Q1 2021 UBS Group AG Earnings Presentation

[music].

Ladies and gentlemen, good morning, welcome to the first quarter 2021 results presentation. The conference must not be recorded for publication of broadcast you can read yourself for questions at any time the press star one on your telephone should you need operator assistance. Please press.

Star Zero at this time, it's my pleasure to hand over to Mr. Martin of Zynga UBS Investor Relations. Please go ahead Sir.

Good morning, and welcome everyone.

As usual I will draw your attention to our cautionary statement slide at the back of today's results presentation.

Please also refer to our SEC filings, including the risk factors in our 2020 annual reports.

Okay.

On slide two you can see our agenda for today, it's now my pleasure to hand over to Ralph Commerce Group CEO. Thank you Martin and good morning, everyone and welcome to the first quarter of results.

I Hope you and your families remain safe and healthy.

Well, we had all of last update call three months ago, We said that our first priority coming into 2021 will be to build on our momentum by remaining laser focused on all of our clients.

And as you can see by our results in the first quarter. We did just that current activity was high across the businesses.

The continued to draw of the clients really continue to draw on our Oh, that's for trusted advice and relevant solutions.

This resulted in record of invested assets in wealth and asset management record loan balances from transaction based revenues of wealth management.

But before I go into the results for the quarter I'd like to first to cover a syncretic situation that took place in the second half of March.

The default of of prime brokerage clients.

The two incurring a 774 million.

Dollar trading loss.

And the net profit impact for the quarter was for the $34 million.

We subsequently risk manage the tail of the exposure and closed all remaining positions in April.

Which has led to a 87 million trading loss in the second quarter.

Oh.

We're clearly disappointed by this and we're taking very very seriously.

One of the reasons that UBS is the balance sheet for all seasons as to handle unforeseen events.

Although this is not the kind of event, we ever want to have.

The buffer served us our clients.

Also.

For them, because we were able to continue with our plan of without program and our growth.

Providing credit of execution, while it's true it up on nothing but also through this event.

And in the first quarter of this year. Despite this loss.

We further increased our CET, one capital ratio to 14% and that's the true testimony to the strength of our franchise and the results in the first quarter.

The earnings power on the original on business diversification of this is the first vacation photo of adds to that the resilience in the first quarter. We made of return for CET, one capital of 18% and then the investment bank, but also the investment bank produced a double digit return on attributed equity even after this loss.

Yeah.

Hey speaking for the management team of myself, while we can't say that there will ever be an unexpected loss as risk is part of our business. We can assure you that we'll be transparent about mistakes well fix them, we'll learn from them.

Yeah.

Yeah.

The organization came together quickly to risk manage this challenging situation in a very constructive way, but equally there are lessons to learn from this we're reviewing our prime brokerage relationships have already improved some of our risk controls at the same time.

Brokerage remains strategically important for UBS for our clients and there's also for the investment bank.

But we're also open to dialogue with regulators on potential changes that could improve the market transparency around some of these businesses.

So.

Lessons being drawn lessons learned being implemented as we speak now with that that's continued for a review of what we do best which is serving our clients around the world.

I'm now turning to the next slide.

The backdrop of this first quarter was one of great.

The investor optimism improved economic indicators are the constructive market sentiment.

With long term dollar interest rates of their historical lows momentum shifted for from growth to value stocks.

On fixed income assets came under pressure as you've all seen.

We advise our clients how best to position their portfolio for that environment.

True if that sort of sloshes financing the underwriting execution with strong results, which you can all see on this slide.

Right here, we saw strong net asset flows across our businesses and institutional segment low or negative rates continued to drive demand for alternative and emerging markets. We also continue to capitalize on our position as the leader across the global frontier of sustainable investing.

Our wealth management clients remained active with record transaction revenues fee generating assets and loan balances in the quarter as you can see here as well.

And on the Swiss sides of the Swiss economy is holding up quite well on the phase of the continued COVID-19 measures.

With the robust loan and deposit growth in our Swiss business. The persistent negative rate environment means personal claims are increasingly using our we've asked for a platform to invest excess deposits.

For return and Meanwhile, corporate of institutions are taking advantage of the positive funding environment or helping them to do so equity kept the MX had one of its best quarters on record.

Turning to the to the next slide.

Here you can see the you know investors of truly at the core of our DNA. Our investment ecosystem is a cornerstone of our strategy and I will explain you more of it when I give you our strategy update.

You see the adjusted assets growing our year on year by 33% here are the separately. The separate managed accounts initiative that we launched between wealth and asset management last year continue to also this quarter to attract assets.

I think it is a textbook example of what we can achieve for our clients and shareholders well, we work together to deliver the best of UBS to work lines.

It's the great springboard to build out of our customized offerings as well demand for sustainable products continues to be high.

That trend continues.

Our flagship as I men at attracting a lot of 5 billion of inflows in the quarter. Some of this is driven by my way that's of our easy to use more of on personalized the discretionary mandate offering at this quarter. We successfully launched our this product outside of the switch out of outside of Switzerland as well.

We aim to scale it quickly and asset management, the sustainable strategies for once again of driving force behind the very strong net new money quarter, attracting 8 billion of net inflows just in that category.

Now this continued momentum with clients combined with the positive market backdrop is as I said resulted in the financial results as you can see on slide six.

Operating income growth of 10 per cent, a broad based across regions across divisions.

And that drove an 18% return on CET one capital.

We strengthened our balance sheet, the increased our capital ratios and repurchased $1 $1 billion of shares.

And these results again demonstrate the strength of our franchise I sort of refreshing our strategy to unlock UBS full potential.

But before I go to my strategy, let me over to Kurt who will give you some more details on our performance in this quarter Kurt over to you.

Thank you Ralph and good morning, everyone.

Net profit for the quarter was 1.8 billion translating into a 18.2% return on CET one capital.

And 14% return on tangible equity.

PBT of 2.3 billion was up 14% driven by two percentage points of operating leverage our cost to income ratio was 74%.

The updated macroeconomic factors would of been formed an incremental 92 million stage, one and two release and credit loss expenses or an aggregate 208 million over the last three quarters, we deemed any release of premature and applied of management overlay.

Both revenues and costs all saw FX related increases of around 150 to 200 million compared with a year ago, although on a net basis the positive effect with small at below $30 million for P. T.

Turning to expenses as we've said many times before under operating income growth scenarios, we aim to manage the flat costs, excluding variable compensation and larger one time items in order to drive positive operating leverage yeah.

Year over year first quarter operating expenses, excluding variable compensation and FX were flat.

Looking out over 2020, one we expect to see our full year of course, excluding variable NFA compensation restructuring and litigation up around 1%.

Adjusted for currency movements, and excluding any potential investments related to our strategy refresh.

We entered 2021 with the higher run rate cost base than we had originally planned due to the pandemic.

As economies continue to open we expect to book restructuring expenses of around $300 million in the second quarter of 2021.

I would also like the flag that for this year, we would expect our retained loss and group functions to reduce to around 150 million per quarter and absent any accounting and one time items.

We'll refer their decline in future years.

Moving to our businesses GW on recorded pre tax profit growth in every region.

With APAC and the Americas, reaching new highs in both nearing half of 1 billion P. V T. The diligent execution on the plans, Tom and eat ball set out earlier last year are an important driver of these results.

P B T increased 16% to 1.4 billion.

Driven by transaction activity and loan growth and as fee generating assets of new metric I'll explain in a moment grew with market performance and on strong net new volumes.

Revenues grew 7% year on year expenses were up 3% mainly related to the topline growth and G. Wm's cost to income ratio decreased by 1.4 percentage points.

We had another quarter of high net new loan volume at over 10 billion, mainly in Lombard loans with most of the growth in the Americas and APAC, reflecting continued client demand.

We have achieved substantial loan growth over the last share while maintaining the quality of our portfolio.

Yeah.

It's just mentioned we have introduced new net new fee generating assets of new performance measure for GW on this quarter.

We see this as a better indicator of future profitability, the net new money as it captures changes in assets with more of a direct impact on gws recurring revenues as well as contributing to transaction revenues. We are no longer reporting net new money for global wealth management on a quarterly review, but.

