Q2 2022 UBS Group AG Earnings Presentation
Those numbers included a gain from the sale of our stake in the joint venture in Japan.
This gain the site.
Underlying performance reflected a good result in a more challenging environment with lower asset levels higher volatility and increasing rates and we're navigating this environment staying close to our clients.
Keeping strong risk and credit discipline.
Continued focus on cost.
Go to the next slide and basically you see that the market selloff accelerated in the second quarter and that was the case in both equities as well as fixed income.
Inflation continues to be high the war in Ukraine is ongoing.
Strict COVID-19 policies are still part of the life and in Asia and all of these have led to further declines in economic growth outlook.
And with significant drop in <unk>, because our client portfolios loss value, resulting in lower client assets across our franchise just to put a couple of numbers to that.
The MSCI World Index was down 17%.
<unk> grade bonds were down 5% on average high yield bonds were down 12%.
So it's no wonder that our private clients stayed on the sidelines. This.
This quarter and that new fee generating assets were flat for the group, but positive for them.
For Asia Pacific.
And also positive for Switzerland transaction based revenues with these clients declined by 17%.
So 12 billion of net outflows in asset management, mostly out of equities.
In times of turmoil liquidity is important we continue to support our clients we're lending them.
With close particularly in the Americas.
We also focus on deposit offering and optimize our net interest income, where we saw 15% growth across our deposit taking businesses and.
And deposits were flat against last year.
Client activity was robust on the institutional side. So that's a completely different picture Ah. They remained very active on the back of high volatility global markets revenues for that reason, we're up 10% year on year, our markets business had another good quarter traded well or increased activity.
We benefited from prudent risk management here from resilience of our technology platform to bear.
Do you handle the very high equity volumes coming through the system and it's clear that it was a challenging quarter for our clients and for our businesses.
But in times like these it's where our clients need us most.
And neither our vice moves as well.
That's what we're focused on.
Then looking at some of the particular.
Performance is that we showed our investment and ecosystem.
<unk> continued to allow our clients with unique insights opportunities to get through this volatility.
This slide slide five I am right now highlight some areas of growth in our ecosystem for the last quarter.
We're working with our partners to offer our unique and our clients a unique investment opportunities for example, private markets.
Where we saw you at new commitments of $3 9 billion for the quarter or 5 billion on a gross basis.
And we see also more potential for this category private marks gallery RCI will recommence.
The clients with a balanced risk portfolio risk profile are allocated up to 10% of their portfolios to private markets.
At this moment the average allocation of 3% so a real upside there.
We are offering for separately managed accounts in the U S continues to attract inflows as well.
4 billion this quarter with overall assets under management and the estimate is currently at $115 billion.
And so that's quite remarkable in terms of performance since we started that in 2020.
Sustainable investing in something that I think about it in our purpose and our strategy as you know and that's why we report on this as well we already manage 239 billion of sustainable investments on behalf of our clients. So we're well more than half way to our 400 billion of exploration for 2025.
But we need common standards here to maximize the impact and that's why we're partnering to create these in many different.
Platforms and subscribing to many different methodologies.
But also by by contributing to the newly developed with climate scores.
My way as you know it's a module.
Where are we actually.
Deliver digital mandates.
We saw inflows of a half a billion here and.
We expanded our product offering in line with our CIO views, including an actively managed commodity module here as well now so that offering to really have your mandates digitally.
Every quarter as well and lastly, our momentum stayed positive for investment product inflows in Switzerland.
The <unk> contributed two 8% year on year growth in recurring fees last quarter, we saw half a billion of positive inflows.
And then have some products and that's also representing 8% annualized growth.
So as you can see we're delivering on our promise to offer our clients the right opportunities at the right time, clearly ones that when times change the opportunity has to be changed as well and we are really tree.
Staying very close to our clients to get a sense for what works for them in their investment portfolios and also the way we deliver to them.
A more digital way.
On that note, let me turn to the next slide where we basically give you an update as to how we are leveraging technology.
A differentiator while improving our.
Efficiency.
So technology, we use in order to improve our user experience.
But we also use it for efficiency and I think this slide shows you.
That we are accelerating the use of technology to our clients so that they can interact with us.
Through their preferred channels in a seamless way.
We launched in Switzerland.
Key for banking, which is a digital only banking offering as fast intuitive it's complete it's competitively priced.
We target a mobile only retail segment here.
Which grows at 30% year on year. So it's a very fast growing segment that we want to be a player in.
Of course Q4 clients also have access to the classic UBS offering for more specific services and the platform will be a feeder to dose.
In Asia Pacific Our circle, one ecosystem is now life.
The App connects clients two experts thought leaders are actual trade ideas and through engaging content and video so.
Basically an app with very snack couple content.
With people can watch videos get educated on specific trends and investment opportunities and as a next step also executing those.
So far also in circle, one the user base is growing fast and with time, we will add new features.
Thanks to the agile development that we actually apply here and we will have continuous feedback from our clients to ensure that we stay.
That in our developments both in terms of the offering as well as the user experience.
As an example in the next phase clients will be able to connect with each other and to experts and interest groups and that focus on very specific topics.
That could be interesting could be wealth planning family advisory sustainability art philanthropy.
And much more.
Our strategy to transform how we manage change and develop our technology is also on track and you can see that also in this slide where we are executing our cloud strategy.
To gain further flexibility to gain further efficiency as well and we now have around 60% of our computing power fully delivered on cloud half on the public cloud half on the private cloud.
We're transforming our agile work for our workforce to agile agile way of working where currently having 13000 employees working that way. There's a second wave we are in.
Within these teams now we see that technology and teams are consisting of 65% of engineers. So basically we're changing the composition in terms of.
Non engineers to engineers and that has changed by 10 percentage points. So.
Real productivity increase coming through if you compare to the pre agile composition of our technology teams.
We developed AI technology to help identify and remediate service interruptions and over 500 applications as well and we've commissioned around 300 applications. This year to simplify our tech our state.
These are just a couple of proof points of how we're making technology differentiator both in user experience as well as.
And how we manage technology flexibly and efficiently.
Turning to slide seven.
I like to give you a couple of examples of how we are executing our strategy and capabilities in the regions, because that's where our strategy comes together and we're organized in divisions, but where the rubber hits. The road is truly with the clients and the clients are in the regions.
So let's talk about the Americas here. The recent dollar interest rate hikes are our primary focus of how we manage our deposit offering.
We expanded our deposit offering for that reason and we saw also a continued demand for loans and as a result of the combination of our net interest income was up 37%.
Versus last year.
In Switzerland, we are building a strong foundation on technology on the technology side of it which contributes to being named best Bank in Switzerland for the eighth time since 2012.
In EMEA as you know our strategy is very much to improve profitability.
With a very selective investments in our areas of focus more towards the entrepreneurial wealth creation families are with large companies.
And the a and the build out of our banking proposition.
Two to that segment.
This strategy, we see delivering results already specifically on the cost side, where cost were down 9% against last year.
Lastly, Asia Pacific.
And that's also as a result of our continued focus and discussion with clients to them and to show them. Our mandate offerings. We saw $3 3 billion of net new fee generating assets.
