Net realized/unrealized gains/(losses) included in net revenues (1,511) (319) (1,830) 1 (116) (119) (235) 1
Whereof:
   Unrealized gains/(losses) relating    to assets and liabilities still held as of the reporting date    (2,088) 22 (2,066) 125 26 151
1
Excludes net realized/unrealized gains/(losses) attributable to foreign currency translation impact.
Both observable and unobservable inputs may be used to determine the fair value of positions that have been classified within level 3. As a result, the unrealized gains and losses for assets and liabilities within level 3 presented in the table above may include changes in fair value that were attributable to both observable and unobservable inputs.
The Group employs various economic hedging techniques in order to manage risks, including risks in level 3 positions. Such techniques may include the purchase or sale of financial instruments that are classified in levels 1 and/or 2. The realized and unrealized gains and losses for assets and liabilities in level 3 presented in the table above do not reflect the related realized or unrealized gains and losses arising on economic hedging instruments classified in levels 1 and/or 2.
Transfers in and out of level 3
Transfers into level 3 assets during 2017 were CHF 2,702 million, primarily from trading assets and loans. The transfers were primarily in the credit, financing and fixed income businesses due to limited observability of pricing data and reduced pricing information from external providers. Transfers out of level 3 assets during 2017 were CHF 3,165 million, primarily in trading assets and loans. The transfers out of level 3 assets were primarily in the Strategic Resolution Unit and financing businesses due to improved observability of pricing data and increased availability of pricing information from external providers.
Transfers into level 3 assets during 2016 were CHF 5,792 million, primarily from trading assets and loans. The transfers were primarily in the corporate credit, emerging market and fixed income businesses due to limited observability of pricing data and reduced pricing information from external providers. Transfers out of level 3 assets during 2016 were CHF 7,340 million, primarily in trading assets, loans and loans held-for-sale. The transfers out of level 3 assets were primarily in the corporate credit and emerging market businesses due to improved observability of pricing data, increased availability of pricing information from external providers and due to a more granular assessment of the leveling process.
Qualitative disclosures of valuation techniques
Overview
The Group has implemented and maintains a valuation control framework, which is supported by policies and procedures that define the principles for controlling the valuation of the Group’s financial instruments. Product Control and Risk Management create, review and approve significant valuation policies and procedures. The framework includes three main internal processes: (i) valuation governance; (ii) independent price verification and significant unobservable inputs review; and (iii) a cross-functional pricing model review. Through this framework, the Group determines the reasonableness of the fair value of its financial instruments.
On a monthly basis, meetings are held for each business line with senior representatives of the Front Office and Product Control to discuss independent price verification results, valuation adjustments, and other significant valuation issues. On a quarterly basis, a review of significant changes in the fair value of financial instruments is undertaken by Product Control and conclusions are reached regarding the reasonableness of those changes. Additionally, on a quarterly basis, meetings are held for each business line with senior representatives of the Front Office, Product Control, Risk Management, and Financial Accounting to discuss independent price verification results, valuation issues, business and market updates, as well as a review of significant changes in fair value from the prior quarter, significant unobservable inputs and prices used in valuation techniques, and valuation adjustments.
The results of these meetings are aggregated for presentation to the Valuation Risk Management Committee (VARMC) and the Audit Committee. The VARMC, which is comprised of Executive Board members and the heads of the business and control functions, meets to review and ratify valuation review conclusions, and to resolve significant valuation issues for the Group. Oversight of the valuation control framework is through specific and regular reporting on valuation directly to the Group’s Executive Board through the VARMC.
One of the key components of the governance process is the segregation of duties between the Front Office and Product Control. The Front Office is responsible for measuring inventory at fair value on a daily basis, while Product Control is responsible for independently reviewing and validating those valuations on a periodic basis. The Front Office values the inventory using, wherever possible, observable market data which may include executed transactions, dealer quotes or broker quotes for the same or similar instruments. Product Control validates this inventory using independently sourced data that also includes executed transactions, dealer quotes, and broker quotes.
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Product Control utilizes independent pricing service data as part of its review process. Independent pricing service data is analyzed to ensure that it is representative of fair value, including confirming that the data corresponds to executed transactions or executable broker quotes, review and assessment of contributors to ensure they are active market participants, review of statistical data and utilization of pricing challenges. The analysis also includes understanding the sources of the pricing service data and any models or assumptions used in determining the results. The purpose of the review is to judge the quality and reliability of the data for fair value measurement purposes and its appropriate level of usage within the Product Control independent valuation review.
For certain financial instruments the fair value is estimated in full or in part using valuation techniques based on assumptions that are not supported by market observable prices, rates or other inputs. In addition, there may be uncertainty about a valuation resulting from the choice of valuation technique or model used, the assumptions embedded in those models, the extent to which inputs are not market observable, or as a consequence of other elements affecting the valuation technique or model. Model calibration is performed when significant new market information becomes available or at a minimum on a quarterly basis as part of the business review of significant unobservable inputs for level 3 instruments. For models that have been deemed to be significant to the overall fair value of the financial instrument, model validation is performed as part of the periodic review of the related model.
The Group performs a sensitivity analysis of its significant level 3 financial instruments. This sensitivity analysis estimates a fair value range by changing the related significant unobservable inputs value. This sensitivity analysis is an internal mechanism to monitor the impact of reasonable alternative inputs or prices for level 3 financial instruments. Where a model-based technique is used to determine the fair value of the level 3 financial instrument, an alternative input value is utilized to derive an estimated fair value range. Where a price-based technique is used to determine the fair value of the level 3 financial instruments, Front Office professional judgment is used to estimate a fair value range.
The following information on the valuation techniques and significant unobservable inputs of the various financial instruments, and the sensitivity of fair value measurements to changes in significant unobservable inputs, should be read in conjunction with the tables “Quantitative information about level 3 assets at fair value” and “Quantitative information about level 3 liabilities at fair value”.
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions
Securities purchased under resale agreements and securities sold under >>>repurchase agreements are measured at fair value using discounted cash flow analysis. Future cash flows are discounted using observable market interest rate repurchase/resale curves for the applicable maturity and underlying collateral of the instruments. As such, the significant majority of both securities purchased under resale agreements and securities sold under repurchase agreements are included in level 2 of the fair value hierarchy. Structured resale and repurchase agreements include embedded derivatives, which are measured using the same techniques as described below for stand-alone derivative contracts held for trading purposes or used in hedge accounting relationships. If the value of the embedded derivative is determined using significant unobservable inputs, those structured resale and repurchase agreements are classified within level 3 of the fair value hierarchy. The significant unobservable input is funding spread.
Securities purchased under resale agreements are usually fully collateralized or over-collateralized by government securities, money market instruments, corporate bonds, or other debt instruments. In the event of counterparty default, the collateral service agreement provides the Group with the right to liquidate the collateral held.
Debt securities
Foreign governments and corporates
Government debt securities typically have quoted prices in active markets and are categorized as level 1 instruments. For debt securities for which market prices are not available, valuations are based on yields reflecting credit rating, historical performance, delinquencies, loss severity, the maturity of the security, recent transactions in the market or other modeling techniques, which may involve judgment. Those securities where the price or model inputs are observable in the market are categorized as level 2 instruments, while those securities where prices are not observable and significant model inputs are unobservable are categorized as level 3 of the fair value hierarchy.
Corporate bonds are priced to reflect current market levels either through recent market transactions or broker or dealer quotes. Where a market price for the particular security is not directly available, valuations are obtained based on yields reflected by other instruments in the specific or similar entity’s capital structure and adjusting for differences in seniority and maturity, benchmarking to a comparable security where market data is available (taking into consideration differences in credit, liquidity and maturity), or through the application of cash flow modeling techniques utilizing observable inputs, such as current interest rate curves and observable CDS spreads. Significant unobservable inputs may include price and correlation. For securities using market comparable price, the differentiation between level 2 and level 3 is based upon the relative significance of any yield adjustments as well as the accuracy of the comparison characteristics (i.e., the observable comparable security may be in the same country but a different industry and may have a different seniority level – the lower the comparability the more likely the security will be level 3).
CMBS, RMBS and CDO securities
Fair values of >>>RMBS, >>>CMBS and CDO may be available through quoted prices, which are often based on the prices at which similarly structured and collateralized securities trade between dealers and to and from customers. Fair values of RMBS, CMBS and CDO for which there are significant unobservable inputs are valued using capitalization rate and discount rate. Price
355

may not be observable for fair value measurement purposes for many reasons, such as the length of time since the last executed transaction for the related security, use of a price from a similar instrument, or use of a price from an indicative quote. Fair values determined by market comparable price may include discounted cash flow models using the inputs prepayment rate, default rate, loss severity, discount rate and credit spread. Prices from similar observable instruments are used to calculate implied inputs which are then used to value unobservable instruments using discounted cash flow. The discounted cash flow price is then compared to the unobservable prices and assessed for reasonableness.
For most structured debt securities, determination of fair value requires subjective assessment depending on liquidity, ownership concentration, and the current economic and competitive environment. Valuation is determined based on the Front Office’s own assumptions about how market participants would price the asset. Collateralized bond and loan obligations are split into various structured tranches and each tranche is valued based upon its individual rating and the underlying collateral supporting the structure. Valuation models are used to value both cash and synthetic CDOs.
Equity securities
The majority of the Group’s positions in equity securities are traded on public stock exchanges for which quoted prices are readily and regularly available and are therefore categorized as level 1 instruments. Level 2 and level 3 equities include fund-linked products, convertible bonds or equity securities with restrictions that are not traded in active markets. Significant unobservable inputs may include market comparable price and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.
Derivatives
>>>Derivatives held for trading purposes or used in hedge accounting relationships include both OTC and exchange-traded derivatives. The fair values of exchange-traded derivatives measured using observable exchange prices are included in level 1 of the fair value hierarchy. For exchange-traded derivatives where the volume of trading is low, the observable exchange prices may not be considered executable at the reporting date. These derivatives are valued in the same manner as similar observable OTC derivatives and are included in level 2 of the fair value hierarchy. If the similar OTC derivative used for valuing the exchange-traded derivative is not observable, the exchange-traded derivative is included in level 3 of the fair value hierarchy.
The fair values of OTC derivatives are determined on the basis of either industry standard models or internally developed proprietary models. Both model types use various observable and unobservable inputs in order to determine fair value. The inputs include those characteristics of the derivative that have a bearing on the economics of the instrument. The determination of the fair value of many derivatives involves only a limited degree of subjectivity because the required inputs are observable in the marketplace, while more complex derivatives may use unobservable inputs that rely on specific proprietary modeling assumptions. Where observable inputs (prices from exchanges, dealers, brokers or market consensus data providers) are not available, attempts are made to infer values from observable prices through model calibration (spot and forward rates, mean reversion, benchmark interest rate curves and volatility inputs for commonly traded option products). For inputs that cannot be derived from other sources, estimates from historical data may be made. OTC derivatives where the majority of the value is derived from market observable inputs are categorized as level 2 instruments, while those where the majority of the value is derived from unobservable inputs are categorized as level 3 of the fair value hierarchy.
The valuation of derivatives includes an adjustment for the cost of funding uncollateralized OTC derivatives.
Interest rate derivatives
OTC vanilla interest rate products, such as interest rate swaps, swaptions, and caps and floors are valued by discounting the anticipated future cash flows. The future cash flows and discounting are derived from market standard yield curves and industry standard volatility inputs. Where applicable, exchange-traded prices are also used to value exchange-traded futures and options and can be used in yield curve construction. For more complex products, inputs include, but are not limited to correlation, volatility skew, prepayment rate and basis spread.
Foreign exchange derivatives
Foreign exchange derivatives include vanilla products such as spot, forward and option contracts where the anticipated discounted future cash flows are determined from foreign exchange forward curves and industry standard optionality modeling techniques. Where applicable, exchange-traded prices are also used for futures and option prices. For more complex products inputs include, but are not limited to prepayment rate, correlation and contingent probability.
Equity and index-related derivatives
Equity derivatives include a variety of products ranging from vanilla options and swaps to exotic structures with bespoke payoff profiles. The main inputs in the valuation of equity derivatives may include volatility, buyback probability, gap risk, correlation and price.
Generally, the interrelationship between the volatility and correlation is positively correlated.
Credit derivatives
Credit derivatives include index and single name CDS in addition to more complex structured credit products. Vanilla products are valued using industry standard models and inputs that are generally market observable including credit spread and recovery rate.
Complex structured credit derivatives are valued using proprietary models requiring unobservable inputs such as recovery rate, credit spread and correlation. These inputs are generally implied from available market observable data. Fair values determined by price may include discounted cash flow models using the inputs
356

prepayment rate, default rate, loss severity, discount rate and Term TRS/repo spread.
Other trading assets
Other trading assets primarily include RMBS loans and life settlement and premium finance instruments. Life settlement and premium finance instruments are valued using proprietary models with several inputs. The significant unobservable inputs of the fair value for life settlement and premium finance instruments is the estimate of market implied life expectancy, while for RMBS loans it is market comparable price.
For life settlement and premium finance instruments, individual life expectancy rates are typically obtained by multiplying a base mortality curve for the general insured population provided by a professional actuarial organization together with an individual-specific multiplier. Individual-specific multipliers are determined based on data from third-party life expectancy data providers, which examine the insured individual’s medical conditions, family history and other factors to arrive at a life expectancy estimate.
For RMBS loans, the use of market comparable price varies depending upon each specific loan. For some loans, similar to unobservable RMBS securities, prices from similar observable instruments are used to calculate implied inputs which are then used to value unobservable instruments using discounted cash flow. The discounted cash flow price is then compared to the unobservable prices and assessed for reasonableness. For other RMBS loans, the loans are categorized by specific characteristics, such as loan-to-value ratio, average account balance, loan type (single or multi-family), lien, seasoning, coupon, FICO score, locality, delinquency status, cash flow velocity, roll rates, loan purpose, occupancy, servicers advance agreement type, modification status, Federal Housing Administration insurance, property value and documentation quality. Loans with unobservable prices are put into consistent buckets which are then compared to market observable comparable prices in order to assess the reasonableness of those unobservable prices.
Other investments
Private equity, hedge funds and other equity investments
Other equity investments principally includes equity investments in the form of a) direct investments in third-party hedge funds, private equity funds and funds of funds, b) equity-method investments where the Group has the ability to significantly influence the operating and financial policies of the investee, and c) direct investments in non-marketable equity securities.
Direct investments in third-party hedge funds, private equity funds and funds of funds are measured at fair value based on their published NAVs as permitted by ASC Topic 820 – Fair Value Measurement. In some cases, NAVs may be adjusted where there is sufficient evidence that the NAV published by the investment manager is not in line with the fund’s observable market data, it is probable that the investment will be sold for an amount other than NAV or there exist other circumstances that would require an adjustment to the published NAV. Although rarely adjusted, significant judgment is involved in making any adjustments to the published NAVs. The investments for which the fair value is measured using the NAV practical expedient are not categorized within the fair value hierarchy.
Direct investments in non-marketable equity securities consist of both real estate investments and non-real estate investments. Equity-method investments and direct investments in non-marketable equity securities are initially measured at their transaction price, as this is the best estimate of fair value. Thereafter, these investments are individually measured at fair value based upon a number of factors that include any recent rounds of financing involving third-party investors, comparable company transactions, multiple analyses of cash flows or book values, or discounted cash flow analyses. The availability of information used in these modeling techniques is often limited and involves significant judgment in evaluating these different factors over time. As a result, these investments are included in level 3 of the fair value hierarchy.
Life finance instruments
Life finance instruments include Single Premium Immediate Annuities (SPIA) and other premium finance instruments. Life finance instruments are valued in a similar manner as described for life settlement and premium finance instruments under the other trading assets section above.
Loans
The Group’s loan portfolio which is measured at fair value primarily consists of commercial and industrial loans and loans to financial institutions. Within these categories, loans measured at fair value include commercial loans, real estate loans, corporate loans, leverage finance loans and emerging market loans. Fair value is based on recent transactions and quoted prices, where available. Where recent transactions and quoted prices are not available, fair value may be determined by relative value benchmarking (which includes pricing based upon another position in the same capital structure, other comparable loan issues, generic industry credit spreads, implied credit spreads derived from CDS for the specific borrower, and enterprise valuations) or calculated based on the exit price of the collateral, based on current market conditions.
Both the funded and unfunded portion of revolving credit lines on the corporate lending portfolio are valued using a loan pricing model, which requires estimates of significant inputs including credit spreads, recovery rates, credit conversion factors, and weighted average life of the loan. Significant unobservable inputs may include credit spread and price.
The Group’s other assets and liabilities include mortgage loans held in conjunction with securitization activities and assets and liabilities of VIEs and mortgage securitizations that do not meet the criteria for sale treatment under US GAAP. The fair value of mortgage loans held in conjunction with securitization activities is determined on a whole-loan basis and is consistent with the valuation of RMBS loans discussed in “Other trading assets” above. Whole-loan valuations are calculated based on the exit price reflecting the current market conditions. The fair value of assets and liabilities
357

of VIEs and mortgage securitizations that do not meet the criteria for sale treatment under US GAAP are determined based on the quoted prices for securitized bonds, where available, or on cash flow analyses for securitized bonds, when quoted prices are not available. The fair value of the consolidated financial assets of RMBS and CMBS securitization vehicles, which qualify as collateralized financing entities, are measured on the basis of the more observable fair value of the VIEs’ financial liabilities.
Accrual based loans in the Group’s private, corporate and institutional banking businesses, for which an estimated fair value is disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below, include consumer loans relating to mortgages, loans collateralized by securities or consumer finance, as well as corporate and institutional loans relating to real estate, commercial and industrial loans, and loans to financial institutions, governments and public institutions. Fair values for these loans are determined by using a discounted cash flow model. Future cash flows are discounted using risk-adjusted discount rates which are derived from observable market interest rates for the applicable maturity and currency and from counterparty-related credit spreads.
Deposits
Accrual based deposits with a stated maturity, for which an estimated fair value is disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below, are generally fair valued by using a discounted cash flow model incorporating the Group’s credit spreads. The estimated fair value of accrual accounted deposits without a stated maturity approximates the carrying amount; however, the value does not include an estimate of the value attributed to the long-term relationships with its customers that in the aggregate adds significant value to the Group’s stable deposit base.
Short-term borrowings and long-term debt
The Group’s short-term borrowings and long-term debt include structured notes (hybrid financial instruments that are both bifurcatable and non-bifurcatable) and vanilla debt. The fair value of structured notes is based on quoted prices, where available. When quoted prices are not available, fair value is determined by using a discounted cash flow model incorporating the Group’s credit spreads, the value of derivatives embedded in the debt and the residual term of the issuance based on call options. Derivatives structured into the issued debt are valued consistently with the Group’s stand-alone derivative contracts held for trading purposes or used in hedge accounting relationships as discussed above. The fair value of structured debt is heavily influenced by the combined call options and performance of the underlying derivative returns. Significant unobservable inputs for short-term borrowings and long-term debt include buyback probability, gap risk, correlation, volatility, credit spread, mean reversion, price and recovery rate.
Generally, the interrelationships between volatility, correlation, gap risk and credit spread inputs are positively correlated.
Other liabilities
Failed sales
These liabilities represent the financing of assets that did not achieve sale accounting treatment under US GAAP. Failed sales are valued in a manner consistent with the related underlying financial instruments.
Short-term financial instruments
Certain short-term financial instruments are not carried at fair value on the balance sheet, but a fair value has been disclosed in the table “Carrying value and fair value of financial instruments not carried at fair value” below. These instruments include: cash and due from banks, cash collateral receivables and payables and other receivables and payables arising in the ordinary course of business. For these financial instruments, the carrying value approximates the fair value due to the relatively short period of time between their origination and expected realization, as well as the minimal credit risk inherent in these instruments.
Sensitivity of fair value measurements to changes in significant unobservable inputs
For level 3 assets with a significant unobservable input of EBITDA multiple, market implied life expectancy (for life finance instruments), buyback probability, correlation, contingent probability, price, volatility or volatility skew, in general, an increase in the significant unobservable input would increase the fair value. For level 3 assets with a significant unobservable input of market implied life expectancy (for life settlement and premium finance instruments), default rate, capitalization rate, discount rate, prepayment rate, gap risk, recovery rate, term TRS/repo spread or credit spread, in general, an increase in the significant unobservable input would decrease the fair value.
For level 3 liabilities, in general, an increase in the related significant unobservable inputs would have the inverse impact on fair value. An increase in the significant unobservable input mean reversion would increase the fair value. An increase in the significant unobservable input basis spread would decrease the fair value.
Interrelationships between significant unobservable inputs
Except as noted above, there are no material interrelationships between the significant unobservable inputs for the financial instruments. As the significant unobservable inputs move independently, generally an increase or decrease in one significant unobservable input will have no impact on the other significant unobservable inputs.
Quantitative disclosures of valuation techniques
The following tables provide the representative range of minimum and maximum values and the associated weighted averages of each significant unobservable input for level 3 assets and liabilities by the related valuation technique most significant to the related financial instrument.
358

Quantitative information about level 3 assets at fair value

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated
Securities received as collateral 46
Debt 2,292
   of which corporates  1,412
      of which  387 Option model Correlation, in % (60) 98 55
      of which  545 Market comparable Price, in % 0 139 84
      of which  444 Discounted cash flow Credit spread, in bp 37 952 230
   of which RMBS  320 Discounted cash flow Discount rate, in % 1 24 11
  Prepayment rate, in % 1 36 10
  Default rate, in % 0 12 4
  Loss severity, in % 0 100 57
   of which CMBS  16 Discounted cash flow Capitalization rate, in % 14 14 14
  Discount rate, in % 8 16 14
  Prepayment rate, in % 0 5 4
   of which CDO  126 Discounted cash flow Discount rate, in % 5 13 8
  Prepayment rate, in % 5 20 13
  Credit spread, in bp 464 669 553
  Default rate, in % 2 5 3
  Loss severity, in % 0 80 34
Equity 163
      of which  67 Vendor price Price, in actuals 0 2,080 10
      of which  81 Market comparable EBITDA multiple 2 9 7
  Price, in % 18 100 67
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
359

Quantitative information about level 3 assets at fair value (continued)

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated
Derivatives 3,289
   of which interest rate products  801 Option model Correlation, in % 20 100 72
  Prepayment rate, in % 6 34 17
  Volatility skew, in % (4) 1 (1)
   of which equity/index-related products  833 Option model Correlation, in % (60) 98 65
  Volatility, in % 0 105 64
  Buyback probability, in % 2 50 100 90
  Gap risk, in % 3 0 2 1
   of which credit derivatives  634 Discounted cash flow Credit spread, in bp 1 956 217
  Recovery rate, in % 0 45 20
  Discount rate, in % 3 50 16
  Default rate, in % 1 20 5
  Loss severity, in % 1 100 64
  Correlation, in % 97 97 97
  Prepayment rate, in % 0 14 6
Other 3,010
      of which  1,605 Market comparable Price, in % 0 110 23
      of which    1,095 Discounted cash flow Market implied life expectancy, in years 3 18 8
Trading assets 8,754
Investment securities 42
Private equity 29
Other equity investments 271
Life finance instruments 1,301 Discounted cash flow Market implied life expectancy, in years 2 18 6
Other investments 1,601
Loans 4,530
   of which commercial and industrial loans  2,207
      of which  1,924 Discounted cash flow Credit spread, in bp 89 1,116 420
      of which  250 Market comparable Price, in % 0 99 56
   of which financial institutions  1,480
      of which  1,426 Discounted cash flow Credit spread, in bp 43 1,430 371
Other intangible assets (mortgage servicing rights) 158
Other assets 1,511
   of which loans held-for-sale  1,350
      of which  849 Discounted cash flow Credit spread, in bp 117 973 292
  Recovery rate, in % 18 87 73
      of which  280 Market comparable Price, in % 0 102 88
Total level 3 assets at fair value  16,642
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
360

Quantitative information about level 3 assets at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated
Interest-bearing deposits with banks 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 174 Discounted cash flow Funding spread, in bp 10 450 259
Securities received as collateral 70
Debt 3,977
   of which corporates  1,674
      of which  448 Option model Correlation, in % (85) 98 23
      of which  817 Market comparable Price, in % 0 117 86
      of which  101 Discounted cash flow Credit spread, in bp 3 1,004 308
   of which RMBS  605
      of which  445 Discounted cash flow Discount rate, in % 0 47 8
  Prepayment rate, in % 2 30 12
  Default rate, in % 0 10 3
  Loss severity, in % 0 100 43
      of which  120 Market comparable Price, in % 21 30 26
   of which CMBS  65 Discounted cash flow Capitalization rate, in % 8 9 9
  Discount rate, in % 2 27 10
  Prepayment rate, in % 0 15 9
   of which CDO  1,165
      of which  195 Discounted cash flow Discount rate, in % 7 27 15
  Prepayment rate, in % 0 30 10
  Credit spread, in bp 328 328 328
  Default rate, in % 0 5 2
  Loss severity, in % 3 100 45
      of which  851 Market comparable Price, in % 208 208 208
Equity 240 Market comparable EBITDA multiple 3 8 6
Price, in % 0 100 70
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
361

Quantitative information about level 3 assets at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated
Derivatives 4,305
   of which interest rate products  748 Option model Correlation, in % 20 100 65
  Prepayment rate, in % 1 32 16
  Volatility skew, in % (7) 1 (2)
   of which equity/index-related products  914 Option model Correlation, in % (85) 98 21
  Volatility, in % 2 180 32
  Buyback probability, in % 2 50 100 62
  Gap risk, in % 3 0 2 1
   of which credit derivatives  688 Discounted cash flow Credit spread, in bp 0 1,635 396
  Recovery rate, in % 0 45 10
  Discount rate, in % 1 45 21
  Default rate, in % 0 33 5
  Loss severity, in % 15 100 69
  Correlation, in % 97 97 97
  Prepayment rate, in % 0 13 5
Other 4,243
      of which  3,005 Market comparable Price, in % 0 116 39
      of which    882 Discounted cash flow Market implied life expectancy, in years 3 19 8
Trading assets 12,765
Investment securities 72
Private equity 8
Other equity investments 310
Life finance instruments 1,588 Discounted cash flow Market implied life expectancy, in years 2 19 6
Other investments 1,906
Loans 6,585
   of which commercial and industrial loans  3,816
      of which  2,959 Discounted cash flow Credit spread, in bp 5 5,400 544
      of which  852 Market comparable Price, in % 0 100 51
   of which financial institutions  1,829
      of which  1,588 Discounted cash flow Credit spread, in bp 67 952 342
      of which  149 Market comparable Price, in % 0 550 483
Other intangible assets (mortgage servicing rights) 138
Other assets 1,679
   of which loans held-for-sale  1,316
      of which  760 Discounted cash flow Credit spread, in bp 117 1,082 334
  Recovery rate, in % 6 100 74
      of which  356 Market comparable Price, in % 0 102 78
Total level 3 assets at fair value  23,390
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
362

Quantitative information about level 3 liabilities at fair value

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Customer deposits 455
Obligation to return securities received as collateral 46
Trading liabilities 3,226
   of which interest rate derivatives  317
      of which  205 Option model Basis spread, in bp (25) 52 19
  Correlation, in % 20 100 60
  Prepayment rate, in % 6 34 9
      of which  81 Market comparable Price, in % 1 102 44
   of which foreign exchange derivatives  100
      of which  64 Option model Correlation, in % (10) 70 51
  Prepayment rate, in % 27 34 30
      of which  7 Discounted cash flow Contingent probability, in % 95 95 95
   of which equity/index-related derivatives  1,301
      of which  947 Option model Correlation, in % (60) 98 55
  Volatility, in % 0 105 25
  Buyback probability, in % 2 50 100 90
      of which  62 Vendor price Price, in actuals 0 53 18
   of which credit derivatives  898 Discounted cash flow Credit spread, in bp 2 973 172
  Discount rate, in % 3 50 16
  Default rate, in % 1 20 5
  Recovery rate, in % 10 60 38
  Loss severity, in % 25 100 67
  Correlation, in % 38 85 54
  Prepayment rate, in % 0 20 7
  Term TRS/repo spread, in bp 176 176 176
Short-term borrowings 845
      of which  288 Option model Correlation, in % (40) 98 60
Volatility, in % 4 105 26
      of which  527 Discounted cash flow Credit spread, in bp 2 278 175
Recovery rate, in % 25 40 29
      of which  24 Market comparable Price, in % 11 47 47
Long-term debt 12,501
   of which structured notes over two years  12,259
      of which  9,739 Option model Correlation, in % (60) 99 55
  Volatility, in % 0 105 21
  Buyback probability, in % 2 50 100 90
  Gap risk, in % 3 0 2 1
  Mean reversion, in % 4 (14) (1) (6)
      of which  1,571 Discounted cash flow Credit spread, in bp 2 729 105
Other liabilities 1,478
   of which failed sales  223
      of which  122 Market comparable Price, in % 0 100 51
      of which  25 Discounted cash flow Credit spread, in bp 1,430 1,430 1,430
Total level 3 liabilities at fair value  18,551
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
4
Management's best estimate of the speed at which interest rates will revert to the long-term average.
363

Quantitative information about level 3 liabilities at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Customer deposits 410
Obligation to return securities received as collateral 70
Trading liabilities 3,737
   of which interest rate derivatives  538 Option model Basis spread, in bp (2) 66 33
  Correlation, in % 20 100 57
  Prepayment rate, in % 1 32 9
  Gap risk, in % 2 20 20 20
  Funding spread, in bp 237 237 237
   of which foreign exchange derivatives  150
      of which  65 Option model Correlation, in % (10) 70 49
  Prepayment rate, in % 22 32 27
      of which  69 Discounted cash flow Contingent probability, in % 95 95 95
   of which equity/index-related derivatives  1,181 Option model Correlation, in % (85) 98 23
  Volatility, in % 2 180 28
  Buyback probability, in % 3 50 100 62
   of which credit derivatives  851 Discounted cash flow Credit spread, in bp 0 1,635 163
  Discount rate, in % 2 45 21
  Default rate, in % 0 33 5
  Recovery rate, in % 20 60 35
  Loss severity, in % 15 100 70
  Correlation, in % 43 85 63
  Prepayment rate, in % 0 13 5
Short-term borrowings 516
Long-term debt 13,415
   of which structured notes over two years  12,434
      of which  12,008 Option model Correlation, in % (85) 99 23
  Volatility, in % 0 180 23
  Buyback probability, in % 3 50 100 62
  Gap risk, in % 2 0 2 1
  Mean reversion, in % 4 (14) (1) (6)
      of which  286 Discounted cash flow Credit spread, in bp 1 452 89
Other liabilities 1,684
   of which failed sales  219
      of which  163 Market comparable Price, in % 0 100 68
      of which  39 Discounted cash flow Discount rate, in % 11 29 21
Total level 3 liabilities at fair value  19,832
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
3
Estimate of the probability of structured notes being put back to the Group at the option of the investor over the remaining life of the financial instruments.
4
Management's best estimate of the speed at which interest rates will revert to the long-term average.
364

Qualitative discussion of the ranges of significant unobservable inputs
The following sections provide further information about the ranges of significant unobservable inputs included in the tables above. The level of aggregation and diversity within the financial instruments disclosed in the tables above results in certain ranges of significant inputs being wide and unevenly distributed across asset and liability categories.
Discount rate
The discount rate is the rate of interest used to calculate the present value of the expected cash flows of a financial instrument. There are multiple factors that will impact the discount rate for any given financial instrument including the coupon on the instrument, the term and the underlying risk of the expected cash flows. Two instruments of similar term and expected cash flows may have significantly different discount rates because the coupons on the instruments are different.
Default rate and loss severity
For financial instruments backed by residential real estate or other assets, diversity in the portfolio is reflected in a wide range for loss severity due to varying levels of default. The lower end of the range represents high performing or government guaranteed collateral with a low PD or guaranteed timely payment of principal and interest, while the higher end of the range relates to collateral with a greater risk of default.
Credit spread and recovery rate
For financial instruments where credit spread is the significant unobservable input, the wide range represents positions with varying levels of risk. The lower end of the credit spread range typically represents shorter-dated instruments and/or those with better perceived credit risk. The higher end of the range typically comprises longer-dated financial instruments or those referencing non-performing, distressed or impaired reference credits. Similarly, the spread between the reference credit and an index can vary significantly based on the risk of the instrument. The spread will be positive for instruments that have a higher risk of default than the index (which is based on a weighted average of its components) and negative for instruments that have a lower risk of default than the index.
Similarly, recovery rates can vary significantly depending upon the specific assets and terms of each transaction. Transactions with higher seniority or more valuable collateral will have higher recovery rates, while those transactions which are more subordinated or with less valuable collateral will have lower recovery rates.
Correlation
There are many different types of correlation inputs, including credit correlation, cross-asset correlation (such as equity-interest rate correlation) and same-asset correlation (such as interest rate-interest rate correlation). Correlation inputs are generally used to value hybrid and exotic instruments. Due to the complex and unique nature of these instruments, the ranges for correlation inputs can vary widely across portfolios.
Prepayment rate
Prepayment rates may vary from collateral pool to collateral pool, and are driven by a variety of collateral-specific factors, including the type and location of the underlying borrower, the remaining tenor of the obligation and the level and type (e.g., fixed or floating) of interest rate being paid by the borrower.
Volatility and volatility skew
Volatility and its skew are both impacted by the underlying risk, term and strike price of the derivative. In the case of interest rate derivatives, volatility may vary significantly between different underlying currencies and expiration dates on the options. Similarly, in the case of equity derivatives, the volatility attributed to a structure may vary depending upon the underlying reference name on the derivative.
Market implied life expectancy
Market implied life expectancy is the primary significant unobservable input on such products as life settlement, premium finance and SPIA, and represents the estimated mortality rate for the underlying insured for each contract. This estimate may vary depending upon multiple factors including the age and specific health characteristics of the insured.
Price
Bond equivalent price is a primary significant unobservable input for multiple products. Where market prices are not available for an instrument, benchmarking may be utilized to identify comparable issues (same industry and similar product mixes) while adjustments are considered for differences in deal terms and performance.
Buyback probability
Buyback probability is the probability assigned to structured notes being unwound prior to their legal maturity.
Gap risk
Gap risk is the primary significant unobservable input for fund-linked Constant Proportion Portfolio Insurance products and structures where the payoff may be sensitive to discontinuity in the hedging portfolio.
Mean reversion
Mean reversion is the primary significant unobservable input for callable constant maturity swap (CMS) spread exotics and represents the idea that prices and returns eventually move back towards the historical average.
Funding spread
Funding spread is the primary significant unobservable input for special purpose vehicle funding facilities. Synthetic funding curves which represent the assets pledged as collateral are used to value
365

structured financing transactions. The curves provide an estimate of where secured funding can be sourced and are expressed as a basis point spread in relation to the referenced benchmark rate.
Capitalization rate
Capitalization rate is the primary significant unobservable input for CMBS loans and is used to estimate the potential return on investment. This is done by dividing the yearly income by the total value of the property.
Basis spread
Basis spread is the primary significant unobservable input for non-callable constant maturity treasury-CMS products and is used to determine interest rate risk as a result of differing lending and borrowing rates.
EBITDA multiple
EBITDA multiple is a primary significant unobservable input for some equity deals which are benchmarked using industry comparables. The EBITDA multiple may be preferred over other measures because it is normalized for differences between the accounting policies of similar companies.
Contingent probability
Contingent probability is the primary significant unobservable input for contingent foreign exchange forward trades where the delivery or exercise and the premium payment are contingent on an event such as completion of an M&A deal or regulatory approval for a product.
Term TRS/repo spread
For financial instruments where TRS/repo spread is the significant unobservable input, the range represents positions with varying levels of risk. The lower end of the spread range typically represents shorter-dated instruments and/or those with better perceived credit and funding risk. The higher end of the range typically comprises longer-dated financial instruments or those referencing collateral with lower liquidity or collateral correlated to the counterparty.
Fair value measurements of investments in certain entities that calculate NAV per share
Investments in funds held in trading assets and liabilities primarily include positions held in equity funds of funds as an economic hedge for structured notes and derivatives issued to clients that reference the same underlying risk and liquidity terms of the fund. A majority of these funds have limitations imposed on the amount of withdrawals from the fund during the redemption period due to illiquidity of the investments. In other instances, the withdrawal amounts may vary depending on the redemption notice period and are usually larger for the longer redemption notice periods. In addition, penalties may apply if redemption is within a certain time period from initial investment.
Investment in funds held in other investments principally involves private securities and, to a lesser extent, publicly traded securities and fund of funds. Several of these investments have redemption restrictions subject to the discretion of the Board of Directors of the fund and/or redemption is permitted without restriction, but is limited to a certain percentage of total assets or only after a certain date.
Furthermore, for those investments held in both trading assets and other investments that are nonredeemable, the underlying assets of such funds are expected to be liquidated over the life of the fund, which is generally up to 10 years.
The following table pertains to investments in certain entities that calculate NAV per share or its equivalent, primarily private equity and hedge funds. These investments do not have a readily determinable fair value and are measured at fair value using NAV.
366

Fair value, unfunded commitments and term of redemption conditions
end of    2017 2016

Non-
redeemable


Redeemable

Total
fair value
Unfunded
commit-
ments

Non-
redeemable


Redeemable

Total
fair value
Unfunded
commit-
ments
Fair value and unfunded commitments (CHF million)   
   Equity funds  61 992 1 1,053 0 65 1,281 2 1,346 0
   Equity funds sold short  0 (9) (9) 0 0 (1) (1) 0
Total funds held in trading assets and liabilities 61 983 1,044 0 65 1,280 1,345 0
   Debt funds  164 75 239 0 215 77 292 0
   Equity funds  2 53 55 0 2 51 53 0
   Others  2 95 97 9 0 201 201 0
Hedge funds 168 223 3 391 9 217 329 4 546 0
   Debt funds  1 0 1 0 5 0 5 20
   Equity funds  141 0 141 64 240 0 240 42
   Real estate funds  178 0 178 44 212 0 212 50
   Others  31 0 31 15 117 0 117 58
Private equities 351 0 351 123 574 0 574 170
Equity method investments 71 1,051 1,122 5 347 637 984 218
Total funds held in other investments 590 1,274 1,864 137 1,138 966 2,104 388
Total fair value  651 5 2,257 6 2,908 137 7 1,203 5 2,246 6 3,449 388 7
1
54% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 35% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 9% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 2% is redeemable on an annual basis with a notice period primarily of more than 60 days.
2
58% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 23% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 17% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 2% is redeemable on an annual basis with a notice period of more than 60 days.
3
51% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 45 days, 43% is redeemable on a monthly basis with a notice period primarily of less than 30 days, and 6% is redeemable on demand with a notice period primarily of less than 30 days.
4
68% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 60 days, 26% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 5% is redeemable on demand with a notice period primarily of less than 30 days, and 1% is redeemable on an annual basis with a notice period primarily of more than 45 days.
5
Includes CHF 229 million and CHF 334 million attributable to noncontrolling interests in 2017 and 2016, respectively.
6
Includes CHF 167 million and CHF 231 million attributable to noncontrolling interests in 2017 and 2016, respectively.
7
Includes CHF 53 million and CHF 88 million attributable to noncontrolling interests in 2017 and 2016, respectively.
Nonrecurring fair value changes
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. The Group typically uses nonfinancial assets measured at fair value on a recurring or nonrecurring basis in a manner that reflects their highest and best use. Nonrecurring measurements are completed as of the end of the period unless otherwise stated.
Nonrecurring fair value changes
end of 2017 2016
CHF billion   
Assets held-for-sale recorded at fair value on a nonrecurring basis    0.1 0.1
   of which level 2  0.1 0.1
Fair value option
The Group has availed itself of the simplification in accounting offered under the fair value option, primarily in the investment banking businesses and International Wealth Management’s Asset Management business. This has been accomplished generally by electing the fair value option, both at initial adoption and for subsequent transactions, on items impacted by the hedge accounting requirements of US GAAP. That is, for instruments for which there was an inability to achieve hedge accounting and for which the Group is economically hedged, the Group has elected the fair value option. Similarly, where the Group manages an activity on a >>>fair value basis but previously has been unable to achieve fair value accounting, the Group has utilized the fair value option to align its risk management reporting to its financial accounting.
The Group elected fair value for certain of its financial statement captions as follows:
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions
The Group has elected to account for structured resale agreements and most matched book resale agreements at fair value. These activities are managed on a fair value basis; thus, fair value accounting is deemed more appropriate for reporting purposes. The Group did not elect the fair value option for firm financing resale agreements as these agreements are generally overnight
367

agreements which approximate fair value, but which are not managed on a fair value basis.
Other investments
The Group has elected to account for certain equity method investments at fair value. These activities are managed on a fair value basis; thus, fair value accounting is deemed more appropriate for reporting purposes. Certain similar instruments, such as those relating to equity method investments in strategic relationships, for example, the Group’s ownership interest in certain clearance organizations, which were eligible for the fair value option, were not elected due to the strategic relationship.
Loans
The Group has elected to account for substantially all commercial loans and loan commitments from the investment banking businesses and certain emerging market loans from the investment banking businesses at fair value. These activities are managed on a fair value basis and fair value accounting was deemed more appropriate for reporting purposes. Additionally, recognition on a fair value basis eliminates the mismatch that existed due to the economic hedging the Group employs to manage these loans. Certain similar loans, such as project finance, lease finance, cash collateralized and some bridge loans, which were eligible for the fair value option, were not elected due to the lack of currently available infrastructure to fair value such loans and/or the inability to economically hedge such loans. Additionally, the Group elected not to account for loans granted by its private, corporate and institutional banking businesses at fair value, such as domestic consumer lending, mortgages and corporate loans, as these loans are not managed on a fair value basis.
Other assets
The Group elected the fair value option for loans held-for-sale, due to the short period over which such loans are held and the intention to sell such loans in the near term. Other assets also include assets of VIEs and mortgage securitizations which do not meet the criteria for sale treatment under US GAAP. The Group did elect the fair value option for these types of transactions.
Due to banks
The Group elected the fair value option for certain time deposits associated with its emerging markets activities.
Customer deposits
The Group’s customer deposits include fund-linked deposits. The Group elected the fair value option for these fund-linked deposits. Fund-linked products are managed on a fair value basis and fair value accounting was deemed more appropriate for reporting purposes.
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions
The Group has elected to account for structured >>>repurchase agreements and most matched book repurchase agreements at fair value. These activities are managed on a fair value basis and fair value accounting was deemed more appropriate for reporting purposes. The Group did not elect the fair value option for firm financing repurchase agreements as these agreements are generally overnight agreements which approximate fair value, but which are not managed on a fair value basis.
Short-term borrowings
The Group’s short-term borrowings include hybrid debt instruments with embedded derivative features. Some of these embedded derivative features create bifurcatable debt instruments. The Group elected the fair value option for some of these instruments as of January 1, 2006, in accordance with the provisions of US GAAP. New bifurcatable debt instruments which were entered into in 2006 are carried at fair value. Some hybrid debt instruments do not result in bifurcatable debt instruments. US GAAP permits the Group to elect fair value accounting for non-bifurcatable hybrid debt instruments. With the exception of certain bifurcatable hybrid debt instruments which the Group did not elect to account for at fair value, the Group has elected to account for all hybrid debt instruments held as of January 1, 2007, and hybrid debt instruments originated after January 1, 2007, at fair value. These activities are managed on a fair value basis and fair value accounting was deemed appropriate for reporting purposes. There are two main populations of similar instruments for which fair value accounting was not elected. The first relates to the lending business transacted by the Group’s private, corporate and institutional banking businesses, which includes structured deposits and similar investment products. These are managed on a bifurcated or accrual basis and fair value accounting was not considered appropriate. The second is where the instruments were or will be maturing in the near term and their fair value will be realized at that time.
Long-term debt
The Group’s long-term debt includes hybrid debt instruments with embedded derivative features as described above in Short-term borrowings. The Group’s long-term debt also includes debt issuances managed by its Treasury department that do not contain derivative features (vanilla debt). The Group actively manages the interest rate risk on these instruments with derivatives. In particular, fixed-rate debt is hedged with receive-fixed, pay-floating interest rate swaps. The Group elected to fair value this fixed-rate debt upon implementation of the fair value option on January 1, 2007, with changes in fair value recognized as a component of trading revenues. The Group did not elect to apply the fair value option to fixed-rate debt issued by the Group since January 1, 2008, and instead applies hedge accounting per the guidance of US GAAP.
Other liabilities
Other liabilities include liabilities of VIEs and mortgage securitizations which do not meet the criteria for sale treatment under US GAAP. The Group did elect the fair value option for these types of transactions.
368

Difference between the aggregate fair value and the aggregate unpaid principal balances of loans and financial instruments
end of    2017 2016
Aggregate
fair
value
Aggregate
unpaid
principal


Difference
Aggregate
fair
value
Aggregate
unpaid
principal


Difference
Loans (CHF million)   
Non-interest-earning loans 708 3,375 (2,667) 1,276 4,495 (3,219)
Financial instruments (CHF million)   
Interest-bearing deposits with banks 0 0 0 26 25 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 77,498 76,643 855 87,331 87,208 123
Loans 15,307 15,372 (65) 19,528 20,144 (616)
Other assets 1 8,468 10,910 (2,442) 8,369 11,296 (2,927)
Due to banks and customer deposits (907) (861) (46) (1,120) (1,059) (61)
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (15,262) (15,180) (82) (19,634) (19,638) 4
Short-term borrowings (11,019) (11,104) 85 (4,061) (4,017) (44)
Long-term debt (63,628) (63,759) 131 (72,868) (76,123) 3,255
Other liabilities (661) (1,716) 1,055 (727) (2,331) 1,604
1
Primarily loans held-for-sale.
Gains and losses on financial instruments
in    2017 2016 2015
Net
gains/
(losses)
Net
gains/
(losses)
Net
gains/
(losses)
Financial instruments (CHF million)   
Interest-bearing deposits with banks 13 1 4 1 2 1
   of which related to credit risk  0 1 (1)
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 1,493 1 1,440 1 1,279 1
Other investments 216 2 212 2 242 3
   of which related to credit risk  (4) (3) 0
Loans 1,542 1 1,643 1 439 1
   of which related to credit risk  7 (16) (236)
Other assets 480 1 (518) 2 111 1
   of which related to credit risk  96 (199) (511)
Due to banks and customer deposits 1 2 (12) 1 4 2
   of which related to credit risk  5 (22) 19
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (118) 1 (112) 1 55 2
Short-term borrowings (512) 2 323 2 439 2
   of which related to credit risk  (23) 0 0
Long-term debt (6,857) 2 (1,235) 2 5,317 2
   of which related to credit risk  (32) 22 207 4
Other liabilities 183 3 456 2 316 3
   of which related to credit risk  83 306 (93)
1
Primarily recognized in net interest income.
2
Primarily recognized in trading revenues.
3
Primarily recognized in other revenues.
4
Changes in fair value related to credit risk are due to the change in the Group's own credit spreads. Other changes in fair value are attributable to changes in foreign currency exchange rates and interest rates, as well as movements in the reference price or index for structured notes. Changes in fair value on Credit Suisse vanilla debt and on debit valuation adjustments on structured notes related to credit risk were CHF (108) million and CHF 261 million in 2015, respectively.
369

Interest income and expense are calculated based on contractual rates specified in the transactions. Interest income and expense are recorded in the consolidated statements of operations depending on the nature of the instrument and related market convention. When interest is included as a component of the change in the instrument’s fair value, it is included in trading revenues. Otherwise, it is included in interest and dividend income or interest expense. Dividend income is recognized separately from trading revenues.
The impacts of credit risk on debt securities held as assets presented in the table above have been calculated as the component of the total change in fair value, excluding the impact of changes in base or risk-free interest rates. The impacts of changes in own credit risk on liabilities presented in the table above have been calculated as the difference between the fair values of those instruments as of the reporting date and the theoretical fair values of those instruments calculated by using the yield curve prevailing at the end of the reporting period, adjusted up or down for changes in the Group’s own credit spreads from the transition date to the reporting date.
The following table provides additional information regarding the gains and losses attributable to changes in instrument-specific credit risk on fair value option elected liabilities which are recorded through AOCI. The table includes both the amount of change during the period and cumulatively that is attributable to the changes in instrument-specific credit risk. In addition it includes the gains and losses related to instrument-specific credit risk that was previously recorded in AOCI that have been transferred during the period to net income.
Own credit gains/(losses) on fair value option elected instruments recorded in AOCI
        

Gains/(losses) recorded into AOCI
1 Gains/(losses) recorded
in AOCI transferred
to net income
1
in 2017 Cumulative 2016 2 2017 2016
Financial instruments (CHF million)   
Deposits (15) (50) (35) 0 0
Short-term borrowings (63) (63) (1) 0 0
Long-term debt (1,957) (2,560) (1,120) 32 0
   of which treasury debt over two years  (702) (675) (204) 0 0
   of which structured notes over two years  (1,246) (1,872) (893) 27 0
Total  (2,035) (2,673) (1,156) 32 0
1
Amounts are reflected gross of tax.
2
Prior period has been corrected.
Financial instruments not carried at fair value
The following table provides the carrying value and >>>fair value of financial instruments which are not carried at fair value in the consolidated balance sheet. The disclosure excludes all non-financial instruments such as lease transactions, real estate, premises and equipment, equity method investments and pension and benefit obligations.
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Carrying value and fair value of financial instruments not carried at fair value
      Carrying
value

