Credit Suisse Group AG (CS) Q1 2020 Earnings Call Transcript

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Credit Suisse Group AG(CS)
Q12020 Earnings Call
Apr 23, 2020, 1:00 a.m. ET

Prepared Remarks:

Operator

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse First Quarter 2020 Results Conference Call for Analysts and Investors. [Operator Instructions]

I will now turn the conference over to Kinner Lakhani, Head of Group Strategy and Development. Please go ahead, Kinner.

Kinner Lakhani -- Head of Group Strategy and Development

Thank you, operator. Before we begin, let me remind you of the important cautionary statements on Slides 2 and 3, including in relation to forward-looking statements, non-GAAP financial measures and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse first quarter 2020 earnings release and remind you that our first quarter 2020 financial report and accompanying financial statements for the period will be published on or around May 7. We would also like to remind you that our Annual General Meeting of shareholders will be taking place next week, on April 30.

I will now hand over to our CEO, Thomas Gottstein and CFO, David Mathers, who will run through the numbers.

Thomas Gottstein -- Chief Executive Officer

Thank you, Kinner. Good morning, everyone. Thank you for joining our call this morning to discuss our first quarter 2020 results, my first as Group Chief Executive. Before I start with the slide presentation, allow me to make a few personal comments. As you know, I took office on 14th of February, little did I know then how the world would change within less than a month. During my first three weeks, I had the opportunity to meet with many colleagues in meetings in townhalls with key clients, investors, including most of our top 30 shareholders, analysts, regulators and journalists. These meetings took place in Switzerland, in London and in the US, and were very valuable for me personally to exchange views and discuss the strategic priorities and prospects of Credit Suisse with key shareholders and stakeholders. Unfortunately, the global COVID-19 pandemic then became a reality, which changed circ*mstances completely. Suddenly traveling was not possible and my priorities shifted to the safety of our employees, ensuring business continuity and being there for our clients in the face of a crisis.

I am incredibly proud of how our organization has reacted to the challenge and demonstrated the strength of the Credit Suisse culture, based on its can-do attitude, teamwork, entrepreneurship and solidarity. I want to thank all our 48,000 employees for what they have done and achieved over the last few weeks in very difficult circ*mstances. I also want to thank my colleagues on the Executive Board and on the Board of Directors for their leadership and partnership, which allowed us to quickly react to the recent events in a coordinated fashion.

Let me now take you to the slide presentation. I will take you through some of the highlights of the numbers this morning, as well as detail our response to the COVID-19 and the impact that it had -- its having on our business. It is clearly an uncertain time for all in financial markets. However, I do believe that we have been able to demonstrate our resilience in the first quarter, as well as placing our clients, employees and communities at the center of everything that we do.

Let's go to the first slide. In the first quarter, we generated CHF1.2 billion of pre-tax income, up 13% year-on-year. This was supported by a 9% increase in revenue across our Private Banking franchises, excluding the gain from the final closing of the InvestLab transfer in the quarter and a 25% increase in our sales and trading revenues. I would note that the increase in pre-tax income for the Group was achieved despite an over CHF1 billion reserve build.

We reduced total operating expenses by 6% year-on-year to CHF4 billion and are expecting around CHF16 billion of adjusted operating expenses for the full-year 2020. Excluding the provision for credit losses, mark-to-market losses and gains from the InvestLab transfer, our pre-tax income for the quarter would have been CHF1.9 billion, a 66% increase year-on-year. This shows how much we have further improved the operating leverage of our business model. At CHF1.3 billion, we delivered the highest quarterly net income in the last five years and the return on tangible equity of 13.1%, in part, benefiting from the closing of the InvestLab transfer and a negative tax rate. At the revised tax rate guidance for the full-year 2020 of 20% to 25%, our RoTE for the quarter would have been around 9% to 9.5%. I would also add that the 13.1% RoTE achieved in the first quarter was the highest in the last five years.

In the current market turmoil, we also benefit from our strong capital and liquidity position. In terms of capital, our CET1 ratio stood at 12.1% and our Tier 1 leverage ratio was 5.8% at the end of the first quarter. We also maintain a strong liquidity position with one of the highest liquidity coverage ratios among international peers at an average LCR of 182% for the first quarter. And, to further protect our capital base, we have suspended our share back -- buyback program and delayed the decision on the second half of our 2019 dividend until later in the year as previously communicated.

Finally, and as you may have seen from our announcement last week, we received regulatory approval to become a majority shareholder in our securities joint venture, Credit Suisse Founder Securities Limited, marking a significant milestone in the Bank's China strategy.

Next, let's turn to Slide 6 to look at our response to the COVID-19 pandemic in a little more detail. As I mentioned at the start of my presentation, the impact of the COVID-19 pandemic has had on markets, economies and our society is profound. At Credit Suisse, we have adopted a three-pronged approach in response to the pandemic. First, my focus and that of the Executive Board has been on the well-being of our employees. We have established numerous support measures for our employees to overcome the challenge of the pandemic, including early engagement of medical advisors in Switzerland and globally, paid family leave in all markets in which schools are closed for those colleagues who are unable to work from home and honoring the contracts of future hires and pushing forward with remote onboarding. As a result of detailed business continuity management, we were able to move quickly to remote working, and now approximately 90% of our employees can work remotely, with approximately 70% to 80% doing so, and health measures in place for those still working from our office locations.

Second, we have continued to serve our clients through these challenging times. We continue to provide bespoke client solutions, given the market dislocation, whether that's to our Private Banking clients across region, or to our wholesale clients in Investment Banking. We have leveraged our digital banking model to ensure business continuity, for example, by onboarding clients digitally. And in Switzerland, we continue to serve our retail clients through branches, two-thirds of which remain open and are following social distancing rules and increased hygiene measures. We also have played an active role from the beginning in the development of the CHF40 billion bridging loan program to SMEs, sponsored by the Swiss government, of which more in a moment.

Third, we are working in our communities to provide support where we can. We have launched a Bankwide donor-advised matching program to encourage employee donations to charities, working to alleviate the impact of the pandemic. As part of that, myself and every member of the Executive Board, has committed to donating at least 20% of six months' base salary or equivalent. The Chairman of the Board of Directors has also committed to donate to a similar extent. We have also made local donations of masks to hospitals and healthcare providers in a range of locations and made donations through our regional foundations to a range of charities.

Next slide, please. Here in Switzerland, I'm proud to say that we have been able to play an active role from an early stage in the development of a highly effective and innovative CHF40 billion bridging loan solution for Swiss SMEs and we have done so in conjunction with the Finance Ministry, the Swiss National Bank, FINMA and the Swiss Bankers Association. The details of the two programs are referenced here, targeting small and medium-sized companies, providing access to funds quickly and without onerous paperwork requirements. The programs were modeled on an idea originally from Credit Suisse using the trade export guarantee system as a basis and involve significant government guarantees at 85%.

As you can see from the slide, from the original idea to the program being implemented on March 26, was a matter of days. Eligible customers were able to access funds within half an hour of completing a simple one page form. The success of the program overall is reflected in the decision on April 3 to increase the overall lending guarantee from the original amount of CHF20 billion to CHF40 billion. To date, Credit Suisse has granted approximately 14,000 loans with a total volume of CHF2.4 billion and both the SME and the corporate facility, where we make a profit on these loans, if any, we have said from the outset we will donate it to organizations focused on helping the Swiss economy. The program is a testament to the strength of the Swiss Financial Center, working together for a common cause at a time of great need.