In the quarter alone.
And overall you see basically a given the fact that we're talking about four regions with selective.
With a selected update here you see that region diversification is really a competitive advantage for us. It's a source for stability as a source of resilience and I think this quarter proved once again.
Now turn to a summary on the numbers and then Sarah will take you through a more specific numbers as well and thereafter, we'll have the Q&A.
Just ending on the Denver certification.
Both regionally and by business and you see the resilience in our financials here on this slide.
Our revenues have started to benefit from higher interest rates and that helped offset the lower recurring fees and lower client activity levels on the private side again on the institutional side, we saw quite the opposite.
With good results in global markets.
Meanwhile, we remain very disciplined on costs as we execute our efficiency plans.
Operating expenses were down 2% compared to last year.
And together with the gain on the sale of the joint venture in Japan, which we already updated you on.
This resulted in $2 1 billion in net profit 18, 9% return on CET, one and 76.
The scent of cost income ratio old and target levels.
In the second quarter, we bought back another $1 6 billion of shares while maintaining capital ratios well above the requirements.
So we are well and are on track to buy back around $5 billion of shares by the end of the year.
Now heading into the second half of the year, we're well positioned for an operating environment, which remains uncertain certainly in the next couple of months.
So, but we're very well positioned to work through it at that thanks to our strategy. Thanks to our business model that values global diversification, our operation and financial resilience.
Strict risk management capital efficiency, and a strong capital base.
So strong reported results and I think this is also the moment for me to hand over to Sarah Young Wood, our CFO and she will take you through the underlying performance Sir the floor is yours.
Yeah.
Thank you Ralph good morning, everyone.
It is a great pleasure to be here today.
Somehow we reported a strong set of results youngest player.
We partner with our clients when they needed US most and then you have like a good underlying performance.
On slide 10.
Our net profit in the quarter was $2 $1 billion at 5% year on year with a return on tier one capital of 19%.
Our return on tangible equity of 16% and a cost income ratio of 71%.
We have a balance sheet for all seasons.
And are on track to meet our return on tier one capital and cost income ratio target for the full year 2022.
The year on year comparison on the slide highlights a number of items that are not representative of our underlying performance.
First of all 11 years in FY stock $810 million from net gain on sales.
848 million sale of our real estate JV in Japan.
And the sale of a minority stake in town center a year ago.
This was partially offset by 147 million real estate related revenue impact in.
Including a loss of 46 million this quarter.
And moving to expense.
158 million higher litigation.
Including 221 million this quarter.
Yeah.
I think it was nice.
The 200 million each for revenue and expense and netted to a headwind of around 50 million.
Now let me go through the underlying performance.
The revenue so we reflected the impact of market levels.
On recurring and transaction fees.
Well, that's nowhere global banking revenue.
Mostly offset by higher combined net interest income and G. W. N N P M C.
And continued strength in global markets.
The net credit loss.
It was $7 million compared to 18 million last year.
This is a reflection of our existing level of reserves.
And the quality of our balance sheet.
For example.
94% of all yellow.
Collateralized and fidelity.
Average LTV is less than 55%.
Operating expense was down 1%.
As valuable compensation was down around $130 million offset by increases in G&A our 19th.
We remain focused on our cost discipline.
Absorbing increasing inflationary pressures.
Investing for the long term.
Now, let's turn to our regions on page 11.
Well I'll walk you through the strength of our regions and I will show you the diversification in our numbers.
On the revenue side.
Mary Cats, we presented 40% of our business.
Followed by Switzerland at 23%.
EMEA at 20%.
In APAC.
17%.
On the right.
Given the strong efficiencies of Switzerland in APAC and the level of investments in the U S.
On a pretax basis ex litigation.
<unk> represented a third of our business.
Followed by Americas, 23%.
APAC at 22% and EMEA at 21%.
Let's move to our business is on page 12.
Starting with GW land.
Do you have all your land profit before tax in the quarter was $1 $2 billion.
<unk>, 2% year on year, excluding litigation.
Revenues were 2% lower with topline and Chris isn't America's in Switzerland, driven by NII.
And decreases in APAC, and EMEA due to lower market levels and muted client activity.
NII overall was up 24% year on year.
And 11% sequentially.
With deposit volumes up 1% year on year, including 19% up in the Americas.
And down 6% Q on Q.
Yeah.
I would also note that the phone people that were flat year on year and down 5% Q on Q.
Yeah.
We were able to increase our deposit margins in gws by over 60%.
A year ago.
While providing our clients with very competitive and stable pricing and savings rate, which they appreciate it.
Well, we've stayed close to our clients.
Macro and geopolitical uncertainty.
And nowhere acid pricing have kept them on the sidelines.
As we enter the third quarter.
Demand remained subdued.
Operating expense ex litigation and effects like slack, that's just life.
Yeah.
Net new fee generating assets.
0.4 billion in the quarter with positive flows into SMA.
Tinnitus.
Self directed mandates.
And UBS my way.
Which more than offset pressure in this question only mandate and investment funds.
We also continued to see high demand in the private market space, where as was already mentioned, we saw a $3 $9 billion of net new commitments.
Despite the environment we are.
Also continued to see strong flows in APAC.
Net new fee generating assets well over 3 billion in the second quarter.
These inflows together with 1 billion inflows in Switzerland.
More than offset I would feel like in the Americas and EMEA.
For the past 12 months, we generated 65 billion net new fee generating assets, which represents around a 5% growth.
For the first three weeks of July we saw positive flows in the Americas and of course the Wm.
Net new lending into Q1 0.9 billion.
With continued strong growth in Americas, especially from asset based lending and mortgages.
This was partially offset by continued de leveraging in APAC.
To a lesser extent ammonia.
<unk>.
Moving on to asset management on page 13.
We had a profit before tax of $959 million, which includes the 848 million again I always like to.
This quarter's JV sale represents the clothing caf two other successful 20 year partnership.
Which we were able to build and grow our joint venture to become one of the largest real estate management companies in Japan.
However.
Given the level of equity and bond markets.
Underlying performance of the business was affected.
So 12 billion of net average daily morphine in equities and both our management and performance fees were down.
Operating expense was up 1%.
The idea on page 14 had a profit before tax of $410 million delivering a return on attributed equity of 15% excluding litigation.
Global markets revenue increased by 10% or 4% underlying.
The increase was primarily driven by rate and FX businesses as.
As well as they could to queuing financing, which was driven by increases in equity financing and clearing.
Global banking revenues were down 57%.
377 million.
With the global fee pool down by 51% as both advisory and capital markets went down.
We manage our risk well.
And included in the numbers.
Net mark to market losses of around $17 million a clock LCM.
Corporate loans and CRE.
There is no development in July .
That has meaningfully affected all marks but we haven't seen a change in market conditions.
Operating expense was down 1% ex litigation NSX on nowhere viable compensation.
Assessing higher technology expenses and inflationary pressure on salaries.
Yeah.
On page 15.
Moving to P&C.
The leading bank in Switzerland.
I can see profit before tax was 398 million Swiss francs.
Our strong business momentum and good cost control.