Fair value
end of Level 1 Level 2 Level 3 Total
2017 (CHF million)
Financial assets 
Central banks funds sold, securities purchased under resale agreements and securities borrowing transactions 37,848 0 37,848 0 37,848
Loans 260,093 0 264,290 3,212 267,502
Other financial assets 1 170,870 109,645 60,469 1,109 171,223
Financial liabilities 
Due to banks and deposits 372,867 201,575 171,281 0 372,856
Central banks funds purchased, securities sold under repurchase agreements and securities lending transactions 11,233 0 11,233 0 11,233
Short-term borrowings 14,871 0 14,870 0 14,870
Long-term debt 109,403 0 112,488 235 112,723
Other financial liabilities 2 61,316 0 61,131 172 61,303
2016 (CHF million)
Financial assets 
Central banks funds sold, securities purchased under resale agreements and securities borrowing transactions 47,508 0 47,508 0 47,508
Loans 252,535 0 256,020 4,602 260,622
Other financial assets 1 171,514 121,075 49,353 1,436 171,864
Financial liabilities 
Due to banks and deposits 374,620 199,721 174,877 0 374,598
Central banks funds purchased, securities sold under repurchase agreements and securities lending transactions 13,382 0 13,382 0 13,382
Short-term borrowings 11,324 0 11,327 0 11,327
Long-term debt 120,448 0 122,220 521 122,741
Other financial liabilities 2 62,291 1,595 60,573 125 62,293
1
Primarily includes cash and due from banks, interest-bearing deposits with banks, brokerage receivables, loans held-for-sale, cash collateral on derivative instruments, interest and fee receivables and non-marketable equity securities.
2
Primarily includes brokerage payables, cash collateral on derivative instruments and interest and fee payables.
35 Assets pledged and collateral
Assets pledged
The Group pledges assets mainly for repurchase agreements and other securities financing. Certain pledged assets may be encumbered, meaning they have the right to be sold or repledged. The encumbered assets are parenthetically disclosed on the consolidated balance sheet.
Assets pledged
end of 2017 2016
Assets pledged (CHF million)   
Total assets pledged or assigned as collateral 130,038 122,805
   of which encumbered  73,189 83,473
Collateral
The Group receives cash and securities in connection with resale agreements, securities borrowing and loans, derivative transactions and margined broker loans. A significant portion of the collateral and securities received by the Group was sold or repledged in connection with repurchase agreements, securities sold not yet purchased, securities borrowings and loans, pledges to clearing organizations, segregation requirements under securities laws and regulations, derivative transactions and bank loans.
Collateral
end of 2017 2016
Collateral (CHF million)   
Fair value of collateral received with the right to sell or repledge 433,190 402,690
   of which sold or repledged  212,155 184,066 1
1
Prior period has been corrected.
Other information
end of 2017 2016
Other information (CHF million)   
Cash and securities restricted under foreign banking regulations 26,969 27,590
Swiss National Bank required minimum liquidity reserves 2,043 2,001
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36 Capital adequacy
Effective January 1, 2013, the >>>Basel III framework was implemented in Switzerland along with the Swiss >>>“Too Big to Fail” legislation and regulations thereunder (Swiss Requirements). Together with the related implementing ordinances, the legislation includes capital, liquidity, leverage and large exposure requirements and rules for emergency plans designed to maintain systemically relevant functions in the event of threatened insolvency. The legislation implementing the Basel III framework in Switzerland in respect of capital requirements for systemically relevant banks, including the Group, goes beyond the Basel III minimum standards for systemically relevant banks. The Swiss >>>total loss-absorbing capacity (TLAC) standards are being phased in from 2016 through 2019 and are fully effective on January 1, 2020. Failure to comply with national capital requirements could result in restrictions being imposed by the Group’s regulators. The Group, which is subject to regulation by >>>FINMA, has based its capital adequacy calculations on US GAAP financial statements, as permitted by FINMA Circular 2013/1.
Systemically important banks operating internationally, such as the Group, are subject to two different minimum requirements for loss-absorbing capacity: global systemically important banks must hold sufficient capital that absorbs losses to ensure continuity of service (going concern requirement), and they must issue sufficient debt instruments to fund an orderly resolution without recourse to public resources (gone concern requirement). Going concern capital and gone concern capital together form the Group’s total loss-absorbing capacity. The going concern and gone concern requirements are generally aligned with the Financial Stability Board’s total loss-absorbing capacity standard. The amended Capital Adequacy Ordinance came into effect on July 1, 2016, subject to phase-in and grandfathering provisions for certain outstanding instruments, and has to be fully applied by January 1, 2020.
The Group’s balance sheet positions and off-balance sheet exposures translate into >>>risk-weighted assets that are categorized as credit, market and operational risk-weighted assets. When assessing risk-weighted assets, it is not the nominal size, but rather the nature (including >>>risk mitigation such as collateral or hedges) of the balance sheet positions or off-balance sheet exposures that determines the risk-weighted assets.
Leverage exposure consists of period-end balance sheet assets and prescribed regulatory adjustments.
Capital ratios measure the Group’s capital components against risk-weighted assets and leverage ratios measure them against the end-of-period exposures.
As of December 31, 2017 and 2016, the Group’s current capital position exceeds its capital requirements under the regulatory provisions outlined under Swiss Requirements.
Broker-dealer operations
Certain of the Group’s broker-dealer subsidiaries are also subject to capital adequacy requirements. As of December 31, 2017 and 2016, the Group and its subsidiaries complied with all applicable regulatory capital adequacy requirements.
Swiss capital and leverage metrics
   Phase-in
end of 2017 2016
Swiss capital (CHF million)   
Swiss CET1 capital 36,567 36,417
Going concern capital 53,131 52,392
Gone concern capital 35,712 26,783
Total loss-absorbing capacity 88,843 79,175
Swiss risk-weighted assets and leverage exposure (CHF million)   
Swiss risk-weighted assets 273,436 272,090
Leverage exposure 919,053 957,067
Swiss capital ratios (%)   
Swiss CET1 ratio 13.4 13.4
Going concern capital ratio 19.4 19.3
Gone concern capital ratio 13.1 9.8
TLAC ratio 32.5 29.1
Swiss leverage ratios (%)   
Swiss CET1 leverage ratio 4.0 3.8
Going concern leverage ratio 5.8 5.5
Gone concern leverage ratio 3.9 2.8
TLAC leverage ratio 9.7 8.3
Swiss capital ratio requirements (%)   
Swiss CET1 ratio requirement 9.0 8.125
Going concern capital ratio requirement 12.0 10.75
Gone concern capital ratio requirement 6.2 3.5
TLAC ratio requirement 18.2 14.25
Swiss leverage ratio requirements (%)   
Swiss CET1 leverage ratio requirement 2.6 2.3
Going concern leverage ratio requirement 3.5 3.0
Gone concern leverage ratio requirement 2.0 1.0
TLAC leverage ratio requirement 5.5 4.0
Dividend restrictions
Certain of the Group’s subsidiaries are subject to legal restrictions governing the amount of dividends they can pay (for example, pursuant to corporate law as defined by the Swiss Code of Obligations).
Under the Swiss Code of Obligations, dividends may be paid out only if and to the extent the corporation has distributable profits from previous business years, or if the free reserves of the corporation are sufficient to allow distribution of a dividend. In addition, at least 5% of the annual net profits must be retained and booked as general legal reserves for so long as these reserves amount to less than 20% of the paid-in share capital. The reserves currently exceed this 20% threshold. Furthermore, dividends may be paid out only after shareholder approval at the Annual General Meeting.
As of December 31, 2017 and 2016, Credit Suisse Group AG was not subject to restrictions on its ability to pay the proposed dividends.
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37 Assets under management
The following disclosure provides information regarding client assets, assets under management and net new assets as regulated by >>>FINMA.
Assets under management
Assets under management include assets for which the Group provides investment advisory or discretionary asset management services, investment fund assets and assets invested in other investment fund-like pooled investment vehicles managed by the Group. The classification of assets under management is conditional upon the nature of the services provided by the Group and the clients’ intentions. Assets are individually assessed on the basis of each client’s intentions and objectives and the nature of the banking services provided to that client. In order to be classified as assets under management, the Group must currently or in the foreseeable future expect to provide a service where the involvement of the Group’s banking or investment expertise (e.g. as asset manager or investment advisor) is not purely executional or custodial in nature.
Assets under custody are client assets held mainly for execution-related or safekeeping/custody purposes only and therefore are not considered assets under management since the Group does not generally provide asset allocation or financial advice.
Assets of corporate clients and public institutions that are used primarily for cash management or transaction executional purposes for which no investment advice is provided are classified as commercial assets or assets under custody and therefore do not qualify as assets under management.
For the purpose of classifying assets under management, clients with multiple accounts are assessed from an overall relationship perspective. Accounts that are clearly separate from the remainder of the client relationship and represent assets held for custody purposes only are not included as assets under management.
The initial classification of the assets may not be permanent as the nature of the client relationship is reassessed on an on-going basis. If changes in client intent or activity warrant reclassification between client asset categories, the required reclassification adjustments are made immediately when the change in intent or activity occurs.
Reclassifications between assets under management and assets held for transaction-related or custodial purposes result in corresponding net asset inflows or outflows.
A portion of the Group’s assets under management results from double counting. Double counting arises when assets under management are subject to more than one level of asset management services. Each separate advisory or discretionary service provides additional benefits to the client and represents additional income for the Group. Specifically, double counting primarily results from the investment of assets under management in collective investment instruments managed by the Group. The extent of double counting is disclosed in the following table.
Assets under management
end of 2017 2016
Assets under management (CHF billion)   
Assets in collective investment instruments managed by Credit Suisse 185.2 165.7
Assets with discretionary mandates 267.3 238.6
Other assets under management 923.6 846.8
Assets under management (including double counting)    1,376.1 1,251.1
   of which double counting  46.2 32.8
Changes in assets under management
2017 2016
Assets under management (CHF billion)   
Assets under management at beginning of period 1 1,251.1 1,214.1
Net new assets/(net asset outflows) 37.8 26.8
Market movements, interest, dividends and foreign exchange 86.7 34.8
   of which market movements, interest and dividends 2 88.9 16.4
   of which foreign exchange  (2.2) 18.4
Other effects 0.5 (24.6)
Assets under management at end of period  1,376.1 1,251.1
1
Including double counting.
2
Net of commissions and other expenses and net of interest expenses charged.
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Net new assets
Net new assets measure the degree of success in acquiring assets under management or changes in assets under management through warranted reclassifications. The calculation is based on the direct method, taking into account individual cash payments, security deliveries and cash flows resulting from loan increases or repayments.
Interest and dividend income credited to clients and commissions, interest and fees charged for banking services as well as changes in assets under management due to currency and market volatility are not taken into account when calculating net new assets, as such charges or market movements are not directly related to the Group’s success in acquiring assets under management. Similarly other effects mainly relate to asset inflows and outflows due to acquisition or divestiture, exit from businesses or markets or exits due to new regulatory requirements and are not taken into account when calculating net new assets. The Group reviews relevant policies regarding client assets on a regular basis.
Divisional allocation
Assets under management and net new assets for the Private Clients business in the Swiss Universal Bank division, the Private Banking businesses in the International Wealth Management and Asia Pacific divisions, the Corporate & Institutional Banking business in the Swiss Universal Bank division and the Strategic Resolution Unit are allocated based on the management areas (business areas) that effectively manage the assets. The distribution of net new assets resulting from internal referral arrangements is governed under the net new asset referral framework, which includes preset percentages for the allocation of net new assets to the businesses.
The allocation of assets under management and net new assets for Asset Management in the Internal Wealth Management division reflects the location where the investment vehicles are managed and where the costs of managing the funds are incurred.
38 Litigation
The Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses, including those disclosed below. Some of these proceedings have been brought on behalf of various classes of claimants and seek damages of material and/or indeterminate amounts.
The Group accrues loss contingency litigation provisions and takes a charge to income in connection with certain proceedings when losses, additional losses or ranges of loss are probable and reasonably estimable. The Group also accrues litigation provisions for the estimated fees and expenses of external lawyers and other service providers in relation to such proceedings, including in cases for which it has not accrued a loss contingency provision. The Group accrues these fee and expense litigation provisions and takes a charge to income in connection therewith when such fees and expenses are probable and reasonably estimable. The Group reviews its legal proceedings each quarter to determine the adequacy of its litigation provisions and may increase or release provisions based on management’s judgment and the advice of counsel. The establishment of additional provisions or releases of litigation provisions may be necessary in the future as developments in such proceedings warrant.
The specific matters described below include (a) proceedings where the Group has accrued a loss contingency provision, given that it is probable that a loss may be incurred and such loss is reasonably estimable; and (b) proceedings where the Group has not accrued such a loss contingency provision for various reasons, including, but not limited to, the fact that any related losses are not reasonably estimable. The description of certain of the matters below includes a statement that the Group has established a loss contingency provision and discloses the amount of such provision; for the other matters no such statement is made. With respect to the matters for which no such statement is made, either (a) the Group has not established a loss contingency provision, in which case the matter is treated as a contingent liability under the applicable accounting standard, or (b) the Group has established such a provision but believes that disclosure of that fact would violate confidentiality obligations to which the Group is subject or otherwise compromise attorney-client privilege, work product protection or other protections against disclosure or compromise the Group’s management of the matter. The future outflow of funds in respect of any matter for which the Group has accrued loss contingency provisions cannot be determined with certainty based on currently available information, and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that is reflected on the Group’s balance sheet.
It is inherently difficult to determine whether a loss is probable or even reasonably possible or to estimate the amount of any loss or loss range for many of the Group’s legal proceedings. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the proceeding, the progress of the matter, the advice of counsel, the Group’s defenses and its experience in similar matters, as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. Factual and legal determinations, many of which are complex, must be made before a loss, additional losses or ranges of loss can be reasonably estimated for any proceeding.
Most matters pending against the Group seek damages of an indeterminate amount. While certain matters specify the damages claimed, such claimed amount may not represent the Group’s reasonably possible losses. For certain of the proceedings discussed below the Group has disclosed the amount of damages claimed and certain other quantifiable information that is publicly available.
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The following table presents a roll forward of the Group’s aggregate litigation provisions.
Litigation provisions
2017
CHF million   
Balance at beginning of period  3,839
Increase in litigation accruals 774
Decrease in litigation accruals (90)
Decrease for settlements and other cash payments (3,638)
Foreign exchange translation (136)
Balance at end of period  749
The Group’s aggregate litigation provisions include estimates of losses, additional losses or ranges of loss for proceedings for which such losses are probable and can be reasonably estimated. The Group does not believe that it can estimate an aggregate range of reasonably possible losses for certain of its proceedings because of their complexity, the novelty of some of the claims, the early stage of the proceedings, the limited amount of discovery that has occurred and/or other factors. The Group’s estimate of the aggregate range of reasonably possible losses that are not covered by existing provisions for the proceedings discussed below for which the Group believes an estimate is possible is zero to CHF 1.5 billion.
After taking into account its litigation provisions, the Group believes, based on currently available information and advice of counsel, that the results of its legal proceedings, in the aggregate, will not have a material adverse effect on the Group’s financial condition. However, in light of the inherent uncertainties of such proceedings, including those brought by regulators or other governmental authorities, the ultimate cost to the Group of resolving such proceedings may exceed current litigation provisions and any excess may be material to its operating results for any particular period, depending, in part, upon the operating results for such period.
Enron-related litigation
One Enron-related action, Silvercreek Management Inc. v. Citigroup, Inc., et al., remains pending against Credit Suisse Securities (USA) LLC (CSS LLC) and certain of its affiliates in the US District Court for the Southern District of New York (SDNY). In this action, plaintiffs assert they relied on Enron’s financial statements, and seek to hold the defendants responsible for any inaccuracies in Enron’s financial statements. The plaintiffs seek to assert federal and state law claims relating to its alleged USD 280 million in losses relating to its Enron investments. On August 5, 2016, Credit Suisse and the other defendants filed a renewed motion to dismiss. On March 31, 2017, the SDNY granted in part defendants’ motion to dismiss, dismissing certain claims against CSS LLC and its affiliates. On November 10, 2017, Credit Suisse filed a motion for summary judgment.
On September 27, 2017, following a settlement in the matter of Connecticut Resources Recovery Authority v. Lay, et al., an order of final judgment was entered by the US District Court for the Southern District of Texas, dismissing with prejudice all claims against CSS LLC and its affiliates.
Mortgage-related matters
Government and regulatory related matters
Various financial institutions, including CSS LLC and certain of its affiliates, have received requests for information from, and/or have been defending civil actions by, certain regulators and/or government entities, including the US Department of Justice (DOJ) and other members of the Residential Mortgage-Backed Securities (RMBS) Working Group of the US Financial Fraud Enforcement Task Force, regarding the origination, purchase, securitization, servicing and trading of subprime and non-subprime residential and commercial mortgages and related issues. CSS LLC and its affiliates are cooperating with such requests for information.
DOJ RMBS settlement
On January 18, 2017, CSS LLC and its current and former US subsidiaries and US affiliates reached a settlement with the DOJ related to its legacy RMBS business, a business conducted through 2007. The settlement resolved potential civil claims by the DOJ related to Credit Suisse’s packaging, marketing, structuring, arrangement, underwriting, issuance and sale of RMBS. The settlement required the above-mentioned entities to pay a USD 2.48 billion civil monetary penalty and, within five years of the settlement, to provide USD 2.80 billion in consumer relief. The civil monetary penalty under the terms of the settlement was paid to the DOJ in January 2017. The consumer relief measures include affordable housing payments and loan forgiveness. The DOJ and Credit Suisse agreed to the appointment of an independent monitor to oversee the completion of the consumer relief requirements of the settlement. The monitor has published reports on October 27, 2017 and February 20, 2018 noting Credit Suisse’s cooperation and progress toward satisfaction of the consumer relief requirements. As previously disclosed, Credit Suisse recorded a litigation provision of USD 2 billion in the fourth quarter of 2016 in addition to its existing provisions of USD 550 million recorded for this matter in prior periods.
NYAG and NJAG litigation
Following an investigation, on November 20, 2012, the New York Attorney General (NYAG), on behalf of the State of New York, filed a civil action in the Supreme Court for the State of New York, New York County (SCNY) against CSS LLC and affiliated entities in their roles as issuer, sponsor, depositor and/or underwriter of RMBS transactions prior to 2008. The complaint, which references 64 RMBS issued, sponsored, deposited and underwritten by CSS LLC and its affiliates in 2006 and 2007, alleges that CSS LLC and its affiliates misled investors regarding the due diligence and quality control performed on the mortgage loans underlying the RMBS at issue, and seeks an unspecified amount of damages. On December 18, 2013, the New Jersey Attorney General, on behalf of the State of New Jersey (NJAG), filed a civil action in the Superior Court of New Jersey, Chancery Division, Mercer County (SCNJ), against CSS
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LLC and affiliated entities in their roles as issuer, sponsor, depositor and/or underwriter of RMBS transactions prior to 2008. The original complaint, which references 13 RMBS issued, sponsored, deposited and underwritten by CSS LLC and its affiliates in 2006 and 2007, alleges that CSS LLC and its affiliates misled investors and engaged in fraud or deceit in connection with the offer and sale of RMBS, and seeks an unspecified amount of damages. On August 21, 2014, the SCNJ dismissed without prejudice the action brought against CSS LLC and its affiliates by the NJAG. On September 4, 2014, the NJAG filed an amended complaint against CSS LLC and its affiliates, asserting additional allegations but not expanding the number of claims or RMBS referenced in the original complaint. The NYAG and NJAG actions are at various procedural stages.
Civil litigation
CSS LLC and/or certain of its affiliates have also been named as defendants in various civil litigation matters related to their roles as issuer, sponsor, depositor, underwriter and/or servicer of RMBS transactions. These cases include or have included class action lawsuits, actions by individual investors in RMBS, actions by monoline insurance companies that guaranteed payments of principal and interest for certain RMBS, and repurchase actions by RMBS trusts, trustees and/or investors. Although the allegations vary by lawsuit, plaintiffs in the class actions and individual investor actions have generally alleged that the offering documents of securities issued by various RMBS securitization trusts contained material misrepresentations and omissions, including statements regarding the underwriting standards pursuant to which the underlying mortgage loans were issued; monoline insurers allege that loans that collateralize RMBS they insured breached representations and warranties made with respect to the loans at the time of securitization and that they were fraudulently induced to enter into the transactions; and repurchase action plaintiffs generally allege breached representations and warranties in respect of mortgage loans and failure to repurchase such mortgage loans as required under the applicable agreements. The amounts disclosed below do not reflect actual realized plaintiff losses to date or anticipated future litigation exposure. Rather, unless otherwise stated, these amounts reflect the original unpaid principal balance amounts as alleged in these actions and do not include any reduction in principal amounts since issuance. Further, unless otherwise stated, amounts attributable to an “operative pleading” for the individual investor actions are not altered for settlements, dismissals or other occurrences, if any, that may have caused the amounts to change subsequent to the operative pleading. In addition to the mortgage-related actions discussed below, a number of other entities have threatened to assert claims against CSS LLC and/or its affiliates in connection with various RMBS issuances, and CSS LLC and/or its affiliates have entered into agreements with some of those entities to toll the relevant statutes of limitations.
Individual investor actions
CSS LLC and, in some instances, its affiliates, as an RMBS issuer, underwriter and/or other participant, along with other defendants, have been named as defendants in: (i) one action brought by the Federal Deposit Insurance Corporation (FDIC), as receiver for Citizens National Bank and Strategic Capital Bank, which, following the United States Supreme Court’s denial of defendants’ petition for writ of certiorari on December 4, 2017, will resume in the SDNY, in which claims against CSS LLC and its affiliates relate to approximately USD 28 million of the RMBS at issue (approximately 20% of the USD 141 million at issue against all defendants in the operative pleading); (ii) two actions brought by the FDIC, as receiver for Colonial Bank: one action in the SDNY, in which claims against CSS LLC relate to approximately USD 92 million of the RMBS at issue (approximately 23% of the USD 394 million at issue against all defendants in the operative pleading); and one action in the Circuit Court of Montgomery County, Alabama, in which claims against CSS LLC and its affiliates relate to approximately USD 139 million of the RMBS at issue (approximately 45% of the USD 311 million at issue against all defendants in the operative pleading), reduced from approximately USD 153 million following the February 14, 2017 dismissal with prejudice of claims pertaining to one RMBS offering on which CSS LLC and its affiliates were sued, and which has a trial scheduled to begin in October 2018; (iii) one action brought by the Federal Home Loan Banks of Seattle (FHLB Seattle) in Washington state court, in which claims against CSS LLC and its affiliates relate to approximately USD 104 million of the RMBS at issue, reduced from approximately USD 249 million following the May 4, 2016 dismissal with prejudice of all claims related to certain RMBS; on December 11, 2017, the Washington State Court of Appeals affirmed the trial court’s May 4, 2016 order, dismissing FHLB Seattle’s claims; (iv) one action brought by the Federal Home Loan Bank of Boston in Massachusetts state court, in which claims against CSS LLC and its affiliates relate to approximately USD 333 million of the RMBS at issue, reduced from USD 373 million following the October 27, 2015 stipulation of voluntary dismissal with prejudice of claims pertaining to certain RMBS offerings on which CSS LLC and its affiliates were sued (approximately 6% of the USD 5.7 billion at issue against all defendants in the operative pleading); (v) one action brought by Watertown Savings Bank in the SCNY, in which claims against CSS LLC and its affiliates relate to an unstated amount of the RMBS at issue; and (vi) one action brought by the Tennessee Consolidated Retirement System in Tennessee state court in which claims against CSS LLC relate to approximately USD 24 million of the RMBS at issue against CSS LLC (approximately 4% of the USD 644 million at issue against all defendants in the operative pleading).
CSS LLC and certain of its affiliates are the only defendants named in: (i) one action brought by IKB Deutsche Industriebank AG and affiliated entities in the SCNY, in which claims against CSS LLC and its affiliates relate to approximately USD 97 million of RMBS at issue; (ii) one action brought by Phoenix Light SF Ltd. and affiliated entities (Phoenix Light) in the SCNY which was dismissed in its entirety on April 16, 2015; on November 17, 2016, the SCNY, Appellate Division, First Department, issued an order reinstating all previously-dismissed claims brought by Phoenix Light against CSS LLC and its affiliates; on June 5, 2017, Phoenix Light filed an amended complaint against CSS LLC and its affiliates in
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the SCNY, reducing the originally claimed amount of RMBS at issue from approximately USD 362 million to approximately USD 281 million of RMBS at issue; and (iii) one action brought by Royal Park Investments SA/NV (Royal Park) in the SCNY, in which claims against CSS LLC and its affiliate relate to approximately USD 360 million of RMBS at issue. on April 12, 2017, the SCNY dismissed with prejudice all claims against CSS LLC and its affiliate; on February 13, 2018, Royal Park appealed the SCNY’s April 12, 2017 dismissal. These actions are at various procedural stages.
As disclosed in Credit Suisse’s quarterly Financial Reports for 2017, individual investor actions discontinued during the course of 2017 included the following: (i) on May 2, 2017, following a settlement in the amount of USD 400 million, the US District Court for the District of Kansas, presiding in the action brought by the National Credit Union Administration Board (NCUA) as liquidating agent of the US Central Federal Credit Union, Western Corporate Federal Credit Union and Southwest Corporate Federal Credit Union, dismissed with prejudice all claims against CSS LLC and its affiliate related to approximately USD 715 million of RMBS at issue; (ii) on June 29, 2017, following a settlement, the SCNY, presiding in the action brought by Deutsche Zentral-Genossenschaftsbank AG, New York Branch, dismissed with prejudice all claims against CSS LLC and its affiliates related to approximately USD 111 million of RMBS at issue; and (iii) on September 12, 2017, following a settlement, the US District Court for the District of Massachusetts, presiding in the two actions brought by Massachusetts Mutual Life Insurance Company, dismissed with prejudice all claims against CSS LLC and its employees related to approximately USD 107 million of the RMBS at issue (approximately 97% of the USD 110 million at issue against all defendants in the operative pleadings).
In addition, on November 24, 2017, following a settlement, the US District Court for the Western District of Wisconsin, presiding over the action brought by CMFG Life Insurance Company and affiliated entities, dismissed with prejudice all claims against CSS LLC related to approximately USD 62 million, reduced from approximately USD 70 million following the December 16, 2016 dismissal in part of the action.
Monoline insurer disputes
CSS LLC and certain of its affiliates are defendants in one monoline insurer action pending in the SCNY, commenced by MBIA Insurance Corp. (MBIA) as guarantor for payments of principal and interest related to approximately USD 770 million of RMBS issued in offerings sponsored by Credit Suisse. One theory of liability advanced by MBIA is that an affiliate of CSS LLC must repurchase certain mortgage loans from the trusts at issue. MBIA claims that the vast majority of the underlying mortgage loans breach certain representations and warranties, and that the affiliate has failed to repurchase the allegedly defective loans. In addition, MBIA alleges claims for fraud, fraudulent inducement, material misrepresentations, breaches of warranties, repurchase obligations, and reimbursement. MBIA submitted repurchase demands for loans with an original principal balance of approximately USD 549 million. Discovery is complete. On March 31, 2017, the SCNY granted in part and denied in part both parties’ respective summary judgment motions, which resulted, among other things, in the dismissal of MBIA’s fraud claim with prejudice. Both MBIA and the Credit Suisse entities involved in this action have filed notices of appeal.
Repurchase litigations
DLJ Mortgage Capital, Inc. (DLJ) is a defendant in: (i) one action brought by Asset Backed Securities Corporation Home Equity Loan Trust, Series 2006-HE7, in which plaintiff alleges damages of not less than USD 341 million, which was dismissed without prejudice by order of the SCNY on March 24, 2015, which order was appealed, and which action was re-filed on September 17, 2015 (stayed against DLJ pending resolution of all pending appeals); (ii) one action brought by Home Equity Asset Trust, Series 2006-8, in which plaintiff alleges damages of not less than USD 436 million; (iii) one action brought by Home Equity Asset Trust 2007-1, in which plaintiff alleges damages of not less than USD 420 million; (iv) one action brought by Home Equity Asset Trust Series 2007-3, in which plaintiff alleges damages of not less than USD 206 million, which was dismissed without prejudice by order of the SCNY on December 21, 2015 with leave to restore within one year and which plaintiff moved to restore on December 20, 2016, which the court granted on March 15, 2017 by restoring the case to active status; (v) one action brought by Home Equity Asset Trust 2007-2, in which plaintiff alleges damages of not less than USD 495 million; and (vi) one action brought by CSMC Asset-Backed Trust 2007-NC1, in which no damages amount is alleged. DLJ and its affiliate, Select Portfolio Servicing, Inc. (SPS), are defendants in: one action brought by Home Equity Mortgage Trust Series 2006-1, Home Equity Mortgage Trust Series 2006-3 and Home Equity Mortgage Trust Series 2006-4, in which plaintiffs allege damages of not less than USD 730 million, and allege that SPS obstructed the investigation into the full extent of the defects in the mortgage pools by refusing to afford the trustee reasonable access to certain origination files; and one action brought by Home Equity Mortgage Trust Series 2006-5, in which plaintiff alleges damages of not less than USD 500 million, and alleges that SPS likely discovered DLJ’s alleged breaches of representations and warranties but did not notify the trustee of such breaches, in alleged violation of its contractual obligations. These actions are brought in the SCNY and are at early or intermediate procedural points.
As disclosed in Credit Suisse’s fourth quarter Financial Report of 2013, the following repurchase actions were dismissed with prejudice in 2013: the three consolidated actions brought by Home Equity Asset Trust 2006-5, Home Equity Asset Trust 2006-6 and Home Equity Asset Trust 2006-7 against DLJ. Those dismissals are on appeal.
Bank loan litigation
On January 3, 2010, the Bank and other affiliates were named as defendants in a lawsuit filed in the US District Court for the District of Idaho by current or former homeowners in four real estate developments, Tamarack Resort, Yellowstone Club, Lake Las Vegas and
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Ginn Sur Mer. The Bank arranged, and was the agent bank for, syndicated loans provided to borrowers affiliated with all four developments, and who have been or are now in bankruptcy or foreclosure. Plaintiffs generally allege that the Bank and other affiliates committed fraud by using an unaccepted appraisal method to overvalue the properties with the intention of having the borrowers take out loans they could not repay because it would allow the Bank and other affiliates to later push the borrowers into bankruptcy and take ownership of the properties. Plaintiffs demanded USD 24 billion in damages. Cushman & Wakefield, the appraiser for the properties at issue, is also named as a defendant. After the filing of amended complaints and motions to dismiss, the claims were significantly reduced. On September 24, 2013, the court denied the plaintiffs’ motion for class certification so the case cannot proceed as a class action. On February 5, 2015, the court granted plaintiffs’ motion for leave to file an amended complaint, adding additional individual plaintiffs. On April 13, 2015, the court granted plaintiffs’ motion for leave to add a claim for punitive damages. On November 20, 2015, the plaintiffs moved for partial summary judgment, which the defendants opposed on December 14, 2015. On December 18, 2015, the defendants filed motions for summary judgment. On July 27, 2016, the US District Court for the District of Idaho granted the defendants’ motions for summary judgment, dismissing the case with prejudice. The plaintiffs are appealing. Oral argument on the appeal took place on February 9, 2018 and a decision is pending.
The Bank and other affiliates are also the subject of certain other related litigation regarding certain of these loans as well as other similar real estate developments. Such litigation includes two cases brought in Texas and New York state courts against Bank affiliates by entities related to Highland Capital Management LP (Highland). In the case in Texas state court, a jury trial was held in December 2014 on Highland’s claim for fraudulent inducement by affirmative misrepresentation and omission. A verdict was issued for the plaintiff on its claim for fraudulent inducement by affirmative misrepresentation, but the jury rejected its claim that the Bank’s affiliates had committed fraudulent inducement by omission. The Texas judge held a bench trial on Highland’s remaining claims in May and June 2015, and entered judgment in the amount of USD 287 million (including prejudgment interest) for the plaintiff on September 4, 2015. Both parties filed notices of appeal from that judgment and briefing was completed on March 10, 2017. Oral argument on the appeals took place on October 18, 2017 and on February 21, 2018 the appeals court affirmed the lower court’s decision. On March 7, 2018, the Bank affiliates filed a motion for rehearing with the appeals court. In the case in New York state court, the court granted in part and denied in part the Bank’s summary judgment motion. Both parties appealed that decision, but the appellate court affirmed the decision in full. Bank affiliates separately sued Highland-managed funds on related trades and received a favorable judgment awarding both principal owed and prejudgment interest. Highland appealed the portion of the judgment awarding prejudgment interest, however the original decision was affirmed in its entirety. The parties subsequently agreed to settle the amount owed by the Highland-managed funds under the judgment.
Tax and securities law matters
On May 19, 2014, Credit Suisse AG entered into settlement agreements with several US regulators regarding its US cross-border matters. As part of the settlement, Credit Suisse AG, among other things, engaged an independent corporate monitor that reports to the New York State Department of Financial Services (DFS) and provides ongoing reports to various agencies.
Rates-related matters
Regulatory matters
Regulatory authorities in a number of jurisdictions, including the US, UK, EU and Switzerland, have for an extended period of time been conducting investigations into the setting of LIBOR and other reference rates with respect to a number of currencies, as well as the pricing of certain related derivatives. These ongoing investigations have included information requests from regulators regarding LIBOR-setting practices and reviews of the activities of various financial institutions, including the Group. The Group, which is a member of three LIBOR rate-setting panels (US Dollar LIBOR, Swiss Franc LIBOR and Euro LIBOR), is cooperating fully with these investigations. In particular, it has been reported that regulators are investigating whether financial institutions engaged in an effort to manipulate LIBOR, either individually or in concert with other institutions, in order to improve market perception of these institutions’ financial health and/or to increase the value of their proprietary trading positions. In response to regulatory inquiries, Credit Suisse commissioned a review of these issues. To date, Credit Suisse has seen no evidence to suggest that it is likely to have any material exposure in connection with these issues.
Regulatory authorities in a number of jurisdictions, including the Swiss Competition Commission, the European Competition Commission, the South African Competition Commission, the DFS and the Brazilian Competition Authority have been conducting investigations into the trading activities, information sharing and the setting of benchmark rates in the foreign exchange (including electronic trading) markets.
On November 13, 2017, Credit Suisse AG and Credit Suisse AG, New York Branch reached a settlement with the DFS, resulting in a pre-tax charge of USD 135 million. The agreement with the DFS settles claims relating to certain areas of Credit Suisse’s voice and electronic foreign exchange trading business between 2008 and 2015.
The reference rates investigations have also included information requests from regulators concerning supranational, sub-sovereign and agency (SSA) bonds and commodities (including precious metals) markets. The Group is cooperating fully with these investigations.
The investigations are ongoing and it is too soon to predict the final outcome of the investigations.
Civil litigation
LIBOR litigation
Members of the US Dollar LIBOR panel, including Credit Suisse, have been named in various civil lawsuits filed in the US. All but
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one of these matters have been consolidated for pre-trial purposes into a multi-district litigation in the SDNY. On March 29, 2013, the court in the multi-district litigation dismissed a substantial portion of the consolidated cases against the panel banks, dismissing the claims under Sherman Antitrust Act and the Racketeer Influenced and Corrupt Organizations Act, as well as all state law claims, leaving only certain claims under the Commodity Exchange Act based on LIBOR-related instruments entered into after May 30, 2008 (extended to after April 14, 2009 in a subsequent order). Plaintiffs appealed part of the decision. On May 23, 2016, the United States Court of Appeals for the Second Circuit (Second Circuit) reversed the decision of the SDNY dismissing plaintiffs’ Sherman Antitrust Act claims and remanded the claims to the SDNY for additional briefing on the issue of whether such claims have been adequately alleged. Briefing was completed in August 2016 and, in a series of rulings between December 2016 and February 2017, the SDNY dismissed all of plaintiffs’ antitrust claims against Credit Suisse. Between April 2013 and November 2015, the SDNY has issued a number of decisions narrowing and defining the scope of the permissible claimants and claims for the consolidated case in the multi-district litigation. On August 23, 2013, the SDNY rejected plaintiffs’ requests to replead the dismissed causes of action, except for certain of plaintiffs’ state law claims, which plaintiffs asserted in amended complaints. In June 2014, the SDNY denied most of defendants’ motion to dismiss.
On November 3, 2015, the SDNY further dismissed purported classes brought by student loan borrowers and lending institutions and allowed certain over-the-counter plaintiffs to amend their complaints to add new plaintiffs to certain claims. Plaintiffs appealed several of the SDNY’s rulings to the Second Circuit. On February 23, 2018, the Second Circuit issued a decision in an appeal of one non-class action that largely affirmed the SDNY’s rulings, including upholding dismissal of certain state law and securities law claims as to Credit Suisse, but vacated certain rulings and remanded the case for further proceedings. On June 26, 2017, the only named plaintiff with putative class claims remaining against a Credit Suisse entity that survived a motion to dismiss withdrew as a class representative. On February 28, 2018, the SDNY issued a decision dismissing Credit Suisse AG with prejudice from the remaining non-stayed putative class action.
The one matter that is not consolidated in the multi-district litigation is also in the SDNY, and the SDNY granted the defendants’ motion to dismiss on March 31, 2015, but gave plaintiff leave to file a new pleading. On June 1, 2015, plaintiff filed a motion for leave to file a second amended complaint in the SDNY; defendants’ opposition brief was filed on July 15, 2015.
CHF LIBOR litigation
In February 2015, various banks that served on the Swiss franc LIBOR panel, including Credit Suisse Group AG, were named in a civil putative class action lawsuit filed in the SDNY, alleging manipulation of Swiss franc LIBOR to benefit defendants’ trading positions. On June 19, 2015, the plaintiffs filed an amended complaint. On August 18, 2015, the defendants filed motions to dismiss. On September 25, 2017, the SDNY granted defendants’ motion to dismiss all claims. The SDNY granted plaintiffs leave to file an amended complaint, and plaintiffs filed an amended complaint on November 6, 2017. Defendants filed motions to dismiss on February 7, 2018.
SIBOR/SOR litigation
In July 2016, various banks that served on the Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offer Rate (SOR) panels, including Credit Suisse Group AG and affiliates, were named in a civil putative class action lawsuit filed in the SDNY, alleging manipulation of SIBOR and SOR to benefit defendants’ trading positions. On October 31, 2016, the plaintiffs filed an amended complaint. On November 18, 2016, defendants filed motions to dismiss. On August 18, 2017, the SDNY dismissed all claims against Credit Suisse Group AG and affiliates. On September 18, 2017, the plaintiffs filed an amended complaint. On October 18, 2017, defendants filed motions to dismiss the amended complaint.
Foreign exchange litigation
Credit Suisse Group AG and affiliates as well as other financial institutions are named in four pending civil class action lawsuits in the SDNY relating to the alleged manipulation of foreign exchange rates.
The first pending matter is a consolidated class action. On January 28, 2015, the court denied defendants’ motion to dismiss the original consolidated complaint brought by US-based investors and foreign plaintiffs who transacted in the US, but granted their motion to dismiss the claims of foreign-based investors for transactions outside of the US. In July 2015, plaintiffs filed a second consolidated amended complaint, adding additional defendants and asserting additional claims on behalf of a second putative class of exchange investors. The Group and affiliates, together with other financial institutions, filed a motion to dismiss the second consolidated amended complaint, which the court granted in part and denied in part on September 20, 2016. The motion to dismiss decision reduced the size of the putative class, but allowed the primary antitrust and Commodity Exchange Act claims to survive.
The second pending matter names Credit Suisse AG and affiliates, as well as other financial institutions in a putative class action filed in the SDNY on June 3, 2015. This action is based on the same alleged conduct as the consolidated class action and alleges violations of the US Employee Retirement Income Security Act of 1974 (ERISA). On May 19, 2016, affiliates of Credit Suisse AG, along with several other financial institutions, filed a motion to dismiss the putative ERISA class action, which the SDNY granted on August 23, 2016. Plaintiffs have appealed that decision.
The third pending matter names Credit Suisse Group AG and affiliates, as well as other financial institutions, in a putative class action filed in the SDNY on September 26, 2016, alleging manipulation of the foreign exchange market on behalf of indirect purchasers of foreign exchange instruments. Defendants moved to dismiss the indirect purchaser complaint on January 23, 2017. On March 24, 2017, plaintiffs filed an amended complaint in lieu of opposing defendants’ motions to dismiss. On April 28, 2017, plaintiffs
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dismissed the pending action and filed the amended complaint as a new putative class action in the SDNY. On June 10, 2017, Credit Suisse Group AG and affiliates, along with other financial institutions, were named in a second putative class action brought in the SDNY alleging manipulation of the foreign exchange market on behalf of indirect purchasers of foreign exchange instruments. Both putative class actions have been consolidated in the SDNY, and plaintiffs filed a consolidated complaint on June 30, 2017. On August 11, 2017, defendants filed motions to dismiss. On March 15, 2018, the court issued a decision granting defendants’ joint motion to dismiss and dismissing the consolidated complaint in its entirety.
The fourth pending matter names Credit Suisse Group AG and affiliates in a putative class action filed in the SDNY on July 12, 2017, alleging improper practices in connection with electronic foreign exchange trading. Plaintiffs amended their complaint on October 19, 2017, and on December 7, 2017, defendants filed a consolidated motion to compel arbitration or dismiss on the grounds of forum non conveniens.
The Group and several affiliates, together with other financial institutions, have also been named in two Canadian putative class actions, which make allegations similar to the consolidated class action.
ISDAFIX litigation
Credit Suisse AG, New York Branch, and other financial institutions have also been named in a pending consolidated civil class action lawsuit relating to the alleged manipulation of the ISDAFIX rate for US dollars in the SDNY. On February 12, 2015, the class plaintiffs filed a consolidated amended class action complaint. On April 13, 2015, the defendants filed a motion to dismiss. On April 11, 2016, Credit Suisse AG, New York Branch entered into a settlement agreement with plaintiffs. On May 3, 2016, plaintiffs filed a motion for preliminary approval of the settlement, along with settlements with other financial institutions. On May 11, 2016, the SDNY preliminarily approved plaintiffs’ settlement agreements with Credit Suisse AG, New York Branch, and six other financial institutions. The settlement provides for dismissal of the case with prejudice and a settlement payment of USD 50 million by Credit Suisse. The settlements remain subject to final court approval.
Treasury markets litigation
CSS LLC, along with over 20 other primary dealers of US treasury securities, has been named in a number of putative civil class action complaints in the US relating to the US treasury markets. These complaints generally allege that defendants colluded to manipulate US treasury auctions, as well as the pricing of US treasury securities in the when-issued market, with impacts upon related futures and options. These actions have been consolidated into a multi-district litigation in the SDNY. On August 23, 2017, the SDNY appointed lead counsel, and on August 25, 2017, three purported class representatives re-filed their complaints as a collective individual action. On November 15, 2017, plaintiffs filed a consolidated amended class action complaint naming CSS LLC, Credit Suisse Group AG, and Credit Suisse International (CSI), along with a narrower group of other defendants. The consolidated complaint contains previously-asserted allegations as well as new allegations concerning a group boycott to prevent the emergence of anonymous, all-to-all trading in the secondary market for treasury securities. On February 23, 2018, defendants served motions to dismiss on plaintiffs and the SDNY entered a stipulation voluntarily dismissing Credit Suisse Group AG and other defendant holding companies. A stipulation of voluntary dismissal of CSI is currently pending.
SSA bonds litigation
Credit Suisse Group AG and affiliates, along with other financial institutions and individuals, have been named in several putative class action complaints filed in the SDNY relating to SSA bonds. The complaints generally allege that defendants conspired to fix the prices of SSA bonds sold to and purchased from investors in the secondary market. These actions have been consolidated in the SDNY. On April 7, 2017, plaintiffs filed a consolidated amended class action complaint. Plaintiffs filed a second consolidated amended class action complaint on November 3, 2017, which defendants moved to dismiss on December 12, 2017.
Bank Bill Swap litigation
On August 16, 2016, Credit Suisse Group AG and Credit Suisse AG, along with other financial institutions, were named in a putative class action brought in the SDNY, alleging manipulation of the Australian Bank Bill Swap reference rate. Plaintiffs filed an amended complaint on December 16, 2016, which defendants moved to dismiss on February 24, 2017.
OTC trading cases
Credit Suisse Group AG and affiliates, along with other financial institutions, have been named in one consolidated putative civil class action complaint and one consolidated complaint filed by individual plaintiffs relating to interest rate swaps, alleging that dealer defendants conspired with trading platforms to prevent the development of interest rate swap exchanges. The individual lawsuits were brought by TeraExchange LLC, a swap execution facility, and affiliates, and Javelin Capital Markets LLC, a swap execution facility, and an affiliate, which claim to have suffered lost profits as a result of defendants’ alleged conspiracy. All interest rate swap actions have been consolidated in a multi-district litigation in the SDNY. Both class and individual plaintiffs filed second amended consolidated complaints on December 9, 2016, which defendants moved to dismiss on January 20, 2017. On July 28, 2017, the SDNY granted in part and denied in part defendants’ motions to dismiss. On February 21, 2018, class plaintiffs moved for leave to amend and file a proposed third amended consolidated class action complaint.
On June 8, 2017, Credit Suisse Group AG and affiliates, along with other financial institutions, were named in a civil action filed in the SDNY by Tera Group, Inc. and related entities (collectively “Tera”), alleging violations of antitrust law in connection with the allegation that credit default swap (CDS) dealers conspired to block Tera’s electronic CDS trading platform from successfully entering the market. On September 11, 2017, defendants filed motions to dismiss.
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On August 16, 2017, Credit Suisse Group AG and affiliates, along with other financial institutions, were named in a civil putative class action lawsuit filed in the SDNY, alleging that defendants conspired to keep stock loan trading fixed in an over-the-counter market and collectively boycotted certain trading platforms that sought to enter the market. Plaintiffs filed an amended complaint on November 17, 2017. Defendants filed motions to dismiss on January 26, 2018. On January 26, 2018, the court entered a stipulation voluntarily dismissing Credit Suisse Group AG and other defendant holding companies, although certain Credit Suisse Group AG affiliates remain part of the ongoing action. Separately, on January 30, 2018, Credit Suisse Group AG and affiliates, along with other financial institutions, were named in a civil lawsuit filed in the SDNY by the purported successor in interest to a trading platform for stock loans that sought to enter the market. As in the civil putative class action lawsuit, the plaintiff alleges that defendants collectively boycotted its trading platform.
Caspian Energy litigation
A lawsuit was brought against CSI in English court by Rosserlane Consultants Limited and Swinbrook Developments Limited. The litigation relates to the forced sale by CSI in 2008 of Caspian Energy Group LP (CEG), the vehicle through which the plaintiffs held a 51% stake in the Kyurovdag oil and gas field in Azerbaijan. CEG was sold for USD 245 million following two unsuccessful merger and acquisition processes. The plaintiffs allege that CEG should have been sold for at least USD 700 million. The trial took place at the end of 2014 and on February 20, 2015, the case was dismissed and judgment given in favor of CSI. The plaintiffs appealed the judgment. In January 2017, the Court of Appeal ruled in CSI’s favor.
ATA litigation
A lawsuit was filed on November 10, 2014 in the US District Court for the Eastern District of New York (EDNY) against a number of banks, including Credit Suisse AG, alleging claims under the United States Anti-Terrorism Act (ATA). The action alleges a conspiracy between Iran and various international financial institutions, including the defendants, in which they agreed to alter, falsify or omit information from payment messages that involved Iranian parties for the express purpose of concealing the Iranian parties’ financial activities and transactions from detection by US authorities. The complaint, brought by approximately 200 plaintiffs, alleges that this conspiracy has made it possible for Iran to transfer funds to Hezbollah and other terrorist organizations actively engaged in harming US military personnel and civilians. On July 12, 2016, plaintiffs filed a second amended complaint in the EDNY against a number of banks, including Credit Suisse AG, alleging claims under the ATA. On September 14, 2016, Credit Suisse AG and the other defendants filed motions to dismiss the plaintiffs’ second amended complaint in the EDNY. A second lawsuit was filed on November 2, 2016 in the US District Court for the Southern District of Illinois (S.D. Ill.) against a number of banks, including Credit Suisse AG, alleging claims under the ATA. The complaint, brought by approximately 100 plaintiffs, makes allegations similar to the ATA action pending against Credit Suisse AG in the EDNY. On April 12, 2017, the S.D. Ill. entered an order granting defendants’ motion to transfer the case to the EDNY for further proceedings. On September 11, 2017, Credit Suisse AG and other defendants served motions to dismiss the plaintiffs’ amended complaint. On October 3, 2017, the plaintiffs filed a stipulation of voluntary dismissal and withdrew their complaint. A third lawsuit was filed on November 9, 2017, in SDNY against a number of banks, including Credit Suisse AG, alleging claims under the ATA. On March 2, 2018, Credit Suisse AG and other defendants filed motions to dismiss the plaintiffs’ complaint. This action and the separate lawsuit that was filed on November 10, 2014 in the EDNY, remain pending.
MPS
In late 2014, the Monte dei Paschi di Siena Foundation (Foundation) filed a lawsuit in the Civil Court of Milan, Italy seeking EUR 3 billion in damages jointly from Credit Suisse Securities (Europe) Limited (CSSEL), Banca Leonardo & Co S.p.A. and former members of the Foundation’s management committee. The lawsuit relates to the fairness opinions CSSEL and Banca Leonardo & Co S.p.A. delivered to the Foundation in connection with the EUR 9 billion acquisition of Banca Antonveneta S.p.A. by Banca Monte dei Paschi di Siena S.p.A. (BMPS) in 2008. BMPS funded the acquisition by a EUR 5 billion rights offer and the issuance of unredeemable securities convertible into BMPS shares, in which the Foundation invested EUR 2.9 billion and EUR 490 million, respectively. The Foundation alleges that the fairness opinions were issued in the absence of key financial information. CSSEL believes that the claim lacks merit and is not supported by the available evidence. In November 2017, the Civil Court of Milan rejected the Foundation’s claims, ruling in favor of CSSEL. In January 2018, the Foundation filed an appeal against this ruling.
Customer account matters
Several clients have claimed that a former relationship manager in Switzerland had exceeded his investment authority in the management of their portfolios, resulting in excessive concentrations of certain exposures and investment losses. Credit Suisse AG is investigating the claims, as well as transactions among the clients. Credit Suisse AG filed a criminal complaint against the former relationship manager with the Geneva Prosecutor’s Office upon which the prosecutor initiated a criminal investigation. Several clients of the former relationship manager also filed criminal complaints with the Geneva Prosecutor’s Office. On February 9, 2018, the former relationship manager was sentenced to five years in prison by the Geneva criminal court for fraud, forgery and criminal mismanagement and ordered to pay damages of approximately USD 130 million. Civil liability lawsuits were initiated on August 25, 2017 in the High Court of Singapore, the High Court of New Zealand and the Supreme Court of Bermuda against Credit Suisse AG and certain
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affiliates, based on the findings established in the criminal proceedings against the former relationship manager.
FIFA-related matters
In connection with investigations by US and Swiss government authorities into the involvement of financial institutions in the alleged bribery and corruption surrounding the Fédération Internationale de Football Association (FIFA), Credit Suisse has received inquiries from these authorities regarding its banking relationships with certain individuals and entities associated with FIFA, including but not limited to certain persons and entities named and/or described in the May 20, 2015 indictment and the November 25, 2015 superseding indictment filed by the Eastern District of New York US Attorney’s Office. The US and Swiss authorities are investigating whether multiple financial institutions, including Credit Suisse, permitted the processing of suspicious or otherwise improper transactions, or failed to observe anti-money laundering laws and regulations, with respect to the accounts of certain persons and entities associated with FIFA. Credit Suisse is cooperating with the authorities on this matter.
External asset manager matter
Several clients have claimed that an external asset manager based in Geneva misappropriated funds, forged bank statements, transferred assets between client accounts at Credit Suisse as custodian to conceal losses and made investments without the authorization of those clients. Credit Suisse is investigating the claims. The Geneva Prosecutor’s Office initiated a criminal investigation against representatives of the external asset manager and two former Credit Suisse employees.
Mossack Fonseca/Israel Desk matters
Credit Suisse, along with many financial institutions, has received inquiries from governmental and regulatory authorities concerning banking relationships between financial institutions, their clients and the Panama-based law firm of Mossack Fonseca. Credit Suisse has also received governmental and regulatory inquiries concerning cross-border services provided by Credit Suisse’s Switzerland-based Israel Desk. Credit Suisse is conducting a review of these issues and has been cooperating with the authorities.
Mozambique matter
Credit Suisse is responding to requests from regulatory and enforcement authorities related to Credit Suisse’s arrangement of loan financing to Mozambique state enterprises, Proindicus S.A. and Empresa Mocambiacana de Atum S.A. (EMATUM), a distribution to private investors of loan participation notes (LPN) related to the EMATUM financing in September 2013, and Credit Suisse’s subsequent role in arranging the exchange of those LPNs for Eurobonds issued by the Republic of Mozambique. Credit Suisse is cooperating with the authorities on this matter.
Cross-border private banking matters
Credit Suisse offices in various locations, including the UK, the Netherlands and France, have been contacted by regulatory and law enforcement authorities that are seeking records and information concerning investigations into our historical private banking services on a cross-border basis and in part through our local branches and banks. Credit Suisse has conducted a review of these issues and is cooperating with the authorities. Credit Suisse applies a strict zero tolerance policy on tax evasion. Currently, we cannot predict with any reasonable certainty the outcome of any of these investigations.
Hiring practices investigation
Credit Suisse has been responding to requests from certain governmental and regulatory authorities, including the DOJ and the US Securities and Exchange Commission, regarding Credit Suisse’s hiring practices in the Asia Pacific region and, in particular, whether Credit Suisse hired referrals from government agencies and other state-owned entities in exchange for investment banking business and/or regulatory approvals, in potential violation of the US Foreign Corrupt Practices Act and related civil statutes. Credit Suisse is cooperating with the authorities on this matter.
Write-downs litigation
On December 22, 2017, Credit Suisse Group AG and certain current and former executives were named in a class action complaint filed in the SDNY on behalf of a putative class of purchasers of Credit Suisse AG American Depositary Receipts (ADRs), asserting claims for violations of Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleging that defendants sanctioned increases to trading limits that ultimately led to write-downs in the fourth quarter of 2015 and the first quarter of 2016 and a decline in the market value of the ADRs.
XIV ETN litigation
On March 14, 2018, Credit Suisse Group AG and certain executives were named in a class action complaint filed in the SDNY on behalf of a putative class of purchasers of VelocityShares Daily Inverse VIX Short Term Exchange Traded Notes linked to the S&P 500 VIX Short-Term Futures Index due December 4, 2030 (XIV ETNs), asserting claims for violations of Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleging that the defendants are responsible for losses to investors following a decline in the value of XIV ETNs on February 5, 2018. Separately, on March 15, 2018, Credit Suisse AG and Janus Index & Calculation Services LLC were named in a class action complaint filed in the SDNY on behalf of a putative class of purchasers of XIV ETNs, asserting claims for violations of Section 11 of the US Securities Act of 1933 and Section 10(b) of the US Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleging that the defendants are responsible for investors’ XIV ETN losses.
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39 Significant subsidiaries and equity method investments
Significant subsidiaries
Equity
interest
in %


Company name


Domicile


Currency
Nominal
capital
in million
as of December 31, 2017      
Credit Suisse Group AG
100 Credit Suisse AG Zurich, Switzerland CHF 4,399.7
100 Credit Suisse Insurance Linked Strategies Ltd Zurich, Switzerland CHF 0.2
100 Credit Suisse (Poland) SP. z o.o Warsaw, Poland PLN 20.0
100 Credit Suisse Services AG Zurich, Switzerland CHF 1.0
100 Credit Suisse Trust AG Zurich, Switzerland CHF 5.0
100 Credit Suisse Trust Holdings Limited St. Peter Port, Guernsey GBP 2.0
100 CS LP Holding AG Zug, Switzerland CHF 0.1
100 Inreska Limited St. Peter Port, Guernsey GBP 3.0
88 Savoy Hotel Baur en Ville AG Zurich, Switzerland CHF 7.5
Credit Suisse AG
100 AJP Cayman Ltd. George Town, Cayman Islands JPY 8,025.6
100 Alpine Securitization LTD George Town, Cayman Islands USD 0.0
100 Asset Management Finance LLC Wilmington, United States USD 341.8
100 Banco Credit Suisse (Brasil) S.A. São Paulo, Brazil BRL 53.6
100 Banco Credit Suisse (México), S.A. Mexico City, Mexico MXN 1,716.7
100 Banco de Investimentos Credit Suisse (Brasil) S.A. São Paulo, Brazil BRL 164.8
100 BANK-now AG Horgen, Switzerland CHF 30.0
100 Boston Re Ltd. Hamilton, Bermuda USD 2.0
100 Column Financial, Inc. Wilmington, United States USD 0.0
100 Credit Suisse (Australia) Limited Sydney, Australia AUD 34.1
100 Credit Suisse (Brasil) S.A. Corretora de Titulos e Valores Mobiliários São Paulo, Brazil BRL 98.4
100 Credit Suisse (Deutschland) Aktiengesellschaft Frankfurt, Germany EUR 130.0
100 Credit Suisse (Hong Kong) Limited Hong Kong, China HKD 13,758.0
100 Credit Suisse (Italy) S.p.A. Milan, Italy EUR 139.6
100 Credit Suisse (Luxembourg) S.A. Luxembourg, Luxembourg CHF 230.9
100 Credit Suisse (Qatar) LLC Doha, Qatar USD 29.0
100 Credit Suisse (Schweiz) AG Zurich, Switzerland CHF 100.0
100 Credit Suisse (Singapore) Limited Singapore, Singapore SGD 743.3
100 Credit Suisse (UK) Limited London, United Kingdom GBP 245.2
100 Credit Suisse (USA), Inc. Wilmington, United States USD 0.0
100 Credit Suisse Asset Management (UK) Holding Limited London, United Kingdom GBP 144.2
100 Credit Suisse Asset Management Immobilien Kapitalanlagegesellschaft GmbH Frankfurt, Germany EUR 6.1
100 Credit Suisse Asset Management International Holding Ltd Zurich, Switzerland CHF 20.0
100 Credit Suisse Asset Management Investments Ltd Zurich, Switzerland CHF 0.1
100 Credit Suisse Asset Management Limited London, United Kingdom GBP 45.0
100 Credit Suisse Asset Management, LLC Wilmington, United States USD 1,086.8
100 Credit Suisse Atlas I Investments (Luxembourg) S.à.r.l. Luxembourg, Luxembourg USD 0.0
100 Credit Suisse Business Analytics (India) Private Limited Mumbai, India INR 40.0
100 Credit Suisse Capital LLC Wilmington, United States USD 937.6
100 Credit Suisse Energy LLC Wilmington, United States USD 0.0
100 Credit Suisse Equities (Australia) Limited Sydney, Australia AUD 62.5
100 Credit Suisse Finance (India) Private Limited Mumbai, India INR 1,050.1
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Significant subsidiaries (continued)
Equity
interest
in %


Company name


Domicile


Currency
Nominal
capital
in million
100 Credit Suisse First Boston (Latam Holdings) LLC George Town, Cayman Islands USD 23.8
100 Credit Suisse First Boston Finance B.V. Amsterdam, The Netherlands EUR 0.0
100 Credit Suisse First Boston Mortgage Capital LLC Wilmington, United States USD 356.6
100 Credit Suisse First Boston Next Fund, Inc. Wilmington, United States USD 10.0
100 Credit Suisse Fund Management S.A. Luxembourg, Luxembourg CHF 0.3
100 Credit Suisse Fund Services (Luxembourg) S.A. Luxembourg, Luxembourg CHF 1.5
100 Credit Suisse Funds AG Zurich, Switzerland CHF 7.0
100 Credit Suisse Group Finance (U.S.) Inc. Wilmington, United States USD 100.0
100 Credit Suisse Hedging-Griffo Corretora de Valores S.A. São Paulo, Brazil BRL 29.6
100 Credit Suisse Holding Europe (Luxembourg) S.A. Luxembourg, Luxembourg CHF 32.6
100 Credit Suisse Holdings (Australia) Limited Sydney, Australia AUD 42.0
100 1 Credit Suisse Holdings (USA), Inc. Wilmington, United States USD 550.0
100 2 Credit Suisse International London, United Kingdom USD 12,366.1
100 Credit Suisse InvestLab AG Zurich, Switzerland CHF 1.0
100 Credit Suisse Istanbul Menkul Degerler A.S. Istanbul, Turkey TRY 6.8
100 Credit Suisse Leasing 92A, L.P. Wilmington, United States USD 43.9
100 Credit Suisse Life & Pensions AG Vaduz, Liechtenstein CHF 15.0
100 Credit Suisse Life (Bermuda) Ltd. Hamilton, Bermuda USD 1.0
100 Credit Suisse Loan Funding LLC Wilmington, United States USD 0.0
100 Credit Suisse Management LLC Wilmington, United States USD 896.4
100 Credit Suisse Prime Securities Services (USA) LLC Wilmington, United States USD 263.3
100 Credit Suisse Principal Investments Limited George Town, Cayman Islands JPY 3,324.0
100 Credit Suisse Private Equity, LLC Wilmington, United States USD 42.2
100 Credit Suisse PSL GmbH Zurich, Switzerland CHF 0.0
100 Credit Suisse Saudi Arabia Riyadh, Saudi Arabia SAR 625.0
100 Credit Suisse Securities (Canada), Inc. Toronto, Canada CAD 3.4
100 Credit Suisse Securities (Europe) Limited London, United Kingdom USD 3,859.3
100 Credit Suisse Securities (Hong Kong) Limited Hong Kong, China HKD 2,080.9
100 Credit Suisse Securities (India) Private Limited Mumbai, India INR 2,214.7
100 Credit Suisse Securities (Japan) Limited Tokyo, Japan JPY 78,100.0
100 Credit Suisse Securities (Johannesburg) Proprietary Limited Johannesburg, South Africa ZAR 0.0
100 Credit Suisse Securities (Malaysia) Sdn. Bhd. Kuala Lumpur, Malaysia MYR 100.0
100 Credit Suisse Securities (Moscow) Moscow, Russia RUB 97.1
100 Credit Suisse Securities (Singapore) Pte Limited Singapore, Singapore SGD 30.0
100 Credit Suisse Securities (Thailand) Limited Bangkok, Thailand THB 500.0
100 Credit Suisse Securities (USA) LLC Wilmington, United States USD 1,131.7
100 Credit Suisse Services (India) Private Limited Pune, India INR 0.1
100 Credit Suisse Services (USA) LLC Wilmington, United States USD 0.0
100 CS Non-Traditional Products Ltd. Nassau, Bahamas USD 0.1
100 CSAM Americas Holding Corp. Wilmington, United States USD 0.0
100 DLJ Merchant Banking Funding, Inc Wilmington, United States USD 0.0
100 DLJ Mortgage Capital, Inc. Wilmington, United States USD 0.0
100 Fides Treasury Services AG Zurich, Switzerland CHF 2.0
100 JSC "Bank Credit Suisse (Moscow)" Moscow, Russia USD 37.8
100 Merban Equity AG Zug, Switzerland CHF 0.1
100 Merchant Holding, LLC Wilmington, United States USD 0.0
100 Neue Argauer Bank AG Aarau, Switzerland CHF 134.1
100 Solar Investco II Ltd. George Town, Cayman Islands USD 0.0
100 SPS Holding Corporation Wilmington, United States USD 0.0
100 SVC - AG für KMU Risikokapital Zurich, Switzerland CHF 15.0
99 PT Credit Suisse Sekuritas Indonesia Jakarta, Indonesia IDR 235,000.0
98 Credit Suisse Hypotheken AG Zurich, Switzerland CHF 0.1
1
43% of voting rights held by Credit Suisse Group AG, Guernsey Branch.
2
98% of voting rights and 98% of equity interest held by Credit Suisse AG.
384

Significant equity method investments
Equity
interest
in %


Company name


Domicile
as of December 31, 2017      
Credit Suisse Group AG
100 1 Credit Suisse Group Finance (Guernsey) Limited St. Peter Port, Guernsey
100 1 Credit Suisse Group (Guernsey) II Limited St. Peter Port, Guernsey
100 1 Credit Suisse Group Funding (Guernsey) Limited St. Peter Port, Guernsey
25 SECB Swiss Euro Clearing Bank GmbH Frankfurt, Germany
Credit Suisse AG
50 Swisscard AECS GmbH Horgen, Switzerland
33 Credit Suisse Founder Securities Limited Beijing, China
23 E.L. & C. Baillieu Stockbroking (Holdings) Pty Ltd Melbourne, Australia
20 ICBC Credit Suisse Asset Management Co., Ltd. Beijing, China
5 2 York Capital Management Global Advisors, LLC New York, United States
0 2 Holding Verde Empreendimentos e Participações S.A. São Paulo, Brazil
1
Deconsolidated under US GAAP as the Group is not the primary beneficiary.
2
The Group holds a significant noncontrolling interest.
40 Subsidiary guarantee information
Certain wholly owned finance subsidiaries of the Group, including Credit Suisse Group Funding (Guernsey) Limited, which is a Guernsey incorporated non-cellular company limited by shares, have issued securities fully and unconditionally guaranteed by the Group. There are various legal and regulatory requirements, including the satisfaction of a solvency test under Guernsey law for the Guernsey subsidiary, applicable to some of the Group’s subsidiaries that may limit their ability to pay dividends or distributions and make loans and advances to the Group.
On March 26, 2007, the Group and the Bank issued full, unconditional and several guarantees of Credit Suisse (USA), Inc.’s outstanding SEC-registered debt securities. In accordance with the guarantees, if Credit Suisse (USA), Inc. fails to make any timely payment under the agreements governing such debt securities, the holders of the debt securities may demand payment from either the Group or the Bank, without first proceeding against Credit Suisse (USA), Inc. The guarantee from the Group is subordinated to senior liabilities. Credit Suisse (USA), Inc. is an indirect, wholly owned subsidiary of the Group.
As part of an announced program to evolve the Group’s legal entity structure to meet developing and future regulatory requirements and US Federal Reserve regulation on establishing intermediate holding companies in the US for non-US banks, legal entities are re-parented as subsidiaries of Credit Suisse (USA), Inc.
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, during the first quarter of 2017, the equity stakes in Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH held by the Group were transferred to the Bank and subsequently to Credit Suisse (Schweiz) AG, a wholly owned subsidiary of the Bank.
Prior periods are restated to conform to the current presentation to reflect the impact of such transactions.
385

Condensed consolidating statements of operations

in 2017

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Condensed consolidating statements of operations (CHF million)   
Interest and dividend income 5,294 11,767 17,061 577 (581) 17,057
Interest expense (4,437) (5,932) (10,369) (632) 501 (10,500)
Net interest income 857 5,835 6,692 (55) (80) 6,557
Commissions and fees 3,756 7,916 11,672 28 117 11,817
Trading revenues (23) 1,323 1,300 (55) 72 1,317
Other revenues 942 359 1,301 (911) 2 819 1,209
Net revenues  5,532 15,433 20,965 (993) 928 20,900
Provision for credit losses  4 206 210 0 0 210
Compensation and benefits 3,066 6,898 9,964 74 139 10,177
General and administrative expenses 1,929 5,484 7,413 (80) (498) 6,835
Commission expenses 255 1,174 1,429 3 (2) 1,430
Restructuring expenses 173 223 396 0 59 455
Total other operating expenses 2,357 6,881 9,238 (77) (441) 8,720
Total operating expenses  5,423 13,779 19,202 (3) (302) 18,897
Income/(loss) before taxes  105 1,448 1,553 (990) 1,230 1,793
Income tax expense/(benefit) (42) 2,823 2,781 (7) (33) 2,741
Net income/(loss)  147 (1,375) (1,228) (983) 1,263 (948)
Net income attributable to noncontrolling interests 11 16 27 0 8 35
Net income/(loss) attributable to shareholders  136 (1,391) (1,255) (983) 1,255 (983)
1
Includes eliminations and consolidation adjustments.
2
Primarily consists of revenues from investments in Group companies accounted for under the equity method.
Condensed consolidating statements of comprehensive income

in 2017

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Comprehensive income (CHF million)
Net income/(loss) 147 (1,375) (1,228) (983) 1,263 (948)
   Gains/(losses) on cash flow hedges  0 (35) (35) 8 0 (27)
   Foreign currency translation  (756) (259) (1,015) 1 (17) (1,031)
   Unrealized gains/(losses) on securities  0 (13) (13) 0 0 (13)
   Actuarial gains/(losses)  (7) 28 21 0 674 695
   Net prior service credit/(cost)  0 0 0 0 (121) (121)
   Gains/(losses) on liabilities related to credit risk  (33) (1,651) (1,684) (188) (104) (1,976)
Other comprehensive income/(loss), net of tax (796) (1,930) (2,726) (179) 432 (2,473)
Comprehensive income/(loss)  (649) (3,305) (3,954) (1,162) 1,695 (3,421)
Comprehensive income/(loss) attributable to noncontrolling interests 24 (33) (9) 0 37 28
Comprehensive income/(loss) attributable to shareholders  (673) (3,272) (3,945) (1,162) 1,658 (3,449)
1
Includes eliminations and consolidation adjustments.
386

Condensed consolidating statements of operations (continued)

in 2016

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Condensed consolidating statements of operations (CHF million)   
Interest and dividend income 5,697 11,678 17,375 284 (285) 17,374
Interest expense (3,750) (6,031) (9,781) (338) 307 (9,812)
Net interest income 1,947 5,647 7,594 (54) 22 7,562
Commissions and fees 3,582 7,356 10,938 27 127 11,092
Trading revenues (1,192) 1,563 371 (21) (37) 313
Other revenues 830 660 1,490 (2,684) 2 2,550 1,356
Net revenues  5,167 15,226 20,393 (2,732) 2,662 20,323
Provision for credit losses  (5) 257 252 0 0 252
Compensation and benefits 3,235 7,542 10,777 57 (262) 10,572
General and administrative expenses 4,474 5,411 9,885 (88) (27) 9,770
Commission expenses 259 1,196 1,455 1 (1) 1,455
Restructuring expenses 209 304 513 0 27 540
Total other operating expenses 4,942 6,911 11,853 (87) (1) 11,765
Total operating expenses  8,177 14,453 22,630 (30) (263) 22,337
Income/(loss) before taxes  (3,005) 516 (2,489) (2,702) 2,925 (2,266)
Income tax expense/(benefit) (228) 628 400 8 33 441
Net income/(loss)  (2,777) (112) (2,889) (2,710) 2,892 (2,707)
Net income/(loss) attributable to noncontrolling interests 157 (163) (6) 0 9 3
Net income/(loss) attributable to shareholders  (2,934) 51 (2,883) (2,710) 2,883 (2,710)
1
Includes eliminations and consolidation adjustments.
2
Primarily consists of revenues from investments in Group companies accounted for under the equity method.
Condensed consolidating statements of comprehensive income (continued)

in 2016

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Comprehensive income (CHF million)
Net income/(loss) (2,777) (112) (2,889) (2,710) 2,892 (2,707)
   Gains/(losses) on cash flow hedges  0 (22) (22) 2 0 (20)
   Foreign currency translation  604 (106) 498 7 10 515
   Unrealized gains/(losses) on securities  0 1 1 0 0 1
   Actuarial gains/(losses)  49 161 210 0 184 394
   Net prior service credit/(cost)  0 0 0 0 36 36
   Gains/(losses) on liabilities related to credit risk  (64) (1,018) (1,082) 67 (28) (1,043)
Other comprehensive income/(loss), net of tax 589 (984) (395) 76 202 (117)
Comprehensive income/(loss)  (2,188) (1,096) (3,284) (2,634) 3,094 (2,824)
Comprehensive income/(loss) attributable to noncontrolling interests 151 (140) 11 0 (13) (2)
Comprehensive income/(loss) attributable to shareholders  (2,339) (956) (3,295) (2,634) 3,107 (2,822)
1
Includes eliminations and consolidation adjustments.
387

Condensed consolidating statements of operations (continued)

in 2015

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Condensed consolidating statements of operations (CHF million)   
Interest and dividend income 7,030 12,312 19,342 277 (278) 19,341
Interest expense (4,296) (5,747) (10,043) (330) 331 (10,042)
Net interest income 2,734 6,565 9,299 (53) 53 9,299
Commissions and fees 3,932 8,034 11,966 18 60 12,044
Trading revenues (966) 2,275 1,309 28 3 1,340
Other revenues 508 729 1,237 (2,969) 2 2,846 1,114
Net revenues  6,208 17,603 23,811 (2,976) 2,962 23,797
Provision for credit losses  5 319 324 0 0 324
Compensation and benefits 3,805 7,851 11,656 76 (186) 11,546
General and administrative expenses 2,242 6,493 8,735 (110) (51) 8,574
Commission expenses 288 1,335 1,623 1 (1) 1,623
Goodwill impairment 0 3,797 3,797 0 0 3,797
Restructuring expenses 193 132 325 0 30 355
Total other operating expenses 2,723 11,757 14,480 (109) (22) 14,349
Total operating expenses  6,528 19,608 26,136 (33) (208) 25,895
Income/(loss) before taxes  (325) (2,324) (2,649) (2,943) 3,170 (2,422)
Income tax benefit 37 451 488 1 34 523
Net income/(loss)  (362) (2,775) (3,137) (2,944) 3,136 (2,945)
Net income/(loss) attributable to noncontrolling interests 143 (150) (7) 0 6 (1)
Net income/(loss) attributable to shareholders  (505) (2,625) (3,130) (2,944) 3,130 (2,944)
1
Includes eliminations and consolidation adjustments.
2
Primarily consists of revenues from investments in Group companies accounted for under the equity method.
Condensed consolidating statements of comprehensive income (continued)

in 2015

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Comprehensive income (CHF million)
Net income/(loss) (362) (2,775) (3,137) (2,944) 3,136 (2,945)
   Gains/(losses) on cash flow hedges  0 24 24 (8) 0 16
   Foreign currency translation  55 (1,204) (1,149) (3) (4) (1,156)
   Unrealized gains/(losses) on securities  (2) (2) (4) 0 0 (4)
   Actuarial gains/(losses)  24 21 45 0 (706) (661)
   Net prior service credit/(cost)  (14) 0 (14) 0 169 155
Other comprehensive income/(loss), net of tax 63 (1,161) (1,098) (11) (541) (1,650)
Comprehensive income/(loss)  (299) (3,936) (4,235) (2,955) 2,595 (4,595)
Comprehensive income/(loss) attributable to noncontrolling interests 784 (810) (26) 0 7 (19)
Comprehensive income/(loss) attributable to shareholders  (1,083) (3,126) (4,209) (2,955) 2,588 (4,576)
1
Includes eliminations and consolidation adjustments.
388

Condensed consolidating balance sheets

end of 2017

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Assets (CHF million)   
Cash and due from banks 3,058 106,452 109,510 516 (211) 109,815
Interest-bearing deposits with banks 32 689 721 493 (488) 726
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 58,212 57,134 115,346 0 0 115,346
Securities received as collateral 5,422 32,652 38,074 0 0 38,074
Trading assets 24,602 132,172 156,774 0 (440) 156,334
Investment securities 245 1,944 2,189 15,612 (15,610) 2,191
Other investments 902 4,991 5,893 45,517 (45,446) 5,964
Net loans 12,456 270,781 283,237 0 (4,088) 279,149
Premises and equipment 1,001 3,444 4,445 0 241 4,686
Goodwill 722 3,314 4,036 0 706 4,742
Other intangible assets 195 28 223 0 0 223
Brokerage receivables 19,717 27,251 46,968 0 0 46,968
Other assets 11,217 19,739 30,956 389 726 32,071
Total assets  137,781 660,591 798,372 62,527 (64,610) 796,289
Liabilities and equity (CHF million)   
Due to banks 270 15,141 15,411 755 (753) 15,413
Customer deposits 1 362,302 362,303 0 (1,141) 361,162
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 15,352 11,144 26,496 0 0 26,496
Obligation to return securities received as collateral 5,422 32,652 38,074 0 0 38,074
Trading liabilities 6,549 32,583 39,132 0 (13) 39,119
Short-term borrowings 12,224 14,154 26,378 0 (489) 25,889
Long-term debt 50,396 121,646 172,042 19,357 (18,367) 173,032
Brokerage payables 21,585 21,718 43,303 0 0 43,303
Other liabilities 10,454 21,229 31,683 513 (584) 31,612
Total liabilities  122,253 632,569 754,822 20,625 (21,347) 754,100
Total shareholders' equity  15,409 27,261 42,670 41,902 (42,670) 41,902
Noncontrolling interests 119 761 880 0 (593) 287
Total equity  15,528 28,022 43,550 41,902 (43,263) 42,189
Total liabilities and equity  137,781 660,591 798,372 62,527 (64,610) 796,289
1
Includes eliminations and consolidation adjustments.
389

Condensed consolidating balance sheets (continued)

end of 2016

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Assets (CHF million)   
Cash and due from banks 2,491 118,575 121,066 938 (843) 121,161
Interest-bearing deposits with banks 3,520 (2,753) 767 5 0 772
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 82,363 52,476 134,839 0 0 134,839
Securities received as collateral 30,914 1,650 32,564 0 0 32,564
Trading assets 48,914 116,478 165,392 0 (242) 165,150
Investment securities 511 1,975 2,486 4,173 (4,170) 2,489
Other investments 1,146 5,571 6,717 44,753 (44,693) 6,777
Net loans 12,809 266,151 278,960 126 (3,110) 275,976
Premises and equipment 990 3,676 4,666 0 45 4,711
Goodwill 756 3,433 4,189 0 724 4,913
Other intangible assets 179 34 213 0 0 213
Brokerage receivables 17,461 15,970 33,431 0 0 33,431
Other assets 13,119 23,656 36,775 244 (154) 36,865
Total assets  215,173 606,892 822,065 50,239 (52,443) 819,861
Liabilities and equity (CHF million)   
Due to banks 77 22,723 22,800 2,943 (2,943) 22,800
Customer deposits 8 357,216 357,224 0 (1,391) 355,833
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 54,900 (21,884) 33,016 0 0 33,016
Obligation to return securities received as collateral 30,914 1,650 32,564 0 0 32,564
Trading liabilities 10,125 34,827 44,952 0 (22) 44,930
Short-term borrowings 17,110 (1,725) 15,385 0 0 15,385
Long-term debt 41,481 151,014 192,495 5,078 (4,258) 193,315
Brokerage payables 28,706 11,146 39,852 0 0 39,852
Other liabilities 14,992 24,927 39,919 321 (385) 39,855
Total liabilities  198,313 579,894 778,207 8,342 (8,999) 777,550
Total shareholders' equity  17,006 25,783 42,789 41,897 (42,789) 41,897
Noncontrolling interests (146) 1,215 1,069 0 (655) 414
Total equity  16,860 26,998 43,858 41,897 (43,444) 42,311
Total liabilities and equity  215,173 606,892 822,065 50,239 (52,443) 819,861
1
Includes eliminations and consolidation adjustments.
390

Condensed consolidating statements of cash flows

in 2017

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Operating activities of continuing operations (CHF million)
Net cash provided by/(used in) operating activities of continuing operations  7,840 (16,330) (8,490) (142) 2 90 (8,542)
Investing activities of continuing operations (CHF million)
(Increase)/decrease in interest-bearing deposits with banks 0 40 40 (488) 488 40
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 20,626 (6,340) 14,286 0 0 14,286
Purchase of investment securities 0 (86) (86) (5,673) 5,673 (86)
Proceeds from sale of investment securities 0 14 14 0 0 14
Maturities of investment securities 104 318 422 0 0 422
Investments in subsidiaries and other investments (206) (888) (1,094) (4,101) 4,101 (1,094)
Proceeds from sale of other investments 488 1,479 1,967 0 3 1,970
(Increase)/decrease in loans 3,131 (17,910) (14,779) (5,336) 6,441 (13,674)
Proceeds from sales of loans 0 9,938 9,938 0 0 9,938
Capital expenditures for premises and equipment and other intangible assets (295) (655) (950) 0 (118) (1,068)
Proceeds from sale of premises and equipment and other intangible assets 2 58 60 0 (59) 1
Other, net 41 24 65 0 0 65
Net cash provided by/(used in) investing activities of continuing operations  23,891 (14,008) 9,883 (15,598) 16,529 10,814
Financing activities of continuing operations (CHF million)
Increase/(decrease) in due to banks and customer deposits 191 2,996 3,187 (2,189) 2,425 3,423
Increase/(decrease) in short-term borrowings (4,113) 9,620 5,507 0 (489) 5,018
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (37,382) 32,131 (5,251) 0 0 (5,251)
Issuances of long-term debt 30,223 13,344 43,567 14,035 (14,046) 43,556
Repayments of long-term debt (19,174) (43,470) (62,644) 0 90 (62,554)
Issuances of common shares 0 0 0 4,253 0 4,253
Sale of treasury shares 0 0 0 0 12,034 12,034
Repurchase of treasury shares 0 0 0 (630) (12,127) (12,757)
Dividends paid (9) (4) (13) (584) 7 (590)
Other, net (780) 4,315 3,535 433 (3,891) 77
Net cash provided by/(used in) financing activities of continuing operations  (31,044) 18,932 (12,112) 15,318 (15,997) (12,791)
Effect of exchange rate changes on cash and due from banks (CHF million)
Effect of exchange rate changes on cash and due from banks  (120) (717) (837) 0 10 (827)
Net increase/(decrease) in cash and due from banks (CHF million)
Net increase/(decrease) in cash and due from banks  567 (12,123) (11,556) (422) 632 (11,346)
Cash and due from banks at beginning of period 2,491 118,575 121,066 938 (843) 121,161
Cash and due from banks at end of period  3,058 106,452 109,510 516 (211) 109,815
1
Includes eliminations and consolidation adjustments.
2
Consists of dividend payments from Group companies of CHF 10 million and CHF 14 million from bank and non-bank subsidiaries, respectively, and other cash items from parent company operations such as Group financing.
391

Condensed consolidating statements of cash flows (continued)

in 2016

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Operating activities of continuing operations (CHF million)
Net cash provided by/(used in) operating activities of continuing operations  9,618 17,390 27,008 (22) 2 (211) 26,775
Investing activities of continuing operations (CHF million)
(Increase)/decrease in interest-bearing deposits with banks (3,320) 3,437 117 0 0 117
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 18,365 (25,421) (7,056) 0 0 (7,056)
Purchase of investment securities 0 (88) (88) 0 0 (88)
Proceeds from sale of investment securities 0 14 14 0 0 14
Maturities of investment securities 199 164 363 0 0 363
Investments in subsidiaries and other investments (355) (1,002) (1,357) (710) 664 (1,403)
Proceeds from sale of other investments 2,067 (374) 1,693 0 44 1,737
(Increase)/decrease in loans 3,038 (7,259) (4,221) 15 461 (3,745)
Proceeds from sales of loans 0 2,468 2,468 0 0 2,468
Capital expenditures for premises and equipment and other intangible assets (329) (835) (1,164) 0 0 (1,164)
Proceeds from sale of premises and equipment and other intangible assets 50 5 55 0 0 55
Other, net 27 723 750 0 (1) 749
Net cash provided by/(used in) investing activities of continuing operations  19,742 (28,168) (8,426) (695) 1,168 (7,953)
Financing activities of continuing operations (CHF million)
Increase/(decrease) in due to banks and customer deposits 20 10,217 10,237 792 (762) 10,267
Increase/(decrease) in short-term borrowings (5,781) 12,375 6,594 (300) 300 6,594
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (23,838) 9,313 (14,525) 0 0 (14,525)
Issuances of long-term debt 1 52,943 52,944 0 40 52,984
Repayments of long-term debt (2,993) (44,139) (47,132) 0 0 (47,132)
Issuances of common shares 0 0 0 725 0 725
Sale of treasury shares 0 0 0 323 15,844 16,167
Repurchase of treasury shares 0 0 0 (455) (15,742) (16,197)
Dividends paid (1) (144) (145) (493) 145 (493)
Other, net (143) 1,187 1,044 93 (760) 377
Net cash provided by/(used in) financing activities of continuing operations  (32,735) 41,752 9,017 685 (935) 8,767
Effect of exchange rate changes on cash and due from banks (CHF million)
Effect of exchange rate changes on cash and due from banks  67 1,146 1,213 28 3 1,244
Net increase/(decrease) in cash and due from banks (CHF million)
Net increase/(decrease) in cash and due from banks  (3,308) 32,120 28,812 (4) 25 28,833
Cash and due from banks at beginning of period 5,799 86,455 92,254 942 (868) 92,328
Cash and due from banks at end of period  2,491 118,575 121,066 938 (843) 121,161
1
Includes eliminations and consolidation adjustments.
2
Consists of dividend payments from Group companies of CHF 145 million and CHF 41 million from bank and non-bank subsidiaries, respectively, and other cash items from parent company operations such as Group financing.
392

Condensed consolidating statements of cash flows (continued)

in 2015

Credit
Suisse
(USA), Inc.
consolidated
Bank
parent
company
and other
subsidiaries
1



Bank


Group
parent
company

Eliminations
and
consolidation
adjustments


Credit
Suisse
Group
Operating activities of continuing operations (CHF million)
Net cash provided by/(used in) operating activities of continuing operations  10,030 5,149 15,179 129 2 (240) 15,068
Investing activities of continuing operations (CHF million)
(Increase)/decrease in interest-bearing deposits with banks (1) 301 300 (5) 54 349
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 46,634 (9,670) 36,964 0 0 36,964
Purchase of investment securities 0 (376) (376) 0 0 (376)
Proceeds from sale of investment securities 1 18 19 0 0 19
Maturities of investment securities 68 840 908 0 0 908
Investments in subsidiaries and other investments (436) (119) (555) (5,310) 5,271 (594)
Proceeds from sale of other investments 1,257 639 1,896 18 24 1,938
(Increase)/decrease in loans 4,074 (9,351) (5,277) 210 (379) (5,446)
Proceeds from sales of loans 0 1,579 1,579 0 0 1,579
Capital expenditures for premises and equipment and other intangible assets (322) (779) (1,101) 0 (1) (1,102)
Proceeds from sale of premises and equipment and other intangible assets 3 10 13 0 0 13
Other, net 33 376 409 0 0 409
Net cash provided by/(used in) investing activities of continuing operations  51,311 (16,532) 34,779 (5,087) 4,969 34,661
Financing activities of continuing operations (CHF million)
Increase/(decrease) in due to banks and customer deposits (1,355) (27,719) (29,074) (475) 400 (29,149)
Increase/(decrease) in short-term borrowings 10,090 (28,238) (18,148) 300 (300) (18,148)
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (35,303) 13,154 (22,149) 0 0 (22,149)
Issuances of long-term debt 8,511 69,373 77,884 0 (26) 77,858
Repayments of long-term debt (41,953) (7,592) (49,545) (30) 210 (49,365)
Issuances of common shares 0 0 0 6,035 0 6,035
Sale of treasury shares 0 0 0 3 18,749 18,752
Repurchase of treasury shares 0 0 0 (1,044) (18,717) (19,761)
Dividends paid (3) (147) (150) (415) 138 (427)
Other, net (497) 5,284 4,787 608 (5,209) 186
Net cash provided by/(used in) financing activities of continuing operations  (60,510) 24,115 (36,395) 4,982 (4,755) (36,168)
Effect of exchange rate changes on cash and due from banks (CHF million)
Effect of exchange rate changes on cash and due from banks  18 (598) (580) 1 (3) (582)
Net increase/(decrease) in cash and due from banks (CHF million)
Net increase/(decrease) in cash and due from banks  849 12,134 12,983 25 (29) 12,979
Cash and due from banks at beginning of period 4,950 74,321 79,271 917 (839) 79,349
Cash and due from banks at end of period  5,799 86,455 92,254 942 (868) 92,328
1
Includes eliminations and consolidation adjustments.
2
Consists of dividend payments from Group companies of CHF 150 million and CHF 35 million from bank and non-bank subsidiaries, respectively, and other cash items from parent company operations such as Group financing.
393

41 Credit Suisse Group parent company
> Refer to “Note 40 – Subsidiary guarantee information” for the condensed Credit Suisse Group parent company financial information.
42 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)
The Group’s consolidated financial statements have been prepared in accordance with US GAAP.
>>>FINMA requires Swiss-domiciled banks which present their financial statements under either US GAAP or International Financial Reporting Standards (IFRS) to provide a narrative explanation of the major differences between Swiss GAAP banking law (true and fair view) and its primary accounting standard.
The principal provisions of the Banking Ordinance and the FINMA Circular 2015/1, “Accounting – banks”, governing financial reporting for banks (Swiss GAAP) differ in certain aspects from US GAAP. The following are the major differences:
> Refer to “Note 1 – Summary of significant accounting policies” for a detailed description of the Group’s accounting policies.
Scope of consolidation
Under Swiss GAAP, majority-owned subsidiaries that are not considered long-term investments or do not operate in the core business of the Group are either accounted for as financial investments or as equity method investments. US GAAP has no such exception relating to the consolidation of majority-owned subsidiaries.
Foreign currency translations
Under US GAAP, foreign currency translation adjustments resulting from the consolidation of branches with functional currencies other than the Swiss franc are included in AOCI in shareholders’ equity. Under Swiss GAAP, foreign currency translation adjustments from the consolidation of foreign branches are recognized in net income/(loss) from trading activities and fair value option.
Under US GAAP, foreign currency measurement adjustments for available-for-sale securities are reported in AOCI, which is part of total shareholder’s equity, whereas for Swiss GAAP statutory purposes they are included in the statements of income.
Investments in securities
Under Swiss GAAP, classification and measurement of investments in securities depends on the nature of the investment.
Non-consolidated participations
Under US GAAP, investments in equity securities where a company has the ability to significantly influence the operating and financial policies of an investee are accounted for under the equity method of accounting or the fair value option. Under the equity method of accounting, a company’s share of the profit or loss as well as any impairment on the participation are reported in other revenues.
Under Swiss GAAP, investments in equity securities which are held with the intention of a permanent investment or which are investments in financial industry infrastructure are included in participations irrespective of the percentage ownership of voting shares held. Other participating interests are initially recognized at historical cost and tested for impairment at least annually. The fair value option is not allowed for participations.
For the purpose of testing a company’s participating interests for impairment, the portfolio method is applied. Impairment is recorded if the carrying value of a portfolio of participating interests exceeds its fair value. Should the fair value of the portfolio recover subsequently after an impairment and such recovery is considered sustainable, the impairment from prior periods can be reversed up to fair value but not exceeding the historical cost basis. A reversal of the impairment is recorded as extraordinary income in the statements of income.
Available-for-sale securities
Under US GAAP, available-for-sale securities are valued at fair value. Unrealized gains and losses due to fluctuations in fair value (including foreign exchange) are not recorded in the consolidated statements of operations but included net of tax in AOCI, which is part of total shareholders’ equity. Declines in fair value below cost deemed to be other-than-temporary are recognized as impairments in the consolidated statements of operations, except for amounts relating to factors other than credit loss on debt securities with no intent or requirement to sell that continue to be included in AOCI. The new cost basis will not be changed for subsequent recoveries in fair value.
Under Swiss GAAP, available-for-sale securities are accounted for at the lower of cost or market with valuation reductions and recoveries due to market fluctuations recorded in other ordinary expenses and income, respectively. Foreign exchange gains and losses are recognized in net income/(loss) from trading activities and fair value option.
Non-marketable equity securities
Under US GAAP, non-marketable equity securities are valued at cost less other-than-temporary impairment or at fair value.
Under Swiss GAAP, non-marketable equity securities are carried at the lower of cost or market.
Impairments on held-to-maturity securities
Under US GAAP, declines in fair value of held-to-maturity securities below cost deemed to be other-than-temporary are recognized
394

as impairments in the consolidated statements of operations except for amounts relating to factors other than credit loss on debt securities held with no intent or requirement to sell that are included in AOCI. The impairment cannot be reversed in future periods.
Under Swiss GAAP, all impairments are recognized in the consolidated statements of income. Impairments recognized on held-to-maturity securities are reversed up to the amortized cost if the fair value of the instrument subsequently recovers. A reversal is recorded in the consolidated statements of income.
Fair value option
Unlike US GAAP, Swiss GAAP generally does not allow the >>>fair value option concept that creates an optional alternative measurement treatment for certain non-trading financial assets and liabilities, guarantees and commitments. The fair value option permits the use of fair value for initial and subsequent measurement with changes in fair value recorded in the consolidated statements of operations.
For issued structured products that meet certain conditions, fair value measurement can be applied. The related changes in fair value of both the embedded derivative and the host contract are recorded in trading revenues, except for fair value adjustments relating to own credit that cannot be recognized in the consolidated statements of income. Impacts of changes in own credit spreads are recognized in the compensation accounts which are either recorded in other assets or other liabilities.
Derivative financial instruments used for fair value hedging
Under US GAAP, the full amount of unrealized gains or losses on >>>derivatives classified as hedging instruments and the corresponding losses or gains on the hedged items are recognized in income. Hedging ineffectiveness is recorded in trading income.
Under Swiss GAAP, the carrying value of hedged items is not adjusted. The amount representing the change in fair value of the hedged item due to the risk being hedged is recorded in the compensation account included in other assets or other liabilities. Hedging ineffectiveness is recorded in net income/(loss) from trading activities and fair value option.
Derivative financial instruments used for cash flow hedging
Under US GAAP, the effective portion of a cash flow hedge is reported in AOCI.
Under Swiss GAAP, the effective portion of a cash flow hedge is recorded in the compensation account included in other assets or other liabilities.
Derecognition of financial instruments
Under US GAAP, financial instruments are only derecognized if the transaction meets the following criteria: (i) the financial asset has been legally isolated from the transferor, (ii) the transferee has the right to repledge or resell the transferred asset, and (iii) the transferor does not maintain effective control over the transferred asset.
Under Swiss GAAP, a financial instrument is derecognized when the economic control has been transferred from the seller to the buyer. A party which has the controlling ability to receive the future returns from the financial instrument and the obligation to absorb the risk of the financial instrument is deemed to have economic control over a financial instrument.
Debt issuance costs
Under US GAAP, debt issuance costs are presented as a direct deduction from the carrying amount of the related debt.
Under Swiss GAAP, debt issuance costs are reported as a balance sheet asset in accrued income and prepaid expenses.
Goodwill amortization
Under US GAAP, goodwill is not amortized but must be tested for impairment annually or more frequently if an event or change in circumstances indicates that the goodwill may be impaired.
Under Swiss GAAP, goodwill is amortized over its useful life, generally not exceeding five years, except for justified cases where a maximum useful life of up to ten years is acceptable. In addition, goodwill is tested at least annually for impairment.
Amortization of intangible assets
Under US GAAP, intangible assets with indefinite lives are not amortized but are tested for impairment annually or more frequently if an event or change in circumstances indicates that the asset may be impaired.
Under Swiss GAAP, intangible assets are amortized over a useful life, up to a maximum of five years, in justified cases up to a maximum of ten years. In addition, these assets are tested at least annually for impairment.
Guarantees
US GAAP requires all guarantees to be initially recognized at fair value. Upon issuance of a guarantee, the guarantor is required to recognize a liability that reflects the initial fair value; simultaneously, a receivable is recorded to reflect the future guarantee fee income over the entire life of the guarantee.
Under Swiss GAAP, only accrued or prepaid guarantee fees are recorded on the balance sheet. No guarantee liability and receivable for future guarantee fees are recorded upon issuance of a guarantee.
Loan origination fees and costs
US GAAP requires the deferral of fees received upfront and direct costs incurred in connection with the origination of loans not held under the fair value option.
Under Swiss GAAP, only upfront payments or fees that are considered interest-related components are deferred (e.g., premiums and discounts). Fees received from the borrower which are considered service-related fees such as commitment fees, structuring fees and arrangement fees are immediately recognized in commission income.
395