You will still be able to find the full year of flows in our annual report.

Compared with net new money net new fee generating assets exclude flows related to assets that from trading or new issuance predominantly generate transaction based fees in the form of commissions and transaction spreads also unlike net new money net new fee generating assets exclude deposit.

Flows that generate net interest income.

This new Kpis captures net flows related to mandates investment funds hedge funds and private markets of investments and include dividend and interest payments and the mandates.

The underlying assets and products generate 90% of global wealth managements recurring fees and 30% of its transaction based income.

Moving to income.

Net interest income was down slightly in line with the guidance of around 1 billion. We gave back in January is the impact of lower U S. Dollar rates continued to taper and we benefited from ongoing loan growth sequentially. It would've been roughly flat, excluding the lower day count effect for.

For the second quarter, we anticipate a slight increase of net interest income sequentially with positive lending net interest income combined with the absence of further interest rate headwinds quarter on quarter.

Recurring fees grew 8% driven by higher average fee generating assets.

Sequentially recurring fees were up 7% supported by 36 billion and net new fee generating assets transaction based income rose, 6% even against the strong first quarter 'twenty 'twenty.

The Americas delivered higher transaction revenues in APAC reached a new record as clients engaged with our advisors on new and existing content solutions and C. I O offerings in markets that provided a constructive backdrop.

Our gross margin from fee generating assets was 86 basis points decreasing by four basis points compared with the first quarter of 2020, primarily driven by flows and the mandates and funds with lower fees, including single share class funds in the U S without <unk> one fees.

S and sustainable investment mandates with less exposure to hedge funds.

Sequentially the fee generating asset margin increased by four basis points, primarily reflecting higher transaction activity and mandates.

PBT for P&C increased by 11% to 358 million Swiss francs.

The operating income was up 9%, reflecting a credit loss release versus of credit loss expense a year ago, along with the revaluation in our investment in fixed group.

NII came down on lower deposit revenues related to dollar interest rate headwinds on our corporate and institutional clients.

But also reflecting continued drag from negative Swiss franc and euro rates.

Sequentially, we have now largely absorbed the impact of lower U S dollar rates.

Transaction based income was down mainly on around 20 million lower income from credit card and foreign exchange transactions as a result of reduced travel and leisure span abroad by clients due to COVID-19.

Partly offsetting these two recurring net fees reached a new high this quarter, primarily on higher custody mandate and fund piece.

As part of our continued focus the digitize, our Swiss Universal Bank, and recognizing accelerated preferences of our clients to access our services through digital channels, we announced that we would close 40 for smaller branches in the first quarter after having already closed around 30 branches last year.

Real of course real estate costs, there for elevated in Q1 due to accelerated depreciation.

This combined contributed to the 8% rise in operating expenses as did higher investments in technology.

We will ensure that our clients remain well served with continued enhancements and broader access to our leading digital channels and other improvements on a remote services.

Asset management delivered its eighth consecutive.

Quarter of year on year PBT growth.

First quarter of PBT was up 45% to $227 million the highest Q1 level since 2008.

A M delivered 9% positive operating leverage driving our cost to income ratio down five percentage points to 64%.

Performance fees increased 56 million to 92 million, mainly driven by our hedge fund businesses, partly offset by a reduction in equities.

Net management fees were up 14% as we benefited from the combination of higher market levels and continued strong net new run rate fees, which are in excess of 200 million over last year.

We had inflows of 26 billion driven by positive contribution across all regions channels and asset classes and invested assets rose to over 1.1 trillion.

Asset management separately managed accounts initiative with the global wealth management saw inflows of 8 billion in the quarter or a total of 70 billion since the start of our program and our SMA ranking rose from number of 11 two years ago to number four in the U S at year end 2020.

The I B delivered PBT of $412 million down 42%.

As Ralph mentioned this includes a 774 million loss relating to the U S base Prime brokerage client, which the IV was able to fully absorb instill reported 13% return on attributed equity.

It would've been a record PBT quarter without this event with returns above 30%.

Global markets revenues decreased by 27%. The main driver was the prime brokerage loss, excluding that we would have posted an 11% increase year on year, driven by higher equity derivatives and cash equities revenues.

This was partly offset by lower revenues from rates and foreign exchange products and the more normalized market conditions compared with the prior year, where we saw substantial volatility related to.

To the COVID-19 pandemic.

Global banking was up 48% with the significant increase in equity capital markets until the Lex lesser extent in advisory.

The had hundreds of 774 percentage increase in E. C. M was helped by record spec IPO issuance in the U S market and an increase in follow on issuance in APAC.

Operating expenses increased by 7% larger group largely driven by higher personnel expenses, mainly reflected increased head count and foreign currency translation effects on an FX neutral basis operating expenses for the IV were up 3%.

Our capital requirements remain unchanged at 9.66% and 3.3 75 per cent for our CET, one capital and leverage ratios respectively. During.

During the quarter, we increased our CET, one capital ratio of 14% and our see tier one leverage ratio to 3.89%.

We completed 1.1 billion of buybacks year to date and will resume repurchases shortly.

On that note I would like to hand back to Ralph Thank you Kurt.

So you just heard about our first quarter results.

Which continue our strong momentum from 2020.

It speaks to the solid position that we're in as we start on the next phase of our journey.

When I first joined UBS I said that the first thing we should do.

Is to articulate our purpose and map out our strategic journey and in January we walk you through some of that and some of the initial focus areas that other than kind of detect it.

It's clear that we already of unique position, our global scope and business model means that we can take advantage of current trends and opportunities.

And it all starts with purpose our purpose.

Our purpose will unite all of UBS behind the common goal or purpose will give us direction to our path forward.

It will help us build on our current strength it will support our momentum for growth.

I also think that purpose can help us guide and difficult and volatile situations.

And when teams are United and aligned on the <unk>.

One purpose and strategy.

So much more that we can achieve.

So what is our purpose that will guide us going forward.

Re imagining the power of the vesting connecting people for a better world.

Now and I'm sure you are you've heard it from other players.

Purpose is I will never be a slogan.

It's not something we're saying to make ourselves feel good but it is something that will help us develop our business.

It's been designed to allow us to capture the opportunity that we see to grow our already strong position it will guide us.

And if we do it well it will guide people to us.

Well re imagine by.

The developing but the development of of solutions are the change how people look at financing of investing will show that the power of the vesting can support once life, but it is by buying a house or growing the company.

The acquiring a company.

The seeking capital supporting future financial Gulf.

That's the power of investing.

And we'll connect people, both internally and externally to convene an ecosystem and we're truly unique at that I think at UBS.

To bring ideas and opportunities together to make a difference and to create value for our clients, but also for society at large and and that's we're helping to build a better world comes in.

By thinking sustainably and creating opportunities that we Jews water then contribute to inequalities.

And we have and the ability to make real impact here.

The other sustainability.

Is at the core of our purpose.

We have been of the.

One of the pioneering institutions in our industry when it comes to standardize on the topic of sustainability.

We're not slowing down.

The opposite of.

I just want their investments to deliver both financial returns and have positive impact, it's why our portfolio of sustainable finance parties as one of the fastest growing.

Areas of this for.

All of our strategies to focus on planet people. The partnership in the last week, we announced our net zero ambitions for the group as well as our commitment to address wealth inequality by sharpening our film for the philanthropy.

And the employee engagement.

Around topics like health and education that are going at the route.

Of any fighting inequality.

Both of the southern tougher environmental standards for ourselves.

Also for the parties that want to deal with us for promising to deliver of detailed roadmap to net zero with science based targets setting ambitious targets for sustainability in helping clients transition to a low carbon world.

As soon the Hartford head of asset management will be the group Executive Board member.

Sponsoring the elite firm wide in sustainability.

The sustainability targets are also now part of each and every a GAAP number of Skippy I said and all of this together with the things we're already doing means that we'll be better positioned to grow our strong leads.