Next slide, please. As I mentioned earlier, our results for the first quarter contain a gain from the second and final closing of the transfer of InvestLab to all funds. Including this transfer, pre-tax income rose 13% to CHF1.2 billion. Excluding the gains from the transfer but including the over CHF1 billion reserve build, which we will cover later in this presentation, pre-tax income was down 11% on the same quarter of last year.

Next slide, please. As mentioned at the outset of my presentation, we have delivered the highest quarterly net income in the past five years at CHF1.3 billion. In part, this was supported by a negative tax rate that David will discuss in more detail later on.

Next slide, please. This brings us to return on tangible equity. Despite credit provisioning and mark-to-market losses, we achieved a return on tangible equity of 13.1%, a significant increase from the 7.8% reported in the first quarter of 2019. Here again, we see the benefit from the earlier mentioned gains from the InvestLab transfer and the negative tax rate. Based on a tax rate in line with our new guidance of 20% to 25% for the full-year, our return on tangible equity for the first quarter would have been around 9% to 9.5%.

Next slide, please. Our Private Banking businesses are at the core of our strategy and continued to demonstrate their importance during the first quarter despite the COVID-19 pandemic. Within Private Banking, we saw growing net interest income, stable recurring revenues, and strong transaction activity, up 31% in the first quarter of 2020, compared to the same period a year ago. Overall, Private Banking net revenues rose 9% and this excludes the gain from InvestLab, showing continued strong momentum in these businesses.

Next slide, please. Our integrated -- International Trading Solutions, ITS business, a collaboration between SUB, IWM and Global Markets, continues to be an important differentiating factor in our model, providing trading solutions to Private Clients. During periods of market dislocation, as we are currently in, Private Clients are often seeking innovative solutions in order to protect their positions and best-in-class trading execution across all asset classes, including equities, bonds, FX, OTC derivatives and structured products. ITS is also at the heart of our lombard and share-backed lending effort to our Private Clients and once again proved its worth, as reflected in the 64% increase in revenues between the first quarter of 2018 and the quarter just ended.

Next slide, please. Here we are showing the make up of our total Investment Banking net revenues across advisory and underwriting, equity sales and trading, and fixed income sales and trading. Both equity and fixed income sales and trading have strong first quarters, up 24% and 26%, respectively. Those strength in our diversified Investment Banking portfolio, however, were offset by weakness in advisory and underwriting in March, resulting in 38% lower revenues from this business in the first quarter compared to the first quarter of 2019. Excluding the mark-to-market losses of $459 million incurred in the first quarter, overall, Investment Banking net revenues stood at CHF2.9 billion, up 23% on the same quarter a year ago.

Next slide, please. This slide provides an overview of our comprehensive reserve build during the first quarter as a response to the challenging environment and continued pressure on oil prices. As a US GAAP reporting Bank, we also incorporated appropriate CECL provisioning, taking into account updated relevant macroeconomic forecasts. David will provide further details on our modeling approach and underlying assumptions in his section.

For the first quarter, we saw an increase in allowance for loan losses of CHF585 million as you can see from the bar in the center of this chart. On top of that, we took CHF284 million of mark-to-market losses in leveraged finance and a further CHF160 million for the APAC Financing Group. Together, that gives a total reserve build of just over CHF1 billion. CHF376 million of this amount relates to CECL provisioning, which, as you know, reflects general credit risks and non-specific client exposures.

Next slide, please. I just wanted to take a moment to reinforce the importance of our home market in the current environment. From the start of 2017 until the end of 2019, on average, the Swiss Universal Bank contributed 38% to Group profit. The Swiss Universal Bank accounts for 58% of the Group's net loans on its books as shown in the pie chart on the lower left of this slide. Swiss loan quality has proven to be particularly resilient when compared to other countries. This is displayed on the right side of this page, showing provisions for credit losses and non-performing loans, respectively, as a percentage of total loans across some of the biggest banks in each of these markets. When looking at our balance sheet, the strength of our home market and its strategic importance should not be underestimated nor forgotten.

To sum up the main part of my presentation, let me turn to the following slide. Here in the right-hand bar, we show the net revenues for the Group in the quarter, excluding the gains from the InvestLab transfer and the aforementioned mark-to-market losses. The light blue section of the bar shows the total operating expenses, which we have incurred to deliver these revenues. And the dark blue section depicts the pre-provision profit for the quarter, if it weren't for the appropriate credit provisions reflecting current market conditions. At CHF1.9 billion, this represents a CHF773 million increase compared to the same quarter of last year and shows that we have further strengthened our combined Private Banking and Investment Banking franchise, our profitability and delivered substantial operating leverage.

And with that, I would like to hand over to David for the discussion of our financial results in more detail.

David Mathers -- Chief Financial Officer

Thank you, Thomas. Good morning, everybody. And I like to take you through the financial numbers in more detail. As Thomas has mentioned before, Credit Suisse's businesses delivered a resilient first quarter despite the challenging market and operational environment. As with prior quarters, to be helpful with comparisons and to better illustrate our financial performance, you will see that we've included a table at the bottom that includes our results excluding gains relating to the transfer of the InvestLab fund platform to all funds group. This will be the last time that we break out such gains for InvestLab as we've now completed the second and the final closing at the end of the first quarter of 2020. Gains in the first quarter from InvestLab totaled CHF268 million.

Now, overall net revenues in the first quarter of 2020 were CHF5.8 billion, that's an increase of 7% year-on-year, including the impact of the gains from InvestLab that I just mentioned. If we were to exclude those gains, net revenues for the quarter would have been CHF5.5 billion and that's an increase of 2% year-on-year.

Now, just looking at our business lines. In the first quarter, Wealth Management-related revenues increased by 7% compared to the same quarter in 2019, again including InvestLab. Wealth Management-related results excluding that gain, suffered from mark-to-market losses, say in Asset Management and in the APAC Financing Group portfolio. But Private Banking revenues, even excluding InvestLab was strong. We saw an increase of 9% compared to the prior year, and overall within Private Banking, we saw significant growth in transaction revenues, as well as a resilient result in net interest income and in recurring commissions and fees.

If we look at our other operations, our markets businesses across both GM and Asia Pacific, we saw a combined revenue growth of 22% for the quarter, stated in US dollars. These businesses benefit from a significant increase in market volumes and volatility during the quarter.

Our Investment Banking and Capital Markets activities had an initially strong start to the year and we saw a pick-up of momentum and deal closings in January and February. But as we moved into March, the global response to COVID-19 made for a markedly more difficult environment for this business. We saw a reduction in primary activity, as well as the increase in credit provisions and in mark-to-market losses.

Thomas has already touched on the reserve build in the first quarter, and I'll give you some more detail shortly, but you'll note that we had a provision for credit losses of CHF568 million and that compared to CHF81 million in the first quarter of 2019. We saw these provisions across all divisions, but in particular, they were focused on the Corporate Bank, which adversely affected IBCM and GM, as well as our credit exposures in Asia Pacific.

