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Credit Suisse Group (NYSE:CS)

Q3 2013 Earnings Call

October 24, 2013 3:00 am ET

Executives

Brady W. Dougan - Chief Executive Officer and Member of Executive Board

David R. Mathers - Chief Financial Officer and Member of the Executive Board

Analysts

Matt Spick - Deutsche Bank AG, Research Division

Huw Van Steenis - Morgan Stanley, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

Daniele Brupbacher - UBS Investment Bank, Research Division

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Jernej Omahen - Goldman Sachs Group Inc., Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Jon Peace - Nomura Securities Co. Ltd., Research Division

Operator

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group Third Quarter 2013 Results Conference Call. [Operator Instructions] And the conference is recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead, Mr. Dougan.

Brady W. Dougan

Thank you very much. Welcome, everybody. Thanks for joining us for our Third Quarter Earnings Call. I'm joined by David Mathers, our CFO, who will deliver the results portion of today's discussion.

Before we begin, if you could just note the cautionary statement in the slides.

Two key points that I want to cover this morning, first of all, just summarizing third quarter performance. And then I'd like to explain how the strong progress we've made on capital, leverage and cost positions as we shift our focus to growth opportunities in our high-returning businesses, and to reinforce our commitment to return significant capital to shareholders.

First, let's briefly review our financial performance. In the third quarter, resilient profitability in Private Banking & Wealth Management and strong revenues in our Equities and debt origination businesses were partly offset by weaker client activity, particularly in fixed income. Third quarter underlying pretax income was CHF 930 million, with a return on equity of 7%. For the first 9 months of this year, our underlying pretax income was CHF 4.5 billion, an 18% increase from the first 9 months of 2012. We generated a stable return on equity of 11% despite the continued low interest rate environment and macroeconomic uncertainty.

In Private Banking & Wealth Management, we achieved solid profitability in the third quarter with an underlying pretax income of CHF 836 million. We had net asset flows of CHF 8.1 billion in the quarter, driven by emerging markets and ultra-high-net-worth client franchises as well as by high-margin Asset Management products. We made strong progress in the third quarter towards our previously announced cost savings target of CHF 950 million by the end of 2015. For the first 9 months, Private Banking & Wealth Management generated a return on Basel III capital of 26%.

In Investment Banking, we reported pretax income of CHF 229 million. Our performance reflected challenging fixed income conditions as market uncertainty resulted in low client volumes. This weakness was partly offset by strong and consistent performance from our market-leading Equities franchise and robust debt origination activity.

Driven by a shift in the capital to high-returning businesses, combined with strong cost discipline, the investment bank reported pretax income of CHF 2.3 billion for the first 9 months of 2013, a 34% increase from a year ago; and a return on Basel III capital of 13%, up from 9% for the first 9 months of 2012.

Now let's turn to costs. Driven by strong progress on cost reductions in Private Banking & Wealth Management in the third quarter, we delivered CHF 3 billion of annualized run rate cost savings versus the first half of 2011. Given this progress, we're on track to achieve our target of CHF 3.2 billion by the end of this year, and we'll target cost savings in excess of CHF 4.5 billion by the end of 2015.

Next is capital and leverage. We further strengthened our capital base during the third quarter, and as of the end of the quarter, we met the 13% CET1 plus high-triggered capital required in Switzerland by 2019 with 13.2% on a pro forma basis. Note that these capital ratios include an accrual for our resume cash dividend for 2013 assumed to be paid in 2014.

We also made further progress on leverage. Since the third quarter of 2012, we've reduced our leverage exposure by 16% or CHF 221 billion and have already exceeded our year-end target. Our Swiss look-through total capital leverage ratio improved from 2.7% last quarter to 3.5% on a pro forma basis, including the conversion of the hybrid tier 1 notes into BCNs on October 23. With this, we are on track to exceed the Basel III leverage requirement of 4.2% well ahead of the 2019 deadline.

To summarize the quarter. Our continued expense discipline and effective capital management mitigated the impact of challenging market conditions and low client activity across many of our businesses. In addition, accelerated achievement of cost, capital and leverage targets reinforces our commitment to deliver significant cash returns to shareholders.

Before handing it over to David, I'll give you a brief update on how an increased focus on our high-returning businesses will position us for further growth. We have taken significant steps to evolve our business model in response to the changing market and regulatory environment, and we've operated under the Basel III framework since January of this year. We have met all the capital and expense goals that we've set out, as David will take you through in a few minutes.

We will continue to deliver against our strategic objectives, which include: first, to refocus and drive growth in high-returning businesses, particularly in Private Banking & Wealth Management; second, to release and reallocate resources from nonstrategic operations to fund shareholder returns and growth; and third, to achieve a more balanced capital allocation between our 2 divisions. To advance all 3 of these objectives, we are formalizing our existing wind-down strategy and enhancing our disclosure through the creation of nonstrategic units within each of our 2 divisions. These units, which will have separate management within each division, will serve to accelerate the reduction of capital and cost tied up in nonstrategic assets and drive higher returns. At the same time, this clear separation of nonstrategic operations will free-up management time and resources to focus on our ongoing businesses and growth opportunities.

Let me say a few words about the composition of these nonstrategic units, and then David will provide much more detail later in the presentation.

In Investment Banking, we are expanding our existing fixed income wind-down effort to include a restructuring of our rates business. We will add to our existing wind-down portfolio parts of our rates franchise, including legacy "non-Basel III compliant" positions, capital-intensive structured positions and related litigation costs. What remains will be a simplified and more capital-efficient rates business with a focus on meeting client liquidity needs.

In Private Banking & Wealth Management, we're establishing a similar function. The Private Banking & Wealth Management nonstrategic unit will include positions relating to the restructuring of our former Asset Management division, litigation and runoff costs relating to select legacy cross-border businesses, the previously communicated small markets initiative and the impact from the restructuring of the German onshore operation.

This approach will drive further reductions in leverage, risk-weighted assets and expenses and is a significant step towards achieving a more balanced capital allocation between our 2 divisions. As part of this effort, we are revising our long-term cost and capital targets. We will reduce leverage exposure to CHF 1,070 billion, risk-weighted assets to approximately CHF 250 billion, and we will now target expense reductions of more than CHF 4.5 billion by the end of 2015. These planned reductions will free-up resources for future growth and investment in Private Banking & Wealth Management. In particular, we expect to increase our presence in key emerging markets in Asia and Latin America but also in parts of the Middle East and Eastern Europe. Additionally, we will strive to further strengthen our market share with the ultra-high-net-worth clients, including a substantial increase in lending. We will also invest in expanding our digital client interface, particularly in Asia, and remain positioned to take advantage of market consolidation.

In Investment Banking, we will focus on opportunities to strengthen our leading franchises in key markets. This strategy to refocus our business towards growth will position Credit Suisse to achieve one of the highest returns in the industry and deliver sustained and substantial cash returns to shareholders.

With that, I'll hand it over to David, who will discuss the results in more detail. David?

David R. Mathers

Thank you, Brady. Good morning. I'd like to start on Slide 7 with an overview of the financial results.

In the third quarter, we achieved underlying revenues of CHF 5.6 billion, pretax income of CHF 0.9 billion and net income of CHF 0.7 billion. Diluted earnings per share were CHF 0.40, the cost/income ratio 83%, and we achieved an after-tax return on equity of 7%.

Net new asset inflows of CHF 8.5 billion from continuing operations improved significantly compared to the CHF 5.4 billion that we achieved in the third quarter of 2012. And for the 9-month period, underlying pretax income was CHF 4.5 billion, equivalent to an after-tax return on equity of 11%.

There are 2 points I'd like to make. First, our tax charge in the third quarter were abnormally high due to changes in the U.K. corporation tax regime. If we adjust for the impact of tax reduction, our effective corporate tax rate would've been 28% for the third quarter, in line with our existing guidance.

Second, in the third quarter, we also completed sales of several assets under the capital program from the Asset Management business. As they're classified as discontinued operations, the CHF 237 million of sales gains and the related costs are not included in neither underlying nor reported pretax income. However, our reported net income for the third quarter does include the after-tax income of CHF 150 million relating to these discontinued operations.

Let's turn to Slide 8. The Private Banking & Wealth Management division reported pretax income of CHF 1 billion in the third quarter and underlying pretax income of CHF 836 million, excluding the aforementioned business sale gains. Net revenues of CHF 3.3 billion in the third quarter were stable compared to the previous year, as higher recurring commissions and fees and other revenues were offset by a lower net interest income. The decrease in revenues compared to the previous quarter reflected seasonally lower client activity as well as reduced performance fees following a strong second quarter.

We have made further good progress towards our previously announced savings target of CHF 950 million by the end of 2015. Compared to the first half of 2011 when we initiated the program across the bank, we have achieved annualized run rate savings of CHF 350 million by the end of the third quarter. So that's up by CHF 150 million on an annualized basis since we reported our second quarter numbers. Our underlying cost/income ratio for the first 9 months of this year, when adjusted for the U.K. withholding tax charge of CHF 100 million that we took in the second quarter, decreased to 71% from 74% for the same period.

We continued to see strong net new asset inflows of CHF 8.1 billion in the third quarter. Now this takes into account CHF 0.4 billion of movements relating to the announced sale of our Customized Fund Investment Group, or CFIG, which is now classified as a discontinued operation and the sale of which will close in the fourth quarter this year.

Let's turn to Slide 9 to discuss net new assets in some more detail. Our wealth management client business saw inflows of CHF 5.5 billion in the third quarter, with continued strong contributions from Asia and Latin America and a high share of inflows from our ultra-high-net-worth segment. The eliminating double-count adjustment was positive in the third quarter due to the outflow of certain assets managed by Asset Management on behalf of other private banking businesses. We continue to see cross-border outflows in Western Europe, mainly from our retail and affluent client segment relating to the ongoing normalization of tax regimes.

For the 9-month period as a whole, net new assets are stable compared to last year, with emerging markets growing by 8% on an annualized basis and Western European cross-border outflows within our guidance of 5% to 10% per annum that we've given previously.

Within Asset Management, we achieved strong inflows of CHF 3.8 billion in the third quarter, mainly in higher-margin emerging markets and credit alternative products. And finally, Corporate & Institutional Clients contributed positive net new assets of CHF 0.5 billion in the third quarter.

Let's look at the financial results for the division in more detail, and we'll start with Wealth Management Clients on Slide 10. Wealth Management Clients delivered solid underlying pretax income of CHF 516 million, slightly higher than the prior year and driven by lower expenses from the continued efficiency measures we're implementing; revenues of CHF 2.1 billion for the third quarter, relatively stable compared to the prior year, with higher recurring commissions and fees partly offsetting the impact from the continued low interest rate environment. Compared to the previous quarter, the decline in revenues mainly reflected seasonally lower client activity after a strong second quarter.