Sale and leaseback transactions
Under US GAAP, gains from the sale of property subject to a sale and leaseback arrangement are deferred and amortized over the leaseback period.
Under Swiss GAAP, gains from the sale of property subject to a sale and leaseback arrangement are only deferred if the provisions of the leaseback contract indicate that the leaseback is a capital lease; if the leaseback contract meets the requirements of an operating lease, such gains are immediately recognized upon sale of the property.
Extraordinary income and expenses
Unlike US GAAP, Swiss GAAP does report certain expenses or revenues as extraordinary if the recorded income or expense is non-operating and non-recurring.
Pensions and post-retirement benefits
Under US GAAP, the liability and related pension expense is determined based on the projected unit credit actuarial calculation of the benefit obligation.
Under Swiss GAAP, the liability and related pension expense is primarily determined based on the pension plan valuation in accordance with Swiss GAAP FER 26. A pension asset is recorded if a statutory overfunding of a pension plan leads to a future economic benefit, and a pension liability is recorded if a statutory underfunding of a pension plan leads to a future economic obligation. Employer contribution reserves must be capitalized if they represent a future economic benefit. A future economic benefit exists if the employer can reduce its future statutory annual contribution to the pension plan by releasing employer contribution reserves. Pension expenses include the required contributions defined by Swiss law, any additional contribution mandated by the pension fund trustees and any change in value of the pension asset or liability between two measurement dates as determined on the basis of the annual year-end pension plan valuation.
Discontinued operations
Under US GAAP, the assets and liabilities of a discontinued operation are separated from the ordinary captions of the consolidated balance sheets and are reported as discontinued operations measured at the lower of the carrying value or fair value less cost to sell. Accordingly, income and expense from discontinued operations are reported in a separate line item of the consolidated statements of operations.
Under Swiss GAAP, these positions remain in their initial balance sheet captions until disposed of and continue to be valued according to the respective captions.
Security collateral received in securities lending transactions
Under US GAAP, security collateral received in securities lending transactions are recorded as assets and a corresponding liability to return the collateral is recognized.
Under Swiss GAAP, security collateral received and the obligation to return collateral of securities lending transactions are not recognized on the balance sheet.
Loan commitments
Under US GAAP, loan commitments include all commitments to extend loans, unfunded commitments under commercial lines of credit, revolving credit lines, credit guarantees in the future and overdraft protection agreements, except for commitments that can be revoked by the Group at any time at the Group’s sole discretion without prior notice.
Under Swiss GAAP, loan commitments include all commitments to extend loans, unfunded commitments under commercial lines of credit, revolving credit lines, credit guarantees in the future and overdraft protection agreements, except for commitments that can be revoked by the Group at any time at the Group’s sole discretion with a notice period not exceeding six weeks.
396

Controls and procedures
Evaluation of disclosure controls and procedures
The Group has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report under the supervision and with the participation of management, including the Group Chief Executive Officer (CEO) and Chief Financial Officer (CFO), pursuant to Rule 13(a)-15(a) under the Securities Exchange Act of 1934 (the Exchange Act). There are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives.
The CEO and CFO concluded that, as of December 31, 2017, the design and operation of the Group’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required.
Management report on internal control over financial reporting
The management of the Group is responsible for establishing and maintaining adequate internal control over financial reporting. The Group’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management has made an evaluation and assessment of the Group’s internal control over financial reporting as of December 31, 2017 using the criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework”.
Based upon its review and evaluation, management, including the Group CEO and CFO, has concluded that the Group’s internal control over financial reporting is effective as of December 31, 2017.
The Group’s independent auditors, KPMG AG, have issued an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting as of December 31, 2017, as stated in their report, which follows.
Changes in internal control over financial reporting
There were no changes in the Group’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Group’s internal control over financial reporting.
397


Report of the Independent Registered Public Accounting Firm
Report of the Independent Registered Public Accounting FirmTo the shareholders and Board of DirectorsCredit Suisse Group AG, Zurich______________________________________________________________________________Opinion on Internal Control Over Financial ReportingWe have audited Credit Suisse Group AG and subsidiaries' (the “Group”) internal control over financial reporting as of December 31, 2017, based oncriteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Group as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the threeyear period ended December31, 2017, and the related notes (collectively, the “consolidated financial statements”), and our report dated March 23, 2018 expressed an unqualified opinion on those consolidated financial statements.Basis for Opinion The Group’s Board of Directors and management are responsible for maintaining effective internal control over financial reporting and the Group’s management is responsible for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.KPMG AGNicholas EdmondsAnthony AnzevinoLicensed Audit ExpertGlobal Lead PartnerAuditor in ChargeZurich, SwitzerlandMarch 23, 2018


398


Parent company financial statements – Credit Suisse Group
Report of the Statutory Auditor
Parent company financial statements
Notes to the financial statements
Proposed appropriation of retained earnings and capital distribution
399



Statements of income
Balance sheets
1 General information and subsequent events
2 Accounting and valuation principles
3 Other financial income
4 Other operating income
5 Financial expenses
6 Personnel expenses
7 Other operating expenses
8 Other short-term receivables
9 Accrued income and prepaid expenses
10 Financial investments
11 Participations
12 Short-term interest-bearing liabilities
13 Accrued expenses and deferred income
14 Long-term interest-bearing liabilities
15 Share capital, conditional, conversion and authorized capital of Credit Suisse Group
16 Credit Suisse Group shares held by subsidiaries
17 Purchases and sales of treasury shares held by Credit Suisse Group
18 Significant shareholders
19 Contingent liabilities
20 Assets and liabilities with related parties
21 Subordinated assets and liabilities
22 Shareholdings of the Board of Directors, Executive Board and employees


400

Report of the Statutory Auditor
Report of the Statutory AuditorTo the General Meeting of Credit Suisse Group AG, ZurichReport of the Statutory Auditor on the Financial StatementsAs statutory auditor, we have audited the accompanying financial statements of Credit Suisse Group AG, which comprise the balance sheet, statement of income and notes for the year ended December 31, 2017.Board of Directors’ ResponsibilityThe Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and Credit Suisse Group AG’s articles of association. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements for the year ended December 31, 2017, comply with Swiss law and Credit Suisse Group AG’s articles of association.Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight AuthorityValuation of participationsKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.Valuation of participationsKey Audit MatterOur responseCredit Suisse Group AG reports participations of CHF 52.1 billion as of December 31, 2017. The participations portfolio consists of investments in subsidiary entities mainly operating in the banking and finance industry.Participations are valued at acquisition cost less impairment. For the purpose of impairment testing, the portfolio valuation method is applied for economically closely related participations. All other participations are valued individually. The valuation of participations involves judgment in the projections and assumptions used, which are sensitive to the expected future market developments that could affect the profitability of these entities.We assessed and tested the design and implementation of the key controls over financial reporting with respect to the valuation of participations. This included controls over the identification and measurement of impairments, the evaluation of the valuation methodology, key inputs and assumptions used in the determination of the participation value, and management’s annual comparison of legal entity plans to past performance.For a sample of participations, we evaluated key assumptions applied in performing the valuation. We used our own valuation specialists to critically examine and challenge the key assumptions applied by benchmarking them against independent data.For further information on the valuation of participations refer to the following:Note 2 Accounting and valuation principles, “Participations”Note 11 ParticipationsReport on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.We further confirm that the proposed appropriation of available earnings complies with Swiss law and Credit Suisse Group AG’s articles of association. We recommend that the financial statements submitted to you be approved.KPMG AGNicholas EdmondsRalph DichtLicensed Audit ExpertLicensed Audit ExpertAuditor in ChargeZurich, SwitzerlandMarch 23, 2018


401



402



403

Parent company financial statements
Statements of income
      Reference
to notes

in
2017 2016
Statements of income (CHF million)   
Dividend income from participations 25 186
Other financial income 3 685 468
Other operating income 4 171 176
Total operating income  881 830
Financial expenses 5 704 747
Personnel expenses 6 78 55
Other operating expenses 7 116 138
Amortization, depreciation and impairment losses on noncurrent assets 3 22
Total operating expenses  901 962
Net profit/(loss) before taxes  (20) (132)
Direct tax expenses 17 15
Net profit/(loss)  (37) (147)
Balance sheets
      Reference
to notes

end of
2017 2016
Assets (CHF million)   
Cash and cash equivalents 1,009 943
Other short-term receivables 8 509 220
Derivative financial instruments 211 172
Accrued income and prepaid expenses 9 269 88
Total current assets  1,998 1,423
Financial investments 10 14,915 4,253
Participations 11 52,112 48,014
Total noncurrent assets  67,027 52,267
Total assets  69,025 53,690
Liabilities and shareholders' equity (CHF million)   
Short-term interest-bearing liabilities 12 1,345 3,201
Other short-term liabilities 17 32
Accrued expenses and deferred income 13 323 125
Total short-term liabilities  1,685 3,358
Long-term interest-bearing liabilities 14 18,591 5,149
Provisions 311 311
Total long-term liabilities  18,902 5,460
Total liabilities  20,587 8,818
Share capital  15 102 84
Capital contribution reserves 26,959 23,364
Other capital reserves 1,800 1,800
Legal capital reserves  28,759 25,164
Reserves for treasury shares 16 3,929 3,929
Legal income reserves  3,929 3,929
Statutory and discretionary reserves 10,500 10,500
Retained earnings brought forward 5,197 5,344
Net profit/(loss) (37) (147)
Voluntary retained earnings  15,660 15,697
Treasury shares against other capital reserves 17 (12) (2)
Treasury shares  (12) (2)
Total shareholders' equity  48,438 44,872
Total liabilities and shareholders' equity  69,025 53,690
404

Notes to the financial statements
1 General information and subsequent events
Company
Credit Suisse Group AG is a Swiss holding company incorporated as a joint stock corporation (public limited company) with its registered office in Zurich, Switzerland. The financial statements of Credit Suisse Group AG are prepared in accordance with the regulations of the Swiss Code of Obligations and are stated in Swiss francs (CHF). The financial year ends on December 31.
Number of employees
The average number of employees (full-time equivalents) for the current year, as well as for the previous year, did not exceed 50.
Subsequent events
There were no subsequent events.
2 Accounting and valuation principles
These financial statements were prepared in accordance with the provisions of the Swiss Law on Accounting and Financial Reporting (32nd title of the Swiss Code of Obligations).
Cash and cash equivalents
Cash and cash equivalents are carried at nominal value.
Derivative financial instruments
Derivative financial instruments reported in this balance sheet line item are carried at the lower of cost or market.
Financial investments
Financial investments include securities issued by and loans granted to group companies with a long-term maturity. Debt and equity securities are carried at cost. Long-term loans are carried at nominal value. No valuation adjustments or impairment losses were required.
Participations
Participations are valued at historical cost less impairment. For the purpose of impairment testing, with a clearly defined sub-portfolio of economically closely related participations, the portfolio valuation method is applied. The amount of impairment is assessed on the level of this sub-portfolio and not individually for each participation. All other participations are valued individually. An impairment is recorded if the carrying value exceeds the fair value of the participation sub-portfolio. If the fair value of participations recovers significantly and is considered sustainable, a prior period impairment can be reversed up to the historical cost value of the participations.
Interest-bearing liabilities
Short-term and long-term interest-bearing liabilities are carried at nominal value.
Treasury shares
Own shares are recorded at cost and reported as treasury shares, resulting in a reduction of total shareholders’ equity. Realized gains and losses on the sale of own shares are recognized through the statements of income as other financial income or financial expenses.
Revenue recognition
Revenues are recognized when they are realized or realizable, and are earned. Dividend income is recorded in the reporting period in which the dividend is declared.
Foreign currency translations
Assets and liabilities of foreign branches are translated into Swiss francs at the exchange rates prevailing at year-end. Income and expense items are translated at weighted average exchange rates for the period. All currency translation effects are recognized in other financial income or financial expense.
Foreign currency translation rates
End of 2017 2016
1 USD / 1 CHF 0.98 1.02
405

3 Other financial income
in 2017 2016
CHF million   
Interest income 587 290
Realized and unrealized gains on derivative financial instruments 75 146
Gains on sale of treasury shares 18 30
Foreign exchange gains 5 2
Total  685 468
4 Other operating income
in 2017 2016
CHF million   
Management fees 73 55
Trademark fees 69 92
Guarantee fees 29 28
Other 0 1
Total  171 176
5 Financial expenses
in 2017 2016
CHF million   
Interest expenses 623 324
Realized and unrealized losses on derivative financial instruments 78 415
Losses on sale of treasury shares 0 7
Other 3 1
Total  704 747
6 Personnel expenses
in 2017 2016
CHF million   
Salaries 36 36
Variable compensation expenses 34 13
Other 8 6
Total  78 55
7 Other operating expenses
in 2017 2016
CHF million   
Branding expenses 69 92
Other general and administrative expenses 47 46
Total  116 138
8 Other short-term receivables
end of 2017 2016
CHF million   
Debt securities 290
Receivables for trademark fees 207 212
Other 12 8
Total  509 220
9 Accrued income and prepaid expenses
end of 2017 2016
CHF million   
Accrued interest income 161 19
Deferred debt issuance costs 86 62
Unamortized discount on notes issued 12
Other 10 7
Total  269 88
Credit Suisse Group AG hedges an open interest rate risk exposure from a fixed rate liability with a nominal amount of USD 1.0 billion with a fixed receiver interest rate swap with equivalent notional. This hedge is considered to be highly effective over the entire maturity of the hedge relationship and no replacement values and no valuation changes, i.e. change of clean replacement values, are recorded on the balance sheet and in the statement of income of the company. The interest coupons received and paid from the interest rate swap are recorded in the statement of income as an adjustment to the interest expense of the hedged exposure.
10 Financial investments
end of 2017 2016
CHF million   
Debt securities 14,914 4,126
Equity securities 1 1
Long-term loans 0 126
Total  14,915 4,253
406

11 Participations
Direct participations

Voting interest
in %

Equity interest
in %


Company name


Domicile


Currency
Nominal
capital
in million
as of December 31, 2017         
26 26 Capital Union Bank B.S.C. (closed) (under liquidation) Manama, Kingdom of Bahrain USD 50.0
100 100 Credit Suisse AG Zurich, Switzerland CHF 4,399.7
100 100 Credit Suisse Group (Guernsey) I Limited (in Guernsey members' voluntary liquidation) St. Peter Port, Guernsey USD 0.2
100 100 Credit Suisse Group (Guernsey) II Limited St. Peter Port, Guernsey USD 0.1
100 100 Credit Suisse Group (Guernsey) IV Limited (in Guernsey members' voluntary liquidation) St. Peter Port, Guernsey CHF 0.1
100 100 Credit Suisse Group Finance (Guernsey) Limited St. Peter Port, Guernsey USD 0.0
100 100 Credit Suisse Group Funding (Guernsey) Limited St. Peter Port, Guernsey USD 0.1
43 1 0 1 Credit Suisse Holdings (USA), Inc. Wilmington, United States USD 550.0
100 100 Credit Suisse Insurance Linked Strategies Ltd Zurich, Switzerland CHF 0.2
2 2 2 2 Credit Suisse International London, United Kingdom USD 12,366.1
100 100 Credit Suisse IP GmbH Zurich, Switzerland CHF 0.0
100 100 Credit Suisse Services AG Zurich, Switzerland CHF 1.0
100 100 Credit Suisse Trust AG Zurich, Switzerland CHF 5.0
100 100 Credit Suisse Trust Holdings Limited St. Peter Port, Guernsey GBP 2.0
100 100 CS LP Holding AG Zug, Switzerland CHF 0.1
100 100 Inreska Limited St. Peter Port, Guernsey GBP 3.0
88 88 Savoy Hotel Baur en Ville AG Zurich, Switzerland CHF 7.5
25 25 SECB Swiss Euro Clearing Bank GmbH Frankfurt, Germany EUR 30.0
1
57% of voting interest and 100% of equity interest held by Credit Suisse AG.
2
98% held by other group companies.
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, the following equity stakes held by Credit Suisse Group AG were transferred to Credit Suisse AG and subsequently to Credit Suisse (Schweiz) AG: (i) 100% equity stake in Neue Aargauer Bank AG, (ii) 100% equity stake in BANK-now AG, and (iii) 50% equity stake in Swisscard AECS GmbH. The transfer was completed on March 31, 2017.
Indirect participations
The company’s principal indirect participations are shown in Note 39 – Significant subsidiaries and equity method investments in VI – Consolidated financial statements – Credit Suisse Group.
12 Short-term interest-bearing liabilities
end of 2017 2016
CHF million   
Due to banks 755 2,943
Cash collateral received 300 258
Low-trigger tier 1 capital notes 290
Total  1,345 3,201
13 Accrued expenses and deferred income
end of 2017 2016
CHF million   
Accrual for interest expenses 164 21
Deferred fees on acquired debt securities 75 50
Accrual for personnel and other operating expenses 69 54
Unamortized discount on debt securities 12
Other 3 0
Total  323 125
407

14 Long-term interest-bearing liabilities
Long-term interest-bearing liabilities
end of    2017 2016

Currency
Notional
(million)

Interest rate

Issue date

First call date

Maturity date
Carrying value
(CHF million)
Carrying value
(CHF million)
High-trigger tier 1 capital notes   
USD 1,500 7.125% 1 January 30, 2017 July 29, 2022 Perpetual 1,466
CHF 200 3.875% 1 March 22, 2017 September 22, 2023 Perpetual 200
Low-trigger tier 1 capital notes   
CHF 290 6.000% 1 September 4, 2013 September 4, 2018 Perpetual 2 290
USD 2,250 7.500% 1 December 11, 2013 December 11, 2023 Perpetual 2,198 2,302
USD 2,500 6.250% 1 June 18, 2014 December 18, 2024 Perpetual 2,443 2,557
Senior unsecured notes   
USD 1,000 3 Month USD LIBOR +0.55% 3 October 06, 2017 October 06, 2021 October 06, 2022 977
USD 1,750 3.574% January 09, 2017 January 09, 2022 January 09, 2023 1,710
JPY 38,700 0.553% 1 October 27, 2017 October 27, 2022 October 27, 2023 336
USD 1,000 2.997% 1 September 14, 2017 December 14, 2022 December 14, 2023 977
USD 500 3 Month USD LIBOR +1.2% September 14, 2017 December 14, 2022 December 14, 2023 488
EUR 1,500 1.250% 1 July 17, 2017 July 17, 2024 July 17, 2025 1,752
GBP 750 2.125% 1 September 12, 2017 September 12, 2024 September 12, 2025 987
JPY 8,300 0.904% 1 October 27, 2017 October 27, 2026 October 27, 2027 72
USD 2,250 4.282% January 09, 2017 January 09, 2027 January 09, 2028 2,198
JPY 10,000 1.269% 1 October 27, 2017 October 27, 2032 October 27, 2033 87
Time deposit   
CHF 2,700
Total  18,591 5,149
1
Floating interest rate after the first call date.
2
As of December 31, 2017 CHF 290 million reported as short-term interest bearing liabilities.
3
Minimum rate 0.55% / Maximum rate 3.55%.
The high-trigger and low-trigger tier 1 capital notes issued by Credit Suisse Group AG are perpetual securities and have no fixed or final maturity date. Subject to the satisfaction of certain conditions, they may be redeemed, at the option of the issuer, on the first call date or on any interest payment date thereafter.
The high-trigger tier 1 capital notes mandatorily either convert into ordinary shares of Credit Suisse Group AG or are permanently written-down to zero, as provided in the terms of the respective instrument, upon the occurrence of certain specified triggering events. These events include the Group’s consolidated common equity tier 1 (CET1) ratio falling below 7%, or a determination by the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) that conversion or write-down is necessary, or that Credit Suisse Group AG requires extraordinary public sector capital support, to prevent Credit Suisse Group AG from becoming insolvent, bankrupt or unable to pay a material amount of its debt, or other similar circumstances. Conversion or write-down can only be prevented if FINMA, at Credit Suisse Group AG’s request, is satisfied that certain conditions exist and determines that a conversion or write-down is not required. High-trigger instruments are designed to absorb losses before other capital instruments, including the low-trigger capital instruments.
The low-trigger tier 1 capital notes have a write-down feature, which means that interest on the notes shall cease to accrue and the full principal amount of the notes will be permanently written down to zero upon the occurrence of certain specified triggering events, also called write-down events. A write-down event will occur if the sum of the Group’s consolidated CET1 ratio and the Higher Trigger Capital Ratio (i.e., the ratio of >>>Higher Trigger Capital Amount to the aggregate of all >>>risk-weighted assets of the Group) as of any quarterly balance sheet date or interim capital report date is below 5.125%. A write-down event will also occur if FINMA determines that a write-down of the notes is necessary, or that Credit Suisse Group AG requires, extraordinary public sector capital support to prevent Credit Suisse Group AG from becoming insolvent, bankrupt or unable to pay a material part of its debts, or other similar circumstances. Write-down can only be prevented if FINMA, at the Group’s request, is satisfied that certain conditions exist and determines that a conversion or write-down is not required.
In addition to the high-trigger and low-trigger tier 1 capital notes, Credit Suisse Group AG has issued senior unsecured notes, which qualify as >>>total loss-absorbing capacity (TLAC). The senior unsecured notes have a fixed maturity date and can be redeemed, at the option of the issuer, at the call date. The senior unsecured notes are bail-in debt instruments that are designed to absorb losses after the cancellation of Credit Suisse Group AG’s equity instruments and after the write-down or conversion into
408

equity of regulatory capital (including high-trigger and low-trigger tier 1 capital notes) in restructuring proceedings with respect to Credit Suisse Group AG. Bail-in debt instruments do not feature capital triggers that may lead to a write-down and/or a conversion into equity outside of restructuring, but only begin to bear losses once Credit Suisse Group AG is formally in restructuring proceedings and FINMA orders capital measures (i.e., a write-down and/or a conversion into equity) in the restructuring plan.
15 Share capital, conditional, conversion and authorized capital of Credit Suisse Group
No. of
registered
shares

Par value
in CHF
No. of
registered
shares

Par value
in CHF
Share capital as of December 31, 2016  2,089,897,378 83,595,895
Ordinary share capital increase   
Extraordinary General Meeting of May 18, 2017
Rights offering on June 8, 2017 393,232,572 15,729,303
Conditional capital   
Warrants and convertible bonds
Capital as of December 31, 2016 400,000,000 16,000,000
Capital as of December 31, 2017  400,000,000 1 16,000,000
Conversion capital   
Capital as of December 31, 2016 150,000,000 6,000,000
Capital as of December 31, 2017  150,000,000 2 6,000,000
Authorized capital   
Capital as of December 31, 2016 157,481,866 6,299,275
Annual General Meeting of April 28, 2017 – increase 80,518,134 3,220,725
Scrip dividend in May 2017 (72,881,770) (2,915,271) 72,881,770 2,915,271
Capital as of December 31, 2017  165,118,230 6,604,729
   
Share capital as of December 31, 2017  2,556,011,720 102,240,469
1
369.5 million registered shares reserved for high-trigger capital instruments.
2
135.6 million registered shares reserved for high-trigger capital instruments.
On May 18, 2017, Credit Suisse Group AG held an Extraordinary General Meeting at which shareholders approved a capital increase by way of a rights offering. By the end of the rights exercise period on June 7, 2017, 99.2% of the rights had been exercised and 390,206,406 newly issued shares were subscribed. The remaining 3,026,166 newly issued shares that were not subscribed were sold in the market. The capital increase resulted in 393,232,572 newly issued shares and net proceeds for Credit Suisse Group AG of CHF 4.1 billion.
16 Credit Suisse Group shares held by subsidiaries
   2017 2016 2015
Share
equivalents
Market value
(CHF million)
Share
equivalents
Market value
(CHF million)
Share
equivalents
Market value
(CHF million)
Balance at end of financial year
Physical holdings 5,012,413 1 87 0 2 0 5,408,246 117
Holdings, net of pending obligations (607,300) (11) (1,415,541) (21) (624,043) (13)
1
Representing 0.2% of issued shares as of December 31, 2017.
2
The subsidiaries were in short position by 1,244,983 shares of Credit Suisse Group AG with a market value of CHF 18 million, representing 0.06% of issued shares as of December 31, 2016.
409

17 Purchases and sales of treasury shares held by Credit Suisse Group
Net gain/(loss)
on sale
(CHF million)
Treasury shares,
at cost
(CHF million)

Number
of shares
Average price
per share
(CHF)
2017   
Balance as of December 31, 2016  2 142,534 13.12
Sale of treasury shares 1 18 (620) (41,984,328) 15.22
Purchase of treasury shares 630 42,587,047 14.80
Change in 2017  18 10 602,719
Balance as of December 31, 2017  12 745,253 15.64
2016   
Balance as of December 31, 2015  11 501,978 22.82
Sale of treasury shares 1 23 (464) (34,690,841) 14.05
Purchase of treasury shares 455 34,331,397 13.24
Change in 2016  23 (9) (359,444)
Balance as of December 31, 2016  2 142,534 13.12
2017: Highest price CHF 16.40, paid on November 22 and lowest price CHF 14.31, paid on July 3 in a market transaction.
2016: Highest price CHF 20.10, paid on January 13 and lowest price CHF 12.47, paid on June 7 in a market transaction.
1
Representing share award settlements with Group employees.
18 Significant shareholders
end of    2017 2016
Number
of shares
(million)
Total nominal
value
(CHF million)
Share-
holding
(%)
Number
of shares
(million)
Total nominal
value
(CHF million)
Share-
holding
(%)
Direct shareholders   1
Chase Nominees Ltd. 2 329 13 12.88 335 13 16.03
Nortrust Nominees Ltd. 2 140 6 5.49 113 5 5.39
The Bank of New York Mellon 2 3 3 3 107 4 5.14
Crescent Holding GmbH 3 3 3 107 4 5.10
1
As registered in the share register of the Group on December 31 of the reporting period; includes shareholders registered as nominees or ADS depositary bank.
2
Nominee holdings exceeding 2% are registered with a right to vote only if the nominee confirms that no individual shareholder holds more than 0.5% of the outstanding share capital or if the nominee discloses the identity of any beneficial owner holding more than 0.5% of the outstanding capital.
3
Participation was lower than the disclosure threshold of 5%.
>Refer to “Note 3 – Business developments, significant shareholders and subsequent events” in VI – Consolidated financial statements – Credit Suisse Group for information received from shareholders not registered in the share register of Credit Suisse Group AG.
410

19 Contingent liabilities
end of 2017 2016
Contingent liabilities (CHF million)   
Aggregate indemnity liabilities, guarantees and other contingent liabilities (net of exposures recorded as liabilities) 79,998 74,383
   of which have been entered into on behalf of subsidiaries 1 79,998 74,383
1
Includes senior unsecured notes issued by subsidiaries of CHF 22,179 million and CHF 22,637 million as of December 31, 2017 and 2016, respectively, which qualify as TLAC.
Value-added tax
The company belongs to the Swiss value-added tax group of Credit Suisse Group, and thus carries joint liability to the Swiss federal tax authority for value-added tax debts of the entire Group.
Swiss pension plan
The employees of Credit Suisse Group AG are covered by the pension plan of the “Pensionskasse der Credit Suisse Group (Schweiz)” (the Swiss pension plan). Most of the Swiss subsidiaries of Credit Suisse Group AG and a few companies that have close business and financial ties with Credit Suisse Group AG participate in this plan. The Swiss pension plan is an independent self-insured pension plan set up as a trust and qualifies as a defined contribution plan (savings plan) under Swiss law.
The Swiss pension plan’s annual financial statements are prepared in accordance with Swiss GAAP FER 26 based on the full population of covered employees. Individual annual financial statements for each participating company are not prepared. As a multi-employer plan with unrestricted joint liability for all participating companies, the economic interest in the Swiss pension plan’s over- or underfunding is allocated to each participating company based on an allocation key determined by the plan.
20 Assets and liabilities with related parties
end of 2017 2016
Assets (CHF million)   
Cash and cash equivalents 1,004 938
Other short-term receivables 502 216
Derivative financial instruments 211 172
Accrued income and prepaid expenses 268 87
Total current assets – related parties  1,985 1,413
Financial investments 14,914 4,252
Participations 52,112 48,014
Total noncurrent assets – related parties  67,026 52,266
Total assets – related parties  69,011 53,679
Liabilities (CHF million)   
Short-term interest-bearing liabilities 1,055 3,201
Other short-term liabilities 16 24
Accrued expenses and deferred income 1 124 70
Total short-term liabilities – related parties  1,195 3,295
Long-term interest-bearing liabilities 2,700 0
Total long-term liabilities – related parties  2,700 0
Total liabilities – related parties  3,895 3,295
The assets and liabilities represent the amounts due from and due to group companies, except where indicated.
1
Includes amounts due to management bodies of CHF 34 million at December 31, 2017 and CHF 20 million at December 31, 2016, respectively.
21 Subordinated assets and liabilities
end of 2017 2016
CHF million   
Subordinated assets 5,682 4,233
Total subordinated assets  5,682 4,233
Subordinated liabilities 6,663 5,170
Total subordinated liabilities  6,663 5,170
411

22 Shareholdings of the Board of Directors, Executive Board and employees
Executive Board shareholdings
The table “Executive Board holdings and values of deferred share-based awards by individual” discloses the shareholdings of the Executive Board members, their immediate family and companies in which they have a controlling interest as well as the value of the unvested share-based compensation awards held by Executive Board members as of December 31, 2017 and 2016.
Executive Board holdings and values of deferred share-based awards by individual

end of


Number of
owned shares
1
Number of
unvested awards
(at maximum opportunity)
2
Number of
owned shares and
unvested awards
Value (CHF) of
unvested awards
at grant date
(at maximum opportunity)
Value (CHF) of
unvested awards
at year end
(at fair value)
3
2017   
Tidjane Thiam 1,967 1,132,835 1,134,802 20,298,771 13,941,708
James L. Amine 382,106 1,098,488 1,480,594 18,110,327 11,694,777
Pierre-Olivier Bouée 38,204 439,832 478,036 7,200,011 5,345,214
Romeo Cerutti 199,630 410,871 610,501 6,945,908 4,389,711
Brian Chin 234,328 1,098,757 1,333,085 17,798,557 16,800,518
Peter Goerke 21,953 282,112 304,065 4,750,031 2,985,514
Thomas Gottstein 354,275 354,275 6,009,654 3,639,767
Iqbal Khan 25,135 379,846 404,981 6,412,346 4,016,413
David R. Mathers 52,672 704,359 757,031 11,723,886 7,726,820
Joachim Oechslin 386,390 386,390 6,627,551 4,027,112
Helman Sitohang 394,737 826,572 1,221,309 13,516,027 9,278,836
Lara Warner 2,036 325,449 327,485 5,501,327 3,445,577
Total  1,352,768 7,439,786 8,792,554 124,894,396 87,291,967
2016   
Tidjane Thiam 81,927 1,032,118 1,114,045 20,718,964 12,550,161
James L. Amine 262,706 1,025,658 1,288,364 18,884,166 11,868,592
Pierre-Olivier Bouée 3,614 372,907 376,521 7,096,724 4,436,540
Romeo Cerutti 286,688 323,908 610,596 6,013,140 3,593,974
Brian Chin 109,013 692,600 801,613 14,516,015 10,118,886
Peter Goerke 17,640 223,951 241,591 4,407,779 2,428,892
Thomas Gottstein 64,318 273,660 337,978 5,177,166 2,858,578
Iqbal Khan 40,282 295,044 335,326 5,516,095 3,182,133
David R. Mathers 70,573 555,791 626,364 10,122,747 6,251,319
Joachim Oechslin 32,345 277,331 309,676 5,359,233 2,949,735
Helman Sitohang 244,895 777,688 1,022,583 14,138,551 9,092,974
Lara Warner 92,043 302,939 394,982 5,752,577 3,368,217
Total  1,306,044 6,153,595 7,459,639 117,703,157 72,700,001
1
Includes shares that were initially granted as deferred compensation and have vested.
2
Includes unvested shares originating from LTI awards calculated on the basis of maximum opportunity for awards that have not reached the end of their three-year performance period, given that the actual achievement level and associated number of unvested shares cannot be determined until the end of the performance period. We believe this is a more appropriate approach than our prior practice of applying the target performance level (i.e., 80% of maximum opportunity) in calculating the number of unvested shares. As such, the table for 2016 has been updated.
3
Includes the value of unvested LTI awards, which was determined based on fair value.
412

Board of Directors shareholdings
The table below discloses the shareholdings of the Board of Directors members, their immediate family and companies in which they have a controlling interest. As of December 31, 2017 and 2016, there were no Board of Directors members with outstanding options.
Board of Directors shareholdings by individual
end of 2017 2016
December 31 (shares)   1
Urs Rohner 189,956 197,861
Iris Bohnet 49,451 38,287
Andreas Gottschling 5,432
Alexander Gut 24,152 7,865
Andreas N. Koopmann 117,900 81,746
Seraina Macia 37,231 19,700
Kai S. Nargolwala 280,883 226,362
Joaquin J. Ribeiro 24,150 7,865
Severin Schwan 116,402 82,803
Richard E. Thornburgh 196,766 225,038
John Tiner 216,645 140,910
Alexandre Zeller 6,208
Total  1,265,176 1,028,437 2
1
Includes Group shares that are subject to a blocking period of up to four years; includes shareholdings of immediate family members.
2
Excludes 35,809 shares held by Jassim Bin Hadam J.J. Al Thani, 70,883 shares held by Noreen Doyle and 96,318 shares held by Jean Lanier as of December 31, 2016, who did not stand for re-election to the Board as of April 28, 2017.
Share awards outstanding
end of    2017 2016
Number
of share-
awards
outstanding
in million



Fair value in
CHF million
Number
of share-
awards
outstanding
in million



Fair value in
CHF million
Share awards   1
Employees 148 2,575 135 1,973
Total share awards  148 2,575 135 1,973
1
In the interests of transparency also share awards granted to employees of subsidiaries of Credit Suisse Group AG are considered in this disclosure table.
413

Proposed appropriation of retained earnings and capital distribution
Proposed appropriation of retained earnings
end of 2017
Retained earnings (CHF million)   
Retained earnings brought forward 5,197
Net loss (37)
Retained earnings available for appropriation  5,160
To be carried forward 5,160
Total  5,160
Proposed distribution out of capital contribution reserves
2017
Capital contribution reserves (CHF million)   
Balance at beginning of year  23,364
Capital distribution for the financial year 2016 (1,463)
Capital surplus for issued shares 5,058
Balance at end of year  26,959
Proposed distribution of CHF 0.25 per registered share for the financial year 2017 1 (639)
Balance after distribution  26,320
Distributions are free of Swiss withholding tax and are not subject to income tax for Swiss resident individuals holding the shares as a private investment.
1
2,555,266,467 registered shares - net of own shares held by the company - as of December 31, 2017. The number of registered shares eligible for distribution may change due to the issuance of new registered shares and transactions in own shares.
414


Consolidated financial statements – Credit Suisse (Bank)
Report of the Independent Registered Public Accounting Firm
Consolidated financial statements
Notes to the consolidated financial statements
Controls and procedures
Report of the Independent Registered Public Accounting Firm
415



Consolidated statements of operations
Consolidated statements of comprehensive income
Consolidated balance sheets
Consolidated balance sheets (continued)
Consolidated statements of changes in equity
Consolidated statements of changes in equity (continued)
Consolidated statements of cash flows
Consolidated statements of cash flows (continued)
Supplemental cash flow information
1 Summary of significant accounting policies
2 Recently issued accounting standards
3 Business developments, significant shareholders and subsequent events
4 Segment information
5 Net interest income
6 Commissions and fees
7 Trading revenues
8 Other revenues
9 Provision for credit losses
10 Compensation and benefits
11 General and administrative expenses
12 Restructuring expenses
13 Securities borrowed, lent and subject to repurchase agreements
14 Trading assets and liabilities
15 Investment securities
16 Other investments
17 Loans, allowance for loan losses and credit quality
18 Premises and equipment
19 Goodwill
20 Other intangible assets
21 Other assets and other liabilities
22 Deposits
23 Long-term debt
24 Accumulated other comprehensive income
25 Offsetting of financial assets and financial liabilities
26 Tax
27 Employee deferred compensation
28 Related parties
29 Pension and other post-retirement benefits
30 Derivatives and hedging activities
31 Guarantees and commitments
32 Transfers of financial assets and variable interest entities
33 Financial instruments
34 Assets pledged and collateral
35 Capital adequacy
36 Assets under management
37 Litigation
38 Significant subsidiaries and equity method investments
39 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)


416

Report of the Independent Registered Public Accounting Firm
Report of the Independent Registered Public Accounting FirmTo the shareholders and Board of DirectorsCredit Suisse AG, Zurich_____________________________________________________________________Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Credit Suisse AG and subsidiaries (the “Bank”) as of December31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the threeyear period ended December31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Bank’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 23, 2018 expressed an unqualified opinion on the effectiveness of the Bank’s internal control over financial reporting.Basis for OpinionThese consolidated financial statements are the responsibility of the Bank’s management and the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.KPMG AGNicholas EdmondsAnthony AnzevinoLicensed Audit ExpertGlobal Lead PartnerAuditor in ChargeWe have served as the Bank’s auditor since 1989.Zurich, SwitzerlandMarch 23, 2018


417


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418


Consolidated financial statements
Consolidated statements of operations
      Reference
to notes

in
2017 2016 2015
Consolidated statements of operations (CHF million)   
Interest and dividend income 5 17,061 17,375 19,342
Interest expense 5 (10,369) (9,781) (10,043)
Net interest income 5 6,692 7,594 9,299
Commissions and fees 6 11,672 10,938 11,966
Trading revenues 7 1,300 371 1,309
Other revenues 8 1,301 1,490 1,237
Net revenues  20,965 20,393 23,811
Provision for credit losses  9 210 252 324
Compensation and benefits 10 9,964 10,777 11,656
General and administrative expenses 11 7,413 9,885 8,735
Commission expenses 1,429 1,455 1,623
Goodwill impairment 19 0 0 3,797
Restructuring expenses 12 396 513 325
Total other operating expenses 9,238 11,853 14,480
Total operating expenses  19,202 22,630 26,136
Income/(loss) before taxes  1,553 (2,489) (2,649)
Income tax expense 26 2,781 400 488
Net income/(loss)  (1,228) (2,889) (3,137)
Net income/(loss) attributable to noncontrolling interests 27 (6) (7)
Net income/(loss) attributable to shareholders  (1,255) (2,883) (3,130)
Consolidated statements of comprehensive income
in 2017 2016 2015
Comprehensive income/(loss) (CHF million)   
Net income/(loss) (1,228) (2,889) (3,137)
   Gains/(losses) on cash flow hedges  (35) (22) 24
   Foreign currency translation  (1,015) 498 (1,149)
   Unrealized gains/(losses) on securities  (13) 1 (4)
   Actuarial gains/(losses)  21 210 45
   Net prior service credit/(cost)  0 0 (14)
   Gains/(losses) on liabilities related to credit risk  (1,684) (1,082)
Other comprehensive income/(loss), net of tax (2,726) (395) (1,098)
Comprehensive income/(loss)  (3,954) (3,284) (4,235)
Comprehensive income/(loss) attributable to noncontrolling interests (9) 11 (26)
Comprehensive income/(loss) attributable to shareholders  (3,945) (3,295) (4,209)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
419

Consolidated balance sheets
      Reference
to notes

end of
2017 2016
Assets (CHF million)   
Cash and due from banks 109,510 121,066
   of which reported at fair value  212 208
   of which reported from consolidated VIEs  232 369
Interest-bearing deposits with banks 721 767
   of which reported at fair value  0 26
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 13 115,346 134,839
   of which reported at fair value  77,498 87,331
Securities received as collateral, at fair value 38,074 32,564
   of which encumbered  23,632 30,768
Trading assets, at fair value 14 156,774 165,392
   of which encumbered  49,237 52,322
   of which reported from consolidated VIEs  1,348 2,744
Investment securities 15 2,189 2,486
   of which reported at fair value  2,189 2,486
   of which reported from consolidated VIEs  381 511
Other investments 16 5,893 6,717
   of which reported at fair value  3,497 4,088
   of which reported from consolidated VIEs  1,833 2,006
Net loans 17 283,237 278,960
   of which reported at fair value  15,307 19,528
   of which encumbered  186 132
   of which reported from consolidated VIEs  267 284
   allowance for loan losses  (881) (937)
Premises and equipment 18 4,445 4,666
   of which reported from consolidated VIEs  128 173
Goodwill 19 4,036 4,189
Other intangible assets 20 223 213
   of which reported at fair value  158 138
Brokerage receivables 46,968 33,431
Other assets 21 30,956 36,775
   of which reported at fair value  9,018 9,420
   of which encumbered  134 256
   of which reported from consolidated VIEs  2,396 2,616
Total assets  798,372 822,065
The accompanying notes to the consolidated financial statements are an integral part of these statements.
420

Consolidated balance sheets (continued)
      Reference
to notes

end of
2017 2016
Liabilities and equity (CHF million)   
Due to banks 22 15,411 22,800
   of which reported at fair value  197 445
Customer deposits 22 362,303 357,224
   of which reported at fair value  3,511 3,576
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 13 26,496 33,016
   of which reported at fair value  15,262 19,634
Obligation to return securities received as collateral, at fair value 38,074 32,564
Trading liabilities, at fair value 14 39,132 44,952
   of which reported from consolidated VIEs  3 18
Short-term borrowings 26,378 15,385
   of which reported at fair value  11,019 4,061
   of which reported from consolidated VIEs  0 1
Long-term debt 23 172,042 192,495
   of which reported at fair value  62,622 71,970
   of which reported from consolidated VIEs  863 1,759
Brokerage payables 43,303 39,852
Other liabilities 21 31,683 39,919
   of which reported at fair value  8,590 9,557
   of which reported from consolidated VIEs  204 243
Total liabilities  754,822 778,207
Common shares 4,400 4,400
Additional paid-in capital 45,718 41,817
Retained earnings 8,484 9,814
Accumulated other comprehensive income/(loss) 24 (15,932) (13,242)
Total shareholders' equity  42,670 42,789
Noncontrolling interests 880 1,069
Total equity  43,550 43,858
Total liabilities and equity  798,372 822,065
end of 2017 2016
Additional share information   
Par value (CHF) 1.00 1.00
Issued shares 4,399,680,200 4,399,680,200
Shares outstanding 4,399,680,200 4,399,680,200
The Bank's total share capital is fully paid and consists of 4,399,680,200 registered shares as of December 31, 2017. Each share is entitled to one vote. The Bank has no warrants on its own shares outstanding.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
421

Consolidated statements of changes in equity
   Attributable to shareholders




Common
shares



Additional
paid-in
capital




Retained
earnings



Treasury
shares,
at cost
1 Accumu-
lated other
compre-
hensive
income/
(loss)


Total
share-
holders'
equity



Non-
controlling
interests




Total
equity
2017 (CHF million)   
Balance at beginning of period  4,400 41,817 9,814 0 (13,242) 42,789 1,069 43,858
Purchase of subsidiary shares from non- controlling interests, not changing ownership   2, 3 (189) (189)
Sale of subsidiary shares to noncontrolling interests, not changing ownership   3 65 65
Net income/(loss) (1,255) (1,255) 27 (1,228)
Cumulative effect of accounting changes, net of tax (25) (25) (25)
Total other comprehensive income/(loss), net of tax (2,690) (2,690) (36) (2,726)
Share-based compensation, net of tax 6 6 6
Dividends on share-based compensation, net of tax (79) (79) (79)
Dividends paid (10) (10) (3) (13)
Changes in scope of consolidation, net (41) (41)
Other 3,974 4 (40) 3,934 (12) 3,922
Balance at end of period  4,400 45,718 8,484 0 (15,932) 42,670 880 43,550
2016 (CHF million)   
Balance at beginning of period  4,400 40,999 13,307 0 (13,294) 45,412 1,284 46,696
Purchase of subsidiary shares from non- controlling interests, changing ownership (13) (13) (6) (19)
Purchase of subsidiary shares from non- controlling interests, not changing ownership (118) (118)
Sale of subsidiary shares to noncontrolling interests, not changing ownership 120 120
Net income/(loss) (2,883) (2,883) (6) (2,889)
Cumulative effect of accounting changes, net of tax (464) 464
Total other comprehensive income/(loss), net of tax (412) (412) 17 (395)
Share-based compensation, net of tax 168 168 168
Dividends on share-based compensation, net of tax (41) (41) (41)
Dividends paid (146) (146) (146)
Changes in scope of consolidation, net 2 2 (194) (192)
Other 702 702 (28) 674
Balance at end of period  4,400 41,817 9,814 0 (13,242) 42,789 1,069 43,858
1
Reflects Credit Suisse Group shares which are reported as treasury shares. Those shares are held to economically hedge share award obligations.
2
Distributions to owners in funds include the return of original capital invested and any related dividends.
3
Transactions with and without ownership changes related to fund activity are all displayed under "not changing ownership".
4
Includes a capital contribution of CHF 4,100 million from Credit Suisse Group AG to Credit Suisse AG following the capital increase in June 2017 by the Group.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
422

Consolidated statements of changes in equity (continued)
   Attributable to shareholders

Common
shares/
participa-
tion secu-
rities



Additional
paid-in
capital




Retained
earnings



Treasury
shares,
at cost
Accumu-
lated other
compre-
hensive
income/
(loss)


Total
share-
holders'
equity



Non-
controlling
interests




Total
equity
2015 (CHF million)   
Balance at beginning of period  4,400 35,888 16,658 0 (12,215) 44,731 1,746 46,477
Purchase of subsidiary shares from non- controlling interests, not changing ownership (434) (434)
Sale of subsidiary shares to noncontrolling interests, not changing ownership 57 57
Net income/(loss) (3,130) (3,130) (7) (3,137)
Total other comprehensive income/(loss), net of tax (1,079) (1,079) (19) (1,098)
Share-based compensation, net of tax (437) (437) (437)
Dividends on share-based compensation, net of tax (12) (12) (12)
Dividends paid (221) (221) (221)
Changes in scope of consolidation, net (57) (57)
Other 5,560 5,560 (2) 5,558
Balance at end of period  4,400 40,999 13,307 0 (13,294) 45,412 1,284 46,696
The accompanying notes to the consolidated financial statements are an integral part of these statements.
423

Consolidated statements of cash flows
in 2017 2016 2015
Operating activities of continuing operations (CHF million)   
Net income/(loss)  (1,228) (2,889) (3,137)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities of continuing operations (CHF million)      
Impairment, depreciation and amortization 837 934 4,885
Provision for credit losses 210 252 324
Deferred tax provision/(benefit) 2,285 (234) 1
Share of net income/(loss) from equity method investments (150) (62) (132)
Trading assets and liabilities, net 3,441 21,214 26,133
(Increase)/decrease in other assets (15,435) 9,731 11,346
Increase/(decrease) in other liabilities (1,443) (1,021) (22,312)
Other, net 2,993 (917) (1,929)
Total adjustments (7,262) 29,897 18,316
Net cash provided by/(used in) operating activities of continuing operations  (8,490) 27,008 15,179
Investing activities of continuing operations (CHF million)   
(Increase)/decrease in interest-bearing deposits with banks 40 117 300
(Increase)/decrease in central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 14,286 (7,056) 36,964
Purchase of investment securities (86) (88) (376)
Proceeds from sale of investment securities 14 14 19
Maturities of investment securities 422 363 908
Investments in subsidiaries and other investments (1,094) (1,357) (555)
Proceeds from sale of other investments 1,967 1,693 1,896
(Increase)/decrease in loans (14,779) (4,221) (5,277)
Proceeds from sales of loans 9,938 2,468 1,579
Capital expenditures for premises and equipment and other intangible assets (950) (1,164) (1,101)
Proceeds from sale of premises and equipment and other intangible assets 60 55 13
Other, net 65 750 409
Net cash provided by/(used in) investing activities of continuing operations  9,883 (8,426) 34,779
The accompanying notes to the consolidated financial statements are an integral part of these statements.
424

Consolidated statements of cash flows (continued)
in 2017 2016 2015
Financing activities of continuing operations (CHF million)   
Increase/(decrease) in due to banks and customer deposits 3,187 10,237 (29,074)
Increase/(decrease) in short-term borrowings 5,507 6,594 (18,148)
Increase/(decrease) in central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (5,251) (14,525) (22,149)
Issuances of long-term debt 43,567 52,944 77,884
Repayments of long-term debt (62,644) (47,132) (49,545)
Dividends paid (13) (145) (150)
Other, net 3,535 1,044 4,787
Net cash provided by/(used in) financing activities of continuing operations  (12,112) 9,017 (36,395)
Effect of exchange rate changes on cash and due from banks (CHF million)   
Effect of exchange rate changes on cash and due from banks  (837) 1,213 (580)
Net increase/(decrease) in cash and due from banks (CHF million)   
Net increase/(decrease) in cash and due from banks  (11,556) 28,812 12,983
Cash and due from banks at beginning of period 121,066 92,254 79,271
Cash and due from banks at end of period  109,510 121,066 92,254
Supplemental cash flow information
in 2017 2016 2015
Cash paid for income taxes and interest (CHF million)   
Cash paid for income taxes 531 659 1,000
Cash paid for interest 9,688 9,105 10,196
Assets acquired and liabilities assumed in business acquisitions (CHF million)   
Fair value of assets acquired 0 0 3
Assets and liabilities sold in business divestitures (CHF million)   
Assets sold 1,777 425 35
Liabilities sold 1,658 383 7
The accompanying notes to the consolidated financial statements are an integral part of these statements.
425

Notes to the consolidated financial statements
1 Summary of significant accounting policies
The accompanying consolidated financial statements of Credit Suisse AG (the Bank), the direct bank subsidiary of Credit Suisse Group AG (the Group), are prepared in accordance with accounting principles generally accepted in the US (US GAAP) and are stated in Swiss francs (CHF). The financial year for the Bank ends on December 31. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation which had no impact on net income/(loss) or total shareholders’ equity.
In preparing the consolidated financial statements, management is required to make estimates and assumptions including, but not limited to, the >>>fair value measurements of certain financial assets and liabilities, the allowance for loan losses, the evaluation of variable interest entities (VIEs), the impairment of assets other than loans, recognition of deferred tax assets, tax uncertainties, pension liabilities and various contingencies. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. While management evaluates its estimates and assumptions on an ongoing basis, actual results could differ materially from management’s estimates. Market conditions may increase the risk and complexity of the judgments applied in these estimates.
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, during 2017, the equity stakes in Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH held by the Group were transferred to the Bank and subsequently to Credit Suisse (Schweiz) AG, a wholly owned subsidiary of the Bank.
Prior periods have been restated to conform to the current presentation to reflect the impact of these transfers.
> Refer to “Note 1 – Summary of significant accounting policies” in VI – Consolidated financial statements – Credit Suisse Group for a summary of significant accounting policies, with the exception of the following accounting policies.
Pension and other post-retirement benefits
Credit Suisse sponsors a Group defined benefit pension plan in Switzerland that covers eligible employees of the Bank domiciled in Switzerland. The Bank also has single-employer defined benefit pension plans and defined contribution pension plans in Switzerland and other countries around the world.
For the Bank’s participation in the Group defined benefit pension plan, no retirement benefit obligation is recognized in the consolidated balance sheets of the Bank and defined contribution accounting is applied, as the Bank is not the sponsoring entity of the Group plan.
For single-employer defined benefit plans, the Bank uses the projected unit credit actuarial method to determine the present value of its projected benefit obligations (PBO) and the current and past service costs or credits related to its defined benefit and other post-retirement benefit plans. The measurement date used to perform the actuarial valuation is December 31.
> Refer to “Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group – Note 1 – Summary of significant accounting policies for further information.
Own shares, own bonds and financial instruments on Group shares
The Bank’s shares are wholly owned by Credit Suisse Group AG and are not subject to trading. The Bank may buy and sell Credit Suisse Group AG shares (Group shares) and Group bonds, own bonds and financial instruments on Group shares within its normal trading and market-making activities. In addition, the Bank may hold Group shares to economically hedge commitments arising from employee share-based compensation awards. Group shares are reported as trading assets, unless those shares are held to economically hedge share award obligations. Hedging shares are reported as treasury shares, resulting in a reduction to total shareholder’s equity. Financial instruments on Group shares are recorded as assets or liabilities and carried at fair value. Dividends received on Group shares and unrealized and realized gains and losses on Group shares are recorded according to the classification of the shares as trading assets or treasury shares. Purchases of bonds originally issued by the Bank are recorded as an extinguishment of debt.
426

2 Recently issued accounting standards
> Refer to “Note 2 – Recently issued accounting standards” in VI – Consolidated financial statements – Credit Suisse Group for recently adopted accounting standards and standards to be adopted in future periods.
The impact on the Bank’s and Group’s financial position, results of operations or cash flows was or is expected to be identical.
3 Business developments, significant shareholders and subsequent events
> Refer to “Note 3 – Business developments, significant shareholders and subsequent events” in VI – Consolidated financial statements – Credit Suisse Group for further information.
427

4 Segment information
For the purposes of the presentation of reportable segments, the Bank has included accounts of affiliate entities wholly owned by the same parent which are managed together with the operating segments of the Bank.
> Refer to “Note 4 – Segment information” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Net revenues and income/(loss) before taxes
in 2017 2016 2015
Net revenues (CHF million)   
Swiss Universal Bank 5,396 5,759 5,721
International Wealth Management 5,111 4,698 4,552
Asia Pacific 3,504 3,597 3,839
Global Markets 5,551 5,497 6,826
Investment Banking & Capital Markets 2,139 1,972 1,787
Strategic Resolution Unit (886) (1,271) 511
Adjustments 1 150 141 575
Net revenues  20,965 20,393 23,811
Income/(loss) before taxes (CHF million)   
Swiss Universal Bank 1,765 2,025 1,675
International Wealth Management 1,351 1,121 723
Asia Pacific 729 725 377
Global Markets 450 48 (1,931)
Investment Banking & Capital Markets 369 261 (314)
Strategic Resolution Unit (2,135) (5,759) (2,652)
Adjustments 1 (976) (910) (527)
Income/(loss) before taxes  1,553 (2,489) (2,649)
1
Adjustments represent certain consolidating entries and balances, including those relating to items that are managed but are not legally owned by the Bank and vice versa, and certain expenses that were not allocated to the segments.
Total assets
end of 2017 2016
Total assets (CHF million)   
Swiss Universal Bank 228,857 228,363
International Wealth Management 94,753 91,083
Asia Pacific 96,497 97,221
Global Markets 242,159 239,700
Investment Banking & Capital Markets 20,803 20,784
Strategic Resolution Unit 45,629 80,297
Adjustments 1 69,674 64,617
Total assets  798,372 822,065
1
Adjustments represent certain consolidating entries and balances, including those relating to items that are managed but are not legally owned by the Bank and vice versa, and certain expenses that were not allocated to the segments.
Net revenues and income/(loss) before taxes by geographic location
in 2017 2016 2015
Net revenues (CHF million)   
Switzerland 8,015 8,484 8,567
EMEA 1,042 2,036 3,819
Americas 8,952 7,267 8,514
Asia Pacific 2,956 2,606 2,911
Net revenues  20,965 20,393 23,811
Income/(loss) before taxes (CHF million)   
Switzerland 1,648 1,955 1,604
EMEA (2,825) (2,487) (1,493)
Americas 2,660 (1,602) (2,910)
Asia Pacific 70 (355) 150
Income/(loss) before taxes  1,553 (2,489) (2,649)
The designation of net revenues and income/(loss) before taxes is based on the location of the office recording the transactions. This presentation does not reflect the way the Bank is managed.
Total assets by geographic location
end of 2017 2016
Total assets (CHF million)   
Switzerland 243,767 250,559
EMEA 154,179 156,669
Americas 318,358 333,147
Asia Pacific 82,068 81,690
Total assets  798,372 822,065
The designation of total assets by region is based upon customer domicile.
428

5 Net interest income
in 2017 2016 2015
Net interest income (CHF million)   
Loans 5,981 5,627 5,411
Investment securities 47 60 65
Trading assets 6,698 7,483 9,045
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 2,515 2,767 2,625
Other 1,820 1,438 2,196
Interest and dividend income 17,061 17,375 19,342
Deposits (1,360) (1,047) (887)
Short-term borrowings (168) (84) (105)
Trading liabilities (3,546) (3,602) (3,855)
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (1,284) (1,387) (1,264)
Long-term debt (3,580) (3,460) (3,726)
Other (431) (201) (206)
Interest expense (10,369) (9,781) (10,043)
Net interest income  6,692 7,594 9,299
6 Commissions and fees
in 2017 2016 2015
Commissions and fees (CHF million)   
Lending business 1,809 1,790 1,560
Investment and portfolio management 3,320 3,043 3,346
Other securities business 82 72 73
Fiduciary business 3,402 3,115 3,419
Underwriting 1,817 1,364 1,659
Brokerage 3,006 3,029 3,648
Underwriting and brokerage 4,823 4,393 5,307
Other services 1,638 1,640 1,680
Commissions and fees  11,672 10,938 11,966
7 Trading revenues
in 2017 2016 2015
Trading revenues (CHF million)   
Interest rate products 3,218 7,163 2,953
Foreign exchange products 1,991 (3,461) (1,124)
Equity/index-related products (2,895) (1,738) (275)
Credit products (1,096) (2,124) 1
Commodity and energy products 86 177 (46)
Other products (4) 354 (200)
Total  1,300 371 1,309
Represents revenues on a product basis which are not representative of business results within segments, as segment results utilize financial instruments across various product types.
> Refer to “Note 7 – Trading revenues” in VI – Consolidated financial statements – Credit Suisse Group for further information.
8 Other revenues
in 2017 2016 2015
Other revenues (CHF million)   
Noncontrolling interests without SEI 0 0 3
Loans held-for-sale 3 (51) (19)
Long-lived assets held-for-sale (18) 437 36
Equity method investments 229 205 241
Other investments 81 7 147
Other 1,006 892 829
Other revenues  1,301 1,490 1,237
9 Provision for credit losses
in 2017 2016 2015
Provision for credit losses (CHF million)   
Provision for loan losses 190 249 295
Provision for lending-related and other exposures 20 3 29
Provision for credit losses  210 252 324
10 Compensation and benefits
in 2017 2016 2015
Compensation and benefits (CHF million)   
Salaries and variable compensation 8,421 9,058 9,935
Social security 620 691 780
Other 1 923 1,028 941
Compensation and benefits  9,964 10,777 11,656
1
Includes pension and other post-retirement expense of CHF 581 million, CHF 704 million and CHF 594 million in 2017, 2016 and 2015, respectively.
11 General and administrative expenses
in 2017 2016 2015
General and administrative expenses (CHF million)   
Occupancy expenses 935 999 1,018
IT, machinery, etc. 1,005 1,160 1,259
Provisions and losses 697 3,009 1,158
Travel and entertainment 299 316 369
Professional services 3,019 2,966 3,217
Amortization and impairment of other intangible assets 9 8 19
Other 1,449 1,427 1,695
General and administrative expenses  7,413 9,885 8,735
429

12 Restructuring expenses
> Refer to “Note 12 – Restructuring expenses” in VI – Consolidated financial statements – Credit Suisse Group for further information.
In connection with the ongoing implementation of the revised Bank strategy, restructuring expenses of CHF 396 million, CHF 513 million and CHF 325 million were recognized in 2017, 2016 and 2015, respectively.
Restructuring expenses by segment
in 2017 2016 2015
Restructuring expenses by segment (CHF million)   
Swiss Universal Bank 59 60 42
International Wealth Management 70 54 36
Asia Pacific 63 53 3
Global Markets 150 217 96
Investment Banking & Capital Markets 42 28 22
Strategic Resolution Unit 57 121 156
Corporate Center 14 7 0
Adjustments 1 (59) (27) (30)
Total restructuring expenses  396 513 325
1
Adjustments represent certain consolidating entries and balances, including those relating to items that are managed but are not legally owned by the Bank and vice versa.
Restructuring expenses by type
in 2017 2016 2015
Restructuring expenses by type (CHF million)   
Compensation and benefits-related expenses 286 358 279
   of which severance expenses  188 218 191
   of which accelerated deferred compensation  98 140 87
   of which pension expenses  0 0 1
General and administrative-related expenses 110 155 46
Total restructuring expenses  396 513 325
Restructuring provision
in    2017 2016 2015
Compen-
sation and
benefits
General and
administrative
expenses


Total
Compen-
sation and
benefits
General and
administrative
expenses


Total
Compen-
sation and
benefits
General and
administrative
expenses


Total
Restructuring provision (CHF million)   
Balance at beginning of period  217 94 311 187 12 199 0 0 0
Net additional charges 1 188 86 274 218 137 355 191 46 237
Utilization (214) (70) (284) (188) (55) (243) (4) (34) (38)
Balance at end of period  191 110 301 217 94 311 187 12 199
1
The following items for which expense accretion was accelerated in 2017, 2016 and 2015 due to the restructuring of the Bank are not included in the restructuring provision: unsettled share-based compensation of CHF 67 million, CHF 34 million and CHF 23 million, respectively; unsettled pension obligations of CHF 0 million, CHF 0 million and CHF 1 million, respectively, which remain classified as a component of total shareholders’ equity; unsettled cash-based deferred compensation of CHF 31 million, CHF 106 million and CHF 64 million, respectively, which remain classified as compensation liabilities; and accelerated accumulated depreciation and impairment of CHF 24 million, CHF 18 million and CHF 0 million, respectively, which remain classified as premises and equipment. The settlement date for the unsettled share-based compensation remains unchanged at three years.
430

13 Securities borrowed, lent and subject to repurchase agreements
end of 2017 2016
Securities borrowed or purchased under agreements to resell (CHF million)   
Central bank funds sold and securities purchased under resale agreements 70,009 81,513
Deposits paid for securities borrowed 45,337 53,326
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions    115,346 134,839
Securities lent or sold under agreements to repurchase (CHF million)   
Central bank funds purchased and securities sold under repurchase agreements 20,606 26,106
Deposits received for securities lent 5,890 6,910
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions    26,496 33,016
> Refer to “Note 14 – Securities borrowed, lent and subject to repurchase agreements” in VI – Consolidated financial statements – Credit Suisse Group for further information.
14 Trading assets and liabilities
end of 2017 2016
Trading assets (CHF million)   
Debt securities 72,826 65,675
Equity securities 55,822 63,874
Derivative instruments 1 19,900 27,013
Other 8,226 8,830
Trading assets  156,774 165,392
Trading liabilities (CHF million)   
Short positions 24,478 24,583
Derivative instruments 1 14,654 20,369
Trading liabilities  39,132 44,952
1
Amounts shown after counterparty and cash collateral netting.
Cash collateral on derivative instruments
end of 2017 2016
Cash collateral – netted (CHF million)   1
Cash collateral paid 23,587 33,688
Cash collateral received 14,996 22,951
Cash collateral – not netted (CHF million)   2
Cash collateral paid 5,142 5,706
Cash collateral received 8,644 11,497
1
Recorded as cash collateral netting on derivative instruments in Note 25 – Offsetting of financial assets and financial liabilities.
2
Recorded as cash collateral on derivative instruments in Note 21 – Other assets and other liabilities.
431

15 Investment securities
end of 2017 2016
Investment securities (CHF million)   
Securities available-for-sale 2,189 2,486
Total investment securities  2,189 2,486
Investment securities by type
end of    2017 2016

Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses

Fair
value

Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses

Fair
value
Investment securities by type (CHF million)   
Debt securities issued by the Swiss federal, cantonal or local governmental entities 197 13 0 210 239 18 0 257
Debt securities issued by foreign governments 1,215 21 0 1,236 1,309 34 0 1,343
Corporate debt securities 238 0 0 238 287 0 0 287
Residential mortgage-backed securities 1 207 0 0 207 497 0 0 497
Commercial mortgage-backed securities 173 0 0 173 14 0 0 14
Debt securities available-for-sale 2,030 34 0 2,064 2,346 52 0 2,398
Banks, trust and insurance companies 95 30 0 125 65 23 0 88
Equity securities available-for-sale 95 30 0 125 65 23 0 88
Securities available-for-sale  2,125 64 0 2,189 2,411 75 0 2,486
1
Relate to the consolidation of RMBS securitization VIEs where the assets are carried at fair value under the fair value option as are the VIEs’ liabilities recorded in long-term debt.
Proceeds from sales, realized gains and realized losses from available-for-sale securities
in    2017 2016 2015
Debt
securities
Equity
securities
Debt
securities
Equity
securities
Debt
securities
Equity
securities
Additional information (CHF million)   
Proceeds from sales 7 7 9 4 1 17
Realized gains 0 0 0 0 0 2
Amortized cost, fair value and average yield of debt securities
      Debt securities
available-for-sale

end of

Amortized
cost

Fair
value
Average
yield
(in %)
2017 (CHF million)   
Due within 1 year 728 731 0.91
Due from 1 to 5 years 838 861 0.89
Due from 5 to 10 years 250 257 0.52
Due after 10 years 214 215 4.28
Total debt securities  2,030 2,064 1.21
432

16 Other investments
end of 2017 2016
Other investments (CHF million)   
Equity method investments 3,027 3,095
Non-marketable equity securities 1 1,283 1,721
Real estate held for investment 2 209 244
Life finance instruments 3 1,374 1,657
Total other investments  5,893 6,717
1
Includes private equity, hedge funds and restricted stock investments as well as certain investments in non-marketable mutual funds for which the Bank has neither significant influence nor control over the investee.
2
As of December 31, 2017 and 2016, real estate held for investment included foreclosed or repossessed real estate of CHF 41 million and CHF 29 million, respectively, of which CHF 21 million and CHF 27 million, respectively, were related to residential real estate.
3
Includes life settlement contracts at investment method and SPIA contracts.
Non-marketable equity securities include investments in entities that regularly calculate net asset value per share or its equivalent.
> Refer to “Note 33 – Financial instruments” for further information on such investments.
Substantially all non-marketable equity securities are carried at >>>fair value. There were no non-marketable equity securities not carried at fair value that have been in a continuous unrealized loss position.
The Bank performs a regular impairment analysis of real estate portfolios. The carrying values of the impaired properties were written down to their respective fair values, establishing a new cost base. For these properties, the fair values were measured based on either discounted cash flow analyses or external market appraisals. Impairments of CHF 16 million, CHF 31 million and CHF 21 million were recorded in 2017, 2016 and 2015, respectively.
Accumulated depreciation related to real estate held for investment amounted to CHF 385 million, CHF 382 million and CHF 360 million for 2017, 2016 and 2015, respectively.
> Refer to “Note 17 – Other investments” in VI – Consolidated financial statements – Credit Suisse Group for further information.
433

17 Loans, allowance for loan losses and credit quality
end of 2017 2016
Loans (CHF million)   
Mortgages 106,039 104,335
Loans collateralized by securities 42,016 37,268
Consumer finance 4,242 3,490
Consumer 152,297 145,093
Real estate 26,599 26,016
Commercial and industrial loans 81,792 83,760
Financial institutions 19,662 20,884
Governments and public institutions 3,874 4,273
Corporate & institutional 131,927 134,933
Gross loans  284,224 280,026
   of which held at amortized cost  268,917 260,498
   of which held at fair value  15,307 19,528
Net (unearned income)/deferred expenses (106) (129)
Allowance for loan losses (881) (937)
Net loans  283,237 278,960
Gross loans by location (CHF million)   
Switzerland 161,645 161,756
Foreign 122,579 118,270
Gross loans  284,224 280,026
Impaired loan portfolio (CHF million)   
Non-performing loans 1,048 1,236
Non-interest-earning loans 210 253
Total non-performing and non-interest-earning loans 1,258 1,489
Restructured loans 290 358
Potential problem loans 549 613
Total other impaired loans 839 971
Gross impaired loans  2,097 2,460
Allowance for loan losses
   2017 2016 2015


Consumer
Corporate
&
institutional


Total


Consumer
Corporate
&
institutional


Total


Consumer
Corporate
&
institutional


Total
Allowance for loan losses (CHF million)   
Balance at beginning of period  216 721 937 216 649 865 251 506 757
Net movements recognized in statements of operations 54 136 190 63 186 249 66 229 295
Gross write-offs (60) (242) (302) (86) (192) (278) (118) (111) (229)
Recoveries 12 41 53 13 53 66 12 16 28
Net write-offs (48) (201) (249) (73) (139) (212) (106) (95) (201)
Provisions for interest (1) 14 13 10 8 18 6 12 18
Foreign currency translation impact and other adjustments, net (1) (9) (10) 0 17 17 (1) (3) (4)
Balance at end of period  220 661 881 216 721 937 216 649 865
   of which individually evaluated for impairment  179 474 653 172 527 699 170 479 649
   of which collectively evaluated for impairment  41 187 228 44 194 238 46 170 216
Gross loans held at amortized cost (CHF million)   
Balance at end of period  152,277 116,640 268,917 145,070 115,428 260,498 144,855 110,838 255,693
   of which individually evaluated for impairment 1 632 1,465 2,097 662 1,798 2,460 647 1,314 1,961
   of which collectively evaluated for impairment  151,645 115,175 266,820 144,408 113,630 258,038 144,208 109,524 253,732
1
Represents gross impaired loans both with and without a specific allowance.
434

Purchases, reclassifications and sales
in    2017 2016 2015


Consumer
Corporate
&
institutional


Total


Consumer
Corporate
&
institutional


Total


Consumer
Corporate
&
institutional


Total
Loans held at amortized cost (CHF million)   
Purchases 1 0 3,381 3,381 30 3,405 3,435 389 4,294 4,683
Reclassifications from loans held-for-sale 2 0 63 63 0 125 125 0 355 355
Reclassifications to loans held-for-sale 3 0 7,407 7,407 1,632 2,768 4,400 1,641 735 2,376
Sales 3 0 7,051 7,051 72 2,087 2,159 0 373 373
1
Includes drawdowns under purchased loan commitments.
2
Includes loans previously reclassified to held-for-sale that were not sold and were reclassified back to loans held-to-maturity.
3
All loans held at amortized cost which are sold are reclassified to loans held-for-sale on or prior to the date of the sale.
Gross loans held at amortized cost by internal counterparty rating
      Investment
grade
Non-investment
grade
end of AAA to BBB BB to C D Total
2017 (CHF million)   
Mortgages 94,553 11,214 272 106,039
Loans collateralized by securities 38,387 3,530 99 42,016
Consumer finance 1,801 2,241 180 4,222
Consumer 134,741 16,985 551 152,277
Real estate 20,278 5,640 85 26,003
Commercial and industrial loans 39,610 35,250 1,287 76,147
Financial institutions 11,223 2,022 46 13,291
Governments and public institutions 1,124 74 1 1,199
Corporate & institutional 72,235 42,986 1,419 116,640
Gross loans held at amortized cost  206,976 59,971 1,970 268,917
Value of collateral 1 189,092 49,271 1,409 239,772
2016 (CHF million)   
Mortgages 92,533 11,613 189 104,335
Loans collateralized by securities 34,136 2,916 216 37,268
Consumer finance 1,164 2,119 184 3,467
Consumer 127,833 16,648 589 145,070
Real estate 19,594 5,878 84 25,556
Commercial and industrial loans 36,501 35,945 1,447 73,893
Financial institutions 12,658 1,887 107 14,652
Governments and public institutions 1,253 60 14 1,327
Corporate & institutional 70,006 43,770 1,652 115,428
Gross loans held at amortized cost  197,839 60,418 2,241 260,498
Value of collateral 1 180,323 51,344 1,468 233,135
1
Includes the value of collateral up to the amount of the outstanding related loans. For mortgages, the value of collateral is determined at the time of granting the loan and thereafter regularly reviewed according to the Bank's risk management policies and directives, with maximum review periods determined by property type, market liquidity and market transparency.
435