The year on year comparison was impacted by credit loss related.
And nonrecurring real estate gains in the second quarter of 2021.
Total revenues were up 2% year on year with increases across the board in NII.
Recurring and transaction based income.
Yeah.
Net interest income rose by 5%, mainly driven by deposits revenues due to higher deposit margins as a result of rising interest rates as well as deposit management actions.
Transaction based income increased 4% on higher revenues from credit card and FX transactions.
Reflecting an increase in travel spending by our clients.
Recurring net fee income was up 8%, including higher revenues from $2 4 billion of net new investment product inflows over the past 12 months.
For the quarter personal banking net new investment products truly, whereas 0.5 billion and annualized growth rate of 8%.
The credit loss expense was 33 million compared with 42 million credit loss, we need a year ago.
Cost ex litigation was down 1%.
Lower personnel expense.
This was largely offset by increased investments in technology as we can.
Continue to make news on digital strategy.
Yeah.
On the last slide page 16.
We maintain a strong capital position this quarter, well above our guidance, while continuing to distribute capital according to our plans.
As of the end of June our CET, one capital ratio was 14, 2% and our CET one leverage ratio was 427%.
The sequential CET, one capital increase.
0.3 billion post tax benefits.
In connection with the reclassification of an H Q&A portfolio.
From their values will see eye to eye amortize cost.
As you recall.
We announced in our February strategic update of lost clients in banking and investment management in the U S, including their wealth fund transaction.
And organic growth initiatives.
This transformative change in strategy requires the reclassification of this portfolio.
Turning to the CET, one capital ratio walk and starting at 14, 3%.
The end of last quarter.
Net profit contributed 70 basis points offset by capital returns to our shareholders of 60 basis points and 20 basis points from the increase in our Wi Fi.
From $312 billion.
Two 316.
In addition to that we had a 10 basis point impact of FX offset by the reclassification I just mentioned.
Our capital we don't.
Still we remain strong.
In the first half of the year, we have repurchased $3 $3 billion and as of last Friday.
Number was $3 7 billion of which $1 6 billion took place in the second quarter.
With a payout ratio of 97% for the first half of the year, including dividend accruals and buybacks, we expect to buyback around $5 billion of shares during 2022 as planned.
To conclude our capital light and diversified business model.
Proactive risk management and exposure to rising interest rates contributed to the quarter's good performance with.
We continue to stay close to our clients and execute our long term strategy, while remaining disciplined on cost.
To deliver sustainable growth.
With that let's open up for questions.
Yeah.
We will now begin the question and answer session for analysts and investors participants are requested to use only handsets was asking a question. We can ask you to have maximum of two questions. At this time anyone who has a question with price.
The first question is from Magdalena Stoklosa from Morgan Stanley . Please go ahead.
Thank you very much and and good morning, I've got two questions one regarding the NII trajectory and sensitivity and another one on the net fee generation inflows into the kind of into wealth and and what youre thinking about that going forward. So on.
On the NII.
Your sensitivity kind of changed slightly versus the last time, you've published this we had that kind of slightly less.
Slightly less U S dollar sensitivity.
And that of course, the biggest change is actually coming from Swiss franc and of course, you know.
What kind of unsurprisingly so.
Given them given the rate hike and of course aim.
It's kind of very different.
Hey, its trajectory in Switzerland from here, but could you kind of run us through how this is going to pan out on a more of a quarterly basis because of course, you initial sensitivity to Swiss franc interest rates is slightly negative given the central bank liquidity and also the euro.
The charging.
Practice Ho Hum and of course, then it kind of.
It goes up as the rates move above zero could you give us a sense. How you think that's going to pan out and also and also on US Dollar is it really a kind of a question of them effectively having spent some of that your NII has already increased by 24% in GW.
The killer took so so so that's on NII and on the and on the inflows of course, you've got I was gonna very pleased to see those inflows in in Opex could you give us a sense of where do they go makena product twice and again your view on flows may be a little bit going forward I know.
You've mentioned Americas in July , but just slightly slightly further out what's the pipeline looking like thank you.
Okay. Thank you Mark.
So on the flows in and I am sorry, I will take the one on their life, because they're asking for quite some details there.
So lots of work on that a bit to before we give the answer so on and that new fee generating assets. You have are very happy to see that we after working with our clients are looking at the opportunities they had given.
Given the fact that in Asia Pacific you saw already a kind of a muted.
Muted behaviour around.
With our clients in terms of the transactions over the last three quarters.
Actually almost for a year now that we.
We have been able to secure them to look at mandates businesses and that's what you see coming through and then that new fee generating assets of $3 3 billion in Asia is Asia Pacific.
So that's that is something that we're very happy about.
We also saw.
One 1 billion of inflows net new fee generating assets for example, here in Switzerland, as well and we saw some higher outflows in the U S. Specifically as to what we expect going forward.
Who knows the future certainly in these are uncertain times, having said that.
We are very focused on supporting our customers through this.
Mandates and therefore net new fee generating assets is a is a very good alternative with our CIO strategies there they are attractive.
We are continuing to hire for example, also financial advisers in the U S that should also give further rise of of increases in new net new fee generating assets.
And the first week of the first weeks of the third quarter.
Basically look broadly positive.
Across.
Across the whole franchise. So that's what I can tell you Congo for much further as to where it will go but you know we're really working hard on this.
Mendes businesses is what we do.
M a C.
St closer declines.
Recruiting financial advisors also in the U S, making sure that that the mandate business continues to grow there as well.
And at least in the first three weeks of this quarter. If this new quarter, we saw broadly positive.
Close.
Sure Yes.
On NII I think what you another thing and it's not surprising is that in the U S. Because we have already seen some of the changes of sensitivity. The criticism that there's I would say mathematically always to happen and.
Then of course, we.
Hum events in Switzerland, which were not expected as of last quarter and that's come in so in terms of like how that translates for us. The first thing that I would say is that the guidance that we gave last quarter.
On a static balance sheet basis, as we gave it last quarter.
If you want to dig a little bit into what has happened you heard the excellent numbers that I mentioned, the 24% a year on year Rps G. W.
Sequentially, 11% or the increase in margin by 60% to I D.
Performance was strong.
Strong on and our actual VITAS well lower than modeled VITAS.
So that was on the U S.
Switzerland, what we did is what we.
We should have done which is of course translated to an add to our clients as needed on the changes in the rates that we experienced.
We have always said that being close to zero or zero is not on the best place for the for us on the rate curve in Switzerland.
And the good news, though is that the expectation today is that we would say probably very little time.
That zone, and we'd be able to benefit from the tailwind once we are into the positive.
Territories.
So we're likely to see kind of a probably a couple of quarters awesome I'm more of a.
Stable Alternatively, even.
Even the kind of some headwinds to the NII before probe you, let's just say mid next year, that's kind of a sensitivity coming through maybe even the beginning depending depending where SMB actually ends up.
Yeah well.
Well I don't say I don't think like major I hadn't been flawlessly, so I'm not sure where it got confirmed but.
If that has to do with the fact that you know the S&P is still at minus 25 basis points and that is a situation where.
