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Derivatives and hedging activities

6 Months Ended

Jun. 30, 2023

Derivatives and hedging activities

20 Derivatives and hedging activities

> Refer to “Note 32 – Derivatives and hedging activities” in VIII – Consolidated financial statements – Credit Suisse (Bank) in the Credit Suisse Annual Report 2022 for further information.

Fair value of derivative instruments

The tables below present gross derivative replacement values by type of contract and balance sheet location and whether the derivative is used for trading purposes or in a qualifying hedging relationship. Notional amounts have also been provided as an indication of the volume of derivative activity within the Bank.

Information on bifurcated embedded derivatives has not been included in these tables. Under US GAAP, the Bank elected to account for substantially all financial instruments with an embedded derivative that is not considered clearly and closely related to the host contract at fair value.

> Refer to “Note 23 – Financial instruments” for further information.

Fair value of derivative instruments

		Trading						Hedging					1
end of 6M23		Notional amount		Positive replacement value (PRV)		Negative replacement value (NRV)		Notional amount		Positive replacement value (PRV)		Negative replacement value (NRV)
Derivative instruments (CHF billion)
Forwards and forward rate agreements		2,196.6		0.1		0.1		0.0		0.0		0.0
Swaps		7,405.9		19.9		18.8		129.8		0.1		1.7
Options bought and sold (OTC)		554.2		6.4		6.7		0.0		0.0		0.0
Futures		142.1		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		0.8		0.0		0.0		0.0		0.0		0.0
Interest rate products		10,299.6		26.4		25.6		129.8		0.1		1.7
Forwards		389.3		3.9		4.0		27.5		0.1		0.0
Swaps		318.3		10.0		10.8		0.0		0.0		0.0
Options bought and sold (OTC)		105.0		2.0		2.0		0.0		0.0		0.0
Futures		3.0		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		1.7		0.0		0.0		0.0		0.0		0.0
Foreign exchange products		817.3		15.9		16.8		27.5		0.1		0.0
Forwards		0.1		0.0		0.0		0.0		0.0		0.0
Swaps		17.6		0.9		0.4		0.0		0.0		0.0
Options bought and sold (OTC)		145.5		5.4		7.9		0.0		0.0		0.0
Futures		13.6		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		373.7		16.3		15.4		0.0		0.0		0.0
Equity/index-related products		550.5		22.6		23.7		0.0		0.0		0.0
Credit derivatives 2		260.7		2.1		2.7		0.0		0.0		0.0
Forwards		5.0		0.1		0.1		0.0		0.0		0.0
Swaps		6.7		0.6		0.3		0.0		0.0		0.0
Options bought and sold (OTC)		7.0		0.1		0.1		0.0		0.0		0.0
Futures		3.1		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		2.9		0.1		0.0		0.0		0.0		0.0
Other products 3		24.7		0.9		0.5		0.0		0.0		0.0
Total derivative instruments		11,952.8		67.9		69.3		157.3		0.2		1.7
The notional amount, PRV and NRV (trading and hedging) was CHF 12,110.1 billion, CHF 68.1 billion and CHF 71.0 billion, respectively, as of June 30, 2023.
1 Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2 Primarily credit default swaps.
3 Primarily precious metals, commodity and energy products.

Fair value of derivative instruments (continued)

		Trading						Hedging					1
end of 2022		Notional amount		Positive replacement value (PRV)		Negative replacement value (NRV)		Notional amount		Positive replacement value (PRV)		Negative replacement value (NRV)
Derivative instruments (CHF billion)
Forwards and forward rate agreements		2,088.2		1.7		1.7		0.0		0.0		0.0
Swaps		9,140.3		24.3		21.7		130.1		0.1		1.8
Options bought and sold (OTC)		644.4		8.2		8.6		0.0		0.0		0.0
Futures		144.9		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		35.9		0.0		0.0		0.0		0.0		0.0
Interest rate products		12,053.7		34.2		32.0		130.1		0.1		1.8
Forwards		701.4		8.7		10.0		17.7		0.1		0.2
Swaps		353.5		14.3		13.5		0.0		0.0		0.0
Options bought and sold (OTC)		167.5		2.5		2.7		0.0		0.0		0.0
Futures		4.1		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		2.8		0.0		0.0		0.0		0.0		0.0
Foreign exchange products		1,229.3		25.5		26.2		17.7		0.1		0.2
Forwards		0.3		0.0		0.0		0.0		0.0		0.0
Swaps		22.8		0.9		0.7		0.0		0.0		0.0
Options bought and sold (OTC)		181.4		5.2		7.5		0.0		0.0		0.0
Futures		42.0		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		469.3		18.9		18.5		0.0		0.0		0.0
Equity/index-related products		715.8		25.0		26.7		0.0		0.0		0.0
Credit derivatives 2		352.0		3.2		3.4		0.0		0.0		0.0
Forwards		6.9		0.1		0.1		0.0		0.0		0.0
Swaps		9.5		0.7		0.4		0.0		0.0		0.0
Options bought and sold (OTC)		8.8		0.1		0.1		0.0		0.0		0.0
Futures		12.6		0.0		0.0		0.0		0.0		0.0
Options bought and sold (exchange-traded)		2.7		0.1		0.0		0.0		0.0		0.0
Other products 3		40.5		1.0		0.6		0.0		0.0		0.0
Total derivative instruments		14,391.3		88.9		88.9		147.8		0.2		2.0
The notional amount, PRV and NRV (trading and hedging) was CHF 14,539.1 billion, CHF 89.1 billion and CHF 90.9 billion, respectively, as of December 31, 2022.
1 Relates to derivative contracts that qualify for hedge accounting under US GAAP.
2 Primarily credit default swaps.
3 Primarily precious metals, commodity and energy products.