I think it's clear that given the deterioration in the operating environment, cost management is going to remain critical this year. Our total operating expenses in the first quarter stood at CHF4 billion and that's down 6% year-on-year. We're going to remain very disciplined on costs for the whole of 2020, with adjusted operating expenses expected to be around the CHF16 billion level.

Overall, and notwithstanding the substantial reserve build, we generated pre-tax income of CHF1.2 billion in the quarter and that's an increase of 13% year-on-year.

As we've noted, and as Thomas has already referred to, our effective tax rate for the quarter was negative. That was a result of substantial and positive progress on deductions on our interest cost deductibility with international tax authorities. We benefited from the reassessment of the adverse marginal impact of the BEAT legislation in the United States, as well as certain other significant US rule change, which includes a carry back gain for prior years. And if I look forward to the full-year 2020, given this improvement, I'd reduce our guidance for the 2020 tax rate from the 26% to 27% level that I gave at the Investor Day last December, to be at the lower range of 20% to 25% for the current year.

Net income to shareholders stood at CHF1.3 billion and that's an increase of 75% year-on-year, and equated to a return of tangible equity of 13.1% for the first quarter. But, as Thomas said, if you were to apply that guidance for the tax rate of 20% to 25%, you'd end up with a return on tangible equity something in the 9% to 9.5% for the first quarter.

Let's turn to the CET1 ratio. So, our CET1 ratio for the quarter was 12.1% and that compares to 12.7% at the end of the fourth quarter of 2019. Now, already included in this capital ratio, both at the end of last year and at the end of the first quarter, is a full capital reduction for the full-year 2019 dividend, both for the first payment of CHF0.1388 that our shareholders will vote on at the AGM next week, and for the second payment, the Board will review in the autumn and would intend thereafter to propose to an Extraordinary General Meeting at the beginning of the fourth quarter.

Now, given market volatility and the overall pressure on the global economy, the Swiss regulator, FINMA, has decided to phase in the CHF12 billion of RWA inflation from the Basel III reforms, primarily related to SA-CCR and certain other measures, which we briefed you on the past, over the whole of 2020. Accordingly, we, therefore, recognized CHF3 billion in the first quarter rather than the CHF12 billion that I've guided to before. I'd also note that FINMA, like other major regulators, has introduced certain temporary exemptions relating to back testing exceptions in the model approach to market risk.

Risk-weighted assets overall increased from CHF290 billion at the end of fourth quarter to CHF301 billion at the end of the first quarter. RWA increase is relating to net business usage was primarily driven by corporate lending drawdowns and by increased market volatility during the second half of the quarter. It was a CHF3 billion reduction in RWA due to the strengthening of the Swiss franc. But as you know, we hedge that. So that's had a negligible CET1 ratio impact. And clearly, as I've noted already, we also saw a CHF3 billion increase in RWA from the phase-in of the SA-CCR and related Basel III reforms.

Our share buyback program is on hold until at least the third quarter of 2020, when we will then reassess our position, and I would hope that will give you a better understanding of the impact of the COVID-19 pandemic on the markets and the economies in which we operate.

Just in terms of guidance for the CET1 ratio for the balance of 2020, given the industry and marketwide increases in risk-weighted assets due to the heightened level of volatility and increased lending drawdowns and adverse migrations, together with the phase-in of the SA-CCR measures, I think it's prudent to say that I would expect us to operate at a CET1 ratio of around 11.5% for the balance of this year rather than the 12% that we previously guided.

Let's turn now to leverage, please. So on this slide, I show our CET1 leverage and our Tier 1 leverage ratios. FINMA has decided to allow us and our peers temporarily to exclude cash held at central banks, adjusted for any upcoming 2019 dividends from the calculation of leverage ratio. This exclusion applies, at least initially, until the 1st of July 2020. At the end of the first quarter, excluding CHF88 billion of net cash held at central banks, by which I mean this has been adjusted for the planned dividend payments, as requested by the FINMA's rules, our Tier 1 leverage ratio stood at 5.8%. Now, if you were to adjust on to the previous basis and include the cash held at central banks, just to be transparent on this, the ratio would have been 5.3%. So that's a small decline compared to the 5.5% at the end of the fourth quarter of 2019. The CET1 leverage ratio, excluding net cash held at central banks stood at 4.2% at the end of the first quarter.

Now, our leverage ratio increased through the quarter on a like-for-like basis due to the market volatility that we saw and the increases in net cash positions that we held at central banks, but this was then offset by the exclusion of those increased Central Bank deposits, subject to the dividend adjustment as FINMA permits.

If you look at the chart, you can see -- that you can see first the impact of the strength in the Swiss franc, which led to a CHF10 billion reduction in leverage. Next, the higher levels of cash that we held at central banks at the end of the first quarter results in a CHF15 billion increase. We then saw a CHF43 billion increase in leverage exposure in certain parts of our businesses in the first quarter, and that was primarily in Global Markets and reflects the market volatility, increased margin requirements that we saw in March, increased sales, drawdowns in the corporate banking book, as well as reduced netting at quarter end. These increases were then offset by the exclusion of the Central Bank deposits, so that led to an overall reduction in leverage of CHF40 billion.

Now, just in terms of the absolute amount of leverage, I would expect the adverse impact on leverage from volatility to largely normalize during the course of 2020. And even including Central Bank deposits, our CET1 leverage ratio by the end of the year should be in line with our previous guidance to be around 4%. Clearly, if, as other regulators have done, the Central Bank exclusion is actually extended by FINMA, the ratio should be higher. So probably around 4.3%.

Let's just turn to look briefly at cost, please, on Page 21. The focus we have on cost efficiency and productivity remains absolute priority, particularly in these times. During the first quarter, our total operating expenses amounted to CHF4 billion, and that was a decrease of 6% compared to the first quarter of 2019. We've continued to fund very strategic investments for growth across the Bank, particularly in our Wealth Management-related divisions, as well as investments intended to improve digitalization and to increase the Bank's efficiency. But as we've said before, the pace of these investments are dependent on market and on economic conditions and given the current environment, I want to just reiterate that we will maintain a various high level of focus on cost discipline for 2020. Clearly, COVID-19 and the move to remote working for some -- much of our workforce does provide the potential to reduce our costs in certain areas, but it will increase in others.

Just in terms of guidance, as I said, we're going to be very disciplined for 2020, and I think I'd expect adjusted operating expenses to be at around the CHF16 billion level.

Let's turn to tangible book value per share, please. What we show here is the progression of our tangible book value per share since the end of the fourth quarter of 2019. It grew from CHF15.88 to CHF18.25 per share at the end of the first quarter, that's an increase of 15%. But let's just focus on the major items. Clearly, one of the most significant components was net income in the quarter that added CHF0.54 per share. But clearly, the other major component is the CHF1.81 per share, resulting from the widening of credit spreads in March. Now, just recognizing that this should only be a temporary change, without it, our tangible book value per share would have been CHF16.44, an increase of 4% on the quarter.