The other side you know our purpose will guide as it will guide us on how we serve clients before for example, and we've built the strategy around that because all of our clients expectations are changing they used to being part of a global network of being able to connect with others whenever from wherever.

And they're used to being offered solutions before the even know the need them.

And they expect that from us too.

That's why we're also making of promise to our clients today, we excel at delivering unique insights and analysis that of forms how our clients invest for the future.

Our thought leadership is the core of what we do is what we're known for its what clients come to us.

However, we need to improve on how we deliver our ideas and content to our clients.

And we will of course consistently deliver a client experience, where our products and services are.

The personalized as our client needs.

And there are as relevant which basically means we don't offer solutions.

That doesn't the don't suit their needs.

And they have to come on time, not too early and not too late.

And when they elect to go for the solution, we should be able to execute on that one intuitively and seamlessly.

That's what makes all of our client promise and I am convinced that we can differentiate ourselves from our peers on this one as well just like all of our thought leadership.

We will improve.

The show that we are for them that adapt to clients' lives rather than that we expect clients to adapt to how we organize.

Okay.

So we have the purpose and we have the promise and the question is what is the big picture what what are we going for what does all of our vision.

We want to convene the global ecosystem for investing where it's easy for our clients to get connected with the people on the deals that can make their goals happen.

And right now we're good at managing client relationships and providing solutions.

But we're much bigger than one person or one solution.

When clients are able to access all of UBS through a single client interface get of differentiated personalized experience on.

Connected to other areas of the firm as well as all the people who have similar goals.

That's why we are a dollar of best.

That's what we can deliver of UBS has this unique opportunity to bring these people together in the ecosystem.

And we've already done that from our own organization perspective, you know we have already kind of worked on our global capital markets activities for all we have are created one global lending unit.

So that all of our clients can now have access to into the institutional services.

And did they have a broader and deeper expertise available to them on.

And on the back of that we sold of lending volume growing but 26 billion.

And in transaction revenue increased by 20%.

So basically through this clients discover the opportunities and realize the these opportunities that didn't even though.

The existed.

We can build that network.

Even if the solution does not come from us, but from the contributor to our network.

Third party.

That's what we're trying to build.

No.

If we want to be successful of that we need to be clear of how we're doing this and how it connects or a purpose.

And the vision and the virtuous circle the I create.

And therefore, we have identified five strategic imperatives that will actually help us to take advantage of decline trends the growth of that mix that we see building, our strengths and overcome challenges and create space for us to grow.

And they are the following.

First of all it is all around being focused on clients contributors to the ecosystem of connections within the ecosystem.

The second one is about focusing where we can win where can we truly make a difference.

Where are we so strong.

That we can benefit from the growth in other area and be a really good competitor.

The third one is about technology of moving from technology is in the neighborhood to technology as a differentiator.

The fourth of it is all about.

Can we be more simple can we be more efficient and how can we use the resources that come available through the sufficiency and simplification drive to support the growth in the areas that we can see if they make the returns that we want to make.

On the fifth one very important in any strategic program is culture.

As we know culture eats strategy for breakfast now I'll take you through all of these so the first one clients connections of contributors of you see the slide here.

And here you see basically the virtuous circle that I'm talking about this this is the flywheel. The U that we already have in motion, but that we can actually start up and speed.

So we are selling our thought leadership and advise and through our client promise, we will continue to be the leading customize investment and financing solution provider to our wealth clients.

They're very satisfied with that but we can do better.

And the more clients, we get the more liquidity comes through our system and the more skilled can we build in the execution of.

Of all of that and that's where the investment bank benefits the have the liquidity. They can create the scale and you know the liquidity attracts liquidity.

And the self is already a virtuous circle.

And then more of liquidity.

And scale and execution of attracts new players to the same ecosystem, who want to have access to those services and to our clients.

So with that we can actually attract contributors to the system, but we have to ensure that we.

Curate those contributors in a way to protect and guard the integrity of the quality of what we offer to our clients.

And all of that will generate per.

Profit that we can use to invest to grow and built on thought leadership and advice and grow our client base and that's how the flywheel goes that's the idea that's what we want to keep putting in motion. The second one is around focus then for.

From a focus perspective, we have looked very closely as at the end of life trends in wealth accumulation in the world and if you take that and you take a step back you see basically the following trends you see the trend and the biggest wealth pools that are already there, which is the U S and the Asia Pacific.

They're already of the biggest golf balls.

And they will grow the fastest as well.

We are uniquely positioned to benefit from it. So we will have to focus on dose.

But within dose.

Some underlying trends.

It will grow faster than the others as well for example, that's coronary of wealth is growing faster than any other wealth or <unk>.

Women controlled wealth is growing one of the Halftimes facet of men controlled wealth as a trend that we see and that we should work on ESG is of trends underlying as well that we should work on as well.

All of his clients basically you know the client base that has up to $5 million with US is a trend where we expect further growth of fast growth. Those are the unique opportunities that we will focus on that's where you can expect our resources to go.

The third one is about technology and I'm sure you had expected this want to be part of our strategy going for it.

Because technology is ever so important what we've done really well here with UBS over the last couple of years is building a real sound.

Base for technology of real Foundation.

But in that way technology.

It's still an enabler for us to do the business that we need to do.

But we see that our clients just like yourself in day to day of lives.

They see their client experience the aerospace improves through technology as well not just the predictability of it not the stability of a lot of the availability of it but the true experience of it.

Think about how you interact with Netflix think about how you interact with Spotify services you use every day.

And you do it without even thinking about it.

And you got a recommendation.

Are you actually seeing as relevant to you on personalized and you click on it and it was right. There you can listen to the music or you can watch the series.

Now if we can make our content available in that way.

We can differentiate ourselves of clearly the content has to be good.

So it all plan will actually make technology. The first step on how we deliver on improved client experience.

We will digitalize when we can.

It will become more we have to become more agile on the way we work.

We will have to deliver fast the speed to market and will enable better maintenance of resources and madness resources more efficiently.

As well.

So today, we announced.

The two things the first one is that as part of all of this in order to create.

Of joint capability of products and operations, we are moving the corporate center operations.

Into the business divisions.

That's step one.

That's the pre requisite to build capabilities that as a whole can be available to our client base. It is also a prerequisite to start working agile from.

Front to back which is how we will look at our client journeys are going forward on come back to that.

The second announcement that we made today in this field is that.

If we truly want to see technology as a differentiator.

We need to have a person on the board that knows technology very well.

And with that you know, we're happy that my dog and will be the head of Chief digital and information office.

And he will he will basically he will come to the board and support the <unk>.

Port and making this work.

That gets me to the next imperative, which is all about simplification of inefficiency.

And as I said, you know by bringing the operations closer to our client facing teams and the products will break down the barriers to collaborate on and be more effective there.

We will simplify decision, making will allow bushes to be planned on the integrated manner.

With the business areas.

So in that way, it's very much in the alignment with our fourth imperative.

Here, we're just simplification, but also efficiency.

This is where we will streamline and standardize so that we can reinvest in our future with about 1 billion.

Of our cost savings per year.

By 2023.

How we will do that first of all take a closer look at the way our business is being set up we need to rethink our governance are the organizational structure to see how the best support.

Some of the plans for the future.

How can we ensure that our employees can spend more time with our clients and less time internally with some of the some of the processes that we have in place.

Second will have to optimize our processes and everything we do aiming to deliver a seamless client experience.

So that we can truly fulfill the promise that I was just talking about well have to do that front to back starting with the client understanding into the probably the area of into the operational area into technology and creating these agile team agile teams to.

The proof continuously with the small steps.

Now the third area of of this imperative is all about the discipline that we need in order to ensure that if we have too many policies that we can join policies and that we can reduce some of the of the bureaucracy that comes with with with having many policies or legal entities. If we don't use legal entities anymore.

Or are we can actually do the same activity from a from an owner of a legal entity can we reduce the legal entities. It's also about the discipline about cleaning up the product shelf. If properties are not in use anymore well, we don't have scale on the specific probably the anymore or it is a product that that is separate to new compliance.

Requirements, then we better migrate clients to the next best offering.