Netting of derivative instruments

> Refer to “Derivatives” in Note 17 – Offsetting of financial assets and financial liabilities for further information on the netting of derivative instruments.

Gains or (losses) on fair value hedges

in		6M23		6M22
Interest rate products (CHF million)
Hedged items 1		392		2,508
Derivatives designated as hedging instruments 1		(400)		(2,370)
The accrued interest on fair value hedges is recorded in net interest income and is excluded from this table.
1 Included in net interest income.

Hedged items in fair value hedges

		6M23						2022
		Hedged items						Hedged items
end of		Carrying amount		Hedging adjustments	1	Discontinued hedges	2	Carrying amount		Hedging adjustments	1	Discontinued hedges	2
Assets (CHF billion)
Investment securities		0.9		(0.1)		0.0		0.8		(0.1)		0.0
Net loans		35.7		(0.1)		(1.8)		29.0		(1.3)		(0.7)
Liabilities (CHF billion)
Long-term debt		68.4		(0.5)		(4.5)		72.0		(1.0)		(4.4)
1 Relates to the cumulative amount of fair value hedging adjustments included in the carrying amount.
2 Relates to the cumulative amount of fair value hedging adjustments remaining for any hedged items for which hedge accounting has been discontinued.

Cash flow hedges

in		6M23		6M22
Interest rate products (CHF million)
Gains/(losses) recognized in AOCI on derivatives		342		(821)
Gains/(losses) reclassified from AOCI into interest and dividend income		104		177

Foreign exchange products (CHF million)
Gains/(losses) recognized in AOCI on derivatives		17		(50)
Total other operating expenses		(10)		(22)
Gains/(losses) reclassified from AOCI into income		(10)		(22)

As of the end of 6M23, the maximum length of time over which the Bank hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was 12 months.

The net loss associated with cash flow hedges expected to be reclassified from accumulated other comprehensive income (AOCI) within the next 12 months is CHF 515 million.

Net investment hedges

in		6M23		6M22
Foreign exchange products (CHF million)
Gains/(losses) recognized in the cumulative translation adjustments section of AOCI		(81)		(57)
Gains/(losses) reclassified from the cumulative translation adjustments section of AOCI into other revenues		4		0

The Bank includes all derivative instruments not included in hedge accounting relationships in its trading activities.

> Refer to “Note 6 – Trading revenues” for gains and losses on trading activities by product type.

Disclosures relating to contingent credit risk

Certain of the Bank’s derivative instruments contain provisions that require the maintenance of contractually specified credit ratings from each of the major credit rating agencies. If the ratings fall below the level specified in the contract, the counterparties to the agreement could request payment of additional collateral on those derivative instruments that are in a net liability position. Certain of the derivative contracts also provide for termination of the contract, generally upon a downgrade of the contractually specified credit ratings. Such derivative contracts are reflected at close-out costs.

The following table provides the Bank’s current net exposure from contingent credit risk relating to derivative contracts with bilateral counterparties and SPEs that include credit support agreements, the related collateral posted and the additional collateral that could be called by counterparties in the event of a one-, two-, or three-notch downgrade in the contractually specified credit ratings. The table also includes derivative contracts with contingent credit risk features without credit support agreements that have accelerated termination event conditions. The current net exposure for derivative contracts with bilateral counterparties and contracts with accelerated termination event conditions is the aggregate fair value of derivative instruments that were in a net liability position. For SPEs, the current net exposure is the contractual amount that is used to determine the collateral payable in the event of a downgrade. The contractual amount could include both the NRV and a percentage of the notional value of the derivative.

Contingent credit risk

		6M23								2022
end of		Bilateral counterparties		Special purpose entities		Accelerated terminations		Total		Bilateral counterparties		Special purpose entities		Accelerated terminations		Total
Contingent credit risk (CHF billion)
Current net exposure		1.1		0.1		0.0		1.2		1.2		0.1		0.1		1.4
Collateral posted		0.9		0.1		–		1.0		1.0		0.1		–		1.1
Impact of a one-notch downgrade event		0.3		0.0		0.0		0.3		0.4		0.0		0.1		0.5
Impact of a two-notch downgrade event		0.4		0.0		0.0		0.4		0.5		0.1		0.2		0.8
Impact of a three-notch downgrade event		0.5		0.1		0.0		0.6		0.5		0.1		0.2		0.8
The impact of a downgrade event reflects the amount of additional collateral required for bilateral counterparties and special purpose entities and the amount of additional termination expenses for accelerated terminations, respectively.