Gross loans held at amortized cost – aging analysis
   Current Past due

end of



Up to
30 days

31-60
days

61-90
days
More
than
90 days


Total


Total
2017 (CHF million)   
Mortgages 105,689 102 27 14 207 350 106,039
Loans collateralized by securities 41,867 37 0 0 112 149 42,016
Consumer finance 3,701 297 39 40 145 521 4,222
Consumer 151,257 436 66 54 464 1,020 152,277
Real estate 25,871 37 12 15 68 132 26,003
Commercial and industrial loans 74,966 429 40 201 511 1,181 76,147
Financial institutions 12,912 333 1 2 43 379 13,291
Governments and public institutions 1,197 1 0 0 1 2 1,199
Corporate & institutional 114,946 800 53 218 623 1,694 116,640
Gross loans held at amortized cost  266,203 1,236 119 272 1,087 2,714 268,917
2016 (CHF million)   1
Mortgages 104,013 106 34 6 176 322 104,335
Loans collateralized by securities 36,953 93 1 1 220 315 37,268
Consumer finance 2,963 276 36 40 152 504 3,467
Consumer 143,929 475 71 47 548 1,141 145,070
Real estate 25,381 93 17 2 63 175 25,556
Commercial and industrial loans 72,266 618 131 131 747 1,627 73,893
Financial institutions 14,505 43 0 0 104 147 14,652
Governments and public institutions 1,269 44 0 0 14 58 1,327
Corporate & institutional 113,421 798 148 133 928 2,007 115,428
Gross loans held at amortized cost  257,350 1,273 219 180 1,476 3,148 260,498
1
Prior period has been corrected.
436

Gross impaired loans by category
      Non-performing and
non-interest earning loans

Other impaired loans

end of

Non-
performing
Non-
interest-
earning


Total

Re-
structured

Potential
problem


Total


Total
2017 (CHF million)   
Mortgages 236 17 253 13 66 79 332 1
Loans collateralized by securities 96 16 112 0 2 2 114
Consumer finance 176 9 185 0 1 1 186
Consumer 508 42 550 13 69 82 632
Real estate 73 4 77 0 19 19 96
Commercial and industrial loans 465 121 586 277 458 735 1,321
Financial institutions 1 43 44 0 3 3 47
Governments and public institutions 1 0 1 0 0 0 1
Corporate & institutional 540 168 708 277 480 757 1,465
Gross impaired loans  1,048 210 1,258 290 549 839 2,097
2016 (CHF million)   
Mortgages 190 11 201 13 40 53 254 1
Loans collateralized by securities 193 17 210 0 13 13 223
Consumer finance 180 4 184 0 1 1 185
Consumer 563 32 595 13 54 67 662
Real estate 62 5 67 0 19 19 86
Commercial and industrial loans 539 170 709 345 513 858 1,567
Financial institutions 58 46 104 0 27 27 131
Governments and public institutions 14 0 14 0 0 0 14
Corporate & institutional 673 221 894 345 559 904 1,798
Gross impaired loans  1,236 253 1,489 358 613 971 2,460
1
As of December 31, 2017 and 2016, CHF 90 million and CHF 62 million, respectively, were related to consumer mortgages secured by residential real estate for which formal foreclosure proceedings according to local requirements of the applicable jurisdiction were in process.
As of December 31, 2017 and 2016, the Bank did not have any material commitments to lend additional funds to debtors whose loan terms had been modified in troubled debt restructurings.
437

Gross impaired loan details
end of    2017 2016

Recorded
investment
Unpaid
principal
balance
Associated
specific
allowance

Recorded
investment
Unpaid
principal
balance
Associated
specific
allowance
Gross impaired loan detail (CHF million)   
Mortgages 254 239 36 211 198 21
Loans collateralized by securities 111 97 49 209 193 54
Consumer finance 180 160 94 177 160 97
Consumer 545 496 179 597 551 172
Real estate 86 79 11 65 59 10
Commercial and industrial loans 984 947 426 1,271 1,239 471
Financial institutions 47 46 37 126 122 46
Governments and public institutions 1 1 0 14 14 0
Corporate & institutional 1,118 1,073 474 1,476 1,434 527
Gross impaired loans with a specific allowance  1,663 1,569 653 2,073 1,985 699
Mortgages 78 78 43 43
Loans collateralized by securities 3 3 14 14
Consumer finance 6 6 8 8
Consumer 87 87 65 65
Real estate 10 10 21 21
Commercial and industrial loans 337 337 296 296
Financial institutions 0 0 5 5
Corporate & institutional 347 347 322 322
Gross impaired loans without specific allowance  434 434 387 387
Gross impaired loans  2,097 2,003 653 2,460 2,372 699
   of which consumer 632 583 179 662 616 172
   of which corporate & institutional  1,465 1,420 474 1,798 1,756 527
438

Gross impaired loan details (continued)
in    2017 2016 2015

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)

Average
recorded
investment

Interest
income
recognized
Interest
income
recognized
(cash basis)
Gross impaired loan detail (CHF million)   
Mortgages 229 2 1 195 2 1 190 2 2
Loans collateralized by securities 116 1 1 153 1 1 82 0 0
Consumer finance 167 5 5 205 1 1 228 1 1
Consumer 512 8 7 553 4 3 500 3 3
Real estate 78 1 0 72 1 0 74 0 0
Commercial and industrial loans 1,151 17 5 1,029 10 4 616 7 3
Financial institutions 76 1 1 154 1 0 149 1 1
Governments and public institutions 5 0 0 5 0 0 0 0 0
Corporate & institutional 1,310 19 6 1,260 12 4 839 8 4
Gross impaired loans with a specific allowance  1,822 27 13 1,813 16 7 1,339 11 7
Mortgages 83 3 0 83 3 0 51 4 0
Loans collateralized by securities 7 0 0 24 0 0 33 0 0
Consumer finance 3 0 0 11 0 0 7 0 0
Consumer 93 3 0 118 3 0 91 4 0
Real estate 27 1 0 31 1 0 12 1 0
Commercial and industrial loans 271 11 1 307 7 1 98 3 1
Financial institutions 0 0 0 5 0 0 4 0 0
Governments and public institutions 0 0 0 5 0 0 0 0 0
Corporate & institutional 298 12 1 348 8 1 114 4 1
Gross impaired loans without specific allowance  391 15 1 466 11 1 205 8 1
Gross impaired loans  2,213 42 14 2,279 27 8 1,544 19 8
   of which consumer 605 11 7 671 7 3 591 7 3
   of which corporate & institutional  1,608 31 7 1,608 20 5 953 12 5
Restructured loans held at amortized cost
in    2017 2016 2015


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification


Number of
contracts
Recorded
investment –
pre-
modification
Recorded
investment –
post-
modification
Restructured loans (CHF million, except where indicated)   
Mortgages 0 0 0 0 0 0 1 13 13
Loans collateralized by securities 0 0 0 0 0 0 1 0 0
Commercial and industrial loans 15 123 119 16 201 201 13 207 210
Financial institutions 0 0 0 0 0 0 1 2 2
Total  15 123 119 16 201 201 16 222 225
In 2017, the loan modifications of the Bank included extended loan repayment terms, including the suspension of quarterly and annual loan amortizations, modifications of covenants, a waiver of a loan termination and waivers of claims.
In 2017 and 2015, the Bank reported the default of one loan within commercial and industrial loans with a recorded investment amount of CHF 48 million and CHF 65 million, respectively, which had been restructured within the previous 12 months. In 2016, the Bank did not experience a default of such loans.
> Refer to “Note 18 – Loans, allowance for loan losses and credit quality” in VI – Consolidated financial statements – Credit Suisse Group for further information.
439

18 Premises and equipment
end of 2017 2016
Premises and equipment (CHF million)   
Buildings and improvements 2,139 2,179
Land 346 323
Leasehold improvements 2,041 2,162
Software 5,601 6,675
Equipment 1,547 2,051
Premises and equipment  11,674 13,390
Accumulated depreciation (7,229) (8,724)
Total premises and equipment, net  4,445 4,666
Depreciation and impairment
in 2017 2016 2015
CHF million   
Depreciation 770 882 1,009
Impairment 33 25 24
19 Goodwill
Goodwill

2017

Swiss
Universal
Bank

International
Wealth
Management


Asia
Pacific


Global
Markets
Investment
Banking &
Capital
Markets

Strategic
Resolution
Unit



Bank
Gross amount of goodwill (CHF million)
Balance at beginning of period  605 1,598 2,090 2,842 933 12 8,080
Foreign currency translation impact (13) (54) (46) (5) (22) 0 (140)
Other 0 (13) 0 0 0 0 (13)
Balance at end of period  592 1,531 2,044 2,837 911 12 7,927
Accumulated impairment (CHF million)
Balance at beginning of period  0 0 772 2,719 388 12 3,891
Balance at end of period  0 0 772 2,719 388 12 3,891
Net book value (CHF million)
Net book value  592 1,531 1,272 118 523 0 4,036
2016
Gross amount of goodwill (CHF million)
Balance at beginning of period  591 1,559 2,069 2,838 917 12 7,986
Goodwill acquired during the year 5 0 0 0 0 0 5
Foreign currency translation impact 9 32 34 4 16 0 95
Other 0 7 (13) 0 0 0 (6)
Balance at end of period  605 1,598 2,090 2,842 933 12 8,080
Accumulated impairment (CHF million)
Balance at beginning of period  0 0 772 2,719 388 12 3,891
Balance at end of period  0 0 772 2,719 388 12 3,891
Net book value (CHF million)
Net book value  605 1,598 1,318 123 545 0 4,189
> Refer to “Note 20 – Goodwill” in VI – Consolidated financial statements – Credit Suisse Group for further information.
440

20 Other intangible assets
end of    2017 2016

Gross
carrying
amount
Accumu-
lated
amorti-
zation

Net
carrying
amount

Gross
carrying
amount
Accumu-
lated
amorti-
zation

Net
carrying
amount
Other intangible assets (CHF million)   
Trade names/trademarks 27 (26) 1 28 (26) 2
Client relationships 47 (18) 29 50 (14) 36
Other 5 (3) 2 6 (3) 3
Total amortizing other intangible assets  79 (47) 32 84 (43) 41
Non-amortizing other intangible assets 191 191 172 172
   of which mortgage servicing rights, at fair value  158 158 138 138
Total other intangible assets  270 (47) 223 256 (43) 213
Additional information
in 2017 2016 2015
Aggregate amortization and impairment (CHF million)   
Aggregate amortization 7 8 18
Impairment 2 0 16
   of which related to restructuring expenses  0 0 15
Estimated amortization
Estimated amortization (CHF million)   
2018 8
2019 4
2020 3
2021 2
2022 2
21 Other assets and other liabilities
end of 2017 2016
Other assets (CHF million)   
Cash collateral on derivative instruments 5,142 5,706
Cash collateral on non-derivative transactions 490 1,237
Derivative instruments used for hedging 50 148
Assets held-for-sale 8,300 8,214
   of which loans 1 8,130 8,062
   of which real estate 2 141 122
   of which long-lived assets  29 30
Assets held for separate accounts 190 431
Interest and fees receivable 4,819 4,801
Deferred tax assets 3 5,457 5,815
Prepaid expenses 330 395
Failed purchases 1,327 2,423
Defined benefit pension and post-retirement plan assets 1,058 995
Other 3 3,793 6,610
Other assets  30,956 36,775
1
Included as of December 31, 2017 and 2016 were CHF 534 million and CHF 681 million, respectively, in restricted loans, which represented collateral on secured borrowings.
2
As of December 31, 2017 and 2016 real estate held-for-sale included foreclosed or repossessed real estate of CHF 8 million and CHF 16 million, respectively, of which CHF 5 million and CHF 13 million, respectively, were related to residential real estate.
3
Includes a reclassification from other assets to deferred tax assets in the first quarter of 2017 as a result of the early adoption of ASU 2016-16. Refer to “Note 2 – Recently issued accounting standards” for further information.
end of 2017 2016
Other liabilities (CHF million)   
Cash collateral on derivative instruments 8,644 11,497
Cash collateral on non-derivative transactions 473 369
Derivative instruments used for hedging 99 2
Deposits held-for-sale 0 1,577
Provisions 998 4,068
   of which off-balance sheet risk  106 88
Restructuring liabilities 301 311
Liabilities held for separate accounts 190 431
Interest and fees payable 5,804 6,012
Current tax liabilities 687 624
Deferred tax liabilities 152 99
Failed sales 720 737
Defined benefit pension and post-retirement plan liabilities 541 521
Other 13,074 13,671
Other liabilities  31,683 39,919
441

22 Deposits
end of    2017 2016
Switzer-
land

Foreign

Total
Switzer-
land

Foreign

Total
Deposits (CHF million)   
Non-interest-bearing demand deposits 2,594 2,058 4,652 2,972 1,646 4,618
Interest-bearing demand deposits 125,685 32,965 158,650 122,531 33,765 156,296
Savings deposits 64,068 18 64,086 63,005 2 63,007
Time deposits 33,051 117,275 150,326 1 43,562 112,541 156,103 1
Total deposits  225,398 152,316 377,714 2 232,070 147,954 380,024 2
   of which due to banks  15,411 22,800
   of which customer deposits  362,303 357,224
The designation of deposits in Switzerland versus foreign deposits is based upon the location of the office where the deposit is recorded.
1
Included CHF 150,203 million and CHF 163,322 million as of December 31, 2017 and 2016, respectively, of the Swiss franc equivalent of individual time deposits greater than USD 100,000 in Switzerland and foreign offices.
2
Not included as of December 31, 2017 and 2016 were CHF 135 million and CHF 132 million, respectively, of overdrawn deposits reclassified as loans. Prior period has been corrected.
23 Long-term debt
end of 2017 2016
Long-term debt (CHF million)   
Senior 148,568 168,601
Subordinated 22,611 22,135
Non-recourse liabilities from consolidated VIEs 863 1,759
Long-term debt  172,042 192,495
   of which reported at fair value  62,622 71,970
   of which structured notes  51,465 59,544
Structured notes by product
end of 2017 2016
Structured notes (CHF million)   
Equity 32,059 35,980
Fixed income 14,471 16,395
Credit 4,678 5,713
Other 257 1,456
Total structured notes  51,465 59,544
Long-term debt by maturities
end of 2018 2019 2020 2021 2022 Thereafter Total
Long-term debt (CHF million)
Senior debt 
   Fixed rate  9,752 16,277 9,210 7,691 8,265 34,455 85,650
   Variable rate  13,362 9,222 7,107 6,434 5,500 21,293 62,918
   Interest rates (range in %) 1 0.1 8.5 0.1 7.5 0.1 7.2 0.1 7.2 0.1 8.2 0.1 7.1
Subordinated debt 
   Fixed rate  10,328 0 1,837 0 1,687 8,555 22,407
   Variable rate  0 201 0 0 3 0 204
   Interest rates (range in %) 1 4.9 13.3 1.6 3.4 7.0 0.0 7.1 7.6 3.9 8.0
Non-recourse liabilities from consolidated VIEs 
   Fixed rate  244 344 0 27 5 0 620
   Variable rate  71 0 0 1 0 171 243
   Interest rates (range in %) 1 2.8 2.9 3.0 9.3 10.3 0.0 0.6 10.7
Total long-term debt  33,757 26,044 18,154 14,153 15,460 64,474 172,042
   of which structured notes  9,992 7,339 6,385 3,863 3,956 19,930 51,465
The maturity of perpetual debt is based on the earliest callable date. The maturity of all other debt is based on contractual maturity and includes certain structured notes that have mandatory early redemption features based on stipulated movements in markets or the occurrence of a market event. Within this population there are approximately CHF 3.1 billion of such notes with a contractual maturity of greater than one year that have an observable likelihood of redemption occurring within one year based on a modelling assessment.
1
Excludes structured notes for which fair value has been elected as the related coupons are dependent upon the embedded derivatives and prevailing market conditions at the time each coupon is paid.
> Refer to “Note 24 – Long-term debt” in VI – Consolidated financial statements – Credit Suisse Group for further information.
442

24 Accumulated other comprehensive income


Gains/
(losses)
on cash
flow hedges



Cumulative
translation
adjustments

Unrealized
gains/
(losses)
on
securities



Actuarial
gains/
(losses)


Net prior
service
credit/
(cost)
Gains/
(losses)
on
liabilities
relating to
credit risk
Accumu-
lated other
compre-
hensive
income/
(loss)
2017 (CHF million)   
Balance at beginning of period  (16) (12,269) 61 (402) 2 (618) (13,242)
Increase/(decrease) (61) (1,009) (13) (40) 0 (1,716) (2,839)
Reclassification adjustments, included in net income/(loss) 26 30 0 61 0 32 149
Total increase/(decrease) (35) (979) (13) 21 0 (1,684) (2,690)
Balance at end of period  (51) (13,248) 48 (381) 2 (2,302) (15,932)
2016 (CHF million)   
Balance at beginning of period  6 (12,750) 60 (612) 2 (13,294)
Increase/(decrease) (6) 409 1 131 0 (1,082) (547)
Reclassification adjustments, included in net income/(loss) (16) 72 0 79 0 0 135
Cumulative effect of accounting changes, net of tax 0 0 0 0 0 464 464
Total increase/(decrease) (22) 481 1 210 0 (618) 52
Balance at end of period  (16) (12,269) 61 (402) 2 (618) (13,242)
2015 (CHF million)   
Balance at beginning of period  (18) (11,621) 64 (656) 16 (12,215)
Increase/(decrease) 0 (1,134) (3) (30) (1) (1,168)
Decrease due to equity method investments 0 (1) 0 0 0 (1)
Reclassification adjustments, included in net income/(loss) 24 6 (1) 74 (13) 90
Total increase/(decrease) 24 (1,129) (4) 44 (14) (1,079)
Balance at end of period  6 (12,750) 60 (612) 2 (13,294)
Refer to "Note 26 - Tax" and "Note 29 - Pension and other post-retirement benefits" for income tax expense/(benefit) on the movements of accumulated other comprehensive income/(loss).
Details of significant reclassification adjustments
in 2017 2016 2015
Reclassification adjustments, included in net income/(loss) (CHF million)   
Cumulative translation adjustments 
   Reclassification adjustments 1 30 72 6
Actuarial gains/(losses) 
   Amortization of recognized actuarial losses 2 68 123 98
   Tax expense/(benefit)  (7) (44) (24)
   Net of tax  61 79 74
1
Includes net releases of CHF 23 million on the sale of Credit Suisse (Monaco) S.A.M. in 2017 and CHF 59 million on the sale of Credit Suisse (Gibraltar) Limited in 2016. In addition, it includes net releases of CHF 17 million on the liquidation of Credit Suisse Principal Investments Limited and AJP Cayman Ltd. in 2016. These were reclassified from cumulative translation adjustments and included in net income in other revenues.
2
These components are included in the computation of total benefit costs. Refer to "Note 29 – Pension and other post-retirement benefits" for further information.
443

25 Offsetting of financial assets and financial liabilities
> Refer to “Note 26 – Offsetting of financial assets and financial liabilities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Offsetting of derivatives
end of    2017 2016
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
Gross derivatives subject to enforceable master netting agreements (CHF billion)   
OTC-cleared 2.5 1.8 8.2 7.5
OTC 83.3 79.0 129.1 121.7
Exchange-traded 0.1 0.2 0.1 0.1
Interest rate products  85.9 81.0 137.4 129.3
OTC-cleared 0.2 0.2 0.0 0.0
OTC 29.1 34.6 59.3 69.2
Exchange-traded 0.0 0.0 0.0 0.1
Foreign exchange products  29.3 34.8 59.3 69.3
OTC 11.7 12.0 11.2 11.7
Exchange-traded 9.2 9.8 11.5 13.0
Equity/index-related products  20.9 21.8 22.7 24.7
OTC-cleared 3.6 3.8 2.1 2.3
OTC 3.9 4.7 5.8 6.2
Credit derivatives  7.5 8.5 7.9 8.5
OTC 1.4 0.9 2.2 1.1
Exchange-traded 0.0 0.0 0.0 0.1
Other products 1 1.4 0.9 2.2 1.2
OTC-cleared 6.3 5.8 10.3 9.8
OTC 129.4 131.2 207.6 209.9
Exchange-traded 9.3 10.0 11.6 13.3
Total gross derivatives subject to enforceable master netting agreements  145.0 147.0 229.5 233.0
Offsetting (CHF billion)   
OTC-cleared (5.7) (5.4) (8.5) (7.8)
OTC (114.5) (122.4) (188.6) (199.3)
Exchange-traded (8.6) (9.6) (11.1) (11.9)
Offsetting  (128.8) (137.4) (208.2) (219.0)
   of which counterparty netting  (113.8) (113.8) (184.7) (184.7)
   of which cash collateral netting  (15.0) (23.6) (23.5) (34.3)
Net derivatives presented in the consolidated balance sheets (CHF billion)   
OTC-cleared 0.6 0.4 1.8 2.0
OTC 14.9 8.8 19.0 10.6
Exchange-traded 0.7 0.4 0.5 1.4
Total net derivatives subject to enforceable master netting agreements  16.2 9.6 21.3 14.0
Total derivatives not subject to enforceable master netting agreements 2 3.7 5.2 5.8 6.4
Total net derivatives presented in the consolidated balance sheets  19.9 14.8 27.1 20.4
   of which recorded in trading assets and trading liabilities  19.9 14.7 27.0 20.4
   of which recorded in other assets and other liabilities  0.0 0.1 0.1 0.0
1
Primarily precious metals, commodity and energy products.
2
Represents derivatives where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
444

Offsetting of securities purchased under resale agreements and securities borrowing transactions
end of    2017 2016

Gross

Offsetting
Net
book value

Gross

Offsetting
Net
book value
Securities purchased under resale agreements and securities borrowing transactions (CHF billion)      
Securities purchased under resale agreements 89.4 (28.8) 60.6 100.2 (26.9) 73.3
Securities borrowing transactions 18.7 (5.0) 13.7 24.0 (4.5) 19.5
Total subject to enforceable master netting agreements  108.1 (33.8) 74.3 124.2 (31.4) 92.8
Total not subject to enforceable master netting agreements 1 41.0 41.0 42.3 42.3
Total  149.1 (33.8) 115.3 2 166.5 (31.4) 135.1 2
1
Represents securities purchased under resale agreements and securities borrowing transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
2
CHF 77,498 million and CHF 87,331 million of the total net amount as of 2017 and 2016, respectively, are reported at fair value.
Offsetting of securities sold under repurchase agreements and securities lending transactions
end of    2017 2016

Gross

Offsetting
Net
book value

Gross

Offsetting
Net
book value
Securities sold under repurchase agreements and securities lending transactions (CHF billion)      
Securities sold under repurchase agreements 49.4 (31.5) 17.9 51.6 (29.0) 22.6
Securities lending transactions 7.1 (2.3) 4.8 8.3 (2.4) 5.9
Obligation to return securities received as collateral, at fair value 37.0 0.0 37.0 31.9 0.0 31.9
Total subject to enforceable master netting agreements  93.5 (33.8) 59.7 91.8 (31.4) 60.4
Total not subject to enforceable master netting agreements 1 4.9 4.9 5.4 5.4
Total  98.4 (33.8) 64.6 97.2 (31.4) 65.8
   of which securities sold under repurchase agreements and securities    lending transactions    60.3 (33.8) 26.5 2 64.7 (31.4) 33.3 2
   of which obligation to return securities received as collateral, at fair value  38.1 0.0 38.1 32.5 0.0 32.5
1
Represents securities sold under repurchase agreements and securities lending transactions where a legal opinion supporting the enforceability of netting in the event of default or termination under the agreement is not in place.
2
CHF 15,262 million and CHF 19,634 million of the total net amount as of 2017 and 2016, respectively, are reported at fair value.
Amounts not offset in the consolidated balance sheets
end of    2017 2016



Net


Financial
instruments
1 Cash
collateral
received/
pledged
1

Net
exposure



Net


Financial
instruments
1 Cash
collateral
received/
pledged
1

Net
exposure
Financial assets subject to enforceable master netting agreements (CHF billion)      
Derivatives 16.2 5.2 0.0 11.0 21.3 6.3 0.0 15.0
Securities purchased under resale agreements 60.6 60.6 0.0 0.0 73.3 73.3 0.0 0.0
Securities borrowing transactions 13.7 13.2 0.0 0.5 19.5 18.6 0.0 0.9
Total financial assets subject to enforceable master netting agreements    90.5 79.0 0.0 11.5 114.1 98.2 0.0 15.9
Financial liabilities subject to enforceable master netting agreements (CHF billion)      
Derivatives 9.6 2.1 0.0 7.5 14.0 3.3 0.0 10.7
Securities sold under repurchase agreements 17.9 17.9 0.0 0.0 22.6 22.6 0.0 0.0
Securities lending transactions 4.8 4.4 0.0 0.4 5.9 5.7 0.0 0.2
Obligation to return securities received as collateral, at fair value 37.0 32.7 0.0 4.3 31.9 30.4 0.0 1.5
Total financial liabilities subject to enforceable master netting agreements    69.3 57.1 0.0 12.2 74.4 62.0 0.0 12.4
1
The total amount reported in financial instruments (recognized financial assets and financial liabilities and non-cash financial collateral) and cash collateral is limited to the amount of the related instruments presented in the consolidated balance sheets and therefore any over-collateralization of these positions is not included.
445

26 Tax
Details of current and deferred taxes
in 2017 2016 2015
Current and deferred taxes (CHF million)   
Switzerland 76 135 25
Foreign 420 499 462
Current income tax expense  496 634 487
Switzerland 285 (167) 165
Foreign 2,000 (67) (164)
Deferred income tax expense/(benefit)  2,285 (234) 1
Income tax expense  2,781 400 488
Income tax expense/(benefit) reported in shareholder's equity related to:
   Gains/(losses) on cash flow hedges  (24) (6) (4)
   Cumulative translation adjustment  1 (4) (14)
   Unrealized gains/(losses) on securities  1 1 (2)
   Actuarial gains/(losses)  (7) 87 14
   Net prior service cost  0 0 (9)
   Share-based compensation and treasury shares  0 106 28
Reconciliation of taxes computed at the Swiss statutory rate
in 2017 2016 2015
Income/(loss) before taxes (CHF million)   
Switzerland 1,648 1,955 1,604
Foreign (95) (4,444) (4,253)
Income/(loss) before taxes  1,553 (2,489) (2,649)
Reconciliation of taxes computed at the Swiss statutory rate (CHF million)   
Income tax expense/(benefit) computed at the statutory tax rate of 22% 342 (548) (583)
Increase/(decrease) in income taxes resulting from
   Foreign tax rate differential  (92) (559) (744)
   Non-deductible amortization of other intangible assets and goodwill impairment  0 1 1,432
   Other non-deductible expenses  354 1,533 389
   Additional taxable income  0 87 15
   Lower taxed income  (272) (216) (273)
   (Income)/loss taxable to noncontrolling interests  7 (10) 7
   Changes in tax law and rates  2,095 145 347
   Changes in deferred tax valuation allowance  88 76 (108)
   Change in recognition of outside basis difference  (12) 211 262
   Tax deductible impairments of Swiss subsidiary investments  88 (68) (258)
   (Windfall tax benefits)/shortfall tax charges on share-based compensation 1 91
   Other  92 (252) 2
Income tax expense  2,781 400 488
1
As a result of the adoption of ASU 2016-09 windfall tax benefits and shortfall tax charges on share-based compensation are now recognized in the consolidated statements of operations and no longer in shareholders' equity. Refer to "Note 2 - Recently issued accounting standards" for further information.
2017
Foreign tax rate differential of CHF 92 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to losses incurred in lower tax jurisdictions, mainly in Guernsey. The foreign tax rate expense of CHF 2,420 million comprised not only the foreign tax benefit based on statutory tax rates but also the tax impacts related to additional reconciling items as explained below.
Other non-deductible expenses of CHF 354 million included the impact of CHF 217 million relating to non-deductible interest expenses (including a contingency accrual of CHF 155 million), CHF 57 million related to the non-deductible portion of the litigation provisions and settlement charges, CHF 27 million
446

related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 10 million related to non-deductible foreign exchange losses, and other various smaller non-deductible expenses of CHF 43 million.
Lower taxed income of CHF 272 million included a tax benefit of CHF 86 million related to non-taxable life insurance income, CHF 78 million related to non-taxable dividend income, CHF 31 million in respect of income taxed at rates lower than the statutory tax rate, CHF 25 million related to exempt income, and various smaller items.
Changes in tax law and rates of CHF 2,095 million mainly reflected the impact of the US tax reform enacted on December 22, 2017 which resulted in a reduction of the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The US tax reform required a re-assessment of the deferred tax assets.
Changes in deferred tax valuation allowances of CHF 88 million included the net impact of the increase in valuation allowances on deferred tax assets of CHF 285 million, mainly in respect of two of the Bank’s operating entities in the UK. Also included was a tax benefit from the release of valuation allowances of CHF 197 million, mainly in respect of two of the Bank’s operating entities, one in the UK and one in Switzerland.
Other of CHF 92 million included a tax expense of CHF 231 million relating to the net re-assessment of deferred tax balances in respect of two of the Bank’s operating entities in Switzerland reflecting the establishment of Credit Suisse Asset Management & Investor Services (Schweiz) Holding AG, the impact of adverse earnings mix of the current year and changes in forecasted future profitability, CHF 26 million relating to the increase of tax contingency accruals and CHF 17 million from prior year adjustments, partially offset by CHF 85 million relating to tax deductibility of previously taken litigation accruals and CHF 49 million from a favorable court decision. The remaining balance included various smaller items.
2016
Foreign tax rate differential of CHF 559 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as the US, partially offset by foreign tax rate differential related to profits earned in lower tax jurisdictions, mainly the Bahamas. The foreign tax rate expense of CHF 432 million was not only impacted by the foreign tax benefit based on statutory tax rates but also by tax impacts related to additional reconciling items as explained below.
Other non-deductible expenses of CHF 1,533 million included the impact of CHF 983 million related to the non-deductible portion of the litigation provisions and settlement charges, CHF 420 million relating to non-deductible interest expenses, CHF 52 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 31 million related to non-deductible foreign exchange losses, CHF 25 million related to onerous lease provisions, and other various smaller non-deductible expenses of CHF 22 million.
Lower taxed income of CHF 216 million included a tax benefit of CHF 71 million related to non-taxable life insurance income, CHF 58 million related to non-taxable dividend income, CHF 19 million in respect of income taxed at rates lower than the statutory tax rate, CHF 11 million related to exempt income, and various smaller items.
Changes in tax law and rates of CHF 145 million reflected a tax expense of CHF 139 million caused by the reduction of deferred tax assets from the enactment of UK corporation tax rate changes, and CHF 6 million related to changes in other countries.
Changes in deferred tax valuation allowances of CHF 76 million included the net impact of the increase in valuation allowances on deferred tax assets of CHF 308 million, mainly in respect of four of the Bank’s operating entities, two in the UK, one in Hong Kong and one in Switzerland. Additionally, 2016 included an accrual of valuation allowances of CHF 91 million for previously recognized deferred tax assets in respect of one of the Bank’s operating entities in Hong Kong. Also included was a tax benefit from the release of valuation allowances of CHF 193 million, mainly in respect of one of the Bank’s operating entities in the UK. The change in UK corporation tax rates caused a release of valuation allowances of CHF 130 million in respect of four of the Bank’s operating entities in the UK.
Change in recognition of outside basis difference of CHF 211 million reflected a tax expense related to the expected reversal of the outside basis differences relating to Swiss subsidiary investments.
Other of CHF 252 million included a tax benefit of CHF 340 million relating to the re-assessment of deferred tax balances in Switzerland reflecting changes in forecasted future profitability and CHF 33 million from prior year adjustments, partially offset by CHF 89 million tax litigation expense and associated interest and penalties relating to two Italian income tax matters which have been resolved as part of an agreement with the Italian tax authorities, and CHF 22 million relating to the increase of tax contingency accruals. The remaining balance included various smaller items.
2015
Foreign tax rate differential of CHF 744 million reflected a foreign tax benefit mainly driven by losses made in higher tax jurisdictions, such as Brazil and the US, partially offset by foreign tax rate differential related to profits earned in lower tax jurisdictions, mainly Guernsey and the Bahamas. The foreign tax rate benefit in relation to total foreign tax expense of CHF 298 million was more than offset by tax impacts related to additional reconciling items as explained below.
Non-deductible amortization of other intangible assets and goodwill impairment of CHF 1,432 million reflected the non-deductible nature of the goodwill impairment.
Other non-deductible expenses of CHF 389 million included the impact of CHF 219 million relating to non-deductible interest expenses, CHF 69 million related to non-deductible bank levy costs and other non-deductible compensation expenses and management costs, CHF 50 million related to the non-deductible
447

portion of the litigation provisions and settlement charges, and other various smaller non-deductible expenses of CHF 51 million.
Lower taxed income of CHF 273 million included a tax benefit of CHF 59 million related to non-taxable dividend income, CHF 58 million related to non-taxable life insurance income, CHF 50 million related to exempt income, CHF 49 million related to non-taxable foreign exchange gains, CHF 16 million in respect of income taxed at rates lower than the statutory tax rate, and various smaller items.
Changes in tax law and rates of CHF 347 million reflected a tax expense of CHF 189 million related to the change in New York City tax law, CHF 175 million caused by the reduction of deferred tax assets from the enactment of UK corporation tax rate changes and introduction of the bank corporation tax surcharge, and CHF 10 million related to changes in other countries, partially offset by a tax benefit of CHF 16 million from a change in the Brazil tax rate and CHF 11 million related to a change in New York state tax law.
Changes in deferred tax valuation allowances of CHF 108 million included the net impact of the release of valuation allowances of CHF 109 million, mainly in respect of two of the Bank’s operating entities, one in the UK and one in Hong Kong, relating to current year earnings. Additionally, 2015 included a release of valuation allowances of CHF 88 million for previously recognized deferred tax assets in respect of one of the Bank’s operating entities in Hong Kong. The change in UK corporation tax rates and introduction of the bank corporation tax surcharge in 2015 caused a release of valuation allowances of CHF 162 million in respect of four of the Bank’s operating entities in the UK. Also included was a tax expense of CHF 251 million resulting from the increase in valuation allowances on deferred tax assets mainly from three of the Bank’s operating entities, two in the UK and one in Switzerland.
Change in recognition of outside basis difference of CHF 262 million reflected a tax expense related to the expected reversal of the outside basis differences relating to Swiss subsidiary investments.
Other of CHF 2 million included a tax expense of CHF 48 million relating to the increase of tax contingency accruals, a tax expense of CHF 28 million from prior year adjustments and various smaller items, partially offset by a tax benefit of CHF 109 million relating to the re-assessment of deferred tax balances in Switzerland reflecting changes in forecasted future profitability.
As of December 31, 2017, the Bank had accumulated undistributed earnings from foreign subsidiaries of CHF 4.6 billion. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.
Deferred tax assets and liabilities
end of 2017 2016
Deferred tax assets and liabilities (CHF million)   
Compensation and benefits 1,095 1,990
Loans 330 326
Investment securities 1,039 469
Provisions 441 1,341
Derivatives 96 102
Real estate 333 347
Net operating loss carry-forwards 6,762 6,523
Goodwill and intangible assets 664 44
Other 127 72
Gross deferred tax assets before valuation allowance    10,887 11,214
Less valuation allowance (4,224) (4,168)
Gross deferred tax assets net of valuation allowance    6,663 7,046
Compensation and benefits (278) (238)
Loans (36) (29)
Investment securities (197) (260)
Provisions (519) (359)
Business combinations (1) (1)
Derivatives (154) (238)
Leasing 0 (8)
Real estate (54) (51)
Other (119) (146)
Gross deferred tax liabilities  (1,358) (1,330)
Net deferred tax assets  5,305 5,716
   of which deferred tax assets  5,457 5,815
      of which net operating losses  2,200 2,172
      of which deductible temporary differences  3,257 3,643
   of which deferred tax liabilities  (152) (99)
The decrease in net deferred tax assets from 2016 to 2017 of CHF 411 million was primarily due to the impact of CHF 2,097 million in connection with the re-assessment of deferred tax assets following the US tax reform, CHF 374 million related to current year earnings and foreign exchange translation gains of CHF 221 million, which are included within the currency translation adjustments recorded in accumulated other comprehensive income/(loss) (AOCI). These decreases were partially offset by an increase of deferred tax assets of CHF 2,022 million from the adoption of new accounting standards relating to intra-entity asset transfers rules and share-based payment, CHF 132 million from the re-measurement of deferred tax balances in the US relating to the tax deductibility on previously taken litigation accruals and in Switzerland, and the tax impacts directly recorded in equity and other comprehensive income, mainly related to other tax recorded directly in equity of CHF 127 million.
> Refer to “Note 2 – Recently issued accounting standards” for further information on the early adoption of ASU 2016-16.
448

Due to uncertainty concerning its ability to generate the necessary amount and mix of taxable income in future periods, the Bank recorded a valuation allowance against deferred tax assets in the amount of CHF 4.2 billion as of December 31, 2017, unchanged from December 31, 2016.
Amounts and expiration dates of net operating loss carry-forwards
end of 2017 Total
Net operating loss carry-forwards (CHF million)   
Due to expire within 1 year 1,403
Due to expire within 2 to 5 years 4,708
Due to expire within 6 to 10 years 4,577
Due to expire within 11 to 20 years 8,659
Amount due to expire  19,347
Amount not due to expire 19,262
Total net operating loss carry-forwards  38,609
Movements in the valuation allowance
in 2017 2016 2015
Movements in the valuation allowance (CHF million)   
Balance at beginning of period  4,168 3,898 4,107
Net changes 56 270 (209)
Balance at end of period  4,224 4,168 3,898
Tax benefits associated with share-based compensation
in 2017 2016 2015
Tax benefits associated with share-based compensation (CHF million)   
Tax benefits recorded in the consolidated statements of operations   1 310 390 447
Windfall tax benefits/(shortfall tax charges) recorded in additional paid-in capital 2 (110) (28)
1
Calculated at the statutory tax rate before valuation allowance considerations.
2
As a result of the adoption of ASU 2016-09 windfall tax benefits and shortfall tax charges on share-based compensation are now recognized in the consolidated statements of operations and no longer in additional paid-in capital. Refer to "Note 2 - Recently issued accounting standards" for further information.
> Refer to “Note 27 – Employee deferred compensation” for further information on share-based compensation.
Uncertain tax positions
Reconciliation of the beginning and ending amount of gross unrecognized tax benefits
in 2017 2016 2015
Movements in gross unrecognized tax benefits (CHF million)   
Balance at beginning of period  401 360 382
Increases in unrecognized tax benefits as a result of tax positions taken during a prior period 131 52 44
Decreases in unrecognized tax benefits as a result of tax positions taken during a prior period (95) (43) (3)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period 117 17 15
Decreases in unrecognized tax benefits relating to settlements with tax authorities (73) (2) 0
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations (3) (7) (22)
Other (including foreign currency translation) 3 24 (56)
Balance at end of period  481 401 360
   of which, if recognized, would affect the effective tax rate  481 401 360
Interest and penalties
in 2017 2016 2015
Interest and penalties (CHF million)   
Interest and penalties recognized in the consolidated statements of operations 30 2 13
Interest and penalties recognized in the consolidated balance sheets 115 85 85
Interest and penalties are reported as tax expense. The Bank is currently subject to ongoing tax audits, inquiries and litigation with the tax authorities in a number of jurisdictions, including Brazil, the Netherlands, the US, the UK and Switzerland. Although the timing of completion is uncertain, it is reasonably possible that some of these will be resolved within 12 months of the reporting date.
It is reasonably possible that there will be a decrease of between zero and CHF 5 million in unrecognized tax benefits within 12 months of the reporting date.
The Bank remains open to examination from federal, state, provincial or similar local jurisdictions from the following years onward in these major countries: Brazil – 2013; Switzerland – 2011; the US – 2010; the UK – 2009; and the Netherlands – 2006.
> Refer to “Note 27 – Tax” in VI – Consolidated financial statements – Credit Suisse Group for further information.
449

27 Employee deferred compensation
Deferred compensation for employees
> Refer to “Note 28 – Employee deferred compensation” in VI – Consolidated financial statements – Credit Suisse Group for further information.
The following tables show the compensation expense for deferred compensation awards granted in 2017 and prior years that was recognized in the consolidated statements of operations during 2017, 2016 and 2015, the total shares delivered, the estimated unrecognized compensation expense for deferred compensation awards granted in 2017 and prior years outstanding as of December 31, 2017 and the remaining requisite service period over which the estimated unrecognized compensation expense will be recognized. The recognition of compensation expense for the deferred compensation awards granted in February 2018 began in 2018 and thus had no impact on the 2017 consolidated financial statements.
Deferred compensation expense
in 2017 2016 2015
Deferred compensation expense (CHF million)   
Share awards 519 624 850
Performance share awards 342 370 562
Contingent Capital Awards 277 234 430
Contingent Capital share awards 17 30
Capital Opportunity Facility awards 14 13 16
Plus Bond awards 1 5 22
2011 Partner Asset Facility awards 2 2
Restricted Cash Awards 39
2008 Partner Asset Facility awards 3 7 13 34
Other cash awards 417 331 398
Total deferred compensation expense  1,593 1,620 2,353
Total shares delivered (million)   
Total shares delivered 41.2 41.5 43.8
1
Compensation expense primarily relates to mark-to-market changes of the underlying assets of the Plus Bonds and the amortization of the voluntary Plus Bonds elected in the first quarter of 2013 and expensed over a three-year vesting period.
2
Compensation expense mainly includes the change in the underlying fair value of the indexed assets prior to the Contingent Capital Awards conversion.
3
Compensation expense mainly includes the change in the underlying fair value of the indexed assets during the period.
Estimated unrecognized deferred compensation
end of 2017
Estimated unrecognized compensation expense (CHF million)   
Share awards 462
Performance share awards 153
Contingent Capital Awards 116
Contingent Capital share awards 3
Other cash awards 178
Total  912
Aggregate remaining weighted-average requisite service period (years)   
Aggregate remaining weighted-average requisite service period 1.4
Does not include the estimated unrecognized compensation expense relating to grants made in 2018 for 2017.
Share awards
On February 15, 2018, the Bank granted 33.1 million share awards with a total value of CHF 596 million. The estimated unrecognized compensation expense of CHF 553 million was determined based on the >>>fair value of the awards on the grant date, includes the current estimated future forfeitures and will be recognized over the vesting period, subject to early retirement rules.
Share awards granted for previous years
For compensation year 2017 2016 2015
Share awards granted for previous years
Shares awarded (million) 33.1 37.6 28.8
Value of shares awarded (CHF million) 596 563 548
On February 15, 2018, the Bank granted 1.9 million blocked shares with a total value of CHF 35 million that vested immediately upon grant, have no future service requirements and were attributed to services performed in 2017.
Blocked share awards granted for previous years
For compensation year 2017 2016 2015
Blocked share awards granted for previous years
Shares awarded (million) 1.9 2.4 0.6
Value of shares awarded (CHF million) 35 37 12
450

Share award activities
   2017 2016 2015

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF

Number of
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Share awards   
Balance at beginning of period  70.8 18.78 79.0 21.56 76.6 28.63
Granted 51.5 1 14.54 38.1 17.59 46.2 2 16.49
Settled (36.8) 19.75 (37.2) 22.68 (39.9) 29.02
Forfeited (5.6) 3 16.47 (9.1) 21.88 (3.9) 24.03
Balance at end of period  79.9 15.77 70.8 18.78 79.0 21.56
   of which vested  7.8 8.1 4.7
   of which unvested  72.1 62.7 74.3
1
Includes an adjustment for share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional shares granted.
2
Includes an adjustment for share awards granted in the fourth quarter of 2015 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on November 19, 2015. The number of deferred share-based awards held by each individual was increased by 2.89%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional shares granted.
3
Includes the transfer of the share-based awards of Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH.
Performance share awards
On February 15, 2018, the Bank granted 25.6 million performance share awards with a total value of CHF 462 million. The estimated unrecognized compensation expense of CHF 430 million was determined based on the fair value of the awards on the grant date, includes the current estimated outcome of the relevant performance criteria and estimated future forfeitures and will be recognized over the vesting period, subject to early retirement rules.
Performance share awards granted for previous years
For compensation year 2017 2016 2015
Performance share awards granted for previous years
Performance shares awarded (million) 25.6 29.6 21.2
Value of performance shares awarded (CHF million) 462 449 427
Performance share award activities
   2017 2016 2015
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Number of
performance
share
awards
in million
Weighted-
average
grant-date
fair value
in CHF
Performance share awards   
Balance at beginning of period  48.1 19.12 55.5 21.01 47.6 26.89
Granted 31.1 1 14.41 21.3 18.62 32.2 2 16.11
Settled (23.6) 20.41 (26.4) 22.66 (23.0) 26.25
Forfeited (2.8) 3 16.37 (2.3) 18.98 (1.3) 21.78
Balance at end of period  52.8 15.88 48.1 19.12 55.5 21.01
   of which vested  6.6 6.8 3.3
   of which unvested  46.2 41.3 52.2
1
Includes an adjustment for performance share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional performance shares granted.
2
Includes an adjustment for performance share awards granted in the fourth quarter of 2015 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on November 19, 2015. The number of deferred share-based awards held by each individual was increased by 2.89%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional performance shares granted.
3
Includes the transfer of the share-based awards of Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH.
451

Contingent Capital Awards
On February 15, 2018, the Bank awarded CHF 233 million of Contingent Capital Awards (CCA) that will be expensed over the vesting period. The estimated unrecognized compensation expense of CHF 221 million was determined based on the fair value of the awards on the grant date and includes the current estimated outcome of the relevant performance criteria, the estimated future forfeitures and the expected semi-annual cash payments of interest equivalents and will be recognized over the vesting period.
Contingent Capital Awards granted for previous years
For compensation year 2017 2016 2015
Contingent Capital Awards granted for previous years
CCA awarded (CHF million) 233 228 217
Contingent Capital share awards
In March 2016, the Bank executed a voluntary exchange offer, under which employees had the right to voluntarily convert all or a portion of their respective CCA into Contingent Capital share awards at a conversion price of CHF 14.57. CCA holders elected to convert CHF 213 million of their CCA into Contingent Capital share awards during the election period. This fair value represented an approximate conversion rate of 15%. Each Contingent Capital share award had a grant-date fair value of CHF 14.45 and contains the same contractual term, vesting period, performance criteria and other terms and conditions as the original CCA.
Contingent Capital share award activities
2017 2016
Contingent Capital share awards   
Balance at beginning of period  12.8
Granted 0.3 1 15.6
Settled (4.9) (2.5)
Forfeited (0.7) 2 (0.3)
Balance at end of period  7.5 12.8
   of which vested  1.3 1.0
   of which unvested  6.2 11.8
1
Includes an adjustment for Contingent Capital share awards granted in the second quarter of 2017 to compensate for the proportionate dilution of Group shares resulting from the rights offering approved on May 18, 2017. The number of deferred share-based awards held by each individual was increased by 3.64%. The terms and conditions of the adjusted shares were the same as the existing share-based awards, thereby ensuring that holders of the awards were neither advantaged nor disadvantaged by the additional Contingent Capital shares granted.
2
Includes the transfer of the share-based awards of Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH.
Other deferred compensation
During 2017, the Bank granted deferred cash retention awards of CHF 65 million relating to the reorganization of the Asia Pacific business. These awards will be expensed over a two-year period from the grant date. Amortization of these awards totaled CHF 28 million in 2017 and was recognized in the Corporate Center. The Bank granted fixed deferred cash awards of CHF 90 million to certain employees in the US. These awards will be expensed in the Global Markets, Investment Banking & Capital Markets and International Wealth Management divisions over a three-year period from the grant date. Amortization of these awards totaled CHF 48 million in 2017.
In 2016, the Bank granted deferred share and cash retention awards of CHF 249 million relating to the reorganization of the Global Markets and Investment Banking & Capital Markets businesses. These awards will be expensed over a period of up to seven years from the grant date. Amortization of these awards in 2016 of CHF 118 million was recognized in the Corporate Center.
2008 Partner Asset Facility
During 2017, the final settlement of the outstanding PAF awards of CHF 789 million was made.
452

28 Related parties
The Group owns all of the Bank’s outstanding voting registered shares. The Bank is involved in significant financing and other transactions with subsidiaries of the Group. The Bank generally enters into these transactions in the ordinary course of business and believes that these transactions are generally on market terms that could be obtained from unrelated third parties.
> Refer to “Note 29 – Related parties” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Related party assets and liabilities
end of 2017 2016
Assets (CHF million)   
Net loans 4,100 2,995
Other assets 208 44
Total assets  4,308 3,039
Liabilities (CHF million)   
Due to banks/customer deposits 1,141 1,391
Short-term borrowings 489 0
Long-term debt 15,612 4,263
Other liabilities 851 244
Total liabilities  18,093 5,898
Related party revenues and expenses
in 2017 2016 2015
Revenues (CHF million)   
Interest and dividend income 2 (2) 0
Interest expense (574) (280) (276)
Net interest income  (572) (282) (276)
Commissions and fees 46 41 0
Other revenues 67 119 121
Net revenues  (459) (122) (155)
Expenses (CHF million)   
Total operating expenses  320 152 201
Related party guarantees
end of 2017 2016
Guarantees (CHF million)   
Credit guarantees and similar instruments 4 1
Other guarantees 0 34
Total guarantees  4 35
Executive Board and Board of Directors loans
2017 2016 2015
Loans to members of the Executive Board (CHF million)   
Balance at beginning of period  25 1 26 5
Additions 3 6 21
Reductions (2) (7) 0
Balance at end of period  26 1 25 26
Loans to members of the Board of Directors (CHF million)   
Balance at beginning of period  10 2 8 16
Additions 1 3 1
Reductions 0 (1) (9)
Balance at end of period  11 2 10 8
1
The number of individuals with outstanding loans at the beginning and the end of the year was seven.
2
The number of individuals with outstanding loans at the beginning and the end of the year was four.
Liabilities due to own pension plans
Liabilities due to the Bank’s own defined benefit pension plans as of December 31, 2017 and 2016 of CHF 336 million and CHF 521 million, respectively, were reflected in various liability accounts in the Bank’s consolidated balance sheets.
29 Pension and other post-retirement benefits
The Bank participates in a defined benefit pension plan sponsored by the Group and has defined contribution pension plans, single-employer defined benefit pension plans and other post-retirement defined benefit plans. The Bank’s principal plans are located in Switzerland, the US and the UK.
Defined contribution pension plans
The Bank contributes to various defined contribution pension plans primarily in the US and the UK as well as other countries throughout the world. During 2017, 2016 and 2015, the Bank contributed to these plans and recognized as expense CHF 156 million, CHF 160 million and CHF 156 million, respectively.
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group for further information on defined contribution pension plans.
Defined benefit Pension and other Post-Retirement benefit plans
Defined benefit pension plans
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group for further information on defined benefit pension plans.
453

Group pension plan
The Bank covers pension requirements for its employees in Switzerland by participating in a defined benefit pension plan sponsored by the Group (Group plan), the Group’s most significant defined benefit pension plan. The Group plan provides benefits in the event of retirement, death and disability. Various legal entities within the Group participate in the Group plan, which is set up as an independent trust domiciled in Zurich. Benefits in the Group plan are determined on the basis of the accumulated employer and employee contributions and accumulated interest credited. In accordance with US GAAP, the Group accounts for the Group plan as a single-employer defined benefit pension plan and uses the projected unit credit actuarial method to determine the net periodic benefit costs, the PBO and the accumulated benefit obligation (ABO). The Bank accounts for the defined benefit pension plan sponsored by the Group as a multi-employer pension plan because other legal entities within the Group also participate in the Group plan and the assets contributed by the Bank are not segregated into a separate account or restricted to provide benefits only to employees of the Bank. The assets contributed by the Bank are commingled with the assets contributed by the other legal entities of the Group and can be used to provide benefits to any employee of any participating legal entity. The Bank’s contributions to the Group plan comprise 87% of the total assets contributed to the Group plan by all participating legal entities on an annual basis.
The Bank accounts for the Group plan on a defined contribution basis whereby it only recognizes the amounts required to be contributed to the Group plan during the period as net periodic pension expense and only recognizes a liability for any contributions due and unpaid. No other expenses or balance sheet amounts related to the Group plan were recognized by the Bank. In the savings section of the Group plan, the Bank’s contribution varies between 7.5% and 25.0% of the pensionable salary depending on the employees’ age.
During 2017, 2016 and 2015, the Bank contributed and recognized as expense CHF 379 million, CHF 438 million and CHF 404 million to the Group plan, respectively. The Bank expects to contribute CHF 331 million to the Group plan during 2018.
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group for information on assumptions made by the Group for Switzerland.
International pension plans
Various defined benefit pension plans cover the Bank’s employees outside Switzerland. These plans provide benefits in the event of retirement, death, disability or termination of employment. Retirement benefits under the plans depend on age, contributions and salary. The Bank’s principal defined benefit pension plans outside Switzerland are located in the US and in the UK. Both plans are funded, closed to new participants and have ceased accruing new benefits. Smaller defined benefit pension plans, both funded and unfunded, are operated in other locations.
Other post-retirement defined benefit plans
In the US, the Bank’s defined benefit plans provide post-retirement benefits other than pension benefits that primarily focus on health and welfare benefits for certain retired employees. In exchange for the current services provided by the employee, the Bank promises to provide health and welfare benefits after the employee retires. The Bank’s obligation for that compensation is incurred as employees render the services necessary to earn their post-retirement benefits.
Net periodic benefit costs of defined benefit plans
The net periodic benefit costs for defined benefit pension and other post-retirement defined benefit plans are the costs of the respective plan for a period during which an employee renders services. The actual amount to be recognized is determined using the standard actuarial methodology which considers, among other factors, current service cost, interest cost, expected return on plan assets and the amortization of both prior service cost/(credit) and actuarial losses/(gains) recognized in AOCI.
Components of net periodic benefit costs
      International single-employer
defined benefit pension plans
Other post-retirement
defined benefit plans
in 2017 2016 2015 2017 2016 2015
Net periodic benefit costs (CHF million)   
Service costs on benefit obligation 22 20 21 0 0 0
Interest costs on benefit obligation 91 124 129 6 8 7
Expected return on plan assets (133) (175) (195) 0 0 0
Amortization of recognized prior service cost/(credit) 0 0 0 0 0 (23)
Amortization of recognized actuarial losses/(gains) 60 41 84 7 10 14
Settlement losses/(gains) 0 72 (1) 0 0 0
Curtailment losses/(gains) (10) 0 0 0 0 0
Net periodic benefit costs/(credits)  30 82 38 13 18 (2)
454

Net periodic benefit costs reflected in compensation and benefits – other for 2017, 2016 and 2015 were CHF 43 million, CHF 100 million and CHF 36 million, respectively. During the second half of 2016, lump-sum settlement offers were made to terminated vested members of the pension fund in the US. As a result of members accepting this offer, there was an additional cost of CHF 72 million relating to the settlement of pension obligations for these members.
Benefit obligation
The following table shows the changes in the PBO, the ABO, the fair value of plan assets and the amounts recognized in the consolidated balance sheets for the international single-employer defined benefit pension plans and other post-retirement defined benefit plans.
Obligations and funded status of the plans
            International
single-employer
defined benefit
pension plans


Other post-retirement
defined benefit plans
in / end of 2017 2016 2017 2016
PBO (CHF million)   1
Beginning of the measurement period  3,337 3,366 184 180
Service cost 22 20 0 0
Interest cost 91 124 6 8
Settlements 0 (278) 0 0
Curtailments (11) 0 0 0
Special termination benefits 1 1 0 0
Actuarial losses/(gains) 171 476 2 1
Benefit payments (287) (150) (11) (11)
Exchange rate losses/(gains) 66 (222) (8) 6
End of the measurement period  3,390 3,337 173 184
Fair value of plan assets (CHF million)   
Beginning of the measurement period  4,000 3,712 0 0
Actual return on plan assets 256 824 0 0
Employer contributions 22 232 11 11
Settlements 0 (278) 0 0
Benefit payments (287) (150) (11) (11)
Exchange rate gains/(losses) 97 (340) 0 0
End of the measurement period  4,088 4,000 0 0
Total funded status recognized (CHF million)   
Funded status of the plan – over/(underfunded) 698 663 (173) (184)
Funded status recognized in the consolidated balance sheet as of December 31  698 663 (173) (184)
Total amount recognized (CHF million)
Noncurrent assets 1,058 995 0 0
Current liabilities (11) (11) (11) (12)
Noncurrent liabilities (349) (321) (162) (172)
Net amount recognized in the consolidated balance sheet as of December 31  698 663 (173) (184)
ABO (CHF million)   2
End of the measurement period  3,351 3,281 173 184
1
Including estimated future salary increases.
2
Excluding estimated future salary increases.
The net amount recognized in the consolidated balance sheets as of December 31, 2017 and 2016 was an overfunding of CHF 525 million and CHF 479 million, respectively.
In 2017 and 2016, the Bank made contributions of CHF 22 million and CHF 232 million, respectively, to the international single-employer defined benefit pension plans and CHF 11 million and CHF 11 million, respectively, to the other post-retirement defined benefit plans. In 2018 the Bank expects to contribute CHF 16 million to the international single-employer defined benefit pension plans and CHF 11 million to other post-retirement defined benefit plans.
PBO or ABO in excess of plan assets
The following table shows the aggregate PBO and ABO, as well as the aggregate fair value of plan assets for those plans with PBO in excess of plan assets and those plans with ABO in excess of plan assets as of December 31, 2017 and 2016, respectively.
455

Defined benefit pension plans in which PBO or ABO exceeded plan assets
      PBO exceeds fair value
of plan assets
1 ABO exceeds fair value
of plan assets
1
December 31 2017 2016 2017 2016
CHF million   
PBO 1,464 1,426 1,447 1,407
ABO 1,433 1,391 1,420 1,378
Fair value of plan assets 1,104 1,095 1,088 1,079
1
Includes only those defined benefit pension plans where the PBO/ABO exceeded the fair value of plan assets.
Amount recognized in AOCI and other comprehensive income
The following table shows the actuarial gains/(losses) and prior service credit/(cost) which were recorded in AOCI and subsequently recognized as components of net periodic benefit costs.
Amounts recognized in AOCI, net of tax
            International
single-employer
defined benefit
pension plans


Other post-retirement
defined benefit plans



Total
end of 2017 2016 2017 2016 2017 2016
Amounts recognized in AOCI (CHF million)   
Actuarial gains/(losses) (345) (363) (36) (39) (381) (402)
Prior service credit/(cost) (1) (1) 3 3 2 2
Total  (346) (364) (33) (36) (379) (400)
The following tables show the changes in other comprehensive income due to actuarial gains/(losses) and prior service credit/(cost) recognized in AOCI during 2017 and 2016 and the amortization of the aforementioned items as components of net periodic benefit costs for these periods, as well as the amounts expected to be amortized in 2018.
Amounts recognized in other comprehensive income
      International single-employer
defined benefit pension plans
Other post-retirement
defined benefit plans
in Gross Tax Net Gross Tax Net Total net
2017 (CHF million)   
Actuarial gains/(losses) (48) 14 (34) (2) 1 (1) (35)
Amortization of actuarial losses/(gains) 60 (7) 53 7 (3) 4 57
Total  12 7 19 5 (2) 3 22
2016 (CHF million)   
Actuarial gains/(losses) 174 (44) 130 (1) 0 (1) 129
Amortization of actuarial losses/(gains) 41 (12) 29 10 (4) 6 35
Immediate recognition due to curtailment/settlement 72 (27) 45 0 0 0 45
Total  287 (83) 204 9 (4) 5 209
Amounts in AOCI, net of tax, expected to be amortized in 2018

in 2018
International
single-employer
defined benefit
pension plans


Other post-retirement
defined benefit plans
CHF million   
Amortization of actuarial losses/(gains) 40 6
Total  40 6
456

Assumptions
The measurement of both the net periodic benefit costs and the benefit obligation is determined using explicit assumptions, each of which individually represents the best estimate of a particular future event.
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI – Consolidated financial statements – Credit Suisse Group for information on assumptions made by the Group for Switzerland.
Weighted-average assumptions used to determine net periodic benefit costs and benefit obligation
      International single-employer
defined benefit pension plans
Other post-retirement
defined benefit plans
December 31 2017 2016 2015 2017 2016 2015
Net periodic benefit cost (%)
Discount rate - service cost 2.92 4.05 3.82 4.03 4.50 4.20
Discount rate - interest cost 2.79 4.05 3.82 3.48 4.50 4.20
Salary increases 3.55 3.56 4.19
Expected long-term rate of return on plan assets 3.88 5.07 6.00
Benefit obligation (%)   
Discount rate 2.83 3.10 4.05 3.70 4.21 4.50
Salary increases 2.97 3.55 3.56
Mortality tables and life expectancies for major plans
            Life expectancy at age 65
for a male member currently
Life expectancy at age 65
for a female member currently
      aged 65 aged 45 aged 65 aged 45
December 31 2017 2016 2017 2016 2017 2016 2017 2016
Life expectancy (years)   
UK SAPS S2 light tables 1 23.8 24.0 25.4 25.5 24.8 25.1 26.6 26.8
US RP-2014 mortality tables 2 21.5 21.4 22.7 22.6 23.3 23.3 24.4 24.4
1
95% of Self-Administered Pension Scheme (SAPS) S2 light tables were used, which included proposed CMI projections in 2016 and final CMI projections in 2017, with a long-term rate of improvement of 1.5% per annum.
2
The Retirement Projection 2014 (RP-2014) mortality tables were used, with projections based on the Social Security Administration's intermediate improvement scale.
457

Health care cost assumptions
The health care cost trend is used to determine the appropriate other post-retirement defined benefit costs. In determining those costs, an annual weighted-average rate is assumed in the cost of covered health care benefits.
The following table provides an overview of assumed health care cost trend rates and the sensitivity of a one percentage point increase or decrease of the rate.
Health care cost trend rates and sensitivity
in / end of 2017 2016 2015
Health care cost trend rate (%)   
Annual weighted-average health care cost trend rate 1 8.3 8.3 8.0
Increase/(decrease) in post-retirement expenses (CHF million)   
One percentage point increase in health care cost trend rates 0.1 0.2 0.2
One percentage point decrease in health care cost trend rates (0.1) (0.2) (0.2)
Increase/(decrease) in post-retirement benefit obligation (CHF million)   
One percentage point increase in health care cost trend rates 3 4 4
One percentage point decrease in health care cost trend rates (3) (4) (4)
1
The annual health care cost trend rate is assumed to decrease gradually to achieve the long-term health care cost trend rate of 5.0% by 2026.
The annual health care cost trend rate used to determine the defined benefit cost for 2018 is 8.2%.
Plan assets and investment strategy
> Refer to “Note 30 – Pension and other post-retirement benefits” in VI –Consolidated financial statements – Credit Suisse Group for further information.
As of December 31, 2017 and 2016, no Group debt or equity securities were included in plan assets for the international single-employer defined benefit pension plans.
Fair value of plan assets
The following tables present the plan assets measured at fair value on a recurring basis as of December 31, 2017 and 2016, for the Bank’s defined benefits plans.
Plan assets measured at fair value on a recurring basis
end of    2017 2016 1




Level 1




Level 2




Level 3
Assets
measured
at net asset
value
per share




Total




Level 1




Level 2




Level 3
Assets
measured
at net asset
value
per share




Total
Plan assets at fair value (CHF million)   
Cash and cash equivalents 70 133 0 0 203 49 170 0 0 219
Debt securities 1,991 1,080 0 370 3,441 1,380 865 7 274 2,526
   of which governments  1,622 9 0 0 1,631 1,009 7 0 0 1,016
   of which corporates  369 1,071 0 370 1,810 371 858 7 274 1,510
Equity securities 55 14 0 147 216 240 143 0 226 609
Real estate – indirect 0 0 0 27 27 0 0 0 58 58
Alternative investments 0 33 0 76 109 0 321 0 177 498
   of which hedge funds  0 0 0 76 76 0 0 0 177 177
   of which other  0 33 2 0 0 33 0 321 2 0 0 321
Other investments 0 92 0 0 92 0 90 0 0 90
Total plan assets at fair value  2,116 1,352 0 620 4,088 1,669 1,589 7 735 4,000
1
Prior period has been corrected to reclassify the leveling of certain plan assets.
2
Primarily related to derivative instruments.
458

Plan assets measured at fair value on a recurring basis for level 3
      Actual return
on plan assets

Balance at
beginning
of period


Transfers
in


Transfers
out
On assets
still held at
reporting
date

On assets
sold during
the period

Purchases,
sales,
settlements
Foreign
currency
translation
impact

Balance
at end
of period
2017 (CHF million)   
Debt securities – corporates 7 0 0 0 0 (7) 0 0
Total plan assets at fair value  7 0 0 0 0 (7) 0 0
2016 (CHF million)   1
Debt securities – corporates 1 6 0 0 0 0 0 7
Total plan assets at fair value  1 6 0 0 0 0 0 7
1
Prior period has been corrected to reclassify the leveling of certain plan assets.
Plan asset allocation
The following table shows the plan asset allocation as of the measurement date calculated based on the fair value at that date including the performance of each asset class.
Weighted-average plan asset allocation
December 31 2017 2016
Weighted-average plan asset allocation (%)   
Cash and cash equivalents 5.0 5.5
Debt securities 84.0 63.2
Equity securities 5.3 15.3
Real estate 0.7 1.4
Alternative investments 2.7 12.4
Insurance 2.3 2.2
Total  100.0 100.0
The following table shows the target plan asset allocation for 2018 in accordance with the Bank’s investment strategy. The target plan asset allocation is used to determine the expected return on plan assets to be considered in the net periodic benefit costs for 2018.
Weighted-average target plan asset allocation for 2018
2018 (%)   
Cash and cash equivalents 0.3
Debt securities 89.0
Equity securities 5.1
Real estate 0.6
Alternative investments 2.7
Insurance 2.3
Total  100.0
Estimated future benefit payments for defined benefit plans
The following table shows the estimated future benefit payments for defined benefit pension and other post-retirement defined benefit plans.
Estimated future benefit payments for defined benefit plans
International
single-employer
defined benefit
pension plans


Other post-retirement
defined benefit plans
Estimated future benefit payments (CHF million)   
2018 92 11
2019 90 11
2020 102 12
2021 122 12
2022 104 12
For five years thereafter 630 55
459

30 Derivatives and hedging activities
> Refer to “Note 31 – Derivatives and hedging activities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Hedge accounting
Cash flow hedges
As of the end of 2017, the maximum length of time over which the Bank hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was five years.
Fair value of derivative instruments
   Trading Hedging 1

end of 2017

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative instruments (CHF billion)   
Forwards and forward rate agreements 8,509.3 1.2 1.2 0.0 0.0 0.0
Swaps 13,048.8 60.4 56.3 46.8 0.2 0.2
Options bought and sold (OTC) 2,374.5 25.2 24.0 0.0 0.0 0.0
Futures 547.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 419.2 0.2 0.3 0.0 0.0 0.0
Interest rate products  24,899.6 87.0 81.8 46.8 0.2 0.2
Forwards 1,387.9 10.7 11.1 13.3 0.0 0.2
Swaps 581.1 15.2 19.9 0.0 0.0 0.0
Options bought and sold (OTC) 414.8 4.6 4.8 2.1 0.0 0.0
Futures 13.0 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 5.4 0.0 0.0 0.0 0.0 0.0
Foreign exchange products  2,402.2 30.5 35.8 15.4 0.0 0.2
Forwards 0.9 0.0 0.1 0.0 0.0 0.0
Swaps 199.1 3.8 4.9 0.0 0.0 0.0
Options bought and sold (OTC) 221.8 8.6 8.5 0.0 0.0 0.0
Futures 32.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 373.2 9.3 10.3 0.0 0.0 0.0
Equity/index-related products  827.8 21.7 23.8 0.0 0.0 0.0
Credit derivatives 2 524.9 7.7 8.9 0.0 0.0 0.0
Forwards 7.0 0.0 0.1 0.0 0.0 0.0
Swaps 17.9 1.5 1.4 0.0 0.0 0.0
Options bought and sold (OTC) 10.1 0.1 0.0 0.0 0.0 0.0
Futures 15.6 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 2.1 0.0 0.0 0.0 0.0 0.0
Other products 3 52.7 1.6 1.5 0.0 0.0 0.0
Total derivative instruments  28,707.2 148.5 151.8 62.2 0.2 0.4
The notional amount, PRV and NRV (trading and hedging) was CHF 28,769.4 billion, CHF 148.7 billion and CHF 152.2 billion, respectively, as of December 31, 2017.
1
Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2
Primarily credit default swaps.
3
Primarily precious metals, commodity and energy products.
460

Fair value of derivative instruments (continued)
   Trading Hedging 1

end of 2016

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative instruments (CHF billion)   
Forwards and forward rate agreements 8,321.9 3.3 3.2 0.0 0.0 0.0
Swaps 13,191.0 91.0 85.5 47.5 1.0 1.0
Options bought and sold (OTC) 2,164.4 43.1 41.1 0.0 0.0 0.0
Futures 522.1 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 468.0 0.2 0.2 0.0 0.0 0.0
Interest rate products  24,667.4 137.6 130.0 47.5 1.0 1.0
Forwards 1,211.6 19.2 20.8 11.0 0.1 0.0
Swaps 819.4 34.5 42.0 0.0 0.0 0.0
Options bought and sold (OTC) 416.8 8.1 8.4 4.8 0.0 0.0
Futures 17.8 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 4.1 0.0 0.0 0.0 0.0 0.0
Foreign exchange products  2,469.7 61.8 71.2 15.8 0.1 0.0
Forwards 1.3 0.0 0.0 0.0 0.0 0.0
Swaps 191.3 4.7 5.3 0.0 0.0 0.0
Options bought and sold (OTC) 206.9 7.7 7.6 0.0 0.0 0.0
Futures 41.5 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 355.9 11.6 13.1 0.0 0.0 0.0
Equity/index-related products  796.9 24.0 26.0 0.0 0.0 0.0
Credit derivatives 2 558.7 8.1 9.2 0.0 0.0 0.0
Forwards 7.2 0.1 0.2 0.0 0.0 0.0
Swaps 20.1 2.0 1.4 0.0 0.0 0.0
Options bought and sold (OTC) 20.2 0.4 0.3 0.0 0.0 0.0
Futures 14.3 0.0 0.0 0.0 0.0 0.0
Options bought and sold (exchange-traded) 3.4 0.0 0.1 0.0 0.0 0.0
Other products 3 65.2 2.5 2.0 0.0 0.0 0.0
Total derivative instruments 28,557.9 234.0 238.4 63.3 1.1 1.0
The notional amount, PRV and NRV (trading and hedging) was CHF 28,621.2 billion, CHF 235.1 billion and CHF 239.4 billion, respectively, as of December 31, 2016.
1
Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2
Primarily credit default swaps.
3
Primarily precious metals, commodity and energy products.
461

Fair value hedges
in 2017 2016 2015
Gains/(losses) recognized in income on derivatives (CHF million)   
Interest rate products (285) (116) (117)
Total  (285) (116) (117)
Gains/(losses) recognized in income on hedged items (CHF million)   
Interest rate products 290 111 101
Total  290 111 101
Details of fair value hedges (CHF million)   
Net gains/(losses) on the ineffective portions 5 (5) (16)
Represents gains/(losses) recognized in trading revenues.
Cash flow hedges
in 2017 2016 2015
Gains/(losses) recognized in AOCI on derivatives (CHF million)   
Interest rate products (56) (5) 21
Foreign exchange products (31) (3) (17)
Total  (87) (8) 4
Gains/(losses) reclassified from AOCI into income (CHF million)               
Interest rate products 1 (11) 29 37
Foreign exchange products (17) 2 (7) 3 (53) 2,3
Total  (28) 22 (16)
Details of cash flow hedges (CHF million)   
Net gains/(losses) on the ineffective portions 2 (1) (1) (12)
Represents gains/(losses) on effective portion.
1
Included in interest and other dividend income.
2
Included in trading revenues.
3
Included in total other operating expenses.
The net loss associated with cash flow hedges expected to be reclassified from AOCI within the next 12 months was CHF 32 million.
Net investment hedges
in 2017 2016 2015
Gains/(losses) recognized in AOCI on derivatives (CHF million)   
Foreign exchange products (475) (537) 443
Total  (475) (537) 443
Represents gains/(losses) on effective portion.
The Bank includes all >>>derivative instruments not included in hedge accounting relationships in its trading activities.
> Refer to “Note 7 – Trading revenues” for gains and losses on trading activities by product type.
Disclosures relating to contingent credit risk
The following table provides the Bank’s current net exposure from contingent credit risk relating to derivative contracts with bilateral counterparties and special purpose entities (SPEs) that include credit support agreements, the related collateral posted and the additional collateral required in a one-notch, two-notch and a three-notch downgrade event, respectively. The table also includes derivative contracts with contingent credit risk features without credit support agreements that have accelerated termination event conditions. The current net exposure for derivative contracts with bilateral counterparties and contracts with accelerated termination event conditions is the aggregate >>>fair value of derivative instruments that were in a net liability position. For SPEs, the current net exposure is the contractual amount that is used to determine the collateral payable in the event of a downgrade. The contractual amount could include both the negative replacement value and a percentage of the notional value of the derivative.
Contingent credit risk
end of    2017 2016