Reducing the number of properties and actually with that also reducing our legacy and with that reducing compliance risks as well. It's all about the discipline of that as well now the last one of the set is all about culture and we have a very strong culture here at UBS that is very very omnipresent.

But we can build on that strong culture.

And as I said, we are moving the D.

The the business of lines operations for the divisions.

So that we can actually build these product capabilities, but there's product capability should be available for each and every client segment. So we have to be more client centric.

Independent of the divisional structures.

Also looking at the Kpis in order to support that.

Yeah.

We have to be faster to adapt as a set of what's already talking about agile. So I covered that most of that a and b more idea of where you rented and embrace disruption.

Yeah.

And.

Although we already have a strong experienced diligence and uncommitted risk team.

Risk, Indiana has to come from all employees as risk managers.

And therefore, we have to be vigilant about the rest of the risks that are.

At the horizon that can be spotted in societal trends can be spotted and regulatory trends, but making sure that we're ahead of the strengths.

And that we already adapt and adjust in order to reflect some of that's coming at us.

Another area, where we have to be more at risk of whereas in changing things, making sure that we do realize that would ever change there is a bit of an increase in risk.

Make the analysis and accept the Michigan's in or before you actually make the change.

Making sure that we guard our control of assignment wildly change.

And is the third one of that has proven is really well again and just for a in this our first quarter is a part of our risk focus is and will be.

Maintaining the balance sheet for all seasons, so the our service to our clients.

Is not interrupted by defense that's important now.

To close all of this I'll remind you the purpose that's our true North star that will drive future deliverables and on and you can see and you will see that will manage consistently after that purpose.

We're deepening our client relationships will grow them for investing in attractive growth markets and focusing on those pools of wealth that are already large for skill, but there are also growing the fastest in the market in the world and also the underlying trends.

We'll focus on levering up technology, the focus on becoming more efficient.

Proving operating leverage.

And will enhance our strong culture as well as our accountability.

And we remain committed to deliver to you.

No.

I do realize that you know.

This is a strategic framework with a purpose of vision of the client promise and in five and Paradise.

And that you may still have questions as to what do you do about this and do about that and I can tell you that.

With the strong momentum that we have and with the focus that we want to keep on all of our clients.

We are not changing everything at the same time, but.

But we are developing plans for other areas as well.

If and when these plans are finalized we will come to you to update you all of you on it.

And with our 2021 full year results will provide the strategic update.

Including the financial targets.

Yeah.

Thank you for this and let's open the floor for questions.

We will now begin the question and answer session for analysts and investors participants are requested to use on the handsets well asking the question anyone who has a question the press star one at this time.

The first question is from Jeremy <unk> from Exane. Please go ahead.

Good morning, Thank you.

Two questions. Please one is about gross in prime brokerage and kind of what it means going forward and the other was about the corporate center. So the first one I was just wondering how you think about prime brokerage. After this incident on the one the hands you could have an opportunity to take market share of credit Suisse withdrawals, you could say at the moment, but on.

The other hand, I'm sensing that you're also doing this with a bit more caution than before so I'm. Just wondering if you could sort of talk about how you balance those thoughts post I'll kick off school for prime brokerage.

And then the second question was to just ask for a bit more detail on your plans for the corporate center, which sounds very promising.

What is allowing you to reduce the drag of 250 million of quarter. This year.

Where do you see that drag next year and will you allocate all of it to the division so the in future you'll be on a sort of zero corporate Simpson.

Okay I'll take the first question and Curtis the for the second one so Jeremy thanks.

As such you know, we're disappointed by what happened and.

We are seriously reviewing the relationships both on the prime brokerage side as well as on the G. F O site on the way we go about this business.

Having said that we do see and do think that this was a an unusual case, a pretty idea of socratic and it's and one that provided for a high risk given.

Concentrated positions that the market was not fully aware of.

So to come from this one and then kind of come to of Gellar conclusion around this business I. The thing is wise for.

For two reasons first the prime brokerage businesses of strategic to US has been it's been a good business to us.

The it's important for our franchise.

On the prime brokerage capabilities are also crucial to built a to build the relationships with some of the family offices.

But again you know you'll have to look at it client relationship bike line relationship situation, but situation transaction by transaction and that's the way we will go about it.

Kurt.

Yes. Thank you Ralph Jeremy just to address group functions for in terms of where we are so I guided that I expect us to believe be below $150 million and then continue to see that come down over the next couple of years and.

Clearly have line of sight to get that nicely below a $100 million in a couple of years and then we'll see where we go beyond that now what is allowing us to actually achieve that reduction firstly NCL of shrinking and it's coming down considerably.

Secondly, if you look within the service side, we've largely built out most of our Reg entities from a regulatory perspective, we were holding those costs thirdly, our D T a asset and its funding cost is lower than it was and then finally, we are finding ways just to improve our treasury efficiency and those will all be the drivers.

Going forward to continue to bring that down.

And do you and do you plan to fully allocated to the divisions of sort of like some of the U S banks, you'll have a zero corporate center.

Yeah, I think our intent is over time to get that as close to zero as possible. When we fully sunset N C. L. I think they'll always be some pluses and minuses and then just as a reminder, there is some some accounting noise in asymmetry that there's always going to be absorbed that we want to keep away from the business divisions.

Okay. Thank you very much.

The next question is from Alastair Ryan from Bank of America. Please go ahead.

Yeah. Thank you good morning, so a little bit on okay gas plays.

You say, it's idiosyncratic book.

UBS has been here before.

I'll be revenue as Dan 12 costs of seven.

Zurich writes the check when New York blows up and.

It's not clear from any of the risk disclosures the orange hat.

The 50 pages in the unreported, where I could have found this risk so of UBS talks of law.

Being low risk it hopes to get of multiple for being the low risk institution.

$900 million.

It's an extraordinary figure I mean, its higher than your credit losses and for the whole of a very severe year now for.

On page 90 of the annual report on.

On the risk management control principles for.

Strength suppose protection of the financial strength fine, but it looks like this.

He is on the wrong side of for reveal is of all for the other protection of reputation business management accountability.

No mention of that independent controls and the evidence in risk disclosure I'm clearly not sorry can.

Can you give us a sense of how serious the says what the consequences of betting.

Why the market should look through $900 million.

From a single name in the Sony Idiosyncrasy, because he's the only one of the.

The blow from the cool through many of its intrinsic to the business on the risk management.

Has been found one thing relative to some payers of like clear.

The notice as part of this credit Suisse. Thank you.

Well, thank you Alastair.

As of Sept, you know.

I can hear does this appointment in your in your speech.

Before the question was asked and I know in the sense for disappoint.

We are disappointed as well.

And that's why we are doing a detailed review of the relationships of the individual relationships specifically on both sides of prime brokers or G. F O relationships as well as the processes of the risk management processes surrounding all of this you know and that's that's the that's what we're currently doing so.

We are taking it seriously and you kind of expected from us.

Having said that if you look at the situation and look at the buildup of a highly concentrated position across many different players.

It was ideas syncretic from the perspective that this was not the market event. It was an event to a specific case with highly concentrated positions now again, you know it should've been detected I understand that it's not the point that I'm trying to make Ah, but that's also why we're justice.

Disappointed as you saw on as well so thank you.

The next question is from Magdalena for clothes that from Morgan Stanley. Please go ahead.

Thank you very much and good morning, I've got two I've got two questions one on.

It's been about the checkers from slightly different perspective on another one on on costs.

So I'll ask for now and the reviews stop on that.

And the kind of industry look back at what went wrong on that where do you like to the site, particularly in the U S and you're having this a VIX.

The conversation what comes out from the perspective of the potential changes to the regulations to the disclosure that may.

That may come through pulse and pulse based event and all of the stuff you know how has your conversation with a kind of switched the regulated on about it and kind of gotten. So this is my first question and my second question is really about the cost.

So on and of course cost also within the day kind of strategic what's the kind of sudden update without the strategic kind of on a framework that you have just communicated I'm kind of kind of use of its like a for as a.