So, let's now turn to our credit provisions, please, and look at the overall reserve build that we took in the first quarter. So, I think in common with some of our peers, obviously, it's been most of the US banks that have reported so far. We thought it would be useful to give an overview of the total of incurred, but as yet unrealized losses related to our credit exposures, and that's both accrual, which comes through in the PCL line, and fair value elected, which comes through in contra revenues. Now, the increase that we are reporting this quarter reflects the adverse impact of the deterioration economic environment on our portfolio; the mark-to-market impact of credit spread moves, mostly -- entirely in March, and the -- mostly in March, and the increase in our CECL reserves.You will see that we show on this slide two interrelated charts.

Now, if we start on the left, we just show the movement in the allowance for credit losses as per accounts. As you know, Credit Suisse reports under US GAAP. And the first quarter of 2020 mark the introduction of the current expected credit loss rules. Now, these are similar but substantially more conservative than IFRS 9, which was introduced for reporters a year ago and the difference -- there was a number of differences but the most important one relevant today is the CECL includes a provision for losses over the entire life of the loan, which we continuously assess depending on our assessment of the economic outlook, whereas IFRS 9 requires that for only one year under most conditions.

So, if we look at the chart on the left, first we're reflecting our allowance for credit losses for our loan book. We entered the fourth quarter -- sorry, the end -- we ended the fourth quarter of 2019 with an allowance for credit losses of CHF1.15 billion. The adoption of the CECL rules from the 1st of January led to an impact on the CHF1.15 billion of an additional CHF72 million. We then built in -- we then took CHF568 million for credit losses in the first quarter, of which approximately CHF304 million comes from CECL. Net write-offs and other adjustments, i.e., things we've realized charge-offs generated a reduction of CHF55 billion, and that left our allowance for credit losses on loans amortized cost of CHF1.7 billion, an increase of CHF585 million compared to the previous quarter.

Now, if we move to the second chart, we combine the movement of credit provisions with other unrealized credit-related exposures. Now, this is important because Credit Suisse has a higher proportion of fair value-related assets on its balance sheet than many other banks. So, you do need to look at both parts of this together. We take the CHF585 million from the previous chart and we add to it based on fair value marks at the end of the first quarter, CHF284 million of unrealized leveraged finance mark-to-market losses and CHF160 million unrealized APAC Financing Group mark-to-market moves. And that results in a total reserve build of just over CHF1 billion for the quarter.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Magdalena Stoklosa. Please go ahead, from Morgan Stanley.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much and good morning to everyone. I've got two questions, one, about the capital walk kind of this year, in 2020, and one about kind of your thoughts about the reserve build, and I do appreciate there is a lot of uncertainty in both. So, let's start with the capital conversation. You've implied to us that you think that you're going to end 2020 or kind of throughout with a CET1 ratio of 11.5%. Could you help us kind of run through the components of the move from the current 12.1% to the 11.5%? You've given us some. Of course, we've got still the CHF9 billion of the regulatory inflation to come through in the remaining three quarters, you've kind of given us a little bit of a view on the market risk-weighted assets, i.e., your expectations that they're going to come down with volatility. But how do you see the credit side of the equation, and also the operational side of the equation on the risk-weighted assets, as you have got a little bit of a relief on the model in the 1Q from that side as well? Just to kind of give us a sense of the moving parts on the risk-weighted asset side as you see it.

David Mathers -- Chief Financial Officer

Magdalena, very good to speak to you. Thank you very much for the question. It seems a long time since March 18 and I'm very glad that I'm not on video today, so you can't see my haircut -- or lack of haircut should we say. Look, I think we wanted to be as clear and transparent as possible. I think if we looked at the CET1 ratio that we reported for the end of the first quarter of 12.1%, I mean, it was similar to what we guided to back on the 13th of February when we did our end -- year-end numbers, but obviously the components were notably different, because rather than CHF12 billion of SA-CCR and related impact, we only had CHF3 billion and yet you end up with the same number. And that does give you an idea of the inflation or the increase in RWA that we have seen from the volatility in March and how that actually flows through into some of our numbers.

The adverse CVA migrations you're actually seeing, and clearly, the drawdown on the corporate loan book, which actually does increase both RWA and result in a CECL provision in respect to that. Reality is, most of the RWA increase was actually due to that measure. There wasn't a great deal of discretionary business increases in the RWA, it was due to the market impact. And I mean, let's be clear, I mean I think you've seen very similar drops among the U.S. banks last week, and I'm not particularly surprised.

I think looking forward to the second quarter, I think it's worth remembering, as you know as -- better than I do, is that a lot of these metrics and changes are only averaged in during the whole of the quarter. So you've only seen some of the impact of that volatility within the RWA numbers you see now. And I would expect to see a significant increase in both CVA and market related -- market risk related RWA, as that actually flows through the time series.

I think drawdowns have pretty much come to a halt in the last week or so, but I think we are going to see migration impacts, as credit ratings and rating agencies catch up with the events of last month and start to make estimates of what we're going to see economic wise over the next quarter or so. So I think I have to warn you, I think we will see an increase in credit related RWA as a consequence of that. And then obviously you have the mathematical consequence of CHF3 billion of SA-CCR related. But essentially that would obviously take you down from 12.1 down to about 11.9, 12.0, So the rest as you might say, is an estimate, which I think will be partly offset by our own actions to actually reduce that, of that inflation in the first quarter. So I mean, I just would caution, generally in the past, we've been very precise around CET1 numbers. I think given the level of volatility around this process at this point, I think when I said around, I meant around and I think when I spoke at your conference, Magdalena, I said around 12%. I do mean around in that sense. So I think there is a degree of unpredictability here.

And I think quite clearly as well, we also do respect -- and it's very important to us, that we look out for our clients at this moment, and that's obviously led to some RWA increases in the first quarter. So we will see some consequence and that's another factor as to thinking. So I think around 11.5% is my broad guidance basically and I would probably expect to be at around 11.5% by the end of the second quarter, because by that point, you should see it fully phased in.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

That's very clear, David. And my second question is largely connected, because of course you've mentioned the kind of migration impacts, the credit migration impacts on the capital, but of course we're going to have it on the impairment side as well. So when you think about your kind of impairments and potential for months going forward. How should we think about the kind of billables there?

David Mathers -- Chief Financial Officer

Okay. And yeah, it has been a complex month, shall we say. The one point I just want to make clear too, Magdalena, is that -- I think I did refer to this middle of last year at some point, which is the capital deductions under the IRB approach for credit losses actually exceeds the the CECL effect. So therefore, the increase in CECL reserves that we took at the end of the first quarter, and indeed the transition at the end -- the 1st of January, did not have any meaningful CET1 deduction effect, and that will be the case, provided any further CECL increases that we see in the balance of this year and second quarter, I think is obviously the focus, do not do not exceed the IRB allowance. And that's an -- to be a little more helpful, there's a couple of hundred million left, before the CECL numbers would actually exceed IRB plus/minus. So that might be helpful to you, Magdalena, if you're thinking about CECL, which to me reminds me of an old-fashioned general provision. It isn't. It's a completely different accounting concept, but perhaps I'm filling my age [Phonetic].

Obviously, PCL is more specific, because that doesn't fall into that. So the PCL component, the extent we see an increase in specific provisions in the second quarter, as we see how this -- the economic effects of COVID-19 pans out, would be capital relevant. The CECL would not be provided, it doesn't exceed more than a couple of hundred million, at which point we would actually exceed the IRB calculation and then move forward. So I hope that's helpful Magdalena?