Cost efficiencies have helped to improve the cost/income ratio from 77% previous year to 75% on an adjusted basis for the first 9 months of this year.

Let's look at wealth management revenue trends in more detail on Slide 11. As you can see from the chart, our gross margin of 105 basis points in the third quarter was down from 110 basis points last year. The main driver of this decrease year-on-year was net interest income, which continued to be negatively affected by the low interest rate environment and only partly offset by higher loan volumes. Compared to the previous quarter, transaction volumes were slower after a seasonally strong second quarter.

The share of gross margins that we end on in recurring commissions and fees and our net interest income were stable compared to the second quarter. Pursuant to our strategy, we continued to increase our ultra-high-net-worth penetration, which now constitutes 44% of assets under management compared to 40% a year ago.

Let's turn to Corporate & Institutional Clients on Slide 12. We continued to see a strong contribution from Corporate & Institutional Clients in the third quarter. Pretax income of CHF 240 million was up 12% from the prior year, mainly driven by lower expenses. Compared to the second quarter, decrease in revenues reflected seasonally lower client activity. Credit provisions reverted to low levels after the isolated credit crisis we reported last quarter.

Let's turn to Asset Management on Slide 13. Asset Management reported pretax income of CHF 268 million in the quarter. This includes -- included CHF 185 million net gains from the sale of our ETF and secondary private equity business, after deducting related costs for these businesses and also for the announced sale of CFIG. The businesses that we've divested or are being sold also contributed CHF 27 million operating profit to pretax income in the third quarter.

When comparing the underlying pretax income to the previous year, we need to keep in mind that last year's third quarter result included CHF 101 million of investment-related gains. Now adjusting for this, asset recorded a pretax income of CHF 80 million, improved year-on-year. Compared to the previous quarter, the second quarter, the decrease in underlying pretax income reflects the semiannual performance fees and the strong carried interest on private equity gains that were reported in the second quarter.

Total assets under management in the third quarter were negatively impacted by CHF 21 billion as a result of the business divestments previously mentioned. Net new assets, however, more than doubled compared to the second quarter, driven by strong inflows in alternatives, primarily emerging markets and credit products.

Let's turn to Slide 14. Last quarter, I provided an overview of the transformation strategy for the Private Banking & Wealth Management division. And the next 2 slides, I'd like to address in some more detail our 3 key areas of focus. First, we're reallocating resources and capital to capture growth, predominantly in emerging markets in the ultra-high-net-worth segment. Going forward, the expansion of our lending, that's just ultra-high-net-worth individuals, particularly in emerging markets, together with other initiatives, will gradually increase the risk-weighted assets that we dedicate to the Private Banking & Wealth Management division.

In Switzerland, we will further increase our market share across segments, for example, with an increased focus on offering a full range advice to entrepreneurs. We will leverage our platform to reach out to new clients and exploit the digital space, as exemplified by the eamXchange, our initiative and collaborative social media tool that's used to link and interact with the external asset management community.

In emerging markets, we'll continue our strong growth momentum in key areas such as Brazil, China, the Middle East, Indonesia and Russia. We continue to enhance our on- and offshore press offering in Singapore and Hong Kong. And we will expand our digital client interface, particularly in the Asia Pacific region, including a wider product range for analytics, research and transaction services.

In mature markets, we will reposition select onshore markets such as Germany and further grow in profitable onshore markets such as Italy and Spain, where we focus on high-wealth frontiers and are successfully increasing the penetration of managed investment products.

Let's continue on Slide 15. Our second area of focus is to address the gross margin challenge, which is mainly influenced by cyclical factors and by our business mix. We continue to mitigate the impact of a low interest environment -- rate environment with higher loan volumes and margin expansion. Given the current interest rate structure, we would anticipate to see an increase our net -- in our net interest income within Wealth Management Clients in the second half of 2014. Further, as we said before, a parallel upward shift to interest rates by 100 basis points would boost gross margins by 5 basis points in a full year. We also plan to increase our average ultra-high-net-worth gross margin with higher lending and investment product penetration, as well as continuing to leverage our integrated bank collaboration.

Finally, we're on track to realize our targeted cost savings for this division by -- of CHF 950 million by 2015. And going forward, we will further realign our expense base away from nonstrategic mature markets towards faster-growing regions. We'll also focus on rationalization of support functions and increasing automation.

So let's now turn to the investment bank on Slide 16. We delivered revenues of CHF 2.6 billion and pretax income of CHF 229 million in the third quarter. Revenue declined from the previous year, driven by decline in fixed income where market uncertainty around the timing of U.S. monetary policies changes resulted in significantly lower client trading volumes. The lower fixed income sales and trading revenues were partly offset by a continued strength in our market-leading Equities franchise and by higher debt underwriting activity.

We continued to improve capital efficiency in the quarter and we reduced our risk-weighted asset usage to less than the target of $175 billion that we'd set for the end of this year. Our third quarter risk-weighted asset total of $169 billion represents a reduction of $31 billion compared to a year ago and $8 billion lower than the prior quarter. And importantly, we also reduced leverage exposure by $137 billion or 14% compared to the total a year ago.

We remain very focused on cost efficiency, and our total reported expenses declined by 14% compared to the third quarter of last year, particularly driven by cost discipline in compensation and benefits which declined by 24%. Please note that other operating expenses in the third quarter this year included mortgage-related litigation totaling CHF 128 million.

Finally, for the first 9 months of 2013, we achieved a 13% after-tax return on Basel III allocated capital compared to 9% in the same period last year.

Let's now turn to fixed income results on Slide 17. Revenues declined by 31% compared to the previous year due to a significant decline in client trading activity resulting from rising rates and a widening of spreads due to the expectations of Fed tapering throughout the third quarter. Credit results, however, were resilient, with strong leveraged finance origination and secondary trading activity. Securitized products benefited from strong asset finance performance driven by higher origination volumes but notwithstanding lower client trading activity in both agency and non-agency RMBS.

Emerging market results reflected volatile trading conditions that more than offset the strength in new financing activity in the third quarter. Rates, FX and commodity revenues were all affected by a significant decline in trading and client activity this quarter.

With that, let's turn to Equities on Slide 18. Equities continues to perform well in the quarter across all products compared to the prior year, with particular strength in Asia Pacific. This reflects continued market leadership, higher global equity process and increased flows into equity funds. Revenues were 3% higher than the previous year, and are up 10% compared to the prior year 9-month period. This combination of higher revenues and reduced costs has led to higher franchise profitability in the quarter.

If we look at our equity results in more detail, we had substantially higher results in derivatives driven by improved trading conditions. We also benefited from solid results in cash equities, where we increase market share; and prime services, where we increased client balances.

Lastly, our lower equity underwriting result was driven by improved revenues from IPOs but offset by lower revenues from convertible and follow-on offerings in the quarter.

Let's now turn to underwriting and advisory results on Slide 19. Overall, we posted lower results in underwriting and advisory, with stronger underwriting performance offset by a weaker equity underwriting and advisory results. Our debt underwriting results were higher year-on-year, driven by investment-grade market share gains and continued strong performance of our leveraged finance franchise. Lower results in equity underwriting reflects improved revenues from IPOs, but as mentioned before, offset by reduced revenues from convertibles and follow-on offerings. And advisory revenues were lower, consistent with general decline in the total industry fee pool.

Let's turn to Slide 20. Given the increasing focus on -- of regulators on leverage exposure and the fundamental change in the rates market structure towards electronic trading and clearing, we are restructuring our rates business to anticipate these changes in the market environment whilst continuing to meet client liquidity needs. As a result of this restructuring, we will substantially strengthen the performance of our rates business.

We will reduce leverage exposure by a further $60 billion, of which $45 billion is targeted to be achieved by the end of 2015. And we will reduce risk-weighted assets again further in this business by 40% from $16 billion at the end of the third quarter to a target of $9 billion by the end of 2015.

We'll revisit the rates restructuring in some detail when we discuss our nonstrategic units later in this presentation. But first, let's turn to Slide 21 to review the capital allocation in the investment bank.

We include here our usual chart showing the market share in our major businesses compared to their return on capital. As you may recall, the size of the bubble illustrates the amount of capital we have employed in each business area. The key point of this slide is that we continue to allocate the majority of our capital to market-leading, high-returning businesses.

Third -- for the third quarter of 2013, our overall capital allocation, as seen in the blue boxes on the right-hand side, to our top 3 businesses was consistent with the prior quarter. However, we significantly improved returns in cash equities, reflecting both increased activity and reduced costs; prime services and derivatives pursued solid but stable returns with continued market share leadership. Credit continues to benefit from our strength in origination, producing significant returns which are amongst the highest in Investment Banking. Our securitized product in emerging market businesses were resilient, notwithstanding the lower client flows in the quarter. Lastly, the return in our rates business remains challenged, and as discussed, we intend to substantially improve the profitability and returns from the structuring measures we've announced. This improvement is represented by the pro forma rates bubble based on the indicative pretax income and Basel III risk-weighted assets for year-end 2015.

Slide 22. The waterfall chart in this slide highlights the returns on our core Investment Banking business, when we exclude the legacy and nonstrategic drag from our existing wind-down program and from the measures that we're announcing in this restructuring. For the first 9 months of 2013, the overall Investment Banking division achieved an after-tax return on Basel III allocated capital of 13%, up from 9% in the prior year. And this increase was driven by a reduced cost base and by a lower capital usage.

If we exclude the wind-down and the incremental impact of the creation of the nonstrategic unit, we can see that the core Investment Banking business delivered a after-tax return of 24% for the first 9 months for this year. Please note, the litigation provisions we've taken so far contributed 2% to this uplift in the returns.

Let's turn now to the next session to discuss the nonstrategic units in some more detail.

Slide 24. In his introduction, Brady gave you an overview of the evolution of our wind-down strategy and the establishment of nonstrategic units within the Investment Banking and Private Banking & Wealth Management divisions in the fourth quarter of this year. In the next few slides, I'd like to address this topic in some more detail, but I would emphasize, though, that we're still in the process of finalizing the portfolio of nonstrategic positions and we'll only have final numbers for the nonstrategic units once they have been established and implemented in the fourth quarter of this year.