Isn't it the type of framework because you know what it is kind of explains to lots of what's happened in once you and that's fine you know I never had an issue with the kind of variable costs. The when did they come with the.

The trials when you look at the on the fixed cost base. So your cost base, excluding the variable side and when you think about kind of potential changes, particularly from the perspective of technology from the perspective of the automation simplification do you think that medium term that's called the base.

Actually to be attacked in absolute terms I E is the.

A is there an argument could be made the debt cost base could actually go down but also within the context of of course of yoga for your ambitions.

Very much.

Hey, Mike.

Cautious for the first one.

You know that we don't comment on on our interactions with the regulators are the key.

Here you know we are in daily contact with our regulators across the globe on on these matters are big or small and it's also on this one I think the if I may summarize it in one word it is the call for transparency.

On this one that is the big learning and that we are basically looking at to either increase with our clients in the bilateral way.

Or where are you know regulatory requirements.

Could or should come in and on your second point.

I actually do think that if if you would keep all things equal.

There would be scope to reduce your cost if you keep all things equal.

Having said that as you know we have a brand out there.

That can grow to an exclusive price for wealth and asset management.

That is already known for it specifically in the market set of mentioned.

And these markets provide for growth opportunities so.

If we were not to go after growth.

And we would only look at cost then the programs that we have started to get to the 1 billion.

Although the annual basis would actually be programs too that would decrease the cost base.

Then if we wouldn't go after the opportunities that we see in the areas, where we see the growth the fastest and again you know this is not about okay. We have the 1 billion. If we can generated as a savings of less spend it is not about that.

Also on where we want to spend it on where we want to support the business, we will be really focused and that's why they come together in this presentation. So there's about we do see the opportunity.

To save cost.

We do see the opportunity there.

Focused way to grow and again Ah if we feel that that growth does not make the returns.

We demand.

We will not spend the then we will not support that business. So that is what you kind of rely on.

Thanks very much.

The next question is from Kian <unk> from J P. Morgan. Please go ahead.

Yeah. Thanks for taking my questions two questions. The first one coming back to strategy.

It sounds like you're quite happy with the businesses and geographies that you're operating in and I'm. Just wondering can you talk a little bit first of all is there anything that you're unhappy with in terms of business geographies.

The mix and in that context, and the areas that you feel are subscale are either on geography or on business that you need to have you in the future of more strategically.

And the.

The second question is related to Akshay goes again.

I cannot understand fully is that you're losing roughly the same amount of Morgan Stanley richest claiming to be one of the top of prime broker actually I think they said that they believed it was the number one player and you must be relatively small in terms of underlying exposure.

And it takes you into the second quarter to take all of the hits and you have the same amount of losses against.

The smaller underlying exposure.

So can you explain that to me because you're probably making the analysis against your peers.

And secondly can you explain to me how much of <unk> business you have overall in terms of exposure.

How much of that is family office.

And lastly.

Why is it was not the decision to unwind the position.

By Friday I E.

As for example of one of the PSS that Goldman and Morgan Stanley more or less were done on Friday on Sunday.

Thanks, Ken.

We're not disclosing the specific exposures on all of these sub segments.

And I cant go into the event itself a kendo Italia that we are a top five player in the prime broker business. So it is not like we have come from a different position than some of our peers.

So that is that is that is not the kind of the comparison you can make a back to your first question.

I think there is always places where you are not sufficient the happy regardless by the way of the geography or the Oh, the business line or the the capability that we are managing them.

For start of snow and it may be very clear of that.

And for also from this presentation that the.

The wealth and asset management business are really important businesses to us.

Having said that there was certainly the areas, where we feel that we can generate the scale of.

That will lead to of decisions like we took on Austria.

And and some of the the businesses that need more local scale.

We will find difficult to really scale up and and improving profitability certainly if if they are in geographies, where the growth is also not coming true. So so that should give you a hint of than the other one is around for example, the the investment bank, where we actually think.

In terms of the capabilities that we need for that in order to build our wealth business.

Or what kind of rightsize on the clarity you know we can always.

Improve but it is certainly the business that we want to manage in a very capital efficient manner of a way as you know.

And on and needs to needs improvement all the time needs alignment all the time, but that goes for all businesses as well.

So.

And again, you know there will always be areas, where we're not happy of where we need to improve them. So we see scope for improvement across our scale will be a factor.

Factor in all of our businesses, whether it is wealth and which we are of the globally. The number one and we still have a scale are the challenges in some of the of if some of the areas that we feel we can improve on Oh and if not then the then the asset there's no strategic so it's it's all over the place and and.

I really think you should never rest on.

The laurels, even if the business is strategic.

And May I just ask on.

Regulatory impact on Archie growth should we think as some of your peer has done.

On that they could be counterparty and op risk weighted at this rate risk weighted asset add ons of capital add on.

In any form in related in relation to Archie golf and just coming back one more question Akshay, but why.

Why would you lose the same amount of money as the play of that claims to be number one two at the glass in terms of underlying exposure.

Yeah.

I won't comment Ah you have exposure and you have collateral are you have positions that may be different you may have margins that may have been different going into the situation.

So I can't really draw a comparison there on your first one of it.

Regarding capital.

On this clearly you know we are discussing with the with the with regulators as of Sept. In Oh, We I can't give you anything more I can just tell you that even in this quarter. We have further improved our capital situation through a C. T. One of the 14% and that shows the strength and with that I'll share kind of the the confidence there.

We have and being able to to built and also to what are some of the challenges if they make them of law.

I would just add that theres been no such add on at present, but as Ralph said, we don't know what's to come and I would reemphasize that our current capital requirement is 9.66 per cent.

Thank you very much.

Yeah.

The next question is from Nicholas Tan from Kepler. Please go ahead.

Yes. Good morning, Thanks for taking my question I have three.

The first line quick flow up on the capital requirements are the on the hockey was do you can you update us perhaps on the the risk weighted assets I think that's where the inflation that you expect for the next couple of years and the.

The second one is really on the on the on your it budget, we've a huge sites of the COVID-19 crisis and the.

In light of your new.

The strategy framework.

Do you expect your <unk> to be revised.

Our ports most poorly and the last question is on the sustainability, which seems to be a big focus now.

In your discussion with clients are they willing and ready to accept a lower profitability for bits of assisting them on the thank you very much.

Could you repeat the last question please.

Yeah on sustainability. She went when you discuss with clients about just the enabled mandates are are they ready to accept a lower return on their investments for a better fitted.

It's just to enable the mandates for instance.

Ah Okay. So.

The last one.

To the extent.

And it really depends on what they're looking for so some really go for impact in specific areas and then they may actually accept a lower return orders of reform to have a real good combination and we see the sustainable investing does not necessarily mean lower returns. So so from that perspective, it really depends on the client and <unk>.

Line wishes and the impact he or she wants to have through the <unk> through the investment portfolio now on your second question on the I T.

Honestly.

And.

The maybe a bit of uptick.

Generally you know will go with you noted the 10 percentage rule of revenue that we look for on.

On the I T side, and I think that with that budget in dollars Theres a lot. We can do and you should realize that we're going to manage our at our I T investments much more strict at the top level on a quarterly basis. So what we're going to put in place here is that each and every.

Project that needs a change per chat whether it is I T change of business change. The so we call. It that we reviewed at the top level that we crowd the ones out of don't make the right returns not in comparison on competition with somebody else all of it with some of the other ones and clearly the compliance of the regulatory ones always go force.

No the the.

You can't really look at of return there, but beyond that everything that has to do with the business will have to.

Meet return hurdles and with that we will crowd out some of the projects that would otherwise receive purchase because we take it we manage this beyond the business divisions. That's also why Mike joins the GAAP then thirdly on that one we actually think that we can further improve in the productivity of our technology.

E professionals and are really loving them up as we say it and use the atom bank the improvement of that productivity in order to do more so we're.

We're not planning.

A big budget increase in order to support some of this it is really about being very strict as to how you manage it.

The being a managing it.

Across the business divisions for all of them within the business divisions in terms of the allocation doing it on a quarterly basis, the leveling up the the technology from a professional perspective, sue so that we can improve the productivity.