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Yes, thank you very much.

Operator

Thank you. And your next question comes from the line of Daniele Brupbacher, UBS. Please go ahead, your line is open.

Daniele Brupbacher -- UBS -- Analyst

Yeah. Good morning and thank you. I wanted to ask about the RoTE ambition which you disclosed that the Investor Day, and I think reiterated with Q4 results to 10%, how you think about that at this stage? Whether you are happy to reiterate that at this point? And then secondly, on the mid-March -- 19th of March, I think you -- I mean you gave us very helpful numbers and you talked about the first two months, if I now look at the PBT of CHF1.2 billion, strip out all funds, pre-tax profit was probably just around above CHF900 million. So how can I just link today's numbers versus what you said back then, I guess the big explanation is some of these risk costs and mark-to-market moves. But if I strip that out, was March still loss-making or what was sort of the picture in March? And then very lastly, more a strategic question, on the IB, I mean, assuming the world remains a challenging and somewhat volatile place, how you think about your IB franchises in that context, and in terms of resourcing headcount balance sheet usage? I mean it's obvious that it produces some volatility in the results. I mean, obviously the environment is extreme, but how you think about it, as being part of your overall portfolio that's -- what's the positioning in there? And just very lastly sorry, the CVA/DVA owned credit, I mean I see the CHF78 million benefit in the comp line on slide 46, but can you tell us what the impact was on the revenue side? Thank you.

Thomas Gottstein -- Chief Executive Officer

Okay. I will take the first and the third question and maybe David, you can take the second and the fourth question. So starting with RoTE, it's clear that this quarter's 13.1% benefited from a very low, actually negative tax rate. But as we said, if you adjusted to our new guidance, it's still 9% to 9.5%, but also if you take a bigger picture and if I refer you to page 35 actually, if you look over the last four quarters and you take the average, we are actually at or above the 10% and we had very high tax rates in 2Q, 3Q and 4Q. So I think on average it's now over those four quarters, 18%, which is not significantly below our guidance.

So I think we have proven actually over the last four quarters, that we have a franchise that can deliver something around 10%, and it's gotten very clear to me, that continues to be our target, at least in the midterm. But it's also clear that in the short term. Over the next, you know, two, three quarters with COVID-19 and the impact of it, the RoTE is going to be challenged, but it's still clearly our goal to be at or above 10%, because that's where we think in a normalized world, the cost of equity is of our business and we want to earn in excess of that.

Maybe I will hand over to David for the risk cost, then I will take IB franchise question and then the fourth question around on credit, back to David.

David Mathers -- Chief Financial Officer

Okay. I'm not going to give you an exact number for March, but perhaps putting myself in your shoes, perhaps, the way I think about this is, obviously Thomas and I said on 18th March, that our profit for the end of February exceeded the CHF106.2 million that we made in the whole of the first quarter 2019. So just setting that as a minimum basically, you take the CHF106.2 million, you drop out, as a starting point, you take our number of CHF102.1 million, and you deduct CHF268 million, you'd end up with a number ex invest lab of CHF933 million. So at the limit and obviously there was a degree of comfort, and what we said on March 18, you'd be talking about a loss between CHF106.2 million to CHF933 million, which I think is CHF129 million.

Now so -- if we then look at the various provisions we actually took, you really have got the mark to market move in the leverage finance book, which was CHF284 million that was taken entirely in March. If you look at the APAC CHF160 million, that was taken partially, perhaps mostly in March. And if you look at the CECL adjustments, the add-on to day two to component which we had given before, that was taken -- over CHF300 million, that was actually taken almost entirely in March as well. So I think you can see pre the reserve build, March would have been very substantially profitable, even allowing for -- I have not told you, which is the degree of buffer that Thomas and I had, when we actually made our statement on the 18th. Is that helpful, Daniele?

Daniele Brupbacher -- UBS -- Analyst

Exactly. That's exactly what I was looking for. Thanks.

Thomas Gottstein -- Chief Executive Officer

OK Daniel. So as we come to your question on Investment Banking, the way I look at our Investment Banking franchise globally, we obviously have sales and trading in global markets, but we also have sales and trading in APAC markets. And in addition to that, in IBCM, you have to really look at our investment banking capabilities also within APAC, Wealth Management and Connected, as well as in the SUB, Swiss Universal Bank. And if you look at page 13, you can actually see that we have had a very positive trend, both in fixed income sales and trading and equity sales and trading, which on this page actually includes APAC market. And if you look at advisory and underwriting, excluding mark-to-market losses, we are actually also on a positive trend. So just because we have some mark-to-market losses in our lev fin book doesn't really change my view on that.

And quite the opposite, if you look at the composition of our advisory and underwriting fees, revenues actually in the first quarter, we have been up compared to the first quarter '19 in each of debt capital markets, equity capital markets, M&A and fixed income derivatives and -- so that's the first point. The second point I want to make, I'm convinced that our strength of ultra high net worth clients and family offices can only be further strengthened, if we continue to provide Investment Banking type of additional services beyond what pure play private banks can offer, be it in the sales and trading environment, be it through advice related to M&A, IPOs or otherwise. So my conviction very much is that the differentiating factor from Credit Suisse to other private banks, is that we can actually offer these services. I hope that answers the question?

Daniele Brupbacher -- UBS -- Analyst

Yeah, absolutely. Thank you.

David Mathers -- Chief Financial Officer

Final question was actually on CVA and DVA basically, I think that was your fourth question. I don't have a complete answer to that question, but perhaps we should just look briefly at page 36 of the earnings release, which does give you some useful disclosure around the corporate center. So I think, if we actually look there, you can see that we saw losses of CHF279 million with respect to owned credit spread moves in the corporate centers. So that was there. But I think you should also know just clearly, is that this was largely offset by other gains that we actually saw in the period. So I don't think you should be working around adding that back in. You can see we had CHF179 million of fair value money market instrument gains. We had CHF94 million relating to the fair value option volatility on own debt. So I wouldn't encourage you to add that back, but I don't know if you'd seen that, but that is useful disclosure.

And just to clear up any other points, that is not related to the issue around structured notes which I discussed at length in previous quarters. Actually the hedge on the accretive portion, the structured notes actually worked almost perfectly in the first quarter, and there was almost nil impact from that at this point, and we've also extinguish part of that portfolio, in what was obviously a fairly extreme interest rate move basically. So it's something quite separate. So I think that's -- probably strictly speaking, most of the answer to your question, Daniele, basically, but please don't go back adding things up in that sense. I think there is gains and there is losses in this whole thing. And you're right, there is the DVA gain of CHF78 million relating to the credit spread widening on the compensation instruments, to which we award employees and I would expect that to reverse clearly in the course of 2020, as our credit spread narrows.

Daniele Brupbacher -- UBS -- Analyst

Thank you, very clear. Thank you.

Operator

Thank you. And your next question comes from the line of Andrew Coombs, Citigroup. Please go ahead, your line is open.