Bilateral
counterparties
Special
purpose
entities

Accelerated
terminations


Total

Bilateral
counterparties
Special
purpose
entities

Accelerated
terminations


Total
Contingent credit risk (CHF billion)   
Current net exposure 5.4 0.1 1.2 6.7 10.5 0.2 1.1 11.8
Collateral posted 4.4 0.1 4.5 9.5 0.2 9.7
Impact of a one-notch downgrade event 0.2 0.1 0.1 0.4 0.3 0.2 0.0 0.5
Impact of a two-notch downgrade event 0.9 0.2 0.5 1.6 1.3 0.4 0.5 2.2
Impact of a three-notch downgrade event 1.0 0.4 0.7 2.1 1.5 0.7 0.7 2.9
The impact of a downgrade event reflects the amount of additional collateral required for bilateral counterparties and special purpose entities and the amount of additional termination expenses for accelerated terminations, respectively.
462

Credit derivatives
> Refer to “Note 31 – Derivatives and hedging activities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Credit protection sold/purchased
The following tables do not include all credit derivatives and differ from the credit derivatives in the “Fair value of derivative instruments” table. This is due to the exclusion of certain credit derivative instruments under US GAAP, which defines a credit derivative as a derivative instrument (a) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (b) that exposes the seller to potential loss from credit risk-related events specified in the contract.
>>>Total return swaps (TRS) of CHF 6.7 billion and CHF 7.8 billion as of December 31, 2017 and 2016, respectively, were also excluded because a TRS does not expose the seller to potential loss from credit risk-related events specified in the contract. A TRS only provides protection against a loss in asset value and not against additional amounts as a result of specific credit events.
Credit protection sold/purchased
end of    2017 2016

Credit
protection
sold

Credit
protection
purchased
1 Net credit
protection
(sold)/
purchased

Other
protection
purchased
Fair value
of credit
protection
sold

Credit
protection
sold

Credit
protection
purchased
1 Net credit
protection
(sold)/
purchased

Other
protection
purchased
Fair value
of credit
protection
sold
Single-name instruments (CHF billion)   
Investment grade 2 (57.6) 53.8 (3.8) 15.3 0.9 (72.4) 67.4 (5.0) 14.3 0.7
Non-investment grade (28.2) 25.5 (2.7) 14.3 0.5 (30.3) 28.1 (2.2) 18.1 (1.0)
Total single-name instruments  (85.8) 79.3 (6.5) 29.6 1.4 (102.7) 95.5 (7.2) 32.4 (0.3)
   of which sovereign  (21.0) 19.2 (1.8) 6.2 0.2 (27.7) 25.6 (2.1) 6.5 (0.9)
   of which non-sovereign  (64.8) 60.1 (4.7) 23.4 1.2 (75.0) 69.9 (5.1) 25.9 0.6
Multi-name instruments (CHF billion)   
Investment grade 2 (107.1) 104.7 (2.4) 59.3 0.7 (115.0) 113.9 (1.1) 41.2 0.0
Non-investment grade (21.0) 19.6 (1.4) 12.0 3 0.9 (20.9) 19.5 (1.4) 9.8 3 0.3
Total multi-name instruments  (128.1) 124.3 (3.8) 71.3 1.6 (135.9) 133.4 (2.5) 51.0 0.3
   of which sovereign  (0.3) 0.3 0.0 0.3 0.0 (0.3) 0.2 (0.1) 0.7 0.1
   of which non-sovereign  (127.8) 124.0 (3.8) 71.0 1.6 (135.6) 133.2 (2.4) 50.3 0.2
Total instruments (CHF billion)   
Investment grade 2 (164.7) 158.5 (6.2) 74.6 1.6 (187.4) 181.3 (6.1) 55.5 0.7
Non-investment grade (49.2) 45.1 (4.1) 26.3 1.4 (51.2) 47.6 (3.6) 27.9 (0.7)
Total instruments  (213.9) 203.6 (10.3) 100.9 3.0 (238.6) 228.9 (9.7) 83.4 0.0
   of which sovereign  (21.3) 19.5 (1.8) 6.5 0.2 (28.0) 25.8 (2.2) 7.2 (0.8)
   of which non-sovereign  (192.6) 184.1 (8.5) 94.4 2.8 (210.6) 203.1 (7.5) 76.2 0.8
1
Represents credit protection purchased with identical underlyings and recoveries.
2
Based on internal ratings of BBB and above.
3
Includes synthetic securitized loan portfolios.
The following table reconciles the notional amount of credit derivatives included in the table “Fair value of derivative instruments” to the table “Credit protection sold/purchased”.
Credit derivatives
end of 2017 2016
Credit derivatives (CHF billion)   
Credit protection sold 213.9 238.6
Credit protection purchased 203.6 228.9
Other protection purchased 100.9 83.4
Other instruments 1 6.5 7.8
Total credit derivatives  524.9 558.7
1
Consists of total return swaps and other derivative instruments.
Maturity of credit protection sold

end of
Maturity
less
than
1 year
Maturity
between
1 to 5
years
Maturity
greater
than
5 years



Total
2017 (CHF billion)   
Single-name instruments 21.6 59.4 4.8 85.8
Multi-name instruments 31.2 79.9 17.0 128.1
Total instruments  52.8 139.3 21.8 213.9
2016 (CHF billion)   
Single-name instruments 24.2 72.7 5.8 102.7
Multi-name instruments 27.5 84.7 23.7 135.9
Total instruments  51.7 157.4 29.5 238.6
463

31 Guarantees and commitments
Guarantees

end of
Maturity
less
than
1 year
Maturity
between
1 to 3
years
Maturity
between
3 to 5
years
Maturity
greater
than
5 years

Total
gross
amount

Total
net
amount
1

Carrying
value


Collateral
received
2017 (CHF million)   
Credit guarantees and similar instruments 1,820 520 314 435 3,089 2,840 12 1,603
Performance guarantees and similar instruments 4,931 1,639 373 200 7,143 6,216 44 3,012
Derivatives 2 15,520 6,860 1,397 727 24,504 24,504 403 3
Other guarantees 4,461 1,006 708 503 6,678 6,673 47 3,833
Total guarantees  26,732 10,025 2,792 1,865 41,414 40,233 506 8,448
2016 (CHF million)   
Credit guarantees and similar instruments 1,962 501 262 403 3,128 2,908 13 2,043
Performance guarantees and similar instruments 5,109 1,571 194 240 7,114 6,124 76 3,090
Derivatives 2 15,864 3,377 3,590 976 23,807 23,807 684 3
Other guarantees 3,460 888 565 581 5,494 5,490 44 3,668
Total guarantees  26,395 6,337 4,611 2,200 39,543 38,329 817 8,801
1
Total net amount is computed as the gross amount less any participations.
2
Excludes derivative contracts with certain active commercial and investment banks and certain other counterparties, as such contracts can be cash settled and the Bank had no basis to conclude it was probable that the counterparties held, at inception, the underlying instruments.
3
Collateral for derivatives accounted for as guarantees is not significant.
> Refer to “Note 32 – Guarantees and commitments” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Deposit-taking banks and securities dealers in Switzerland and certain other European countries are required to ensure the payout of privileged deposits in case of specified restrictions or compulsory liquidation of a deposit-taking bank. In Switzerland, deposit-taking banks and securities dealers jointly guarantee an amount of up to CHF 6 billion. Upon occurrence of a payout event triggered by a specified restriction of business imposed by the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) or by the compulsory liquidation of another deposit-taking bank, the Bank’s contribution will be calculated based on its share of privileged deposits in proportion to total privileged deposits. Based on FINMA’s estimate for the Bank, the Bank’s share in the deposit insurance guarantee program for the period July 1, 2017 to June 30, 2018 is CHF 0.5 billion. These deposit insurance guarantees were reflected in other guarantees.
Representations and warranties on residential mortgage loans sold
In connection with the former Investment Banking division’s sale of US residential mortgage loans, the Bank has provided certain representations and warranties relating to the loans sold.
Lease commitments
Lease commitments (CHF million)   
2018 504
2019 472
2020 429
2021 323
2022 295
Thereafter 2,139
Future operating lease commitments  4,162
Less minimum non-cancellable sublease rentals 216
Total net future minimum lease commitments  3,946
Rental expense for operating leases
in 2017 2016 2015
Rental expense for operating leases (CHF million)   
Minimum rental expense 528 550 558
Sublease rental income (65) (89) (92)
Total net expenses for operating leases  463 461 466
464

Operating lease commitments
Sale-leaseback transactions
During 2017, we did not enter into any sale-leaseback transactions. In 2016 and 2015, the Bank entered into several smaller sale-leaseback transactions in respect of own property, which were all recognized as operating lease arrangements with lease terms of two years and between two and eighteen years, respectively. The total contractual rental expenses were CHF 19 million for the 2016 sale-leaseback transactions and CHF 67 million for the 2015 sale-leaseback transactions.
Other commitments

end of
Maturity
less
than
1 year
Maturity
between
1 to 3
years
Maturity
between
3 to 5
years
Maturity
greater
than
5 years

Total
gross
amount

Total
net
amount
1

Collateral
received
2017 (CHF million)   
Irrevocable commitments under documentary credits 4,976 113 1 1 5,091 5,000 3,218
Irrevocable loan commitments 24,296 33,649 40,425 8,031 106,401 2 101,270 42,307
Forward reverse repurchase agreements 12 0 0 0 12 12 12
Other commitments 219 13 11 104 347 347 0
Total other commitments  29,503 33,775 40,437 8,136 111,851 106,629 45,537
2016 (CHF million)   
Irrevocable commitments under documentary credits 4,356 0 0 0 4,356 4,281 2,748
Irrevocable loan commitments 30,382 34,464 44,523 7,606 116,975 2 113,016 46,068
Forward reverse repurchase agreements 84 0 0 0 84 84 84
Other commitments 486 24 75 51 636 636 0
Total other commitments  35,308 34,488 44,598 7,657 122,051 118,017 48,900
1
Total net amount is computed as the gross amount less any participations.
2
Irrevocable loan commitments do not include a total gross amount of CHF 108,665 million and CHF 95,745 million of unused credit limits as of December 31, 2017 and 2016, respectively, which were revocable at the Bank's sole discretion upon notice to the client.
465

32 Transfers of financial assets and variable interest entities
Transfers of financial assets
> Refer to “Note 33 – Transfers of financial assets and variable interest entities” in VI – Credit Suisse Group – Consolidated financial statements for further information.
Securitizations
The following table provides the gains or losses and proceeds from the transfer of assets relating to 2017, 2016 and 2015 securitizations of financial assets that qualify for sale accounting and subsequent derecognition, along with the cash flows between the Bank and the SPEs used in any securitizations in which the Bank still has continuing involvement, regardless of when the securitization occurred.
Securitizations
in 2017 2016 2015
Gains and cash flows (CHF million)   
CMBS 
Net gain/(loss) 1 37 (2) 1
Proceeds from transfer of assets 6,604 3,954 9,813
Cash received on interests that continue to be held 28 69 148
RMBS 
Net gain/(loss) 1 0 (4) 5
Proceeds from transfer of assets 14,817 9,866 20,062
Purchases of previously transferred financial assets or its underlying collateral (2) 0 (1)
Servicing fees 3 2 3
Cash received on interests that continue to be held 368 529 457
Other asset-backed financings 
Net gain 1 31 26 24
Proceeds from transfer of assets 7,664 2,813 1,740
Fees 2 135 137 0
Cash received on interests that continue to be held 4 2 3
1
Includes underwriting revenues, deferred origination fees, gains or losses on the sale of collateral to the SPE and gains or losses on the sale of newly issued securities to third parties, but excludes net interest income on assets prior to the securitization. The gains or losses on the sale of the collateral is the difference between the fair value on the day prior to the securitization pricing date and the sale price of the loans.
2
Represents management fees and performance fees earned for investment management services provided to managed CLOs.
Continuing involvement in transferred financial assets
The following table provides the outstanding principal balance of assets to which the Bank continued to be exposed after the transfer of the financial assets to any SPE and the total assets of the SPE as of December 31, 2017 and 2016, regardless of when the transfer of assets occurred.
Principal amounts outstanding and total assets of SPEs resulting from continuing involvement
end of 2017 2016
CHF million   
CMBS 
Principal amount outstanding 19,918 28,779
Total assets of SPE 31,586 40,234
RMBS 
Principal amount outstanding 35,645 38,319
Total assets of SPE 36,770 39,680
Other asset-backed financings 
Principal amount outstanding 20,916 19,777
Total assets of SPE 39,330 36,049
Principal amount outstanding relates to assets transferred from the Bank and does not include principle amounts for assets transferred from third parties.
Fair value of beneficial interests
The >>>fair value measurement of beneficial interests held at the time of transfer and as of the reporting date that result from any continuing involvement is determined using fair value estimation techniques, such as the present value of estimated future cash flows that incorporate assumptions that market participants customarily use in these valuation techniques. The fair value of the assets or liabilities that result from any continuing involvement does not include any benefits from financial instruments that the Bank may utilize to hedge the inherent risks.
Key economic assumptions at the time of transfer
> Refer to “Note 33 – Financial instruments” for further information on the fair value hierarchy.
466

Key economic assumptions used in measuring fair value of beneficial interests at time of transfer
at time of transfer, in    2017 2016 2015
CMBS RMBS CMBS RMBS CMBS RMBS
CHF million, except where indicated
Fair value of beneficial interests 445 2,400 69 2,068 1,512 2,110
   of which level 2  444 2,221 69 1,827 1,442 1,695
   of which level 3  1 179 0 241 70 415
Weighted-average life, in years 10.0 6.0 8.4 7.2 8.2 9.0
Prepayment speed assumption (rate per annum), in % 1 2 1.0 22.9 2 5.0 33.0 2 1.1 30.1
Cash flow discount rate (rate per annum), in % 3 2.4 9.0 2.0 29.5 2.4 4.9 1.2 24.4 1.7 7.2 1.7 33.7
Expected credit losses (rate per annum), in % 0.6 3.4 0.8 6.3 0.0 0.0 2.5 11.2 0.7 5.9 0.5 15.9
Transfers of assets in which the Bank does not have beneficial interests are not included in this table.
1
Prepayment speed assumption (PSA) is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the constant prepayment rate (CPR) assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR.
2
To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances.
3
The rate was based on the weighted-average yield on the beneficial interests.
Key economic assumptions as of the reporting date
The following table provides the sensitivity analysis of key economic assumptions used in measuring the fair value of beneficial interests held in SPEs as of December 31, 2017 and 2016.
Key economic assumptions used in measuring fair value of beneficial interests held in SPEs
end of    2017 2016



CMBS
1


RMBS
Other asset-
backed
financing
activities
2


CMBS
1


RMBS
Other asset-
backed
financing
activities
2
CHF million, except where indicated
Fair value of beneficial interests 579 1,985 665 258 1,851 443
   of which non-investment grade  100 508 50 70 523 32
Weighted-average life, in years 4.7 8.1 6.4 7.2 8.1 5.6
Prepayment speed assumption (rate per annum), in % 3 1.0 25.0 2.0 26.9
Impact on fair value from 10% adverse change (35.0) (28.7)
Impact on fair value from 20% adverse change (68.1) (55.9)
Cash flow discount rate (rate per annum), in % 4 2.7 12.3 1.9 30.6 1.0 11.7 2.3 28.8 1.7 47.2 0.8 21.2
Impact on fair value from 10% adverse change (8.8) (49.2) (12.4) (6.0) (48.1) (8.3)
Impact on fair value from 20% adverse change (17.0) (95.3) (24.5) (11.7) (93.5) (16.4)
Expected credit losses (rate per annum), in % 0.6 6.3 0.5 28.2 0.7 10.2 0.7 28.0 0.9 44.9 0.9 21.2
Impact on fair value from 10% adverse change (3.9) (23.6) (6.6) (3.5) (27.3) (5.1)
Impact on fair value from 20% adverse change (7.8) (46.1) (12.9) (6.9) (53.3) (10.0)
1
To deter prepayment, commercial mortgage loans typically have prepayment protection in the form of prepayment lockouts and yield maintenances.
2
CDOs within this category are generally structured to be protected from prepayment risk.
3
PSA is an industry standard prepayment speed metric used for projecting prepayments over the life of a residential mortgage loan. PSA utilizes the CPR assumptions. A 100% prepayment assumption assumes a prepayment rate of 0.2% per annum of the outstanding principal balance of mortgage loans in the first month. This increases by 0.2 percentage points thereafter during the term of the mortgage loan, leveling off to a CPR of 6% per annum beginning in the 30th month and each month thereafter during the term of the mortgage loan. 100 PSA equals 6 CPR.
4
The rate was based on the weighted-average yield on the beneficial interests.
467

Transfers of financial assets where sale treatment was not achieved
The following table provides the carrying amounts of transferred financial assets and the related liabilities where sale treatment was not achieved as of December 31, 2017 and 2016.
Carrying amounts of transferred financial assets and liabilities where sale treatment was not achieved
end of 2017 2016
CHF million   
Other asset-backed financings 
Trading assets 347 240
Other assets 48 12
Liability to SPE, included in other liabilities (395) (252)
Transfers of financial assets accounted for as a sale retaining substantially all of the exposure to economic return
The following table presents information about the transfers of financial assets accounted for as sales with agreements that result in the Bank retaining substantially all of the exposure to the economic return on the transferred assets at the date of sale and remained outstanding as of December 31, 2016, gross cash proceeds received for assets derecognized at the date of sale and the fair values of transferred assets and the types of agreements as of December 31, 2016. There were no such transactions outstanding as of December 31, 2017.
Transfer of financial assets accounted for as sales – by transaction type
      at date of
derecognition

end of


Carrying
amount
derecognized
Gross cash
proceeds
received for
assets
derecognized

Fair value
of
transferred
assets

Gross
derivative
assets
recorded
1
Gross
derivative
liabilities
recorded
1
2016 (CHF million)   
Sales with longevity swaps 277 340 374 556
Total transactions outstanding  277 340 374 556 2
1
Balances presented on a gross basis, before application of counterparty and cash collateral netting.
2
As of December 31, 2016, gross derivative assets of CHF 556 million were included in other products, as disclosed in Note 30 – Derivatives and hedging activities.
Securities sold under repurchase agreements and securities lending transactions accounted for as secured borrowings
The following tables provide the gross obligation relating to securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral by the class of collateral pledged and by remaining contractual maturity as of December 31, 2017 and 2016.
Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by class of collateral pledged
end of 2017 2016
CHF billion   
Government debt securities 31.4 29.7
Corporate debt securities 15.1 13.9
Asset-backed securities 5.0 10.3
Equity securities 0.0 1.1
Other 0.6 0.3
Securities sold under repurchase agreements  52.1 55.3
Government debt securities 2.7 2.5
Corporate debt securities 0.4 0.5
Equity securities 4.8 6.0
Other 0.3 0.4
Securities lending transactions  8.2 9.4
Government debt securities 1.8 0.7
Corporate debt securities 0.6 0.4
Equity securities 35.6 31.5
Other 0.1 0.0
Obligation to return securities received as collateral, at fair value    38.1 32.6
Total  98.4 97.3
468

Securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral – by remaining contractual maturity
   Remaining contractual maturities

end of

On demand
1 Up to
30 days
2 31-90
days
More than
90 days

Total
2017 (CHF billion)   
Securities sold under repurchase agreements 7.2 32.5 5.2 7.2 52.1
Securities lending transactions 5.7 2.2 0.0 0.3 8.2
Obligation to return securities received as collateral, at fair value 37.9 0.0 0.0 0.2 38.1
Total  50.8 34.7 5.2 7.7 98.4
2016 (CHF billion)   
Securities sold under repurchase agreements 6.8 32.2 8.4 7.9 55.3
Securities lending transactions 6.7 2.4 0.0 0.3 9.4
Obligation to return securities received as collateral, at fair value 32.2 0.4 0.0 0.0 32.6
Total  45.7 35.0 8.4 8.2 97.3
1
Includes contracts with no contractual maturity that may contain termination arrangements subject to a notice period.
2
Includes overnight transactions.
> Refer to “Note 25 – Offsetting of financial assets and financial liabilities” for further information on the gross amount of securities sold under repurchase agreements, securities lending transactions and obligation to return securities received as collateral and the net amounts disclosed in the consolidated balance sheets.
Variable interest entities
> Refer to “Note 33 – Transfers of financial assets and variable interest entities” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Commercial paper conduit
In the second quarter of 2016, the Bank established Alpine Securitization Ltd (Alpine), a multi-seller asset-backed CP conduit used for client and Bank financing purposes. The Bank acts as the administrator and provider of liquidity and credit enhancement facilities for Alpine. Alpine discloses to CP investors certain portfolio and asset data and submits its portfolio to rating agencies for public ratings. This CP conduit purchases assets such as loans and receivables or enters into reverse repurchase agreements and finances such activities through the issuance of CP backed by these assets. The CP conduit can enter into liquidity facilities with third-party entities pursuant to which it may purchase assets from these entities to provide them with liquidity and credit support. The financing transactions are structured to provide credit support to the CP conduit in the form of over-collateralization and other asset-specific enhancements. Alpine is a separate legal entity that is wholly owned by the Bank. However, its assets are available to satisfy only the claims of its creditors. In addition, the Bank, as administrator and liquidity facility provider, has significant exposure to and power over the activities of Alpine. Alpine is considered a VIE for accounting purposes and the Bank is deemed the primary beneficiary and consolidates this entity.
The overall average maturity of the conduit’s outstanding CP was approximately 148 days as of December 31, 2017. Alpine was rated A-1(sf) by Standard & Poor’s and P-1(sf) by Moody’s and had exposures in a reverse repurchase agreement, credit card receivables, car loans, commercial paper, student loans and advance financing receivables.
The Bank’s commitment to this CP conduit consists of obligations under liquidity agreements. The liquidity agreements are asset-specific arrangements, which require the Bank to purchase assets from the CP conduit in certain circumstances, including a lack of liquidity in the CP market such that the CP conduit cannot refinance its obligations or, in some cases, a default of an underlying asset. The asset-specific credit enhancements provided by the client seller of the assets remain unchanged as a result of such a purchase. In entering into such agreements, the Bank reviews the credit risk associated with these transactions on the same basis that would apply to other extensions of credit.
The Bank’s economic risks associated with the CP conduit are included in the Bank’s risk management framework including counterparty, economic risk capital and scenario analysis.
469

Consolidated VIEs
The Bank has significant involvement with VIEs in its role as a financial intermediary on behalf of clients. The Bank consolidated all VIEs related to financial intermediation for which it was the primary beneficiary.
Consolidated VIEs in which the Bank was the primary beneficiary
   Financial intermediation

end of
CDO/
CLO
CP
Conduit
Securi-
tizations

Funds

Loans

Other

Total
2017 (CHF million)   
Cash and due from banks 22 0 96 32 70 12 232
Trading assets 17 0 10 179 1,122 20 1,348
Investment securities 0 0 381 0 0 0 381
Other investments 0 0 0 350 1,197 286 1,833
Net loans 0 0 0 3 21 243 267
Premises and equipment 0 0 0 0 128 0 128
Other assets 83 4 1,070 21 31 1,187 2,396
   of which loans held-for-sale  83 0 152 0 3 0 238
Total assets of consolidated VIEs  122 4 1,557 585 2,569 1,748 6,585
Trading liabilities 0 0 0 0 3 0 3
Long-term debt 51 0 752 0 26 34 863
Other liabilities 0 0 1 26 111 66 204
Total liabilities of consolidated VIEs  51 0 753 26 140 100 1,070
2016 (CHF million)   
Cash and due from banks 43 1 41 52 50 182 369
Trading assets 0 0 0 478 933 1,333 2,744
Investment securities 0 0 511 0 0 0 511
Other investments 0 0 0 228 1,446 332 2,006
Net loans 0 0 0 0 30 254 284
Premises and equipment 0 0 0 0 173 0 173
Other assets 0 1 1,483 48 50 1,034 2,616
   of which loans held-for-sale  0 0 415 0 7 0 422
Total assets of consolidated VIEs  43 2 2,035 806 2,682 3,135 8,703
Trading liabilities 0 0 0 0 18 0 18
Short-term borrowings 0 0 0 1 0 0 1
Long-term debt 54 0 1,639 7 57 2 1,759
Other liabilities 0 0 1 15 124 103 243
Total liabilities of consolidated VIEs  54 0 1,640 23 199 105 2,021
470

Non-consolidated VIEs
Non-consolidated VIE assets are related to the non-consolidated VIEs with which the Bank has variable interests. These amounts represent the assets of the entities themselves and are typically unrelated to the exposures the Bank has with the entity and thus are not amounts that are considered for risk management purposes.
Non-consolidated VIEs
   Financial intermediation

end of
CDO/
CLO
Securi-
tizations

Funds

Loans

Other

Total
2017 (CHF million)   
Trading assets 746 4,573 1,014 224 2,388 8,945
Net loans 620 1,563 2,438 4,591 328 9,540
Other assets 9 11 55 1 437 513
Total variable interest assets  1,375 6,147 3,507 4,816 3,153 18,998
Maximum exposure to loss  1,375 7,617 3,514 7,061 4,079 23,646
Total assets of non-consolidated VIEs  15,874 64,839 63,504 16,270 6,265 166,752
2016 (CHF million)   
Trading assets 440 3,881 1,526 528 191 6,566
Net loans 4 105 2,007 6,588 1 608 9,312
Other assets 5 14 4 4 520 547
Total variable interest assets  449 4,000 3,537 7,120 1 1,319 16,425
Maximum exposure to loss  449 7,171 3,537 11,169 1 1,821 24,147
Total assets of non-consolidated VIEs  9,774 65,820 65,057 34,216 1 6,756 181,623
1
Prior period has been corrected.
33 Financial instruments
> Refer to “Note 34 – Financial instruments” in VI – Consolidated financial statements – Credit Suisse Group for further information.
471

Assets and liabilities measured at fair value on a recurring basis

end of 2017




Level 1




Level 2




Level 3



Netting
impact
1 Assets
measured
at net
asset value
per share
2



Total
Assets (CHF million)   
Cash and due from banks 0 212 0 212
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 0 77,498 0 77,498
   Debt  576 802 0 1,378
      of which corporates  0 726 0 726
   Equity  36,121 529 46 36,696
Securities received as collateral 36,697 1,331 46 38,074
   Debt  29,827 40,707 2,292 72,826
      of which foreign governments  29,561 4,256 270 34,087
      of which corporates  179 10,292 1,412 11,883
      of which RMBS  0 21,399 320 21,719
      of which CMBS  0 2,501 16 2,517
      of which CDO  0 2,255 126 2,381
   Equity  51,125 3,481 163 1,053 55,822
   Derivatives  3,577 141,641 3,289 (128,607) 19,900
      of which interest rate products  1,219 84,932 801
      of which foreign exchange products  19 30,302 188
      of which equity/index-related products  2,339 18,544 833
      of which credit derivatives  0 7,107 634
   Other  2,923 2,293 3,010 8,226
Trading assets 87,452 188,122 8,754 (128,607) 1,053 156,774
   Debt  244 1,778 42 2,064
      of which foreign governments  98 1,138 0 1,236
      of which corporates  0 238 0 238
      of which RMBS  0 167 40 207
      of which CMBS  0 171 2 173
   Equity  6 119 0 125
Investment securities 250 1,897 42 2,189
   Private equity  0 0 29 343 372
      of which equity funds  0 0 22 133 155
   Hedge funds  0 0 0 391 391
      of which debt funds  0 0 0 239 239
   Other equity investments  25 9 271 1,121 1,426
      of which private  18 9 271 1,121 1,419
   Life finance instruments  0 7 1,301 1,308
Other investments 25 16 1,601 1,855 3,497
Loans 0 10,777 4,530 15,307
      of which commercial and industrial loans  0 3,437 2,207 5,644
      of which financial institutions  0 4,890 1,480 6,370
Other intangible assets (mortgage servicing rights) 0 0 158 158
Other assets 101 7,570 1,511 (164) 9,018
      of which loans held-for-sale  0 5,800 1,350 7,150
Total assets at fair value  124,525 287,423 16,642 (128,771) 2,908 302,727
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
472

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2017




Level 1




Level 2




Level 3



Netting
impact
1 Liabilities
measured
at net
asset value
per share
2



Total
Liabilities (CHF million)   
Due to banks 0 197 0 197
Customer deposits 0 3,056 455 3,511
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 0 15,262 0 15,262
   Debt  576 802 0 1,378
      of which corporates  0 726 0 726
   Equity  36,121 529 46 36,696
Obligation to return securities received as collateral 36,697 1,331 46 38,074
   Debt  5,160 4,139 2 9,301
      of which foreign governments  5,108 746 0 5,854
      of which corporates  12 3,334 2 3,348
   Equity  14,230 883 55 9 15,177
   Derivatives  3,731 144,929 3,169 (137,175) 14,654
      of which interest rate products  1,254 80,290 317
      of which foreign exchange products  8 35,707 100
      of which equity/index-related products  2,468 20,017 1,301
      of which credit derivatives  0 7,982 898
Trading liabilities 23,121 149,951 3,226 (137,175) 9 39,132
Short-term borrowings 0 10,174 845 11,019
Long-term debt 0 50,121 12,501 62,622
      of which treasury debt over two years  0 936 0 936
      of which structured notes over one year and up to two years  0 6,216 149 6,365
      of which structured notes over two years  0 32,782 12,259 45,041
      of which other debt instruments over two years  0 2,221 61 2,282
      of which other subordinated bonds  0 4,557 0 4,557
      of which non-recourse liabilities  0 833 30 863
Other liabilities 0 7,356 1,467 (233) 8,590
      of which failed sales  0 439 223 662
Total liabilities at fair value  59,818 237,448 18,540 (137,408) 9 178,407
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
473

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2016




Level 1




Level 2




Level 3



Netting
impact
1 Assets
measured
at net
asset value
per share
2



Total
Assets (CHF million)   
Cash and due from banks 0 208 0 208
Interest-bearing deposits with banks 0 25 1 26
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 0 87,157 174 87,331
   Debt  619 418 1 1,038
      of which corporates  1 378 1 380
   Equity  30,706 751 69 31,526
Securities received as collateral 31,325 1,169 70 32,564
   Debt  29,498 32,200 3,977 65,675
      of which foreign governments  29,226 2,408 292 31,926
      of which corporates  180 12,332 1,674 14,186
      of which RMBS  0 14,153 605 14,758
      of which CMBS  0 2,227 65 2,292
      of which CDO  0 1,074 1,165 2,239
   Equity  58,493 3,795 240 1,346 63,874
   Derivatives  5,631 224,400 4,305 (207,323) 27,013
      of which interest rate products  3,074 133,928 748
      of which foreign exchange products  18 61,459 355
      of which equity/index-related products  2,538 20,777 914
      of which credit derivatives  0 7,388 688
   Other  2,268 2,319 4,243 8,830
Trading assets 95,890 262,714 12,765 (207,323) 1,346 165,392
   Debt  294 2,032 72 2,398
      of which foreign governments  103 1,240 0 1,343
      of which corporates  0 287 0 287
      of which RMBS  0 425 72 497
      of which CMBS  0 14 0 14
   Equity  3 85 0 88
Investment securities 297 2,117 72 2,486
   Private equity  0 0 8 566 574
      of which equity funds  0 0 0 232 232
   Hedge funds  0 0 0 546 546
      of which debt funds  0 0 0 292 292
   Other equity investments  22 64 310 984 1,380
      of which private  15 64 310 984 1,373
   Life finance instruments  0 0 1,588 1,588
Other investments 22 64 1,906 2,096 4,088
Loans 0 12,943 6,585 19,528
      of which commercial and industrial loans  0 6,051 3,816 9,867
      of which financial institutions  0 4,403 1,829 6,232
Other intangible assets (mortgage servicing rights) 0 0 138 138
Other assets 260 8,396 1,679 (915) 9,420
      of which loans held-for-sale  0 4,640 1,316 5,956
Total assets at fair value  127,794 374,793 23,390 (208,238) 3,442 321,181
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
474

Assets and liabilities measured at fair value on a recurring basis (continued)

end of 2016




Level 1




Level 2




Level 3



Netting
impact
1 Liabilities
measured
at net
asset value
per share
2



Total
Liabilities (CHF million)   
Due to banks 0 445 0 445
Customer deposits 0 3,166 410 3,576
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 0 19,634 0 19,634
   Debt  619 418 1 1,038
      of which corporates  1 378 1 380
   Equity  30,706 751 69 31,526
Obligation to return securities received as collateral 31,325 1,169 70 32,564
   Debt  4,376 3,564 23 7,963
      of which foreign governments  4,374 547 0 4,921
      of which corporates  0 2,760 23 2,783
   Equity  16,387 191 41 1 16,620
   Derivatives  5,407 229,334 3,673 (218,045) 20,369
      of which interest rate products  2,946 126,298 538
      of which foreign exchange products  18 71,017 150
      of which equity/index-related products  2,442 22,687 1,181
      of which credit derivatives  0 8,350 851
Trading liabilities 26,170 233,089 3,737 (218,045) 1 44,952
Short-term borrowings 0 3,545 516 4,061
Long-term debt 0 58,555 13,415 71,970
      of which treasury debt over two years  0 3,217 0 3,217
      of which structured notes over one year and up to two years  0 6,852 326 7,178
      of which structured notes over two years  0 39,824 12,434 52,258
      of which other debt instruments over two years  0 2,311 634 2,945
      of which other subordinated bonds  0 4,584 1 4,585
      of which non-recourse liabilities  0 1,742 17 1,759
Other liabilities 0 8,892 1,679 (1,014) 9,557
      of which failed sales  0 507 219 726
Total liabilities at fair value  57,495 328,495 19,827 (219,059) 1 186,759
1
Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements.
2
In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
Transfers between level 1 and level 2
in    2017 2016
Transfers
to level 1
out of level 2
Transfers
out of level 1
to level 2
Transfers
to level 1
out of level 2
Transfers
out of level 1
to level 2
Assets (CHF million)   
Securities received as collateral  0 136 0 0
   Debt  16 237 2,012 1,698
   Equity  924 412 723 1,074
   Derivatives  3,202 13 3,404 0
Trading assets  4,142 662 6,139 2,772
Liabilities (CHF million)   
Obligations to return securities received as collateral  0 136 0 0
   Debt  3 44 2 46
   Equity  102 165 108 166
   Derivatives  3,814 91 4,047 29
Trading liabilities  3,919 300 4,157 241
475

Assets and liabilities measured at fair value on a recurring basis for level 3
     
Trading revenues

Other revenues
Accumulated other
comprehensive income

2017

Balance at
beginning
of period


Transfers
in


Transfers
out



Purchases



Sales



Issuances



Settlements

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other

On
transfers
in / out

On
all
other
Foreign
currency
translation
impact

Balance
at end
of period
Assets (CHF million)   
Interest-bearing deposits with banks 1 40 0 0 (41) 0 0 0 0 0 0 0 0 0 0
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 174 0 0 0 0 26 (193) 0 0 0 0 0 0 (7) 0
Securities received as collateral 70 3 (1) 65 (86) 0 0 0 0 0 0 0 0 (5) 46
   Debt  3,977 608 (1,074) 2,747 (3,705) 0 0 (4) (80) 6 1 0 0 (184) 2,292
      of which corporates  1,674 276 (654) 2,203 (2,005) 0 0 (4) 14 6 0 0 0 (98) 1,412
      of which RMBS  605 280 (229) 85 (305) 0 0 3 (95) 0 0 0 0 (24) 320
      of which CMBS  65 6 (17) 2 (13) 0 0 (3) (21) 0 0 0 0 (3) 16
      of which CDO  1,165 39 (157) 174 (1,047) 0 0 0 (16) 0 0 0 0 (32) 126
   Equity  240 49 (35) 146 (260) 0 0 0 33 0 0 0 0 (10) 163
   Derivatives  4,305 416 (839) 0 0 1,317 (1,817) 123 (63) 0 0 0 0 (153) 3,289
      of which interest rate products  748 56 (53) 0 0 118 (183) 6 104 0 0 0 0 5 801
      of which equity/index-related products  914 142 (98) 0 0 443 (597) 14 58 0 0 0 0 (43) 833
      of which credit derivatives  688 216 (252) 0 0 381 (297) 38 (110) 0 0 0 0 (30) 634
   Other  4,243 86 (98) 12,917 (14,067) 0 (251) 2 362 0 0 0 0 (184) 3,010
Trading assets 12,765 1,159 (2,046) 15,810 (18,032) 1,317 (2,068) 121 252 6 1 0 0 (531) 8,754
Investment securities 72 0 (17) 100 (113) 0 (90) (1) 95 0 0 0 0 (4) 42
   Equity  318 23 (22) 139 (144) 0 0 0 (7) 0 9 0 0 (16) 300
   Life finance instruments  1,588 0 0 185 (418) 0 0 0 16 0 0 0 0 (70) 1,301
Other investments 1,906 23 (22) 324 (562) 0 0 0 9 0 9 0 0 (86) 1,601
Loans 6,585 1,130 (947) 106 (580) 1,151 (2,743) 15 85 0 0 0 0 (272) 4,530
   of which commercial and industrial loans  3,816 448 (482) 71 (395) 590 (1,705) (2) 21 0 0 0 0 (155) 2,207
   of which financial institutions  1,829 352 (126) 33 (176) 444 (821) 28 (6) 0 0 0 0 (77) 1,480
Other intangible assets (mortgage servicing rights) 138 0 0 23 (1) 0 0 0 0 0 4 0 0 (6) 158
Other assets 1,679 347 (132) 759 (1,056) 1,054 (885) (1) (172) 0 (4) 0 0 (78) 1,511
   of which loans held-for-sale 2 1,316 286 (113) 667 (904) 1,053 (885) (2) 0 0 (4) 0 0 (64) 1,350
Total assets at fair value  23,390 2,702 (3,165) 17,187 (20,471) 3,548 (5,979) 134 269 6 10 0 0 (989) 16,642
Liabilities (CHF million)   
Customer deposits 410 0 0 0 0 35 (3) 0 (61) 0 0 0 42 32 455
Obligation to return securities received as collateral 70 3 (1) 65 (86) 0 0 0 0 0 0 0 0 (5) 46
Trading liabilities 3,737 566 (1,049) 113 (134) 1,193 (1,625) 140 461 0 (9) 0 0 (167) 3,226
   of which interest rate derivatives  538 57 (36) 0 0 45 (258) 6 (14) 0 0 0 0 (21) 317
   of which foreign exchange derivatives  150 11 (1) 0 0 9 (12) 0 (52) 0 0 0 0 (5) 100
   of which equity/index-related derivatives  1,181 54 (188) 0 0 543 (692) 17 441 0 0 0 0 (55) 1,301
   of which credit derivatives  851 377 (392) 0 0 350 (376) 61 66 0 0 0 0 (39) 898
Short-term borrowings 516 95 (172) 0 0 865 (472) (2) 19 4 10 0 6 (24) 845
Long-term debt 13,415 1,172 (3,004) 0 0 4,540 (4,479) (12) 1,400 0 0 88 21 (640) 12,501
   of which structured notes over two years  12,434 995 (2,886) 0 0 3,913 (3,079) (14) 1,390 0 0 87 17 (598) 12,259
Other liabilities 1,679 150 (102) 211 (304) 7 (398) (25) (8) 0 327 0 0 (70) 1,467
   of which failed sales  219 80 (70) 189 (218) 0 0 (7) 40 0 0 0 0 (10) 223
Total liabilities at fair value  19,827 1,986 (4,328) 389 (524) 6,640 (6,977) 101 1,811 4 328 88 69 (874) 18,540
Net assets/(liabilities) at fair value  3,563 716 1,163 16,798 (19,947) (3,092) 998 33 (1,542) 2 (318) (88) (69) (115) (1,898)
1
For all transfers to level 3 or out of level 3, the Bank determines and discloses as level 3 events only gains or losses through the last day of the reporting period.
2
Includes unrealized losses recorded in trading revenues of CHF (39) million primarily related to subprime exposures in securitized products business and market movements across the wider loans held-for-sale portfolio.
476 / 477

Assets and liabilities measured at fair value on a recurring basis for level 3 (continued)
     
Trading revenues

Other revenues
Accumulated other
comprehensive income

2016

Balance at
beginning
of period


Transfers
in


Transfers
out



Purchases



Sales



Issuances



Settlements

On
transfers
in / out
1
On
all
other

On
transfers
in / out
1
On
all
other

On
transfers
in / out

On
all
other
Foreign
currency
translation
impact

Balance
at end
of period
Assets (CHF million)   
Interest-bearing deposits with banks 49 (49) 1 0 0 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 158 0 0 0 0 279 (270) 0 1 0 0 0 0 6 174
Securities received as collateral 0 0 0 100 (33) 0 0 0 0 0 0 0 0 3 70
   Debt  4,564 1,574 (1,487) 3,753 (4,514) 0 0 (1) (134) 0 10 0 0 212 3,977
      of which corporates  1,746 836 (677) 2,642 (2,945) 0 0 0 (42) 0 8 0 0 106 1,674
      of which RMBS  814 587 (573) 525 (668) 0 0 (6) (91) 0 0 0 0 17 605
      of which CMBS  215 26 (12) 51 (169) 0 0 (1) (45) 0 0 0 0 0 65
      of which CDO  1,298 82 (166) 488 (578) 0 0 2 2 0 2 0 0 35 1,165
   Equity  871 111 (136) 527 (1,057) 0 0 (45) (38) 0 0 0 0 7 240
   Derivatives  4,831 1,683 (1,017) 0 0 1,484 (2,972) 7 173 0 (22) 0 0 138 4,305
      of which interest rate products  791 48 (60) 0 0 130 (293) 0 117 0 0 0 0 15 748
      of which equity/index-related products  936 282 (328) 0 0 428 (473) 9 32 0 (22) 0 0 50 914
      of which credit derivatives  1,568 961 (617) 0 0 543 (1,710) 1 (64) 0 0 0 0 6 688
   Other  4,266 858 (1,221) 3,848 (3,644) 0 (314) 7 290 0 0 0 0 153 4,243
Trading assets 14,532 4,226 (3,861) 8,128 (9,215) 1,484 (3,286) (32) 291 0 (12) 0 0 510 12,765
Investment securities 148 18 (38) 95 (121) 0 (124) (10) 100 0 0 0 0 4 72
   Equity  365 8 (2) 123 (258) 0 0 0 31 0 22 0 0 29 318
   Life finance instruments  1,669 0 0 186 (353) 0 0 0 33 0 0 0 0 53 1,588
Other investments 2,034 8 (2) 309 (611) 0 0 0 64 0 22 0 0 82 1,906
Loans 8,950 969 (1,942) 524 (1,443) 3,574 (4,281) (43) (11) 0 0 0 0 288 6,585
   of which commercial and industrial loans  5,735 486 (583) 97 (1,007) 1,994 (2,987) (14) (74) 0 0 0 0 169 3,816
   of which financial institutions  1,729 77 (348) 335 (348) 974 (701) 1 41 0 0 0 0 69 1,829
Other intangible assets (mortgage servicing rights) 112 0 0 16 (1) 0 0 0 0 0 6 0 0 5 138
Other assets 7,087 572 (1,497) 2,464 (6,801) 898 (975) (46) (208) 0 (9) 0 0 194 1,679
   of which loans held-for-sale  6,768 355 (1,251) 2,192 (6,696) 898 (975) (59) (88) 0 (8) 0 0 180 1,316
Total assets at fair value  33,021 5,793 (7,340) 11,685 (18,274) 6,235 (8,936) (131) 238 0 7 0 0 1,092 23,390
Liabilities (CHF million)   
Customer deposits 254 0 (41) 0 0 240 (20) 0 (64) 0 0 0 41 0 410
Obligation to return securities received as collateral 0 0 0 100 (33) 0 0 0 0 0 0 0 0 3 70
Trading liabilities 4,615 1,588 (1,026) 51 (52) 1,259 (3,494) 100 589 0 (12) 0 0 119 3,737
   of which interest rate derivatives  578 87 (28) 0 0 141 (244) 14 (25) 0 0 0 0 15 538
   of which foreign exchange derivatives  329 55 (5) 0 0 14 (408) 2 160 0 0 0 0 3 150
   of which equity/index-related derivatives  1,347 130 (293) 0 0 423 (748) 32 227 0 0 0 0 63 1,181
   of which credit derivatives  1,757 940 (689) 0 0 421 (1,806) 50 162 0 0 0 0 16 851
Short-term borrowings 72 45 (30) 0 0 598 (205) 1 17 (3) 3 0 0 18 516
Long-term debt 14,123 3,865 (2,393) 0 0 4,510 (7,149) (64) (124) 0 0 1 240 406 13,415
   of which structured notes over two years  9,924 3,484 (2,166) 0 0 4,044 (3,004) (78) (403) 0 0 1 240 392 12,434
Other liabilities 2,483 208 (226) 219 (376) 17 (611) (72) (160) (1) 139 0 0 59 1,679
   of which failed sales  454 44 (121) 142 (308) 0 0 (3) 3 0 0 0 0 8 219
Total liabilities at fair value  21,547 5,706 (3,716) 370 (461) 6,624 (11,479) (35) 258 (4) 130 1 281 605 19,827
Net assets/(liabilities) at fair value  11,474 87 (3,624) 11,315 (17,813) (389) 2,543 (96) (20) 4 (123) (1) (281) 487 3,563
1
For all transfers to level 3 or out of level 3, the Bank determines and discloses as level 3 events only gains or losses through the last day of the reporting period.
478 / 479

Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
in    2017 2016
Trading
revenues
Other
revenues
Total
revenues
Trading
revenues
Other
revenues
Total
revenues
Gains and losses on assets and liabilities (CHF million)   
Net realized/unrealized gains/(losses) included in net revenues (1,509) (316) (1,825) 1 (116) (119) (235) 1
Whereof:
   Unrealized gains/(losses) relating    to assets and liabilities still held as of the reporting date    (2,088) 20 (2,068) 123 29 152
1
Excludes net realized/unrealized gains/(losses) attributable to foreign currency translation impact.
Quantitative information about level 3 assets at fair value

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Interest-bearing deposits with banks 0
Securities received as collateral 46
Debt 2,292
   of which corporates  1,412
      of which  387 Option model Correlation, in % (60) 98 55
      of which  545 Market comparable Price, in % 0 139 84
      of which  444 Discounted cash flow Credit spread, in bp 37 952 230
   of which RMBS  320 Discounted cash flow Discount rate, in % 1 24 11
  Prepayment rate, in % 1 36 10
  Default rate, in % 0 12 4
  Loss severity, in % 0 100 57
   of which CMBS  16 Discounted cash flow Capitalization rate, in % 14 14 14
  Discount rate, in % 8 16 14
  Prepayment rate, in % 0 5 4
   of which CDO  126 Discounted cash flow Discount rate, in % 5 13 8
  Prepayment rate, in % 5 20 13
  Credit spread, in bp 464 669 553
  Default rate, in % 2 5 3
  Loss severity, in % 0 80 34
Equity 163
      of which  67 Vendor price Price, in actuals 0 2,080 10
      of which  81 Market comparable EBITDA multiple 2 9 7
Price, in % 18 100 67
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
480

Quantitative information about level 3 assets at fair value (continued)

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Derivatives 3,289
   of which interest rate products  801 Option model Correlation, in % 20 100 72
  Prepayment rate, in % 6 34 17
  Volatility skew, in % (4) 1 (1)
   of which equity/index-related products  833 Option model Correlation, in % (60) 98 65
  Volatility, in % 0 105 64
  Buyback probability, in % 2 50 100 90
  Gap risk, in % 3 0 2 1
   of which credit derivatives  634 Discounted cash flow Credit spread, in bp 1 956 217
  Recovery rate, in % 0 45 20
  Discount rate, in % 3 50 16
  Default rate, in % 1 20 5
  Loss severity, in % 1 100 64
  Correlation, in % 97 97 97
  Prepayment rate, in % 0 14 6
Other 3,010
      of which  1,605 Market comparable Price, in % 0 110 23
      of which    1,095 Discounted cash flow Market implied life expectancy, in years 3 18 8
Trading assets 8,754
Investment securities 42
Private equity 29
Other equity investments 271
Life finance instruments 1,301 Discounted cash flow Market implied life expectancy, in years 2 18 6
Other investments 1,601
Loans 4,530
   of which commercial and industrial loans  2,207
      of which  1,924 Discounted cash flow Credit spread, in bp 89 1,116 420
      of which  250 Market comparable Price, in % 0 99 56
   of which financial institutions  1,480
      of which  1,426 Discounted cash flow Credit spread, in bp 43 1,430 371
Other intangible assets (mortgage servicing rights) 158
Other assets 1,511
   of which loans held-for-sale  1,350
      of which  849 Discounted cash flow Credit spread, in bp 117 973 292
  Recovery rate, in % 18 87 73
      of which  280 Market comparable Price, in % 0 102 88
Total level 3 assets at fair value  16,642
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Bank at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
481

Quantitative information about level 3 assets at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Interest-bearing deposits with banks 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 174 Discounted cash flow Funding spread, in bp 10 450 259
Securities received as collateral 70
Debt 3,977
   of which corporates  1,674
      of which  448 Option model Correlation, in % (85) 98 23
      of which  817 Market comparable Price, in % 0 117 86
      of which  101 Discounted cash flow Credit spread, in bp 3 1,004 308
   of which RMBS  605
      of which  445 Discounted cash flow Discount rate, in % 0 47 8
  Prepayment rate, in % 2 30 12
  Default rate, in % 0 10 3
  Loss severity, in % 0 100 43
      of which  120 Market comparable Price, in % 21 30 26
   of which CMBS  65 Discounted cash flow Capitalization rate, in % 8 9 9
  Discount rate, in % 2 27 10
  Prepayment rate, in % 0 15 9
   of which CDO  1,165
      of which  195 Discounted cash flow Discount rate, in % 7 27 15
  Prepayment rate, in % 0 30 10
  Credit spread, in bp 328 328 328
  Default rate, in % 0 5 2
  Loss severity, in % 3 100 45
      of which  851 Market comparable Price, in % 208 208 208
Equity 240 Market comparable EBITDA multiple 3 8 6
  Price, in % 0 100 70
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
482

Quantitative information about level 3 assets at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Derivatives 4,305
   of which interest rate products  748 Option model Correlation, in % 20 100 65
  Prepayment rate, in % 1 32 16
  Volatility skew, in % (7) 1 (2)
   of which equity/index-related products  914 Option model Correlation, in % (85) 98 21
  Volatility, in % 2 180 32
  Buyback probability, in % 2 50 100 62
  Gap risk, in % 3 0 2 1
   of which credit derivatives  688 Discounted cash flow Credit spread, in bp 0 1,635 396
  Recovery rate, in % 0 45 10
  Discount rate, in % 1 45 21
  Default rate, in % 0 33 5
  Loss severity, in % 15 100 69
  Correlation, in % 97 97 97
  Prepayment rate, in % 0 13 5
Other 4,243
      of which  3,005 Market comparable Price, in % 0 116 39
      of which    882 Discounted cash flow Market implied life expectancy, in years 3 19 8
Trading assets 12,765
Investment securities 72
Private equity 8
Other equity investments 310
Life finance instruments 1,588 Discounted cash flow Market implied life expectancy, in years 2 19 6
Other investments 1,906
Loans 6,585
   of which commercial and industrial loans  3,816
      of which  2,959 Discounted cash flow Credit spread, in bp 5 5,400 544
      of which  852 Market comparable Price, in % 0 100 51
   of which financial institutions  1,829
      of which  1,588 Discounted cash flow Credit spread, in bp 67 952 342
      of which  149 Market comparable Price, in % 0 550 483
Other intangible assets (mortgage servicing rights) 138
Other assets 1,679
   of which loans held-for-sale  1,316
      of which  760 Discounted cash flow Credit spread, in bp 117 1,082 334
  Recovery rate, in % 6 100 74
      of which  356 Market comparable Price, in % 0 102 78
Total level 3 assets at fair value  23,390
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Bank at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values occuring between collateral settlement dates.
483

Quantitative information about level 3 liabilities at fair value

end of 2017

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Customer deposits 455
Obligation to return securities received as collateral 46
Trading liabilities 3,226
   of which interest rate derivatives  317
      of which  205 Option model Basis spread, in bp (25) 52 19
  Correlation, in % 20 100 60
  Prepayment rate, in % 6 34 9
      of which  81 Market comparable Price, in % 1 102 44
   of which foreign exchange derivatives  100
      of which  64 Option model Correlation, in % (10) 70 51
  Prepayment rate, in % 27 34 30
      of which  7 Discounted cash flow Contingent probability, in % 95 95 95
   of which equity/index-related derivatives  1,301
      of which  947 Option model Correlation, in % (60) 98 55
  Volatility, in % 0 105 25
  Buyback probability, in % 2 50 100 90
      of which  62 Vendor price Price, in actuals 0 53 18
   of which credit derivatives  898 Discounted cash flow Credit spread, in bp 2 973 172
  Discount rate, in % 3 50 16
  Default rate, in % 1 20 5
  Recovery rate, in % 10 60 38
  Loss severity, in % 25 100 67
  Correlation, in % 38 85 54
Prepayment rate, in % 0 20 7
Term TRS/repo spread, in bp 176 176 176
Short-term borrowings 845
      of which  288 Option model Correlation, in % (40) 98 60
Volatility, in % 4 105 26
      of which  527 Discounted cash flow Credit spread, in bp 2 278 175
Recovery rate, in % 25 40 29
      of which  24 Market comparable Price, in % 11 47 47
Long-term debt 12,501
   of which structured notes over two years  12,259
      of which  9,739 Option model Correlation, in % (60) 99 55
  Volatility, in % 0 105 21
  Buyback probability, in % 2 50 100 90
  Gap risk, in % 3 0 2 1
  Mean reversion, in % 4 (14) (1) (6)
      of which  1,571 Discounted cash flow Credit spread, in bp 2 729 105
Other liabilities 1,467
   of which failed sales  223
      of which  122 Market comparable Price, in % 0 100 51
      of which  25 Discounted cash flow Credit spread, in bp 1,430 1,430 1,430
Total level 3 liabilities at fair value  18,540
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Estimate of the probability of structured notes being put back to the Bank at the option of the investor over the remaining life of the financial instruments.
3
Risk of unexpected large declines in the underlying values between collateral settlement dates.
4
Management's best estimate of the speed at which interest rates will revert to the long-term average.
484

Quantitative information about level 3 liabilities at fair value (continued)

end of 2016

Fair value
Valuation
technique
Unobservable
input
Minimum
value
Maximum
value
Weighted
average
1
CHF million, except where indicated   
Customer deposits 410
Obligation to return securities received as collateral 70
Trading liabilities 3,737
   of which interest rate derivatives  538 Option model Basis spread, in bp (2) 66 33
  Correlation, in % 20 100 57
  Prepayment rate, in % 1 32 9
  Gap risk, in % 2 20 20 20
  Funding spread, in bp 237 237 237
   of which foreign exchange derivatives  150
      of which  65 Option model Correlation, in % (10) 70 49
  Prepayment rate, in % 22 32 27
      of which  69 Discounted cash flow Contingent probability, in % 95 95 95
   of which equity/index-related derivatives  1,181 Option model Correlation, in % (85) 98 23
  Volatility, in % 2 180 28
  Buyback probability, in % 3 50 100 62
   of which credit derivatives  851 Discounted cash flow Credit spread, in bp 0 1,635 163
  Discount rate, in % 2 45 21
  Default rate, in % 0 33 5
  Recovery rate, in % 20 60 35
  Loss severity, in % 15 100 70
  Correlation, in % 43 85 63
Prepayment rate, in % 0 13 5
Short-term borrowings 516
Long-term debt 13,415
   of which structured notes over two years  12,434
      of which  12,008 Option model Correlation, in % (85) 99 23
  Volatility, in % 0 180 23
  Buyback probability, in % 3 50 100 62
  Gap risk, in % 2 0 2 1
  Mean reversion, in % 4 (14) (1) (6)
      of which  286 Discounted cash flow Credit spread, in bp 1 452 89
Other liabilities 1,679
   of which failed sales  219
      of which  163 Market comparable Price, in % 0 100 68
      of which  39 Discounted cash flow Discount rate, in % 11 29 21
Total level 3 liabilities at fair value  19,827
1
Cash instruments are generally presented on a weighted average basis, while certain derivative instruments either contain a combination of weighted averages and arithmetic means of the related inputs or are presented on an arithmetic mean basis.
2
Risk of unexpected large declines in the underlying values between collateral settlement dates.
3
Estimate of the probability of structured notes being put back to the Bank at the option of the investor over the remaining life of the financial instruments.
4
Management's best estimate of the speed at which interest rates will revert to the long-term average.
485

Fair value, unfunded commitments and term of redemption conditions
end of    2017 2016

Non-
redeemable


Redeemable

Total
fair value
Unfunded
commit-
ments

Non-
redeemable


Redeemable

Total
fair value
Unfunded
commit-
ments
Fair value and unfunded commitments (CHF million)   
   Debt funds  0 0 0 0 0 0 0 0
   Equity funds  61 992 1 1,053 0 65 1,281 1 1,346 0
   Equity funds sold short  0 (9) (9) 0 0 (1) (1) 0
Total funds held in trading assets and liabilities 61 983 1,044 0 65 1,280 1,345 0
   Debt funds  164 75 239 0 215 77 292 0
   Equity funds  2 53 55 0 2 51 53 0
   Others  2 95 97 9 0 201 201 0
Hedge funds 168 223 3 391 9 217 329 3 546 0
   Debt funds  1 0 1 0 5 0 5 20
   Equity funds  133 0 133 63 232 0 232 41
   Real estate funds  178 0 178 44 212 0 212 50
   Others  31 0 31 16 117 0 117 58
Private equities 343 0 343 123 566 0 566 169
Equity method investments 71 1,050 1,121 5 349 635 984 218
Total funds held in other investments 582 1,273 1,855 137 1,132 964 2,096 387
Total fair value  643 5 2,256 6 2,899 137 7 1,197 5 2,244 6 3,441 387 7
1
54% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 35% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 9% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 2% is redeemable on an annual basis with a notice period primarily of more than 60 days.
2
58% of the redeemable fair value amount of equity funds is redeemable on demand with a notice period primarily of less than 30 days, 23% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 17% is redeemable on a quarterly basis with a notice period primarily of more than 45 days, and 2% is redeemable on an annual basis with a notice period of more than 60 days.
3
51% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 45 days, 43% is redeemable on a monthly basis with a notice period primarily of less than 30 days, and 6% is redeemable on demand with a notice period primarily of less than 30 days.
4
68% of the redeemable fair value amount of hedge funds is redeemable on a quarterly basis with a notice period primarily of more than 60 days, 26% is redeemable on a monthly basis with a notice period primarily of less than 30 days, 5% is redeemable on demand with a notice period primarily of less than 30 days, and 1% is redeemable on an annual basis with a notice period primarily of more than 45 days.
5
Includes CHF 229 million and CHF 334 million attributable to noncontrolling interests in 2017 and 2016, respectively.
6
Includes CHF 167 million and CHF 231 million attributable to noncontrolling interests in 2017 and 2016, respectively.
7
Includes CHF 53 million and CHF 88 million attributable to noncontrolling interests in 2017 and 2016, respectively.
Nonrecurring fair value changes
end of 2017 2016
Assets held-for-sale recorded at fair value on a nonrecurring basis (CHF billion)   
Assets held-for-sale recorded at fair value on a nonrecurring basis  0.1 0.1
   of which level 2  0.1 0.1
486

Difference between the aggregate fair value and the aggregate unpaid principal balances of loans and financial instruments
end of    2017 2016
Aggregate
fair
value
Aggregate
unpaid
principal


Difference
Aggregate
fair
value
Aggregate
unpaid
principal


Difference
Loans (CHF million)   
Non-interest-earning loans 708 3,375 (2,667) 1,276 4,495 (3,219)
Financial instruments (CHF million)   
Interest-bearing deposits with banks 0 0 0 26 25 1
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 77,498 76,643 855 87,331 87,208 123
Loans 15,307 15,372 (65) 19,528 20,144 (616)
Other assets 1 8,468 10,910 (2,442) 8,369 11,296 (2,927)
Due to banks and customer deposits (907) (861) (46) (1,120) (1,059) (61)
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (15,262) (15,180) (82) (19,634) (19,638) 4
Short-term borrowings (11,019) (11,104) 85 (4,061) (4,017) (44)
Long-term debt (62,622) (62,813) 191 (71,970) (75,106) 3,136
Other liabilities (661) (1,716) 1,055 (727) (2,331) 1,604
1
Primarily loans held-for-sale.
Gains and losses on financial instruments
in    2017 2016 2015
Net
gains/
(losses)
Net
gains/
(losses)
Net
gains/
(losses)
Financial instruments (CHF million)   
Interest-bearing deposits with banks 13 1 4 1 (38) 2
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 1,493 1 1,440 1 1,279 1
Other investments 215 2 214 2 240 3
   of which related to credit risk  (4) (3) 0
Loans 1,542 1 1,643 1 439 1
   of which related to credit risk  7 (16) (236)
Other assets 480 1 (507) 2 111 1
   of which related to credit risk  96 (200) (511)
Due to banks and customer deposits 1 2 (12) 1 4 2
   of which related to credit risk  5 (22) 19
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (118) 1 (112) 1 55 2
Short-term borrowings (512) 2 323 2 439 2
Long-term debt (6,615) 2 (1,136) 2 5,398 2
   of which related to credit risk  (32) 22 224 4
Other liabilities 181 3 443 2 314 3
   of which related to credit risk  88 312 (95)
1
Primarily recognized in net interest income.
2
Primarily recognized in trading revenues.
3
Primarily recognized in other revenues.
4
Changes in fair value related to credit risk are due to the change in the Bank's own credit spreads. Other changes in fair value are attributable to changes in foreign currency exchange rates and interest rates, as well as movements in the reference price or index for structured notes.
487

Own credit gains/(losses) on fair value option elected instruments recorded in AOCI
        

Gains/(losses) recorded into AOCI
1 Gains/(losses) recorded
in AOCI transferred
to net income
1
in 2017 Cumulative 2016 2017 2016
Financial instruments (CHF million)   
Deposits (15) (50) (36) 0 0
Short-term borrowings (63) (63) (1) 0 0
Long-term debt (1,768) (2,429) (1,187) 32 0
   of which treasury debt over two years  (513) (544) (271) 0 0
   of which structured notes over two years  (1,246) (1,872) (892) 27 0
Total  (1,846) (2,542) (1,224) 32 0
1
Amounts are reflected gross of tax.
Carrying value and fair value of financial instruments not carried at fair value
      Carrying
value

Fair value
end of Level 1 Level 2 Level 3 Total
2017 (CHF million)
Financial assets 
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 37,848 0 37,848 0 37,848
Loans 264,181 0 268,380 3,212 271,592
Other financial assets 1 170,687 109,414 60,518 1,108 171,040
Financial liabilities 
Due to banks and deposits 374,006 202,164 171,831 0 373,995
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 11,233 0 11,233 0 11,233
Short-term borrowings 15,359 0 15,359 0 15,359
Long-term debt 109,420 0 112,564 235 112,799
Other financial liabilities 2 61,701 0 61,543 146 61,689
2016 (CHF million)
Financial assets 
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions 47,797 0 47,797 0 47,797
Loans 259,211 0 262,766 4,602 267,368
Other financial assets 1 175,011 122,217 51,710 1,435 175,362
Financial liabilities 
Due to banks and deposits 383,289 200,534 182,803 0 383,337
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions 13,671 0 13,671 0 13,671
Short-term borrowings 11,324 0 11,327 0 11,327
Long-term debt 120,525 0 122,290 521 122,811
Other financial liabilities 2 62,436 1,595 60,720 117 62,432
1
Primarily includes cash and due from banks, interest-bearing deposits with banks, brokerage receivables, loans held-for-sale, cash collateral on derivative instruments, interest and fee receivables and non-marketable equity securities.
2
Primarily includes brokerage payables, cash collateral on derivative instruments and interest and fee payables.
488

34 Assets pledged and collateral
Assets pledged
The Bank pledges assets mainly for repurchase agreements and other securities financing. Certain pledged assets may be encumbered, meaning they have the right to be sold or repledged. The encumbered assets are parenthetically disclosed on the consolidated balance sheet.
Assets pledged
end of 2017 2016
Assets pledged (CHF million)   
Total assets pledged or assigned as collateral 130,038 122,811
   of which encumbered  73,189 83,478
Collateral
The Bank receives cash and securities in connection with resale agreements, securities borrowing and loans, derivative transactions and margined broker loans. A significant portion of the collateral and securities received by the Bank was sold or repledged in connection with repurchase agreements, securities sold not yet purchased, securities borrowings and loans, pledges to clearing organizations, segregation requirements under securities laws and regulations, derivative transactions and bank loans.
Collateral
end of 2017 2016
Collateral (CHF million)   
Fair value of collateral received with the right to sell or repledge 433,190 402,702
   of which sold or repledged  212,155 184,078
Other information
end of 2017 2016
Other information (CHF million)   
Cash and securities restricted under foreign banking regulations 26,928 27,590
Swiss National Bank required minimum liquidity reserves 2,043 2,001
> Refer to “Note 35 – Assets pledged and collateral” in VI – Consolidated financial statements – Credit Suisse Group for further information.
489

35 Capital adequacy
Effective January 1, 2013, the >>>Basel III framework was implemented in Switzerland along with the Swiss >>>“Too Big to Fail” legislation and regulations thereunder (Swiss Requirements). The Bank, which is subject to regulation by >>>FINMA, has based its capital adequacy calculations on US GAAP financial statements, as permitted by FINMA Circular 2013/1.
As of December 31, 2017 and 2016, the Bank’s current capital position exceeds its capital requirements under the regulatory provisions outlined under Swiss Requirements.
> Refer to “Note 36 – Capital adequacy” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Broker-dealer operations
Certain of the Bank’s broker-dealer subsidiaries are also subject to capital adequacy requirements. As of December 31, 2017 and 2016, the Bank and its subsidiaries complied with all applicable regulatory capital adequacy requirements.
Dividend restrictions
Certain of the Bank’s subsidiaries are subject to legal restrictions governing the amount of dividends they can pay (for example, pursuant to corporate law as defined by the Swiss Code of Obligations).
As of December 31, 2017 and 2016, Credit Suisse AG was not subject to restrictions on its ability to pay the proposed dividends.
Swiss capital and leverage metrics
   Phase-in
end of 2017 2016
Swiss capital (CHF million)   
Swiss CET1 capital 38,288 37,196
Going concern capital 53,995 52,344
Gone concern capital 35,771 26,904
Total loss-absorbing capacity (TLAC) 89,766 79,248
Swiss risk-weighted assets and leverage exposure (CHF million)   
Swiss risk-weighted assets 273,332 271,359
Leverage exposure 921,793 958,296
Swiss capital ratios (%)   
Swiss CET1 ratio 14.0 13.7
Going concern capital ratio 19.8 19.3
Gone concern capital ratio 13.1 9.9
TLAC ratio 32.8 29.2
Swiss leverage ratios (%)   
Swiss CET1 leverage ratio 4.2 3.9
Going concern leverage ratio 5.9 5.5
Gone concern leverage ratio 3.9 2.8
TLAC leverage ratio 9.7 8.3
Swiss capital ratio requirements (%)   
Swiss CET1 ratio requirement 9.0 8.125
Going concern capital ratio requirement 12.0 10.75
Gone concern capital ratio requirement 6.2 3.5
TLAC ratio requirement 18.2 14.25
Swiss leverage ratio requirements (%)   
Swiss CET1 leverage ratio requirement 2.6 2.3
Going concern leverage ratio requirement 3.5 3.0
Gone concern leverage ratio requirement 2.0 1.0
TLAC leverage ratio requirement 5.5 4.0
490

36 Assets under management
The following disclosure provides information regarding client assets, assets under management and net new assets as regulated by the >>>FINMA.
> Refer to “Note 37 – Assets under management” in VI – Consolidated financial statements – Credit Suisse Group for further information.
Assets under management
end of 2017 2016
Assets under management (CHF billion)   
Assets in collective investment instruments managed by Credit Suisse 177.4 158.5
Assets with discretionary mandates 267.3 238.6
Other assets under management 923.6 846.8
Assets under management (including double counting)  1,368.3 1,243.9
   of which double counting  44.6 31.3
Changes in assets under management
2017 2016
Assets under management (CHF billion)   
Assets under management at beginning of period 1 1,243.9 1,214.1
Net new assets/(net asset outflows) 36.2 26.3
Market movements, interest, dividends and foreign exchange 87.6 34.7
   of which market movements, interest and dividends 2 89.8 16.2
   of which foreign exchange  (2.2) 18.5
Other effects 0.6 (31.2)
Assets under management at end of period  1,368.3 1,243.9
1
Including double counting.
2
Net of commissions and other expenses and net of interest expenses charged.
37 Litigation
> Refer to “Note 38 – Litigation” in VI – Consolidated financial statements – Credit Suisse Group for further information.
491

38 Significant subsidiaries and equity method investments
Significant subsidiaries
Equity
interest
in %


Company name


Domicile


Currency
Nominal
capital
in million
as of December 31, 2017      
Credit Suisse AG
100 AJP Cayman Ltd. George Town, Cayman Islands JPY 8,025.6
100 Alpine Securitization LTD George Town, Cayman Islands USD 0.0
100 Asset Management Finance LLC Wilmington, United States USD 341.8
100 Banco Credit Suisse (Brasil) S.A. São Paulo, Brazil BRL 53.6
100 Banco Credit Suisse (México), S.A. Mexico City, Mexico MXN 1,716.7
100 Banco de Investimentos Credit Suisse (Brasil) S.A. São Paulo, Brazil BRL 164.8
100 BANK-now AG Horgen, Switzerland CHF 30.0
100 Boston Re Ltd. Hamilton, Bermuda USD 2.0
100 Column Financial, Inc. Wilmington, United States USD 0.0
100 Credit Suisse (Australia) Limited Sydney, Australia AUD 34.1
100 Credit Suisse (Brasil) S.A. Corretora de Titulos e Valores Mobiliários São Paulo, Brazil BRL 98.4
100 Credit Suisse (Deutschland) Aktiengesellschaft Frankfurt, Germany EUR 130.0
100 Credit Suisse (Hong Kong) Limited Hong Kong, China HKD 13,758.0
100 Credit Suisse (Italy) S.p.A. Milan, Italy EUR 139.6
100 Credit Suisse (Luxembourg) S.A. Luxembourg, Luxembourg CHF 230.9
100 Credit Suisse (Qatar) LLC Doha, Qatar USD 29.0
100 Credit Suisse (Schweiz) AG Zurich, Switzerland CHF 100.0
100 Credit Suisse (Singapore) Limited Singapore, Singapore SGD 743.3
100 Credit Suisse (UK) Limited London, United Kingdom GBP 245.2
100 Credit Suisse (USA), Inc. Wilmington, United States USD 0.0
100 Credit Suisse Asset Management (UK) Holding Limited London, United Kingdom GBP 144.2
100 Credit Suisse Asset Management Immobilien Kapitalanlagegesellschaft GmbH Frankfurt, Germany EUR 6.1
100 Credit Suisse Asset Management International Holding Ltd Zurich, Switzerland CHF 20.0
100 Credit Suisse Asset Management Investments Ltd Zurich, Switzerland CHF 0.1
100 Credit Suisse Asset Management Limited London, United Kingdom GBP 45.0
100 Credit Suisse Asset Management, LLC Wilmington, United States USD 1,086.8
100 Credit Suisse Atlas I Investments (Luxembourg) S.à.r.l. Luxembourg, Luxembourg USD 0.0
100 Credit Suisse Business Analytics (India) Private Limited Mumbai, India INR 40.0
100 Credit Suisse Capital LLC Wilmington, United States USD 937.6
100 Credit Suisse Energy LLC Wilmington, United States USD 0.0
100 Credit Suisse Equities (Australia) Limited Sydney, Australia AUD 62.5
100 Credit Suisse Finance (India) Private Limited Mumbai, India INR 1,050.1
100 Credit Suisse First Boston (Latam Holdings) LLC George Town, Cayman Islands USD 23.8
100 Credit Suisse First Boston Finance B.V. Amsterdam, The Netherlands EUR 0.0
100 Credit Suisse First Boston Mortgage Capital LLC Wilmington, United States USD 356.6
492