For the Investment Banking division, the nonstrategic unit will be an extension of the existing fixed income wind-down strategy, plus a number of additions to the portfolio. These include the impact of the rates restructuring which we already discussed, which mainly relate to legacy "non-Basel III compliant" positions and capital-intensive structured positions. We'll also include legacy litigation costs and a small number of other nonstrategic positions that are in this portfolio.

In the Private Banking & Wealth Management division, we will also establish a nonstrategic unit. This will include some final positions relating to the restructuring of the Asset Management division, runoff operations related to the -- to the small markets initiative, select items relating to the legacy cross-border businesses, as well as the impact from the restructuring of our German onshore operations.

To give some additional color on our small markets initiative: This program involves full exit of 83 countries, which in total have assets under management of about CHF 3 billion. So the average assets under management is therefore around 40 million to 45 million per market. Given the heightened complexity in compliance costs associated with the numerous regulatory regimes in each country, we have reassessed the viability of doing business in these small markets and believe these resources will be better allocated to other growth areas with higher potential.

So we believe that establishing nonstrategic units within divisions with transparent disclosure will enhance the management focus on the ongoing businesses and the growth initiatives, as well as facilitating the accelerated reduction of these legacy positions and costs.

Let's look at the scale for nonstrategic units on Slide 25. This slide shows the preliminary pro forma financial impact of separating the nonstrategic operations from the rest of the businesses for the 9-month period to September 2013. The pretax income numbers presented include direct and indirect expenses associated with the nonstrategic units. This provision analysis demonstrates that our businesses, excluding the nonstrategic units, performed strongly in the first 9 months this year, generating a return on Basel III capital of 23%, and [ph] 15% for the total. Excluding the nonstrategic units, our ongoing businesses are also more efficient, with a cost/income ratio of 70% compared to 77% for the total firm including nonstrategic units.

So let's turn to Slide 26. As you're well aware, we have a number of existing strategic initiatives in our Private Banking & Wealth Management and our Investment Banking divisions that we've put in place in the last few years to reduce expenses and to realign the businesses to the changed regulatory environment. This slide shows the extent to which these initiatives are already encompassed by the nonstrategic units, as well as highlighting the additional impact from the new initiatives, the rates restructuring forming the largest component of this change. Clearly, the accelerated rundown of the nonstrategic positions that we're playing will have the largest impact on our leverage exposure.

From the left-hand pie chart, you can see that we have already planned to run-down a further CHF 49 billion of exposure. This now increases by -- to -- by CHF 74 billion with the new strategic measures. And again, this is primarily driven by the rates restructuring.

We also see a significant impact on risk-weighted assets. We have identified a further CHF 11 billion in addition to the CHF 14 billion that we're already targeting to achieve through reduction from our existing initiatives, and that's above and beyond the numbers we've actually announced today for risk-weighted assets.

In terms of expenses, the additional operations, now classified as nonstrategic, incurred CHF 228 million of total direct and indirect operating expenses in the first 9 months of this year, or CHF 304 million on an annualized basis, and I'll discuss the impact of this on our cost reduction targets in a moment.

Let's turn to Slide 27. We've mentioned before that one of the benefits of established nonstrategic units within the divisions is the increased transparency and accountability for management both in terms of focusing on the ongoing businesses and the acceleration of the runoff of nonstrategic operations. So we intend to halve our nonstrategic leverage exposure by the end of 2015. We also intend to target a reduction of 41% in risk-weighted assets within the nonstrategic units by the end of '15, and this will accelerate the rebalancing of risk-weighted assets towards our target of 50% for group allocation in the Investment Banking division.

We estimate that the cost of exiting our nonstrategic positions by 2015 is likely to be in the range of 2% to 3% of risk-weighted assets, which is in line with the experience that we've had with the runoff of our fixed income wind-down assets over the last 2 years. Just to remind you, we've reduced this portfolio from CHF 56 billion of risk-weighted assets to CHF 9 billion in 24 months.

In terms of restructuring costs, you'll recall the -- our previous guidance of CHF 1.6 billion in restructuring costs between 2013 and 2015. With these new measures, we estimates we will -- we estimate we will need to increase this guidance to CHF 1.8 billion between 2013 and '15.

So let's turn to Slide 28. As you've seen already, we have now more than met our prior year-end group Basel III risk-weighted asset target of CHF 285 billion by the end of the second quarter, and we further decreased risk-weighted assets to CHF 261 billion by the end of the third quarter. The completed exit of the nonstrategic units will reduce risk-weighted assets by a further CHF 25 billion. However, as part of the growth in the Private Banking & Wealth Management division, we would expect to reinvest around CHF 15 billion to CHF 20 billion in incremental risk-weighted assets in this division primarily related to the lending initiatives and, accordingly, setting a new long-term x nonstrategic unit target for risk-weighted assets of approximately CHF 250 billion for the group. Furthermore, this will accelerate our aforementioned goal of moving our capital allocation towards approximately 50% of group risk-weighted assets in the Investment Banking division.

In terms of leverage exposure, having reduced our total leverage to CHF 1,184 billion at the end of the third quarter, runoff from the nonstrategic units, once complete, will reduce our target leverage exposure to around CHF 1,070 billion in due course.

Slide 29. All to understand on this slide is that the creation of the nonstrategic units should be seen as part of our ongoing strategic goal to move towards a more balanced business mix. The new measures announced today allow us to accelerate this process and create more visibility on the planned rebalancing.

Let's start with the divisional charts on the left-hand side of the slide, first. Whereas we have 29% of group RWA allocated to the Private Banking & Wealth Management division and 63% to Investment Banking in 2011, this mix is already shifted significantly by the end of September 2013. And it's clear that nonstrategic measures will further shift this towards our 50% goal.

On the right-hand side, what we show is that the combination of our significant cost-reduction measures, which total an annualized CHF 3 billion so far, together with the reallocation of capital towards the high-return private banking franchise, has led to an increase in group Basel III return on capital from 5% in 2011 to 15% the first 9 months of 2013. If you exclude the assets and expenses within the nonstrategic units, the group return on capital should improve further towards 22%.

So what we're announcing today should be seen as a continuation of the already-communicated strategy of shifting risk-weighted assets towards the high-return and capital-light private banking franchise, while at the same time improving the returns in the Investment Banking franchise. This will allow us to invest in growth areas within the Private Banking & Wealth Management division, in addition to supporting cash distribution to our shareholders.

So let's turn to the next section to discuss our expense initiatives, capital, funding liquidity.

We've continued to make progress on our expense program this quarter. As you know, we compare our operating expenses to our run rate cost base for the first half of 2011, which is when we initiated our efficiency program. In the first 9 months of this year, we achieved annualized run rate savings that now totals CHF 3.0 billion per annum and are well on track to meeting our target of CHF 3.2 billion per annum by the end of this year. The implementation of the nonstrategic units has 2 impacts on our cost targets. First, they provide a clear framework and oversight to deliver our existing savings. Secondly, they provide an opportunity to increase the total targets, albeit that I'd caution that a significant proportion will be delivered beyond 2015.

Looking forward to 2015, although we're still finalizing the nonstrategic units, we have increased our target to a minimum of at least CHF 4.5 billion to be achieved by the end of 2015. With CHF 1.7 billion annualized savings achieved in the first 9 months of this year, the Investment Banking division had already achieved the bulk of the CHF 1.8 billion savings we've previously targeted, so with the combination of the rates restructuring program and other efficiency measures across the businesses, we will expect to achieve an additional CHF 200 million of cost savings in Investment Banking by the end of 2015.

The Private Banking & Wealth Management division achieved CHF 350 million annualized savings in the first 9 months this year, making good progress towards their savings target of CHF 950 million for the end of 2015. We do expect to achieve additional savings from an -- creation of the nonstrategic unit within the Private Banking & Wealth Management division, as well as other measures, but we would expect to reinvest this in the growth initiatives that we've discussed already. So the target for the private banking division remains at CHF 950 million.

Our infrastructure savings of CHF 0.9 billion on an annualized basis says continued good progress towards the 2015 goal of CHF 1.65 billion. Further consolidation of fragmented and duplicated support functions, including effective demand management, will help us to achieve the 2015 target, which we've now raised by CHF 50 million with the implementation of the nonstrategic units.

So let's now turn to the capital-related slides, starting on Slide 32. As you can see from the chart, our Basel III risk-weighted assets stood at CHF 261 billion at the end of the third quarter, down 29% since the third quarter of 2011. To reiterate what we've said before, we've revised our goal for risk-weighted assets to a target of around CHF 250 billion for the group post the implementation of the nonstrategic units and reinvestment of risk-weighted assets within the Private Banking & Wealth Management division.

Let's move to capital ratios on Slide 33. We've continued to strengthen our capital position and are well above the target levels that we set a year ago when we announced our capital plan. Our Swiss core capital ratio reached 11.4%, 100 basis points improvement from the last quarter. And just as importantly, our CET1 ratio is now above 10%, for the first time.

Furthermore, I'd like to confirm that, yesterday, we converted a portion of our hybrid tier 1 notes into high-trigger buffer capital notes, which adds CHF 3.8 billion to our high-trigger capital instruments, and these count as additional tier 1 instruments under the Basel III legislation. As of yesterday, that means that this increases our loss-absorbing capital, as defined as CET1, plus high-trigger buffer capital notes, to 13.2%, which means that Credit Suisse exceeds the 13% required by the new Swiss banking legislations more than 5 years ahead of schedule.

Let me turn now to the balance sheet and the capital leverage Slide 34, please. At the end of the third quarter, we achieved our prior year-end leverage exposure target to be at less the CHF 1,190 million -- billion, with total exposure falling to CHF 1,184 billion at the end of the third quarter of 2013. This represents a cumulative reduction of CHF 221 billion or 16% since the position a year ago when we announced our leverage reduction program. And just to reflect: We are now announcing a new long-term leverage exposure target of CHF 1,070 billion.

Let's turn to Slide 35. So this table shows the key leverage ratios all on a look-through basis, that's namely the tier 1 ratio, the Swiss National Bank total loss-absorbing ratio and, most importantly, the Swiss total capital leverage ratio. Our total capital leverage ratio improved from 2.7% at the end of the last quarter to 3.2% at the end of the third quarter. As I've mentioned before, yesterday, we converted our hybrid notes into tier 1 high-trigger capital instruments, which will increase the ratio to 35 -- sorry, to 3.5% as of today. And if we exclude the leverage exposure from the nonstrategic units, our total capital leverage ratio increases to 3.9%. I think it's evident that, through the combination of our capital issuances and the reductions in leverage, we have substantially strengthened our capital ratios and are already very close to meeting the 2019 Swiss total capital leverage ratio requirement.