Andrew Coombs -- Citigroup -- Analyst

Good morning. If I could just follow up on some of the idiosyncratic loss numbers. I think you went into PCL in quite a lot of detail. But on the unrealized fair value mark, if I could start there, let's break it down to three parts; the unrealized fair value marks first; the U.S. banks obviously took similar -- some of the U.S. banks flagged potentially to look back in the second quarter, given subsequent credit spread movements. So I think if you could just elaborate on any thoughts there, on the impact in 2Q based on movements to-date. Second part would be, with regard to the asset management loss on seed money, CHF101 million a quarter, you said there is a risk of further losses here in your outlook statement. Is there any way you can help us frame the magnitude, the potential impact there, to how much of your -- on unrealized seed money, how much investment is there in place?

And then finally on Global Markets, in the revenues and the other items, there is a loss on a single name counterparty. Could you just elaborate on exactly what that relates to? Is it acting as a clearing member, or is that a credit exposure that you booked through there? Just if we can get a feel for whether that's potentially recurring as well. Thank you.

David Mathers -- Chief Financial Officer

Thank you very much, Andrew. So let's just take those three questions in turn. So if we look at -- I mean, probably page 23 is as useful as anything else, as an [Indecipherable] off of this. You have CHF284 million of leverage finance mark-to-market losses and you have CHF160 million relating to the AFG Financing Group. I think if you look at our slide deck, I think in the first page, I believe it was in the appendix. I actually also included the leverage finance exposure numbers, which I think we did give at the MS conference last last month. But just to give you an idea, essentially oil and gas exposure, it was CHF9.1 billion in the fourth quarter of '15, CHF7.7 billion now, of which CHF2.9 billion is non-investment grade, which I think is the most important component. Leveraged finance exposure was CHF11.7 billion at the end of the fourth quarter '15 down to CHF7.3 billion. So that gives some degree of background around this.

I think if we just go back to page 23 again basically, and then we just talk around those different components. Firstly, the leverage finance mark-to-market, these are underwriting commitments that we had come in in during the quarter. Now I think under -- these are fair value elected. So even though these deals have not yet financed in large part I would caution, we have to estimate at the end of March what the mark would have been, had they been finance at the end of March on a probability based metric, and essentially as the as the widening of high-yield credit spreads in the course of March had actually gone through flex and through the margin, you actually end up with a potential loss, in respect to those underwriting commitments.

Now, obviously as you rightly say, since the end of March, you've seen significant normalization of those spreads and the Federal Reserve Bank, as you know, has actually been buying some of these assets, which has clearly contribute to the that narrowing. So yes, there is clearly potential for that. These are unrealized losses, but I think just a word of caution, I think these deals are not yet closed, so they will close at some point in the next few months. So it will depend on what the credit spreads are at that point. And I think if markets continue to normalize, then you would expect to see recovery, at least in part of the NTM number, and if they weren't, then you wouldn't basically, Andrew, and I think it's a little bit dangerous to make forward-looking comments in the slightly stressed environment that we still see and just obviously just looking at what happened in the WTI market over the course of the last 72 hours.

Actually APAC mark-to-market is actually much simpler. We have a CHF4 billion portfolio of fair value elected financing positions there. Most of those have to be marked to proxies emerging market loans. Those are often very illiquid and somewhat distressed markets, but we mark against those. So not only we've actually seen defaults against them, it's just essentially, you see a mark-to-market effect. So you would expect to see that normalize, again, clearly subject to how these markets evolve and develop over the course of the next six months, and that's why I thought I want to be superclear about breaking that number out. So hopefully that answers those two points, in terms of that component reserve build.

I think on the Asset Management point I made before, there's about CHF100 million of impairments, of which around two-thirds relates either to seed money or to joint ventures or partners. As you know, our asset management business really oversimplifying a bit, consists of an equity and a loan fixed income and a real estate business, closely associated with our Wealth Management business, particularly here in Switzerland, and then the alternatives business in the United States. And this really relates to the seed money in the alternatives business. And it was expected that about two thirds wasn't just that, and just to be clear, just to be transparent, the other one-third was in respect to the 5% retention that in CLOs, you have to hold on the European rules, not U.S. rules which we also mark. So those are those two components.

I mean I think we're just being cautious. In terms of investments that asset management has, it's around about CHF2.4 billion, of which half is in external asset management and sort of about half basically is in these types of seed money investments. I think we'll need to see how these investments perform in the balance of the second quarter. But I think it was worth being explicit, because I think it's important to be transparent about these things, this is obviously a risk for the second quarter.

Final point then, in terms of the GM, other revenue number, there is not much I'm going to add. I mean essentially, the increase in the other revenue loss between the first quarter of 2019 and the first quarter of 2020 as I said is in respect of a single counterparty, and is clearly not something I've included in the reserve build. So that says something as well too. But it was a single counterparty, and obviously it was a distressed position, and we are marching appropriately.

Thomas Gottstein -- Chief Executive Officer

Just if I can add, on the lev fin book, we have observed the reversals in the first few days. While it's difficult obviously to predict the future in the current market, but the leverage loan index is 165 basis points tighter now compared to the end of March and the yields has reduced from 880 to 715 basis points. So clearly going the right direction, but it's very difficult to predict the future.

Andrew Coombs -- Citigroup -- Analyst

Very helpful. Thank you both.

Operator

Thank you. And your next question comes from the line of Stefan Stalmann, Autonomous. Please go ahead, your line is open.

Stefan Stalmann -- Autonomous -- Analyst

All right. Good morning, gentlemen. I have three questions please. In your CET1 capital waterfall, you have a negative -- roughly CHF600 million impact from what you call goodwill reversal. In fact you're deduction for goodwill now is higher than the goodwill that you carry on the balance sheet. Could you explain what happened there, please? The second point regarding your exposures, and I hope I haven't missed a previous question on this, but you have CHF7.7 billion oil and gas and you have CHF7.3 billion, leveraged finance is an overlap between those two exposure buckets, please, and how big, will that be? And the third question, inspired I guess by what we have seen from some American banks, do you book any significant funding valuation adjustments during the quarter? And if so, where will I find them please? Thank you.

David Mathers -- Chief Financial Officer

Thank you very much, Stefan. So let's just take those three questions in turn. I think just for the benefit of everybody, I think you're referring to page 43 of the earnings release and the CET1 walk across, where you see a reversal of goodwill and tangible assets of CHF618 million. That is in respect of the second phase of the InvestLab transfer, because there is a significant amount of intangible assets associated with that. Whilst that generates a gain under our equity and for that matter in a total equity base, that is not CET1 eligible. Therefore, we actually deduct it at this point. So that's what's actually driving it, in terms of the numbers. So you see a gain, but the second phase actually results in that intangible been deducted from CET1.

I think the second question I'd say straightforward. I don't think there's any particularly material overlap, actually probably no overlap between the leverage finance and the oil and gas exposure. So two separate numbers. Although it's a very good question, Stefan, but there isn't any. In terms of FVA or we tend to call it XVA because the number of different derivative adjustments. I think you note -- you should know obviously, that we did disclose, I think it was only IBCM page. So let me just get you that page number. I think it's actually on page 30, that we take net losses of CHF51 million for hedges on uncollateralized corporate derivative exposure. That is, I think, we'd call an XVA loss, because it relates to the derivative -- the funding components of this. That is the largest component. There is also a smaller component I think within the APAC business, but -- that's where it is. I'm afraid, I don't have the APAC number to mind, I'm afraid, but it was I think slightly less than the IBCM one.