Significant subsidiaries (continued)
Equity
interest
in %


Company name


Domicile


Currency
Nominal
capital
in million
100 Credit Suisse First Boston Next Fund, Inc. Wilmington, United States USD 10.0
100 Credit Suisse Fund Management S.A. Luxembourg, Luxembourg CHF 0.3
100 Credit Suisse Fund Services (Luxembourg) S.A. Luxembourg, Luxembourg CHF 1.5
100 Credit Suisse Funds AG Zurich, Switzerland CHF 7.0
100 Credit Suisse Group Finance (U.S.) Inc. Wilmington, United States USD 100.0
100 Credit Suisse Hedging-Griffo Corretora de Valores S.A. São Paulo, Brazil BRL 29.6
100 Credit Suisse Holding Europe (Luxembourg) S.A. Luxembourg, Luxembourg CHF 32.6
100 Credit Suisse Holdings (Australia) Limited Sydney, Australia AUD 42.0
100 1 Credit Suisse Holdings (USA), Inc. Wilmington, United States USD 550.0
100 Credit Suisse InvestLab AG Zurich, Switzerland CHF 1.0
100 Credit Suisse Istanbul Menkul Degerler A.S. Istanbul, Turkey TRY 6.8
100 Credit Suisse Leasing 92A, L.P. Wilmington, United States USD 43.9
100 Credit Suisse Life & Pensions AG Vaduz, Liechtenstein CHF 15.0
100 Credit Suisse Life (Bermuda) Ltd. Hamilton, Bermuda USD 1.0
100 Credit Suisse Loan Funding LLC Wilmington, United States USD 0.0
100 Credit Suisse Management LLC Wilmington, United States USD 896.4
100 Credit Suisse Prime Securities Services (USA) LLC Wilmington, United States USD 263.3
100 Credit Suisse Principal Investments Limited George Town, Cayman Islands JPY 3,324.0
100 Credit Suisse Private Equity, LLC Wilmington, United States USD 42.2
100 Credit Suisse PSL GmbH Zurich, Switzerland CHF 0.0
100 Credit Suisse Saudi Arabia Riyadh, Saudi Arabia SAR 625.0
100 Credit Suisse Securities (Canada), Inc. Toronto, Canada CAD 3.4
100 Credit Suisse Securities (Europe) Limited London, United Kingdom USD 3,859.3
100 Credit Suisse Securities (Hong Kong) Limited Hong Kong, China HKD 2,080.9
100 Credit Suisse Securities (India) Private Limited Mumbai, India INR 2,214.7
100 Credit Suisse Securities (Japan) Limited Tokyo, Japan JPY 78,100.0
100 Credit Suisse Securities (Johannesburg) Proprietary Limited Johannesburg, South Africa ZAR 0.0
100 Credit Suisse Securities (Malaysia) Sdn. Bhd. Kuala Lumpur, Malaysia MYR 100.0
100 Credit Suisse Securities (Moscow) Moscow, Russia RUB 97.1
100 Credit Suisse Securities (Singapore) Pte Limited Singapore, Singapore SGD 30.0
100 Credit Suisse Securities (Thailand) Limited Bangkok, Thailand THB 500.0
100 Credit Suisse Securities (USA) LLC Wilmington, United States USD 1,131.7
100 Credit Suisse Services (India) Private Limited Pune, India INR 0.1
100 Credit Suisse Services (USA) LLC Wilmington, United States USD 0.0
100 CS Non-Traditional Products Ltd. Nassau, Bahamas USD 0.1
100 CSAM Americas Holding Corp. Wilmington, United States USD 0.0
100 DLJ Merchant Banking Funding, Inc Wilmington, United States USD 0.0
100 DLJ Mortgage Capital, Inc. Wilmington, United States USD 0.0
100 Fides Treasury Services AG Zurich, Switzerland CHF 2.0
100 JSC "Bank Credit Suisse (Moscow)" Moscow, Russia USD 37.8
100 Merban Equity AG Zug, Switzerland CHF 0.1
100 Merchant Holding, LLC Wilmington, United States USD 0.0
100 Neue Argauer Bank AG Aarau, Switzerland CHF 134.1
100 Solar Investco II Ltd. George Town, Cayman Islands USD 0.0
100 SPS Holding Corporation Wilmington, United States USD 0.0
100 SVC - AG für KMU Risikokapital Zurich, Switzerland CHF 15.0
99 PT Credit Suisse Sekuritas Indonesia Jakarta, Indonesia IDR 235,000.0
98 Credit Suisse Hypotheken AG Zurich, Switzerland CHF 0.1
98 2 Credit Suisse International London, United Kingdom USD 12,366.1
1
43% of voting rights held by Credit Suisse Group AG, Guernsey Branch.
2
Remaining 2% held directly by Credit Suisse Group AG. 98% of voting rights and 98% of equity interest held by Credit Suisse AG.
493

Significant equity method investments
Equity
interest
in %


Company name


Domicile
as of December 31, 2017      
Credit Suisse AG
50 Swisscard AECS GmbH Horgen, Switzerland
33 Credit Suisse Founder Securities Limited Beijing, China
23 E.L. & C. Baillieu Stockbroking (Holdings) Pty Ltd Melbourne, Australia
20 ICBC Credit Suisse Asset Management Co., Ltd. Beijing, China
5 1 York Capital Management Global Advisors, LLC New York, United States
0 1 Holding Verde Empreendimentos e Participações S.A. São Paulo, Brazil
1
The Bank holds a significant noncontrolling interest.
39 Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)
> Refer to “Note 42 – Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)” in VI – Consolidated financial statements – Credit Suisse Group for further information.
494

Controls and procedures
Evaluation of disclosure controls and procedures
The Bank has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report under the supervision and with the participation of management, including the Bank Chief Executive Officer (CEO) and Chief Financial Officer (CFO), pursuant to Rule 13(a)-15(a) under the Securities Exchange Act of 1934 (the Exchange Act). There are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives.
The CEO and CFO concluded that, as of December 31, 2017, the design and operation of the Bank’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required.
Management report on internal control over financial reporting
The management of the Bank is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management has made an evaluation and assessment of the Bank’s internal control over financial reporting as of December 31, 2017 using the criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework”.
Based upon its review and evaluation, management, including the Bank CEO and CFO, has concluded that the Bank’s internal control over financial reporting is effective as of December 31, 2017.
The Bank’s independent auditors, KPMG AG, have issued an unqualified opinion on the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2017, as stated in their report, which follows.
Changes in internal control over financial reporting
There were no changes in the Bank’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
495

Report of the Independent Registered Public Accounting Firm
Report of the Independent Registered Public Accounting FirmTo the shareholders and Board of DirectorsCredit Suisse AG, Zurich____________________________________________________________________________Opinion on Internal Control Over Financial ReportingWe have audited Credit Suisse AG and subsidiaries' (the “Bank”) internal control over financial reporting as of December 31, 2017, based oncriteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Bank as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the threeyear period ended December31, 2017, and the related notes (collectively, the “consolidated financial statements”), and our report dated March 23, 2018 expressed an unqualified opinion on those consolidated financial statements.Basis for Opinion The Bank’s Board of Directors and management are responsible for maintaining effective internal control over financial reporting and the Bank’s management is responsible for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.KPMG AGNicholas EdmondsAnthony AnzevinoLicensed Audit ExpertGlobal Lead PartnerAuditor in ChargeZurich, SwitzerlandMarch 23, 2018


496


Parent company financial statements – Credit Suisse (Bank)
Report of the Statutory Auditor
Parent company financial statements
Notes to the financial statements
Proposed appropriation of retained earnings

497



Statements of income
Balance sheets
Off-balance sheet transactions
Statement of changes in equity
1 Business activities, developments and subsequent events
2 Accounting and valuation principles
3 Risk management, use of derivative financial instruments and hedge accounting
4 Net income from interest activities
5 Net income/(loss) from trading activities and fair value option
6 Personnel expenses
7 General and administrative expenses
8 Increase/(release) of provisions and other valuation adjustments, losses and extraordinary income and expenses
9 Taxes
10 Assets and liabilities from securities lending and borrowing, repurchase and reverse repurchase agreements
11 Collateral and impaired loans
12 Trading assets and liabilities and other financial instruments held at fair value
13 Derivative financial instruments
14 Financial investments
15 Other assets and other liabilities
16 Assets pledged
17 Pension plans
18 Issued structured products
19 Unsecured senior debt and structured notes
20 Provisions and valuation adjustments
21 Composition of share capital, conversion and reserve capital
22 Significant shareholders and groups of shareholders
23 Shareholdings of the Board of Directors, Executive Board and employees and information on compensation plans
24 Amounts receivable from and amounts payable to related parties
25 Total assets by country rating
26 Fiduciary transactions
27 Assets under management


498

Report of the Statutory Auditor
Report of the Statutory AuditorTo the General Meeting of Credit Suisse AG, ZurichReport of the Statutory Auditor on the Financial StatementsAs statutory auditor, we have audited the accompanying financial statements of Credit Suisse AG, which comprise the balance sheet, statement of income, statement of changes in equity and notes for the year ended December 31, 2017.Board of Directors’ ResponsibilityThe Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and Credit Suisse AG’s articles of association. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements for the year ended December 31, 2017, comply with Swiss law and Credit Suisse AG’s articles of association.Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight AuthorityValuation of financial instruments reported at fair valueProvisions for litigation and regulatory actionsValuation of the allowance for loan lossesValuation of participationsKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.Valuation of financial instruments reported at fair valueKey Audit MatterOur responseCredit Suisse AG reports financial assets reported at fair value of CHF 80.6 billion and financial liabilities reported at fair value of CHF 98.7 billion as of December 31, 2017. These financial assets represented 14.0% of total assets and these financial liabilities represented 18.7% of total liabilities as of December 31, 2017.The fair value of the majority of Credit Suisse AG’s financial instruments is based on quoted prices in active markets or observable inputs.In addition, Credit Suisse AG holds financial instruments for which no prices are available and which have little or no observable inputs. For these financial instruments, fair value is determined through the application of valuation techniques, which often involve the exercise of judgment by management including the use of assumptions and estimates. In particular, for financial instruments which do not have directly observable market prices, judgment is often required to determine modelling assumptions that are used in the determination of fair value. Credit Suisse AG also has certain financial instruments that utilize significant, judgmental inputs with varying degrees of observability for purposes of determining fair value. Further, Credit Suisse AG applies significant judgment in calculating certain valuation adjustments including credit, debit and funding valuation adjustments.We assessed and tested the design and operating effectiveness of the key controls over financial reporting with respect to the valuation of financial instruments reported at fair value. This included controls over independent price verification, valuation model approval and the calculation, validation and recording of valuation adjustments.For a sample of financial instruments, we examined the appropriateness of models used and valuation inputs or data. We compared observable inputs and data against independent sources and externally available market data.For a sample of instruments which do not have directly observable market prices, we critically examined and challenged the assumptions and models used or re-performed an independent valuation assessment, by reference to what we considered to be available alternative methods and sensitivities to key factors.We also evaluated the methodology and inputs used in determining key judgmental valuation adjustments (including credit, debit, and funding valuation adjustments) by critically examining and challenging these assumptions and models, and performing recalculations for a sample of these adjustments.We made use of our own valuation specialists in performing the above procedures, in particular in relation to the most judgmental financial instruments, models, methodologies and assumptions.For further information on the valuation of financial instruments reported at fair value refer to the following:Note 2 Accounting and valuation principles, “Trading assets and liabilities”Note 12 Trading assets and liabilities and other financial instruments held at fair valueNote 13 Derivative financial instrumentsProvisions for litigation and regulatory actionsKey Audit MatterOur responseCredit Suisse AG is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses. The outcome of such cases is dependent on the future outcome of continuing legal and regulatory processes. Consequently, the calculations of the provisions are subject to inherent uncertainty as they rely on management judgment about the likelihood and amount of liabilities arising from litigation and regulatory claims.We assessed and tested the design and operating effectiveness of the key controls over financial reporting with respect to provisions for litigation and regulatory actions. This included controls over the valuation of the litigation provisions and their approval, review and disclosure.We evaluated Credit Suisse AG’s assessment of the nature and status of litigation, claims and regulatory actions. We considered the legal advice received by Credit Suisse AG from in-house counsel, as well as external counsel, when relevant, for certain of the more significant cases.We examined Credit Suisse AG’s conclusions with respect to the provisions and disclosures made for significant cases, considering the results of corroborative information obtained from management. In view of the significance of the judgments required, we examined the more significant provisions in detail. For the significant cases, we obtained correspondence directly from Credit Suisse AG’s outside attorneys and, where appropriate, performed corroborative inquiry of outside counsel and tested data and inputs used by management in determining their litigation provisions.For further information on provisions for litigation and regulatory actions refer to the following:Note 2 Accounting and valuation principles, “Provisions”Note 20 Provisions and valuation adjustmentsValuation of the allowance for loan lossesKey Audit MatterOur responseCredit Suisse AG reports gross loans held at amortized cost of CHF 199.1 billion and has recorded an allowance for loan losses of CHF 0.9 billion as of December 31, 2017.The valuation of the allowance for loan losses relies on the application of significant management judgment and the use of different modelling techniques and assumptions. The specific allowance for loan losses involves judgment to estimate the recoverable amount and the collateral value. The collective allowance for loan losses involves judgment in determining the methodology and parameters in calculating the allowance at a portfolio level.We assessed and tested the design and operating effectiveness of the key controls over financial reporting with respect to the valuation of the allowance for loan losses. This included controls over the calculation, approval, recording and monitoring of the allowance for loan losses. This also included controls over model approval, validation and approval of key data inputs and the qualitative considerations for potential impairment that were not captured by management’s models.For a sample of loan loss allowances calculated on an individual basis we tested the assumptions underlying the impairment identification and quantification including forecasts of future cash flows, valuation of underlying collateral and estimates of recovery on default. We also examined a sample of loans which had not been identified by management as impaired and formed our own opinion about collectability.For a sample of loan loss allowances calculated on a collective basis we tested the underlying models including the model approval and validation process. We also tested the reasonableness of the inputs to those models, such as recovery rates, by comparing data and assumptions made to external benchmarks, when available. For further information on the valuation of allowance for loan losses refer to the following:Note 2 Accounting and valuation principles, “Due from customers and mortgage loans”Note 3 Risk management, “Credit Risk”Note 11 Collateral and impaired loansValuation of participationsKey Audit MatterOur responseCredit Suisse AG reports participations of CHF 75.4 billion as of December 31, 2017. The participations portfolio consists of investments in subsidiary entities mainly operating in the banking and finance industry.Participations are valued at acquisition cost less impairment. For the purpose of impairment testing, the portfolio valuation method is applied, and therefore impairment is assessed on the level of the entire portfolio of participations and not individually for each participation. The valuation of participations involves judgment in the projections and assumptions used, which are sensitive to the expected future market developments that could affect the profitability of these entities.We assessed and tested the design and implementation of the key controls over financial reporting with respect to the valuation of participations. This included controls over the identification and measurement of impairments, the evaluation of the valuation methodology, key inputs and assumptions used in the determination of the participation value, and management’s annual comparison of legal entity plans to past performance.For a sample of participations, we evaluated key assumptions applied in performing the valuation. We used our own valuation specialists to critically examine and challenge the key assumptions applied by benchmarking them against independent data.For further information on the valuation of participations refer to the following:Note 2 Accounting and valuation principles, “Participations”Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.We further confirm that the proposed appropriation of available earnings complies with Swiss law and Credit Suisse AG’s articles of association. We recommend that the financial statements submitted to you be approved.KPMG AGNicholas EdmondsRalph DichtLicensed Audit ExpertLicensed Audit ExpertAuditor in ChargeZurich, SwitzerlandMarch 23, 2018


499



500



501



502



503

Parent company financial statements
Statements of income
      Reference
to notes

in
2017 2016
Statements of income (CHF million)   
Interest and discount income 8,038 8,188
Interest and dividend income from trading activities 592 627
Interest and dividend income from financial investments 20 5
Interest expense (6,415) (5,326)
Gross income from interest activities  2,235 3,494
(Increase)/release of allowance for default risks and losses from interest activities (453) (456)
Net income from interest activities  4 1,782 3,038
Commission income from securities trading and investment activities 2,397 3,008
Commission income from lending activities 753 812
Commission income from other services 244 626
Commission expense (637) (724)
Net income from commission and service activities  2,757 3,722
Net income/(loss) from trading activities and fair value option  5 (199) (2,408)
Income/(loss) from the disposal of financial investments (11) 7
Income from participations 772 206
Income from real estate 20 24
Other ordinary income 1,687 1,087
Other ordinary expenses (333) (405)
Net income from other ordinary activities  2,135 919
Personnel expenses 6 2,548 3,576
General and administrative expenses 7 3,070 3,106
Total operating expenses  5,618 6,682
Impairment of participations, depreciation and amortization of tangible fixed assets and intangible assets 432 1,459
Increase/(release) of provisions and other valuation adjustments, and losses 8 156 86
Operating profit/(loss)  269 (2,956)
Extraordinary income 8 364 523
Extraordinary expenses 8 (5) 0
Taxes 9 (403) (404)
Net profit/(loss)  225 (2,837)
504

Balance sheets
      Reference
to notes

end of
2017 2016
Assets (CHF million)   
Cash and other liquid assets 55,149 67,450
Due from banks 96,652 99,666
Securities borrowing and reverse repurchase agreements 10 66,677 40,783
Due from customers 11 193,106 180,426
Mortgage loans 11 5,051 4,952
Trading assets 12 48,629 17,586
Positive replacement values of derivative financial instruments 13 9,046 8,098
Other financial instruments held at fair value 12 322 314
Financial investments 14 18,591 6,956
Accrued income and prepaid expenses 2,810 3,624
Participations 75,439 74,085
Tangible fixed assets 2,370 2,592
Intangible assets 2 5
Other assets 15 2,374 1,263
Total assets  576,218 507,800
   Total subordinated receivables  1,906 2,195 1
      of which receivables subject to contractual mandatory conversion and/or cancellation  550 51
Liabilities and shareholder's equity (CHF million)   
Due to banks 74,992 57,569
Securities lending and repurchase agreements 10 61,064 21,709
Customer deposits 161,745 144,788
Trading liabilities 12,18 6,366 1,513
Negative replacement values of derivative financial instruments 13 8,373 8,055
Liabilities from other financial instruments held at fair value 12 60,945 61,411
Bonds and mortgage-backed bonds 149,831 164,958
Accrued expenses and deferred income 4,617 4,954
Other liabilities 15 564 445
Provisions 20 548 588
Total liabilities  529,045 465,990
Share capital 21 4,400 4,400
Legal capital reserves 38,477 33,330
   of which capital contribution reserves  37,913 32,766
Legal income reserves 3,461 6,081
Voluntary income reserves 610 610
Retained earnings 0 226
Net profit/(loss) 225 (2,837)
Total shareholder's equity  47,173 41,810
Total liabilities and shareholder's equity  576,218 507,800
   Total subordinated liabilities  22,461 22,474 1
      of which liabilities subject to contractual mandatory conversion and/or cancellation  15,976 15,437 1
1
Prior period has been corrected.
Off-balance sheet transactions
end of 2017 2016
Off-balance sheet transactions (CHF million)   
Contingent liabilities 74,877 170,909
Irrevocable commitments 85,539 95,213
Obligations for calls on shares and additional payments 57 155
505

Contingent liabilities to other bank entities include guarantees for obligations, performance-related guarantees and letters of comfort issued to third parties. Contingencies with a stated amount are included in the off-balance sheet section of the financial statements. In some instances, the exposure of Credit Suisse AG (Bank parent company) is not defined as an amount but relates to specific circumstances such as the solvency of subsidiaries or the performance of a service.
Joint and several liability
On November 20, 2016, the Bank parent company transferred its universal bank business for Swiss customers, comprising a significant part of the division Swiss Universal Bank and parts of the former Sales and Trading Services (STS), a business area providing sales and trading services and which became part of International Trading Solutions, to Credit Suisse (Schweiz) AG. This business transfer was executed through a transfer of assets and liabilities in accordance with the Swiss Merger Act. By operation of the Swiss Merger Act, the Bank parent company assumed a three-year statutory joint and several liability for obligations existing at the transfer date on November 20, 2016 and which were transferred to Credit Suisse (Schweiz) AG. With the exception of certain claims of employees becoming due up to the date upon which the employment relationship could ordinarily have been terminated, or was terminated by the employee if the employee declined to transfer to Credit Suisse (Schweiz) AG, the Bank parent company has no liability for obligations incurred by Credit Suisse (Schweiz) AG after the asset transfer date.
The Bank parent company entered into a contractual arrangement under which it assumed joint and several liability with respect to liabilities of Credit Suisse (Schweiz) AG arising in connection with Credit Suisse (Schweiz) AG’s roles under the covered bonds program.
The Bank parent company is a member of Credit Suisse Group AG’s Swiss VAT group and therefore subject to joint and several liability according to the Swiss VAT Act.
Deposit insurance guarantee programs
Deposit-taking banks and securities dealers in Switzerland are required to ensure the payout of privileged deposits in case of specified restrictions or compulsory liquidation of a deposit-taking bank, and they jointly guarantee an amount of up to CHF 6 billion. Upon occurrence of a payout event triggered by a specified restriction of business imposed by the >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) or by the compulsory liquidation of another deposit-taking bank, the Bank parent company’s contribution will be calculated based on its share of privileged deposits in proportion to total privileged deposits. Based on FINMA’s estimate for the Bank parent company, the Bank’s share in the deposit insurance guarantee program for the period July 1, 2017 to June 30, 2018 is CHF 55 million. This deposit insurance guarantee was reflected in contingent liabilities.
> Refer to “Note 24 – Amounts receivable from and amounts payable to related parties” for further information off-balance sheet transactions.
Statement of changes in equity

Share
capital
Legal
capital
reserves
Legal
income
reserves
Voluntary
income
reserves

Retained
earnings

Net
profit/(loss)
Total share-
holder's
equity
2017 (CHF million)   
Balance at beginning of period  4,400 33,330 6,081 610 226 (2,837) 41,810
Appropriation of net loss (2,837) 2,837
Transfer of legal income reserves (2,621) 2,621
Capital contributions 5,236 1 5,236
Transfer of legal capital reserves (89) 2 (89)
Dividends and other distributions (10) (10)
Net profit 225 225
Balance at end of period  4,400 38,477 3 3,461 610 0 225 47,173
Rounding differences may occur.
1
Represents a-fonds-perdu contributions in kind to capital contribution reserves of CHF 1,136 million by Credit Suisse Group AG on March 31, 2017 related to the transfer of the equity stakes of Neue Aargauer Bank AG, BANK-now AG and Swisscard AECS GmbH and an a-fonds-perdu contribution in cash by Credit Suisse Group AG to the capital contribution reserves of CHF 4,100 million on June 8 , 2017.
2
Represents the asset surplus from the transfer of assets and liabilities to Credit Suisse Services AG on July 7, 2017 in accordance with the Swiss Merger Act by way of an a-fonds-perdu contribution. The appropriation of capital contribution reserves in the amount of the asset surplus was approved by the Extraordinary General Meeting on June 21, 2017.
3
Includes capital contribution reserves of CHF 37,913 million. Distributions from capital contribution reserves are free of Swiss withholding tax.
506

Notes to the financial statements
1 Business activities, developments and subsequent events
Business activities
Credit Suisse AG (Bank parent company) is a Swiss bank incorporated as a joint stock corporation (public limited company) with its registered office in Zurich, Switzerland.
As of December 31, 2017, the Bank parent company had total assets of CHF 576.2 billion and shareholder’s equity of CHF 47.2 billion.
The Bank parent company is a 100% subsidiary of Credit Suisse Group AG (Group parent company) domiciled in Switzerland.
The Bank parent company provides private banking and investment banking services which include comprehensive advice and a wide range of financial solutions to private, corporate and institutional clients. Private clients include >>>ultra-high-net-worth and >>>high-net-worth individuals around the globe. The corporate and institutional banking business serves large corporate clients, small and medium-sized enterprises, institutional clients and financial institutions. Services to >>>affluent and retail clients in Switzerland and to corporate and institutional clients with a focus on the Swiss home market are provided by Credit Suisse (Schweiz) AG, a 100% banking subsidiary of the Bank parent company which started operations on November 20, 2016. Its service offering to private, corporate and institutional clients comprise of asset management services, which includes a wide range of investment products and solutions across a diversified range of asset classes, with a focus on alternative, traditional and multi-asset portfolios in many areas with a broad offering for emerging markets-related investment opportunities.
Number of employees
end of 2017 2016
Number of employees (full-time equivalents)   
Switzerland 7,500 8,950
Abroad 4,590 4,940
Total  12,090 13,890
Business developments
Developments of the corporate structure
In order to align the corporate structure of Credit Suisse (Schweiz) AG with that of the Swiss Universal Bank division, the following equity stakes held by the Group parent company were transferred to Credit Suisse (Schweiz) AG: (i) 100% equity stake in Neue Aargauer Bank AG, (ii) 100% equity stake in BANK-now AG, and (iii) 50% equity stake in Swisscard AECS GmbH. The transfer of these equity stakes took place by way of an a-fonds-perdu contribution (i.e., without consideration) from the Group parent company to the Bank parent company and immediately thereafter via a subsequent sale of these equity stakes from the Bank parent company to Credit Suisse (Schweiz) AG. The a-fonds-perdu contribution and the subsequent sale took place at the respective equity stakes’ aggregate Swiss GAAP carrying value as recorded by the Group parent company. The transfer was executed on March 31, 2017.
In February 2017, Credit Suisse (Schweiz) AG and Credit Suisse Asset Management International Holding Ltd, which is wholly owned by the Bank parent company, with a participating interest of 49% and 51%, respectively, incorporated Credit Suisse Asset Management & Investor Services (Schweiz) Holding AG, a holding company domiciled in Switzerland. Credit Suisse Asset Management (Schweiz) AG was incorporated in February 2017 and received the Swiss-related asset management business from the Bank parent company by way of an a-fonds-perdu contribution through a transfer of assets in accordance with the Swiss Merger Act. All transfers of participations were made at the participations’ Swiss GAAP carrying value as recorded by the transferor.
Other business developments
In connection with the Group’s centralization of critical shared service functions, the Bank parent company transferred certain assets and liabilities, employment relationships and other contracts to Credit Suisse Services AG in July 2017 in accordance with the Swiss Merger Act by way of an a-fonds-perdu contribution. These assets, liabilities, employment relationships and other contract were related to critical shared services functions.
In November 2017, Credit Suisse Securities (USA) LLC transferred several businesses and related inventories, including its primary and secondary trading and repurchase agreement financing of US treasuries, agency specified pools and agency collateralized mortgage obligations, to the New York branch of Credit Suisse AG.
Subsequent events
There were no subsequent events.
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2 Accounting and valuation principles
Summary of significant accounting and valuation principles
Basis for accounting
The Bank parent company’s stand-alone financial statements are prepared in accordance with the accounting rules of the Swiss Federal Law on Banks and Savings Banks (Bank Law), the corresponding Implementing Ordinance and >>>FINMA circular 2015/1, “Accounting rules for banks, securities dealers, financial groups and conglomerates” (Swiss GAAP statutory) as applicable for the preparation of reliable assessment statutory single-entity financial statements (Statutarischer Einzelabschluss mit zuverlässiger Darstellung). Supplemental information on unsecured senior debt and structured notes as provided by Note 19 is not a required disclosure under these rules.
The Bank’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the US (US GAAP), which differ in certain material respects from Swiss GAAP statutory.
> Refer to “Note 1 – Summary of significant accounting policies” in VIII – Consolidated financial statements – Credit Suisse (Bank) for a detailed description of the Bank’s accounting and valuation principles.
> Refer to “Note 39 – Significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view)” in VIII – Consolidated financial statements – Credit Suisse (Bank) for information on significant valuation and income recognition differences between US GAAP and Swiss GAAP banking law (true and fair view).
The financial year for the Bank parent company ends on December 31.
Certain changes were made to the prior year’s financial statements to conform to the current year’s presentation and had no impact on net profit/(loss) or total shareholder’s equity.
Recording of transactions
Transactions are generally recognized on a trade date basis at the point in time when they become legally binding unless specific guidance is provided for settlement date accounting, such as for issuances of debt and structured notes.
Foreign currency translations
The Bank parent company’s functional currency is Swiss francs (CHF). Transactions denominated in currencies other than the functional currency are recorded using the foreign exchange rates at the date of the transaction.
Receivables and payables denominated in foreign currency are translated to Swiss francs using spot rates as of the balance sheet date. Gains and losses from foreign exchange rate differences are recorded in the statements of income in net income/(loss) from trading activities and fair value option. Participations, tangible fixed assets and intangible assets denominated in foreign currency are translated to Swiss francs using the historical exchange rates.
Assets and liabilities of foreign branches are translated to Swiss francs using spot rates as of the balance sheet date. Income and expense items of foreign branches are translated at weighted-average exchange rates for the year. All foreign exchange translation effects are recognized in the statements of income in net income/(loss) from trading activities and fair value option.
The following table provides the foreign exchange rates applied for the preparation of the Bank parent company’s stand-alone financial statements.
Foreign exchange rates
   End of
2017 2016
1 USD / 1 CHF 0.98 1.02
1 EUR / 1 CHF 1.17 1.07
1 GBP / 1 CHF 1.32 1.26
100 JPY / 1 CHF 0.87 0.87
Cash and other liquid assets
Cash and other liquid assets are recognized at their nominal value.
Due from banks
Amounts due from banks, including interest due but not paid, are recognized at their nominal value less any necessary valuation adjustments.
Due from customers and mortgage loans
Amounts due from customers and mortgage loans, including interest due but not paid, are recognized at their nominal value less any necessary valuation adjustments.
All customer loans are assessed individually for default risks and, where necessary, valuation adjustments are recorded in accordance with internal policies. These valuation adjustments take into account the value of the collateral and the financial standing of the borrower (counterparty risk). The Bank parent company evaluates many factors when determining valuation adjustments, including the volatility of default probabilities, rating changes, the magnitude of potential loss, internal risk ratings, and geographic, industry and other economic factors.
Valuation adjustments are netted with the corresponding assets.
Trading assets and liabilities
In order to qualify as trading activity, positions (assets and liabilities) have to be actively managed with the objective of realizing gains from fluctuations in market prices which includes an ongoing willingness to increase, decrease, close or hedge risk positions. Trading positions also include positions held with the intention of generating gains from arbitrage. The designation as trading position has to be made, and documented accordingly, upon conclusion of the transaction.
Trading securities are carried at >>>fair value with changes in fair value recorded in the statements of income in net income/
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(loss) from trading activities and fair value option. The fair value is determined using either the price set on a price-efficient and liquid market or a price calculated using a valuation model.
Interest and dividend income resulting from trading positions is recorded in gross income from interest activities. Refinancing costs are not charged to net income from trading activities and fair value option.
Reclassifications between trading assets, financial investments and participations are allowed. Such reclassifications are recorded at the fair value valid at the time when the decision to reclassify is made. Resulting gains or losses are recognized applying the same accounting principles as for the recognition of results from the disposal of such assets.
Derivative financial instruments and hedge accounting
Derivative financial instruments consist of trading and hedging instruments.
>>>Positive and >>>negative replacement values of outstanding derivative financial instruments arising from transactions for the Bank parent company’s own account are disclosed as separate line items in the balance sheet, with related fair value changes recorded in net income from trading activities and fair value option.
Replacement values of derivative financial instruments arising from transactions for the account of customers are recognized only if a risk exists that a customer or other counterparty (e.g., exchange, exchange member, issuer of the instrument, broker) of a transaction is no longer able to meet its obligations resulting in an exposure to loss for the Bank parent company during the remaining term of the contract.
Hedge accounting is determined, tested for effectiveness and disclosed in accordance with US GAAP as allowed under Swiss GAAP statutory accounting rules. Derivative financial instruments used as hedging instruments in hedging relationships are always recorded at fair value.
For fair value hedges, to the extent these hedges are effective, the gains and losses resulting from the valuation of the hedging instruments are recorded in the same statements of income line items in which gains and losses from the hedged items are recognized. Gains and losses resulting from fair valuing the risk being hedged of the hedged items are not recorded as an adjustment to the carrying value of the hedged items but are recorded in the compensation account included in other assets or other liabilities. Any changes in fair value representing hedging ineffectiveness are recorded in net income from trading activities and fair value option.
For cash flow hedges, to the extent these hedges are effective, gains and losses resulting from the valuation of the hedging instruments are deferred and recorded in the compensation account included in other assets or other liabilities. The deferred amounts are released and recorded in the statements of income in the same period when the cash flows from the hedged transactions or hedged items are recognized in earnings. Any changes in fair value representing hedging ineffectiveness are recorded in net income from trading activities and fair value option.
Other financial instruments held at fair value and liabilities from other financial instruments held at fair value
Financial instruments which are not part of the trading portfolio may be measured at fair value and classified in other financial instruments held at fair value or liabilities from other financial instruments held at fair value if all of the following conditions are met:
The financial instruments are valued at fair value and are subject to risk management corresponding to that for trading positions including a documented risk management and investment strategy which ensures appropriate recognition, measurement and limitation of the miscellaneous risks.
An economic hedging relationship between the financial instruments on the asset side and the financial instruments on the liability side exists and gains and losses from the fair valuation of these financial instruments are largely offset (avoidance of an accounting mismatch).
Impacts of changes in own credit spreads on the fair value of an issued debt instrument following initial recognition cannot be reflected in the statements of income. Impacts of changes in own credit spreads are recognized in the compensation account.
Changes in fair value are recorded in net income from trading activities and fair value option.
Participations
Equity securities in a company, which are owned by the Bank parent company, qualify as a participation if these securities are held for the purpose of permanent investment, irrespective of the percentage of voting shares held, or, if these equity securities are in a banking and financial market infrastructure enterprise, in particular participations in joint organizations. Participations can be held by the Bank parent company in Switzerland and its foreign branches.
Participations are measured at acquisition cost less any impairments. Goodwill and intangible assets related to the acquisition of a participation are part of the participation’s historical cost under Swiss GAAP statutory and not separately identified and recorded. For the purpose of impairment testing, the portfolio valuation method is applied. Impairment is assessed at each balance sheet date or at any point in time when facts and circumstances would indicate that an event has occurred which triggers an impairment review. The amount of impairment, if any, is assessed on the level of the entire portfolio of participations and not individually for each participation. An impairment is recorded if the carrying value exceeds the fair value of the participation portfolio. If the fair value of participations recovers significantly and is considered sustainable, a prior period impairment can be reversed up to the historical cost value of the participations.
Other assets and other liabilities
Other assets and other liabilities are generally recorded at cost or nominal value. Other assets and other liabilities include the net balance of the compensation accounts. The compensation accounts
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are used to record the hedge effectiveness, impacts from changes in own credit spreads and deferred gains or losses from the sale of debt securities held-to-maturity.
Changes in the book values of assets and liabilities that are not recognized in the statements of income of a reporting period are recorded in the compensation account as assets or liabilities. The gross amounts of compensation account assets and liabilities are offset and reported net on the balance sheet either in other assets or in other liabilities.
Due to banks
Amounts due to banks are recognized at their nominal value.
Customer deposits
Amounts due in respect of customer deposits are recognized at their nominal value.
Bonds and mortgage-backed bonds
Bonds and mortgage-backed bonds are carried at amortized cost. Debt issuance costs are recorded in other assets and other liabilities, respectively.
Provisions
Provisions are recorded to cover specific risks related to a past event prior to the balance sheet date. Provisions represent a probable obligation for which amount and/or due date are uncertain but can be reasonably estimated. Where the time factor has a material impact, the amount of the provision is discounted.
Provisions which are no longer economically necessary and which are not used in the same reporting period to cover probable obligations of the same nature are released to income:
tax provisions through line item taxes;
provisions for pension benefit obligations and staff-related restructuring provisions through personnel expenses; and
provisions for off-balance sheet related default risks and other provisions including litigation provisions through line item increase/(release) of provisions and other value adjustments, and losses.
Commission income
Commission income is recognized when arrangements exist, services have been rendered, the revenue is fixed or determinable and collectability is reasonably assured. As applicable, commissions and fees are recognized ratably over the service period and either accrued or deferred in the balance sheet in the line items accrued income and prepaid expenses and accrued expenses and deferred income, respectively.
Commission income and commission expense are generally recorded on a gross basis in the statements of income.
Income tax accounting
Income taxes are based on the tax laws of each tax jurisdiction and are expensed in the period in which the taxable profits are made.
Tax provisions are recognized in the statements of income in line item taxes and included in provisions on the balance sheet.
In line with the accounting rules for single-entity statutory financial statements, deferred tax assets on net operating losses are not recognized. Deferred taxation items for temporary differences between the carrying value of an asset or a liability under Swiss GAAP statutory and the respective value for tax reporting, i.e., its tax base, are also not recognized.
Extraordinary income and expense
The recognition of extraordinary income or expense is limited to transactions which are non-recurring and non-operating, such as the disposal of fixed assets or participations, or income and expense related to other reporting periods if they account for the correction of errors with regard to non-operating transactions of prior periods.
Contingent liabilities and irrevocable commitments
Contingent liabilities are recorded as off-balance sheet transactions at their maximum potential payment amounts. Irrevocable commitments are recorded as off-balance sheet transactions at their nominal values, except for irrevocable commitments with a remaining maturity of less than six weeks which are excluded from the disclosure. As necessary, related provisions are recorded on the balance sheet in line item provisions.
Capital adequacy disclosures
Capital adequacy disclosures for the Group and the Bank parent company are presented in the publications “Pillar 3 and regulatory disclosures – Credit Suisse Group AG” and “Regulatory disclosures – Subsidiaries”, respectively, which will be available on the Group’s website credit-suisse.com/regulatorydisclosures.
New accounting policies to be adopted in future periods
Individual valuation of participations
Under the revised Banking Ordinance of April 30, 2014, which entered into force on January 1, 2015, certain regulations, such as the individual valuation of participations, tangible fixed assets and intangible assets are subject to transitional provisions until the full implementation of the regulation effective January 1, 2020. The requirements regarding individual valuation of tangible fixed assets and intangible assets are met by the Bank parent company’s current accounting policies. For participations, the Bank parent company is currently assessing the impact of a change in valuation principle from the portfolio valuation method to the individual valuation method. It has not yet elected the adoption date for this new valuation principle.
As of December 31, 2017, the carrying value of participations included total unrealized losses on certain participations of CHF 6,947 million, which were netted with unrealized gains on other participations of the same amount in accordance with the portfolio method applied under the current accounting policy.
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Prior period information
In the Bank parent company’s balance sheet as of December 31, 2016, total subordinated receivables increased CHF 289 million, mainly reflecting a correction for subordinated trading book positions from a foreign branch. Total subordinated liabilities decreased CHF 142 million, mainly reflecting a correction for off-balance sheet collateral-related liabilities. Total subordinated liabilities subject to contractual mandatory conversion and/or cancellation include additional positions of CHF 8,125 million relating to certain low-trigger tier 1 capital instruments. In “Note 11 – Collateral and impaired loans”, gross impaired loans as of December 31, 2016 increased CHF 261 million to reflect impaired accrued interest on certain loan portfolios. These changes had no impact on net profit/(loss) or shareholders’ equity.
3 Risk management, use of derivative financial instruments and hedge accounting
Risk management
Prudent risk taking in line with the strategic priorities of the Bank parent company and its subsidiaries (the Bank) is fundamental to its business. The primary objectives of risk management are to protect the Bank’s financial strength and reputation, while ensuring that capital is well deployed to support business growth and activities. The Bank’s risk management framework is based on transparency, management accountability and independent oversight. Risk management is an integral part of the Bank’s business planning process with strong senior management and Board of Directors (Board) involvement.
Risk governance
The Bank’s risk governance framework is based on a “three lines of defense” governance model, where each line has a specific role with defined responsibilities and works in close collaboration to identify, assess and mitigate risks.
The first line of defense is the front office, which is responsible for pursuing suitable business opportunities within the strategic risk objectives and compliance requirements of the Bank. Its primary responsibility is to ensure compliance with relevant legal and regulatory requirements and maintain effective internal controls.
The second line of defense includes functions such as risk management, compliance, legal and product control. It articulates standards and expectations for the effective management of risk and controls, including advising on applicable legal and regulatory requirements and publishing related policies, and monitors and assesses compliance with regulatory and internal standards. The second line of defense is separate from the front office and acts as an independent control function, responsible for reviewing, measuring and challenging front office activities and producing independent assessments and risk management reporting for senior management and regulatory authorities.
The third line of defense is the internal audit function, which monitors the effectiveness of controls across various functions and operations, including risk management and governance practices.
Risk management of the Bank is aligned to the overall risk management governance of the Group. All members of the Board and the Executive Board of the Bank are also members of the Board and the Executive Board of the Group. The Bank’s governance includes a committee structure and a comprehensive set of corporate policies which are developed, reviewed and approved by the Board, the Executive Board, their respective committees, the Group Chief Risk Officer (CRO) and the Group Chief Compliance and Regulatory Affairs Officer (CCRO), in accordance with their respective responsibilities and levels of authority.
Board of Directors
The Board is responsible for the Bank’s strategic direction, supervision and control, and for defining the Bank’s overall tolerance for risk in the form of a risk appetite statement and overall risk limits. Overall risk limits are set by the Board in consultation with its Risk Committee.
The Risk Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by providing guidance regarding risk governance and the development of the Bank’s risk profile and capital adequacy, including the regular review of major risk exposures and overall risk limits.
The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by monitoring management’s approach with respect to financial reporting, internal controls, accounting and legal and regulatory compliance. Additionally, the Audit Committee is responsible for monitoring the independence and performance of internal and external auditors.
Executive Board
The Executive Board is responsible for developing and implementing the Bank’s strategic business plans, subject to approval by the Board. It further reviews and coordinates significant initiatives for the risk management function and establishes Bank-wide risk policies. The Group CRO and CCRO are members of the Executive Board and represent the risk management and compliance functions, respectively, reporting to the Group Chief Executive Officer (CEO) and, at least annually, to the Board.
Executive Board committees
The Capital Allocation & Risk Management Committee (CARMC) is responsible for overseeing and directing the Bank’s risk profile, recommending risk limits at the Bank level to the Risk Committee and the Board, establishing and allocating risk appetite among the various businesses, reviewing new significant business strategies or changes in business strategies including business migrations, making risk-related decisions on escalations, and for applying measures, methodologies and tools to monitor and manage the risk portfolio. CARMC meets monthly and conducts reviews according to the following three rotating cycles. The asset &
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liability management cycle reviews the funding and balance sheet trends and activities, plans and monitors regulatory and business liquidity requirements and internal and regulatory capital adequacy. The market & credit risks cycle defines and implements risk management strategies for the Bank businesses, sets and approves risk appetite within Board-approved limits and other appropriate measures to monitor and manage the risk profile of the Bank and allocates liquidity resources and sets liquidity risk limits for individual divisions. The internal control system cycle monitors and analyzes significant legal and compliance risks, reviews and approves the business continuity program’s alignment with the corporate strategy on an annual basis, sets limits, caps and triggers on specific businesses to control significant operational risk exposure, and reviews and assesses the appropriateness and efficiency of the internal control systems.
The Valuation Risk Management Committee (VARMC) is responsible for establishing policies regarding the valuation of certain material assets and the policies and calculation methodologies applied in the valuation process.
The Risk Processes & Standards Committee (RPSC) reviews major risk management processes, issues general instructions, standards and processes concerning risk management, approves material changes in market, credit and operational risk management standards, policies and related methodologies, and approves the standards of the Bank’s internal models used for calculating regulatory capital.
The Reputational Risk & Sustainability Committee (RRSC) sets policies and reviews processes and significant cases relating to reputational risks and sustainability issues. It also ensures adherence to the Bank’s reputational and sustainability policies and oversees their implementation.
Risk appetite framework
The Bank maintains a comprehensive Bank-wide risk appetite framework, which is governed by a global policy and provides a robust foundation for risk appetite setting and management across the Bank. A key element of the framework is a detailed statement of the Board-approved risk appetite which is aligned to the Bank’s financial and capital plans. The framework also encompasses the processes and systems for assessing the appropriate level of risk appetite required to constrain the Bank’s overall risk profile.
The Bank risk appetite framework is governed by an overarching global policy that encompasses the suite of specific policies, processes and systems with which the risk constraints are calibrated and the risk profile is managed. The framework is guided by the following strategic risk objectives:
maintaining Bank-wide capital adequacy above minimum regulatory requirements under both normal and stressed conditions;
promoting stability of earnings to support performance in line with financial objectives;
ensuring sound management of liquidity and funding risk in normal and stressed conditions;
proactively controlling concentration risks;
managing operational and compliance risk within the Bank’s enterprise risk and control framework (ERCF) to ensure sustainable performance;
minimizing reputational risk; and
managing and mitigating conduct risk.
Bank-wide risk appetite is determined in partnership with the financial and capital planning process on an annual basis, based on bottom-up forecasts that reflect planned risk-usage by the businesses and top-down, Board-driven strategic risk objectives and risk appetite. Scenario stress testing of financial and capital plans is an essential element in the risk appetite calibration process as a key means through which the Bank’s strategic risk objectives, financial resources and business plans are aligned. The capital plans are also analyzed using the Bank’s economic capital coverage ratio, which provides a further means of assessing bottom-up risk plans with respect to available capital resources. The risk appetite is approved through a number of internal governance forums, including joint approval by the Group CRO and the Chief Financial Officer (CFO), the Risk Appetite Review Committee (a sub-committee of CARMC), CARMC, the Risk Committee and, subsequently, by the Board.
The risk appetite statement is the formal plan, approved by the Board, for Bank-wide risk appetite. Key divisional allocations are cascaded from the Bank and approved in divisional risk management committees. Legal entity risk appetites are allocated from the Bank and are approved by the local legal entity board of directors.
A core aspect of the Bank’s risk appetite framework is a sound system of integrated risk constraints to maintain the Bank’s risk profile within its overall risk appetite. The Bank’s risk appetite framework utilizes a suite of different types of risk constraints to reflect the aggregate risk appetite of the Bank and to further cascade risk appetite across its organization, including among business divisions and legal entities. The risk constraints restrict the Bank’s maximum balance sheet and off-balance sheet exposure given the market environment, business strategy and financial resources available to absorb losses.
Risk coverage and management
The Bank uses a wide range of risk management practices to address the variety of risks that arise from its business activities. Policies, limits, guidelines, processes, standards, risk assessment and measurement methodologies, and risk monitoring and reporting are key components of its risk management practices. The Bank’s risk management practices complement each other in the Bank’s analysis of potential loss, support the identification of interdependencies and interactions of risks across the organization and provide a comprehensive view of its exposures. The Bank regularly reviews and updates its risk management practices to ensure consistency with its business activities and relevance to its business and financial strategies.
The key risk types, their definitions and key risk evaluation methods are summarized in the table “Key risk types overview”.
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It is important both to evaluate each risk type separately and assess the risk types’ combined impact on the Bank, which helps ensure that the Bank’s overall risk profile remains within the Bank-wide risk appetite.
The primary evaluation methods used to assess Bank-wide quantifiable risks include economic risk capital and stress testing.
Economic risk capital
Economic risk capital is used as a consistent and comprehensive tool for capital management, limit monitoring and performance management. Economic risk capital is the core Bank-wide risk management tool for measuring and reporting the combined impact from quantifiable risks such as market, credit, operational, pension, expense and model risks, each of which has an impact on the Bank’s capital position.
Under the Basel framework, the Bank is required to maintain a robust and comprehensive framework for assessing capital adequacy, defining internal capital targets and ensuring that these capital targets are consistent with its overall risk profile and the current operating environment. The Bank’s economic risk capital model represents its internal view of the amount of capital required to support its business activities.
During 2017, as part of the economic risk capital strategic development program to further embed economic risk capital into the Bank’s risk appetite framework, the Bank continued to develop and implement a suite of metrics and models that better assess, monitor and manage capital adequacy and solvency risk in severe stress events such as business recovery or resolution.
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Stress testing
Stress testing or scenario analysis provides an additional approach to risk management and formulates hypothetical questions, including what would happen to the Bank’s portfolio if, for example, historic or adverse forward-looking events were to occur.
Stress testing is a fundamental element of the Bank-wide risk appetite framework included in overall risk management to ensure that the Bank’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic conditions. Stress testing results are monitored against limits, used in risk appetite discussions and strategic business planning, and to support the Bank’s internal capital adequacy assessment. Within the risk appetite framework, CARMC sets Bank-wide and divisional stressed position loss limits to correspond to minimum post-stress capital ratios.
Liquidity and funding risks
The Bank’s liquidity and funding profile reflects its strategy and risk appetite and is driven by business activity levels and the overall operating environment. The liquidity and funding strategy is approved by CARMC and overseen by the Board. The implementation and execution of the funding and liquidity strategy is managed by the treasury function. The treasury function ensures adherence to the funding policy and the efficient coordination of the secured funding desks. This approach enhances the Bank’s ability to manage potential liquidity and funding risks and to promptly adjust its liquidity and funding levels to meet stress situations. The Bank’s liquidity and funding profile is regularly reported to CARMC and the Board, who define the Bank’s risk tolerance, including liquidity risk, and set parameters for the balance sheet and funding usage of its businesses.
Market risk
Market risk is the risk of financial loss arising from movements in market risk factors. The movements in market risk factors that generate financial losses are considered to be adverse changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and other factors, such as market volatility and the correlation of market prices across asset classes. A typical transaction or position in financial instruments may be exposed to a number of different market risk factors. The Bank’s trading (trading book) and non-trading (banking book) business activities have different sources of market risk.
The classification of assets and liabilities into trading book and banking book portfolios determines the approach for analyzing the Bank’s market risk exposure. This classification reflects the business and risk management perspective with respect to trading intent, and may be different from the classification of these assets and liabilities for financial reporting purposes.
Market risks from the trading book relate to trading activities, primarily in the divisions Global Markets (as well as through a partnership with International Wealth Management and Swiss Universal Bank under Global Markets’ risk oversight), Asia Pacific and the Strategic Resolution Unit.
Market risks from the banking book primarily relate to asset and liability mismatch exposures, equity participations and investments in bonds and money market instruments. The Bank’s businesses and the treasury function have non-trading portfolios that carry market risks, mainly related to changes in interest rates but also to changes in foreign exchange rates, equity prices and, to a lesser extent, commodity prices.
The Bank uses market risk measurement and management methods capable of calculating comparable exposures across its many activities and employs focused tools that can model unique characteristics of certain instruments or portfolios. The tools are used for internal market risk management, internal market risk reporting and external disclosure purposes. The Bank’s principal market risk measurement for the trading book is >>>value-at-risk (VaR). In addition, the Bank’s market risk exposures are reflected in scenario analysis, as included in the stress testing framework, >>>position risk, as included in economic risk capital, and sensitivity analysis. Each market risk measurement aims to estimate the potential loss that the Bank can incur due to an adverse market movement with varying degrees of severity. VaR, scenario analysis, position risk and sensitivity analysis complement each other in the Bank’s market risk assessment and are used to measure market risk at the level of the Bank. For example, interest rate risk for banking book positions is measured by estimating the impact resulting from a one basis point parallel increase in yield curves on the >>>fair value of interest rate-sensitive banking book positions and other measures including the potential value change resulting from a significant change in yield curves.
In the banking book, savings accounts and many other retail banking products have no contractual maturity date or direct market-linked interest rate and are risk-managed on a pooled basis using replication portfolios on behalf of the private banking, corporate and institutional businesses. The replication portfolios approximate the interest rate characteristics of the underlying products. This particular source of market risk is monitored on a daily basis.
The majority of non-trading foreign exchange risk is associated with the Bank’s net investment in foreign branches, subsidiaries and affiliates denominated in currencies other than Swiss francs. This exposure is actively managed to hedge capital and leverage ratios and is governed within the Bank’s risk appetite framework.
Credit risk
Credit risk is the risk of financial loss arising as a result of a borrower or counterparty failing to meet its financial obligations or as a result of deterioration in the credit quality of the borrower or counterparty.
The majority of the Bank’s credit risk arises from its activities in retail and private banking as well as with corporate and institutional clients in the five divisions Swiss Universal Bank, International Wealth Management, Asia Pacific, Global Markets and Investment Banking & Capital Markets, and the residual activities in the Strategic Resolution Unit. Credit risk arises from lending products, irrevocable loan commitments, credit guarantees and letters of credit, and results from counterparty exposure arising from >>>derivatives, foreign exchange and other transactions.
Effective credit risk management is a structured process to assess, measure, monitor and manage risk on a consistent basis.
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This requires careful consideration of proposed extensions of credit, the setting of specific limits, monitoring during the life of the exposure, active use of credit mitigation tools and a disciplined approach to recognizing credit impairment.
The Bank’s credit risk management framework applies to all of the Bank’s credit exposure and includes the following core components:
individual counterparty rating systems;
transaction rating systems;
a counterparty credit limit system;
country concentration limits;
industry concentration limits;
product limits;
risk-based pricing methodologies;
active credit portfolio management; and
a credit risk provisioning methodology.
The Bank employs a set of credit ratings for the purpose of internally rating counterparties to whom it is exposed to credit risk as the contractual party, including with respect to loans, loan commitments, securities financings or >>>over-the-counter (OTC) derivative contracts. Credit ratings are intended to reflect the risk of default of each counterparty. Ratings are assigned based on internally developed rating models and processes, which are subject to governance and internally independent validation procedures. The Bank’s internal ratings may differ from a counterparty’s external ratings, if one is available. Internal ratings are regularly reviewed depending on exposure type, client segment, collateral or event-driven developments. For the calculation of internal risk estimates (e.g., an estimate of expected loss in the event of a counterparty default) and >>>risk-weighted assets, a >>>probability of default, >>>loss given default and >>>exposure at default are assigned to each facility. These three parameters are primarily derived from internally developed statistical models that have been backtested against internal experience, validated by a function independent of the model owners on a regular basis and approved by the Bank’s main regulators for application in the regulatory capital calculation in the >>>advanced internal ratings-based approach (A-IRB) under the Basel framework.
Credit limits are used to manage individual counterparty credit risk. A system of limits is also established to address concentration risk in the portfolio, including a comprehensive set of country limits and limits for certain products and industries. In addition, credit risk concentration is regularly supervised by credit and risk management committees, taking current market conditions and trend analysis into consideration. A rigorous credit quality review process provides an early identification of possible changes in the creditworthiness of clients and includes regular asset and collateral quality reviews, business and financial statement analysis, and relevant economic and industry studies. Regularly updated watch lists and review meetings are used for the identification of counterparties that could be subject to adverse changes in creditworthiness.
Default risks, impairments and credit risk provisioning methodology
The Bank’s regular review of the credit quality of clients and counterparties does not depend on the accounting treatment of the asset or commitment. The appropriateness of allowances for credit losses is regularly reviewed. Impaired transactions are further classified as potential problem exposure, non-performing exposure, non-interest-earning exposure or restructured exposure, and the exposures are generally managed within credit recovery units. At the level of the Bank, the credit portfolio & provisions review committee regularly determines the adequacy of allowances.
The Bank maintains specific valuation allowances on loans valued at amortized cost, which are considered a reasonable estimate of losses identified in the existing credit portfolio. Provisions for loan losses are established based on a regular and detailed analysis of all counterparties, taking collateral value into consideration. If uncertainty exists as to the repayment of either principal or interest, a specific valuation allowance is either created or adjusted accordingly. The specific allowance for loan losses is revalued by credit risk management at least annually or more frequently depending on the risk profile of the borrower or credit relevant events.
An inherent loss allowance is estimated for all loans not specifically identified as impaired and that, on a portfolio basis, are considered to contain inherent losses. The method for determining the inherent loss in the lending portfolios of Global Markets and Investment Banking & Capital Markets is based on a model using long-term industry-wide historical default and recovery data taking into account the credit rating and industry of each counterparty. A separate component of the calculation reflects the current market conditions in the allowance for loan losses. Depending on the nature of the exposures, this method may also be applied for the lending portfolios in Swiss Universal Bank, International Wealth Management, Asia Pacific and the Strategic Resolution Unit. For all other exposures, inherent losses in the lending portfolios of these divisions are determined based on current internal risk ratings, collateral and exposure structure, applying historical default and loss experience in the ratings and loss parameters. Qualitative adjustments to reflect current market conditions or any other factors not captured by the model are approved by management and reflected in the allowance for loan losses. A provision for inherent losses on off-balance sheet lending-related exposure, such as contingent liabilities and irrevocable commitments, is also determined, using a methodology similar to that used for the loan portfolio.
Risk mitigation
The Bank actively manages its credit exposure utilizing credit hedges, collateral and guarantees. Collateral is security in the form of an asset, which serves to mitigate the inherent risk of credit loss and to improve recoveries in the event of a default.
The policies and processes for collateral valuation and management are driven by legal documentation that is agreed with the Bank’s counterparties and an internally independent collateral management function.
For portfolios collateralized by marketable securities, collateral is valued daily, except as agreed otherwise in contracts or other legal documentation. The mark-to-market prices used for valuing collateral are a combination of Bank-internal and market prices sourced from trading platforms and service providers, as
515

appropriate. The management of collateral is standardized and centralized to ensure complete coverage of traded products.
For the mortgage lending portfolios, real estate property is valued at the time of credit approval and periodically thereafter, according to the Bank’s internal policies and controls, depending on the type of loan (e.g., residential or commercial loan), characteristics of the property, current developments in the relevant real estate market and the current level of credit exposure to the borrower (loan-to-value ratio). If the credit exposure to a borrower has changed significantly, in volatile markets or in times of increasing general market risk, collateral values may be appraised more frequently. Management judgment is applied in assessing whether markets are volatile or general market risk has increased to a degree that warrants a more frequent update of collateral values. Movements in monitored risk metrics that are statistically different compared to historical experience are considered in addition to analysis of externally-provided forecasts, scenario techniques and macro-economic research. For impaired loans, the fair value of collateral is determined within 90 days of the date the impairment was identified and thereafter annually or more frequently by credit risk management within the impairment review process.
The primary types of collateral typically depend on the type of credit transaction. Collateral securing foreign exchange transactions and OTC trading activities primarily includes cash and US treasury instruments,>>>G10 government securities and corporate bonds. Collateral securing loan transactions primarily includes financial collateral pledged against loans collateralized by securities of clients (primarily cash and marketable securities), real estate property for mortgages, mainly residential, but also multi-family buildings, offices and commercial properties, and other types of lending collateral such as accounts receivable, inventory, plant and equipment.
Model risk
Model risk is the risk of adverse consequences from decisions made based on model results that may be incorrect, misinterpreted or used inappropriately. All quantitative models are imperfect approximations that are subject to varying degrees of uncertainty in their output depending on, among other factors, the model’s complexity and its intended application. As a result, modeling errors are unavoidable and can result in inappropriate business decisions, financial loss, regulatory and reputational risk and incorrect or inadequate capital reporting. Model errors, intrinsic uncertainty and inappropriate use are the primary contributors to aggregate, Bank-wide model risk.
Through the global model risk management and governance framework the Bank seeks to identify, measure and mitigate all significant risks arising from the use of models embedded within the Bank’s global model ecosystem. Model risks can then be mitigated through a well-designed and robust model risk management framework, encompassing both model governance policies and procedures in combination with model validation best practices.
Operational, compliance and regulatory risk
Operational risk is the risk of financial loss arising from inadequate or failed internal processes, people or systems, or from external events. Operational risk does not include strategic and reputational risks. However, some operational risks can lead to reputational issues and as such operational and reputational risks may be closely linked. Operational risk is inherent in most aspects of the Bank’s business, including the systems and processes that support its activities. It comprises a large number of disparate risks that can manifest in a variety of ways. Particularly relevant examples of operational risk include the risk of fraudulent or unauthorized transactions, damage to physical assets, trade processing errors, business disruption and cyber attacks. Operational risk can arise from human error, inappropriate conduct, failures in systems, processes and controls, deliberate attack or natural and man-made disasters.
Compliance and regulatory risk is the risk from the failure to comply with laws, regulations, rules or market standards that may have a negative effect on the Bank’s franchise and clients it serves. It includes the risk that changes in laws, regulations, rules or market standards may limit the Bank’s activities and have a negative effect on the Bank’s business or its ability to implement strategic initiatives, or can result in an increase in operating costs for the business or make its products and services more expensive for clients. Examples of sources of compliance risks include cross-border activities, the risk of money laundering, improper handling of confidential information, conflicts of interest, improper gifts and entertainment and failure in duties to clients.
To effectively manage operational and compliance risks, the Bank-wide ERCF was implemented focusing on the early identification, recording, assessment, monitoring, prevention and mitigation of these risks, as well as timely and meaningful management reporting. The Bank introduced a revised, formal, well-defined operational risk framework in 2013, which improved the integration of previously separate operational risk processes, providing a more coherent and systematic approach to managing all aspects of the operational risk landscape. In 2016, the Bank established the ERCF which integrated this operational risk framework and all of its components with the compliance risk components to further harmonize the Bank’s approach to non-financial risk. As an initial step, the assessment processes for operational and compliance risks in 2016 were closely coordinated, resulting in an enhanced risk and control self-assessment that covers both risk types in a more consistent manner. Also, standardized Bank-wide role descriptions were introduced that define the responsibilities for identifying, assessing, reporting and managing risks across the organization. In 2017, continued progress was made in rolling out a systematic key control activities framework as part of the ERCF. This framework applies consistent standards and approaches to the identification, documentation and assessment of key controls across the Bank.
The ERCF provides a structured approach to managing operational and compliance risks. It seeks to apply consistent standards and techniques for evaluating risks across the Bank while providing individual businesses with sufficient flexibility to tailor specific components to their own needs, as long as they meet Bank-wide minimum standards.
The Bank has used an internal model to calculate the regulatory capital requirement for operational risk under the >>>advanced
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measurement approach (AMA) since 2008. This model was replaced with an enhanced AMA internal model in 2014, which has been approved by >>>FINMA. In 2017, the Bank updated the model structure to further align with the Bank’s divisions and expanded the scenario analysis program to address more specific divisional risk assessments. The Bank also updated its loss history and implemented a revised methodology for the measurement of risk-weighted assets relating to operational risk, primarily in respect of the Bank’s RMBS settlements.
In addition to managing and mitigating operational risks under the ERCF through business- and risk-related processes and organization, the Bank also transfers the risk of potential loss from certain operational risks to third-party insurance companies in certain instances.
Conduct risk
Conduct risk is the risk that improper behavior or judgment by the Bank’s employees may result in a negative financial, non-financial or reputational impact to its clients, employees or the Bank or negatively impact the integrity of the financial markets. Conduct risk may arise from a wide variety of activities and types of behaviors. A Bank-wide definition of expectations relating to the conduct of the Bank’s employees helps to ensure that the Bank has a common understanding of and is consistently managing, minimizing and mitigating its conduct risk and further promotes standards of responsible conduct and ethics in its employees. Managing conduct risk includes consideration of the risks generated by each business and the strength of the associated mitigating controls. Conduct risk is also assessed by reviewing and learning from past incidents within the Bank and at other firms in the financial services sector. Compliance oversees conduct risk for the Bank.
Technology risk
Technology risk deserves particular attention given the complex technological landscape that covers the Bank’s business model. Ensuring that confidentiality, integrity and availability of information assets are protected is critical to the Bank’s operations.
Technology risk is the risk that technology-related failures, such as service outages or information security incidents, may disrupt business. Technology risk is inherent not only in IT assets of the Bank, but also in the people and processes that interact with them including through dependency on third-party suppliers and the worldwide telecommunications infrastructure. The Bank seeks to ensure that the data used to support key business processes and reporting is secure, complete, accurate, available, timely and meets appropriate quality and integrity standards. The Bank requires its critical IT systems to be identified, secure, resilient and available and support its ongoing operations, decision-making, communications and reporting. The Bank’s systems must also have the capability, capacity, scalability and adaptability to meet current and future business objectives, the needs of customers and regulatory and legal expectations.
Cyber risk, which is part of technology risk, is the risk that the Bank will be compromised as a result of cyber attacks, security breaches, unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other events that could have an adverse security impact.
Technology risks are managed through the Bank’s technology risk management program, business continuity management plan and business contingency and resiliency plans and feature in the Bank’s overall operational risk assessment.
Legal risks
Legal risk is the risk of loss or imposition of damages, fines, penalties or other liability or any other material adverse impact arising from circumstances including the failure to comply with legal obligations, whether contractual, statutory or otherwise, changes in enforcement practices, the making of a legal challenge or claim against the Bank, its inability to enforce legal rights or the failure to take measures to protect its rights.
Reputational risk
Reputational risk is the risk that negative perception by the Bank’s stakeholders, including clients, counterparties, employees, shareholders, regulators and the general public, may adversely impact client acquisition and damage the Bank’s business relationships with clients and counterparties, affecting staff morale and reducing access to funding sources.
Reputational risk may arise from a variety of sources, including, but not limited to, the nature or purpose of a proposed transaction or service, the identity or activity of a potential client, the regulatory or political climate in which the business will be transacted, and the potentially controversial environmental or social impacts of a transaction or significant public attention surrounding the transaction itself. The risk may also arise from reputational damage in the aftermath of an operational risk incident, such as cyber crime or the failure by employees to meet expected conduct and ethical standards.
Reputational risk is included in the Bank’s risk appetite framework to ensure that risk-taking is aligned with the approved risk appetite. The Bank highly values its reputation and is fully committed to protecting it through a prudent approach to risk-taking and a responsible approach to business. This is achieved through the use of dedicated processes, resources and policies focused on identifying, evaluating, managing and reporting potential reputational risks. This is also achieved by applying the highest standards of personal accountability and ethical conduct as set out in the Group’s Code of Conduct and the Group’s approach to conduct and ethics. Reputational risk potentially arising from proposed business transactions and client activity is assessed in the reputational risk review process. The Group’s global policy on reputational risk requires employees to be conservative when assessing potential reputational impact and, where certain indicators give rise to potential reputational risk, the relevant business proposal or service must be submitted through the reputational risk review process.
The RRSC, on a global level, and the reputational risk committees, on a divisional or legal entity level, are the governing bodies responsible for the oversight and active discussion of reputational risk and sustainability issues. At the Board level, the Risk Committee and Audit Committee jointly assist the Board in fulfilling its
517

reputational risk oversight responsibilities by reviewing and approving the Bank’s risk appetite framework as well as assessing the adequacy of the management of reputational risks.
Fiduciary risk
Fiduciary risk is the risk of financial loss arising when the Bank or its employees, acting in a fiduciary capacity as trustee, investment manager or as mandated by law, do not act in the best interest of the client in connection with the advice and management of its client’s assets including from a product-related market, credit, liquidity and operational risk perspective.
Assessing investment performance and reviewing forward-looking investment risks in discretionary client portfolios and investment funds is central to the Bank’s oversight program. This program targets daily, monthly or quarterly monitoring of all portfolio management activities with independent analysis provided to senior management. Formal review meetings are in place to ensure that investment performance and risks are in line with expectations and adequately supervised.
Strategic risk
Strategic risk is the risk of financial loss or reputational damage arising from inappropriate strategic decisions, ineffective implementation of business strategies or an inability to adapt business strategies in response to changes in the business environment. A wide variety of financial, risk, client and market analyses are used by the Bank to monitor the effectiveness of its strategies and the performance of its businesses against their strategic objectives. These include an analysis of current and expected operating conditions, an analysis of current and target market positioning, and detailed scenario planning.
Strategic plans are developed by each division annually and aggregated into a Bank plan, which is reviewed by the CRO, CFO and Chief Executive Officer (CEO) before presentation to the Executive Board. Following approval by the Executive Board, the Bank plan is submitted for review and approval to the Board. In addition, there is an annual strategic review at which the Board evaluates the Bank’s performance against strategic objectives and sets the overall strategic direction for the Bank. From time to time, the Board and the Executive Board conduct more fundamental in-depth reviews of the Bank’s strategy.
> Refer to “Strategy” in I – Information on the company for further information.
Use of derivative financial instruments and hedge accounting
Business policy for use of derivative financial instruments
Derivatives are generally either privately negotiated OTC contracts or standard contracts transacted through regulated exchanges. The Bank parent company’s most frequently used freestanding derivative products, entered into for trading and risk management purposes, include interest rate, >>>credit default and cross-currency swaps, interest rate and foreign exchange options, foreign exchange forward contracts and foreign exchange and interest rate futures.
On the date a derivative contract is entered into, the Bank parent company designates it as belonging to one of the following categories: trading activities; a risk management transaction that does not qualify as a hedge under accounting standards (referred to as an economic hedge); a hedge of the fair value of a recognized asset or liability; or a hedge of the variability of cash flows to be received or paid relating to a recognized asset or liability or a forecasted transaction.
Economic hedges
Economic hedges arise when the Bank parent company enters into derivative contracts for its own risk management purposes, but the contracts entered into do not qualify for hedge accounting. These economic hedges include the following types:
interest rate derivatives to manage net interest rate risk on certain core banking business assets and liabilities;
foreign exchange derivatives to manage foreign exchange risk on certain core banking business revenue and expense items, core banking business assets and liabilities; as well as selected foreign participations against adverse movements in foreign exchange rates;
credit derivatives to manage credit risk on certain loan portfolios; and
futures to manage risk on equity positions including convertible bonds.
Derivatives used in economic hedges are included as trading assets or trading liabilities in the balance sheets.
Hedge accounting
Hedge accounting for the Bank parent company is determined, recorded and disclosed in accordance with US GAAP as allowed under Swiss GAAP statutory accounting rules.
> Refer to “Note 13 – Derivative financial instruments” for further information on hedge accounting.
Fair value hedges
The Bank parent company designates fair value hedges as part of an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize fluctuations in earnings that are caused by interest rate volatility. In addition to hedging changes in fair value due to interest rate risk associated with fixed rate loans, >>>repurchase agreements and long-term debt instruments, the Bank parent company uses:
cross-currency swaps to convert foreign-currency-denominated fixed rate assets or liabilities to floating rate functional currency assets or liabilities; and
foreign exchange forward contracts to hedge the foreign exchange risk associated with available-for-sale securities.
Cash flow hedges
The Bank parent company designates cash flow hedges as part of its strategy to mitigate its risk to variability of cash flows on loans, deposits and other debt obligations by using interest rate swaps to
518

convert variable rate assets or liabilities to fixed rates. The Bank parent company also uses cross-currency swaps to convert foreign-currency-denominated fixed and floating rate assets or liabilities to fixed rate assets or liabilities based on the currency profile to which the Bank parent company elects to be exposed. Further, the Bank parent company uses derivatives to hedge its cash flows associated with forecasted transactions.
Hedge effectiveness assessment
The Bank parent company assesses the effectiveness of hedging relationships both prospectively and retrospectively. The prospective assessment is made both at the inception of a hedging relationship and on an ongoing basis, and requires the Bank parent company to justify its expectation that the relationship will be highly effective over future periods. The retrospective assessment is also performed on an ongoing basis and requires the Bank parent company to determine whether or not the hedging relationship has actually been effective. If the Bank parent company concludes, through a retrospective evaluation, that hedge accounting is appropriate for the current period, then it measures the amount of hedge ineffectiveness to be recognized in earnings.
4 Net income from interest activities
Negative interest
Negative interest income is debited to interest income and negative interest expense is credited to interest expense.
Negative interest income and expense
in 2017 2016
Negative interest income and expense (CHF million)   
Negative interest income debited to interest income (258) (173)
Negative interest expenses credited to interest expense 86 137
5 Net income/(loss) from trading activities and fair value option
in 2017 2016
Net income/(loss) from trading activities and fair value option by risk of underlying instruments (CHF million)      
Interest rate instruments 1 (24) 640
Equity instruments 1 168 (1,074)
Foreign exchange 217 (662)
Precious metals 55 129
Commodities 2 5 (7)
Credit instruments (721) (1,405)
Other instruments 101 (29)
Net income/(loss) from trading activities and fair value option    (199) (2,408)
   of which net income/(loss) from fair value option  (4,750) (174)
      of which net income/(loss)       from fair value option on liabilities    (4,750) (174)
1
Includes trading income/(loss) from related fund investments.
2
Includes energy products.
Trading activities at the Bank parent company level are only monitored and managed for entity-specific capital adequacy purposes and are not measured along divisional or individual business lines. The trading activities of the divisions or individual businesses are only monitored and managed at the Group level based on US GAAP metrics.
6 Personnel expenses
in 2017 2016
Personnel expenses (CHF million)   
Salaries 2,128 2,849
   of which variable compensation expenses  357 446
Social benefit expenses 321 598
   of which pension and other post-retirement expenses  192 387
Other personnel expenses 99 129
Personnel expenses  2,548 3,576
7 General and administrative expenses
in 2017 2016
General and administrative expenses (CHF million)   
Occupancy expenses 109 288
Information and communication technology expenses 136 220
Furniture and equipment 21 40
Fees to external audit companies 31 30
   of which fees for financial and regulatory audits 1 22 29
   of which fees for other services  9 1
Other operating expenses 2 2,773 2,528
General and administrative expenses  3,070 3,106
1
Represents total fees for financial statement, regulatory and related audit services paid by legal entity Credit Suisse AG to external audit companies.
2
Partially related to operating expenses charged by affiliated companies for services provided to the Bank parent company.
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8 Increase/(release) of provisions and other valuation adjustments, losses and extraordinary income and expenses
Increase/(release) of provisions and other valuation adjustments, and losses
in 2017 2016
Increase/(release) of provisions and other valuation adjustments, and losses (CHF million)      
Increase/(release) of provisions 153 1 77 2
Other losses 3 9
Increase/(release) of provisions and other valuation adjustments, and losses    156 86
1
Primarily related to an increase in litigation provisions.
2
Primarily related to increases in off-balance sheet provisions and litigation provisions.
Extraordinary income and expenses
in 2017 2016
Extraordinary income (CHF million)   
Gains realized from the disposal of participations 362 1 39 2
Gains realized from the disposal of tangible fixed assets 3 2 484
Extraordinary income  364 523
Extraordinary expenses (CHF million)   
Losses realized from the disposal of participations (5) 4 0
Extraordinary expenses  (5) 0
1
Primarily related to the merger of Credit Suisse (Channel Islands) Limited, the sale of Credit Suisse (Monaco) S.A.M. and the merger of another participation.
2
Primarily related to the sale and liquidation of two subsidiaries.
3
Includes realized gains from the sale of real estate (bank premises).
4
Primarily related to the liquidation of a participation.
9 Taxes
in 2017 2016
Taxes (CHF million)   
Current income tax (expense)/benefit (324) (300)
Non-income-based taxes (expense)/benefit 1 (79) (104)
Taxes  (403) (404)
1
Includes capital taxes and other non-income based taxes such as UK bank levy expenses.
For the financial year ended December 31, 2017 and 2016, the average tax rate, defined as income tax expense divided by the sum of profit before income tax, was 59% and (12)%, respectively. Income tax expense for the financial year ended December 31, 2017 and 2016 reflected a benefit of CHF 249 million and CHF 167 million, respectively, from the utilization of tax losses carried forward. The calculation is based on statutory tax rates applied to the taxable profit against which tax loss carry forwards were utilized.
10 Assets and liabilities from securities lending and borrowing, repurchase and reverse repurchase agreements
end of 2017 2016
On-balance sheet (CHF million)   
Carrying value of receivables from cash collateral paid for securities borrowed and reverse repurchase agreements – gross 75,668 40,800
Impact from master netting agreements (8,991) (17)
Carrying value of receivables from cash collateral paid for securities borrowed and reverse repurchase agreements – net  66,677 40,783
Carrying value of liabilities from cash collateral received for securities lent and repurchase agreements – gross 70,055 21,726
Impact from master netting agreements (8,991) (17)
Carrying value of liabilities from cash collateral received for securities lent and repurchase agreements – net  61,064 21,709
Off-balance sheet (CHF million)   
Carrying value of securities transferred under securities lending and borrowing and repurchase agreements 3,856 1,862
   of which transfers with the right to resell or repledge  667 700
Fair value of securities received under securities lending and borrowing and reverse repurchase agreements with the right to resell or repledge 188,142 97,482
   of which repledged  139,572 68,268
   of which resold  688 517
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11 Collateral and impaired loans
Collateralization of loans
   Secured 1 Unsecured Total

end of

Mortgages
Other
collateral

Total


2017 (CHF million)   
Due from customers 43 90,359 90,402 103,588 193,990
Residential property 3,867 0 3,867 0 3,867
Offices and commercial property 890 0 890 0 890
Manufacturing and industrial property 256 0 256 0 256
Other 63 0 63 0 63
Mortgage loans 5,076 0 5,076 0 5,076
Gross loans  5,119 90,359 95,478 103,588 199,066
Allowance for loan losses (25) (351) (376) (533) (909)
Net loans  5,094 90,008 95,102 103,055 198,157
   of which due from customers  43 90,008 90,051 103,055 193,106
   of which mortgage loans  5,051 0 5,051 0 5,051
2016 (CHF million)   
Due from customers 110 86,613 86,723 95,030 181,753
Residential property 3,766 0 3,766 0 3,766
Offices and commercial property 844 0 844 0 844
Manufacturing and industrial property 306 0 306 0 306
Other 49 0 49 0 49
Mortgage loans 4,965 0 4,965 0 4,965
Gross loans  5,075 86,613 91,688 95,030 186,718
Allowance for loan losses (13) (580) (593) (747) (1,340)
Net loans  5,062 86,033 91,095 94,283 185,378
   of which due from customers  110 86,033 86,143 94,283 180,426
   of which mortgage loans  4,952 0 4,952 0 4,952
1
Includes the market value of collateral up to the amount of the outstanding related loans. For mortgage loans, the market value of collateral is determined at the time of granting the loan and thereafter regularly reviewed according to the Bank parent company's risk management policies and directives, with maximum review periods determined by property type, market liquidity and market transparency. For impaired mortgage loans, the market value of collateral is determined annually or more frequently by credit risk management within the impairment review process.
Collateralization of off-balance sheet transactions
   Secured 1 Unsecured Total

end of

Mortgages
Other
collateral

Total


2017 (CHF million)   
Contingent liabilities 1 8,273 8,274 66,603 2 74,877
Irrevocable commitments 439 33,698 34,137 51,402 85,539
Obligations for calls on shares and additional payments 0 0 0 57 57
Off-balance sheet transactions  440 41,971 42,411 118,062 160,473
2016 (CHF million)   
Contingent liabilities 51 10,450 10,501 160,408 2 170,909
Irrevocable commitments 747 37,999 38,746 56,467 95,213
Obligations for calls on shares and additional payments 0 0 0 155 155
Off-balance sheet transactions  798 48,449 49,247 217,030 266,277
1
Includes the market value of collateral up to the notional amount of the related off-balance sheet transaction. For mortgage-backed off-balance sheet exposures, the market value of collateral is determined at the time of granting the credit facility and thereafter regularly reviewed according to the Bank parent company's risk management policies and directives, with maximum review periods determined by property type, market liquidity and market transparency. For impaired exposures, the market value of collateral is determined annually or more frequently by credit risk management within the impairment review process.
2
A majority of contingent liabilities are related to guarantees issued in favor of Group companies.
521