With that, I'd like to conclude the results proportion of today's presentation and pass back to Brady.

Brady W. Dougan

Good. Thanks very much, David. I think, with that, we're ready to open it up to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Matt Spick from Deutsche Bank.

Matt Spick - Deutsche Bank AG, Research Division

I had a couple of points on the rates and balance sheet issues, which are, of course, connected. Firstly, you did a good job again in reducing assets in Q3, but I noticed that a lot of the reduction came -- in total exposure came from the add-on. So I was wondering if you'd mostly reduced the repo add-on in Q3 or whether you'd been reducing the derivative add-on in Q3. Second, kind of a related question is whether you've seen any acceleration with your peers and competitors in talking to them about tear-ups on the derivatives books. So is that a theme that you've seen in Q3 at all, or do you think that's still ahead of you? And then thirdly, just on the future $60 billion of asset reduction, again, is that mostly repo reduction, or is it derivatives reduction? And the fact that some of it is phased till after 2015 makes me think it might be Dodd-Frank and MiFID II, so it might be derivatives reduction. And so I'm wondering if it will also be reducing your level 3 assets as well.

David R. Mathers

Thank you very much, Matt. So just taking those in order. In reality, I think you've obviously seen that we reduced our total exposure to CHF 1,184 billion and therefore exceeded our target. And clearly, a lot of the early phase of that was actually in the repo book. And what we saw in the third quarter was primarily relating to the add-ons for the derivatives portion of this, not the repo portion. In terms of tear-ups, I think it is a consistent theme for us and other banks. I mean, I think we've done quite a lot already. We would anticipate, though, that, I think, as everyone looks towards the new cleared environment for rates, which is really where the industry is going, it's 95% of our business in the United States where its own [ph] was actually cleared, we would anticipate a very substantial incentive to accelerate that across the industry, and that's something we're obviously keen to encourage. I think your final question was actually on the further $60 billion we've discussed already. I think, to be candid, there's only a very limited further input -- impact we can achieve from reducing our repo portfolio further because that was one of the early targets for our derivative -- for our leverage reduction program. So the bulk of this will actually come from eliminating the bilateral swaps trades, which we're actually moving into the nonstrategic units in the fourth quarter. So I think there's very little, actually, to come from repo. It's really coming now from this derivatives and structured positions which we're announcing today.

Brady W. Dougan

I think also, Matt, maybe just worth adding. I mean, this -- as you can see and as David mentioned, this is obviously a business that has been already -- we've already been improving the capital efficiency of. Obviously, these measures really adapt much more rapidly to the changes in market conditions. And I think -- as David said, I think the whole industry is seeing a very rapid migration to this whole cleared environment. So frankly, I think the whole industry is experiencing that more rapidly than, I think, people expected.

Operator

And your next question comes from the line of Huw Van Steenis from Morgan Stanley.

Huw Van Steenis - Morgan Stanley, Research Division

Two questions. Could you give us some sense of how quickly the phasing will come through of getting the 1.4 billion of drag out of the P&L given some of the positions are well beyond 2015. I was wondering if you could give us some stepping stones over the next few years. And then number two, in terms of putting more risk-weighted assets into the wealth management unit, what's your expectation of the returns, whether they will really be used or whether this is a sort of a plug from needing to sort of -- as you're constrained by leverage, you need to actually put some risk-weighted assets to work? And whether -- or how realistically we are going to see all those risk-weighted assets be soaked up by wealth management over time?

Brady W. Dougan

Well, maybe I can take the second part, and then David could answer the first. I mean, I think, with regard to our perspective on increasing the risk-weighted assets, and particularly, one of the targets there is increased in leading particularly to the ultra-high and the high-net-worth segments. And I think you are -- our view is actually that there are -- that's a very real prospect that can actually -- there's actually good demand and we can actually ramp it up relatively quickly. And I would say, the returns on -- I mean, obviously, the average returns within Private Banking & Wealth Management are in the high 20s, hopefully going into the low 30s as we continue to improve the dynamic. I think this particular -- the particular use of these risk-weighted assets is very productive because it tends to be -- you clearly have the returns on the lending, but it also gives rise to assets that come in. And also, those tend to be transactions or clients where we can do more business across the integrated bank with the ability to do a lot of different transactions. So I think, certainly, those would be -- those incremental assets would be being deployed at returns that were well in excess, so in -- certainly in the 30%-plus range in terms of returns. And I think our view is, I mean, it's been something we've already been focused on, but we are very focused on actually increasing that part of the business. So I think it's actually pretty realistic that, over the next quarters, we will see those -- an impact from that. David?

David R. Mathers

Okay. So in terms of the runoff of the nonstrategic units. So firstly, as you know, Huw, so just in terms of the leverage and RWAs, we certainly discussed that already on Page 27, but the reality essentially is to get the leverage down by about 52% over the next 2 years, RWA down by about 41%. Please just note, on the PBWM RWA reduction, we've actually factored in adverse model change in private equity which we're anticipating next year. So that's why you see it doesn't drop too much over this period because, otherwise, it would drop, in position terms, by roughly 50%. Okay, so then in terms of the expenses, which I think is the core of your question, really. I mean, clearly, within the nonstrategic units is a mixture of expenses. And we try to give some indication of that on Page 26, which was the pie charts. So within that, of course, there's operating expenses, which is the one we analyze, actually, on the right-hand side. There's also litigation costs within that too. So I think this -- let me just take that into 2 chunks, really. I mean, I think, clearly, litigation costs will be lumpy and will depend on how things are settled. Clearly, we'd like to see that settlement as quickly as possible over the next 2, 3 years, but I think that's probably will depend on the pace of both external and internal events to actually drive that forward. In terms of operating expenses, what we're saying is that there's about CHF 300 million of incremental expenses that we can't track and are not addressed by our existing expense program. So you might say, so why did we not increase the target from CHF 4.4 billion to CHF 4.7 billion? But I think there's probably 2 reasons for that. The first is there clearly will be a tail of infrastructure which has to be maintained beyond 2015 as we actually manage that runoff of positions, some tail of FID PM, the assets [indiscernible]. So as long as those assets are there, there will be some infrastructure costs associated there. Second reason, so the second reason essentially is that, if you look carefully, we're probably looking for about CHF 50 million of additional expense savings within the Private Banking & Wealth Management division. But I did want to warn that we will be looking to reinvest that in the growth initiatives. So that's really -- so essentially, when we're looking at this, we're saying, probably an extra CHF 100 million within the investment bank by 2015, an extra CHF 50 million within the infrastructure functions, an extra CHF 50 million in private banking but reinvesting, which leaves about a further CHF 100 million, which we'll need to basically manage the runoff there afterwards. And I think that probably will be a grossly [ph] slow tail because, as you know, we've looked to the FID PM, reduced that from CHF 56 billion to CHF 9 billion, but we are left with a relatively sticky collection of assets. Now I think, Huw, maybe it was Matt, actually, asked a question around the level 3 assets, which I didn't answer. I think it's certainly true that there is a disproportionate weighting towards level 3 assets within the nonstrategic unit runoff because the FID PM asset is particularly a very modeled assets. It's not all about level 3 assets because there are some others, but clearly, the reduction on nonstrategic units will actually reduce that total maturity. They are disproportionately represented in this group.

Operator

Your next question comes from the line of Kinner Lakhani from Citigroup.

Kinner R. Lakhani - Citigroup Inc, Research Division

So just coming back to Slide 25, I just wanted to focus a bit more on the revenue line of the nonstrategic unit, the minus kind of CHF 600 million. Essentially, just wanted to check if the performance is largely being driven by the wind-down portfolio, which I suspect is about CHF 500 million of that, if you could confirm. And then does that suggest that the rest of the rates business has been contributing negative revenues from that? And then as we go through the wind-down, do you expect any costs to come through in terms of impairment costs through the revenue line?

David R. Mathers

Okay, so focusing on the IB nonstrategic unit, minus CHF 595 million of negative revenues. I mean, I think, to give some rough order of magnitude of that, that negative revenues for 9 months and you may recall, we had a gain in the first quarter within FID. That wind-down, it was just under CHF 100 million negative, a minus CHF 100 million for fixed income wind-down. The rates business was, or at least the bilateral trades relating with where we're actually putting the nonstrategic units, did have negative revenues in the 9 months, not huge, about minus CHF 30 million. And that then leaves about another CHF 450 million, the bulk of which actually represents a collection of instruments which we issue which are no longer Basel III relevant and that -- and which we've not yet managed to actually redeem more runoff. So it's basically obsolete. It's the tail of obsolete capital instruments which would've worked under -- which were now eligible for capital under Basel II but which are not eligible under Basel III. I think you know we've had a very active program to actually redeem -- to purchase back those instruments, but there is a tail which may not be publicly traded, for example, or very liquid, which is still basically incurring costs. So that's the kind of composition. I would just caution, 9 months is not necessarily illustrative. We did have -- obviously, for example, have a gain in the FID wind-down portfolio in the first quarter. So that slide is sort of the trend a little bit. But yes, I think, to your point, we did have negative revenues within the 9-month period relating to these bilateral trades we've moved into the NSU for rates.

Kinner R. Lakhani - Citigroup Inc, Research Division

Okay. And do you expect the wind-down of the kind of $60 billion rates portfolio to lead to kind of further accelerated, maybe, negative revenue?

David R. Mathers

I think -- sorry, I mean, obviously, for FID wind-down PM, we basically reduced that from CHF 56 billion to CHF 9 billion. Including the funding costs associated with holding that portfolio, that cost us about 2.4% of risk-weighted assets. So I guess we recovered about 75% and had to give up 2.4% in terms of negative revenues to actually exit that portfolio. I mean, I think the guidance we're kind of giving today is that we would expect the runoff portfolio to be in the sort of 2% to 3% going forward. The bilateral rates component of that is probably a bit lighter, somewhere in the 1% to 2% space. But remember, we still got those FID PM assets, about CHF 9 billion, in those too.

Kinner R. Lakhani - Citigroup Inc, Research Division

Understood. And just a separate question on litigation. We've had clearly a number of kind of further updates coming through from other banks in terms of litigation, particularly in relation to FHFA. Is that something that you're focused on in terms of increasing your buffers, your reserves? Just one on that.