Credit derivatives

> Refer to “Note 32 – Derivatives and hedging activities” in VIII – Consolidated financial statements – Credit Suisse (Bank) in the Credit Suisse Annual Report 2022 for further information on credit derivatives.

Credit protection sold/purchased

The following tables do not include all credit derivatives and differ from the credit derivatives in the “Fair value of derivative instruments” tables. This is due to the exclusion of certain credit derivative instruments under US GAAP, which defines a credit derivative as a derivative instrument (a) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (b) that exposes the seller to potential loss from credit risk-related events specified in the contract.

Total return swaps (TRS) of CHF 3.2 billion and CHF 5.9 billion as of the end of 6M23 and 2022 were also excluded because a TRS does not expose the seller to potential loss from credit risk-related events specified in the contract. A TRS only provides protection against a loss in asset value and not against additional amounts as a result of specific credit events.

Credit protection sold/purchased

		6M23										2022
end of		Credit protection sold		Credit protection purchased	1	Net credit protection (sold)/ purchased		Other protection purchased		Fair value of credit protection sold		Credit protection sold		Credit protection purchased	1	Net credit protection (sold)/ purchased		Other protection purchased		Fair value of credit protection sold
Single-name instruments (CHF billion)
Investment grade 2		(37.7)		34.2		(3.5)		6.7		0.1		(52.8)		48.6		(4.2)		10.6		0.2
Non-investment grade		(14.5)		12.6		(1.9)		3.4		(0.1)		(22.3)		20.7		(1.6)		4.9		(0.2)
Total single-name instruments		(52.2)		46.8		(5.4)		10.1		0.0		(75.1)		69.3		(5.8)		15.5		0.0
of which sovereign		(11.8)		10.3		(1.5)		3.0		(0.1)		(12.8)		11.3		(1.5)		4.4		(0.1)
of which non-sovereign		(40.4)		36.5		(3.9)		7.1		0.1		(62.3)		58.0		(4.3)		11.1		0.1
Multi-name instruments (CHF billion)
Investment grade 2		(54.0)		51.9		(2.1)		3.2		0.2		(54.3)		50.8		(3.5)		8.9		0.1
Non-investment grade		(18.0)		16.9		(1.1)		3.5	3	(0.5)		(30.9)		28.4		(2.5)		9.5	3	(0.6)
Total multi-name instruments		(72.0)		68.8		(3.2)		6.7		(0.3)		(85.2)		79.2		(6.0)		18.4		(0.5)
of which non-sovereign		(72.0)		68.8		(3.2)		6.7		(0.3)		(85.2)		79.2		(6.0)		18.4		(0.5)
Total instruments (CHF billion)
Investment grade 2		(91.7)		86.1		(5.6)		9.9		0.3		(107.1)		99.4		(7.7)		19.5		0.3
Non-investment grade		(32.5)		29.5		(3.0)		6.9		(0.6)		(53.2)		49.1		(4.1)		14.4		(0.8)
Total instruments		(124.2)		115.6		(8.6)		16.8		(0.3)		(160.3)		148.5		(11.8)		33.9		(0.5)
of which sovereign		(11.8)		10.3		(1.5)		3.0		(0.1)		(12.8)		11.3		(1.5)		4.4		(0.1)
of which non-sovereign		(112.4)		105.3		(7.1)		13.8		(0.2)		(147.5)		137.2		(10.3)		29.5		(0.4)
1 Represents credit protection purchased with identical underlyings and recoveries.
2 Based on internal ratings of BBB and above.
3 Includes synthetic securitized loan portfolios.

The following table reconciles the notional amount of credit derivatives included in the table “Fair value of derivative instruments” to the table “Credit protection sold/purchased”.

Credit derivatives

end of		6M23		2022
Credit derivatives (CHF billion)
Credit protection sold		124.2		160.3
Credit protection purchased		115.6		148.5
Other protection purchased		16.8		33.9
Other instruments 1		4.1		9.3
Total credit derivatives		260.7		352.0
1 Consists of total return swaps and other derivative instruments.

The segregation of the future payments by maturity range and underlying risk gives an indication of the current status of the potential for performance under the derivative contracts.

Maturity of credit protection sold

end of		Maturity less than 1 year		Maturity between 1 to 5 years		Maturity greater than 5 years		Total
6M23 (CHF billion)
Single-name instruments		10.3		39.4		2.5		52.2
Multi-name instruments		5.6		60.5		5.9		72.0
Total instruments		15.9		99.9		8.4		124.2
2022 (CHF billion)
Single-name instruments		10.0		61.8		3.3		75.1
Multi-name instruments		6.5		71.5		7.2		85.2
Total instruments		16.5		133.3		10.5		160.3

X

- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-URI https://asc.fasb.org/topic&trid=2229140

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 50
-Paragraph 5
-Subparagraph (f)
-URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008

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