Stefan Stalmann -- Autonomous -- Analyst

Very helpful. Thank you very much.

Operator

Thank you. And your next question comes from the line of Jernej Omahen, Goldman Sachs. Please go ahead, your line is open.

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah, good morning. Can you hear me well?

David Mathers -- Chief Financial Officer

We can hear you sir.

Jernej Omahen -- Goldman Sachs -- Analyst

OK, wonderful. I had some problems with the line before. So good morning from my side as well. Well done on the results, particularly in the Investment Bank. I have three questions please. So the first two are just sort of technical nature. The first question is on collateral management and your lombard loan book. David, can you please give us a sense what the change of total lombard loans and for the Group outstanding was during the first quarter of the year? And just to confirm, right, so if there is a recall of some of the lombard loans that comes toward the net new money outflow, if I'm not mistaken? And the second question I have on levered loans. So can you maybe just have the question -- if I may ask the question this way, what is the notional amount of leveraged loans that the mark that you've taken relates to? And then finally, I have a question more of a conceptual nature, and I think it falls into two parts. So the first question is, I think I understood from your presentation well, what you're not afraid of, as Credit Suisse Group, and what type of scenarios don't scare you and what type of scenarios you think are manageable? Thomas, I would like to ask you, what does scare you, at this point in time? And the reason why I ask this question, as I look at the pre-tax profitability, which is fine, it gets you underlying through, as you point out, an 8%, 9% ROE. On an annualized basis that's 40 basis points of leverage exposure, 120 basis points of risk-weighted assets. I mean, does it take much imagination if the current environment persists to see those profits disappear, and Credit Suisse starts loss making? Thanks.

David Mathers -- Chief Financial Officer

Let's just take those questions in order then. So I think on collateral and lombard loan exposure to mind I don't actually have an exact number on the lombard move quarter-on-quarter, maybe we can get that and give it to you later, Jernej [sic], but I'll refer to my IR colleagues on that. What I would say, is that was not to my knowledge at least, any material component of net new asset moves that we actually saw in the quarter. Obviously the biggest thing was, this transfer of a single, low margin ultra high net worth mandates from Credit Suisse to a different bank, which was the bulk of what you actually saw in SUB, and that was definitely not related in any way to a leverage loan.

I think we have seen some deleveraging as you'd expect and face these markets and if you actually look at the components of assets under management, it's up to about 32% cash now across all three of our private banking business. So there definitely has been some deleveraging as part of that. But that's all I'd say at this point.

I think your second question was on the leverage finance exposure. I'm not really going to add more to what I've said before. The marks that we've taken are in respect of the CHF7.3 billion book. Clearly, some of those positions will have a higher mark than others, but I'm not going to sort of break it down any further. I think you should just assume it's in respect to that entire book, basically.

I think your third question, perhaps I'd refer to Thomas in sense of what are we worried about?

Thomas Gottstein -- Chief Executive Officer

Before I get to the third question, I mean on the on the collateral management and the lombard loan question, the first one, I mean if you look also at our loans in the three private banking led divisions, you can see actually it increased in Switzerland, but it went down both [Indecipherable] and in APAC and that really is, as David said, a result of some deleveraging we saw there. But the same time a lot of our clients are now positioning themselves to reengage, as they see the lock downs in various countries, especially in Europe to ease and they are taking increasingly positive views on the market, obviously, in a cautious way.

That leads me to what scares me or first of all, I can say, I can sleep well and it's I think probably the -- the worst scenario would be, if we all went back to the offices too quickly, lockdowns to follow, some think we have a second wave of infections, and that will then result in prolonged crisis, and I think that will be bad for the economy, and indirectly then for us and capital markets generally. So that is certainly something that we all have to factor into our scenarios as well, but broadly seeing, I'm actually taking a lot of comfort of how we have managed at least so far through this crisis. If I look at our capital, if I look at our liquidity, if I look at our earnings growth in private banking, if I look at our ability in trading, be it equity or fixed income to navigate the markets, we have been very encouraged by that.

So I can assure you that we are very cautious. We are very aware of the overall slowdown in the economy. We expect, as it was mentioned also by David, a recession, not only in the U.S., but also in Europe and Switzerland. But I'm not losing any sleep. So thanks for asking.

Jernej Omahen -- Goldman Sachs -- Analyst

Thank you very much.

Operator

Thank you. And your next question comes from the line of Kian Abouhossein from JP Morgan. Please go ahead.

Kian Abouhossein -- JP Morgan -- Analyst

Yes, thanks for taking my question. The first question is regarding CECL. Can you just run us a little bit to how you forecast CCEL, in terms of how you do the modeling. And in that respect, I think I missed some of the assumptions. Could you just repeat and maybe add not just to the assumptions, I think you mentioned the U.S., but just the GDP and unemployment numbers for some of the key regions for 2020 as well as 2021, that you are assuming in CECL. And lastly on CECL, are you using a phased-in approach and if you do so, what would be the fully loaded impact on your CET1? The second question I have is, it was partially discussed, but if I look at your valuation, you're roughly at 0.5 times tangible book, and mainly, I would say it's because of your IB concerns by the market or the market concerns on the IB, not your concern clearly. I would try to understand how you square your view around why this is a good business in the long term, especially I assume and I estimate you can share that with us, you sell basically no credit products to your private banks. Why you need a credit business, considering post restructuring it again made losses, why you need a credit business i.e., the Investment Bank in light of Wealth Management business? And thirdly, if I may ask one more question, in respect to your capital ratio, at what level would you be uncomfortable doing a buyback?

David Mathers -- Chief Financial Officer

Perhaps if I take the first question and then hand over to Thomas really on the -- in terms of your question around the credit business I believe, and in the wholesale operations. I think the number of questions really about CECL; so I think, the approach that we take is similar -- the same as I understand that the U.S. banks take. We have a significant number of models, which we apply across our different businesses, both IB related and Wealth Management related. Those include a different range of inputs, which we actually probability weigh, in order to actually calculate the outturn.

In terms of the key assumptions, I think what I said was that, if we think about the U.S. then we are assuming a quarter-on-quarter reduction in excess of 20% for the second quarter. We are expecting something not dissimilar in the year, 27%, but a lower impact in Switzerland. In terms of unemployment in the U.S., we are assuming down double-digit, which I think is similar to what most U.S. banks are actually also assuming. And in terms of -- I mean, and clearly we expect all three of the economies I've just mentioned to be in recession for the whole of 2020, and we do not really expect to see recovery until the first quarter '21, i.e., positive GDP growth. So those are our set of assumptions that we made and I think those are probably the most -- the key ones to actually think about. Not the only ones, but the key ones basically, so hopefully that helps Kian?

Now in terms of the capital impact, as I said, in response to an earlier question. The capital reduction for CECL, we'd have no significant capital reduction for CECL, because we already did make a capital reduction in respect of the IRB capital model, which exceeds the CECL provision. So we already have a greater deduction, so therefore increasing the CECL does not therefore reduce capital. And as I said before, I think to be helpful, there's about another CHF200 million of buffer that CECL would have to increase by, before it exceeds the IRB buffer. And then at that point, you get into these interesting questions around phase and everything else, but that's just not relevant at this point. And hopefully, it does not become relevant in the future, in terms of capital reductions. So that's what I'd say to your technical question Kian, I think. Thomas?