Brady W. Dougan

Yes, I mean, Ken, obviously, the -- in general, obviously, the litigation docket is something that we look at very carefully every quarter. We obviously make sure that, from an accounting point of view, we're properly reserved against that. I think, as you know, probably the 2 -- we probably don't have quite as long a list as others in the industry of issues out there, but we do have -- we have our cross-border U.S. issue which is still obviously out there and as you mentioned, mortgage issues, primarily the FHFA issue. We have -- on the quarter, as you can see, we have taken some additional reserves for -- in general for our litigation matters and which we obviously think are adequate, but clearly, we will continue to work towards resolving those issues over time. I think, on the FHFA matter, largely, nothing has changed very much in that. I mean, I think the performance of the portfolio is similar to what we've talked about before with in terms of actual losses on the portfolio. And so that -- those matters obviously continue to be a focus over a longer period of time in terms of resolving. But in terms of litigation reserves, we've obviously taken additional reserves this quarter and continue to track those things.

Kinner R. Lakhani - Citigroup Inc, Research Division

Great. And finally, if I could, if -- with your capital ratios growing at a much faster rate than you may have previously indicated, does that change your view in terms of capital return for this year?

David R. Mathers

It's David here. I think, up until now, we've obviously said that we obviously want to redeem the Claudius instrument, and that becomes [indiscernible] redemption from December of this year. And clearly, we would like to target cash returns to shareholders. I'd say, clearly, on these capital ratios that, that obviously does support an increased likelihood of redeeming Claudius. And I think Brady had commented in terms of cash returns. I mean, I think it is still our -- very much our intention to resume cash [indiscernible] next year, subject to board approvals, and the shareholders'.

Brady W. Dougan

Yes. But I think, I guess, Ken, if your question was on the returns as a result of the capital, I think we've said all along that we think we'll probably need to live in the range of 10.5%, 11%, something, in terms of the capital ratios. I think, as you can see, and particularly, I guess, one of the things that we're trying to highlight with the whole nonstrategic unit setup, as you can see, is that the ongoing businesses have very, very healthy returns on capital. And so I think, in -- with regards to our goal ultimately of the 15% return on capital over the cycle, et cetera, I mean, we still think that that's something that should be achievable. And obviously, if you look at, as we continue to make progress on the cost-reduction elements, as we make even an accelerated progress on reducing the capital and leverage resources in the NSUs, you can see obviously that's going to -- that should clearly enhance the returns on capital. So I think, in general, we still feel good about the capital returns over time that we've targeted.

David R. Mathers

I mean just to one -- to make one follow-on point, really, going back to your first question around the negative revenue drag. If you think about the runoff of the nonstrategic units, so where does the benefit come from? It comes in terms of returns in reduced total exposure. It comes from reduced risk-weighted assets. It also comes from reduced operating cost, which I think the -- it's explained clearly in our slides. What is also clear is we will also get a benefit from the reduction of that negative revenue drag, in other words, the negative revenues on FID PM; negative revenues on FID rates; but also, and we've given an indication of magnitude to that, the drag, actually, on our Investment Banking earnings from those obsolete funding instruments. Now that is incremental. We don't count that as an expense saving because our expense definition is clear, it's around the operating expenses. But you can see that, in terms of the runoff, it's quite material in terms of the total numbers. And just recall, the numbers I gave you obviously are for 9 months, so you need to annualized those for a full year.

Operator

And your next question comes from the line of Kian Abouhossein from JPMorgan.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Brady and David, a few questions. First of all, wealth management. Can we discuss the top line margin decline quarter-on-quarter and, particularly, transaction margins of 6 basis points? I'm trying to understand what the drive is geographically client base, and also if the weakness in September has continued into what we've seen so far over the last few weeks in October. The second question is relating to fixed income. Just trying to understand going forward how we should think about the fixed income business considering that you're very -- you don't have a lot of macro anymore in the business which is generally more stable. And just trying to understand how we should think about the cyclicality of that business and how you think about that within the executive board, and the stability of as a result of cost income ratios s that you're thinking about in the -- over the cycle of 70%, and also how October has panned out. And the third question is related to the unwind business again, or the noncore. You're talking about 2% to 3% impact on the unwind. I was wondering, what does it mean in terms of capital release? Should we think about over the next 2 years, you're going to pay out 800 million of cap -- free-up of capital and that could be available for shareholders? And in that context on the unwind as well, how many people do you have actually in the unwind division or a noncore division?

Brady W. Dougan

Okay. Thanks, Kian, they're good questions. Maybe to start on the second part of the question, fixed income, and then I can ask David to address the other 2 parts of the question in turn. As you said, I mean, basically what we -- our view is that the changes that we're making in the rates business are very much a response to changes in the environment, both the sort of regulatory requirements around leverage, which we think are going to impact the whole industry; as well as changes in the -- changes in sort of market structure, with the rapid change in the percentage of that business that's cleared, particularly in the U.S. And so our view is that there is -- that those are pretty necessary. They will leave us with a business which we think will be a successfully -- a successful business in the rates and macro space. It will be much more client focused. It will be leveraging off of our AES capability and our electronic capabilities, which are quite good. And we think that'll actually be -- that's actually the way this business will need to be positioned going forward. So I wouldn't -- our view is that it's actually going to be a better PTI business, it will actually be a more stable business at that. And it will be one that will still contribute a stabilizing influence to the overall business. I think, as you know, we also feel that the other parts of our business are actually pretty complementary as well. We have -- our credit business is quite strong. It is actually -- has a low cost to income. It's actually a very good business with a strong origination component, as well as a secondary side. I think our view is also the emerging markets capability that we have is quite complementary and is, in many respects, not procyclical with the other businesses, so tends actually to run a little bit contrary to that, and is a business where again we think that, that helps to add visibility as well. And the structured products business as well has performed actually pretty well. And even if you look at the third quarter where you had subdued client flows in general but the origination side was actually pretty good, if you look at our businesses, credit was actually pretty strong on both. Today, the structured products business had a good origination component, a little more subdued on the client piece of it. Emerging markets was more -- I think, more impacted by market conditions, but still decent origination, particularly in the part of the business that we're very focused on. A lot of the more private financing aspects of it were actually quite good. And then rates were clearly the most affected of all those businesses. So I actually think that, that still stacks up as the reconfigured rates business will stack up pretty well in the context of the rest of those businesses. I would say, in terms of October, it hasn't been that much different from where we ended up in September. I think, clearly, we're starting to see some sort of hints of a recovery from -- a little more certainty in the market once we've gotten through the debt ceiling debate, et cetera. So we're starting to see some of that. Whether that will continue or not, obviously, is an open question, but we have -- we've seen probably some slight improvement to that. So we'll see how it goes the rest of the quarter. David?

David R. Mathers

So then, I think, on the private banking product management gross margin [indiscernible] -- sorry, wealth management client gross margin of 105 basis points. I mean, I think there's probably 2 or 3 points to make. I mean, I think, firstly, when we spoke in the first -- when we spoke at the beginning of this year and we gave guidance at that point in terms of the outlook for 2013's gross margin, I think we did warn that, as a consequence of a lower interest fixed income, we'd expect to reduce the gross margin by 2 to 3 basis points from the 110 basis points, at that level. And I think -- for the year as a whole of 2013, I think that's still guidance we very much sort of stand by. So I hope that's some help. In terms of the 2Q, 3Q volatility in transaction gross margin, I mean, I think, clearly, you can see the gross margin on both recurring incomes and net interest income were rock solid between the second and third quarter. I think we definitely see -- so 2 things. Firstly, in the second quarter, you have the performance fees which come through, and that will also be true in the fourth quarter. And also, realistically, July and August are pretty slow months in private banking. Many of our clients were actually on vacation, so we normally see a dip in activity at that point. I think it's probably fair to say that many of the trends Brady mentioned, too, in terms of fixed income tapering probably did exacerbate that a little bit through the third quarter. And I think, if we're talking about the trading in PBWM in October, I think I'd probably just echo what Brady said in terms of the fixed income side: I think it was -- the shutdown and tapering is clearly not helpful, but there has been some muted pickup, but it's very recent and I think we're speaking very early in the quarter. So we'll see how it goes. I think, in terms of the sort of capital release, I mean, I think we've probably given you most of the numbers. I mean, I think, obviously, if we're thinking around Swiss core capital, we're at 11.4%; or thinking about Basel III, we're at 10.2%. I mean, I think, generally, we'd like to sort of move up on that CET1 ratio towards the 10.5%, 11% ratios, I think, which just seems to be a sort of good long-term target. But in terms of capital release, clearly, we will be reducing risk-weighted assets by a minimum of CHF 10 billion in the 2 NSUs over the course of the next 2 years. And if we -- if -- I mean, I think our -- we're sort of advising that the cost of that in RWA terms is, what, FID wind-down was 2.4; the rates wind-down -- the bilateral credit is probably more in the 1 to 2, so let's -- but let's call it 2 to 4 -- 2 point -- let's call it the same as FID wind-down, 2.4. But I think, implicitly, that means that about 24% of the capital locked up in that portfolio is used to exit, and that release is abound [ph] 3 quarters then for other uses. Now, clearly, that does support our existing cash goals. But I mean, quite clearly, given what we've achieved already in terms of our capital ratios, I think we're already in a stronger position than perhaps was anticipated before, and the NSUs will merely accentuate that. But as I said, we will be looking to basically boost the net new assets -- sorry, boost the lending asset in private banking, which will boost net new assets. It will also be helpful to the gross margin as well. So it will be a balance of those things. And I think you should see that essentially we have essentially achieved the goals we laid out in our capital program in July last year. We've actually exceeded them. And the NSUs will give us more flexibility around that, but I think it does put us in a relatively good position.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Can you just tell us how many staff members are in that division?

David R. Mathers

I'm sorry. I'd rather not answer that at the moment because we're announcing the nonstrategic units today. They will be formalized over the course of the next 4 to 5 weeks. And clearly, that will have a number of impacts in terms of restructuring measures and various people measures, basically. So I think I'd rather we basically went through that process when we can give you a proper update in 4Q once we've actually put the units fully in place.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

So the third quarter IB staff numbers still include the noncore people?

David R. Mathers

Yes, they do. They also include a significant number. I assume [ph] they're currently, I think, 500 in terms of our graduate intake, which come onboard in the third quarter. So that's why you may see it tick up a bit in the third quarter.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

And if I may, one more question very briefly on -- again on WMC. Net new money, on Page 29 in the big report, you outlined the net new money flows. And clearly, Europe has turned negative. But more importantly, Switzerland has turned negative again. Is there anything we should read into this?