One side on the loan side, therefore resident deposit side, we're at minus 25 basis points or we can charge more.
Really you know the pricing that the way we have done our pricing there. It was not at the full minus 75 basis points anyway, right. So because we very much look at the client side there are so.
<unk>.
So from that perspective.
If it if the F&B does not photo hike, yes, it may be a bit.
A bit of a downtick, but I wouldnt talk about headwinds there honestly.
So.
Mm.
Okay, Yes. Thank you very much for that thank you.
The next question is from Craig Hallum from Goldman Sachs. Please go ahead.
Good morning, everybody. So just two questions. Firstly just to follow up on this NII point, I guess to sort of put it into numbers. The net interest margin in global wealth management was around 220 bps in Q2, it's up around 40 bps versus this time last year.
Do you have a sense for how much more of that margin could expand by but sort of over the next couple of years that would be my first question and then second.
You mentioned the client sentiment remains subdued in Q3, so far and I just wonder if there's any regional nuances within that overall picture or whether that's a fairly consistent global backdrop.
Yeah. So.
As always so if you look at how clients have currently.
Allocated their investments.
We have not seen a massive change away from.
Cash also not into cash so last year. It was like 22% in cash and I was like 23% in cash so that's not where we see it really.
If you look at Investor sentiment and we do see a decrease of sentiment.
With Asia being more pessimist and more optimistic.
And.
Across the different regions. So so that's a little bit the sentiment around it in terms of the flows are just indicated that of the first three.
Weeks of the third quarter, we saw broadly positive flows coming through.
Yeah.
Uh huh.
So in terms of the NII.
We are not going to guide further on the precision of what are the deposit margin is gonna be odd, but there certainly could be additional upside.
Okay. Thanks very much.
The next question is from Kian <unk> from Jpmorgan. Please go ahead.
Yeah, Good morning, Ralph.
Good to have you at UBS Sara.
Two questions first of all.
If I look at the numbers the thing that strikes me today is underperforming U S peers in all Ibs reasons.
In your underperforming in U S wealth management, Morgan Stanley , which is comparable.
No.
Clearly I don't want to make is just about the second quarter in terms of future market share movements, but just trying to understand from your perspective, because I'm sure. The executive board to discuss it why do you think you underperformed.
In equities fixed income IBD U S well and I would even say Europe wells again to use peer yesterday.
Second question is regarding <unk>.
Again coming back to wealth management.
Asia deleveraging is that stopping or is a second derivative changing and can you talk a little bit more about again, our advisors in that area as well considering your advisors are still declining and if I may take it slightly tours or.
Clearly the new change in the structural belts management in terms of management itself.
Each bar, taking a bigger role just wondering how that is changing things within valves.
Okay. Thank you Kim.
Well I'll answer and then Sarah can fill in on it so I'll start with the second one so the deleveraging in Asia Pacific Our last quarter, we saw a continued deleveraging.
Of minus $3 3 billion in Asia Pacific and net new loans.
[laughter] who knows.
C.
It really depends on how things develop but I do expect it towards the end of the third quarter and certainly into fourth quarter that there will be a much more optimistic news coming from China and with that Asia. So I do expect that on the back of a confirmation of the Oh.
The political leadership in China, and with that the confirmation of the economic policies.
China and with that also.
Further lifting of restrictions around Covid that you know the whole Asia area will Oh Asia area will basically get it got a bit of an uplift.
And we'll pick things up and with that I do expect to also then the deleveraging.
Two.
To stop at a certain moment in time now will it continue at this moment in time, we don't have numbers. So I call them to update you as to what is happening right now.
But you saw the minus three 3% for the quarter.
So with the decreasing market levels, you can expect them.
It's true the margins also to have to repay some of our loans. So I think that's that's gone into the direct relationship that you can expect.
And in Asia, It's a lot of Lombard loans business that we have there. So so that's the overall picture there.
Specifically as to the change in leadership.
There is not really a kind of a big change here honestly from that perspective. So Tom has done a remarkable job of turning the U S into profitability very much focused on on further decrease in the cost income ratio improving the skill that we have in the U S co developing the strategy.
As to what are the next steps in the U S and so remarkable performance there.
And you know after almost 40 years with UBS, it's only natural for him to look at Okay. Whats next so.
The way we are now looking at organizing the areas that we are pointing in marine Hassan as an executive team member.
Reporting to me for the region and very much.
Paulsville 40 original execution of the plans also for wealth management, but also for IV also for asset management.
And then if a car I'm, taking due to global strategic role for wealth management. That's the way you are you you can read it and then basically all of the divisions have a.
So lease structure I, b with Rob Croskey asset management, with Sony and wealth management with with.
With equal and then Sabine on the on the P&C side, but that's that's local and then complemented with strong regional leadership. That's the way we go about it because we have an ambitious plan for the U S. We believe in those plants and.
And the execution of those plans.
Certainly also from a digital perspective, not only for the digital proposition, but also to support the financial advisors is crucial.
Marine brings that.
<unk> experience and together with equal I think there will be a good team to focus on the U S market was that Sarah maybe some more color to the U S performance relative performance, yes, So maybe I'll start with a general comment on D. I B performance on how the mix has affected it and I think that basically when you're looking at.
Our performance in the second quarter.
We were it.
In reflection of all makes it the same way we were in the first quarter. So in the first quarter and we had tremendous performance in a market.
That was very much towards the solution center was equities and Ah Yeah here, we still on the reverse so we have an <unk> in APAC.
Not particularly.
A quick in terms of the car.
Contributions on the U S House age, we're very strong in the U S. A 's fourth flow business as you know kian, we have a very capital efficient model, where we.
Our focus on solutions, that's why I did yesterday ecosystem and less so on our industrial business, which we view as less capital efficient. So we did not participate in Nazi pool, we participated to a degree but less so on a mix adjusted basis and.
We did see an S.
FX and rates being strong for us on and on financing was a good story.
So in the U S and across the world as well as a clearing.
And then.
If you do a deal all the adjustments and we did that based on the public information that all peers as they reported in markets. We actually end up if you adjust for mix if you adjust for the products as well as the regions.
And then on.
You end up within the range of the performance and then if you account for the fact that we are less on the fluids side that that's where he extends the whole story.
In terms of the U S. Overall.
I think that when you look at our the situation you've got.
A contribution actually that ended up being 40% of the revenue on their phones that was certainly not say that that is not noticeable.
Of course, the strong contribution from NII and from the banking business studies on D. C O R.
And that is already contributing strongly in the U S.
We got I would feel that we're very much tax related.
Default related until it's $10 billion, because UBS is positioned I think high end of the wealth spectrum.
1 billion versus $7 billion last year, So I would say.
It's not surprising but it certainly contributes.
And then you have to catch that fund us to getting to that status.
We did see on the.
S Amaze and privates are being offsets I and as I mentioned in my prepared remarks, we're seeing positive flows.
In the.
In the U S. In particular that we're seeing positive all around in the three weeks of July .
In June we also have seen positive flows in the U S. So that's another proof point of the fact that they call them. They were very much affected.
Thank you.
The next question is from Benjamin Goy from Deutsche Bank. Please go ahead.