Maybe Nicolas in terms of your first question we have.

Around the residual six to 7 billion of increases due to Reg model updates that we're making through the rest of this year before we absorb the full impact of Basel III Finalization of we've guided before that that estimated impact of somewhere between 20 to 30 billion the continue to refine that.

And that is of course, given there's still some uncertainty around F. R. T V rules and in addition to a couple of areas, where FINMA has discretion, we expect that discretion to be clarified as we go through the rest of this year and then finally, we still believe we have an opportunity to look to optimize so that we bring that impact down and we'll update you on.

As we have clarification on all of those points.

Thank you very much.

Okay.

The next question is from Tom how net from K B. The how would you. Please go ahead.

Hi, good morning, guys.

Just the just a couple for me Randy could you just elaborate on the restructuring expenses to be taken in the second quarter.

Not specifically relate to it sounds like you'll reinvesting all of those gross benefits last night.

Obvious benefit from the outlay on investing in the restructuring plan.

And then secondly on the on strategy I'm, just curious as to why.

Net financial targets disclosed all of that went beyond until the end of the year. Thank you.

Well I'll answer the first one clearly you know if if.

We're doing well we have for national targets out there.

We are reviewing some of the activities still for which we need to update you and therefore, we have stopped concluded on everything in there for I don't think this is the moment to come up with a with new financial targets, but we we are Ah working to comply.

And on an address and fulfill the targets as we have given and we do expect to perform this year towards the more positive end of these ranges that we have given.

So that's what I can say and.

Tom just on your on your first one the the the restructuring of around $300 million, it's broad base of across the group and across geographies also just to clarify on you heard this from Ralph very importantly, the 1 billion. We indicated we were only reinvest that if we actually see growth opportunities that more than hurdle.

Otherwise of that would be an opportunity to reduce our costs of so just to be very very clear about that and as we've guided before the the real intent is to maintain our costs are around flattish grow the top line and deliver positive operating leverage.

Okay.

Thanks, guys.

Yeah.

The next question is from Jon Peace from Credit Suisse. Please go ahead.

Yes. Thank you I'm sorry, so just to follow on firstly on the comments on financial targets.

Should we expect.

A reform of some of the Big group targets like return on C. T. One which may be of not looking ambitious and also at the moment or will it be a roll forward of some of the more divisional targets for pretax profit gross and buybacks et cetera, or a combination and then my second question. Please is on the new measure of.

Net new fee, earning assets and how would that compare to the net you asset sales for the last year or two when prospectively would you expect it to be slightly higher because you're now including.

Some of the the dividend flows thanks.

Okay.

And in terms of the the financial targets overall on it.

It would be inappropriate for us to comment what they might be because we still have to go through the work and so Meanwhile, as we've said, we we keep our current targets intact for this year and we tend to operate at the at the positive end of those targets.

In terms of fee generating assets overall, just mathematically what is excluded there are the positive flows and also on other client inflows that really don't have an impact.

On our recurring revenue and principally and includes large stock inflows and so in general on most quarters you'd actually see a higher net new money number than what you would feed generating asset number, but having said that the the composition is different.

The I'll just point out a fact on for example on the fee generating asset basis, net new fee generating assets. The Americas would have been positive over the last five quarters, but that would not have been the case on a net new money and so you do see that there there are some some differences overall in terms of regional patterns in and also the comps.

<unk> overall.

Great. Thank you.

Yeah.

The next question is from Andrew Coombs from Citi. Please go ahead.

Hi, Good morning, a couple of follow ups on the off at all from the investment Bank.

Lastly, I haven't seen anything, but perhaps you can confirm whether it's been not has eight of them.

Both of them proceedings, Oh, they have for credit Suisse I haven't seen anything get yourselves, but perhaps you can confirm that.

Secondly, when you talk about risk management on the.

Prime brokerage business in the future can you just elaborate a bit more of that about the steps youre, taking the fixed on the any show on variation margin.

On the leverage amount on equity swaps and perhaps you can just clarify a bit more of that on and then finally.

Have you retained your guidance.

Guidance all of all the leverage exposure of even the investment bank are being around 33% of the group.

Obviously credit Suisse come from an absolute target right proportion of group target amount back to an absolute cap of target.

What are your expectations do you expect to maintain that 33% and.

And if the study given that you are expecting the go the Greek Greg where do you see the growth coming from in investment banking.

So in terms of the.

First question there there is no current enforcement proceedings from FINMA is as we've already said, though we can't judge what they might likely do in the future.

In terms of your second questions overall, clearly the key lessons learned from this particular event.

Is all around the concentration concentration in the specific overall exposures synthetic concentration combined with the lack of transparency. So the that the changes overall on the learnings and what we will incorporate into an already are incorporating into some some changes.

Or on a rig processes is specifically to address the those topics.

In terms of our R. W. A an allergy guidance. The one third of group of doesn't change and purposely I won't indicate exactly where I would expect the investment bank to deploy that because they are very dynamic. They will continue to deploy that in terms of where they see the opportunities in the market and where they can generate the best returns overall.

All of them.

And importantly, where they can best support our wealth management business.

Yeah.

The next question is from Jeremy on mine from Goldman Sachs. Please go ahead.

Yeah, good morning from my side of them.

Thank you for these comprehensive call I guess at what gets lost on calls like this is the is the bottom line result, and I just wanted to say well done on the.

14%.

Stated return on tangible equity after all day.

Various heats from your businesses now decided even of icon.

Deviate from what seems to be the theme of the school.

Can I just ask one last question.

On a on the FINMA response, you have confirmed that the FINMA hasn't all of the any enforcement actions so far.

Can I, just ask because FINMA requested any risk reducing measures.

At this point so that's the simple yes on though then the second question I have when it comes to these argued goes was it carried within UBS as an institutional client in your equities operation Oh is it carried as a as part of your PWM operations I as a family office.

And then the last question I have is on U S rates.

Which I suspect of the featured more prominently in normal times, you've commented that.

The effect of lower U S rates has been absorbed can you just confirm what you think the sensitivity to higher U S dollar bond yields.

Is and what is the time lag between bond yields moving higher and higher reported revenue number. Thank you very much.

So first of all of our thank you for the the first comment and I agree that that often you lose context here and the fact is we did deliver a very strong quarter. After absorbing the event that we're talking about just in terms of of the fitness overall response.

There's been nothing that they've added on at all nor any request as of yet in terms of.

Reducing our exposure of our positions across the group in terms of the client itself importantly, it was the prime brokerage client. It was on I think you are aware it was classified as of GFR, which also leads to some of the of the disclosure issue that that that all of us are struggling with.

And then finally in terms of your U S rates a question what what I. What we mentioned is we fully absorbed the impact quarter on quarter. So there's no residual overall drag due to deposit margins related to U S rates.

From the first into the second quarter on now I didn't quite get your the final part of the question of the fact that we've seen the longer and we've seen the 10 year rise a little bit.

If the curve shifts higher what do you what are the things the.

What do you think of the revenue sensitivity broadly.

Then what's the time lag when do you expect to see the impact on your numbers.

Naturally we see of media.

In the world.

The end of the curve.

And anything that's that's longer you know out of tenure it takes longer for for us to kind of work that through on our overall replication portfolio of both the synthetic as well as the cash flow application and so we certainly wouldn't see it and of course I think while the long end is actually spiked up of bed, they're still of lot of uncertainty around.

Inflation expectations, and how rates will behave going forward.

But if we were to see on improvement and an increase in the shorter and then that would immediately flow through and you've seen our guidance overall of 100 basis points parallel shift across the businesses would contribute 1.6 billion overall of net interest income.

Perfect. Thank you very much and well done on again on the 14% Roe.

The next question is from Adam <unk> from Mediobanca. Please go ahead.

Good morning, Thanks for the questions I wanted to follow up on capital return on the buyback last quarter, you set a target or an indicative of target how much you want to buy back during the quarter.

As such repeat today I noticed in your AGM documents that the 2 billion of accrual actually but I said the 2020 distribution. So I was wondering.