Brady W. Dougan

No. I mean, I think, first of all, obviously, we have continued to see it sort of in line with what we had, I think, given you guidance on. We've continued to see, obviously, outflows in the cross-border Western European business. So you can see, that was pretty much in line with what we had talked about, obviously in response to some of the regulatory changes. We've obviously had that offset by continued reasonable inflows on, for instance, in EEMEA in the ultra-high-net-worth, et cetera, so that's been -- that's continued to be offsetting that. Obviously, in previous quarters, it more than offset it. I think the third quarter is just -- I think it's -- there's nothing particular to note in that. And with regard to Switzerland, it's really more -- we've actually had very healthy inflows, net inflows, on an ongoing basis. I think it's actually -- there's just some more idiosyncratic issues in the third quarter. So to be honest, I don't think there's anything you should take from it. I think, in general, we're 8 billion, 8.5 billion in the third quarter. It's actually a pretty strong number. I think we think that we'll be able to continue to bring in net new money. I think that the regional split is the little bit idiosyncratic, I think. So no, we have no -- there are no particular issues with regard to Switzerland or EEMEA, other than the structural ones that we've already mentioned in terms of the cross-border flows in EEMEA, which we think will continue and hopefully start to abate at some point but will continue.

Operator

And your next question comes from the line of Michael Helsby from Bank of America.

Michael Helsby - BofA Merrill Lynch, Research Division

I've just got a few questions, if I can. Firstly, I was interested in, David, to hear that you grew your PB balances in the third quarter. I thought you were looking to shrink PB in terms of bringing down your gross exposure. Have you reemphasized PB now in light of the rates restructuring? So that's question one. Just thinking about rates, just looking at Slide 40, it looks like the incremental revenue in Q3 within your macro business was about USD 110 billion. I think the average run rate in the first half was about 381. Could you give us an idea of the total costs within that macro business over the third quarter as well, please? And then thirdly, in -- when I look at your Slide 21, on your bubble chart, could you give us an idea of the target ROA and ROE that's implied by the shift in your macro -- or your rates bubble over to the right? And then finally, just homing-in on these negative revenues within the investment bank: So I think, David, what you're telling us is that there was CHF 100 million gain, so the underlying is more like CHF 700 million negative for the first 9 months. And it feels like the majority of that is in these redundant or extinct capital instruments. Can you give us a view on the timeline that you'd expect those to either, a, run off naturally; and b, what you can do to accelerate that runoff?

David R. Mathers

Thank you.

Brady W. Dougan

Maybe I can start with first question, and then I can turn it over to David for the other 3. I mean, I think, with regard to the prime brokerage business, which I guess is what you're referring to, and the fact that we did have higher balances in the third quarter, I mean, that obviously continues to be a core business. We have -- in line with a lot of our other business, obviously, that use a fair amount of balance sheet and leverage, we've obviously continued to work on making that more efficient, but we continue to have a very strong position there in the client flows. Client acquisition has continued to be pretty strong. So I think -- I don't think it really reflects any change in our approach to the business. I mean, we are still focused on making it as balance sheet-efficient as we can. But it is a leadership position. I mean, we think we're basically kind of #2 in the prime brokerage business globally. And it continues to be an important and a -- in a business that's performing quite well. So I don't think there's any -- there's no change in message or direction on that.

David R. Mathers

So taking the other points, then. So if you look at Page 40, and so we look at the overall macro numbers there, which you see 20% -- down 20%. This obviously does include the bilateral rates positions that we're actually moving into the NSUs. So this is, as you might say, the overall investment bank. I think it's -- I think all I'd really say is that the costs in that overall macro space, so that's all of the rates business, the bilaterals and the ongoing clearing business, FX and commodities marginally exceeded the revenue for the 9-month period, although clearly with a significant negative in the bilateral business given that -- I've already said, that the negative revenues for those 9 months were in the sort of CHF 30 million sort of space. I think then, in terms of the infamous bubble chart, I mean, I think all I'd really say is that we always target to achieve a post-tax return on equity of 15% in all of our businesses and that, that is the target we would -- we will be setting for the rates business in its new cleared format. So that's what we intend to achieve post the restructuring. In terms of this, the negative drag, actually, I think the number in the first quarter was actually positive CHF 80 million, not positive CHF 100 million. But I think that's not the most material, but I think it was plus CHF 80 million. And it's certainly clear that you're talking around CHF 450 million in numbers more [ph] positions, but most -- it's importantly these "non-Basel III compliant" capital instruments. I think all of those should be gone by the end of 2017, and we'll obviously look to reduce it as fast as possible. So you will see some reduction but probably a tail that could extend a year or 2 beyond that depending on how successful we are.

Operator

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

Daniele Brupbacher - UBS Investment Bank, Research Division

First question, just on Slide 16. The exposure number for the IB, USD 864 billion. How should you think about this number in the context of the new CHF 1,070 billion target? Should we just assume that you're going to reduce the rates business and that's probably then the kind of implicit target for the IB business? If you could just be a bit more specific there? And on Slide 29, the increase, RWA in PBWM from CHF 92 billion to CHF 100 billion, so obviously, that's the increase of CHF 15 billion to CHF 20 billion but there seems to be also a introduction somewhere or did I just over -- did I just not hear comment on this topic? I mean, where should we expect some reductions probably? And then just lastly, comp ratio in the IB, 44%. It looks a bit high to me. I was rather assuming a number in the low 40s for the whole year. Is there anything specific going on in the quarter? Or should we see this as a -- probably also a run rate for the full year? How do you think about the comp ratio at this stage?

Brady W. Dougan

I think on the last question, maybe I can take that and then David can take the other 2. But on the comp ratio, I think we were in the third quarter in IB at 44%, which is down from 46%, actually, in the third quarter of '12. I think the year-to-date number is 41 basis points, down from 50, actually, the year before. So the 9-month number is 41, so it's in the low 40s. I think the other thing we would just point out is if you take out the nonstrategic units, you get to actually a number that's 37, which we think is probably -- it's -- obviously, you can look at it both ways, but that may not be a bad way to look at it. And I think, obviously, where we ultimately end up will depend a little bit upon market conditions and how the business performs, and -- but I think that -- and hopefully, I mean, if we get better markets and performance in the fourth quarter, obviously, then maybe that number can improve. But I that's -- I think that's sort of where we are now.

David R. Mathers

So just in terms of the leverage exposure. I think if you look at Slide 27, what we show there is CHF 100 billion of leverage exposure related to the IB and then CHF 23 billion related to the PBWM business. I mean, I think you should assume that the bulk of that CHF 100 million will come off the IB. In other words, we're not really intending to actually re-expand our leverage at that point. So if you assume 90 to 100 of that out -- coming off the IB, I think that gives you our long-term target for the IB's total exposure. In terms of the -- that stacked bond chart we gave, I think the missing number is that there is, of course, CHF 5 billion of risk-weighted assets within the Private Banking & Wealth Management division which we're also running off. So the number basically is obviously minus CHF 5 billion and then plus the CHF 15 billion to CHF 20 billion. And I think that should square the risk [ph] effect.

Operator

Your next question comes from the line of [indiscernible] from Handelsblatt.

Unknown Analyst

Obviously, I've got a question about the general restructuring. You are now -- just break it here, you're not booking the whole onshore business in that nonstrategic unit, but just the restructuring cost that you may face due to the sale of the part of the business. Can you just give an update when you would think you might close that? Are you well advanced or is it just a little bit difficult to do so? And what will be the volume perhaps -- what do you expect in terms of restructuring costs at all?

Brady W. Dougan

Well, thanks very much for the question. Yes, I'd say with regard to Germany, I mean, obviously, it's a very important market for us, it continues to be, will continue to be a very important market for us. It's really what we're -- what we are continuing to do is to look at what is the best way to serve our customers there and also provide the most effective service but also efficient service in the context of obviously an environment that continues to evolve. So I think as of right now, I mean, as we've said, we are basically looking at and thinking about how we might restructure the business and what the cost of that might be, so we've put some estimates in there. But I would say right now, we're still in the process of finalizing our approach to how we do want to approach the market. So I'm not sure we can get a lot more specific around it, but that's still basically something that's in process.

Unknown Analyst

Okay. And just -- do you think you might close that this year or will it take longer than?

Brady W. Dougan

Not really sure what you mean by close that. I mean, as I say, we are -- we're still evaluating the different potential directions that we can take there. I do think we obviously -- it's something that we have been working on, we continue to look at and we'll continue to evaluate. So whether or not we'll have more to say on that in the fourth quarter or beyond that is really a -- an open question. It's really around, for us, more repositioning the business there, making sure we have the right platform and the right resources to serve our clients well, so that's really the focus.

Operator

Your next question comes from the line of Fiona Swaffield from RBC.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

I had 3 questions. Firstly, the strategy on focusing on lending in the private bank. I mean, lending hasn't grown much recently. I'm just wondering what's changing. Are you changing compensation models or how are you -- what's going to achieve the delta? The second issue is on capital return. And you've never had a payout ratio target, but now that you've got to above your long-term target, even -- obviously, there's a buffer issue as well, but do you think that you could move to have a dividend payout target over time? And the last one is on the issue of Claudius and just the hybrids in general. I think at your recent conference, you gave a number of a net CHF 100 million positive from raising new low-trigger and redeeming instruments. I mean, do you still stand by that? Or is that potentially going to increase?

Brady W. Dougan

Yes, I think on lending in the private bank. I mean, I think our view is that particularly some of the more focused lending, particularly into the ultra-high-net-worth segment, we've actually been undertaking efforts to build out the platform there. In addition, a lot of that ultra-high-net-worth lending activity can be simulated by the integrated bank approach to that. So clearly, involvement from both the Investment Banking side, Private Banking side as well. So part of it is around just, a, sort of increasing the focus on that area, but also increasing the resources that are against it. We also think that there's a real opportunity in the emerging markets in that area, so that's one of the things that we are clearly focused on increasing in lending and emerging markets against the ultra-high-net-worth segment. And obviously, part of it will be seasonal, so I'm sure quarter-to-quarter, there may be some variations. But we do feel like this is an area where, over the next 2, 3, 4 quarters, we will actually be able to see some material increases in our lending balances there. So we do see good opportunities. And for instance, it's one of the bright spots of the emerging markets. Volatility that you've seen in the markets there is that the public market financings have probably been less available and so some of the more private financings have been things that have probably been more interesting to people. So that's, I think, a good example. On the capital return side, as you say, we certainly -- we've been very clear about our commitment to return capital to shareholders. We've talked about a material cash dividend for this year. We've obviously included that in our capital ratios, so that obviously includes an accrual for a material dividend. And as you say, we certainly feel, I think, as David said, we've really delivered on, I think, all the capital, in fact, outdelivered on the capital targets that we've set. So that continues to give us confidence in being able to do that. I'm not -- at this point, I mean, we're not at a point where we think it's appropriate to go to an actual payout ratio or something like that. We'd like to make sure that we're paying out a material amount and that we're able to sort of increase that over time. And so I think that, from our point of view, probably means that we're sort of going to stay with our current approach to that for now, but...