Yes.
Sorry, Hi, good morning, one question actually on cost and cost control in gws.
And I think from a revenue perspective, it's actually improving meaning an ice going up what you think is limited condensate.
And linked to that and then read the revenues went down.
Wondering how you see that playing out can you really pushed it through why instead of investment needs of the business that's in the cheap cost rather high.
And then secondly, I was wondering I.
I mean, you sold Austria, and the proceeds of selling Spain, maybe you can comment on particularly European consolidation in your own business and in light of the new market outlook.
From here, Thank you very much.
Michelle Thank you Benjamin could you repeat your first question because at the beginning we lost a bit of a connection there. So I just want to be sure I got it right.
Yeah sure no one's saying net interest income is going up and they're typically very limited compensation linked to that on the other hand, she's a hauling where it's more of an impact on the on the advisor compensation. So I was wondering how that plays out going forward also when you think about investment needs and the competitive pressures. Thank you so much.
Okay.
Thank you so.
So on the first one so it is a bit of what it is Benjamin so [laughter].
So.
The financial advisors are clear.
I mean, there's route there are so close to our clients that they really act and they're interested in.
Where there was no investments coming through.
That's what it is they would certainly advise also on cash management deposits money.
Money markets as well.
And.
They have had very good years and now in this quarter.
Factset.
The interest income is basically produced at a lower cost income ratio that is for us looked upon from a from a corporate perspective, but they're they're really advising in the best interests of our of their clients.
No not necessarily then.
First of all looking at 4% for the quarter, what their revenues would be so in the financial adviser distribution model is very important to us as you know we have been working on the productivity improvement over the last three years and have done really well on that under Tom's leadership.
And that is what is important and the count or financial advisors, which you mentioned.
You mentioned is one that we certainly look at but since.
Since three years, you know the account has gone down 6%.
Whereas the profitability of the Oh, if the franchise has increased by 60% so move.
Moving to financial advisors through the higher wealth and supporting them and their productivity and just specifically in all I've got to your point and ensuring that we invest so that they can be very efficient and advise their clients that they can actually have the products on screen that they can actually while they have that.
And even better fashion that is important so the whole wealth management.
The <unk> project, where we invest in a digital tooling for the financial adviser as one that is very important that we are committed to.
Because the distribution channel is it's core to our offering in the U S.
Hum.
Basically we had.
The two new releases.
Just in the last couple of months and the pickup of those new releases of our digital support is at 94% with our financial advisors. So it shows that we're doing the right thing for them to be more effective with their clients.
On Europe .
So the way I look at Europe .
I don't think that has really changed.
Anything is property.
Worsens.
So Europe is not necessarily.
An area, where we expect.
Major wealth creation in comparison to Asia, and the U S and that's why we have looked at Europe strategically.
And we have basically looked at the plan, where we can actually support our European businesses.
From the investment banking side with the right coverage to support the coverage of the.
Basically the family businesses.
Where the wealth creation will be the entrepreneurs, where their wealth creation will be.
And that is basically a model that we can that'd be it that we don't necessarily need a local activity for <unk>.
In every country.
And then basically the discussion around where do you want to be active locally on top of that.
Offering.
Really depends on whether you can actually generate the scale then locally.
And and that's how we came to the decisions to sell Austria and Spain.
The other countries, we actually feel are our large enough with sufficient scale and growth opportunities for us to continue our activities.
But.
I think that I'm not the only one disappointed in the progress of creating a real banking union.
In fact, you still need to build so much locally in order to be a local player that scale is an important factor.
And therefore, it you know it really depends on the size of the market for us whether we continue to also do our local offering there.
Thanks for the convention.
Yeah.
The next question is from Tom <unk> from <unk>. Please go ahead.
Hi, guys I have a couple of questions. Please so firstly.
On the investment Bank I, just wanted to know yourselves any L. B a script in that or is that something we should expect.
Three key instead and then secondly.
I'd say broadly you've demonstrated some good cost flexibility in the quarter, but I guess the concern now is how much flex there is from here should obviously conditions start to normalize.
What additional levers can be pulled.
What are you seeing in terms of cost pressure point. Thank you.
Yes, Tom so on.
First of all Sarah will do the second one I'll answer it and you're right now so I. So first it is important to look at the cost income ratio. That's what we have kind of targeted with you.
And we are a fairly.
Pretty confident to stay within the range of the cost income ratio.
Given our current model and our current plants, having said that.
We do expect that we do see further flex if there is if it is necessary.
So we do focus on on costs or we're looking at because as we are.
As we speak.
But we will not sacrifice the vessels and the growth plans that we have but unless those growth plans really.
Are delayed in terms of the opportunities that they show. So there is some flex there if we truly feel that some of the growth may not come then clearly we will we could work on that side.
We have a savings plan in place as you know.
Which is the 1 billion plan that we announced when we announced the strategy and we are fully on track to deliver the 400 million out of the savings plan this year.
So that's an important factor as well to keep our costs under control and then yes.
There is also such a thing that if the revenues are down.
The bonus accrual will also be down and that's another factor.
That is important to manage our cost.
So with that Terra first question, yes in terms of an eye.
I put in my prepared remark odd that we had $17 million net mark to market in LCM corporate loans and corporate real estate until I think that what you asked for was included in that number I'd also add that there was no development in July that has meaningfully affect at all.
Mark.
And so when you think about that in the context of a market share in b to B three.
This is actually an outcome that is less than what you would have expected based on our market share in b to B three.
And.
We believe that we have manage our risks as well.
Okay. Thank you and Ralph just a quick follow up.
The main cost pressure points, we're seeing at the moment maybe regionally.
Back office, what are the kind of.
Sequence that pressure point.
I mean, so you're you know that the largest part of our cost base is personnel costs, So [laughter] and.
And that's a combination of inflation as well as still in some areas a real tension in the labor markets.
And the geographies in which were active and so so that's where you see upward pressure on salaries still and depending on how things unfold. If the if the inflation becomes stubborn so to say that that Indiana will it come through also in general salaries as well also in the <unk>.
Chris where there will be less of a labor market tension. So so that's where you see most of the upward pressure coming through.
Theres not a lot we can do about that other than theater digitally for digitalized our processes. So that we can basically managed account.
What we are really working hard on and I indicated in my presentation as well as the engineered count.
<unk> of the total of technology spent.
With that we create a lot of productivity, which currently we use to continue to invest.
But we could also translate that into a different way. So so those are a couple of areas, where we see pressure up.
And productivity gains.
So that's that's how we manage the mix a bit.
Okay perfect. Thank you.
Yeah.
The next question is from Paul <unk> from Jefferies. Please go ahead.
Yes, good morning, Doug.
First question I'd like to ask you is on the buyback plan.
You confirm today that you seek to the size being doled out by your backlog you here, but at least space you will probably be finished.
Buyback by the time, you said Q3 results.
Just for understanding here, what we should expect.
Possible that you could decide reloading the buyback as early as Q3, what does all this is done.
I'm, saying rollout from today's standpoint already and then not to be considered before full year results are published in February of next year and the second question is going back to the NII and I heard you know all deployments you made earlier on this call and in the U S on the sweepstakes pleasure.
