'Today, we announced a number of strategic measures to reflect the continuing evolution of the financial markets over the past year. We will continue to judiciously invest in the growth of Private Banking globally and our Swiss businesses, substantially reduce risk, volatility and costs in Investment Banking, and continue to focus and align our Asset Management business. We also provided an update on our fourth-quarter performance.
I have scheduled a call later today to discuss this announcement in greater detail with all employees globally (information on the call will be provided in a separate email invitation). The most important message I want to deliver is that while these measures represent a significant acceleration of the implementation of our plan, they are consistent with our strategy and our integrated business model and they will reinforce the strong position of Credit Suisse as we enter 2009.
In Investment Banking, we are accelerating the implementation of our strategy to reposition the business in light of the changed competitive and market environment. The actions being taken reflect, among other factors, the impact of weaker macroeconomic conditions, continued market volatility and fundamental shifts in client demand away from more complex products towards the greater use of exchange-based and flow trading. This shift towards more liquid products will build upon the momentum that we have already achieved in areas such as algorithmic trading, cash equities, prime services, rates, foreign exchange, high grade credit and strategic advisory businesses. The Investment Banking division will also continue to reduce its origination capacity in complex credit and structured product businesses and cut risk capital usage, and will exit some proprietary and principal trading operations. Our new operating model will reduce earnings volatility, improve capital efficiency and better leverage the strengths of the integrated bank. Investment Banking will remain a valuable and strategically important contributor to the integrated bank, with lower volatility and attractive returns.
We have continued to cut risk in Investment Banking significantly. Risk-weighted assets, measured on a consistent methodology basis, declined from $236bn as of end-2007 to $193bn as of the third quarter of 2008, and are expected to decline to $170bn by end-2008 and to $135bn by end-2009, a 43% reduction since end-2007. Furthermore, as announced in October, we have reduced our trading risk positions substantially and underlying one-day value-at-risk (VaR) as of end-November 2008 declined 34% quarter to date and 60% year to date.
We need to reduce the total number of people working at Credit Suisse. The planned reductions will affect 5,300 people. The vast majority of the reductions will have taken place by the end of the first half of 2009 and will be primarily in Investment Banking and in related support areas. This was a very difficult decision, but it’s essential that we bring the size of our workforce in line with market opportunities and our clients’ needs. Together with other efficiency measures, the reductions are expected to reduce costs by CHF 2bn ($1.64bn), representing 9% of our reported nine-month annualized 2008 cost base. Charges associated with these actions will amount to approximately CHF 900m ($741m) and the majority of the costs will be taken in the fourth quarter.
Our approach to clients is firmly rooted in the integrated model, which we believe is the most effective means of delivering best-in-class service globally, while realizing enhanced operating efficiencies. Collaboration differentiates Credit Suisse and it provides us with a stable source of high-quality earnings even in turbulent markets. In 2009, we need to continue to challenge ourselves to work much more closely together as an integrated bank.
Update on 4Q08 performance
Based on preliminary information on our operating performance, we estimate that Credit Suisse had a net loss of approximately CHF 3bn ($2.47bn) in the fourth quarter, as of end-November. Investment Banking had a significant pre-tax loss, reflecting the challenging conditions in the financial markets in the quarter and costs associated with risk reduction. Credit Suisse had a modest profit in November.
Our Private Banking division continues to perform well and has attracted solid asset inflows in the fourth quarter, as of end-November. We have maintained our strong capital base and expect to have a tier 1 ratio of around 13% as of year-end. Our deposit base and funding remain very solid.
In light of the bank’s 2008 performance to date, we have announced that I, along with Walter Kielholz, our Chairman, and Paul Calello, our CEO of the Investment Bank, have informed the Board of Directors that it would not be appropriate for us to receive variable compensation for 2008.
The measures announced today involve extremely difficult decisions, particularly with regard to people. The fact is, they are necessary given the economic outlook and the broad shifts underway within the financial system. We have talked before about the importance of balancing continuity and change. Achieving that balance by managing our businesses conservatively, and with great discipline, is critical to navigating through this period of volatility and uncertainty. I remain convinced that our integrated business model provides us with a unique platform to meet our clients’ needs and generate consistent, profitable growth across the entire market cycle. By responding to the changing environment and remaining consistent in our strategy and vision for Credit Suisse, I am confident that we will move through this challenging period and emerge in a position of true industry leadership.
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