Thomas Gottstein -- Chief Executive Officer

Please, go ahead Kian.

Kian Abouhossein -- JP Morgan -- Analyst

Apologies. Just on CECL, can you just highlight what assumptions you make for GDP and unemployment in 2021? Actually that's more interesting from my perspective at least? Should we just use consensus numbers on Bloomberg as a good indicator or are you different from that assumption?

David Mathers -- Chief Financial Officer

I think its not that different for -- I mean it's closely aligned to, but not quite the same as the house view we give externally. So we expect a 2% or 3% GDP growth in '21 across actually the U.S. and Swiss markets basically as we recover from that. I don't have the -- well, yeah, and I know we do expect to see U.S. unemployment reduce, but it's still going to be well above trend in our numbers in 2021.

Kian Abouhossein -- JP Morgan -- Analyst

And just on CECL, the CHF200 million is on a phased-in basis or fully loaded? The buffer?

David Mathers -- Chief Financial Officer

I think, we don't have a phase-in question at this point. I think we have -- we already have under the FINRA's IRB model, a capital reduction, which exceeds that from a CECL one. If CECL losses were to increase by CHF200 million that's some subsequent call it -- some subsequent quarter from the level they are now, than basically we would start see a capital reduction and then we'd be -- then I think that's when the phasing question actually kicks in. But it's not relevant at the moment, Kian.

Kian Abouhossein -- JP Morgan -- Analyst

Okay.

David Mathers -- Chief Financial Officer

Okay. So I think the way I think, we have a full deduction ready. There's no phase-in effect.

Thomas Gottstein -- Chief Executive Officer

Okay, so your other three questions on valuation on the credit business and the buyback. So first on valuation, I very much believe in the correlation between return on tangible equity and price to tangible book value, and I think there is a clear dislocation at the moment from where we are, against that line and where we are trading. So I think it's our task to deliver quarter-on-quarter, to get as close as possible to that line. At the moment, we are clearly way below our tangible book value, which is not a Credit Suisse idiosyncratic problem. I think most most banks suffer from the same, but we just have to prove quarter-over-quarter that we can deliver on our returns, and that's how we look at valuation.

Secondly on the credit business, I have to say that, don't quite understand your question, because our credit business is actually profitable. If I look in Global Markets, it has had actually an excellent quarter as part of our fixed income and this is even after absorbing their share of the unrealized markdowns. Now if you refer to more the lev fin business, clearly it was an extraordinarily difficult quarter, not only for us, but also for the U.S. banks that are mainly our competitors in that market. But over a mid to long-term cycle, we very much believe that private equity related business will continue to be a main driver of Investment Banking fees going forward. If you look at our CHF7 billion exposure in the context of our CHF300 billion loan book, I think it's a small exposure. We have significantly reduced it after the financial crisis. This was, I think from the peak, we went down 85%. So clearly lev fin had a bad quarter, but I think we are well positioned in that business and it is actually also, in many cases, relates also to M&A, for example, where we have a lot of clients now approaching us about public-to-private, with low valuations and you can only discuss that, if you also have people at the table that understand lev fin markets. And from that perspective, I'm actually very clear of the opinion, that it fits well with our overall strategy.

On the buyback, very clear, we have suspended it in March, and we are now observing the market. We are in the first instance, focused on the second part of the dividend -- of the 2019 dividends to be paid in the fourth quarter. Secondly, we are focused on paying a dividend for the year 2020, and then only in the third instance on the share buyback, so that's how I look at it. Thank you.

David Mathers -- Chief Financial Officer

And to your first question, sorry, Kian, I think the confusion or the point I have to clarify really comes down to IRB, their standard models. So the IRB model, as approved by the FINRA, is extremely conservative and that's why the capital reduction exceeds the CECL number. If we were operating under a standardized approach, as opposed to an IRB approach, then I understand what you mean at that point, because at that point, CECL would then be more closely aligned to capital, but we are operating on IRB, the approved model for that is very conservative, and that's why we have a buffer. So just to be clear, that's the core reason for the difference between Credit Suisse and any other CECL banks you've looked at.

Kian Abouhossein -- JP Morgan -- Analyst

Yes. Now, I get it. That's very clear. If I may, just very quickly...

Operator

Thank you. Your last question comes from the line of Jeremy Sigee, Exane. Please go ahead, your line is open.

Jeremy Sigee -- Exane -- Analyst

Thank you very much. Just three quick follow-ons. Firstly, just clarifying a comment that you made a moment ago, Thomas, you talked about the full year 2020 dividend. Did you say -- are you accruing a dividend in these 1Q numbers, that's my first question? Secondly, again a clarification, when you warned of further asset Management loss risks, would that require fold in the market level from today, or would it even be risk of losses, even at today's market levels? And then my third question is, do you see any loss risks around ETFs that you operate? For instance, I saw that you are closing a small oil ETF with a loss of client money, is there a risk divided on that or other ETFs that the bank loses money, or is subject to investigation risks? Thank you.

David Mathers -- Chief Financial Officer

Jeremy, could you just repeat the first question? At one point...

Thomas Gottstein -- Chief Executive Officer

Accruing 2020 dividend, was the question? The answer is yes, we are accruing not only the full dividend for '19, but also accruing for our '20 dividend, yes.

David Mathers -- Chief Financial Officer

And I think on the second question, in terms of AM losses. Yes, it's partly dependent on market levels, but it is an alternative to franchise. So you have a number of complex assets there, which are not directly linked to long equities. And I think that's -- I think we will have to assess that in the course of the second quarter. We're seeing obviously -- despite obviously the reduction in volatility since mid-March, there is still quite a lot of -- should we say unusual market events going on at this point and I think it's only appropriate to warn that there is risk exposure there I think. Jeremy. Was there a third question, Jeremy, or no?

Jeremy Sigee -- Exane -- Analyst

Yeah. ETFs.

David Mathers -- Chief Financial Officer

Oh ETFs.

Jeremy Sigee -- Exane -- Analyst

You're closing on oil ETF?

David Mathers -- Chief Financial Officer

Nothing, we wouldn't expect anything material Jeremy.

Jeremy Sigee -- Exane -- Analyst

Thank you.

Kinner Lakhani -- Head of Group Strategy and Development

Thank you. I think we'll leave it here. Many thanks to all for your time this morning, and if you have any further questions, please feel free to follow-up with the IR team. Thank you.

Operator

[Operator Closing Remarks]

Duration: 103 minutes

Call participants:

Kinner Lakhani -- Head of Group Strategy and Development

Thomas Gottstein -- Chief Executive Officer

David Mathers -- Chief Financial Officer

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Andrew Coombs -- Citigroup -- Analyst

Stefan Stalmann -- Autonomous -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Kian Abouhossein -- JP Morgan -- Analyst

Jeremy Sigee -- Exane -- Analyst

More CS analysis

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Credit Suisse Group AG (CS) Q1 2020 Earnings Call Transcript | The Motley Fool (2024)

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