David R. Mathers

Sure. So I think, yes, the -- as you've said [Audio Gap] conference last month and then I think there what we said is that we expected a reduction in our senior funding costs of CHF 250 million and a reduction in our capital funding costs of a further CHF 100 million. And a question you obviously can raise is, is that likely to be surpassed given these various measures? And I think the answer to that question is yes. So I think it's looking likely that our senior debt costs will actually come down by significantly more than that CHF 250 million within the next year or so. And it will be -- so that really reflects, obviously, the significant reduction in the balance sheet usage, and perhaps more importantly, our funded balance sheet usage. In terms of the long-term capital instruments, CHF 100 million. That's probably a good estimate for now. But I would say, again, it does look to me -- it feels to me on the conservative side just in terms of where we are in terms of our [indiscernible] program and our capital plan.

Operator

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

Jeremy Sigee - Barclays Capital, Research Division

Just going back on to a couple of the topics. Firstly, in -- just in rates. Are there client segments or product lines that you're effectively stopping now beyond things like long-dated rates that you'd already stopped? Are there further areas that you're now stopping business in or is it more about just reshape -- keeping everything but kind of reshaping it? It's my first question. And second question, I just want to come on to the CHF 450 million funding cost of noncompliance instruments, non-Basel III compliant instruments. It's quite a big number in the adjustments that you make. And I just wondered if you could give a bit more color on that in terms of what's the amount and the yields on the instruments that you're stripping out there. And also, how we should think about those, because, I guess, they're going to be replaced with a new cost of CoCos that take their place, et cetera, so just how you thought about that. And final third question from me, really, just on in Wealth Management. I wanted to ask about whether you're seeing any re-risking from clients but your comments on sort of Fed tapering make it sound like you're still kind of watching and waiting from the clients. Is that a fair sort of view?

Brady W. Dougan

I think on the third -- let me start with the third and then we'll come back to the other 2 pieces. Yes, I mean, I think there is -- there -- I guess, what I would say is what we see is it's a more gradual -- the -- I'd say the movements in terms of the clients are -- is just more gradual generally, so it doesn't -- it's not very volatile. It doesn't move around a lot month-to-month. I would say over the past 6 to 9 months, we've certainly seen the cash allocations come down, so they've probably gone from the low 30s to more like the high 20s over that period, roughly. So we have seen certainly some more opportunistic behavior by clients, and -- but that certainly does get -- that certainly does get -- you see certainly do see sort of more localized impacts of that when you get periods of uncertainty like what we had for a period there with some of the debates over the debt ceiling, et cetera. So you do see -- you probably do see some localized initiatives. But in general, the longer term -- certainly, clients have gotten more opportunistic and they're certainly, I think, taking advantage of opportunities on the equity side. There has been a rotation more into equities. And as we say, I think we've started to see some beginnings of some return to a little bit more opportunistic behavior. But again, whether that -- how long -- what kind of leg that will have and how long we'll see that persist remains open. But I'd say, in general, and as a general trend, it has certainly gotten -- clients have certainly gotten more opportunistic. And whether that continues from here or not, I would expect it would, but that obviously can be thrown off track by events.

David R. Mathers

So then on the other 2 points. So just to be clear, so there's about, as I said, just under CHF 400 million in terms of non-Basel III instruments. It's about CHF 50 million of other small possessions to get to CHF 450 million. So that's the rough split. And I think we'll give some more details around the nonstrategic unit, as I said, in the fourth quarter, so I won't go into the detail positions now. It is certainly true that some of the coupons on those instruments were relatively expensive and they were struck, obviously, some years ago in that sense. And that is a drag. Now it's never been that apparent, obviously, because in accounting terms, that's actually treated as counter-revenue, so it's a net revenue item. So the results you see from the Investment Banking are actually net of those costs. So I think, really back to Fiona's question, the savings from this, obviously, will come through, obviously, in the NSU. The savings from these -- it comes through as an increase in revenues as opposed to reduction expenses, just to be clear on that point. But yes, I mean, some of the coupons on this are relatively expensive and are very difficult to redeem. They may not be publicly held instruments, per se. In terms of the rates restructuring, I think it's certainly clear that we will be exiting from a number of product lines, particularly bilateral swaps in the space, we've mentioned, but also some of the more exotic, very structured positions which may have a combination of rate and FX exposure. They are generally collateralized up for the normal collateralized positions we exited into the FID PM 2 years ago, but there clearly is a block of trades which are now basically looking very liquid and which relate date back to this preclearing arena. I think it's also clear from a client-side that our clients are actually moving away from these kind of a very structured exposure for the same reason. I mean, the world, basically, the rate is going to a cleared one, and that will be around, no doubt, higher volumes, but of cleared, more standardized and simple instruments.

Operator

And your next question comes from the line of Jernej Omahen from Goldman Sachs.

Jernej Omahen - Goldman Sachs Group Inc., Research Division

I just have a couple of questions left. First -- the first one relates to this announcement of the noncore assets and the way you've decided to separate. I mean, the first question is purely of a operational nature, I guess. When your competitors announced noncore unit, they tend to move assets, capital, and people into separate divisions and report them that way as well. I was just wondering why you thought it makes more sense for Crédit Suisse to actually keep the noncore assets and the related resources within divisions. I think that's question #1. Question #2 is, every time Crédit Suisse communicates a downsizing of the investment bank, particularly the fixed business, the underlying return on equity that you show us goes up. And I was just wondering what's holding you back, in a sense? Because if I understood Mr. Dougan correctly before, he mentioned that he saw that the private bank, even today, makes return on equity in the high 20s. You've made a group return on equity of 4 and 7 on an adjusted basis. When you have these strategic debates at the executive committee level, what's holding you back in just doing a more radical cut into your Investment Banking? The only logical answer that I get to, and I don't know how you're thinking about this, is that you must believe that a return on equity of the investment bank in the future of Crédit Suisse's investment bank could rise dramatically, but I just wanted confirmation on that. And the last question, I'll be very brief here. There seems to be a resurgence of the "Too Big to Fail" debate in Switzerland, at least following the political statements. And one never knows how accurate or how serious these are. But I was just wondering, do you, from your perspective, believe that the "Too Big to Fail" debate in Switzerland is finished? And if not, what do you think are the most likely outcomes?

Brady W. Dougan

Okay, great. Thanks for those questions. I mean, I think your first question on the structure of the nonstrategic units and the reason that we did -- that we want organize it this way, I mean, obviously, the whole point is around focus. It's around focus on the existing businesses. So we're going to have management focused on those and growing them and the opportunities that we see there. And we do think that we're at a point where having dealt with a lot of these capital costs, the leverage issues, we're able to really focus on growth. But this continuing to work down -- aggressively work down those nonstrategic ongoing businesses is something that is an important effort. So making sure that our management can be focused on just the ongoing businesses and realizing the growth opportunities is important. The reason that, as you say, we wanted them within the divisions is because there's a lot of expertise in the divisions that's necessary to actually efficiently and quickly work those down. So like if you look at our fixed income legacy business so far, I think as -- I think David mentioned the numbers, we started out at CHF 56 billion of risk-weighted assets, and 2 years later, we're at CHF 9 billion. I mean, that's a very effective process in working that down. And frankly, the team that's been working on that, which is within fixed income, will also be working on these exposures. And I think we'll do -- our belief is we'll do an equally good job on that. So being able to retain that expertise, which is resident, obviously, in those businesses, is something that's actually very important. So I think the idea was to provide the focus for us internally to provide the clarity and transparency for you in terms of what those businesses are and so that it's clear that we're very committed to working those down. There's a lot of transparency around it, but to retain the capability to actually operationally work those down very aggressively was something that we thought was the right mix. And so that's why. And if you think about it, if you look at these nonstrategic units, for instance, the -- what we need to do -- and the Private Banking & Wealth Management initiative is quite different from what we need to do within the investment bank. And so basically, I think that's something that keeping that capability and that expertise focused on these things is something that's really important. Secondly, I mean, for us, I'd say in terms of the ongoing thinking around the Investment Banking business and how it fits into the overall group, I mean, the most important thing is that we believe that we have an Investment Banking business that, over the cycle, can make returns that are in -- significantly in excess of our cost of capital. I mean, that's the most fundamental issue now. Now when I think -- I guess, what we're hoping is we're showing for instance -- today, what we're showing is that when we have a business that doesn't make the returns on resources, we do what we need to restructure to make sure that it does. And so I think actually our first 9 months, all the businesses are making a 13% return on Basel III capital is actually a really good return for an investment banking business. Obviously, these additional steps that we take on the NSU side actually enhances that. Now as you said, we've got to clearly execute on taking some of those additional costs out, taking the capital out of the business. But we think that actually will make the business a very high-returning business. And quite to the -- as you know, I mean, a lot of people thought Investment Banking businesses under Basel III are going to make single-digit returns. I mean, our belief is that we can get to an investment banking business that will make, as we said, as David said, more than a 15% return. And so we feel strongly that we can do that. In addition, by the way, there are a lot of synergies between the businesses, and we've talked a lot about the ultra-high- net-worth segment, we talked a bit about the lending in that segment and the linkages between that and our Investment Banking franchise and business. And there are a lot of linkages there. So I think for all of those reasons, actually, our belief is that: A, we can significantly exceed our cost of equity and it is actually beneficial to the overall business as well. So for us, it's -- that's not a hard decision but what is -- what we do have to do is continue to -- particularly, as regulations and as the markets develop, we have to respond to that and we have to be dynamic about how we look at the businesses. So our belief -- so the way you phrased it, you said, "Well, announce another restructuring of the business." I'd have to say, I think that, that kind of dynamic response to what's happening in the market is something that actually is necessary, and that, again, we still believe that a lot of the industry will have to go that way and not embracing those kind of restructurings probably just puts you farther behind, because eventually, you'll have to get there. In terms of the "Too Big to Fail" debate in Switzerland, I mean, I think we've been -- as you know, this thing sort of ebbs and flows. I mean, when Switzerland was the first to announce all the regulatory requirements, I think most people around the world thought, "Well, those are very strict. And it's going to be very difficult to be competitive, not a level playing field." What we said at the time is what's actually played out which is the world has migrated to a much more level of playing field, I think. I think we have benefited, though, from the fact that since Switzerland did move very early, there were very clear requirements. Those have been put into law, they're passed by parliament and they're being implemented. So when we talk about the ratios and I think we talk about our leverage ratios and we talk about our capital ratios and structure, those are actually a law in Switzerland that's been put in place. And obviously, that can be revisited and there is actually a provision, I think, after a few years to revisit that. But we're -- I think we're in a significantly better place than many other countries where it's still an open debate where it's not something that's actually been passed as a law, et cetera. Now, obviously, can things change on that? I guess they could. I'd like to think that, again, we've been pretty aggressively pursuing the required changes, and I would hope that, that would lead people to believe that what's been done is clearly making the financial market safer and sounder and puts us in a good position. So it's obviously hard to assess exactly, as you say, where political debates go, but I think our belief is Switzerland moves fast with a pretty strict set of rules. We're way down the line on actually complying with those rules, and I would think all of that should put us in a good position and that overall debate, but we'll see where it goes.