To provide a guidance of at least you did in the previous quarter on that.
Additionally, we should expect for this year does that guidance you know the billion additional year on year.
And I told you here does that guidance still hold thank.
Thank you.
So sure.
As you already had in your question we confirmed.
Buyback around 5 billion of shares.
And we're well on our way there.
And that's what we will do.
Further capital distribution to our to our shareholders beyond 'twenty two.
We will basically update the market all of that with our four four quarter result.
It will be a mix of progressive dividend and share buybacks.
But we will see at that moment in time.
For now we are focusing on the share buyback program that we have.
Which is around 5 billion repurchase of shares.
Sure Yeah, I already in an answer to a previous question. We confirmed that we are standing by the guidance as it was given in the last quarter on the static balance sheet.
Thank you.
The next question is from Stefan <unk> from Autonomous Research. Please go ahead.
Hi, Good morning, I have two questions. Please so the first one on deposit.
Our deposit balance in global wealth management has come down quite a bit 6% during the quarter.
Quite similar to what we have seen that U S peers.
Do you have any visibility on where these deposits have actually corner.
Do you expect more.
At our crews going forward.
Can you say, where the declines have moved out of deposits into let's say money market funds of other disintermediation homes of savings.
And if that's the case right here.
In North Dakota.
Certain products, which I guess, if you look at the flows.
Not happened.
The second question on liquidity please.
Are you seeing now changing and probably higher liquidity requirements.
Under the Swiss rules.
And I see that you say that the impact on lease requirements is still quite uncertain, but.
Could you maybe give us an early guidance on whether you see any impact of these new rules.
I didn't see it on P&L for you. Thank you.
Yes, Stefan on the second one I can be short.
Basically the orders is finalized just three weeks ago four weeks ago.
We are waiting for further guidance from FINMA on that one and before we have that we call them update anyone. So we really want to wait for that guidance before we give give further updates.
On the first one on the deposits.
Yeah.
On the deposit on ISR.
You noted a little bit on your question. Yes. There was some plays into money market. There was some flows into a T Bill treasuries.
As there are people basically two can you tell me does the duration on.
And I, usually are very very high quality, especially in government I said.
And God, we would say doctor I've, given the strength of our savings slide actually we're able to retain a good amount because when you you.
You mentioned, a similar performance in the U S theaters, but we actually don't have a good.
The banking checking product.
Product to the extent that they have it it's definitely something that is important.
<unk> to gross so having accomplished is similar.
Percentage on given we didn't have that I think is Dell is a good performance on and on in terms of like.
Where specifically, we still would be Alex or what's going on.
It's not that easy to talk because some of it went directly to tax until and you cant actually then see where it comes back.
Alright, Thank you very much.
The next question is from piers Brown from HSBC. Please go ahead.
Yes, good morning, just a few.
Two questions one was on the.
Yeah.
Net new money flows.
Off a bit and I'm, just thinking about number I'm linking it to.
The disclosure you gave for off upheld by Russian recipes.
Which I think is hung up in the quarter and just this is Hal.
The linkage between those two reasons.
My second question is just on the CK one movement.
There was not any significant OCI impacts this quarter. Thanks.
Oh, sorry.
Uh huh.
And so what you would see in the OCI is simply on some of the currency impact on that is running through the <unk>.
CET, one and then that 600 million and then it is offset by D. R. W. A $5 billion are down and so other.
The net of all of that is the 10 basis points of headwind.
Headwind that I mentioned.
But not much and then you have either reclassification that I mentioned, which is actually.
I'm going the opposite direction and and offsets it.
Yeah. It appears on your question in terms of the decrease in.
Net new fee generating assets for EMEA.
Well.
We don't go into further detail.
About this but part of that is certainly also to do with a.
And also I have to do with threats with Russian clients.
Yeah.
Okay. That's good I'll just come back on the U S. The only question I thought I think last quarter, you gave a figure of $9 billion for the I think that was the liquidity book with him.
The U S banking subsidiary, which is mainly treasuries and MBS and I think that was the primary driver of theory feeling move you had last quarter is that book.
Change the composition of our size.
Anyway on is that the area that the reclassification is coming from yeah. That's exactly right. It was $9 billion of that $7 billion is the reclassification that I talked about and what is left is much shorter duration and extraordinarily high quality being double a and above.
Alright, perfect players very much rose.
Got it.
The next question is from Andrew Coombs from Citi. Please go ahead.
Good morning, one question on the targets and then a follow up on cross platform play if.
If you look at the numbers you published today 18, 9% Mcadam core tier one and then a seven 6% cost income, but obviously benefit for me.
10 million one off gain on the Mitsubishi JV.
So if you're trying to adjust for that I think you're looking at about an 11, 5% mcadam core tier one for the quarter and about 75% cost income ratio.
What gives you the confidence that you can certainly be I'll, Miss you still achieve the 15% to 18% and on the target cost income 77, three as well.
Just anything that you can do from an output perspective, assuming that market.
Uh huh.
And then the board of questions coming back to the point of cost Flex, we we've obviously seen a big step down in market levels.
Yeah, when we look at your costs ex litigation that back that down 1% flat or up 1% in every division that doesn't seem to be a big step change in costs to accommodate the move down in market levels and accordingly, what it means for your revenue.
Anything you could add on cost flex above and beyond what you've already said please thank you.
So Andrew on the second one that can be clearer.
As you know we are we continue to invest right. So we have plans we have a strategy we are investing in our strategy.
And where you see some of the cost categories actually being related to revenues. There is also a categories that basically.
We have also updated you on our areas of investment.
And.
We are not sacrificing the investments in those growth areas.
So.
But if if.
If things got worse, we have different levers to pull.
Hum.
And then we will pull those levers so I do think there was sufficient flex.
We said that.
We are comfortable with the guidance around staying within the cost to income range as well as the return range in Sarajevo update you there yeah.
Yeah.
So I really didn't follow I told you math, because when I do my math. This is when I do a JV sale $848 million.
Real estate gains on is before he takes on the mitigation on you would say is 221 net accounting as dimitris.
214, and so on you certainly are sticking out on its own but you get to a number that is in the and meeting not at all the low teens.
Yes.
You know I think the accounting asymmetries, as well, which I hadn't which explains that the doses, but I guess the follow on question would be how.
How long does it take to date, because I used to revert.
Well by definition of them being <unk>.
Don't have like a great way to project then we do have scenarios there.
They are sensitive to.
On the shape of the curve.
Basis between different currencies and debates debates just stay doing swaps and LIBOR. So you'd have to know what's going to happen to all of those to give you an estimate but in general over a long period of time, they should revert back to zero, which is like I suggested that you could consider them.
Okay. Thank you Pat.
The next question is from Monica Rangan from Royal Bank of Canada. Please go ahead.
Yeah. Thank you very much I just have two follow up questions.
Firstly on the cost I just wanted to confirm that your previous guidance about.
The 2% ex FX.
FX and litigation still stands.
Thanks, so much that's too high.
I guess I mean.
Okay. Because you said, it's got to wash it will leave us I guess that goes back to that one as well.