Impaired loans

end of

Gross
amount
outstanding
Estimated
realizable
collateral
value
1
Net
amount
outstanding


Specific
allowance
2017 (CHF million)   
Impaired loans 2,112 1,096 1,016 732
2016 (CHF million)   
Impaired loans 3,158 2 1,425 1,733 2 973
1
Represents the estimated realizable collateral value up to the related gross amount outstanding.
2
Prior period has been corrected.
Changes in impaired loans
   2017 2016 1
Due from
customers
Mortgage
loans

Total
Due from
customers
Mortgage
loans

Total
Impaired loans (CHF million)   
Balance at beginning of period  3,087 71 3,158 2,477 243 2,720
Change in organization 7 7 (198) 2 (189) 2 (387) 2
New impaired loan balances 1,536 110 1,646 3,749 119 3,868
Increase of existing impaired loan balances 88 13 101 190 10 200
Reclassifications to performing loans (182) (24) (206) (1,795) (43) (1,838)
Repayments (1,235) 3 (27) (1,262) (741) (20) (761)
Liquidation of collateral, insurance and guarantee payments (186) (11) (197) (213) (46) (259)
Write-offs (846) 0 (846) (188) (3) (191)
Sales (177) (3) (180) (177) 0 (177)
Foreign exchange translation impact (109) 0 (109) (17) 0 (17)
Balance at end of period  1,976 136 2,112 3,087 71 3,158
Changes in impaired loan classification during the year are reflected on a gross basis.
1
Prior period has been corrected.
2
Reflects the transfer of assets to Credit Suisse (Schweiz) AG on November 20, 2016, with retrospective effect as of August 1, 2016.
3
Includes CHF 115 million relating to the conversion of a loan into derivative financial instruments.
12 Trading assets and liabilities and other financial instruments held at fair value
Trading assets and other financial instruments held at fair value
end of 2017 2016
Trading assets and other financial instruments held at fair value (CHF million)      
Debt securities, money market instruments and money market transactions 41,826 13,264
   of which exchange-traded  2,256 1,968
Equity securities 5,403 3,172
Precious metals and commodities 1,400 1,150
Trading assets  48,629 17,586
Debt securities 105 104
Other 217 210
Other financial instruments held at fair value  322 314
Total trading assets and other financial instruments held at fair value    48,951 17,900
   of which carrying value    determined based on a valuation model    36,731 8,445
   of which securities eligible for repurchase transactions    in accordance with liquidity regulations    1,105 3,118
Trading liabilities and liabilities from other financial instruments held at fair value
end of 2017 2016
Trading liabilities and liabilities from other financial instruments held at fair value (CHF million)      
Debt securities, money market instruments and money market transactions 3,418 211
   of which exchange-traded  260 16
Equity securities 2,948 1,302
Trading liabilities  6,366 1,513
Structured products 60,945 61,411
Liabilities from other financial instruments held at fair value    60,945 61,411
Trading liabilities and liabilities from other financial instruments held at fair value    67,311 62,924
   of which carrying value    determined based on a valuation model    64,157 61,575
522

13 Derivative financial instruments
   Trading Hedging 1

end of 2017

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative financial instruments (CHF million)   
Forwards and forward rate agreements 398,951 324 298 0 0 0
Swaps 4,345,760 7,474 8,334 25,481 271 0
Options bought and sold (OTC) 189,387 725 848 0 0 0
Futures 64,875 0 0 0 0 0
Options bought and sold (exchange-traded) 38,640 0 0 0 0 0
Interest rate products  5,037,613 8,523 9,480 25,481 271 0
Forwards and forward rate agreements 1,314,397 9,440 10,394 0 0 0
Swaps 2 86,161 1,414 1,366 319 223 0
Options bought and sold (OTC) 369,530 2,799 2,639 0 0 0
Futures 179 0 0 0 0 0
Foreign exchange products  1,770,267 13,653 14,399 319 223 0
Forwards and forward rate agreements 7,459 47 62 0 0 0
Options bought and sold (OTC) 10,858 146 78 0 0 0
Precious metal products  18,317 193 140 0 0 0
Forwards and forward rate agreements 3 0 0 0 0 0
Swaps 66,915 2,091 1,398 0 0 0
Options bought and sold (OTC) 104,895 4,724 4,442 0 0 0
Futures 1,488 0 0 0 0 0
Options bought and sold (exchange-traded) 6,821 41 417 0 0 0
Equity/index-related products  180,122 6,856 6,257 0 0 0
Credit default swaps 19,054 233 656 0 0 0
Total return swaps 5,717 219 68 0 0 0
Other credit derivatives 14,418 62 18 0 0 0
Credit derivatives  39,189 514 742 0 0 0
Swaps 12,603 1,437 371 0 0 0
Options bought and sold (OTC) 97 11 4 0 0 0
Options bought and sold (exchange-traded) 3 0 0 0 0 0
Other derivative products 3 12,703 1,448 375 0 0 0
Derivative financial instruments 4 7,058,211 31,187 31,393 25,800 494 0
   of which replacement value determined based on a valuation model  30,774 30,962 494 0
1
Relates to derivative financial instruments that qualify for hedge accounting.
2
Including combined interest rate and foreign exchange swaps.
3
Primarily commodity and energy products.
4
Before impact of master netting agreements.
523

Derivative financial instruments (continued)
   Trading Hedging 1

end of 2016

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)

Notional
amount
Positive
replacement
value (PRV)
Negative
replacement
value (NRV)
Derivative financial instruments (CHF million)   
Forwards and forward rate agreements 92,989 32 26 0 0 0
Swaps 3,570,173 8,914 9,265 23,537 1,523 50
Options bought and sold (OTC) 101,210 592 797 0 0 0
Futures 28,120 0 0 0 0 0
Options bought and sold (exchange-traded) 186,052 1 1 0 0 0
Interest rate products  3,978,544 9,539 10,089 23,537 1,523 50
Forwards and forward rate agreements 1,119,390 16,741 18,876 0 0 0
Swaps 2 120,331 3,224 4,718 107 7 0
Options bought and sold (OTC) 354,654 5,490 5,554 0 0 0
Futures 184 0 0 0 0 0
Foreign exchange products  1,594,559 25,455 29,148 107 7 0
Forwards and forward rate agreements 7,373 106 90 0 0 0
Options bought and sold (OTC) 21,138 377 383 0 0 0
Precious metal products  28,511 483 473 0 0 0
Forwards and forward rate agreements 1 0 0 0 0 0
Swaps 39,114 1,475 1,392 0 0 0
Options bought and sold (OTC) 59,115 2,096 1,995 0 0 0
Futures 19 0 0 0 0 0
Options bought and sold (exchange-traded) 4,104 33 95 0 0 0
Equity/index-related products  102,353 3,604 3,482 0 0 0
Credit default swaps 23,730 856 863 0 0 0
Total return swaps 2,448 17 98 0 0 0
Other credit derivatives 20,839 130 136 0 0 0
Credit derivatives  47,017 1,003 1,097 0 0 0
Forwards and forward rate agreements 0 0 0 0 0 0
Swaps 9,918 1,429 519 0 0 0
Options bought and sold (OTC) 189 10 3 0 0 0
Other derivative products 3 10,107 1,439 522 0 0 0
Derivative financial instruments 4 5,761,091 41,523 44,811 23,644 1,530 50
   of which replacement value determined based on a valuation model  41,384 44,664 1,530 50
1
Relates to derivative financial instruments that qualify for hedge accounting.
2
Including combined interest rate and foreign exchange swaps.
3
Primarily commodity and energy products.
4
Before impact of master netting agreements.
Positive and negative replacement values before and after consideration of master netting agreements
end of 2017 2016
Positive and negative replacement values – before consideration of master netting agreements (CHF million)      
Positive replacement values – trading and hedging 31,681 43,053
Negative replacement values – trading and hedging 31,393 44,861
Positive and negative replacement values – after consideration of master netting agreements (CHF million)      
Positive replacement values – trading and hedging 1 9,046 8,098
Negative replacement values – trading and hedging 1 8,373 8,055
1
Netting includes counterparty exposure and cash collateral netting.
Positive replacement values by counterparty type
end of 2017 2016
Positive replacement values by counterparty type (CHF million)      
Central clearing counterparties 736 403
Banks and securities dealers 6,093 4,922
Other counterparties 1 2,217 2,773
Positive replacement values  9,046 8,098
1
Primarily related to bilateral OTC derivative contracts with clients.
524

Fair value hedges
in 2017 2016
Gains/(losses) on derivative financial instruments recognized in income (CHF million)      
Interest rate products (327) (492)
Gains/(losses) on derivative financial instruments recognized in income    (327) (492)
Gains/(losses) on hedged items recognized in income (CHF million)      
Interest rate products 328 496
Gains/(losses) on hedged items recognized in income  328 496
Details of fair value hedges (CHF million)   
Net gains/(losses) on the ineffective portion 1 4
All gains/(losses) are recognized in net income/(loss) from trading activities and fair value option.
Cash flow hedges
in 2017 2016
Deferred unrealized gains/(losses) on derivative financial instruments related to cash flow hedges (CHF million)         1
Balance at beginning of period  (25) 15
Interest rate products (50) 32
Gains/(losses) on derivative financial instruments deferred during reporting period    (50) 32
Interest rate products 2 (14) 21
Deferred gains/(losses) on derivative financial instruments reclassified into income    (14) 21
Transfer of assets to Credit Suisse (Schweiz) AG effective August 1 (51)
Balance at end of period  (61) (25)
Details of cash flow hedges (CHF million)   
Net gains/(losses) on the ineffective portion 2 (2) (1)
1
Included in the compensation account within other assets or other liabilities.
2
Included in net income/(loss) from trading activities and fair value option.
As of December 31, 2017, the net loss associated with cash flow hedges expected to be reclassified from other assets and other liabilities to the statement of income within the next 12 months was CHF 30 million.
As of December 31, 2017, the maximum length of time over which the Bank parent company hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was five years.
> Refer to “Use of derivative financial instruments and hedge accounting” in Note 3 – Risk management, use of derivative financial instruments and hedge accounting for further information.
525

14 Financial investments
end of    2017 2016
Carrying
value
Fair
value
Carrying
value
Fair
value
Financial investments (CHF million)   
Debt securities 17,498 17,515 6,267 6,274
   of which held-to-maturity  13,505 13,522 3,428 3,435
   of which available-for-sale  3,993 3,993 2,839 2,839
Equity securities 1,026 1,048 622 622
   of which qualified participations 1 821 841 455 456
Real estate 2 38 38 36 36
Other 3 29 29 31 31
Financial investments  18,591 18,630 6,956 6,963
   of which securities eligible for repurchase transactions in accordance with liquidity regulations  6 0
1
Includes participations held in financial investments with at least 10% in capital or voting rights.
2
Real estate acquired from the lending business (repossessed assets) and classified as held-for-sale is carried at lower of cost and liquidation value.
3
Includes other non-financial assets acquired from the lending business (repossessed assets) such as commodities, vehicles and other goods.
Debt securities by counterparty rating
end of 2017 2016
Debt securities by counterparty rating (CHF million)   1
AAA to AA– 3,993 2,611
BB+ to B– 55 128
No rating 2 13,450 3,528
Debt securities  17,498 6,267
1
Ratings are based on external data from Standard & Poor's.
2
Mainly related to funding in the form of bail-in capital provided to Credit Suisse (Schweiz) AG.
15 Other assets and other liabilities
end of 2017 2016
Other assets (CHF million)   
Compensation account 1,831 181
Indirect taxes and duties 136 133
Other 1 407 949
Other assets  2,374 1,263
Other liabilities (CHF million)   
Indirect taxes and duties 24 26
Other 2 540 419
Other liabilities  564 445
1
Includes receiveables from settlement accounts, coupons, internal clearing accounts and other miscellanenous assets.
2
Includes payables from settlement accounts, accounts payable for goods and services purchased, internal clearing accounts and other miscellanenous liabilities.
16 Assets pledged
end of    2017 2016
Carrying
value
Actual
liabilities
Carrying
value
Actual
liabilities
Assets pledged (CHF million)   1
Due from customers 94 94 221 221
Trading assets 27,010 26,396 372 217
Assets pledged  27,104 26,490 593 438
1
Excludes assets pledged in connection with securities lending and borrowing, repurchase agreements and reverse-repurchase agreements.
526

17 Pension plans
As of December 31, 2017 and 2016, the Bank parent company’s did not have any liabilities due to own pension plans.
> Refer to “Note 29 – Pension and other post-retirement benefits” in VIII –Consolidated financial statements – Credit Suisse (Bank) for further information.
Swiss pension plan
The Bank parent company’s employees are covered by the pension plan of the “Pensionskasse der Credit Suisse Group AG (Schweiz)” (the Swiss pension plan). Most of the Group parent company’s Swiss subsidiaries and a few companies that have close business and financial ties with the Group parent company participate in this plan. The Swiss pension plan is an independent self-insured pension plan set up as a trust and qualifies as a defined contribution plan (savings plan) under Swiss law.
The Swiss pension plan’s annual financial statements are prepared in accordance with Swiss GAAP FER 26 based on the full population of covered employees. Individual annual financial statements for each participating company are not prepared. As a multi-employer plan with unrestricted joint liability for all participating companies, the economic interest in the Swiss pension plan’s over- or underfunding is allocated to each participating company based on an allocation key determined by the plan.
International pension plans
The Bank parent company’s international employees are covered by mandatory and supplementary pension plans in various locations. These are defined benefit and defined contribution plans, which cover benefits such as disability, old age and death, termination and sickness.
Employer contribution reserves
           

Employer contribution
reserves – notional


Amount subject
to waiver


Employer contribution
reserves – net
1 Increase/(Release) of
employer contribution
reserves included in
personnel expenses
end of / in 2017 2016 2017 2016 2017 2016 2017 2016
CHF million   
Swiss pension plan 20 20 0 0 20 20 0 (2)
Total  20 20 0 0 20 20 0 (2)
1
In line with Swiss GAAP statutory accounting guidance, contributions to the employer contribution reserves are not recorded in the Bank parent company's statutory balance sheet.
Pension plan economic benefit/(obligation), pension contributions and pension expenses
        
Over/(Under)
-funding
Economic benefit/
(obligation) recorded by
Bank parent company
2

Pension contributions
Pension expenses
included in
personnel expenses
end of / in 2017 2016 2017 2016 Change 2017 2016 2017 2016
CHF million   
Swiss pension plan – status overfunded 887 1 726 1 182 362 182 362 3
International pension plans – underfunded (20) (8) (20) (8) (12) 0 0 (11) 4
International pension plans – without over-/underfunding 0 0 0 0 0 21 21 21 21
Total  867 718 (20) (8) (12) 203 383 192 387
1
Represents the Bank parent company's share of 39.0% and 58.9% in the total over/(under)funding of the Swiss pension plan of CHF 2,275 million and CHF 1,233 million as of December 31, 2017 and 2016, respectively.
2
In line with Swiss GAAP statutory accounting guidance, the Bank parent company's economic benefit from its share in the overfunding of the Swiss pension plan is not recorded in the Bank parent company's statutory balance sheet.
3
Includes a release of employer contribution reserves of CHF 2 million.
527

18 Issued structured products
end of    2017 2016
      Not
bifurcated
1
Bifurcated

Total
Not
bifurcated
1
Bifurcated

Total
Liabilities
from other
financial
instruments
held at
fair value
2


Value of
underlying
instrument




Value of
derivative
1




Liabilities
from other
financial
instruments
held at
fair value
2


Value of
underlying
instrument




Value of
derivative
1




Carrying value of issued structured products by underlying risk of the embedded derivative (CHF million)      
Interest rates 
   Structured products with own debt  14,414 0 0 14,414 16,505 0 0 16,505
   Structured products without own debt  773 0 0 773 736 0 0 736
Equity 
   Structured products with own debt  37,694 0 0 37,694 36,331 0 0 36,331
Foreign exchange 
   Structured products with own debt  644 0 0 644 420 0 0 420
   Structured products without own debt  0 528 (2) 526 0 723 (4) 719
Commodities / precious metals 
   Structured products with own debt  2,226 0 0 2,226 1,455 0 0 1,455
   Structured products without own debt  0 56 0 56 0 83 (2) 81
Credit 
   Structured products with own debt  5,082 0 0 5,082 5,793 0 0 5,793
Other 3
   Structured products with own debt  112 0 0 112 171 0 0 171
Total  60,945 584 (2) 61,527 61,411 806 (6) 62,211
1
Carried at fair value.
2
Reflects balance sheet classification.
3
Includes structured products where the underlying risk relates to hedge funds or other products with multiple underlying risks.
19 Unsecured senior debt and structured notes
end of    2017 2016

Original
maturity
up to 1 year
Original
maturity
greater
than 1 year



Total

Original
maturity
up to 1 year
Original
maturity
greater
than 1 year



Total
Unsecured senior debt (CHF million)   
Total unsecured senior debt 1, 2 7,662 81,107 3 88,769 5,495 91,968 3 97,463
   of which recorded in medium-term notes  0 0
   of which recorded in bonds and mortgage-backed bonds  88,769 97,463
Unsecured structured notes (CHF million)   
Total unsecured structured notes  10,116 4 50,171 60,287 2,452 58,223 60,675
   of which recorded in liabilities from other financial instruments held at fair value  60,172 60,675
   of which recorded in bonds and mortgage-backed bonds  115 0
1
Includes guaranteed debt.
2
Excludes senior unsecured debt included in due to banks and customer deposits as well as certificates of deposits and bankers acceptances.
3
Includes bail-in instruments of CHF 31,503 million and CHF 22,423 million as of December 31, 2017 and 2016, respectively, with Credit Suisse Group AG.
4
Since 2017, maturity is determined based on the first date at which a noteholder can request repayment. In 2016, maturity was determined based on the original maturity date.
528

20 Provisions and valuation adjustments

2017
Balance
at
beginning
of period

Change
in orga-
nization

Utilized
for
purpose


Reclassifi-
cations
Foreign
exchange
translation
differences

Recoveries,
interest
past due
New
charges
to income
statement

Releases
to income
statement

Balance
at end
of period
Provisions (CHF million)   
Provisions for pension benefit obligations 8 22 0 0 2 (12) 20 1
Provisions for off-balance sheet default risks 206 0 (3) 0 (8) 0 133 (175) 153 2,3
Provisions for other business risks 17 (1) (2) 0 0 0 17 (1) 30 2
Restructuring provisions 28 (2) (47) 0 0 0 63 (28) 14 4
Other provisions 329 (12) (181) 0 (2) 1 201 (5) 331 5
Provisions  588 7 (233) 0 (10) 1 416 (221) 548
Valuation adjustments for default and country risks (CHF million)   6
Valuation adjustments for default and country risks    1,342 0 (870) 0 (46) 65 1,191 (773) 909
   of which valuation adjustments for default risks    from impaired receivables    974 0 (870) 0 (31) 65 967 (373) 732
   of which valuation adjustments for inherent risks  368 0 0 0 (15) 0 224 (400) 177
1
Partially discounted at rates between 1.20% and 7.00%.
2
Provisions are not discounted due to their short-term nature.
3
Provisions are mainly related to irrevocable loan commitments and guarantees.
4
Partially discounted at rates between 0.1% and 1.35%.
5
Includes provisions in respect of litigation claims of CHF 275 million and CHF 257 million as of December 31, 2017 and 2016, respectively; partially discounted at rates between 2.90% and 16.50%.
6
Changes in impaired loan classification during the year and related movements in valuation adjustments are reflected on a gross basis.
21 Composition of share capital, conversion and reserve capital
end of    2017 2016


Quantity
Total
nominal value
(CHF million)


Quantity
Total
nominal value
(CHF million)
Share capital   
Registered shares (at CHF 1 par value per share) 4,399,680,200 4,400 1 4,399,680,200 4,400 1
Share capital  4,400 4,400
Conversion and reserve capital   2
   Unlimited conversion capital (at CHF 1 par value per share) 3 unlimited unlimited unlimited unlimited
Reserve capital (at CHF 1 par value per share) 4 4,399,680,200 4,400 4,399,665,200 4,400
   of which used for capital increases  0 0 0 0
   of which reserved for planned capital increases  0 0 0 0
1
The dividend eligible capital equals the total nominal value. As of December 31, 2017 and 2016, the total nominal value of registered shares was CHF 4,399,680,200 and fully paid.
2
Represents authorized capital.
3
For information on principal characteristics of unlimited conversion capital, refer to Article 4d in the Articles of Association of the Bank parent company.
4
For information on principal characteristics of reserve capital, refer to Article 4e in the Articles of Association of the Bank parent company.
Non-distributable reserves
As of December 31, 2017 and 2016, the amount of non-distributable reserves in accordance with the Swiss Code of Obligations and the Bank parent company’s articles of association was CHF 2,200 million. Not reflected in this amount are reserves which the Bank parent company is required to retain in order to meet the regulatory capital requirements as a going concern.
Transactions with shareholders
In 2016, the Group parent company made an a-fonds-perdu contribution in kind (i.e., without consideration) of CHF 4 million to the Bank parent company consisting of 100% participating interests in FIDES Treasury Services AG. FIDES Treasury Services AG was subsequently transferred to Credit Suisse (Schweiz) AG in connection with the transfer of assets on November 20, 2016.
> Refer to “Statement of changes in equity” and “Note 1 – Business activities, developments and subsequent events” for further information on transactions with shareholders.
529

22 Significant shareholders and groups of shareholders
end of    2017 2016

Number
of shares
(million)
Total
nominal
value
(CHF million)

Share-
holding
(%)

Number
of shares
(million)
Total
nominal
value
(CHF million)

Share-
holding
(%)
Direct shareholders   
Credit Suisse Group AG 4,400 1 4,400 100.00 4,400 1 4,400 100.00
Indirect shareholders through Credit Suisse Group AG   2
Chase Nominees Ltd. 3 567 567 12.88 705 705 16.03
Nortrust Nominees Ltd. 3 242 242 5.49 237 237 5.39
The Bank of New York Mellon 3 4 226 226 5.14
Crescent Holding GmbH 4 224 224 5.10
1
All shares with voting rights.
2
Pro-forma numbers calculated based on the percentage interest held in Group shares as per the share register of the Group on December 31 of the reporting period. Includes shareholders registered as nominees or ADS depositary bank.
3
Nominee holdings exceeding 2% are registered with a right to vote only if the nominee confirms that no individual shareholder holds more than 0.5% of the outstanding share capital or if the nominee discloses the identity of any beneficial owner holding more than 0.5% of the outstanding capital.
4
Participation was lower than the disclosure threshold of 5%.
Information received from shareholders of the Group parent company not registered in the share register
In addition to the shareholdings registered in the share register of the Group parent company, the Group has obtained the following information from its shareholders and reported it to the SIX Swiss Exchange (SIX) in accordance with the notification requirements of the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading. These shareholders may hold their shareholdings in Group shares through a nominee.
In a disclosure notification that the Group published on November 9, 2013, the Group was notified that as of November 4, 2013, Harris Associates L.P. held 81.5 million shares, or 5.17%, of the registered Group shares issued as of the date of the notified transaction. No further disclosure notification was received from Harris Associates L.P. relating to holdings of registered Group shares since 2013. This position includes the reportable position of Harris Associates Investment Trust (4.97% of the voting rights), as published by the SIX on November 28, 2017.
In a disclosure notification that the Group published on May 12, 2017, the Group was notified that as of May 8, 2017, Norges Bank held 106.1 million shares, or 5.08% of the voting rights, of the registered Group shares issued as of the date of the notified transaction. In a disclosure notification that the Group published on February 15, 2018, the Group was notified that Norges Bank’s shareholdings and voting rights of Group shares had fallen below the 5% threshold as of February 13, 2018.
In 2017, the Group received disclosure notifications from The Olayan Group and The Capital Group Companies, Inc. that their holdings of registered Group shares and voting rights had fallen below the 5% threshold. BlackRock, Inc.’s as well as Qatar Holding LLC’s holdings of registered Group shares and voting rights remained below the 5% threshold both as of December 31, 2017 and as of December 31, 2016.
Shareholders with a qualified participation
As of the date of the most recent notification received by the Group on August 16, 2017, Qatar Investment Authority (through Qatar Holding LLC) held approximately 4.94% of the Group’s common shares and 10.97% purchase rights in the form of contingent convertible capital instruments, which will be converted into shares only in situations where the Group no longer meets specific regulatory capital requirements. As of the date of the most recent notification received by the Group on June 2, 2017, The Olayan Group (through Crescent Holding GmbH) held approximately 4.93% of the Group’s common shares and 5.29% purchase rights consisting of 5.242% purchase rights in the form of contingent convertible capital instruments, which will be converted into shares only in situations where the Group no longer meets specific regulatory capital requirements, and 0.048% from short put options. In addition to the Group, which is the direct shareholder of the Bank parent company, Qatar Investment Authority and The Olayan Group are shareholders with a qualified participation in accordance with Bank Law.
> Refer to “Note 24 – Amounts receivable from and amounts payable to related parties” for further information on shareholders with a qualified participation.
530

23 Shareholdings of the Board of Directors, Executive Board and employees and information on compensation plans
> Refer to “V – Compensation” for a comprehensive disclosure of compensation to the Board of Directors and the Executive Board of Credit Suisse Group AG.
> Refer to “Note 22 – Shareholdings of the Board of Directors, Executive Board and employees” in VII –Parent company financial statements – Credit Suisse Group for information on shareholdings of the Board of Directors and the Executive Board of the Bank parent company.
Share-based awards outstanding
end of    2017 2016
Number
of share-
based
awards
outstanding
in million




Fair value in
CHF million
Number
of share-
based
awards
outstanding
in million




Fair value in
CHF million
Share-based awards   1
Employees 21.7 377 19.8 290
Share-based awards  21.7 377 19.8 290
1
All share-based compensation plans of the Bank parent company are plans based on virtual shares and either settled in shares of the Group or in cash on the basis of the fair value of the Group shares.
All members of the Board of Directors and the Executive Board of the Bank parent company are also members of the Board of Directors and the Executive Board of the Group parent company. Compensation to members of the Executive Board is determined by the Group parent company on the basis of their overall function and responsibilities in the Group and paid by different legal entities of the Group depending on work location, local contracts, laws and regulations. A presentation of deferred share-based compensation awards to members of the Executive Board recorded by the Bank parent company would not appropriately reflect the Executive Board of the Bank parent company, as it would only consider those members for whom compensation is administrated by the Bank parent company.
As of December 31, 2017 and 2016, the Bank parent company did not have any option plans with outstanding options.
Compensation plans
For 2016, the Bank parent company granted share awards, performance share awards and Contingent Capital Awards (CCA) as deferred compensation in February 2017.
Deferred compensation is awarded to employees with total compensation greater than or equal to CHF/USD 250,000 or the local currency equivalent. Employees with total compensation below CHF/USD 250,000 or the local currency equivalent received variable incentive compensation in the form of an immediate cash award. Performance share awards were granted to managing directors and material risk takers and controllers, CCA were granted to managing directors and directors.
For 2017 and 2016, all share-based compensation plans of the Bank parent company were either settled in shares of the Group parent company (Group shares) or in cash on the basis of the fair value of the Group shares.
Share awards
Share awards granted in February 2017 are similar to those granted in January 2016. Each share award granted entitles the holder of the award to receive one Group share, subject to service conditions. Share awards vest over three years with one third of the share awards vesting on each of the three anniversaries of the grant date (ratable vesting), with the exception of awards granted to individuals classified as risk managers or senior managers under the UK PRA Remuneration Code. Share awards granted to risk managers vest over five years with one fifth of the award vesting on each of the five anniversaries of the grant date, while share awards granted to senior managers vest over five years commencing on the third anniversary of the grant date, with one fifth of the award vesting on each of the third to seventh anniversaries of the grant date. Share awards are expensed over the service period of the awards. The value of the share awards is solely dependent on the Group share price at the time of delivery.
On February 15, 2017, the Bank parent company granted 6.5 million share awards with a total value of CHF 100 million. The number of share awards granted to employees was generally determined by dividing the deferred component of variable compensation being granted as share awards by the average price of a Group share over the ten consecutive trading days ended February 28, 2017. The fair value of each share award was CHF 15.42, the Group share price on the grant date. The majority of share awards granted include the right to receive dividend equivalents on vested shares.
Performance share awards
Managing directors and all >>>material risk takers and controllers (employees whose activities are considered to have a potentially material impact on the Group’s risk profile) received a portion of their deferred variable compensation in the form of performance share awards. Performance share awards are similar to share
531

awards, except that the full balance of outstanding performance share awards, including those awarded in prior years, are subject to performance-based malus provisions. Performance share awards granted in 2015 were subject to a negative adjustment in the event of a negative strategic return on equity (ROE) of the Group, which was calculated based on Core Results, adjusted for the goodwill impairment charge related to the re-organization of the former Investment Banking division. However, following the change in the Group’s financial reporting structure in 2015, the strategic ROE is no longer calculated, and consequently, any negative adjustment to performance share awards is subject to the discretion of the Compensation Committee. Starting in 2016, the ROE calculation is based on adjusted results, which the Compensation Committee considered as the most accurate reflection of the operating performance of the businesses.
Performance share awards granted from 2016 and onward are subject to a negative adjustment in the event of a divisional loss by the division in which the employees worked as of December 31, 2017, or a negative ROE of the Group, whichever results in a larger adjustment. For employees in corporate functions and the Strategic Resolution Unit, the negative adjustment only applies in the event of a negative ROE of the Group and is not linked to the performance of the divisions. The basis for the ROE calculation may vary from year to year, depending on the Compensation Committee’s determination for the year in which the performance shares are granted.
On February 15, 2017, the Bank parent company granted 4.3 million performance share awards with a total value of CHF 65 million. The number of performance share awards granted to employees was generally determined by dividing the deferred component of variable compensation being granted as performance share awards by the average price of a Group share over the ten consecutive trading days ended February 28, 2017. The fair value of each performance share award was CHF 15.42, the Group share price on the grant date. The majority of performance share awards granted include the right to receive dividend equivalents on vested shares.
Contingent Capital Awards
CCA were granted in February 2017 and January 2016 to managing directors and directors as part of the 2016 and 2015 deferred variable compensation and have rights and risks similar to those of certain contingent capital instruments issued by the Group in the market. CCA are scheduled to vest on the third anniversary of the grant date, other than those granted to individuals classified as risk managers or senior managers under the UK PRA Remuneration Code, where CCA vest on the fifth and seventh anniversaries of the grant date, respectively, and will be expensed over the vesting period. CCA provide a conditional right to receive semi-annual cash payments of interest equivalents until settled, with rates being dependent upon the vesting period and currency of denomination:
CCA granted in 2017 and 2016 that are denominated in US dollars receive interest equivalents at a rate of 4.27% and 5.41%, respectively, per annum over the six-month US dollar >>>London Interbank Offered Rate (LIBOR) and vest three, five or seven years from the date of grant;
CCA granted in 2017 and 2016 that are denominated in Swiss francs receive interest equivalents at a rate of 3.17% and 4.23%, respectively, per annum over the six-month Swiss franc LIBOR and vest three years from the date of grant;
CCA granted in 2017 that are denominated in Swiss francs receive interest equivalents at a rate of 3.03% per annum over the six-month Swiss franc LIBOR and vest five years from the date of grant; and
CCA granted in 2017 that are denominated in Swiss francs receive interest equivalents at a rate of 2.93% per annum over the six-month Swiss franc LIBOR and vest seven years from the date of grant.
The rates were set in line with market conditions at the time of grant and existing high-trigger and low-trigger contingent capital instruments that the Group has issued. For CCA granted in February 2017, employees who received compensation in Swiss francs received CCA denominated in Swiss francs and all other employees received CCA denominated in US dollars.
As CCA qualify as going-concern loss-absorbing capital of the Group, the timing and form of distribution upon settlement is subject to approval by >>>FINMA. At settlement, employees will receive either a contingent capital instrument or a cash payment based on the fair value of the CCA. The fair value will be determined by the Group. In the case of a cash settlement, the CCA award will be converted into the local currency of each respective employee.
CCA have loss-absorbing features such that prior to settlement, the principal amount of the CCA would be written down to zero and forfeited if any of the following trigger events were to occur:
the Group’s reported common equity tier 1 (CET1) ratio falls below 7%; or
FINMA determines that cancellation of the CCA and other similar contingent capital instruments is necessary, or that the Group requires public sector capital support, in either case to prevent it from becoming insolvent or otherwise failing.
On February 15, 2017 and January 19, 2016, the Bank parent company awarded CHF 37 million and CHF 35 million, respectively, of CCA that are expensed over the vesting period from the grant date.
Other cash awards
Other cash awards include certain share and performance share awards settled in cash.
532

Deferred compensation expenses
in 2017 2016
Deferred compensation expense (CHF million)   
Share awards 1 125 72
Contingent Capital share awards 9 4
Performance share awards 87 28
Contingent Capital Awards (cash awards) 40 33
Other cash awards 24 20
Discontinued plans 2 1 3
Deferred compensation expense  286 160
1
Includes special share awards.
2
Includes all plans that are discontinued but may still incur deferred compensation expense until final vesting of the related awards.
24 Amounts receivable from and amounts payable to related parties
end of    2017 2016
Amounts
receivable
Amounts
payable
Amounts
receivable
Amounts
payable
Amounts receivable from and/or payable to related parties (CHF million)   
Shareholders with a qualified participation 3,514 22,790 3,011 11,595
Group companies 210,033 141,812 196,262 84,846
Affiliated companies 688 561 6,193 530
Members of governing bodies 1 37 103 28 54
1
Includes both the governing bodies of the Bank parent company (Credit Suisse AG) and the governing bodies of the Group holding company (Credit Suisse Group AG). Governing bodies include members of the Board of Directors, the Executive Board and the statutory auditors and companies controlled by members of each of these bodies.
Significant off-balance sheet transactions
As part of the normal course of business, the Bank parent company issues guarantees, loan commitments and enters into other agreements with group companies which are recorded as off-balance sheet transactions by the Bank parent company. As of December 31, 2017 and 2016, the Bank parent company had contingent liabilities of CHF 70,015 million and CHF 164,684 million, respectively, and irrevocable loan commitments of CHF 3,395 million and CHF 2,036 million, respectively, of which substantially all were related to transactions with group companies.
As shareholder of Credit Suisse International, an unlimited company incorporated in England and Wales, the Bank parent company has joint and several unlimited obligations to meet any insufficiency in the assets in the event of liquidation.
Additional information on related party transactions
Transactions (such as securities transactions, payment transfer services, borrowings and compensation for deposits) with related parties are carried out on an arm’s length basis.
> Refer to “Off-balance sheet transactions”, “Statement of changes in equity” and “Note 1 – Business activities, developments and subsequent events” for further information on related party transactions.
Sales and Trading Services
On November 20, 2016, with retrospective effect between the parties as of August 1, 2016, the Bank parent company entered into a contractual relationship with Credit Suisse (Schweiz) AG. The purpose of this contractual relationship is to collaboratively operate the Swiss portion of the former STS business while acting independently, with each of Credit Suisse (Schweiz) AG and the Bank parent company acting in its own name externally and not in joint name. The collaboration does not have legal effects for external parties and has been entered into for a fixed minimum period of three years, renewable in three year increments. Net profits of the collaboration are shared equally between the Bank parent company and Credit Suisse (Schweiz) AG. Net losses are shared equally between the Bank parent company and Credit Suisse (Schweiz) AG, with the maximum loss participation for Credit Suisse (Schweiz) AG limited to 50% of the aggregated gains reported by the parties with respect to the collaboration for the preceding three financial years. For the three financial years until December 31, 2018, including Credit Suisse (Schweiz) AG’s first financial year from August 1 to December 31, 2016, the maximum loss participation is determined by a fixed amount for the first year, and by a combination of a fixed amount and a variable amount depending on prior period net profits with respect to the collaboration for the following two years.
533

25 Total assets by country rating
end of    2017 2016
Internal ratings CHF million 2 % CHF million 2 %
Total assets by internal country rating (CHF million)   
AAA 165,966 28.8% 162,068 31.9%
AA 253,537 44.0% 186,255 36.7%
A 34,106 5.9% 31,273 6.2%
BBB 13,190 2.3% 15,751 3.1%
BB 9,103 1.6% 6,232 1.2%
B 5,227 0.9% 3,549 0.7%
CCC 6,943 1.2% 7,793 1.5%
CC 0 0.0% 1,325 0.3%
C 41 0.0% 0 0.0%
D 156 0.0% 0 0.0%
Foreign assets 488,269 84.7% 414,246 81.6%
Domestic assets 87,949 15.3% 93,554 18.4%
Total assets  576,218 100.0% 507,800 100.0%
1
Internal ratings are calibrated to the long-term issuer credit ratings of Standard & Poor's for the respective sovereigns. Internal country ratings may differ from Standard & Poor's respective country ratings.
2
Net balance sheet exposure by country rating of risk domicile.
26 Fiduciary transactions
end of 2017 2016
Fiduciary transactions (CHF million)   
Fiduciary placements with third-party institutions 2,729 2,757
Fiduciary transactions  2,729 2,757
27 Assets under management
Assets under management
Assets under management include assets for which the Bank parent company provides investment advisory or discretionary asset management services, investment fund assets and assets invested in other investment-fund-like pooled investment vehicles managed by the Bank parent company. The classification of assets under management is conditional upon the nature of the services provided by the Bank parent company and the clients’ intentions. Assets are individually assessed on the basis of each client’s intentions and objectives and the nature of the banking services provided to that client. In order to be classified as assets under management, the Bank parent company must currently or in the foreseeable future expect to provide a service where the involvement of the Bank parent company’s banking or investment expertise (e.g., as asset manager or investment advisor) is not purely executional or custodial in nature.
Assets under custody are client assets held mainly for execution-related or safekeeping/custody purposes only and therefore are not considered assets under management since the Bank parent company does not generally provide asset allocation or financial advice.
Assets of corporate clients and public institutions that are used primarily for cash management or transaction executional purposes for which no investment advice is provided are classified as commercial assets or assets under custody and therefore do not qualify as assets under management.
For the purpose of classifying assets under management, clients with multiple accounts are assessed from an overall relationship perspective. Accounts that are clearly separate from the remainder of the client relationship and represent assets held for custody purposes only are not included as assets under management.
534

The initial classification of the assets may not be permanent as the nature of the client relationship is reassessed on an on-going basis. If changes in client intent or activity warrant reclassification between client asset categories, the required reclassification adjustments are made immediately when the change in intent or activity occurs.
Reclassifications between assets under management and assets held for transaction-related or custodial purposes result in corresponding net asset inflows or outflows.
A portion of the Bank parent company’s assets under management results from double counting. Double counting arises when assets under management are subject to more than one level of asset management services. Each separate advisory or discretionary service provides additional benefits to the client and represents additional income for the Bank parent company. Specifically, double counting primarily results from the investment of assets under management in collective investment instruments managed by the Bank parent company. The extent of double counting is disclosed in the following table.
Assets under management
end of 2017 2016
Assets under management (CHF billion)   
Assets in collective investment instruments managed by Credit Suisse AG 0.2 68.9
Assets with discretionary mandates 88.5 166.8
Other assets under management 391.3 345.4
Assets under management (including double counting)  480.0 581.1
   of which double counting  6.5
Changes in assets under management
2017 2016
Changes in assets under management (CHF billion)   
Assets under management at beginning of period 1 581.1 1,015.8
Net new assets/(Net asset outflows) 28.0 21.1
Market movements, interest, dividends and foreign exchange 31.3 12.2
   of which market movements, interest and dividends 2 33.2 7.0
   of which foreign exchange  (1.9) 5.2
Other effects (160.4) 3 (468.0) 4
Assets under management at end of period 1 480.0 581.1
1
Including double counting.
2
Net of commissions and other expenses and net of interest expenses charged.
3
Includes a reduction in assets under management of CHF 167.6 billion related to the transfer of the Swiss-related asset management business from the Bank parent company to Credit Suisse Asset Management (Schweiz) AG.
4
Includes a reduction in assets under management of CHF 508.1 billion related to the transfer of assets from the Bank parent company to Credit Suisse (Schweiz) AG on November 20, 2016, with retrospective effect as of August 1, 2016, partially offset by the impact of Credit Suisse (Schweiz) AG's assets that remained invested in products managed by the Bank parent company.
Net new assets
Net new assets measure the degree of success in acquiring assets under management or changes in assets under management through warranted reclassifications. The calculation is based on the direct method, taking into account individual cash payments, security deliveries and cash flows resulting from loan increases or repayments. Interest and dividend income credited to clients and commissions, interest and fees charged for banking services are not taken into account when calculating net new assets, as such charges are not directly related to the Bank parent company’s success in acquiring assets under management. Similarly, changes in assets under management due to currency and market volatility as well as asset inflows and outflows due to the acquisition or divestiture of businesses are not part of net new assets.
535

Proposed appropriation of retained earnings
Proposed appropriation of retained earnings
end of 2017
Retained earnings (CHF million)   
Retained earnings carried forward 0
Net profit 225
Retained earnings available for appropriation  225
Dividend 10
Retained earnings to be carried forward  215



536


Additional information
Statistical information
Other information
537


Statistical information
Statistical information – Group
Set forth below is statistical information for the Group required under the US Securities and Exchange Commission’s (SEC) specialized industry guide for bank holding companies – Industry Guide 3. The tables are based on information in VI – Consolidated financial statements – Credit Suisse Group.
Average balances and interest rates
in    2017 2016 2015
Average
balance
Interest
income
Average
rate
Average
balance
Interest
income
Average
rate
Average
balance
Interest
income
Average
rate
Assets (CHF million, except where indicated)   
Cash and due from banks
   Switzerland  1,074 (195) 1 (18.16)% 1 369 (75) 1 (20.33)% 274 2 0.73%
   Foreign  31,058 302 0.97% 44,196 199 0.45% 41,493 154 0.37%
Interest-bearing deposits with banks
   Switzerland  37 0 0.00% 16 0 0.00% 29 0 0.00%
   Foreign  693 3 0.43% 796 5 0.63% 924 12 1.30%
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions     2
   Switzerland  4,236 39 0.92% 2,122 21 0.99% 1,411 17 1.20%
   Foreign  144,817 2,476 1.71% 146,474 2,746 1.87% 148,552 2,608 1.76%
Trading assets
   Switzerland  1,047 46 4.39% 1,078 51 4.73% 1,357 57 4.20%
   Foreign  146,817 6,651 4.53% 169,850 7,432 4.38% 201,124 8,988 4.47%
Investment securities
   Switzerland  513 2 0.39% 633 2 0.32% 669 3 0.45%
   Foreign  1,966 45 2.29% 2,133 58 2.72% 2,310 62 2.68%
Loans
   Switzerland  154,621 2,543 1.64% 154,357 2,487 1.61% 154,628 2,690 1.74%
   Foreign  122,524 3,436 2.80% 121,145 3,142 2.59% 121,033 2,723 2.25%
Other interest-earning assets
   Switzerland  1,105 19 1.72% 1,932 39 2.02% 3,019 114 3.78%
   Foreign  62,925 1,690 2.69% 82,307 1,267 1.54% 103,321 1,911 1.85%
Interest-earning assets  673,433 17,057 2.53% 727,408 17,374 2.39% 780,144 19,341 2.48%
Specific allowance for losses (5,209) (4,827) (4,738)
Non-interest-earning assets 205,759 205,424 207,181
Total assets  873,983 928,005 982,587
Percentage of assets attributable to foreign activities 78.04% 79.06% 79.94%
1
Includes negative interest income from deposits placed with the Swiss National Bank due to negative interest rates beginning in 2015. The respective principal of such interest is being reported under non-interest-earning assets.
2
Average balances of central bank funds sold, securities purchased under resale agreements and securities borrowing transactions are reported net in accordance with ASC Topic 210 - Balance sheet, while interest income excludes the impact of ASC Topic 210 - Balance sheet.
538

Average balances and interest rates (continued)
in    2017 2016 2015
Average
balance
Interest
expense
Average
rate
Average
balance
Interest
expense
Average
rate
Average
balance
Interest
expense
Average
rate
Liabilities (CHF million, except where indicated)   
Deposits of banks
   Switzerland  2,031 (5) (0.25)% 1,497 (3) (0.20)% 2,760 5 0.18%
   Foreign  14,998 122 0.81% 20,798 121 0.58% 23,851 79 0.33%
Deposits of non-banks
   Switzerland  165,821 94 0.06% 157,038 86 0.05% 171,176 184 0.11%
   Foreign  187,205 1,143 0.61% 186,970 840 0.45% 179,904 617 0.34%
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions     1
   Switzerland  2,589 77 2.97% 2,624 66 2.52% 3,142 57 1.81%
   Foreign  46,091 1,207 2.62% 55,419 1,322 2.39% 71,300 1,206 1.69%
Trading liabilities
   Switzerland  337 10 2.97% 291 15 5.15% 302 11 3.64%
   Foreign  40,648 3,533 8.69% 38,241 3,587 9.38% 43,343 3,843 8.87%
Short-term borrowings
   Switzerland  68 0 0.00% 880 0 0.00% 650 0 0.00%
   Foreign  16,610 166 1.00% 12,195 84 0.69% 20,346 105 0.52%
Long-term debt
   Switzerland  30,936 917 2.96% 28,857 640 2.22% 27,836 707 2.54%
   Foreign  157,614 2,726 1.73% 171,543 2,879 1.68% 164,049 3,077 1.88%
Other interest-bearing liabilities
   Switzerland  1,315 8 0.61% 2,491 19 0.76% 1,714 18 1.05%
   Foreign  51,100 502 0.98% 72,020 156 0.22% 86,240 133 0.15%
Interest-bearing liabilities  717,363 10,500 1.46% 750,864 9,812 1.31% 796,613 10,042 1.26%
Non-interest-bearing liabilities 114,253 133,081 140,559
Total liabilities  831,616 883,945 937,172
Shareholders' equity 42,367 44,060 45,415
Total liabilities and shareholders' equity    873,983 928,005 982,587
Percentage of liabilities attributable to foreign activities 74.75% 77.29% 76.96%
1
Average balances of central bank funds purchased, securities sold under repurchase agreements and securities lending transactions are reported net in accordance with ASC Topic 210 - Balance sheet, while interest expense excludes the impact of ASC Topic 210 - Balance sheet.
Net interest income and interest rate spread
in    2017 2016 2015
Net
interest
income
in CHF
million

Interest
rate
spread
in %
Net
interest
income
in CHF
million

Interest
rate
spread
in %
Net
interest
income
in CHF
million

Interest
rate
spread
in %
Net interest income and interest rate spread   
Switzerland 1,353 1.00 1,702 1.20 1,901 1.30
Foreign 5,204 1.10 5,860 1.00 7,398 1.20
Total net  6,557 1.00 7,562 1.10 9,299 1.20
539

The average rates earned and paid on related assets and liabilities can fluctuate within wide ranges and are influenced by several key factors. The most significant factor is changes in global interest rates. Additional factors include changes in the geographic and product mix of the Group’s business, and foreign exchange rate movements between the Swiss franc and the currency of the underlying individual assets and liabilities.
Selected margin information
in 2017 2016 2015
Selected margin information (average rate in %)   
Switzerland 0.83 1.06 1.18
Foreign 1.02 1.03 1.20
Net interest margin  0.97 1.04 1.19
The US Federal Reserve successively raised the target range of the federal funds rate to 0.75% to 1.00% in March 2017, 1.00% to 1.25% in June 2017 and 1.25% to 1.50% in December 2017.
The Swiss National Bank set the three-month Swiss franc London Interbank Offered Rate, which was (0.75)% at the end of December 2017.
The European Central Bank set the fixed rate tenders, which stood at 0.00% at the end of 2017.
The Bank of England set the bank rate at 0.25% in 2016 and changed the bank rate to 0.50% in November 2017.
Analysis of changes in net interest income
in    2017 vs 2016 2016 vs 2015
      Increase/(decrease)
due to changes in
Increase/(decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
Assets (CHF million)   
Cash and due from banks
   Switzerland  (143) 23 (120) 1 (78) (77)
   Foreign  (59) 162 103 10 35 45
Interest-bearing deposits with banks
   Switzerland  0 0 0 0 0 0
   Foreign  (1) (1) (2) (2) (5) (7)
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions
   Switzerland  21 (3) 18 9 (5) 4
   Foreign  (31) (239) (270) (37) 175 138
Trading assets
   Switzerland  (1) (4) (5) (12) 6 (6)
   Foreign  (1,009) 228 (781) (1,398) (158) (1,556)
Investment securities
   Switzerland  0 0 0 0 (1) (1)
   Foreign  (5) (8) (13) (5) 1 (4)
Loans
   Switzerland  4 52 56 (5) (198) (203)
   Foreign  36 258 294 3 416 419
Other interest-earning assets
   Switzerland  (17) (3) (20) (41) (34) (75)
   Foreign  (298) 721 423 (389) (255) (644)
Interest-earning assets 
   Switzerland  (136) 65 (71) (48) (310) (358)
   Foreign  (1,367) 1,121 (246) (1,818) 209 (1,609)
Change in interest income  (1,503) 1,186 (317) (1,866) (101) (1,967)
540

Analysis of changes in net interest income (continued)
in    2017 vs 2016 2016 vs 2015
      Increase/(decrease)
due to changes in
Increase/(decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
Liabilities (CHF million)   
Deposits of banks
   Switzerland  (1) (1) (2) (2) (6) (8)
   Foreign  (34) 35 1 (10) 52 42
Deposits of non-banks
   Switzerland  4 4 8 (16) (82) (98)
   Foreign  1 302 303 24 199 223
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions
   Switzerland  (1) 12 11 (9) 18 9
   Foreign  (223) 108 (115) (268) 384 116
Trading liabilities
   Switzerland  2 (7) (5) 0 4 4
   Foreign  226 (280) (54) (453) 197 (256)
Short-term borrowings
   Switzerland  0 0 0 0 0 0
   Foreign  30 52 82 (42) 21 (21)
Long-term debt
   Switzerland  46 231 277 26 (93) (67)
   Foreign  (234) 81 (153) 141 (339) (198)
Other interest-bearing liabilities
   Switzerland  (9) (2) (11) 8 (7) 1
   Foreign  (46) 392 346 (21) 44 23
Interest-bearing liabilities 
   Switzerland  41 237 278 7 (166) (159)
   Foreign  (280) 690 410 (629) 558 (71)
Change in interest expense  (239) 927 688 (622) 392 (230)
Change in interest income 
   Switzerland  (177) (172) (349) (55) (144) (199)
   Foreign  (1,087) 431 (656) (1,189) (349) (1,538)
Total change in net interest income  (1,264) 259 (1,005) (1,244) (493) (1,737)
541

Carrying value of financial investments
end of 2017 2016 2015
Carrying value of financial investments (CHF million)   
Debt securities issued by Swiss federal, cantonal or local governmental entities 212 259 294
Debt securities issued by foreign governments 1,236 1,343 1,416
Corporate debt securities 238 287 285
Residential mortgage-backed securities 207 497 750
Commercial mortgage-backed securities 173 14 259
Total debt securities  2,066 2,400 3,004
As of December 31, 2017, no aggregate investment in debt securities of a specific counterparty was in excess of 10% of consolidated shareholders’ equity.
Maturities and weighted-average yields of debt securities included in financial investments
   Within 1 year 1 to 5 years 5 to 10 years Over 10 years Total

end of 2017
Amount
in
CHF
million


Yield
in %
Amount
in
CHF
million


Yield
in %
Amount
in
CHF
million


Yield
in %
Amount
in
CHF
million


Yield
in %
Amount
in
CHF
million


Yield
in %
Debt securities   
Debt securities issued by the Swiss federal, cantonal or local governmental entities 0 134 1.57 57 0.79 8 2.00 199 1.36
Debt securities issued by foreign governments 501 1.04 693 0.68 21 1.47 0 1,215 0.84
Corporate debt securities 227 0.63 11 6.03 0 0 238 0.88
Residential mortgage-backed securities 0 0 3 0.46 204 4.42 207 4.34
Commercial mortgage-backed securities 0 0 171 0.33 2 0.0 173 0.32
Total debt securities  728 0.91 838 0.89 252 0.52 214 4.28 2,032 1.21
Since substantially all investment securities are taxable securities, the yields presented above are on a tax-equivalent basis.
The values above are based upon amortized cost, whereas certain financial investments are carried at fair value in the consolidated balance sheets.
542

Details of the loan portfolio
end of 2017 2016 2015 2014 2013
Loan portfolio (CHF million, except where indicated)   
Mortgages 101,856 100,776 99,216 95,201 92,418
Loans collateralized by securities 4,436 4,510 3,988 3,899 3,403
Consumer finance 2,985 2,820 2,874 3,241 4,397
Consumer 109,277 108,106 106,078 102,341 100,218
Real estate 22,816 23,408 23,418 25,440 24,715
Commercial and industrial loans 22,691 23,439 22,344 22,928 21,964
Financial institutions 2,205 3,011 3,100 4,041 4,016
Governments and public institutions 707 802 831 1,017 1,079
Corporate & institutional 48,419 50,660 49,693 53,426 51,774
Switzerland  157,696 158,766 155,771 155,767 151,992
Mortgages 4,183 3,559 3,948 3,601 2,560
Loans collateralized by securities 37,580 32,758 33,958 35,919 28,162
Consumer finance 1,257 670 892 1,082 1,541
Consumer 43,020 36,987 38,798 40,602 32,263
Real estate 3,783 2,608 3,033 3,758 2,597
Commercial and industrial loans 58,979 60,301 55,423 52,118 41,370
Financial institutions 13,492 14,910 18,234 18,302 17,824
Governments and public institutions 3,167 3,471 2,747 2,874 1,968
Corporate & institutional 79,421 81,290 79,437 77,052 63,759
Foreign  122,441 118,277 118,235 117,654 96,022
Gross loans  280,137 277,043 274,006 273,421 248,014
   of which held at amortized cost  264,830 257,515 253,186 250,508 228,557
   of which held at fair value  15,307 19,528 20,820 22,913 19,457
Net (unearned income)/deferred expenses (106) (129) (145) (112) (91)
Allowance for loan losses (882) (938) (866) (758) (869)
Net loans  279,149 275,976 272,995 272,551 247,054
Percentage of allowance for loan losses 1 0.3% 0.3% 0.3% 0.3% 0.4%
1
Calculated based on net loans which are not carried at fair value.
Loan portfolio by industry
end of 2017 2016
Loan portfolio by industry (CHF million)   
Banks 1,007 1,798
Other financial services 14,690 16,123
Real estate companies 26,599 26,016
Other services 31,452 28,583
Manufacturing 9,289 9,543
Wholesale and retail trade 10,540 11,779
Construction 2,620 2,691
Transportation 19,615 21,583
Health and social services 2,511 2,452
Hotels and restaurants 1,660 1,522
Agriculture and mining 2,404 4,166
Telecommunications 817 738
Governments, public institutions and non-profit organizations 4,636 4,956
Corporate & institutional 127,840 131,950
Consumer 152,297 145,093
Gross loans  280,137 277,043
Net (unearned income)/deferred expenses (106) (129)
Allowance for loan losses (882) (938)
Net loans  279,149 275,976
543

Details of the loan portfolio by time remaining until contractual maturity by category

end of 2017

1 year
or less

1 year to
5 years

After
5 years
Loans with
no stated
maturity
1 Self-
amortizing
loans
2

Total
Loan portfolio (CHF million)   
Mortgages 27,694 46,645 26,651 866 0 101,856
Loans collateralized by securities 3,568 637 230 1 0 4,436
Consumer finance 393 12 2 0 2,578 2,985
Consumer 31,655 47,294 26,883 867 2,578 109,277
Real estate 13,951 6,024 2,739 57 45 22,816
Commercial and industrial loans 14,806 3,532 1,771 72 2,510 22,691
Financial institutions 1,604 357 113 3 128 2,205
Governments and public institutions 351 188 155 5 8 707
Corporate & institutional 30,712 10,101 4,778 137 2,691 48,419
Switzerland  62,367 57,395 31,661 1,004 5,269 157,696
Mortgages 1,929 1,921 199 9 125 4,183
Loans collateralized by securities 33,852 3,010 718 0 0 37,580
Consumer finance 1,144 36 36 0 41 1,257
Consumer 36,925 4,967 953 9 166 43,020
Real estate 1,693 1,901 85 0 104 3,783
Commercial and industrial loans 33,464 13,014 8,194 13 4,294 58,979
Financial institutions 6,834 5,428 615 0 615 13,492
Governments and public institutions 341 1,409 486 0 931 3,167
Corporate & institutional 42,332 21,752 9,380 13 5,944 79,421
Foreign  79,257 26,719 10,333 22 6,110 122,441
Gross loans  141,624 84,114 41,994 1,026 11,379 280,137
   of which fixed rate  86,285 50,258 33,137 0 4,932 174,612
   of which variable rate 3 55,339 33,856 8,857 1,026 6,447 105,525
Net (unearned income)/deferred expenses (106)
Allowance for loan losses (882)
Net loans  279,149
1
Loans with no stated maturity include primarily certain loan products within Switzerland without a stated maturity within the original loan agreement.
2
Self-amortizing loans include loans with monthly or quarterly interest and principal payments and are primarily related to lease financings.
3
Includes rollover loans with interest fixing periods up to 12 month.
544

Non-performing and non-interest-earning loans
         Interest income
which would have
been recognized
Interest income
which was
recognized
in / end of 2017 2016 2015 2014 2013 2017 2016 2017 2016
Non-performing and non-interest-earning loans (CHF million)      
Switzerland 499 401 374 389 378 16 15 2 2
Foreign 549 835 609 364 484 45 35 10 3
Non-performing loans 1 1,048 1,236 983 753 862 61 50 12 5
Switzerland 76 79 100 87 109 7 8 1 1
Foreign 147 186 172 192 172 7 9 2 1
Non-interest-earning loans 1 223 265 272 279 281 14 17 3 2
Total non-performing and non-interest-earning loans    1,271 1,501 1,255 1,032 1,143 75 67 15 7
1
Refer to "Impaired loans" in VI – Consolidated financial statements – Credit Suisse Group – Note 18 – Loans, allowance for loan losses and credit quality for a definition of these terms.
Potential problem loans
end of 2017 2016 2015 2014 2013
Potential problem loans (CHF million)   
Switzerland 112 125 120 98 115
Foreign 437 488 316 89 225
Total potential problem loans  549 613 436 187 340
Restructured loans
         Interest income
which would have
been recognized
Interest income
which was
recognized
in / end of 2017 2016 2015 2014 2013 2017 2016 2017 2016
Restructured loans (CHF million)   
Switzerland 99 26 21 4 6 1 0 1 0
Foreign 191 332 261 167 0 10 9 8 5
Total restructured loans  290 358 282 171 6 11 9 9 5
545

Movements in the allowance for loan losses
2017 2016 2015 2014 2013
Allowance for loan losses (CHF million, except where indicated)   
Balance at beginning of period  938 866 758 869 922
Allowances acquired/(deconsolidated) 0 0 0 0 (1)
Changes in scope of consolidation  0 0 0 0 (1)
Switzerland 73 56 93 54 50
Foreign 117 193 202 91 116
Net movements recognized in the consolidated statements of operations  190 249 295 145 166
      Mortgages  (2) (4) (3) (2) (6)
      Loans collateralized by securities  (1) (2) (3) (5) (6)
      Consumer finance  (52) (59) (67) (88) (96)
   Consumer  (55) (65) (73) (95) (108)
      Real estate  0 0 0 (3) (5)
      Commercial and industrial loans  (38) (48) (30) (46) (45)
      Financial institutions  0 (3) (1) 0 (1)
   Corporate & institutional  (38) (51) (31) (49) (51)
Switzerland (93) (116) (104) (144) (159)
      Mortgages  0 (1) (3) (2) (2)
      Loans collateralized by securities  (1) (5) (1) (2) (2)
      Consumer finance  (4) (15) (41) (9) (10)
   Consumer  (5) (21) (45) (13) (14)
      Real estate  0 (1) 0 0 0
      Commercial and industrial loans  (169) (136) (58) (179) (103)
      Financial institutions  (35) (4) (22) (13) (10)
   Corporate & institutional  (204) (141) (80) (192) (113)
Foreign (209) (162) (125) (205) (127)
Gross write-offs  (302) (278) (229) (349) (286)
      Consumer finance  12 13 11 16 23
   Consumer  12 13 11 16 23
      Commercial and industrial loans  27 4 0 2 3
   Corporate & institutional  27 4 0 2 3
Switzerland 39 17 11 18 26
      Consumer finance  0 0 1 1 1
   Consumer  0 0 1 1 1
      Real estate  1 0 0 0 0
      Commercial and industrial loans  12 46 16 18 27
      Financial institutions  1 1 0 4 0
      Governments and public institutions  0 2 0 0 0
   Corporate & institutional  14 49 16 22 27
Foreign 14 49 17 23 28
Recoveries  53 66 28 41 54
Net write-offs  (249) (212) (201) (308) (232)
Provisions for interest 13 18 18 20 26
Foreign currency translation impact and other adjustments, net (10) 17 (4) 32 (12)
Balance at end of period  882 938 866 758 869
Average loan balance 277,145 275,502 275,661 258,833 247,079
Ratio of net write-offs to average loans 0.09% 0.08% 0.07% 0.12% 0.09%
546

Analysis of the allowance for loan losses by Switzerland, foreign and category
end of    2017 2016 2015 2014 2013




CHF million
% of
allowance
in each
category to
total loans




CHF million
% of
allowance
in each
category to
total loans




CHF million
% of
allowance
in each
category to
total loans




CHF million
% of
allowance
in each
category to
total loans




CHF million
% of
allowance
in each
category to
total loans
Analysis of the allowance for loan losses         
      Mortgages  48 0.0% 38 0.0% 42 0.0% 44 0.0% 47 0.0%
      Loans collateralized by securities  2 0.0% 2 0.0% 2 0.0% 2 0.0% 2 0.0%
      Consumer finance  76 0.0% 83 0.0% 97 0.0% 110 0.0% 122 0.0%
   Consumer  126 0.0% 123 0.0% 141 0.1% 156 0.1% 171 0.1%
      Real estate  42 0.0% 52 0.0% 52 0.0% 49 0.0% 60 0.0%
      Commercial and industrial loans  197 0.1% 173 0.1% 169 0.1% 139 0.1% 166 0.1%
      Financial institutions  0 0.0% 0 0.0% 3 0.0% 0 0.0% 1 0.0%
   Corporate & institutional  239 0.1% 225 0.1% 224 0.1% 188 0.1% 227 0.1%
Switzerland  365 0.1% 348 0.1% 365 0.1% 344 0.1% 398 0.2%
      Mortgages  10 0.0% 8 0.0% 10 0.0% 10 0.0% 9 0.0%
      Loans collateralized by securities  47 0.0% 52 0.0% 12 0.0% 51 0.0% 52 0.0%
      Consumer finance  37 0.0% 33 0.0% 52 0.0% 34 0.0% 35 0.0%
   Consumer  94 0.0% 93 0.0% 74 0.0% 95 0.0% 96 0.0%
      Real estate  6 0.0% 3 0.0% 5 0.0% 5 0.0% 5 0.0%
      Commercial and industrial loans  363 0.1% 429 0.2% 326 0.1% 224 0.1% 277 0.1%
      Financial institutions  54 0.0% 65 0.0% 96 0.0% 90 0.0% 93 0.0%
   Corporate & institutional  423 0.2% 497 0.2% 427 0.2% 319 0.1% 375 0.2%
Foreign  517 0.2% 590 0.2% 501 0.2% 414 0.2% 471 0.2%
Total allowance for loan losses  882 0.3% 938 0.3% 866 0.3% 758 0.3% 869 0.4%
   of which on principal  786 0.3% 848 0.3% 800 0.3% 686 0.3% 778 0.3%
   of which on interest  96 0.0% 90 0.0% 66 0.0% 72 0.0% 91 0.0%
Percentages may not add up due to rounding.
547

Gross write-offs of loans by industry
in 2017 2016 2015 2014 2013
Gross write-offs of loans (CHF million)   
Banks 1 0 0 0 0
Other financial services 34 8 24 14 11
Real estate companies 0 1 0 3 5
Other services 12 22 2 10 18
Manufacturing 24 12 8 112 17
Wholesale and retail trade 22 15 15 9 9
Construction 2 11 3 0 6
Transportation 87 53 35 62 57
Health and social services 0 0 0 1 3
Hotels and restaurants 0 0 3 0 1
Agriculture and mining 60 69 21 30 35
Telecommunications 0 1 0 0 1
Corporate & institutional 242 192 111 241 163
Consumer 60 86 118 108 123
Total gross write-offs  302 278 229 349 286
548