Whether you have to run through the full 2 billion before you're really thinking about it being a tranche of 21 distribution on the buyback and that's on it.

So why were not discussing an extension of about $1 billion of quarter run rates and then second I want to go even further into the NII and you've mentioned that the loans spreads with good again in the quarter.

Just on this on how much lending revenues are you, adding Q on Q on how far could we extrapolate that through the rest of the year, you said NOI clearly up in the cheeky, but would expect that again, the three key coke and beyond and of such as it's now time to think about NOI growth from the 2 billion of course the run rate. Thank you.

The next question is from Andrew Lim from Societe Generale. Please go ahead.

Hi, Good morning can you hear me.

Hello.

Miss any of them, we can hear you.

Right, Okay proceeding while the questions.

I actually want to talk about the the finish types of Asian case so.

That hasnt yet concluded in the sense that we haven't had a fine if any determined and we'll have to wait till September.

And it seems like.

We will have to wait for the courts to decide on the application.

Of law.

I guess the encompasses how.

We view any fine are in relation to whether it's dependent on the the types of assets showed at or the types of any sort of paid I was just wondering on whether you could give you a view on how the.

Of course, the viewing this.

And if.

If there's any more specific timing and that fossil September when we might huh.

You get more information on the decision here.

So that's the first question.

And then the second question I'm sorry.

As it relates to chose Rusty.

You spent a lot of a lot of time trying to outline your thinking here.

And we should spend some time I'm thinking about your views are.

On this matter you you've talked about being more agile.

And spend more time on on the mismanagement.

In some sense.

Because of this.

We can analyze here numerically, but it seems important in terms of like the potential cultural shift for the bank.

And I am just wondering well from your point of view, how big of a cultural shift at the end tables.

The for UBS.

And in terms of like kind of different businesses than the number of people involved and how they think about how they interact with clients.

The first with the Adama of Adam Yeah of the questions of Adam and then Al will take the Andrews questions that he just raised so you Curt you finish yeah.

Andrew Yeah, Okay. Adam can you are you back or.

Yeah, the listening mode, where we didnt cut you off because we didnt like your questions. So Oh is it in terms of of capital returns as we highlighted we actually expect to be back repurchasing shares Tomorrow. You you can track US weekly we will modulate the the volumes just based on on what we see in the market is.

We as we progress I would just note if you look at our 14% current CET one ratio of that would imply about of 3 billion buffer above the 13th around 13% that we guide plus there is of residual 900 million still on the reserve that we built up last year.

In terms of your question on NII, Yes, indeed, specifically, what you've been seeing as are our lending NII growth has been helping to offset the the the the overall headwinds from the U S dollar rates specifically.

I have just mentioned our year on year. If you look at the increase in lending related NII from a combination of volumes as well as margin. We saw 108 million in the quarter year on year increase the quarter on quarter impact was 21 million how that progresses going forward of course, we'll continue to.

The depend on the overall net new lending volume, but certainly the around 11 billion the.

The of net new loans in the first quarter will help us on the second quarter.

Hey, the two Andrews questions. The the first of all in on the French case, Andrew Yeah. So the the way we read this and also in terms of the evidence that was provided we have not seen any cash.

One of argument there to change the.

The the provisioning and the level of which you know it is and.

We don't expect any further information before the COVID-19 actually comes out with their decision.

So so that's one on the second one on the cultural one and on how to support agile.

I think that people think sometimes think that oh, there's some kind of on.

A way to work and some kind of on anarchy or create a bit of chaos, but.

Actually I was quite the opposite.

Agile is a very disciplined way of working and which you keeps things are very clear very disciplined him with a multidisciplinary team that works on two weeks prints small teams two weeks prints in every two weeks you come to the decision as to who.

Net of progress has been made progress has not been made but do you want to continue on what are you don't want to continue it is a very strict waive management, but within dose within a framework like that.

A lot of apartment to those teams as to doing the continuous improvement now.

And as with you know with the experience of had before and what the experience that we have here as well they know it.

Hi, Joel kind of work everywhere also here, but you have to introduce it overtime and we have been working on all here and in some areas.

<unk> already and with a lot of success, we have been working at all in what we call hybrid parts in the investment bank and the.

They're doing a really good job and in developing.

New business opportunities and disrupting some of the activities, but also in the continuous improvement of some of our electronic platforms.

And on UBS Neo so so there is quite some experience with this but very specifically and more so within the investment bank than anywhere else on what we're doing is for drawing on that experience.

On rolling it out and in the first part of the cause of that part of the thing and in new areas two of three areas specifically now in the Swiss business and some more areas. One in the finance are in the finance function and we have won and the risk function as well.

Draw on those AR experiences to see how we can further develop what we call them the UBS way of working.

Before we before we introduce it to all enough for one.

So well take it step by step.

That's great. Thanks alone.

The next question is from <unk> Rangan from RBC. Please go ahead.

Thank you buy them on top of my question just two follow up questions.

That's all the costs.

Thank you very much for your guidance on the longer term.

Cost control.

For 2021 did I understand you correctly, you're expecting on underlying increase.

The of our company.

And so on.

And I just wonder.

Well it could be traveling guests.

And then secondly on the slides from such a G. I understand it's pretty much all day.

It was 21 I just wanted to come from when you talk about I'm committed to delivering high other times.

Sorry to insist on that's all higher than you're currently to live as much I mean.

I think on higher than the target.

Thank you very much.

Yes in terms of of your question on costs you did indeed here here is correctly, we do expect of around a 1% of full year on year increase excluding variable comp onetime items as and also foreign currency translation effects and the reason for that versus the flattish that you've seen from us over the last couple.

All of years is that we did come into the year with slightly higher run rate costs overall, because we have now postponed any any layoffs for several quarters just in response.

And I'm also just to ensure that we were well considerate of of the pandemic on the on on the on.

On this on the strategy side are in terms of of our overall return targets I think what we're referring to is we do expect to deliver consistently high and sustainable returns and that's really our area of focus of above our overall cost of capital clearly right now that's captured within.

12% to 15% overall return on C. T. One range and we said we intend to operate at the upper end of that and then we'll have any any further update on targets as we highlighted as we go through the rest of our build out of our overall strategy plans.

Thank you.

The next question is from Stefan <unk> from Autonomous Research. Please go ahead.

Okay.

Hi, good morning, gentlemen, thanks for taking my questions.

On the one or two of quickie follow up on the oxy gross with two aspects of PS.

You have a 774 million pretax loss of revenue loss, sorry, instead of 434 million net loss.

Is it fair to assume that you've actually made a around 200 million variable compensation reduction and we got to oxy gross to breaches.

The distance between the revenue hit in the next two loss.

And also regarding arch because you look at this more as a market risk event or a credit risk of counter party credit risk for you or is it more for the operational issue on your point of view.

And.

I wanted to quickly follow up on the restructuring expenses to come in the second quarter.

Do I understand this correctly that this is essentially the legacy item of relief related so the meters that you wanted to take already for a couple of quarters or has it anything to do with the 1 billion gross savings that you're targeting for 2023.

And it's not on is there.

On a restructuring or cost to achieve boxes for the use of one irrigation of the cost savings. Please thank you.

Okay, Yeah and in terms of the of Arcos. So you are correct that that's accounted for overall as a trading loss.

Actually your first question first if you look at the 77 for versus the $4 30 for where can I ask you to do a little bit of work and you can reach of our own conclusions out of our tax rate. So there.

There is the tax rate there as well of course the.

And it just in terms of our overall, we believe it is accounted for as a trading loss. We do view this as a market risk event.

Not on operating risk of preventive and not on a credit risk.

About the overall in terms of your restructuring question you can look at the 300 million ads say on initial start on the overall 1 billion. There is a little bit of legacy there that we've incorporated into that but it's really been package and it also reflects some of the work that we've already done.

The two to make advanced towards the 1 billion and naturally the full 1 billion, we'll have a cost to achieve and as we progress through the delivery of the 1 billion, we'll give you transparency on what that those costs are.

Yeah.

Okay. Thank you very much.