Then just on the leveraged finance and the Mark to market the $70 million and took on the quarter. I guess, that's also why that's up to them.
700 million you disclosed in your report about commitments that have not yet been distributed.
Can you just confirm your comment about notify that marks in July .
This is Paul Thank you very much.
Yes, so uncle and cost.
So.
Oh, it was indicating there is certainly upward pressure.
Coming from tenths labor markets coming from.
From inflation, as well and that seems to stay longer than expected.
So from that perspective for really looking at all categories at this moment in time.
If you look at our cost increases.
Then we would be running pre FX pre everything.
Around two 8%.
We are working hard to to moving that down so it will be in the twos, but whether it was exactly two <unk>.
Yes, that's what we're working on so for US. The most important element is the cost income ratio, which is the.
Basically the way you measure the efficiency of your total.
And we're confident staying in that.
Set you know.
Managing costs as different components and we also have.
On one side to come in.
Inflation that pushes up the coast pre FX, but the other side, we can all recognize that at this moment. The ethics also has to do with the rate environment and therefore FX is not just an ethics change a bit of an FX change, but we do we do look at ethics as well.
Is what helps us managing cost.
How about on the MTM.
So I didn't know where the 700 was coming from them yet. So basically we did you'll carefully at our AR balance sheets commitment on and both on and off balance sheet, but.
Effectively we have come down actually significantly from a year ago in terms of all commitments in this space and of course, yes, we are considering everything that is on a.
<unk> committed in the comments that we provide and the marks that we have done so.
Yes.
Okay. Yeah, I guess, you say on the question of airport that is something that nobody else commitments not yet industry be attached, but I guess that helps us.
Okay. Thank you very much.
That will always be in that business lifestyle, I mean, you're on the right and that has shown a moment in time also at quarter end, you always have a position to know not fully distributed.
But ask for them in the quarter.
Across the different the three different books that we have indicators leverage.
Corporate lending as well as real estate to $72 million Mark down is what we and also the economy feel is the right representation of the value.
And that's where we are it kind of shows that we have been able to manage that down and that is a pretty conservative book.
Thank you okay. Thank you very much.
The next question is from Nicholas <unk> from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, two questions. Please two follow ups. The first one would be on knitting, if it was in <unk>.
Just net inflows and leverage them to evolve into in the same way actually and for Americas, and Asia, we see them going in different directions. So I want you to me. There is any particular reason for that and the second question a bit more perspective, I know that.
France is not kits are integrated within UBS.
Maybe just a quick qualitative comments on how we what France is doing in such a volatile environment regarding inflows or trading on the more retail side. Thank you.
Thank you Nicole I really want to kind of refrained from making come with us through how well for them is doing.
Because you know the transaction has not been consumed.
So it's not Oh.
For us to update you on how they are doing.
So.
But I can tell you that you know we have prepared everything.
For it is acquisition to be executed.
We're waiting for regulatory support.
<unk>, which is the normal course of business. How you go through a regular regulatory support.
So that's one on the on the deleverage versus the net flows.
I also think in terms of the U S is just.
Very much driven by the tax flows so on one side, we see real.
We see a real lending growth a lot and in mortgages that has nothing to do with flows then therefore.
A very our mortgage book grows quite well in the U S.
<unk> Ultra high and high net worth individuals and that's a business that we are that has been growing over the last quarters.
So that is not necessarily related to your flows.
Sorry already explained the negative flows in the U S are largely explained by a higher than expected outflow related to to Texas.
Thank you.
Yeah.
The next question is from Guillaume <unk> from Barclays. Please go ahead.
Alright, thank you.
I've got some follow up question is on the NII.
The first question is.
I think you said that you will stop by the previous guidance.
NII pets GW Anne for the remainder of this year.
I think Q2 relative to the previous guidance was a little bit, but I'd say just to check for that.
Just a bit more for Q3 and Q4 than what you previously thought.
And.
Secondly, I just wanted to understand a bit more intense I think previously the guidepost for about a 15% sequential growth in NII for cheat up to them.
The difference was.
Yes.
What ended up being up 11%, which is sort of a.
Strong improvements that's N O I try this one difference was there, especially given the comment that mode with deposit betas.
Anticipated. Thank you.
The guidance was specifically a static balance sheet guidance.
Sure.
Static balance sheet asper.
Balance sheet at the end of.
The first quarter, that's the way the guidance was given.
Okay.
Deposit balances.
Different.
That's right on so that that's just the way we had given the guidance and say what I've said that you can build.
Building your assumptions on and non static balance sheet, which is a reality of life.
Okay got you.
And so if the clients are Q3 for now.
[laughter] previously thought.
Or is that still based on the balance sheet as of Q1.
Yeah again, we we try it because at some point you get into and there is only two quarters and there is only one quarter. So we just decided to stand by the guidance is it was done.
Okay. Thank you.
The next question is from Adam <unk> from Mediobanca. Please go ahead.
Good morning.
Couple of follow up from me on the U S tax outflow you mentioned it in terms of the net new fee generating assets in the U S. But also attached to some of the decrease in deposits. So I just wanted to get more color. How about 10 billion is split across the two and why is that coming out with fee generating assets why is it not just the publics being used.
Payoffs tax bill so instead of a pile of that would be great and then on the buyback.
Here your message on the site that anybody thinks about clearly you need to go back into the market could be employee share schemes. So could you just give some color on it.
Volume might be attached to that on top of the 5 billion and then how we should think about.
Heading into year end and clearly at some point are you going to tell you from buying 20% Adv every single day of being very much out of the market. When you complete that program. It's just how to think about managing those volumes since year end. Thank you.
And so I as you can tell we are ahead of time being at $2 $7 million and Oh, sorry last Friday, and it's far too early because we know exactly.
What we have to do and we also are conscious ourselves off and not letting things for the last minute on and so we I don't have the specific number regarding the employee base, but what I can tell you is that we consider all of that and got a are we.
Then reiterate our ability to complete the $5 billion for the full year.
Okay.
So I'll ask I ought to follow up on that specific number.
Great. Thank you just on the buyback Mike confirmed.
The limiting factor here is still just discussing ABB or are we still kind of 5 billion.
The next game of wholesale.
I would say, it's not about limiting factors.
We guided to $5 billion, and we will execute $5 billion.
Exactly and we will update the market.
As for the end of third or fourth quarter. So so thats, where we are.
Right.
And then the other question was on the flows deposits versus net new fee generating assets in Texas.
So on.
Most of all clients on hot several.
And so we have seen either $10 million all flows on they have come a lot actually saw some translation mandates.
And dawn I.
Not to say that they have come on the from Doc odd but.
We have seen a.
A doctor I declines were not just able to do that out of deposits.
Okay, so selling product to pay taxes.
Tom Yes, there's also about tax optimization as to when you sell your portfolio as well in the U S. So they measure that's very specifically and they basically make the calculations between whether to pay it out of deposits.
Oh, one or two are paid out of invested assets.
This is well optimized.
Great. Thank you.
The next question is from Jeremy <unk> from BNP Exane. Please go ahead.