Cross-border outstandings

end of



Banks



Private



Public



Subtotal
Net local
country
assets over
liabilities


Commit-
ments



Total
2017 (CHF million)   
United States 4,773 46,398 16,858 68,029 51,590 61,629 181,248
Luxembourg 5,984 7,180 1,648 14,812 4,045 3,329 22,186
Cayman Islands 160 17,072 223 17,455 0 2,761 20,216
United Kingdom 4,765 9,381 128 14,274 0 5,664 19,938
Germany 949 4,902 1,908 7,759 0 6,640 14,399
France 1,820 5,251 4,348 11,419 0 1,944 13,363
China 842 9,242 349 10,433 247 420 11,100
The Netherlands 1,188 5,727 411 7,326 0 2,703 10,029
Virgin Islands (Br.) 665 8,081 13 8,759 0 1,256 10,015
Ireland 2,149 4,933 41 7,123 0 1,099 8,222
Brazil 283 1,426 755 2,464 4,869 96 7,429
Singapore 194 3,770 2 3,966 1,909 1,367 7,242
South Korea 803 2,680 829 4,312 2,731 76 7,119
Japan 923 3,855 887 5,665 734 15 6,414
Canada 1,034 2,485 315 3,834 623 1,854 6,311
Hong Kong 816 4,340 20 5,176 0 784 5,960
2016 (CHF million)   
United States 4,404 48,306 18,122 70,832 63,264 74,641 208,737
Cayman Islands 428 19,935 349 20,712 1,464 3,848 26,024
Luxembourg 5,004 7,497 2,775 15,276 6,366 2,778 24,420
United Kingdom 2,753 11,696 205 14,654 0 5,058 19,712
Germany 1,843 5,011 2,621 9,475 0 6,044 15,519
The Netherlands 991 6,345 528 7,864 0 3,257 11,121
France 1,881 5,124 1,932 8,937 0 1,920 10,857
Brazil 755 2,152 1,160 4,067 6,057 329 10,453
Japan 713 4,644 507 5,864 3,840 11 9,715
Virgin Islands (Br.) 383 7,000 1 7,384 0 1,325 8,709
Australia 2,089 4,135 25 6,249 0 2,346 8,595
Hong Kong 510 4,040 11 4,561 2,671 1,210 8,442
Canada 1,271 3,389 273 4,933 753 2,341 8,027
Ireland 2,026 4,350 38 6,414 0 1,180 7,594
Italy 883 1,337 3,488 5,708 0 814 6,522
2015 (CHF million)   
United States 3,139 30,769 11,161 45,069 87,418 93,938 226,425
Cayman Islands 272 22,634 1 22,907 0 2,294 25,201
United Kingdom 4,137 12,323 193 16,653 0 7,093 23,746
Luxembourg 4,813 9,585 1,559 15,957 0 5,530 21,487
France 2,709 7,672 6,351 16,732 97 2,101 18,930
Germany 1,922 7,293 3,949 13,164 0 3,419 16,583
Hong Kong 260 3,283 2 3,545 9,200 837 13,582
The Netherlands 876 7,859 470 9,205 0 3,730 12,935
Virgin Islands (Br.) 38 8,875 0 8,913 0 563 9,476
Canada 945 3,498 269 4,712 803 2,823 8,338
Japan 694 5,502 2,090 8,286 0 19 8,305
Italy 881 2,350 3,944 7,175 0 1,050 8,225
Ireland 1,530 5,411 64 7,005 0 1,197 8,202
South Korea 96 4,276 469 4,841 1,768 132 6,741
Brazil 302 1,133 373 1,808 4,582 236 6,626
India 910 3,753 256 4,919 1,341 187 6,447
Cross-border outstandings represent net claims against non-local country counterparties for countries where the aggregate amount outstanding to borrowers exceeds 0.75% of total assets. Monetary assets are loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary asset with a fixed exchange value for cash. To the extent local currency outstandings are hedged or funded by local currency borrowings, such amounts are excluded from cross-border outstandings.
549

Deposits in Switzerland and foreign offices
in    2017 2016 2015
Average
balance
Interest
expense
Average
rate
Average
balance
Interest
expense
Average
rate
Average
balance
Interest
expense
Average
rate
Deposits (CHF million, except where indicated)   
Non-interest-bearing demand 3,308 3,539 4,009
Interest-bearing demand 125,508 (46) 0.0% 124,349 (73) (0.1)% 128,739 (30) 0.0%
Savings deposits 64,115 94 0.1% 63,505 131 0.2% 82,194 161 0.2%
Time deposits 36,210 22 0.1% 31,085 12 0.0% 17,666 53 0.3%
Switzerland  229,141 70 0.0% 222,478 70 0.0% 232,608 184 0.1%
Non-interest-bearing demand 1,860 2,158 4,265
Interest-bearing demand 33,658 63 0.2% 32,504 24 0.1% 33,439 37 0.1%
Savings deposits 27 0 0.0% 3 0 0.0% 19 0 0.0%
Time deposits 110,537 1,221 1.1% 114,857 950 0.8% 115,634 664 0.6%
Foreign  146,082 1,284 0.9% 149,522 974 0.7% 153,357 701 0.5%
Total deposits  375,223 1,354 0.4% 372,000 1,044 0.3% 385,965 885 0.2%
Deposits by foreign depositors in Swiss offices amounted to CHF 64.5 billion, CHF 65.1 billion and CHF 68.6 billion as of December 31, 2017, 2016 and 2015, respectively.
Aggregate of individual time deposits in Switzerland and foreign offices
in 2017 Switzerland Foreign Total
Time deposits (CHF million)   
3 months or less 9,982 9,982
Over 3 through 6 months 11,001 11,001
Over 6 through 12 months 12,810 12,810
Over 12 months 8 8
Certificates of deposit  33,801 33,801
3 months or less 28,238 64,819 93,057
Over 3 through 6 months 2,152 9,056 11,208
Over 6 through 12 months 1,660 7,427 9,087
Over 12 months 411 2,095 2,506
Other time deposits  32,461 83,397 115,858
Total time deposits  32,461 117,198 149,659
Balances shown are the Swiss franc equivalent of amounts greater than USD 100,000 together with their remaining maturities.
550

Selected information on short-term borrowings
in 2017 2016 2015
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions (CHF million)      
Outstanding as of December 31 26,496 33,016 46,598
Maximum amount outstanding at any month-end during the year 67,325 82,825 98,790
Approximate average amount outstanding during the year 48,680 58,044 74,441
Interest expense for the year ended December 31 1,284 1,387 1,264
Approximate weighted-average interest rate during the year 2.6% 2.4% 1.7%
Approximate weighted-average interest rate at year-end 1.7% 1.1% 0.5%
Commercial paper (CHF million)   
Outstanding as of December 31 14,003 10,749 4,667
Maximum amount outstanding at any month-end during the year 14,003 11,237 17,514
Approximate average amount outstanding during the year 10,525 9,340 11,952
Interest expense for the year ended December 31 146 77 53
Approximate weighted-average interest rate during the year 1.4% 0.8% 0.4%
Approximate weighted-average interest rate at year-end 1.4% 0.7% 0.4%
Other short-term borrowings (CHF million)   
Outstanding as of December 31 11,886 4,636 3,990
Maximum amount outstanding at any month-end during the year 11,886 4,742 10,993
Approximate average amount outstanding during the year 6,153 3,735 9,044
Interest expense for the year ended December 31 20 7 52
Approximate weighted-average interest rate during the year 0.3% 0.2% 0.6%
Approximate weighted-average interest rate at year-end 1.4% 0.3% 1.3%
Generally, original maturities of central bank funds purchased, securities sold under repurchase agreements and securities lending transactions are less than six months, commercial papers are less than six months and other short-term borrowings are one year or less.
Statistical information – Bank
Statistical information for the Group is required under the SEC’s specialized industry guide for bank holding companies – Industry Guide 3. Statistical information for the Bank is not materially different, either in absolute amount or in terms of trends, from such statistical information for the Group. The principal differences relate to intercompany eliminations. Certain statistical information is also included in VIII – Consolidated financial statements – Credit Suisse (Bank), including Notes 5 – Net interest income, 15 – Investment securities, 17 – Loans, allowance for loan losses and credit quality, 22 – Deposits, 23 – Long-term debt, 30 – Derivatives and hedging activities, 31 – Guarantees and commitments and 33 – Financial instruments.
551

Ratio of earnings to fixed charges – Group
in 2017 2016 2015 2014 2013
Ratio of earnings to fixed charges (CHF million)   
Income/(loss) from continuing operations before taxes, noncontrolling interests and cumulative effect of accounting changes 1,793 (2,266) (2,422) 3,627 4,096
Income from equity method investments (233) (208) (243) (244) (251)
Pre-tax earnings/(loss) from continuing operations  1,560 (2,474) (2,665) 3,383 3,845
Fixed charges:
   Interest expense  10,500 9,812 10,042 10,027 11,441
   Interest portion of rentals 1 537 530 538 627 642
   Preferred dividend requirements  0 0 0 53 236
Total fixed charges  11,037 10,342 10,580 10,707 12,319
Pre-tax earnings before fixed charges  12,597 7,868 7,915 14,090 16,164
Noncontrolling interests 35 3 (1) 449 639
Earnings before fixed charges and provision for income taxes  12,562 7,865 7,916 13,641 15,525
Ratio of earnings to fixed charges  1.14 0.76 0.75 1.27 1.26
1
Amounts reflect a portion of premises and real estate expenses deemed representative of the interest factor.
Ratio of earnings to fixed charges – Bank
in 2017 2016 2015 2014 2013
Ratio of earnings to fixed charges (CHF million)   
Income/(loss) from continuing operations before taxes, noncontrolling interests and cumulative effect of accounting changes 1,553 (2,489) (2,649) 3,220 3,882
Income from equity method investments (229) (205) (241) (240) (237)
Pre-tax earnings/(loss) from continuing operations  1,324 (2,694) (2,890) 2,980 3,645
Fixed charges:
   Interest expense  10,369 9,781 10,044 9,993 11,409
   Interest portion of rentals 1 497 527 534 624 638
   Preferred dividend requirements  0 0 0 53 236
Total fixed charges  10,866 10,308 10,578 10,670 12,283
Pre-tax earnings before fixed charges  12,190 7,614 7,688 13,650 15,928
Noncontrolling interests 27 (6) (7) 445 669
Earnings before fixed charges and provision for income taxes  12,163 7,620 7,695 13,205 15,259
Ratio of earnings to fixed charges  1.12 0.74 0.73 1.24 1.24
1
Amounts reflect a portion of premises and real estate expenses deemed representative of the interest factor.
552

Other information
Exchange controls
There are no restrictions presently in force under our Articles of Association or Swiss law that limit the right of non-resident or foreign owners to hold our securities freely or, when entitled, to vote their securities freely. The Swiss federal government may from time to time impose sanctions, including exchange control restrictions, on particular countries, regimes, organizations or persons. A current list, in German, of such sanctions can be found at www.seco-admin.ch. Other than these sanctions, there are currently no Swiss exchange control laws or laws restricting the import or export of capital, including, but not limited to, the remittance of dividends, interest or other payments to non-resident holders of our securities.
American Depositary Shares
Under Swiss law, holders of >>>American Depositary Shares (ADS) are not shareholders and are not recorded in our share register. A nominee for the ADS depositary is the registered holder of the shares underlying the ADS. Rights of ADS holders to exercise voting rights, receive dividends and other matters are governed by the deposit agreement pursuant to which the ADS are issued. For further information relating to our ADS, see our Registration Statement on Form F-6 filed with the SEC. Subject to any applicable law to the contrary, with respect to ADS for which timely voting instructions are not received by the ADS depositary in relation to any proposed resolution or for which voting instructions are received by the ADS depositary but do not specify how the ADS depositary shall vote in relation to any proposed resolution, the ADS depositary shall, or shall instruct the nominee to, vote such shares underlying the ADS in favor of such resolution if it has been proposed by the Board of Directors or otherwise in accordance with the recommendation of the Board of Directors.
Taxation
The following summary contains a description of the principal Swiss and US federal income tax consequences of the acquisition, ownership and disposition of our shares or ADS (Shares), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to own or dispose of Shares. In particular, the summary is directed only to holders that hold Shares as capital assets and does not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities or currencies, traders in securities electing to mark to market, persons that actually or constructively own a participation in our stock that qualifies for reduced taxation, persons that hold Shares as a position in a “straddle” or “conversion” transaction, or as part of a “synthetic security” or other integrated financial transaction, persons that own or are treated as owning 10% or more of our stock by vote or value, or persons that have a “functional currency” other than the Swiss franc or US dollar.
This summary is based on the current tax laws of Switzerland and the US, including the current “Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income” (Treaty), the “Agreement on the Automatic Exchange of Information in Tax Matters with the European Union” and similar bilateral treaties with partner states, the US Internal Revenue Code of 1986, as amended (IR Code), existing and proposed regulations thereunder, published rulings and court decisions, all of which are subject to change, possibly with retroactive effect.
This discussion does not generally address any aspects of Swiss taxation other than income and capital taxation and stamp duties upon transfer of Shares or any aspects of US taxation other than federal income taxation. Prospective investors are urged to consult their tax advisors regarding the Swiss and the US federal, state and local and other tax consequences of acquiring, owning and disposing of Shares.
Swiss taxation
Swiss federal withholding tax on dividends and similar distributions
Dividends on Shares made or paid by us out of capital contribution reserves (Reserven aus Kapitaleinlagen) and distributions on Shares made or paid by us based upon a reduction of nominal value of Shares (Nennwertherabsetzung) are exempt from Swiss federal withholding tax. Dividends and other cash or in-kind distributions (including scrip or stock dividends) on Shares made or paid by us are subject to Swiss federal withholding tax at a rate of 35%. The withholding tax must be withheld by us on the gross amount of the dividend or distribution and be remitted to the Swiss Federal Tax Administration. Capital gains realized on the sale of Shares are not subject to withholding tax.
Swiss-resident recipients
The relevant Swiss tax authority will refund or credit the Swiss federal withholding tax deducted by us on dividends or distributions on Shares in full to holders of Shares who are individuals resident in Switzerland and to holders who hold the Shares as part of a trade or business in Switzerland, and who, in each case, among other things, are the beneficial owners of the Shares and the dividends or the distributions made or paid on the Shares and who duly report the dividend or distribution in their income tax return or their statutory financial statements, as applicable, for the relevant tax period.
Non-resident recipients
A holder who is not resident in Switzerland and who does not hold the Shares as part of a trade or business in Switzerland may be
553

entitled to a full or partial refund of the Swiss federal withholding tax deducted if the country in which the recipient resides for tax purposes has entered into a bilateral treaty for the avoidance of double taxation with Switzerland and the other conditions of such treaty are met. A reduction of the withholding tax at source is not provided for by Switzerland for portfolio holdings and, therefore, is not permissible. Holders of Shares should be aware that the procedures for claiming treaty benefits (and the time frame required for obtaining a tax refund) may differ from country to country and should consult their own legal, financial or tax advisors regarding the procedures for claiming a refund of the withholding tax.
Residents of the US
A holder who is a resident of the US for purposes of the Treaty without taxable presence in Switzerland to which the Shares are attributable or who is a qualified US pension fund and who, in each case, is the beneficial owner of the Shares and the dividend or distribution and who meets the other conditions of the Treaty may apply for a full refund of the withholding tax in the case of qualified US pension funds or in excess of the amount of the 15% treaty rate in all other cases. The claim for refund must be filed on Swiss Tax Form 82 (82C for corporations, 82I for individuals, 82E for other entities and 82R for regulated investment companies), which forms together with an instruction form may be obtained from any Swiss consulate general in the US, the Swiss Federal Tax Administration at the address below or be down-loaded from the Swiss Federal Tax Administration’s website. Four copies of the form must be duly completed, signed before a notary public of the US, and three of them must be sent to the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003, Bern, Switzerland. The form must be accompanied by suitable evidence of deduction of the Swiss federal withholding, such as certificates of deduction, bank vouchers or credit slips. The form must be filed no later than December 31 of the third year following the calendar year in which the dividend subject to the tax became payable.
Income and profit tax on dividends and similar distributions
Shares held by Swiss resident individuals as private investments
Dividends and other distributions on Shares, made or paid by us out of capital contribution reserves (Reserven aus Kapitaleinlagen) and distributions made or paid by us on Shares based upon a capital reduction (Nennwertrückzahlungen) are exempt from Swiss federal, cantonal and communal income tax for holders of Shares who are individuals resident in Switzerland for tax purposes and who hold the Shares as private investments. For such holders, other dividends and distributions on Shares must be included in Swiss federal, cantonal and communal taxable income.
Shares held as assets of a Swiss business
For a holder who holds the Shares as part of a trade or business carried on in Switzerland, all dividends and distributions, including capital repayments or distributions out of capital contribution reserves, made or paid by us on Shares must be included in taxable income in the relevant taxation period for purposes of Swiss federal, cantonal and communal individual or corporate income tax. A Swiss corporation or co-operative or a non-Swiss corporation or co-operative holding Shares as part of a Swiss permanent establishment may benefit from relief from taxation of the dividends or other distributions, including capital repayments or distributions out of capital contribution reserves, by way of a participation exemption if the Shares held at the time of the dividend or other distribution have a market value of at least CHF 1 million.
Non-resident recipients
A holder of Shares who is not a resident of Switzerland for tax purposes, and who, during the respective tax year, has not engaged in a trade or business carried on through a permanent establishment situated in Switzerland for tax purposes, is not subject to any Swiss federal, cantonal or communal income tax as a result of the receipt of dividends or other distributions on Shares.
> Refer to “Swiss federal withholding tax on dividends and similar distributions” for further information.
Capital gains tax realized on Shares
Shares held by Swiss resident individuals as private investments
A capital gain realized by a holder of Shares who is an individual resident in Switzerland for tax purposes and who holds the Shares as private investments classifies as a tax-exempt private capital gain and a capital loss as a non-tax deductible private capital loss for purposes of Swiss federal, cantonal and communal income tax.
> Refer to “Shares held as assets of a Swiss business” for information on the taxation of individuals classified as “professional securities dealers.”
Shares held as assets of a Swiss business
For a holder who holds the Shares as part of a trade or business carried on in Switzerland, capital gain or loss realized on the sale of Shares must be included in, or deducted from, taxable income in the relevant tax period for purposes of Swiss federal, cantonal and communal individual or corporate income tax. This tax treatment also applies to Swiss resident private individuals who, for income tax purposes, are classified as “professional securities dealers” for reason of, among other things, frequent dealings and leveraged investments in securities.
Non-resident individuals and legal entities
Holders of Shares who are not resident in Switzerland for tax purposes, and who, during the respective tax year, have not engaged in a trade or business carried on through a permanent establishment in Switzerland for tax purposes, will not be subject to any Swiss federal, cantonal or communal income tax as a result of gain realized on the sale or other disposition of Shares.
Net worth and capital taxes
Shares held by Swiss resident individuals as private investments
A holder of Shares who is an individual resident in Switzerland for tax purposes and who holds the Shares as private investments is required to include the Shares in taxable assets for purposes of cantonal and communal taxable wealth taxes.
554

Shares held as assets of a Swiss business
A holder who holds the Shares as part of a trade or business conducted in Switzerland is required to include the Shares in taxable wealth or taxable assets, as applicable, in the relevant tax period for purposes of cantonal and communal individual wealth tax or corporate capital tax, as applicable.
Non-resident individuals and legal entities
Holders of Shares who are not resident in Switzerland for tax purposes, and who, during the respective tax year, have not engaged in a trade or business carried on through a permanent establishment situated in Switzerland for tax purposes, will not be subject to any cantonal or communal wealth tax or capital tax as a result of the holding of Shares.
Stamp duties upon transfer of securities
Secondary market dealings in Shares where no Swiss domestic bank or no Swiss domestic securities dealer (as defined in the Swiss Federal Stamp Duty Act) is a party or an intermediary to the transaction will not be subject to Swiss federal stamp duty on dealings in securities. Where a Swiss domestic bank or a Swiss domestic securities dealer is a party or an intermediary to such a transaction, Swiss federal stamp duty on dealings in securities at a rate of 0.15% of the purchase price of the Shares will be payable if none of the exemptions provided for in the Swiss Federal Stamp Duty Act applies. Subject to applicable statutory exemptions in respect of the one or the other party to a transaction, generally half of the tax is charged to the one party to the transaction and the other half to the other party.
Common Reporting Standard / Automatic Exchange of Information
Switzerland has concluded a multilateral agreement with the EU on the automatic exchange of information (AEOI) in tax matters. The agreement became effective on January 1, 2017 and applies to all 28 member states of the EU as well as Gibraltar. Also, on January 1, 2017, the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) and, based on the MCAA, a number of bilateral AEOI agreements with other countries became effective. Based on such agreements and the implementing laws of Switzerland, Switzerland commenced the collection of data in respect of financial assets, including, as the case may be, Shares, held in, and income derived thereon and credited to, accounts or deposits with a paying agent in Switzerland for the benefit of individuals resident in a EU member state or other treaty state from 2017 and commenced the exchange of such data from 2018. Switzerland has signed and intends to sign further AEOI agreements with other countries. An updated list of the AEOI agreements of Switzerland in effect or signed but yet to become effective, including dates of commencement of data collection and data exchange, can be found on the website of the Swiss State Secretariat for International Financial Matters.
Swiss Facilitation of the Implementation of the US Foreign Account Tax Compliance Act
Switzerland has concluded an intergovernmental agreement with the US to facilitate the implementation of FATCA. The agreement ensures that the accounts held by US persons with Swiss financial institutions, which accounts may include Shares and income derived thereon, are disclosed to the US tax authorities either with the consent of the account holder or by means of group requests within the scope of administrative assistance. Information will not be transferred automatically in the absence of consent, and instead will be exchanged only within the scope of administrative assistance on the basis of the Treaty. On October 8, 2014, the Swiss Federal Council approved a mandate for negotiations with the US on changing the current direct-notification-based regime to a regime where the relevant information is sent to the Swiss Tax Administration, which in turn provides the information to the US tax authorities. It is unclear when negotiations will continue and when any new regime would come into force.
US federal income tax
For purposes of this discussion, a “US Holder” is any beneficial owner of Shares that is: (i) a citizen or resident of the US; (ii) a corporation organized under the laws of the US or any political subdivision thereof; or (iii) any other person that is subject to US federal income tax on a net income basis in respect of Shares. A “Non-US Holder” is any beneficial owner of Shares that is a foreign corporation or non-resident alien individual.
Taxation of dividends
US Holders
For US federal income tax purposes, a US Holder will be required to include the full amount (before reduction for Swiss withholding tax) of a dividend paid with respect to Shares, generally as ordinary income. Subject to certain exceptions for short-term and hedged positions, the US dollar amount of dividends received by an individual with respect to our Shares will be subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends”. Dividends paid on the Shares will be treated as qualified dividends if we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). Based on our audited consolidated financial statements, we believe that the Group was not treated as a PFIC for US federal income tax purposes with respect to our 2016 or 2017 taxable years. In addition, based on the audited consolidated financial statements of the Group and our current expectations regarding the value and nature of our assets and the sources and nature of our income, we do not anticipate the Group becoming a PFIC for the 2018 taxable year. Holders of our Shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances. For this purpose, a “dividend” will include any distribution paid by us with respect to Shares, but only to the extent such distribution
555

is not in excess of our current and accumulated earnings and profits as defined for US federal income tax purposes. Such dividend will constitute income from sources outside of the US. Subject to the limitations and conditions provided in the IR Code, a US Holder may deduct from its US federal taxable income, or claim as a credit against its US federal income tax liability, the Swiss withholding tax withheld. Under the IR Code, dividend payments by us on Shares are not eligible for the dividends received deduction generally allowed to corporate shareholders. Any distribution that exceeds our earnings and profits will be treated as a non-taxable return of capital to the extent of the US Holder’s tax basis in Shares and thereafter as capital gain. Because we do not intend to maintain calculations of our earnings and profits on the basis of US federal income tax principles, a US Holder should expect that any information reporting it receives may treat the full amount of any distribution paid as a dividend.
In general, a US Holder will be required to determine the amount of any dividend paid in Swiss francs by translating the Swiss francs into US dollars at the “spot rate” of exchange on the date of receipt. The tax basis of Swiss francs received by the US Holder generally will equal the US dollar equivalent of such Swiss francs, translated at the spot rate of exchange on the date such Swiss franc dividends are received. Upon a subsequent exchange of such Swiss francs for US dollars, or upon the use of such Swiss francs to purchase property, a US Holder will generally recognize ordinary income or loss in the amount equal to the difference between such US Holder’s tax basis for the Swiss francs and the US dollars received or, if property is received, the fair market value of the property. In addition, a US Holder may be required to recognize US-source foreign currency gain or loss on the receipt of a refund in respect of Swiss withholding tax to the extent the US dollar value of the refund differs from the US dollar equivalent of the amount on the date of receipt of the underlying dividend.
Non-US Holders
Dividends paid to a Non-US Holder in respect of Shares will generally not be subject to US federal income tax unless such dividends are effectively connected with the conduct of a trade or business within the US by such Non-US Holder.
Capital gains tax upon disposal of shares
US Holders
A gain or loss realized by a US Holder on the sale or other disposition of Shares will be subject to US federal income taxation as a capital gain or loss in an amount equal to the difference between the US Holder’s basis in Shares and the amount realized on the disposition. Such gain or loss will generally be a long-term capital gain or loss if the US Holder holds the Shares for more than one year. A long-term capital gain realized by a US Holder that is an individual generally is subject to taxation at reduced rates.
Non-US Holders
A Non-US Holder will generally not be subject to US federal income tax in respect of gains realized on a sale or other disposition of Shares unless the gain is effectively connected with a trade or business of the Non-US Holder in the US.
Backup withholding tax and information reporting requirements
Dividends paid on, and proceeds from the sale or other disposition of, Shares paid to a US Holder generally may be subject to the information reporting requirements of the IR Code and may be subject to backup withholding unless the holder: (i) establishes that it is an exempt holder; or (ii) provides an accurate taxpayer identification number on a properly completed US Internal Revenue Service (IRS) Form W-9 and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a holder will be allowed as a credit against the US Holder’s US federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS.
A Non-US Holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.
556

Listing details
Credit Suisse Group’s shares are listed on the SIX Swiss Exchange (SIX) under the symbol “CSGN”. The Group’s ADS are traded on the New York Stock Exchange (NYSE) under the symbol “CS”.
The Group’s shares are in registered form with a par value of CHF 0.04 per share.
Trading in our own shares
The Group buys and sells its own shares and >>>derivatives on its own shares within its normal trading and market-making activities mainly through its Swiss broker-dealer operations. In the Swiss market, the Group buys and sells its shares and derivatives on these shares to facilitate customer orders, to provide liquidity as a market maker and to hedge derivative instruments.
The net long or short position held by the Group’s Swiss bank subsidiaries in the Group’s own shares remains at non-material levels relative to the number of the Group’s outstanding shares, due in part to >>>Swiss Financial Market Supervisory Authority FINMA (FINMA) regulations requiring a 100% capital charge to the relevant legal entity for the entire net position in the Group’s shares. In addition to FINMA rules, the Group’s trading in its own shares in the Swiss market is subject to regulation under the Swiss Federal Act on Financial Market Infrastructure and Market Conduct in Securities and Derivatives Trading, the rules of the SIX and the European Exchange electronic exchange, and the Swiss Bankers Association Code of Conduct for Securities Dealers. Trading is also limited by the Group’s risk management limits, internal capital allocation rules, balance sheet requirements, counterparty restrictions and other internal regulations and guidelines. Swiss law further limits the Group’s ability to hold or repurchase its own shares.
The Group may from time to time place orders for its own shares to satisfy obligations under various employee and management incentive share plans, and potentially for shares to be used as payment in acquisitions. In addition, the Group may purchase shares with the intent of cancellation. Typically in Switzerland, the purchase of shares for cancellation is done under a separate program from the repurchase of shares to be re-issued under employee and management incentive share plans.
> Refer to “Share repurchases” in III – Treasury, Risk, Balance sheet and Off-balance sheet – Capital management – Shareholders’ equity and share metrics for further information on trading in the Group’s shares and shares repurchases.
Closing prices and average daily trading volumes for shares and ADS

Period
Average
trading
volumes
1 Shares
in CHF
(High)
1 Shares
in CHF
(Low)
1 Average
trading
volumes
2 Shares
in USD
(High)
2 Shares
in USD
(Low)
2
2018 (through March 16)  10,604,832 18.6 16.3 3,248,158 20.0 17.2
March (through March 16) 9,321,715 17.4 16.6 2,081,580 18.4 17.9
February 11,124,463 18.2 16.3 4,623,258 19.7 17.2
January 10,843,156 18.6 17.6 2,670,636 20.0 17.9
2017  12,159,712 17.8 13.0 3,643,033 18.0 13.4
Fourth quarter 10,965,339 17.8 15.4 2,605,817 18.0 15.6
   December  10,842,221 17.8 16.6 2,377,342 18.0 16.8
   November  11,936,785 16.7 15.6 2,629,206 16.9 15.6
   October  10,100,222 16.1 15.4 2,791,197 16.2 15.7
Third quarter 11,270,004 15.3 13.9 2,700,036 15.8 14.5
Second quarter 15,038,739 15.7 13.0 4,305,912 15.8 13.4
First quarter 11,515,987 16.1 14.4 4,981,613 16.0 14.5
2016  12,473,450 21.3 9.9 4,353,791 21.4 10.2
Fourth quarter 12,270,457 15.9 12.2 5,599,357 15.8 12.5
Third quarter 14,207,968 13.6 9.9 4,259,451 13.9 10.2
Second quarter 12,920,825 15.2 10.2 4,535,253 15.8 10.5
First quarter 10,409,954 21.3 12.3 2,975,982 21.4 12.7
2015  7,091,407 27.9 18.2 1,524,543 29.7 20.5
2014  5,018,235 30.1 23.8 973,398 33.2 24.8
2013  5,532,934 30.3 22.9 1,353,861 33.8 24.6
1
Closing prices for one share and average daily trading volume (SIX).
2
Closing prices of ADS and average daily trading volume (NYSE).
557

Property and equipment
Our principal executive offices, which we own, are located at Paradeplatz 8, Zurich, Switzerland. As of the end of 2017, we maintained 378 offices and branches worldwide, of which approximately 57% were located in Switzerland.
As of the end of 2017, approximately 24% of our worldwide offices and branches were owned directly by us, with the remainder being held under commercial leases. With respect to those held under commercial leases, 55% of the related lease commitments expire after 2022. The book value of the ten largest owned properties was approximately CHF 0.8 billion as of the end of 2017. None of our principal facilities are subject to mortgages or other security interests granted to secure indebtedness to financial institutions.
We believe that our current facilities are adequate for existing operations. Management regularly evaluates our operating facilities for suitability, market presence, renovation and maintenance.
Foreign currency translation rates
The following tables set forth, for the periods indicated, certain information concerning the noon buying rate for the Swiss franc expressed as USD per CHF 1.00:
Year End of Average in 1 High Low
Exchange rate information - 5 years   
2017 1.0269 1.0188 1.0575 0.9741
2016 0.9843 1.0133 1.0487 0.9677
2015 0.9983 1.0397 1.1781 0.9704
2014 1.0066 1.0942 1.1478 1.0066
2013 1.1231 1.0813 1.1292 1.0190
1
The average of the noon buying rates on the last business day of each month during the relevant period.
Month High Low
Exchange rate information - 6 months   
March 2018 (through March 16) 1.0663 1.0491
February 2018 1.0832 1.0595
January 2018 1.0728 1.0171
December 2017 1.0269 1.0073
November 2017 1.0217 0.9986
October 2017 1.0275 1.0010
September 2017 1.0575 1.0262



558


Appendix
Selected five-year information
Selected information – Group
Selected information – Group (continued)
Selected information – Bank
List of abbreviations
Glossary
Investor information
Financial calendar and contacts
A-1


Selected five-year information
Selected information – Group
in / end of 2017 2016 2015 2014 2013
Condensed consolidated statements of operations (CHF million)   
Net revenues  20,900 20,323 23,797 26,242 25,856
Provision for credit losses  210 252 324 186 167
Total operating expenses  18,897 22,337 25,895 22,429 21,593
Income/(loss) from continuing operations before taxes  1,793 (2,266) (2,422) 3,627 4,096
Income tax expense 2,741 441 523 1,405 1,276
Income/(loss) from continuing operations  (948) (2,707) (2,945) 2,222 2,820
Income from discontinued operations, net of tax 0 0 0 102 145
Net income/(loss)  (948) (2,707) (2,945) 2,324 2,965
Net income/(loss) attributable to noncontrolling interests 35 3 (1) 449 639
Net income/(loss) attributable to shareholders  (983) (2,710) (2,944) 1,875 2,326
   of which from continuing operations  (983) (2,710) (2,944) 1,773 2,181
   of which from discontinued operations  0 0 0 102 145
Earnings per share (CHF)   
Basic earnings/(loss) per share from continuing operations (0.41) (1.27) (1.65) 0.93 1.05
Basic earnings/(loss) per share (0.41) (1.27) (1.65) 0.99 1.13
Diluted earnings/(loss) per share from continuing operations (0.41) (1.27) (1.65) 0.93 1.05
Diluted earnings/(loss) per share (0.41) (1.27) (1.65) 0.99 1.13
Consolidated balance sheet (CHF million)   
Total assets 796,289 819,861 820,805 921,462 872,806
Share capital 102 84 78 64 64
Shareholders' equity 41,902 41,897 44,382 43,959 42,164
Shares outstanding (million)   
Shares outstanding 2,550.3 2,089.9 1,951.5 1,599.5 1,590.9
Dividend per share (CHF)   
Dividend per share 0.25 1 0.70 0.70 0.70 0.70
Ratios (%)   
Return on assets 2 (0.1) (0.3) (0.3) 0.2 0.3
Return on equity attributable to shareholders (2.3) (6.1) (6.8) 4.4 5.7
Dividend payout ratio - - - 70.7 61.9
Equity to asset ratio 5.3 5.1 5.4 4.8 4.8
1
Proposal of the Board of Directors to the Annual General Meeting on April 27, 2018; to be paid out of capital contribution reserves.
2
Based on amounts attributable to shareholders.
A-2

Selected information – Group (continued)
in / end of 2017 2016 2015 2014 2013
Average economic risk capital (CHF million)   
Swiss Universal Bank 5,566 5,564 5,119 5,288 5,453
International Wealth Management 4,379 3,785 3,288 3,051 3,052
Asia Pacific 3,897 4,147 3,405 3,184 2,644
Global Markets 9,327 9,928 12,372 11,325 10,080
Investment Banking & Capital Markets 5,279 4,652 3,717 3,259 2,707
Credit Suisse 33,111 34,737 34,821 32,708 30,039
Pre-tax return on average economic risk capital (%)   
Swiss Universal Bank 31.7 36.4 32.7 38.3 32.4
International Wealth Management 30.8 29.6 22.0 41.3 40.7
Asia Pacific 18.7 17.5 11.1 28.3 28.4
Global Markets 4.8 0.5 (15.6) 17.8 23.7
Investment Banking & Capital Markets 7.0 5.6 (8.4) 15.7 21.1
Credit Suisse 5.4 (6.5) (7.0) 11.1 13.6
Selected information – Bank
in / end of 2017 2016 2015 2014 2013
Condensed consolidated statements of operations (CHF million)   
Net revenues  20,965 20,393 23,811 26,178 25,896
Provision for credit losses  210 252 324 186 167
Total operating expenses  19,202 22,630 26,136 22,772 21,847
Income/(loss) from continuing operations before taxes  1,553 (2,489) (2,649) 3,220 3,882
Income tax expense 2,781 400 488 1,343 1,214
Income/(loss) from continuing operations  (1,228) (2,889) (3,137) 1,877 2,668
Income from discontinued operations, net of tax 0 0 0 102 145
Net income/(loss)  (1,228) (2,889) (3,137) 1,979 2,813
Net income/(loss) attributable to noncontrolling interests 27 (6) (7) 445 669
Net income/(loss) attributable to shareholder  (1,255) (2,883) (3,130) 1,534 2,144
   of which from continuing operations  (1,255) (2,883) (3,130) 1,432 1,999
   of which from discontinued operations  0 0 0 102 145
Consolidated balance sheet (CHF million)   
Total assets 798,372 822,065 822,736 923,406 874,061
Share capital 4,400 4,400 4,400 4,400 4,400
Shareholder's equity 42,670 42,789 45,412 44,731 41,237
Number of shares outstanding (million)   
Number of shares outstanding 4,399.7 4,399.7 4,399.7 4,399.7 4,399.7
A-3

List of abbreviations
     
ABO Accumulated benefit obligation
ABS Asset-backed securities
ADS American Depositary Shares
AEOI Automatic Exchange of Information
AES® Advanced execution services
AGM Annual General Meeting
AIG American International Group, Inc.
A-IRB Advanced internal ratings-based approach
AMA Advanced measurement approach
AoA Articles of Association
AOCI Accumulated other comprehensive income/(loss)
ASC Accounting Standards Codification
ASU Accounting Standards Updates
     
BA Bachelor of Arts
BBA Bachelor of Business Administration
BCBS Basel Committee on Banking Supervision
BIS Bank for International Settlements
Board Board of Directors
bp basis points
BVG Swiss Federal Law on Occupational Retirement,
Survivors’ and Disability Pension Plans
     
CARMC Capital Allocation and Risk Management Committee
CCA Contingent Capital Awards
CCAR Comprehensive Capital Analysis and Review
CCRO Chief Compliance and Regulatory Affairs Officer
CDO Collateralized debt obligation
CDS Credit default swap
CEB Conduct and Ethics Board
CECL Current expected credit loss
CET1 Common equity tier 1
CEO Chief Executive Officer
CFO Chief Financial Officer
CFTC Commodity Futures Trading Commission
CLO Collateralized loan obligation
CMBS Commercial mortgage-backed securities
CMI Continuous Mortality Investigation
CMS Constant maturity swap
COF Capital Opportunity Facility
COO Chief Operating Officer
COSO Committee of Sponsoring Organizations
of the Treadway Commission
CP Commercial paper
C (continued)      
CPR Constant prepayment rate
CRD Capital Requirements Directive
CRO Chief Risk Officer
CSI Credit Suisse International
CSSEL Credit Suisse Securities (Europe) Limited
CVA Credit valuation adjustment
     
DFS Department of Financial Services
DOJ US Department of Justice
     
EAD Exposure at default
EBITDA Earnings before interest, taxes, depreciation and amortization
ECB European Central Bank
EGM Extraordinary General Meeting
EMEA Europe, Middle East and Africa
EMIR European Market Infrastructure Regulation
ERCF Enterprise risk and control framework
ERISA US Employee Retirement Income Security Act of 1974
EU European Union
     
FASB Financial Accounting Standards Board
FATCA Foreign Account Tax Compliance Act
FDIC Federal Deposit Insurance Corporation
Fed US Federal Reserve
FINMA Swiss Financial Market Supervisory Authority FINMA
FINRA Financial Industry Regulatory Authority
FMIA Swiss Federal Act on Financial Market Infrastructure and
Market Conduct in Securities and Derivatives Trading
FSA UK Financial Services Authority
FSB Financial Stability Board
FSMA Financial Services and Markets Act 2000
     
G7 Group of seven leading industrial nations
G10 Group of Ten
G20 Group of Twenty Finance Ministers and Central Bank Governors
GAAP Generally accepted accounting principles
GDP Gross Domestic Product
GRI Global Reporting Initiative
G-SIB Global Systemically Important Bank
  
HQLA High quality liquid assets
HNWI High-net-worth individuals
A-4

     
IFRS International Financial Reporting Standards
IHC US intermediate holding company
IPO Initial public offering
IPRE Income producing real estate
IRC Incremental risk charge
IRS Internal Revenue Service
ISDA International Swaps and Derivatives Association, Inc.
IT Information technology
ITS International Trading Solutions
     
JD Juris Doctor
     
LCR Liquidity coverage ratio
LGD Loss given default
LIBOR London Interbank Offered Rate
LLM Master of laws
LTI Long-term incentive
LTV Loan-to-value
     
M&A Mergers and acquisitions
MA Master of Arts
MBA Master of Business Administration
MiFID I Markets in Financial Instruments Directive
MiFID II Revised Markets in Financial Instruments Directive
MRTC Material risk takers and controllers
MSRB Municipal Securities Rulemaking Board
     
NAV Net asset value
NCUA National Credit Union Administration
NRV Negative replacement value
NSFR Net stable funding ratio
NYSE New York Stock Exchange
     
OGR Organizational Guidelines and Regulations
OTC Over-the-counter
     
PAF 2008 Partner Asset Facility
PAF2 2011 Partner Asset Facility
PBO Projected benefit obligation
PD Probability of default
PFIC Passive foreign investment company
P (continued)      
PhD Doctorate of Philosophy
PRA Prudential Regulation Authority
PRV Positive replacement value
PSA Prepayment speed assumption
     
QE Quantitative easing
QIA Qatar Investment Authority
     
RCSA Risk and control self-assessment
RMBS Residential mortgage-backed securities
RNIV Risk not in VaR
ROE Return on equity
RPSC Risk Processes & Standards Committee
RRP Recovery and Resolution Plan
RRSC Reputational Risk & Sustainability Committee
RWA Risk-weighted assets
     
SAPS Self-administered pension scheme
SEC US Securities and Exchange Commission
SEI Significant economic interest
SESTA Swiss Federal Act on Stock Exchanges and Securities Trading
SFTQ Severe flight to quality
SIX SIX Swiss Exchange
SME Small- and medium-sized enterprises
SNB Swiss National Bank
SOX US Sarbanes-Oxley Act of 2002
SPE Special purpose entity
SPIA Single premium immediate annuity
STI Short-term incentive
     
TLAC Total loss-absorbing capacity
TRS Total return swap
     
UHNWI Ultra-high-net-worth individuals
UK United Kingdom
US United States of America
US GAAP US generally accepted accounting principles
     
VaR Value-at-risk
VARMC Valuation Risk Management Committee
VIE Variable interest entity
VIX Chicago Board of Options Exchange Market Volatility Index
A-5

Glossary
A
Advanced execution services® (AES®)   AES® is a suite of algorithmic trading strategies, tools and analytics operated by Credit Suisse to facilitate global equity trading. By employing algorithms to execute client orders and limit volatility, AES® helps institutions and hedge funds reduce market impact. AES® provides access to exchanges in more than 35 countries worldwide via more than 45 leading trading platforms.
Advanced internal ratings-based approach (A-IRB)   Under the A-IRB approach, risk weights are determined by using internal risk parameters. We have received approval from FINMA to use, and have fully implemented, the A-IRB approach whereby we provide our own estimates for probability of default (PD), loss given default (LGD) and exposure at default (EAD). We use the A-IRB approach to determine our institutional credit risk and most of our retail credit risk.
Advanced measurement approach (AMA)   The AMA is used for measuring operational risk. The methodology is based upon the identification of a number of key risk scenarios that describe the major operational risks we face. Groups of senior staff review each scenario and discuss the likelihood of occurrence and the potential severity of loss. Internal and external loss data, along with certain business environment and internal control factors, such as self-assessment results and key risk indicators, are considered as part of this process. Based on the output from these meetings, we enter the scenario parameters into an operational risk model that generates a loss distribution from which the level of capital required to cover operational risk is determined. We have received approval from FINMA to use an internal model for the calculation of operational risk capital, which is aligned with the requirements of the AMA under the Basel framework.
Affluent and retail clients   We define affluent and retail clients as individuals having assets under management below CHF 1 million.
American Depositary Shares (ADS)   An ADS, which is evidenced by an American Depositary Receipt, is a negotiable certificate issued by a depositary bank that represents all or part of an underlying share of a foreign-based company held in custody.
B
Backtesting   Backtesting is a process used to evaluate the performance of VaR models. It consists of a comparison between daily trading revenues and 1-day, 99% VaR. Regulators also use backtesting to evaluate model performance. VaR models that experience less than five exceptions in a rolling 12-month period are deemed to be statistically correct and attract no additional regulatory capital charges.
Bank for International Settlements (BIS)   The Bank for International Settlements (BIS) serves central banks in their pursuit of monetary and financial stability, fosters international cooperation in those areas and acts as a bank for central banks.
Basel III   In December 2010, the Basel Committee on Banking Supervision (BCBS) issued the Basel III framework, which is a comprehensive set of reform measures to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, improve risk management and governance and strengthen banks' transparency and disclosures. The phase-in period for Basel III is January 1, 2013 through January 1, 2019.
Basel Committee on Banking Supervision (BCBS)   The Basel Committee on Banking Supervision (BCBS) provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance the understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the BCBS uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the BCBS is best known for its international standards on capital adequacy, the Core Principles for Effective Banking Supervision and the Concordat on cross-border banking supervision.
Booking center   Part of a legal entity of Credit Suisse AG that is registered with a domestic banking license where client assets are administered and booked.
A-6

C
Collateralized debt obligation (CDO)   A CDO is a type of structured asset-backed security whose value and payments are derived from a portfolio of underlying fixed-income assets.
Commercial mortgage-backed securities (CMBS)   CMBS are a type of mortgage-backed security that is secured by loans on commercial property and can provide liquidity to real estate investors and commercial lenders.
Commercial paper (CP)   Commercial paper is an unsecured money-market security with a fixed maturity of 1 to 364 days, issued by large banks and corporations to raise funds to meet short term debt obligations.
Constant prepayment rate (CPR)   CPR is a loan prepayment rate that is equal to the proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. The calculation of this estimate is based on a number of factors such as historical prepayment rates for previous loans that are similar to ones in the pool and on future economic outlooks.
Credit default swap (CDS)   A CDS is a contractual agreement in which the buyer of the swap pays a periodic fee in return for a contingent payment by the seller of the swap following a credit event of a reference entity. A credit event is commonly defined as bankruptcy, insolvency, receivership, material adverse restructuring of debt or failure to meet payment obligations when due.
Credit valuation adjustment (CVA)   The CVA represents the market value of counterparty credit risk for uncollateralized OTC derivative instruments.
D
Debit valuation adjustment   The debit valuation adjustment represents the market value of our own credit risk for uncollateralized OTC derivative instruments.
Derivatives   Derivatives are financial instruments or contracts that meet all of the following three characteristics: (1) their value changes in response to changes in an underlying price, such as interest rate, security price, foreign exchange rate, credit rating/price or index; (2) they require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and (3) their terms require or permit net settlement (US GAAP) or they settle at a future date (IFRS).
E
Exposure at default (EAD)   The EAD represents the expected exposure in the event of a default. Off-balance sheet exposures are converted into expected EADs through the application of a credit conversion factor which is modeled using internal data.
F
Fair value   The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
G
G7   The G7 is a group of finance ministers from seven industrialized nations: the US, UK, France, Germany, Italy, Canada and Japan.
G10   The G10 is a group of 11 countries that have agreed to make resources available to the International Monetary Fund and includes Belgium, Canada, France, Italy, Japan, the Netherlands, the UK, the US, Germany, Sweden and Switzerland.
G20   The G20 is a group of finance ministers and central bank governors from 19 countries (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK and the US) and the EU.
H
Haircut   The percentage by which an asset's market value is reduced for the purpose of calculating capital, margin requirements and collateral levels. This is used to provide a cushion when lending against collateral to account for possible adverse movements in the value of the collateral.
Higher Trigger Capital Amount   The capital ratio write-down triggers for certain of our outstanding capital instruments take into account the fact that other outstanding capital instruments that contain relatively higher capital ratios as part of their trigger feature are expected to convert into equity or be written down prior to the write-down of such capital instruments. The amount of additional capital that is expected to be contributed by such conversion into equity or write-down is referred to as the Higher Trigger Capital Amount.
High-net-worth individuals (HNWI)   We define high-net-worth individuals as individuals having assets under management in excess of CHF 1 million.
I
Incremental risk charge (IRC)   The IRC represents an estimate of the issuer default and migration risk of positions in the trading book over a one-year capital horizon at a 99.9% confidence level, taking into account the liquidity horizons of individual positions. This includes sovereign debt, but excludes securitizations and correlation products.
A-7

L
Liquidity coverage ratio (LCR)   The LCR aims to ensure that banks have a stock of unencumbered high-quality liquid assets available to meet liquidity needs for a 30-day time horizon under a severe stress scenario. The LCR is comprised of two components: the value of the stock of high quality liquid assets in stressed conditions and the total net cash outflows calculated according to specified scenario parameters. The ratio of liquid assets over net cash outflows should be at least 100%.
Lombard loan   A loan granted against pledged collateral in the form of securities.
London Interbank Offered Rate (LIBOR)   LIBOR is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market.
Loss given default (LGD)   LGD parameters consider seniority, collateral, counterparty industry and, in certain cases, fair value markdowns. LGD estimates are based on an empirical analysis of historical loss rates and are calibrated to reflect time and cost of recovery as well as economic downturn conditions. For much of the loan portfolio of private banking, corporate and institutional businesses, the LGD is primarily dependent upon the type and amount of collateral pledged. For other retail credit risk, predominantly loans secured by financial collateral, pool LGDs differentiate between standard and higher risks, as well as domestic and foreign transactions. The credit approval and collateral monitoring processes are based on loan-to-value (LTV) limits. For mortgages (residential or commercial), recovery rates are differentiated by type of property.
M
Match funded   Match funded balance sheet items consist of assets and liabilities with close to equal liquidity durations and value so that the liquidity and funding generated or required by the positions are substantially equivalent.
Material risk takers and controllers (MRTC)   MRTC are employees who, either individually or as a part of a group, are considered to have a potentially material impact on the Group's risk profile.
N
Negative replacement value (NRV)   NRV represents the negative fair value of a derivative financial instrument at a given financial reporting date. A negative replacement value reflects the amount payable to the counterparty if the derivative transaction were to be settled at the reporting date, or alternatively, the cost at a given reporting date to close an open derivative position with a fully offsetting transaction.
Net stable funding ratio (NSFR)   The NSFR is intended to ensure banks maintain a structurally sound long-term funding profile beyond one year and is a complementary measure to the LCR. It is structured to ensure that illiquid assets are funded with an appropriate amount of stable long-term funds. The standard is defined as the ratio of available stable funding over the amount of required stable funding. The ratio should always be at least 100%.
N (continued)
Netting agreements   Netting agreements are contracts between two parties where under certain circumstances, such as insolvency, bankruptcy or any other credit event, mutual claims from outstanding business transactions can be offset against each other. The inclusion of a legally binding netting agreement reduces the default risk from a gross to a net amount.
O
Over-the-counter (OTC)   Over-the-counter securities and derivatives are not traded on an exchange but via private contracts between counterparties.
P
Position risk   Component of the economic capital framework, which is used to assess, monitor and report risk exposures throughout the Group. Position risk is the level of unexpected loss in economic value on our portfolio of positions over a one-year horizon which is exceeded with a given small probability (1% for risk management purposes; 0.03% for capital management purposes).
Positive replacement value (PRV)   PRV represents the positive fair value of a derivative financial instrument at a given reporting date. A positive replacement value reflects the amount receivable from the counterparty if the derivative transaction were to be settled at the reporting date, or alternatively, the cost at a given reporting date to enter into the exact same transaction for the residual term, if the existing counterparty should default.
Probability of default (PD)   PD parameters capture the risk of a counterparty defaulting over a one-year time horizon. PD estimates are based on time-weighted averages of historical default rates by rating grade, with low-default-portfolio estimation techniques applied for higher quality rating grades. Each PD reflects the internal rating for the relevant obligor.
R
Regulatory VaR   Regulatory VaR is a version of VaR that uses an exponential weighting technique that automatically increases VaR where recent short-term market volatility is greater than long-term volatility in the two-year dataset. Regulatory VaR uses an expected shortfall calculation based on average losses, and a ten-day holding period. This results in a more responsive VaR model, as the overall increases in market volatility are reflected almost immediately in the regulatory VaR model.
Repurchase agreements   Repurchase agreements are securities sold under agreements to repurchase substantially identical securities. These transactions normally do not constitute economic sales and are therefore treated as collateralized financing transactions and are carried in the balance sheet at the amount of cash received (liability) and cash disbursed (asset), respectively.
Residential mortgage-backed securities (RMBS)   RMBS are a type of mortgage-backed security composed of a wide array of different non-commercial mortgage debts. They securitize the mortgage payments of non-commercial real estate. Different residential mortgages with varying credit ratings are pooled together and sold in tranches to investors.
A-8

R (continued)
Reverse repurchase agreements   Reverse repurchase agreements are purchases of securities under agreements to resell substantially identical securities. These transactions normally do not constitute economic sales and are therefore treated as collateralized financing transactions and are carried in the balance sheet at the amount of cash received (liability) and cash disbursed (asset), respectively.
Risk management VaR   Risk management VaR is a version of VaR that uses an exponential weighting technique that automatically adjusts VaR where recent short-term market volatility differs from long-term volatility in the two-year dataset. Risk management VaR uses an expected shortfall calculation based on average losses, and a one-day holding period. This results in a more responsive VaR model, as the overall changes in market volatility are reflected almost immediately in the risk management VaR model.
Risk mitigation   Risk mitigation refers to measures undertaken by the Group or the Bank to actively manage its risk exposure. For credit risk exposure, such measures would normally include utilizing credit hedges and collateral, such as cash and marketable securities. Credit hedges represent the notional exposure that can be transferred to other market counterparties, generally through the use of credit default swaps.
Risk not in VaR (RNIV)   RNIV is a framework intended to ensure that capital is held to meet all risks which are not captured, or not captured adequately, by the Group’s VaR and stressed VaR models. These include, but are not limited to incomplete, missing and/or illiquid risk factors such as certain basis, correlation, higher-order and cross risks, and calibration parameters. The RNIV framework is continuously updated to incorporate new RNIVs.
Risk-weighted assets (RWA)   The value of the Group's assets weighted according to certain identified risks for compliance with regulatory provisions.
S
Stressed VaR   Stressed VaR replicates a VaR calculation on the current portfolio of the Group or the Bank, taking into account a one-year observation period relating to significant financial stress; it helps reduce the pro-cyclicality of the minimum capital requirements for market risk.
Swiss Financial Supervisory Authority FINMA (FINMA)   FINMA, as an independent supervisory authority, protects creditors, investors and policy holders, ensuring the smooth functioning of the financial markets and preserving their reputation. In its role as state supervisory authority, FINMA acts as an oversight authority of banks, insurance companies, exchanges, securities dealers, collective investment schemes, distributors and insurance intermediaries. It is responsible for combating money laundering and, where necessary, conducts restructuring and bankruptcy proceedings and issues operating licenses for companies in the supervised sectors. Through its supervisory activities, it ensures that supervised institutions comply with the requisite laws, ordinances, directives and regulations and continues to fulfill the licensing requirements. FINMA also acts as a regulatory body; it participates in legislative procedures, issues its own ordinances and circulars where authorized to do so, and is responsible for the recognition of self-regulatory standards.
T
“Too Big to Fail”   In 2011, the Swiss Parliament passed legislation relating to big banks. The legislation includes capital and liquidity requirements and rules regarding risk diversification and emergency plans designed to maintain systemically relevant functions even in the event of threatened insolvency.
Total loss-absorbing capacity (TLAC)   TLAC is a regulatory requirement designed to ensure that Global Systemically Important Banks (G-SIBs) have the loss-absorbing and recapitalization capacity so that, in an immediately following resolution, critical functions can continue without requiring taxpayer support or threatening financial stability.
Total return swap (TRS)   A TRS is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, loans, or bonds.
U
Ultra-high-net-worth individuals (UHNWI)   Ultra-high-net-worth individuals have assets under management in excess of CHF 50 million or total wealth exceeding CHF 250 million.
V
Value-at-risk (VaR)   VaR is a technique used to measure the potential loss in fair value of financial instruments based on a statistical analysis of historical price trends and volatilities. VaR as a concept is applicable for all financial risk types with valid regular price histories; the use of VaR allows the comparison of risk in different businesses, such as fixed income and equity.
A-9

Investor information
Share data
in / end of 2017 2016 2015
Share price (common shares, CHF)   
Average 15.11 13.71 23.85
Minimum 13.04 9.92 18.22
Maximum 17.84 21.31 27.89
End of period 17.40 14.61 21.69
Share price (American Depositary Shares, USD)   
Average 15.35 13.88 25.43
Minimum 13.37 10.21 20.48
Maximum 18.02 21.36 29.69
End of period 17.85 14.31 21.69
Market capitalization   
Market capitalization (CHF million) 44,475 30,533 42,456
Market capitalization (USD million) 45,625 29,906 42,456
Dividend per share (CHF)   
Dividend per share 0.25 1 0.70 2 0.70 2
1
Proposal of the Board of Directors to the Annual General Meeting on April 27, 2018; to be paid out of capital contribution reserves.
2
Paid out of capital contribution reserves.
A-10

Ticker symbols / stock exchange listings
Common shares ADS 1
Ticker symbols   
SIX Financial Information CSGN
Bloomberg CSGN SW CS US
Reuters CSGN.S CS.N
Stock exchange listings   
Swiss security number 1213853 570660
ISIN number CH0012138530 US2254011081
CUSIP number 225 401 108
1
One American Depositary Share (ADS) represents one common share.
Credit ratings and outlook

as of March 16, 2018
Short-term
debt
Long-term
debt


Outlook
Credit Suisse Group AG   
Moody's Baa2 Stable
Standard & Poor's BBB+ Stable
Fitch Ratings F2 A- Stable
Rating and Investment Information A Negative
Credit Suisse AG   
Moody's P-1 A1 Stable
Standard & Poor's A-1 A Stable
Fitch Ratings F1 A Stable
Foreign currency translation rates
   End of Average in
2017 2016 2015 2017 2016 2015
1 USD / 1 CHF 0.98 1.02 0.99 0.98 0.99 0.96
1 EUR / 1 CHF 1.17 1.07 1.08 1.11 1.09 1.07
1 GBP / 1 CHF 1.32 1.26 1.47 1.27 1.34 1.47
100 JPY / 1 CHF 0.87 0.87 0.82 0.88 0.90 0.80
A-11

Financial calendar and contacts
Financial calendar
First quarter results 2018 Wednesday, April 25, 2018
Annual General Meeting Friday, April 27, 2018
Second quarter results 2018 Tuesday, July 31, 2018
Investor relations
Phone +41 44 333 71 49
E-mail investor.relations@credit-suisse.com
Internet credit-suisse.com/investors
Media relations
Phone +41 844 33 88 44
E-mail media.relations@credit-suisse.com
Internet credit-suisse.com/news
Additional information
Results and financial information credit-suisse.com/results
Printed copies credit-suisse.com/publications
US share register and transfer agent
ADS depositary bank The Bank of New York Mellon
Shareholder correspondence address BNY Mellon Shareowner Services
P.O. Box 30170
College Station, TX 77842-3170, USA
Overnight correspondence address BNY Mellon Shareowner Services
211 Quality Circle, Suite 210
College Station, TX 77845, USA
US and Canada phone +1 866 886 0788
Phone from outside US and Canada +1 201 680 6825
E-mail shrrelations@cpushareownerservices.com
Swiss share register and transfer agent
Address Credit Suisse Group AG
Share Register RXS
8070 Zurich, Switzerland
Phone +41 44 332 02 02
E-mail share.register@credit-suisse.com



Main offices
Switzerland
Credit Suisse
Paradeplatz 8
8070 Zurich
Switzerland
Tel. +41 44 333 11 11
Fax +41 44 332 55 55
Europe, Middle East and Africa
Credit Suisse
One Cabot Square
London E14 4QJ
United Kingdom
Tel. +44 20 7888 8888
Fax +44 20 7888 1600
Americas
Credit Suisse
Eleven Madison Avenue
New York, NY 10010
United States
Tel. +1 212 325 2000
Credit Suisse
Rua Leopoldo Couto de
Magalhães Jr. 700
São Paulo 04542-000
Brazil
Tel. +55 11 3701 6000
Fax +55 11 3701 6900
Asia Pacific
Credit Suisse
International Commerce Centre
One Austin Road West
Kowloon
Hong Kong
Tel. +852 2101 6000
Fax +852 2101 7990
Credit Suisse
One Raffles Link
#05-02
Singapore 039393
Singapore
Tel. +65 6212 6000
Fax +65 6212 6200
Credit Suisse
Izumi Garden Tower
6-1, Roppongi 1-Chome
Minato-ku
Tokyo, 106-6024
Japan
Tel. +81 3 4550 9000
Fax +81 3 4550 9800
A-12






Cautionary statement regarding forward-looking information
This report contains statements that constitute forward-looking statements. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:
our plans, objectives, ambitions, targets or goals;
our future economic performance or prospects;
the potential effect on our future performance of certain contingencies; and
assumptions underlying any such statements.
Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, ambitions, targets, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:
the ability to maintain sufficient liquidity and access capital markets;
market volatility and interest rate fluctuations and developments affecting interest rate levels;
the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular the risk of continued slow economic recovery or downturn in the US or other developed countries or in emerging markets in 2018 and beyond;
the direct and indirect impacts of deterioration or slow recovery in residential and commercial real estate markets;
adverse rating actions by credit rating agencies in respect of us, sovereign issuers, structured credit products or other credit-related exposures;
the ability to achieve our strategic goals, including those related to cost efficiency, income/(loss) before taxes, capital ratios and return on regulatory capital, leverage exposure threshold, risk-weighted assets threshold, return on tangible equity and other targets, objectives and ambitions;
the ability of counterparties to meet their obligations to us;
the effects of, and changes in, fiscal, monetary, exchange rate, trade and tax policies, as well as currency fluctuations;
political and social developments, including war, civil unrest or terrorist activity;
the possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;
operational factors such as systems failure, human error, or the failure to implement procedures properly;
the risk of cyber attacks on our business or operations;
actions taken by regulators with respect to our business and practices and possible resulting changes to our business organization, practices and policies in countries in which we conduct our operations;
the effects of changes in laws, regulations or accounting or tax standards, policies or practices in countries in which we conduct our operations;
the potential effects of proposed changes in our legal entity structure;
competition or changes in our competitive position in geographic and business areas in which we conduct our operations;
the ability to retain and recruit qualified personnel;
the ability to maintain our reputation and promote our brand;
the ability to increase market share and control expenses;
technological changes;
the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;
acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets;
the adverse resolution of litigation, regulatory proceedings, and other contingencies; and
other unforeseen or unexpected events and our success at managing these and the risks involved in the foregoing.
 
We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, including the information set forth in I – Information on the company – Risk factors.





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Printer: Neidhart + Schön Print AG
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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘20-F’ Filing    Date    Other Filings
9/14/37
4/24/37
7/11/36
5/16/36
2/8/36
9/28/35
12/4/34
10/27/33
4/21/33
2/2/33
10/27/32
2/9/32
10/14/31
12/4/30
1/9/28
10/27/27
1/9/27
10/27/26
9/12/25
7/17/25
12/18/24
9/12/24
7/17/24
12/14/23
12/11/23
10/27/23
9/22/23
1/9/23
12/14/22
10/27/22
10/6/22
7/29/22
7/21/22
1/9/22
1/1/22
12/31/21
10/6/21
12/1/20
9/1/20
1/1/20
12/31/1920-F,  424B2,  6-K,  FWP
12/15/19
7/1/19424B2,  FWP
6/13/19424B2
3/29/19424B2,  FWP
1/1/19
12/31/1820-F,  424B2,  6-K,  6-K/A,  FWP
12/15/18
9/10/18424B2,  FWP
9/4/18424B2,  FWP
7/31/18424B2,  6-K,  FWP
7/21/18424B2
7/1/18
6/30/18424B2,  6-K,  FWP
5/25/18424B2,  FWP
5/4/18424B2,  FWP
4/27/18424B2,  6-K,  FWP
4/25/18424B2,  424B8,  6-K
4/1/18
Filed on:3/23/18424B2,  6-K,  IRANNOTICE
3/21/18424B2,  424B8
3/16/18424B2
3/15/18424B2
3/14/18424B2
3/7/18424B2,  424B8,  FWP
3/5/18424B2,  FWP
3/2/18424B2,  FWP
2/28/18424B2,  FWP
2/23/18424B2
2/21/1825-NSE,  424B2
2/20/18424B2
2/15/18424B2,  6-K
2/14/18424B2,  424B8,  6-K,  SC 13G/A
2/13/18424B2,  424B8
2/9/18424B2,  6-K,  FWP
2/7/18424B2,  424B8
2/5/18424B2,  6-K
1/30/18424B2,  424B8,  FWP
1/26/18424B2
1/18/18424B2,  424B8,  6-K
1/13/18
1/3/18424B2,  FWP
1/1/18
For Period end:12/31/176-K
12/22/17424B2,  6-K,  FWP
12/21/17424B2,  FWP
12/15/17424B2
12/13/17424B2,  6-K
12/12/17424B2
12/11/17424B2
12/8/17424B2
12/7/17424B2
12/6/17424B2
12/5/17424B2,  6-K,  FWP
12/4/17424B2,  FWP
12/1/17424B2,  6-K,  FWP
11/30/17424B2,  6-K,  FWP
11/28/17424B2,  6-K
11/24/17424B2,  6-K
11/17/17424B2,  6-K
11/15/17424B2,  6-K,  FWP
11/13/17424B2,  6-K,  FWP
11/10/17424B2
11/9/17424B2,  6-K,  FWP
11/6/17424B2
11/3/17424B2,  6-K
10/31/17424B2,  6-K,  FWP
10/27/17424B2,  6-K,  FWP
10/19/17424B2,  6-K,  FWP
10/18/17424B2,  6-K
10/13/17424B2,  6-K
10/6/17424B2,  FWP
10/3/17424B2,  6-K,  FWP
10/2/17424B2,  6-K,  FWP
9/29/17424B2,  6-K,  FWP
9/27/17424B2,  6-K
9/25/17424B2,  6-K,  FWP
9/18/17424B2,  6-K
9/14/17424B2,  6-K
9/12/17424B2,  6-K
9/11/17424B2
9/6/17424B2,  6-K,  FWP
9/2/17
9/1/17424B2,  6-K,  FWP
8/25/17424B2,  6-K
8/23/17424B2,  6-K
8/18/17424B2,  6-K,  FWP
8/16/17424B2,  6-K
8/15/17424B2
8/11/17424B2,  6-K,  FWP
7/28/17424B2,  6-K,  FWP
7/27/17424B2,  FWP
7/25/17424B2,  6-K
7/21/17424B2,  6-K
7/17/17424B2,  6-K
7/12/17424B2,  6-K
7/7/17424B2,  6-K,  FWP
7/1/17424B2
6/30/17424B2,  6-K,  EFFECT
6/29/17424B2,  FWP
6/26/17424B2,  6-K,  FWP
6/21/17424B2,  424B8,  6-K,  FWP
6/10/17
6/9/17424B2,  6-K
6/8/1725-NSE,  424B2,  6-K,  F-3,  F-N
6/7/17424B2,  6-K,  FWP
6/6/17424B2,  6-K
6/5/17424B2,  6-K,  FWP
6/2/17424B2,  6-K,  FWP
5/25/17424B2,  6-K
5/18/17424B2,  6-K
5/12/17424B2,  6-K
5/8/17424B2,  6-K
5/2/17424B2,  6-K,  FWP
4/28/17424B2,  6-K,  FWP
4/18/17424B2,  424B8,  6-K,  FWP
4/12/17424B2,  6-K
4/7/17424B2
4/5/17424B2,  6-K,  FWP
4/1/17
3/31/17424B2,  6-K,  FWP
3/29/17424B2,  6-K
3/24/1720-F,  424B2,  6-K,  6-K/A,  CORRESP,  IRANNOTICE,  UPLOAD
3/22/17424B2,  6-K
3/20/17424B2,  6-K
3/16/17424B2
3/15/17424B2,  6-K
3/10/17424B2,  6-K,  FWP
3/1/17424B2,  FWP
2/28/17424B2,  6-K,  FWP
2/24/17424B2,  6-K,  FWP
2/15/17424B2,  424B8,  6-K
2/14/17424B2,  6-K,  FWP,  SC 13G/A
2/12/17
2/4/17
1/30/17424B2,  6-K,  FWP
1/28/17
1/23/17424B2,  6-K
1/20/17424B2,  6-K,  FWP
1/18/17424B2,  6-K
1/9/17424B2,  6-K
1/5/17424B2,  6-K
1/4/17424B2,  6-K,  FWP
1/1/17
12/31/1620-F,  6-K,  6-K/A
12/20/16424B2,  6-K,  FWP
12/16/16424B2,  424B8,  6-K,  FWP
12/15/16424B2,  FWP
12/13/16424B2
12/9/16424B2,  6-K
12/7/16424B2,  6-K
12/5/16424B2,  6-K,  FWP
12/3/16
12/2/16424B2,  6-K,  FWP
11/20/16
11/18/1625,  424B2,  6-K
11/17/16424B2,  6-K
11/16/16424B2,  6-K,  CORRESP,  UPLOAD
11/8/16424B2,  6-K,  FWP
11/2/16424B2,  FWP
10/31/16424B2,  6-K,  FWP
10/11/16424B2,  6-K,  FWP
9/26/16424B2,  424B3,  FWP
9/20/16424B2,  6-K
9/16/16424B2,  6-K,  FWP
9/14/16424B2,  6-K,  FWP
9/12/16424B2,  6-K,  FWP
9/1/16424B2,  6-K,  FWP
8/23/16424B2,  6-K
8/16/16424B2,  6-K
8/5/16424B2,  FWP
8/1/16424B2,  FWP
7/27/16424B2
7/12/16424B2,  8-A12B
7/5/16424B2,  424B3,  6-K,  CORRESP,  FWP,  UPLOAD
7/1/16424B2,  6-K,  FWP
6/30/16424B2,  6-K,  FWP
6/23/16424B2
6/10/16424B2,  6-K
6/1/16424B2,  6-K,  FWP
5/23/16424B2,  6-K
5/19/16424B2,  6-K,  FWP
5/11/16424B2,  6-K,  FWP
5/4/16424B2,  6-K,  FWP
5/3/16424B2,  FWP
4/11/16424B2,  6-K
4/6/16424B2,  6-K,  FWP
3/23/16424B2,  6-K
2/25/16424B2,  6-K,  FWP
2/17/16424B2,  424B8,  FWP
2/12/16424B2,  424B8,  SC 13G/A
1/19/16424B2,  6-K,  FWP
1/12/16424B2,  6-K,  FWP
1/1/16
12/31/1520-F,  424B2,  6-K,  FWP
12/21/15424B2,  6-K,  FWP
12/18/15424B2,  6-K
12/14/15424B2,  6-K,  CORRESP,  F-4/A
12/10/15424B2,  6-K,  FWP,  SC 13G/A
12/2/15424B2,  6-K,  FWP
11/25/15424B2,  6-K,  FWP
11/20/15424B2,  424B8,  6-K,  S-8
11/19/15424B2,  6-K
11/12/15424B2,  6-K
11/9/15424B2,  FWP
11/4/15424B2,  6-K,  FWP
11/3/15424B2,  FWP
10/27/15424B2,  6-K,  FWP
10/21/15424B2,  6-K
9/17/15424B2,  6-K
9/4/15424B2,  424B8,  6-K,  FWP
8/18/15424B2,  6-K
7/15/15424B2,  6-K,  FWP
7/1/15424B2,  6-K,  FWP
6/25/15424B2,  6-K,  FWP
6/19/15424B2,  6-K
6/3/15424B2,  6-K,  FWP
6/1/15424B2,  6-K,  FWP
5/20/15424B2,  6-K
4/21/15424B2,  6-K
4/16/15424B2,  6-K
4/13/15424B2,  6-K
3/31/15424B2,  6-K,  FWP
3/24/15424B2,  FWP
2/20/15424B2,  6-K
2/12/15424B2,  6-K,  FWP
2/5/15424B2,  6-K,  FWP
1/28/15424B2,  6-K,  FWP
1/1/15
12/31/1420-F,  424B2,  6-K,  6-K/A,  FWP
11/10/14424B2,  FWP
10/8/14424B2,  6-K,  FWP
9/4/14424B2,  6-K,  FWP,  UPLOAD
8/28/14424B2,  6-K,  FWP
8/21/14424B2,  6-K
8/19/14424B2
7/1/14424B2,  6-K,  FWP
6/18/14424B2,  6-K,  FWP
6/2/14424B2,  6-K,  FWP
5/19/1440-APP,  424B2,  6-K,  FWP
4/30/14424B2,  6-K,  FWP
2/2/14
1/1/14
12/31/1320-F,  25-NSE,  424B2,  6-K,  6-K/A
12/18/13424B2,  424B8,  6-K,  FWP
12/11/13424B2,  6-K,  FWP
11/9/13
11/4/13424B2,  FWP
9/24/13424B2,  FWP
9/4/13424B2,  6-K,  FWP
8/23/13424B2,  6-K,  FWP
4/26/13424B2,  6-K,  FWP
3/29/13424B2,  FWP
1/31/13424B2,  FWP
1/25/13424B2,  FWP
1/1/13
12/19/1225-NSE,  424B2,  424B8,  6-K
11/20/12424B2,  6-K,  FWP
3/18/10424B2,  FWP
1/3/10
4/14/09FWP
12/31/0820-F,  424B2,  6-K,  FWP
5/30/08424B2,  FWP
1/1/08
3/26/0720-F
1/1/07
1/1/06
10/26/04
12/31/0220-F,  20-F/A,  6-K,  ARS
1/1/02
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