The next question is from Amit go out from Barclays. Please go ahead.

Hi, Thank you and yeah. So I've got a couple of follow ups.

So one was just the clarification.

In terms of the alignment of corporate center cost to the business divisions.

Just on some of that is that going to the kind.

Kind of a change in how you present the results.

With the reallocation or is this something that will.

It will be done kind of internally, but from an external reporting basis, the there wouldn't be of change.

And then and secondly.

Secondly, just on the board of strategy say of I guess as I understand it.

And the commentary that the addition of sustained well the IP is the right size.

And it clearly theres some time until the full year 'twenty. One result, so I just wanted to try and understand.

The other areas that you're focused on and how significant is the review.

And that you're undertaking and so just to get a sense of.

You know how much change on how.

How much action, we could anticipate at that point beyond.

Some updates at <unk>.

Thank you for.

I'll start with the second question so the areas that we that.

Clearly everything we review and you should expect us to continuous review of areas.

But but.

We have indicated first that we see growth opportunities in the U S and in China and Asia. Our plans for those are also and the review and under discussion.

It's about a photo of alignment of all the activities in order to support the wealth business. So all sort of if it comes to what does the debt to be exactly do across the firm also in investment banking as to how can we first of all line somewhere.

Of these activities in order to support our.

The our way forward. So that's a that's where you can also kind of.

Expect us to issue and and clearly also here in Switzerland, where you know that the the.

The the performance.

The commercial performance is good but the financial performance continues to be in the pressure because of the negative rate environment.

Oh, we will have to invest on the one side into it and digital in the digital services the other.

It will have to reduce our cost also further.

So so those are a couple of areas I mean, there will be more but I mean, we literally and you should expect from us to review each and every area of continuously anyway, even if it is top strategic it has to make the returns it has to make the scale. It has to make a difference of.

That you know the the second strategic imperative is the very important one which is that we should focus on where we have what I call sustainable share, which basically mean means is is the market attractive.

Is the market large enough.

And can we differentiated ourselves in the market to make a day.

Can we basically really make a difference in the market.

That's what we apply to every market and every capability.

Yeah. Some of it in terms of your first question you will see no difference on the presentation.

And from our from our disclosures for me right now we're only disclosing one operating expense line and of course those costs were already fully allocated of the business divisions.

Okay got it.

Just because the then on on that point, the the 150 per quarter say it wouldn't be the case it in the future of all of that number getting down to 100 million. The hundreds, but then the book.

Well, let's see the within the divisions that would still be reported as of corporate center I too.

Yeah, that's correct in terms of the the group functions.

The overall retained costs. The there is no operations cost per se that sits in that below negative 150 million the.

The operations costs related to all of the business division activities are already fully allocated to the business divisions and are not retained.

Okay. So there wouldn't be any changes for example, with an internal rule, which metrics et cetera.

To our employees stuff et cetera for.

To reflect any change in the alignment.

Oh for the corporate center of the shift is already the the 7000 or so operational head count they were aligned with the business divisions, but now they will report directly into the business and so therefore as Ralph outlined it just gives the business is a much better ability to look at the the.

Integrated overall solutions and capabilities they provide to their clients and to continue to optimize those that that's really what's behind the intent.

Okay got it so it's more of a revenue opportunity as opposed to the effect of the cost saving opportunity well I would say both the revenue on it as well as our front to back efficiency opportunity. So we think of it there are both opportunities both security both of them at.

Okay. Thank you.

The next question is from Patrick Lee from Santander. Please go ahead.

Hi, good morning, Thanks for taking my questions on one clarification. The one on the prime brokerage Serena and one on the new keeps kind of disclosure in the wealth management.

Firstly related to the prime brokerage both of the Honda. If you can help me with the understanding on this because if I lets say took the 774 million doses disclose is there some sort of a notional exposure to put that most of the perspective. You know for example of it took a sense of most of the percentage of exposure or is that not the right way to look at that.

And then those low how do we think about the risk reward of the support because like hypothetically if that was from the market dislocation.

It has been the fee generated from disposal of trade I guess I'm, just trying to get the sense of the nature of the product that seem to have not very big upsides of the good days.

For the near very substantial losses on the downside.

Secondly relating to wealth management, thanks for the extra disclosure on the interest of asset interest on this.

You know between fee generating versus others.

Is there some sort of interactions between the solution direct investment and then the fee generating assets could could the non fee generating per scene is the parking space for clients before you upsell of the fee generating products effectively converting it from no fee for feature on the racing sometimes for the future or should we think of the direct investment by the nature of trade.

Different type of business.

Is there any geographical bias.

The I think you alluded to earlier, whether the U S. For example, it's the vast majority of just the long beach on the rethink portion. Thanks.

Ah yes, the Patrick in terms of your first question the $774 million as we mentioned was overall on the operating loss and at the it includes two components one of its it's just the overall net residual position from the default decline in end and then it's the overall loss related to the Derisking.

Process are in terms of your of your your comment on K P. I, you're exactly right. If if if you look at the the the current overall client type positions that we havent solutions from direct investments that includes for example, the.

Large overall single stock positions from wealthy entrepreneurs that would initially be booked as a within the the solutions and direct investments, but then subsequently we might provide some leverage of that clients from advice they might diversify and invest part of those investments might include investments in the mandates are alternatives.

Which would then sit in fee generating assets. So it's it's it's not too and this is really critical it's not too at all of diminish the value of solutions and direct investments they on their own dinner of generate attractive transaction revenue, but they also resolved and they provide the opportunity for us to provide the the full benefit of <unk>.

Our solutions to our clients and you do see quite of bit of interplay between solutions and direct investments from fee generating assets.

But if I go back to the prime brokerage, but I guess.

From the outside the U S, just saying that we can't be together.

The notional amount of just to size the risk is impossible for us.

From the outside the.

That's correct and let me also just comment on what one one of the.

One of the points that you mentioned is this has been a highly attractive business for us we have not seen of Washington This business since before the crisis as we highlighted it is a very very good returning business. It's also one that's extremely strategic to serving our institutions as well as our global finance them.

G F O clients and so it is it is part of part of our franchise. It's also a valuable part of our franchise. It has been and it will be going forward.

Thank you.

The next question is from piers Brown from HSBC. Please go ahead.

Yeah, I can one of Johns most of my questions have been answered actually but maybe just a couple of small clarifications on the.

On the expense guide for for this year I think you said the 1% was pre any potential investment spend for the strategy refresh the I Wonder if you could just quantify.

What sort of margin above the 1% of should be thinking about for investment this year.

Secondly, on sorry, just going back to Akshay, you got us but.

You said, you're reviewing relationships in the prime broking, but it sounds like the overall structure, there you're sort of happy with them are there any relationships outside of prime broking outside of the investment bank, which might be impacted by this review.

And I'm thinking, particularly of family offices within the wealth business, you've obviously had very strong.

Known broken Ralph was there anything in terms of risk review, which might be impacted by by what's happening in prime this quarter. Thanks.

Yeah per so low on the second one I can be very clear.

Yes, we are also reviewing.

The the the global family offices that we have exposure to.

Just to be sure and that the lessons learned that we have on this one that we also apply dose and that we on the relationship by relationship basis, we get a better sense for for where we are.

Well the first of all of that gives out the curve yeah in terms of what I highlighted just regarding the possible investments in and the execution of our strategy overall, the reason of why I called that out is our intention as Ralph said is actually the saves we generate from the 1 billion what will certainly cover and offset the investments we intend to make but the.

It could be some timing differences, we might see a very very attractive opportunity as we finalize all of the diligence that we're currently doing on in the different areas highlighted by Ralph we might decide that we actually think there is an investment that's really really attractive that we want to make now and the saves that we generate from the 1 billion to cover that may not material.

Wise for a couple of quarters. So it's it's it's really just to highlight those timing differences and again, we'll provide that transparency as we disclose that going forward.

That's very clear thanks very much.

But on no further questions.

Ladies and gentlemen, the webcast on Q&A session for analysts and investors is over you may disconnect. Your lines, we will shortly start the media Q&A session.

Okay.

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