Hi, Thank you two follow ups. Please.
You pointed to me NII guidance and the forward curve, you're standing by existing comment you don't want to get into two quarter, one quarter, but I just wonder if you could give us a sense of what that looks like going into 2023, what you expect the uplift from the forward curve as it currently stands to be in 2023 compared to 2022.
That's my first question and the second one is a little bit Nitty gritty the interest in global wealth management, the fee generating asset margin is down two basis points quarter on quarter.
As for the overall business. The gross margin is up a couple of basis points quarter on quarter is that just a mix thing to do with the loans in north in the or what's is there anything to comment on in terms of that decline in the fee generating asset margin Q on Q.
Well, we'll probably have to go back to you on that one.
Why don't you follow up with a with your Investor Relations team.
On the on the margin itself Jeremy.
On the other one we don't guide beyond 'twenty two on the rate environment honestly so.
And I think what we kind of indicated as to how we how we manage our our book our our deposit book, Let me put it that way.
In the U S. And this is also to do with our strategy is that there's also again to do with the requirement to reclassify to.
Two fair value OCI, which is that you know the strategy in the U S calls for building a bank.
And next to a wealth manager and if you build a bank you build a loan book and you build also a deposit book and not just for funding but also.
And building deposits as a business and therefore the way we go about our Oh, where deposit pricing is always one where you look at the commercial opportunity, but also in terms of maximizing the <unk>.
The margin and the profitability around it so it is not pure a funding vehicle for us as.
So it may have been in the past and therefore.
And hence also the qualification of the HQ L. A book against it.
As more and more a strategic book for us.
The way, we price deposits going forward with impact on NII.
We are really looking at the opening that up to a pricing for that but also the reclassification of the of the of the bonds that we hold against it. So it's it's it's all related.
Thank you.
The next question is from Andrew Lim from Societe Generale. Please go ahead.
Hi morning, Thanks for taking my questions.
Just wanted to revisit the IP performance them. It isn't it's a few weaker than U S peers, and I know you say.
The flu business was strong, but really it was a strong macro quarter wouldnt anything else rates and FX. So.
Just a bit surprised by the performance in hearing thick business, there and I just wanted to know.
From what you could see if there was some kind of like macro sorry, sorry geographical explanation for that so a weakness maybe in Europe .
In APAC versus the U S that could explain that.
And then and then secondly.
Just wondering about your thoughts on sizing up your treasury portfolio.
That's M. One bonds I mean, we've talked a bit more about.
The size of the balance sheet here, having a bearing this past quarter and especially on the deposit size.
Is that the main limiting factor for increasing your bond investments that were or the great is it greater flexibility to upsize and an increase in net interest income.
I'm sorry, Andrew.
The first one again I think that's the way the way we look at our markets results.
Versus versus spiritualist photos, and that's why we outperform them in the first quarter and we made a we lag a bit in the second quarter and it was basically two components to it. The first one is geographical bias.
The U S spirits are much more biased towards the U S and we have a global footprint.
That was one and the second one.
Is the exposure to the array business versus us exposure to a more equities and structured products business that generally I mean those are the two main factors that are that if you correct for that we.
We feel that we are more or less in line with help yourself produced but headline shows a different factor.
Having said that the 10% revenue increase four or four global markets a year on year are we are we feel is a good number but indeed, we have a different set of in our markets business. As you know we are aligning our investment bank.
Two words, what we want to build over time, and therefore, the OTA box versus specifically and in equities is very strategic for us.
But we don't build in investment bank for being an investment bank.
We are building an ecosystem for investing in which you know wealth management asset management and investment banking capabilities are very important in order to to grow that but we don't build in investment bank for being in the investment Bank I think that will then also explains some of the activities that we don't have and then some of our.
Here's do happen in one quarter that makes us outperform them in the other quarter.
It makes them outperform us if you just look at the investment bank.
The second question honestly.
I didn't quite understand.
And what you were trying to ask.
Could you repeat.
Yes, sure in a rising rate environment I guess, it makes sense to see whether you can upsize, our bond investments and increase in the interest income, especially given your move to reclassify some of those bond investments.
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Cost.
This quarter, we've seen maybe a.
The balance sheet shrinkage and most of the deposits as a limiting factor.
I mean, how do you see that going forward actually you opportunity to increase sports investments is that purely limited by deposit so or do you have both less flex there to increase that.
The way you can think about it is on we have the deposits that we have coming from all customers. We all have on the offset some of the loans that we have coming from our customers.
And then.
Net of the two I would be a securities portfolio and we do everything on with a view to managing the assets and liabilities.
On to our reputation and making sure it actually get to the asphalt we had duration.
To manage the risks and so.
There is no particular.
In terms of like on how big the investment portfolios on it can be an I would say theoretically but for us what's important is that it wouldn't take a unexplored.
Yeah duration risk and so what we want to have is on a much a funding that reflects the quality of the deposits that we have and the duration of the loan books have to be hot.
Okay.
Okay. That's great. Thank you.
The next question is from Alastair Ryan from Bank of America. Please go ahead.
Thank you and good morning.
So fee generating assets come into Q3 down 12% on why they came into Q2 and invested assets 10 11.
There anything that would offset that is a headwind do you face, which obviously double your net interest income and wealth management.
And second plays the cost income in Q2 was well over 70 to 73, excluding the various.
One offs in revenues and costs.
You are putting some money aside for future quarters or to get back into the seventies seventy-three Ya.
Any of the revenues to snap back Oh.
A step up in the cost program. Thank you.
Okay.
Hello again.
When we did.
The underlying for the first half we were actually quite close to our reported because they are items that go in both directions and so on would you want to make sure exactly with you are the last night you were doing with you on that one too.
And Dod because we're not seeing issues that you're describing.
And Ryan So basically we report as we report in nickel Synchromism on reported.
Our reported numbers right so.
With that you also look at you in the line because that is also important for US I mean, we may cause analysis as well as to was so how can we further improve our cost to income ratio and the underlying but I you know that the targets are as far as our own are reported on a reported basis.
Okay. Thank you.
On the invested assets.
Well they reset their respect.
The market that has gone down and then we of course have done better.
Then on the market because we have I think are they can really get into that.
Yeah.
Yeah.
Thank you.
Okay. So there's no more questions then I'll close this call. Thank you for calling in this morning.
I think that.
To sum it all up.
As you can see from our numbers there as well.
So for our clients.
Challenging quarter, where our private clients.
Sidelining their investments.
Waiting for for for guidance and also for advice, whereas our institutional clients have really been very active and that's what you see through the numbers.
Progress on our strategy if it comes to putting the company closer together launching digital initiatives working on technology in order to.
Further improve efficiencies as well keeping costs under control.
And that leading to and all of you a very strong or a good underlying performance, let me put it that way.
And the Swiss business in the markets business and in the wealth business.
And so with that thank you again for calling in and I wish you Great day. Thank you.
Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over you may now disconnect. Your lines. We will now take a short break and continue with the media Q&A session at 10 45.
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Ladies and gentlemen, please hold the line the media Q&A, we'll start at 10 45 media Representatives wishing to ask a question May now press star and one thank you.
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