David R. Mathers

But I think I'd just reiterate. I mean, I think clearly the pressure has been for early compliance of those rules. So as of today, we're obviously 10.2% against the 10% requirement 2019, and that's excluding the Claudius preferred shares. And we're at 13.2% including the high-triggered CoCos and a total capital ratio of 15.9%. So I think you can see just how fast Crédit Suisse has actually moved to be compliant with those rules.

Brady W. Dougan

And I think that just probably -- that probably makes -- that probably advantages us in the debate but -- so I think we feel like it's a fairly stable regime but obviously, we'll have to see where that goes over time.

Operator

Your next question comes from the line of Christopher Wheeler from Mediobanca.

Christopher Wheeler - Mediobanca Securities, Research Division

A couple of questions, I'm afraid. First of all, I mean, thanks very much for this new disclosure on the nonstrategic units. But am I getting this right that if we just take away the rate initiative and possibly the branch closures, these are really aren't new initiatives? These are things you're doing, you have been doing, you've been talking about and all you're really doing is giving us a bit of a loot map, if you want, to how they will get you to a better place? So perhaps, just talk a little bit about that. The second thing related to that is that the closure of the Private Banking, Wealth Management branches, I mean, obviously, this had come into the market. But I was given the impression that you were probably going to lose CHF 3 billion of AUM out of a much larger number. I'm a bit shocked if it is CHF 3 billion in those branches because an average of CHF 45 million or so suggests to me you've been losing money in a lot of those regardless of the higher regulatory cost you're now bailing. So I'd be interested in your view on that. Thirdly, you now disclosed that you are losing money in the U.S. Wealth Management business. We probably ultimately knew that, but you've been very kind in giving us that disclosure. That's obviously not in the nonstrategic unit. I mean how long have you now given to the new management to actually get that into shape and to obviously boost your returns in that business? And then finally, Brady, I heard you obviously speak on tapering this morning. And are we speaking to the U.S. investments banks about not just tapering, but obviously the reversal of tapering which is the next step. And they seem pretty sanguine about that, and yet what I see is a massive amount of liquidity coming out of the market, not just out of the U.S., but at the other central banks. And I wondered, this is something that you've never have to deal with before. How are you thinking about this shrinkage of liquidity, and then, obviously, this massive bonds that are going to come on to the market that are going to be acquired by somebody once the central bank starts selling?

Brady W. Dougan

Okay, you want to take the first one and then I can take the second one?

David R. Mathers

Okay. So Chris, just in terms of the nonstrategic units, it's certainly true that the single biggest initiative is the rates restructuring, but it's not the only one. There's a number of other small ones in there, but the single biggest one is the rates one. What we really wanted to see -- I mean, I think it was 2 things. I think, firstly, things such as the non-Basel III compliant instruments, I think, we've talked about, but I think perhaps is now better appreciated in terms of the drag that's actually having on returns. That said, I think it's very clear and that's why we wanted to do those Venn charts in terms of where we go from here. In terms of total exposure, obviously, CHF 1,184 billion, I think you can see that we're committing to you now is a further reduction of just over CHF 100 billion in total exposure. Equally, I think in terms of the targets for risk-weighted assets, I think we're originally targeting CHF 285 billion. We're now obviously targeting to get down to around about the CHF 235 billion and then invest about CHF 15 billion in the Private Banking business. So I think both of those things are clearly incremental to anything that we've said before. And in terms of operating expense, as I've said before, there's about CHF 300 million of operating expense associated with this. Of that, essentially, we've increased target by about CHF 150 million today. I think we've said there'll be incremental expenditure savings within the Private Banking division of a further CHF 50 million but we're investing that in growth, which leaves about CHF 100 million in terms of the tail costs for actually managing this portfolio. So I think, certainly, in terms of the capital and leverage impact, I think the NSUs are actually quite substantial. Clearly, in terms of expenses, we already obviously have a very substantial expense program which we're obviously bang on target for. I mean, I think we're obviously in very good position to actually hit the CHF 3.2 billion this year and then move up to CHF 4.5 billion-plus basically in 2015, which, I think, is a pretty long way to come when I think compared to world [ph] with the efforts across the industry.

Brady W. Dougan

I think your question on the closure of the PB markets, I mean, just to be clear, because there was some press on it that I'm not sure was all accurate. So basically, what we're talking about in that initiative is we have, as David mentioned, a number of markets which are served, which are cross-border markets, so we don't actually have a branch in the country but we're serving them from a cross-border point of view, so they're booked in one of our offshore businesses, whether it's in Switzerland or in Singapore or one of the other offshore units. And basically, it's just a matter of having only a few clients on average in each of those markets. So as you said, the numbers -- you heard the numbers that David mentioned was something like an average of CHF 40 million per market. The issue is actually -- I mean, to date, it's probably been profitable. It probably -- I mean, it's obviously not a -- it's probably hasn't been a hugely profitable initiative, but it's been profitable. But the issue is really around the increased compliance requirements. And we need to make sure that for every market that we do business in, that we're completely compliant with all the rules and regulations of that country. So notwithstanding the fact that we're not actually banking in the country, but if we're banking a client from that country, we have to be 100% compliant with their regulations, all the tax requirements, all the rest of the issues. And frankly, that's a pretty big undertaking. And as you can imagine, it's as big an undertaking for a country where you have 3 clients with 20 million of assets as it is for a country where you have 10,000 clients and 10 billion of assets. So the issue for us was really one, which, I think is -- I think it's a prudent approach, which is making sure that we are taking an approach which allows us to manage particularly our reputation and our regulatory risk in these countries in an area where it is -- it's probably marginally profitable, but it's a relatively -- so I mean, CHF 3 billion of assets in the context of over CHF 1 trillion in assets obviously is not that large. And so it's really more a question of trying to manage a lot of the reputational and the compliance risk around those countries. So, your third question was on the U.S. business. And yes, as you say, we have -- we've been -- we have been unprofitable in that business. We've put new management in place, probably, about 6 months ago now. As you know, we actually moved over Phil Vasan. He was running our Prime Brokerage business and had basically grown that business from its position to sort of the #2 spot in the industry. And there a lot of elements that we think are similar around that in terms of infrastructure platform, product aspects of it, like lending, for instance. And that's one of our biggest issues actually in the U.S. is that we haven't had a complete product platform, including, particularly, the lending product. And so that's one we are looking to build and build up. I think our hope is actually and our expectation is that we can actually get it to profitability in a not-too-distant future. So that certainly is our expectation, and we think some of the steps that we're taking will, hopefully, accelerate that. But -- so that is our hope certainly that we will have a profitable business there in not too long. On the tapering thing, I completely agree with your comments. I mean, clearly, this is a new world in terms of as a -- as they -- as you say, as the tapering or either lack of tapering for a while or increased speed of tapering, as that actually happens, clearly, it's going to -- it's something that we certainly need to be very focused on to make sure that we're managing our risks and that we're advising our clients well on how all that may roll out. And I do think -- I mean, I think our people are of the view that it's not -- there seems to be a consensus around 6 or 9 months until the tapering sort of kicks in again. I think some people have a view that may be little sooner. But as you say, we certainly have to be very focused on the impact of that on the markets and on our clients. And it is certainly something that we're looking carefully at.

Operator

Your next question comes from the line of Jon Peace from Nomura.

Jon Peace - Nomura Securities Co. Ltd., Research Division

Two very last quick ones, please. Firstly, on the net new money in Wealth Management, you're running a little bit below the 3% to 4% range you'd indicated from 2013 to 2015. So I just wondered if that was a trend we should expect to continue maybe to an early 2014 being below the 3%? And then the second question on Slide 26 again. Just to be really precise about the incremental things you're announcing today. The cost -- the additional cost cuts of CHF 228 million is showing in that pie chart in the bottom right. What were the revenues associated with those?

Brady W. Dougan

Do you want to start, David, with that piece and then I'll...

David R. Mathers

Sure, sure. So just [indiscernible] essentially is operating cost metrics which we've not encompassed in our previous measures already. So it's CHF 228 million and that's obviously from 9 months, so therefore, now [ph] you get about CHF 304 million. The negative revenues, I think, are as we basically gave them in one of the earlier slides in terms of -- in the deck. I think it is Slide 25, basically. So those are -- you can see, essentially, for the IB, you're talking about CHF 595 million; and for the PB, it's positive CHF 395 million. And just to point on that, by the way, that is because the PBWM NSU does in fact include some runoff management positions which were significantly profitable in the first half this year but will gradually runoff in that period. But specifically on the IB, it's the minus 595 million is the revenue. I mean, I think specifically on the rates number, I think I gave the year-to-date revenues on the bilateral rates business maybe across was actually minus 30 for the 9-month period.

Brady W. Dougan

I think on the net new asset question, Jon, we're just slightly under the 3% year-to-date, as you say. We do expect to be within that guidance of 3% to 4% and I would say ongoing as well. I mean, our hope is certainly that we will certainly be able to meet that. Emerging markets have been quite strong. I think year-to-date we're at about 8% growth, which is obviously an encouraging trend and one which we hope continues.

Operator

And your final question comes from the line of Stefan Stalmann from Autonomous.

[Technical Difficulty]

Brady W. Dougan

Sounds like he rang off. So okay, I think that's it on the questions. And thank you, all, for a lot of very good questions. Thanks for your time and your focus. Just to sum up very briefly, our solid delivery on cost capital and leverage targets we believe mitigated the impact of what were very challenging market conditions and low client activity across many of our businesses. And with the creation of these nonstrategic units, we will accelerate our strategy to free up capital and resources for future growth and reinforce our commitment to return significant capital to shareholders. So again, thank you very much.

Operator

Thank you. That does conclude today's conference. An email will be sent out shortly advising how to access the replay of this conference. Thank you for joining today's call. You may all disconnect.

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