At Credit Suisse, RWAs leap over Sfr5 billion

Credit RWAs grew 4% due to a combination of model, accounting and regulatory changes

Credit Suisse’s credit risk-weighted assets jumped Sfr8.2 billion ($8 billion) in the first three months of the year.

The adoption of a new accounting standard for leases accounted for Sfr3.2 billion of the increase. Changes to models used to calculate residential real estate exposures, and the migration of certain other loans to the standardised approach, added Sfr2.1 billion to credit RWAs. Movements in risk levels and foreign exchange added another Sfr2.8 billion. 

In total, credit RWAs stood at Sfr203.1 billion at end-March, up from Sfr194.9 billion at end-December – a 4% rise.

The bank said it expects an additional Sfr6–7 billion of RWA increases over the year because of the phase-in of new exposure calculations ushered in by Finma, the Swiss regulator.  

The rise in credit RWAs was partially offset by a dip in market and operational RWAs compared to the previous quarter.

Market RWAs dropped Sfr2.1 billion (12%) to Sfr16.5 billion, while op RWAs fell Sfr565 million (1%) to Sfr70.5 billion. The bank said lower risk levels and internal model and parameter updates contributed to the decrease.

Credit Suisse’s total RWAs stood at Sfr290.1 billion, up Sfr5.5 billion (2%) from end-2018 and Sfr19.1 billion (7%) on the year-ago quarter.

The bank’s Common Equity Tier 1 capital increased quarter-on-quarter, to Sfr36.6 billion from Sfr35.8 billion, helping to maintain its CET1 capital ratio at 12.6%.

Who said what

“We did not see any benefit from model changes in the first quarter numbers. We saw Sfr2.1 billion relating to model and parameter updates in relating to the calibration of RWAs from Finma rules. In terms of the full-year outlook, I would expect that to be somewhere between Sfr6–7 billion, depending on the final calibration, and we'll see that relatively evenly spread over the remaining three quarters” – David Mathers, chief financial officer at Credit Suisse.

What is it?

In March 2015, Finma introduced a 1.6x multiplier on sub-investment grade corporate exposures for regulatory capital calculation purposes. The phase-in of the multiplier began during the second quarter of 2015 and became fully loaded as of Q1 2019.

As a result of the implementation, Credit Suisse reported a Sfr6.9 billion increase in credit RWAs in 2018.

Why it matters

Credit Suisse is targeting a CET1 capital ratio range of 12.25–12.75%. All else being equal, an increase in RWAs in line with the CFO's Sfr6–7 billion projection would bring the bank’s capital ratio down to just above the lower end of this range.

However, as Swiss rival UBS has found, estimating the RWA effects of calculation and model changes is a tricky business. A larger-than-expected increase could force Credit Suisse to pare back its capital distributions, find ways to cut RWAs elsewhere, or bolster CET1 capital in order to meet its target.

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